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Small Business Grapples with Uncertainty

Small Business Grapples

Small business challenges for 2020 will not be easy as more than eight of ten owners indicate attracting new customers is their biggest problem, and nearly six out of ten report hiring or trying to hire qualified applicants has become frustrating. Overall, small business optimism during 2019 was a roller coaster ride for many, as potential threats, such as the on-again off-again trade war with China, potential trade wars with India and Europe, has made it nearly impossible to set long-term plans. Compounding the frustration is the potential impact of the upcoming national elections.

While the Republicans have loosened regulations for small businesses, the consequences of the ill advised 2017 corporate and wealthy tax cuts are beginning to bite, thus producing a walk back in 2020. The federal government will spend $4.6 trillion in the fiscal year that ends September 30th and bring in $3.6 trillion in tax revenue, the first time the deficit has topped $1 trillion since 2012. The recently proposed federal budget deficit will average $1.3 trillion through 2030. Projected deficits will increase from 4.6% of gross domestic product (GDP) this year to 5.4% in 2030, according to RAM Research, CardData and PYRPTS.

Election Economic Impact

The Democrats healthcare and student debt proposals, offset by the rollback of Trump era tax cuts, are unlikely to ease the ongoing deficit by any significance. It should be noted the Republicans have no plans to address the popular healthcare and student debt issues and are unable to explain how a strong, mature economy can produce record deficits, according to Bankcenter and CardBuzz.

Senior Analyst Robert McKinley of CardWeb says since early 2017 the “word” on both Wall Street and Main Street has been “uncertainty” but now has been expanded to “unsustainable.” Therefore, small business owners will likely remain “cautiously optimistic” one month and “prudently pessimistic” the next.

NFIB Optimism Index

The NFIB’s Small Business Optimism Index reports the New Year started in the top 10% of all readings in the 46-year history of the survey. Six of the 10 Index components improved, two declined, and two were unchanged, with the Uncertainty Index edging up slightly. Owners expecting better business conditions dipped slightly, but sales expectations and earnings trends improved significantly.

The net percent of owners expecting higher real sales volumes increased 7 points to 23% with owners a bit more certain of future sales growth prospects. A net 7% of all owners (seasonally adjusted) reported higher nominal sales in the past three months, down 2 points from December.

Twenty-six percent of owners reported finding qualified workers as their number one problem, 1 point below August’s record high. Fifty-six percent reported hiring or trying to hire (up 3 points), but 49% reported few or no “qualified” applicants for the positions they were trying to fill.

NFIB Chief Economist William Dunkelberg says: “Finding qualified labor continues to eclipse taxes or regulations as a top business problem. Small business owners will likely continue offering improved compensation to attract and retain qualified workers in this highly competitive labor market. Compensation levels will hold firm unless the economy weakens substantially as owners do not want to lose the workers that they already have.”

Wells Fargo Small Business Index

The latest Wells Fargo/Gallup Small Business Index for January found a 10-point decrease in overall optimism. One indicator underscoring this dip in optimism is the finding that fewer small business owners (24%) are planning on adding jobs or positions at their companies this year – lower than last quarter.

However, more than 80% of owners said their current financial situation is somewhat good or very good, and 84% said the same would be the case 12 months from now. Additionally, 64% of business owners said they expect their revenues over the next 12 months to increase a lot or a little and 81% say their company’s cash flow will be very good or somewhat good over the next 12 months.

When asked if business owners have more trouble attracting new customers or retaining existing customers, 82% said attracting new customers is a major problem. The biggest challenges business owners face when trying to attract new business included the basics of finding and then retaining new customers, creating the right mix of advertising and marketing, dealing with competition for customers, keeping prices low, customer service and staffing, and having enough money to run the business effectively.

Linda Soldatos, head of Wells Fargo’s Small Business Marketing says: “Digital marketing now can play a major role for small business success – allowing them to engage with customers directly through social media, get real-time customer feedback, and build their online reputation with customer reviews. Investment in managing their online presence can have a great payoff for small businesses in attracting and retaining customers.”

Sources: NFIB; Wells Fargo; CardData; RAM Research; CardTrak; CardFlash; Cardworthy; CardWeb; PYRPTS; CardBuzz; Bankcenter; PYVNTS; Ruebud Media; Red3 Media; Robear’s List