Escalating Costs are the Biggest Roadblock to Growth

Several findings moved the needle up this quarter, resulting in a higher overall score. For one, small businesses say they are more optimistic about their view of the U.S. economy and their local economies compared to last quarter. Two in five (40%) small businesses believe that the U.S. economy is in good health, and 46% say the same of their local economy. Both measures are slightly up from the last quarter (+6% and +5%, respectively). Also, fewer see a poor national economy: 42% of small businesses believe that the U.S. economy is in poor health (down five percentage points from this time last year).

Also, more report being very comfortable with their cash flow compared to earlier this year (31% now vs. 23% in Q2). There is also a slight increase in the number of small business owners who expect revenue increases in the next year. Outlooks around other business expectations (future hiring and investment, etc.) and business operations are generally stable.

However, inflation continues to be the biggest challenge facing small business owners. Concern about inflation was stable compared to last quarter and it continues to sit lower as a concern than it did in Q1 of this year, when it reached an all-time high. Despite this, there is a slight increase this quarter in the number of small businesses that report rising prices adversely impacting their businesses and in those reporting having to increase prices because of inflation.

In addition, this quarter’s report examined current opportunities and challenges for small business growth. The most cited roadblocks to growth are connected to rising prices. More than a third of businesses cite the cost of goods and services (34%) as a roadblock for small business growth, followed by the cost of materials (30%).

When asked how important it is for businesses in their sector to invest in different areas, a majority of small businesses say it is very important to invest in marketing and sales, the in-person customer experience, and materials and inventory. Notably, these are also the areas that small businesses say they are focusing most of their financial investments on right now.

Another signal of optimism among these small business owners: Most feel their access to capital is good. Three in five small businesses rate their current access to capital as good (61%), up 12 percentage points compared to Q1 2023 (49%), and up seven percentage points compared to Q2 2022 (54%).

Small business owners are also generally confident that they understand where to find sources of capital. Three in four (77%) small businesses say they know where to find capital for their business.