Small Business Earnings Trending Down, Capital Spending Remains Weak

According to some recent studies, it appears U.S. small businesses are still struggling where it counts years after the Great Recession officially came to an end.

Down graphSales generation continues to be a challenge. According to the Wells Fargo Business Insights Survey, almost half of all small businesses claim that in the past 12 months their company revenues either remained unchanged (27%) or have gotten worse (39%). Not surprisingly, a full 32% of the companies surveyed indicated that maintaining a good cash flow position continues to be a struggle.

The latest National Federation of Small Business (NFIB) Small Business Optimism survey seems to corroborate these results. The net percent of all small businesses reporting higher sales in the past three months compared to the prior three months plunged 17 points to a negative 24%. Earnings fell 13 points to negative 35%.

Capital spending among small businesses remains equally weak. According to the Wells Fargo study, more small business owners reported decreasing capital spending over the previous 12 months than those who reported an increase. This trend has persisted a since the middle of 2008. While the NFIB study, reported a 3 point increase in capital outlays over the past six months to 57%, it is still about 10% down from pre-recession levels.

Why are small businesses still struggling? Many point to several possible causes including: lack of real tax reform, the looming health care reform legislation, an over all slow down in the global economy, a fickle consumer confidence, and increased competition from big businesses.

All of these things coupled with the need to keep with the ever-changing trends in Internet-based marketing, are making running a successful business seem much harder now then it was a few years ago.

Whatever the case, it’s clear that small business owners still have their work cut out for them if they want to be successful, let alone operational, heading into the new year.

The Top 5 Concerns for Small Business Owners in 2013

As 2012 comes to a close and the new year looms ahead, small business owners have a got a lot on their minds, and it isn’t just their holiday sales. According to the Bank of America Small Business Owner Report put out last Thursday, the majority of the nation’s small business owners are wary about the economic outlook in 2013.

Which issues were the most pressing according to the report? Here is a rundown:

1. The Effectiveness of the U.S. Government Leadership. A total of 68% of respondents reported that the ability of our leadership to, well… lead!, is a major concern heading into 2013. With all the posturing and finger pointing that we have witnessed over the past two years in particular, this is not surprising. It underscores a rising tide of apathy and a collective vote of no confidence that many Americans are holding, even across party lines.

2. The Cost of Commodities. Another major concern that affects businesses of all stripes is an impending rise of commodity prices. The commodity price charts, for products such as oil, wheat, and corn, h like a roller coaster ride this whole year. A current business owner who was in business in 2008, when the cost of commodities skyrocketed upward, would understandably be uneasy. Indeed, 66% of small business owners listed in as a primary concern in 2013.

3. The Cost of Healthcare. Even with the Making Healthcare Affordable Act set to go into affect in 2014, many owners of small companies ( a full 65% of those surveyed) are still very worried about the rising cost of healthcare, and it’s little wonder why. The cost of healthcare continues to outpace wages and inflation going into 2013.

4. Consumer Spending. Whether we like it or not, in America consumer spending drives the nation’s economic growth. So when consumers start restraining their spending it doesn’t bode well for the businesses they frequent, nor the economy at large. According to the NFIB Small Business Optimism Survey, weak sales is still the reported as the number one business problem for 22% of owners surveyed. According to the Bank of America survey, 64% of small business owners are concerned about consumer spending, and it’s a trend that will likely continue well into 2013.

5. The Strength of the Dollar. The fallout of doing business in a global economy is that profits are strongly tied to international currency exchange rates. The strength of the U.S. dollar rounds out the top five small business concerns at 63%. This is likely do to the fact that all the uncertainty surrounding the U.S. economy as well as other major global economies, such as the European Union, create volatility. For some, a weak dollar means more expensive global purchasing and outsourcing relationships. For a few businesses, a strong dollar may be a problem- especially if they rely on foreign customers ave looked.

Small Businesses Being Caught in A War of Attrition?

