Confidence Increases in Small Business Sector

Tip of the Month

June, 2010

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Confidence Increases in Small Business Sector

Recent surveys undertaken by the National Federation of Independent Businesses and Wells Fargo reveal an uptick in business owners' optimism. The gains in confidence reported in both surveys were small but statistically relevant. This increasing optimism has been described as slow but steady. Here's an overview of the surveysÂÃâ findings.

National Federation of Independent Businesses

The federation surveys business owners every month and produces the "Small Business Optimism Index." Results published in mid-May revealed that the index, which is based on 10 business indicators, was at its highest level since October 2009. Here are some of the most significant findings:

For the first time in almost two years, respondents who expected sales to increase in the next quarter outnumbered those who expected a decline. This return to a more optimistic outlook is encouraging.
Small business owners are not rushing to declare the economic downturn over. They are a savvy and realistic group, but survey results suggest that many now see hope on the horizon.
Despite a modest return to a more optimistic outlook, 90 percent of respondents reported no new job openings.

Wells Fargo/Gallup Small Business Index Survey

The Wells Fargo/Gallup Small Business Index Survey looked at both business owners' ratings of their current situation and at their performance expectations for the next 12 months. More than 600 respondents participated in telephone interviews in all 50 states. There were 12 questions. Six of the questions addressed owners' ratings of their current business situation and six addressed their expectations for the next 12 months.

These results were in line with those outlined in the survey undertaken by the National Federation of Independent Business. The Wells Fargo report indicated that business owners appeared to "be regaining their footing, albeit at a measured pace." Survey analysts believe that increases in demand from consumers and businesses were having a measurable impact on the small business sector. It noted that favorable perceptions of their current financial situation and cash flow had created more optimism among the owners. The report singled out the following measures as being the main drivers of the overall assessment:

54 percent of respondents rated their current financial situation as somewhat or very good today ÂÃâ up from 48 percent in the first quarter of 2010
42 percent rated their cash flow as either somewhat or very good ÂÃâ compared to 39 percent at the beginning of the year

The six key categories that were analyzed include financial situation, cash flow, revenues, capital allocation spending, job hiring and credit availability. The report showed that responses from business owners in these particular categories showed improvement from January to April. A dip in future expectations revealed that business owners still remain wary about the continuing upturn in the economy.

Entrepreneurs are by nature realists and donÂÃât expect a fast return to boom times. However, it is encouraging to note that despite their pragmatism, business owners believe their financial position is stronger and that their business outlook is improving.

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