Operations, Environment & Expectations
Small Business Operations: Business health inches up, most retain the same amount of staff
Small business owners’ views of their business health returns to pre-pandemic norms this quarter but at the same time, more say their business’s health is somewhat good.
A majority (66%) of small business owners report their business is in good health. This marks a five-percentage point increase compared to Q1 2022 (61%) and puts this measure on par with Q1 2020 (65%), the last pre-pandemic reading. However, a plurality of respondents (40%) indicate their business’s health is somewhat good (up seven-percentage points from last quarter), rather than 26% who feel it is very good, perhaps indicating a softening of optimism.
Consistent with previous waves, small businesses that employ more people are more comfortable with their business health. Just over half (57%) of small businesses with fewer than five employees say they are in good health, compared to 77% of small businesses with 5-19 employees and 87% of small businesses with 20-499 employees.
Roughly three-quarters (73%) of small business owners indicate they are comfortable with their cash flow, a figure that has continued to trend upward since the pandemic low of 48% in April 2020. However, here too there is a softening in the intensity with which they feel this. Compared to last quarter, the share saying they are very comfortable (17%) dropped five-percentage points, while the share saying they are somewhat comfortable (56%) increased by nine-percentage points.
Two-thirds (66%) of small businesses with fewer than five employees are comfortable with their cash flow compared to 86% of small businesses with 5-19 employees and 83% of small businesses with 20-499 employees. Among small businesses with 5-19 employees, this represents a 12-percentage point increase in the share that report being comfortable with their cash flow compared to last quarter (86% vs. 74%).
A majority (62%) indicate they have maintained the same staff size (a similar 65% said they maintained the same size staff when asked last quarter). More than one in five (22%) small businesses report having increased their staff over the past year, similar to findings for the last couple of quarters. Again, companies with more employees report having increased staff at higher rates.
Small Business Environment: Small businesses see increasing competition, compliance costs
This quarter, small businesses see increasing competition and report spending more time on dealing with red tape. Many also see stable, but relatively poor national and local economies.
Small business owners report higher levels of competition than last quarter (39% vs. 30%), and say they are now spending more time on licensing compliance, or other government requirements (37% vs. 29%), when compared to six months ago.
Larger small businesses—those with 20-499 employees—report that the time they spend on compliance compared to six months ago has increased (51%) than those with 5-19 employees (38%) or fewer than five employees (33%).
About one in three (30%) small business owners rate the overall U.S. economy as good, while more (37%) rate their local economy as good. This is consistent with the findings of the last two quarters. Just under half (49%) say the U.S. economy is poor—also consistent with the last couple of quarters. Before the pandemic began, a majority (59%) of small businesses said the national economy was good.
Professional services (high-end services like consulting) firms see a better macro-economic picture than their counterparts. Professional service small businesses consider both the U.S. economy and their local economy to be in better health than those in manufacturing, services, or retail. For example, 46% of professional services firms see a good national economy, while only 17% of manufacturing firms do. Views of the local economy also follow this trend: 53% of professional, 32% of retail, 31% of services, and 32% of manufacturing small firms see a good local economy.
Small Business Expectations: More small businesses intend to hire in the coming year
Though this quarter’s results show continuing anxieties about the present (including cash flow, compliance, and increasing competition), many expect to hire and invest in the near future.
Looking ahead to next year, 43% of small businesses intend to increase their staff—an increase of six-percentage points from last quarter. Meanwhile, 43% anticipate they will invest more over the next year, and 66% expect revenues to increase, both on par with Q1 2022
Larger small businesses (those with 20-499 employees) report feeling more bullish about the future. More say they expect to hire additional staff (56%) than businesses with 5-19 employees (45%) or fewer than five employees (40%). Similarly, more small businesses with 20-499 employees (76%) expect revenues to rise over the next year than businesses with 5-19 employees (67%) or fewer than five employees (63%).