A few days ago, the National Federation of Independent Business (NFIB) released their monthly Small Business Optimism Survey, and it ain’t pretty. Not only has optimism among small business owners taken a nose dive, but growth-building activities such as hiring, making capital outlays, and increasing inventory have seemingly slowed down across the board.

For the past few months the NFIB has reported a modest increase in optimism and with it a slow, but positive increase in growth-building activities. So the obvious question over here is: why is this happening, and perhaps more importantly, why now?

It is interesting to note that looking back at the results of the NFIB survey a year ago, some of the key statistics seem to have hardly changed. Namely, the most important business problem cited by survey respondents in June 2011 was poor sales (24%), followed by taxes (20%). This year, the numbers are 23% and 21% respectively. The only significant change was in the third option: government requirements and red tape, which jumped from 15% a year ago to 19%.

Given that most legislative changes on a federal and state level were initiated at the beginning of the year, again the question remains, why the sudden turn about now?

Aside from all the legislative talk that is going on (and has been going on for some time now) regarding health care, taxes, and credit card reform, perhaps this negative attitude can simply be pinned to the fact that many small business owners find themselves battle weary and stuck in a rut. Right now we are in the height of the summer season. It’s a time when the majority of businesses should either experience a typical, seasonal slowdown in sales, or, if they are a seasonal business, they are in the middle of their peak revenue days. We’re also holding in the middle of the year, the furthest point from New Years, when people tend to have a more hopeful and positive outlook.

If sales have not been good and now sales are even slower for seasonal reasons, or if the potentially lucrative summer season is fizzling (all of which are possible given that unemployment has remained stubbornly high while job creation continues to lag), the concerns weighing on a small business owner’s mind can easily become magnified. Taxes and government regulations become more of a problem when there is less money and resources to tax and regulate. Moreover, attitude can significantly dictate the actions being taken.

So, are the NFIB’s survey results really a cry from recession weary small business owners, or are they reacting to other factors? Only time will tell.

The Key to Main Street Small Business Success: Focus on the Customers Who Count

As countless brick and morter small business owners fish for ways to survive a whirlwind of sluggish sales, creeping inflation, and economic uncertainty, many may be making decisions that are actually hurting their companies.


According to a recent survey conducted by American Express Open, the majority of Americans seem to realize the value of small businesses in their communities and the role that small businesses have in the economy as a whole. Many even appear to be putting their money where their mouths are. According to the survey, many respondents spend a significant amount of money at small, local establishments- some 33 percent of their discretionary income or about $100 a month at their favorite business.

So why are small businesses hurting so much? With less discretionary income consumers may have little choice but to cut back on spending and have subsequently become focused on getting the best bargains. Though some may still frequent their local shops, the discounting offered at big box retailers and other bigger companies may be pulling others away. A recent survey conducted by the National Federation of Independent Business (NFIB), revealed that small business optimism has been on the decline over the past five months. Weak sales and overall challenging business conditions remain chronic concerns.

So what can you as a small business owner do? First realize that you will probably not be able to compete with your bigger competitors on price. In fact many of those bargain-hunting customers may be less likely to remain loyal in the first place. It’s why group deal services like Groupon often prove unsuccessful for smaller businesses.

But as a small, local business you can compete on personalization, creating value, specialized customer service, and building a face-to-face community (not just an online one). In short, you need to leverage the community aspect of your business. You want to preserve your current loyal customers and reign in any of those on the fence people- those who would be loyal but who are currently facing hard times. You need to show your customers how your business saves them the time and money they are trying to conserve by running after the latest or greatest discount or how you can offer them something they just can’t get at a big-box retailer.

Deeper Than the Downgrade: July NFIB Optimism Survey Points to More Fundamental Problems

When it comes to the U.S. economy, sometimes it seems that everyone loves a good scapegoat- especially when the “everyone” is desperately trying to turn a blind eye to some ugly, fundamental problems…


As economic analysts try to make sense out of Wall Street’s recent nose dive, there are so far several suspects in the line up: the recent credit downgrade, the uncertainty over the national debt and any legislation or changes in government spending connected to it, the growing debt crisis in Europe, and a series of rather weak economic indicators in the US, including the current GDP.

