Operations, Environment & Expectations
Small Business Operations: Cash flow comfort and business health perceptions head higher
Small business owners are increasingly optimistic about their business health and have greater cash flow comfort—both are up significantly this quarter. At the same time, the percentage of small businesses that say they have increased staff has remained relatively stable over the past year.
Two-thirds (65%) of small businesses say the overall health of their business is very or somewhat good, up from 59% last quarter. This is a return to levels reported this time last year. In addition, seven in ten (72%) small businesses say they are somewhat or very comfortable with their current cash flow, up from 64% last quarter.
As in past quarters, small businesses that employ fewer than five employees are less likely than larger small businesses (those that employ 5-19 workers or 20-500 workers) to feel positive about their overall business health or cash flow. Perceived business health is consistent by sector, but small businesses in the manufacturing and professional services sectors are more likely than those in retail to say they are comfortable with their cash flow (84% and 76% vs. 66%, respectively). Meanwhile, two-thirds (66%) of small businesses in the services sector say they are comfortable with their cash flow, significantly lower than in the manufacturing sector.
The percentage of small businesses who say they have increased staff in the past year is unchanged from Q2 2023 (23%). This reading marks the seventh quarter that data has not changed overall when it comes to reported headcount for small businesses. It also continues a more-than-year-long trend of larger small businesses (those with more than 20 employees) being more likely to say they have increased their staff over the past year versus smaller ones.
Park City Lodging, Park City, UT
Small Business Environment: More small businesses, but not a majority, confident in economy
This quarter, small business owners are more confident in the U.S. and local economies—but still a majority view the U.S. economy or their local economy as in average or poor health. Small businesses also report comparable time spent on compliance requirements compared to last quarter and stable levels of local competition.
Currently, one-third (33%) of small businesses say the U.S. economy is in good health, a nine-percentage point increase from last quarter (24%). Nearly two-fifths (38%) say their local economy is in good health, up eight percentage points since last quarter and returning to levels seen in early 2022, prior to when inflation peaked in the United States.
Small businesses in the professional services and retail sectors are more likely to say their local economy or the national economy is in good health versus those in the services sector. Forty-five percent of those in professional services and 42% of those in retail say the local economy is in good health, versus 29% of those in services. Forty-four percent of those in professional services and 36% of those in retail say the national economy is in good health, versus 23% of those in services. About three in ten small businesses in manufacturing say the same for both national and local economic health.
Similar to last quarter, nearly two in five (38%) small businesses say the time or resources they spend on completing licensing, compliance, or other government requirements has increased compared to six months ago. Reported time spent on compliance is also similar to last year. By sector, small businesses in the professional services sector (46%) are more likely than those in services (32%) or retail (34%) sectors to say time or resources spent on licensing and compliance has increased. In fact, professional services small businesses have reported higher levels of increased time or resources spent on compliance compared to those in the services sector since Q1 2023.
About a third (34%) of small businesses say competition among businesses in their area has increased over the past six months, a stable level since last quarter (36%). In a pattern observed for the past year, small businesses’ perceptions of increased competition are consistent across business sizes. Small businesses in the services sector are less likely to say competition has increased than those in the retail or professional services sectors (22% vs. 37% and 41%, respectively). About a third (34%) of small businesses in the manufacturing sector say the same.
Wyoming Machine, Inc., Stacy, MN
Small Business Expectations: Small businesses retain record-high revenue expectations
This quarter, small businesses remain optimistic about future revenue and investment—and have held onto record revenue expectations for a second quarter in a row.
Unchanged from last quarter, 42% of small businesses say they plan to increase investment in the next year, and 71% say they expect next year’s revenue to increase. Small businesses’ plans to increase investment are generally stable since Q4 2021. Notably, since last quarter, small businesses continue to report plans for increased revenue at the highest levels recorded since the start of this survey (Q2 2017). These self-reported plans to increase investment or for increased revenue are consistent by sector and business size.
Also this quarter, two in five (40%) small businesses say they anticipate increasing staff in the next year. This measure has fluctuated in the past year and last quarter’s reported 47% who then planned to increase staff appears to be somewhat of an outlier.
However, larger small businesses and those in professional services are especially likely to say they plan to increase staff in the next year. Small businesses with the most employees (20-500) are more likely to say they will hire more in the next year than those with fewer than five employees (50% vs. 37%, respectively). Additionally, small businesses in the professional services sector are more likely to say they plan to increase staff over the next year (46%) compared to those in retail (36%). About two in five say the same among small businesses in either the manufacturing or services sector (43% and 39%, respectively), tracking closely with the national average.