Operations, Environment & Expectations
Small Business Operations: Most report good business health, cash flow comfort
Despite a decline in their views of the national economy, most small business owners remain optimistic about their own business’s health and cash flow. Most also say they have retained the same number of staff over the past year.
Most (63%) small business owners report that their business is in good health, which has remained stable since Q2 2022. Consistent with previous quarters, small businesses that employ more people are more comfortable about their business health. Roughly three in five (56%) small businesses with fewer than five employees say they are in good health, compared to 71% of small businesses with 5-19 employees, and 80% of small businesses with 20-500 employees. Each of these measures is consistent with the previous two quarters.
Most businesses are also pleased with their cash flow, similar to findings in recent quarters. About two in three (64%) small business owners say they are comfortable with their cash flow. This has remained stable for the past two quarters, after experiencing a seven-percentage point drop between Q2 and Q3 2022. This also marks a return to levels of confidence seen in early 2021.
Similar to attitudes around business health, larger small businesses are more comfortable with their cash flow—a pattern observed consistently over the past few years. About three in five small businesses with fewer than five employees (57%) are comfortable with their cash flow, while 71% of small businesses with 5-19 employees and 82% of small businesses with 20-500 employees are. Again, each of these measures remains at a similar level as last quarter.
Small businesses have also been consistent in retaining employees and hiring new ones. Nearly seven in ten small business owners (69%) say their business retained the same staff size over the past year, while nearly one in five (19%) indicate they increased staff. This has remained stable for over a year.
Again, companies with more employees are more likely to say they have increased their staff size than those with fewer employees—a pattern also observed for over a year.
Small Business Environment: Small businesses see a weaker national economy, steady local ones
Perceptions of the economy are mixed this quarter: More small businesses believe the national economy is declining, while views of local economies have held steady. More and more, small business owners seem to be separating their perceptions of the macroeconomic environment from the economy in their local area and day-to-day operations.
Confidence in the national economy has declined this quarter with just one in five (20%) small business owners saying the U.S. economy is in good health. This marks a decline from 2022, when perceptions of the U.S. economy remained stable (ranging from 27%-30% saying it was good over the entire year).
However, small businesses are more optimistic—and more consistent—in their views of their local economy. Slightly more small businesses rate their local economy as good (29%) compared to their views of the national economy. Moreover, perceptions of local economies have remained stable the last three quarters following a decline between Q2 and Q3 2022. National and local economic perceptions are largely similar across regions and industries.
Small businesses with fewer than five employees are more pessimistic about the U.S. economy and their local economy than larger small businesses. Roughly one in six (15%) of these businesses say the U.S. economy is good compared to 27% of businesses with 5-19 employees and 28% of those with 20-500 employees.
Small business owners’ perceptions of time spent on licensing and compliance now resemble that of Q1 2022, before businesses reported a bump in time spent on these issues from Q2 to Q4 2022. Now, 28% of small business owners report spending more time on licensing, compliance, or other government requirements as opposed to between 35-37% in Q2 to Q4 of last year. But most see a consistent amount of red tape: 60% now say the amount of time they spend on compliance has stayed the same over the last six months. Similarly, more small business owners now report seeing about the same level of competition from smaller or local companies than last quarter (57% vs. 50%).
Small Business Expectations: Most small businesses expect revenue to increase over the next year
Reflecting uncertainty over the direction of the economy, small businesses plan to pull back on increasing investment over the next year. At the same time, a majority expect their revenue to increase and almost two in five say they intend to increase staff.
Fewer small businesses say they plan to increase investment over the next year than did last quarter (38% now vs. 47% in Q4 2022). After most of 2022 representing a high-water mark on increasing investment, sentiments this quarter look similar to a year ago (40% in Q1 2022).
Otherwise, small businesses' future expectations remain similar to last quarter—with most expecting more revenue. Nearly two in five (37%) say they intend to increase staff over the next year, while roughly three in five (64%) say they expect their revenue to increase. Each of these is essentially unchanged from the last two quarters.
Similar to other findings this quarter, small businesses with fewer than five employees differ in their future expectations from larger small businesses. They are less likely to say they plan to increase investment over the next year (33%) than those with 5-19 employees (45%) and 20-500 employees (50%). Additionally, small businesses with 5-19 employees (48%) and those with 20-500 employees (55%) are more likely than those with fewer than five employees (28%) to say they plan to increase staff over the next year.
Just as small businesses with fewer than five employees have grown pessimistic about the economy, they have also become less bullish on their plans for the future. Fewer now say they plan to increase investment over the next year compared to last quarter (33% vs. 47%).
By sector, fewer small businesses in services say they plan to increase staff (27%) than those in manufacturing (42%), retail (40%), or professional services (40%).