The most recent survey of Small Business Optimism conducted by the National Federation of Independent Business (NFIB) suggests deeper, more fundamental issues are at work here. What is particularly telling is the significant (and seemingly widening) divide between Big Corporate America and Main Street America. Here are some of the highlights of the survey:

  • Though the national labor reports released at the end of last week indicate that the unemployment rate has dipped ever so slightly, it seems that the same is not true among small businesses in particular: “Twelve percent (seasonally adjusted) reported unfilled job openings, down 3 points. Over the next three months, 10 percent plan to increase employment (down 1 point), and 11 percent plan to reduce their workforce (up 4 points), yielding a seasonally adjusted 2 percent of owners planning to create new jobs, 1 point lower than June, leaving the prospect for job creation bleak.”


  • According to the survey, revenues among small businesses have continued their sluggish trend: “The net percent of all owners (seasonally adjusted) reporting higher nominal sales over the past 3 months lost 1 percentage point, falling to a net negative 8 percent. Currently, there are more firms with sales trending down than there are with sales trending up…”


  • Likewise, the majority of small businesses report stagnant or diminishing sales: “Reports of positive earnings trends were unchanged at a net negative 24 percent of all owners… Corporate profits are at a record high level as a share of GDP, but these increased have not translated to Main Street, where even among the most optimistic of sectors, small manufacturing firms, only 23 percent reported higher earnings while 37 percent reported lower profits (not seasonally adjusted).”


  • Investment in growth, expansion, including standard equipment and facility upgrades remains weak even among many financial incentives: “The frequency of reported capital outlays over the past six months was unchanged at 50 percent of all firms, [and] the percent of owners planning capital outlays in the next three to six months fell 1 point to 20 percent, a recession level reading that has typified the recovery to date…”
  • With all of the above factors, it’s not surprising that optimism among small companies is not so high: “The net percent of owners expecting better business conditions in six months was a negative 15 percent, down 4 points and 25 percentage points lower than January.”


With unemployment still lingering at all-time high’s and consumer confidence still languishing, how are so many big corporations pulling in such record profits? The answer is that many of these businesses are cutting costs by letting go of “expensive” domestic workers, closing down stores and factories, and actively seeking cheaper, foreign labor as well as expanding operations in emerging foreign markets. Of course these tactics seem to be fueled by a desire among corporation owners and top management to keep their coffers full and make Wall Street happy

None of this helps the American economy much, and in fact it can be a big reason why the nascent “recovery” seems to have so quickly sputtered and stalled. Less people employed = less people to buy goods and services. Period. We can expect difficult times ahead until Big Corporations and Small Businesses are pretty much going in the same direction. As of yet, that gap is getting harder and harder to bridge.

Is It Time to Increase Your Prices? 5 Things to Consider

According to recent reports, such as this one from the National Federation of Independent Businesses (NFIB), many small businesses have finally begun to consider a price hike. It was to be expected as the increased cost of commodities, confirmed inflationary pressures, and year-over-year of sluggish consumer spending have whittled away profit margins at a time when economic and legislative uncertainty reigns supreme.


But choosing to raise prices versus maintaining them is a delicate balance. Here are five things to consider before altering the cost of your products or services:
1. How long have you been in business? To maximize your price increase you should aware that timing plays a significant role. Ideally, if you have been in business for a few years and have built up a loyal customer base, a modest price increase on key products or services will not drive away too many customers. Increasing prices may be a bit difficult, however, if your business is relatively new.

2. Have you considered legitimate cost-cutting? Before raising your prices, have you looked into ways to decrease your expenses and free up cash flow, by for example, improving your inventory management or debt collection processes?

3. How will the price increase affect your brand? The price associated with a product or service is a key contributor in conveying the perception of value and status. Usually, this idea is brought up when talking about price discounting, but it also applies to price increases. Make sure that your price increase is in line with the product or service’s overall value.

