Small Business Owners are Optimistic about Economy and Finances, but Concerns around Planning and Growth Remain, According to Capital One
Spark Small Business Barometer Finds Less Than One Third of Small Businesses Plan to Hire
McLean, Va. (October 15, 2013) – Small businesses across the country are expressing optimism about the national economy and expect to see continued improvement in their financial performance over the next six months, yet more than half (52 percent) of small businesses nationwide say current business conditions are only fair or poor, according to Capital One’s Spark Small Business Barometer for the third quarter of 2013. The quarterly survey of small businesses measures the economic perceptions, financial conditions and future projections of small business owners across the nation, as well as the most common challenges that today’s small businesses face.
“Our third quarter Barometer results show a bit of a paradox. While a growing number of small businesses are expressing optimism about the year ahead for the national economy, and their business financials are showing improvement, a high percentage still have no near-term plans for growth,” said Jon Witter, President of Direct, Consumer and Small Business Banking at Capital One. “The lack of planning for and investing in the future – whether related to hiring, retirement or emergency planning – is concerning and a sign of the continued constraints and headwinds that small businesses face every day.”
Results Highlights
Financial Performance:
National sentiment about current business conditions is slightly negative, as less than half (47 percent) of small businesses consider business conditions excellent or good, representing a slight one-point increase compared to the previous quarter. However, nearly two-thirds (64 percent) of minority-owned businesses report favorable business conditions nationwide, which could be the result of 52 percent of minority-owned businesses reporting an increase in sales over the last six months.
Business performance overall is stabilizing and improving, with nearly half (46 percent) of small businesses report that their financial situation has remained the same as it was one year ago, while 37 percent cite improvements. Since Q3 2012, the percentage of businesses reporting worsening conditions over the past 12 months has declined by seven points, from 23 percent in 2012 to just 16 percent in 2013. Businesses in the Midwest are more likely to have experienced an improvement in their financial situation since 2012, with 46 percent reporting improvements.
Along with this improvement comes a rise in short-term financial expectations. Thirty-two percent of businesses have seen an uptick in sales over the past six months and more businesses – 46 percent – expect their firm’s financial situation to improve over the next six months. This is a nine-point improvement compared to Q3 2012, when only 37 percent of businesses anticipated financial growth. The number of businesses citing sales declines over the past six months decreased from 25 percent to 20 percent across all industries.
Despite the slight increase in business owners’ sales projections, only 29 percent of small business owners have plans to hire new employees in the next six months, with over half (53 percent) citing their current level of income as the primary reason for their decision not to hire.
Economic Outlook:
The survey found that 29 percent of businesses identify the economy as the most important long-term challenge they face, with healthcare costs (19 percent) and government regulations (15 percent) ranking as the second and third most prominent long-term challenges. When asked to consider proposed solutions to economic challenges, 24 percent of business owners nationwide – and a dominant 66 percent of businesses in the wholesale industry – believe that cutting state and local taxes would be the most effective way to promote economic growth in their state.
With that said, the national economic outlook is on the rise. Fifty-two percent of business owners are optimistic about the national economy over the next 12 months, which is an eight-point increase over the national economic outlook reported in the previous quarter.
The economic outlook for the local economy varies greatly by region and by industry. While the outlook for the local economy is predominantly positive on a national level, with 57 percent of business owners citing confidence in their local market, this represents a seven-point decline in confidence compared to Q2 2013. On a regional level, the survey found that approximately two-thirds of small businesses in the South and West are optimistic about the economic outlook in their local area over the next 12 months. Conversely, the wholesale industry is predominantly negative about the future of the local economy, with only 29 percent anticipating a favorable year ahead.
Following are additional key trends derived from this quarter’s survey.
- Systemic challenges continue to be recurring top-of-mind obstacles: 28 percent identify the economy as the most important long-term challenge. Health care costs (19 percent) and government regulations (15 percent) round out the top three identified long-term challenges.
- Only a fraction of small business employees have access to an employer-sponsored retirement plan: Only 24 percent of small businesses report offering a retirement plans for their employees.
- Relaxing government regulations continue to be a central theme as a key for economic growth: 24 percent believe cutting state and local taxes would do the most to promote economic growth in their state. Cutting back regulations (21 percent) and encouraging tech startups and business incubators to come to the area (20 percent) round out the top three beliefs.
- A majority of small business employers do not have plans to hire over the next six months: 29 percent plan to hire employees in the next six months, while two-thirds (64 percent) do not have plans to hire in the next six months
- More than half of small businesses do not have an emergency plan. Fifty five percent of small business owners report they have no emergency response plan to follow in the case of an unexpected disaster or emergency. The construction sector is the least prepared, with 92 percent reporting no emergency plan.
“Small business is the backbone and a driving force of our local and national economies,” Witter said. “Our goal is to understand the day-to-day challenges and constraints small business owners face, so we can best serve them with useful products and services, as well as access to quality resources and education.”
Survey Methodology
The findings reported in this release are from a telephone survey conducted by the opinion research firm, Braun Research of Princeton NJ. The survey was sponsored by APCO Worldwide of Washington DC. Braun Research completed 2,080 interviews with owners or managers of US for-profit businesses with under $10 million in annual revenue (300 in New York, 300 in New Jersey, 300 in Louisiana, 300 in Washington, D.C. and 300 in Texas and a national component of 400). There was also an additional 180 completes in the New Orleans metropolitan area. All interviews were conducted by telephone at their places of business. One respondent per business was conducted. The interviews were conducted 8/27/13-9/9/13. The margin of error for each state's study is ± 5.66 percentage points and the national is ± 4.9 percentage points, and when the Louisiana & New Orleans data are combined, the 480 completes there would be ± 4.5 percentage points, at the 95% confidence level. Interviews were monitored at random.
Sampling for this study was conducted using a national sample of businesses drawn from Hoovers & Dun and Bradstreet. All interviews were conducted using a computer-assisted telephone interviewing system. Statistical weights were designed from the United States Department of Commerce to ensure proper inclusion of all SIC codes.
About Capital One
Capital One Financial Corporation (www.capitalone.com) is a financial holding company whose subsidiaries, which include Capital One, N.A., and Capital One Bank (USA), N. A., had $209.9 billion in deposits and $296.5 billion in total assets as of June 30, 2013. Headquartered in McLean, Virginia, Capital One offers a broad spectrum of financial products and services to consumers, small businesses and commercial clients through a variety of channels. Capital One, N.A. has more than 900 branch locations primarily in New York, New Jersey, Texas, Louisiana, Maryland, Virginia and the District of Columbia. A Fortune 500 company, Capital One trades on the New York Stock Exchange under the symbol “COF” and is included in the S&P 100 index.