As the US economy has rebounded from the devastating 2008 collapse, small business owners have had an increasingly optimistic outlook over the past few years. In 2016, however, it appears as though these small business owners are not as hopeful as they were. A tumultuous election cycle, fledgling faith in the government, and anxiety over the global economy are all leading causes of this decline in confidence. These, along with other trends are important to monitor as 2016 goes on and the new fiscal year approaches. Here are five important trends for every small business owner to keep an eye on as the year concludes.
1. Small Business Owners Standing Pat in 2016
Business owners are taking a wait-and-see approach to the remainder of 2016. It is not shocking that small business owners are being more conservative. The 2016 election has already provided a litany of fireworks and scandals, and election day is still three months away. According to a study done by Bank of America, only 51% of small business owners foresee a growth in their profits over the next 12 months, which is down 12 percentage points from the spring of 2015. Moreover, business owners are skeptical of future growth as well. Only 55% plan to grow their businesses over the next five years, down from 66% in last year’s survey. Small business owners also plan to hire less, compared to 2015. This study shows that a meager 22% of small businesses plan on hiring more employees, down from 46% a year ago. This is not a sign of decline, but simply stagnation. In fact, the number of small businesses that plan on laying people off fell from 5% in 2015 to just 2% in 2016. Growth seems to have plateaued, for now. The results of the upcoming election will surely move the economy in one direction or another.
2. Losing Faith in the Economy
The general population seems to be down on the economy, and small business owners are not exempt from those feelings. Again, the 2016 election is at the forefront of these feelings. It is not solely the presidential race, however. Many small business owners are also concerned about the congressional elections, where upwards of 80% of the seats are up for reelection. According to Bank of America’s study on small businesses, only 38% of small business owners feel as though their local economy will increase over the next year. That percentage is even more dismal for the national economy, where only 29% believe it will grow. Simply put, the majority of small business owners fear, or perhaps expect stagnation at the very least, and possibly a recession in the foreseeable future. This is directly correlated to the uncertainty the US is facing during this election year, with 67% of small business owners saying their business will be affected “a lot” or “somewhat” by the outcome of the race.
3. Rising Concern About Healthcare, Government Leadership, and the Stock Market
Zeroing in on particular concerns about the allegedly failing economy, small business owners have specific trends bookmarked. Somewhat counter intuitively, concern for the majority of economic factors has fallen among small business owners, even as concern for the overall economy has increased. There is less concern about the strength of the US Dollar, credit availability, and consumer spending, among others. There is a growing concern about the costs of healthcare, the ability and effectiveness of government leadership, and stability in the US and global stock markets. According to Bank of America’s Small Business Report, nearly 80% of small business owners believe that the effectiveness of government leadership will directly impact their business over the next year. Three quarters of small businesses also believe healthcare costs will directly affect their business. Though the Affordable Care Act only affects a minuscule number of small businesses directly, rising healthcare costs can be hard to deal with for small business owners, their employees and the dependents of both. Nearly half of uninsured Americans are in fact small business owners, their employees and the dependents of both. While larger corporations can afford to offer healthcare plans to their employees, the majority of small businesses have under 50 full-time employees. This makes in impractical and fiscally impossible to fully insure every employee within the business, including the business owners themselves. This leaves most small business owners and all of their employees to find alternatives in healthcare. This is one of the most important issues to keep an eye on throughout this election cycle.
4. Loan Applications Decreasing
Reflective of the skepticism small business owners have of the current economic outlook, applications for small business loans have dramatically decreased over the last year. 39% of small business owners applied for a loan in 2015. The main reasons cited for the loans were to invest in employee training and development, as well as investments in new equipment. Applications for loans fell to only 14% of small business owners in 2016, and investment in employee training drastically decreased. In 2015, 38% of the loans were used for employee training and development. In 2016, that number shrank to a paltry 5%. This exemplifies small business owners’ hesitance to make new hires, preferring instead to stick with their current employment scenario. There is hesitance in these business owners to take out loans in the future as well. Only 9% of small business owners plan on applying for a loan within the next year, according to the Bank of America Study. This is down 10% from 2015, where 19% had planned on taking out a loan.
5. You May Not Need That College Degree
Perhaps there is hope for those who feel as though college is not the right choice for them after all. Small business owners face the same struggles as any other business when looking for potential employees. However, education seems to have taken a backseat in terms of most important criteria to meet for hire. In fact, only 3% of small business owners reported that education was the most important factor in the hiring process. Nearly half (49%) said that skill level was the single most important asset for candidates to possess. The fit with company culture and work experience split evenly at 24%. In fact, the most important qualities for candidates to have are things like trustworthiness, work ethic and experience. Small business owners are more likely to hire candidates that fit this mold than a candidate whose main attraction is a brand new degree. Bank of America’s study also indicated that small business owners gravitate toward people from Generation-X rather than Millennials or Baby Boomers. This is why it seems that work experience champions education in the minds of small business owners. Naturally, Gen-X candidates will have more work experience and likely a more refined skill set than Millennials.
Author: Tyler Nolan, staff writer Encompass Accounting Ltd. Twitter: @t_nol_