4. Can you raise prices on a group of products and services in a trial run? To test out the possible customer response to a price increase you may want to increase the cost of only a small group of items or services. You could also try offering a different cost structure to different groups of customers such as loyal, repeat customers versus new ones, or those physically closer to your business versus those further away. A little experimentation could give you a lot of valuable feedback.

5. Are you promoting the value or status of the product/service? It is a good idea to accompany a price increase with a marketing campaign that emphasizes the product or service’s value, uniqueness, or status. People will often be more willing to spend on those things that either give them a lot of bang for their buck or, as in the case of luxury items, on those things that serve as a status symbol.

Five Tips for Finding a Good Bank for Your Small Business

In my last post, I listed 10 notoriously ridiculous fees that many of the big banks are charging these days. If you are a small business owner then choosing the right bank is all the more important. As you make an effort to maintain a healthy cash flow and get financing when you need it, you want a bank that will work with you and not look for ways to swindle your hard earned dollars. Here are five tips to consider when looking for the right bank for your small business:

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1. Understand your needs

The very first tip to finding the right bank for your small business is to have some idea of what your business banking needs are. If this is your first business, then it may be a bit of a guessing game. In that case, it pays to ask another business owner, a qualified professional, or business consultant what services you will need to keep your business running smoothly.

2. Understand the trending in lending

The banking sector is currently dominated by the big mega banks, such as Bank of America, Capital One, and Chase, and this applies even in the suburbs and rural communities. Though according to the latest NFIB small business reports, the majority of small business owners are not seeking financing, access to small amounts of credit is essential to maintaining a healthy cash flow.

Some are quick to point out that large banks used computerised models to calculate the risk of lending on a national level, whereas small banks are more likely to understand the nuances of the local area much better and so are more likely to lend to viable local businesses that the bigger banks may overlook.

3. Search for SBA Certified Preferred Lenders

Even if you are not looking for an SBA loan, you may want to do a search for SBA Certified or Preferred Lenders in your area. This means that they have a contractual relationship with the SBA and are members of the Certified Preferred Lender (CPL) programs. Why is this important? The SBA loan process is known to be drawn out, and paperwork heavy. By being a CPL, it shows that the financial institution is making a commitment to the small businesses in that area- one that is not so profitable either.

4. Make sure you are in the know

Before you sign on with a bank, make sure you have read and understand their banking fees, hours and methods of operation, and what services they provide. Most banks these days have this information online.

You should also make it a point to go down to your local branch and see for yourself what kind of service you get as well as the overall feel of the place. When it comes to banking, you want a place that will build a long-term relationship with you, not treat you like a number.

5. What are customers saying?

In these days of social networking, it would be a good idea to spend a few minutes looking at what customers say about the financial institution you’re considering. Just a caveat: there are always bound to be complainers even where a business provides a good product or service. You want to get the sum total of consumer sentiment. It may also be a good idea to ask your business contacts of those in your social network who them recommend.

It’s Been a Dreary June for the Economy

American poet Nathaniel Parker Willis once opined that June is a “month of leaves and roses, when pleasant sights salute the eyes and pleasant scents the noses.” But those who have been following the recent economic reports that have come out this month, or who are experiencing them first hand, may not be feeling so “pleasant” nor poetically inspired.



The first piece of not-so-cheery news was the Bureau of Labor Statistics’ employment report which recorded an increase of a mere 54,000 jobs in May (a number that scored well below many initial economic forecasts) and an unemployment rate that stubbornly held at 9.1 percent.

On to the National Federation of Independent Business (NFIB’s) Small Business Optimism Index in which it was reported that aside from the slowdown in hiring, plans to purchase equipment, supplies, and/or inventory have “all weakened and remain at recession levels.” Many business owners have been raising their prices as inflation and poor sales remain top business concerns as well as uncertainty surrounding major legislative initiatives, such as health care, taxes, and credit reform. Needless to say, these days optimism has become a rare commodity among small business owners.

