Small Business

Are Entrepreneurs Down in the Dumps?


Three recent surveys showed that small-business owners are more pessimistic about the economy and the future than they have been in years

The Dow Jones industrial average has been setting records, passing the 13,000 mark for the first time last week. But the news from Main Street has not exactly been matching up to that coming out of Wall Street. In fact, three surveys of entrepreneurs released this month showed that small-business owners are more pessimistic about the national economy and the future than they have been in several years.

Consider the March Economic Trends report (www.nfib.com/page/sbet), released in early April by the National Federation of Independent Business. It shows that the percentage of independent business owners citing the current period as a "good time to expand" fell six points to 12%. The net percent of owners who expect the economy to be better in six months than it is today fell five points to 7%.

The annual DAK Group/Columbia Business School study (/www.dakgroup.com/survey/2006SurveySummary.pdf), which surveys 703 privately held companies whose revenues range from $5 to $100 million, reported similar declines. For the first time since 2003, the number of respondents who say they expect to see a boost in their revenues in the next year decreased.

According to this year's survey, the number of respondents expecting revenue to increase in 2007 declined to 83%. (Some 89% said they expected revenue increases in 2006.) And only 71% of respondents said they expect to see revenue growth in their industries, down from 79% in 2006.

Insurance Woes

Finally, a survey (/www.nsba.biz/docs/surveyfinal.pdf) released last week by the National Small Business Assn. showed that only 29% of small-business owners expect continued national economic expansion in 2007. In 2000, when the group conducted a similar survey, 62% responded positively to the same question. When asked to compare today's economy with that of five years ago, 43% said the economy is in worse shape today (see BusinessWeek.com, 4/24/07, "Changing Concerns for Entrepreneurs").

Why the declining optimism, and why is it coming from entrepreneurs—a notoriously cheery group? The surveys show that trouble getting access to capital and problems caused by the increasing cost of employee health insurance topped the lists of small business woes.

One of the toughest challenges—listed in the NSBA survey by 39% of respondents— was the cost of health insurance. In the group's 1993 survey, 61% of respondents said they offered medical coverage for their employees. By this year, that number had dropped to 41%.

Among the business owners surveyed this year, 71% said they supported health-care reforms that would require universal coverage. The same percentage, however, rejected the notion that employers should be legally required to provide insurance benefits.

Still An Optimistic Breed

Another major concern—which surfaced among 31% of respondents to the NSBA survey— was access to capital, with 67% reporting that they can secure adequate financing. That's a nine-percentage-point drop from the group's 2000 survey, when 76% said they had sufficient access to business financing.

The smallest companies—those with four or fewer employees—reported that they have the greatest struggles to get adequate financing. Those micro-businesses are more likely to lean on credit cards with high interest rates and fees to finance their companies, the survey showed.

The news is not all bad, especially when it comes to entrepreneurs assessing their own chances for business success. More than 80% of NSBA survey respondents said they are optimistic about their companies, with 68% saying they expect gross revenues to increase in the next 12 months, and 65% saying they expect net profits to increase.

The NFIB report showed a three-point rise in the percentage of entrepreneurs planning to make capital outlays. And in the DAK/Columbia study, while the number of respondents who expect their businesses to increase in value in the next year decreased, it was still at 75%—a large majority.

Another bright spot: A first-of-its-kind generational study conducted by American Express (AEXP) showed that a majority of Generation Y and Baby Boomer entrepreneurs are optimistic about the state of the U.S. economy. And large majorities—76% and 90%, respectively—of Gen Yers and Boomers described opening their own companies as "a good idea."

Karen E. Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.

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