And finally, it was reported that the aptly named “Misery Index,” which is a calculation based on the sum of unemployment and inflation rates, reached a 28-year high last month. There are those who argue that the numbers are skewed and that we are actually holding a record highs.

All of this has been raising concerns that our fragile recovery (if we can even call it that) will dip back into a recession. Whether or not that happens still remains to be seen, but nonetheless, it seems that the economic storm clouds will be slow in passing. Keep your umbrellas handy.

Deciphering the Economic Schizophrenia: What Do the Mixed Signals Mean?

A seemingly contradictory line up of recent economic indicators has been drawing a lot of attention as of late, leaving in its wake a population of economists and economic analysts who have suddenly been struck dumbfounded. They are, after all, dealing with an economy that just refuses to stick to their models and predictions.



Here is a run-down of some of the more “perplexing” measures of the past month:

  • The US Bureau of Labor Statistics released its April Employment Situation Report in which it indicated that non-farm payroll employment rose by 244,000 in April (an unexpected gain that far over-reached even the most optimistic of predictions). According to the BLS these job gains occurred in several service sector industries, as well as manufacturing, and mining. But this good news was tempered by the announcement within the same report that the unemployment rate has also increased to 9.0 percent, up from 8.8 percent in March.


  • The National Federation of independent Business (NFIB) reported that its small business optimism index fell for the second straight month in April to 91.2 from 91.9 in March.


  • The Thomson Reuters/University of Michigan preliminary consumer sentiment index rose more than foretasted in May to 72.4, a three-month high, from a final reading of 69.8 in April. The index was projected to rise to 70, according to the median forecast of 62 economists surveyed by Bloomberg News.


  • The Commerce Department reported that the economy grew at a 1.8 percent annual rate in the January-March quarter, a decrease from the 3.1 percent growth recorded in the last quarter of 2010.
  • According to the U.S. Commerce Department, retail sales (as well as consumer spending overall) has increased overall during the past few months. But the extent of the increase is mixed across different sectors and studies, as this AP article suggests.


Add to this the fact that trading on Wall Street has never been better; the stock market been trending upward since September 2010. Here’s what the Dow Jones Industrial Average looks like, and here’s NASDAQ.

What does this all mean?

Perhaps a hint to the answer lies with a one of the conclusions put forth in the NFIB survey:

While reports of net jobs created by small firms stayed positive, the numbers posted did not match the surprising gains cited in last week’s Labor Department report. This suggests that the bulk of new hiring is happening in larger firms and the smaller counterparts on Main Street—the ones traditionally responsible for leading the country out of recessions, are still struggling to hire.

Underlying the contradictory economic reports and measurements is perhaps a simple matter of perspective. Economic growth and recovery may indeed be happening, but it’s almost exclusive to those bigger companies that can use economies of scale to help off-set the rising cost of commodities and weaker consumer demand as well as to those investors who are using the weak dollar and cheap financing to their advantage. Moreover, this tentative “recovery” is not being felt equally across industries.

On the other end of the spectrum are the majority of small business owners and their employees who are feeling the pinch of rising commodity prices and the subsequent inflationary push, yet are struggling with sluggish sales, increasing health care costs, and a whole lot of uncertainty. I would also add to this group a hard to identify population of under-employed and a growing portion of middle-class America that is struggling to get by.

In the middle of this growing divide stands the consumer. These days, the majority of consumers may be in a tug of war between the not so pretty economic reality of unemployment (or under-employment), less disposable income, less available credit, inflationary pressures, and economic uncertainty on one side, and the pent up desire to consume coupled with an innate need to push away all the gloom and doom with a dose of optimism, on the other side.

Who doesn’t want to believe that, yes, the economy is improving- especially among those who are struggling?

In short, the seemingly contradictory economic indicators that have recently been grabbing headlines may be an indication of the vastly different experiences to be had in this topsy-turvy American economy. America has become schizophrenic, a country characterized by a growing divide between those who have and those who are struggling to have, and the remedy to this ailment seems far off indeed.