Operations, Environment & Expectations
Small Business Operations: Comfort with cash flow drops, while business health stays steady
While most small businesses this quarter say their businesses remain in good health, more are reporting less cash flow comfort.
Nearly two-thirds (65%) of small business owners report that their business is in good health, statistically unchanged from Q2 2022 (66%).
Consistent with previous quarters, small businesses that employ more people are more comfortable with their health. Three in five (60%) small businesses with fewer than five employees say they are in good health, compared to 69% of small businesses with 5-19 employees, and 82% of small businesses with 20-500 employees. However, the percentage of small businesses with 5-19 employees who say their business is in good health has declined by eight points this quarter.
Also this quarter, two-thirds (66%) of small business owners say they are comfortable with their cash flow, a seven-percentage point decrease from last quarter and the first significant drop since April 2020, early in the pandemic.
Smaller small businesses are feeling cash flow pressures this quarter. Three in five small businesses with fewer than five employees (61%) and 68% of small businesses with 5-19 employees are comfortable with their cash flow, compared to 86% of small businesses with 20-500 employees. Fewer small businesses with 5-19 employees are comfortable with their cash flow now compared to last quarter (68% vs. 86%), though this marks a return to comfort levels among this group from earlier this year.
One in five small businesses say they have increased their staff in the past year, and 63% report they have maintained the same staff size. This is in line with the last three quarters.
Small Business Environment: More small businesses see worsening local economies
This quarter, more small businesses say the local economies have grown worse and most see a poor national economy.
Roughly three in ten small business owners (28%) say that the U.S. economy is in good health, consistent with the last three quarters. However, fewer now rate the U.S. economy as average, with more now saying it is in poor health (up to 59% from 49% last quarter). This hollowing out of the middle translates into a 31-point gap between those saying the U.S. economy is in good versus poor health, the largest gap reported since Q1 2021.
At the same time, fewer now say their local economy is in good health (31%), down slightly (six percentage points) this quarter, and the lowest recorded since Q2 2021. As a result, the share of small businesses who say their local economy is in poor health (42%) now outweighs the percent who say it’s in good health (31%) for the first time since Q1 2021.
Manufacturing small businesses are also the least likely to say their local economy is in good health. More businesses in the professional services (39%) and retail (33%) sector say the U.S. economy is in good health than those in the manufacturing sector (18%).
Unlike the changing perceptions of U.S. and local economic health, the percentage of small business owners who report spending more time on licensing, compliance, or other government requirements remains consistent since last quarter (37% for both). And, in contrast to last quarter, small businesses are now less likely to report that competition has increased in the last six months (32% vs. 39%), bringing levels back down to those recorded in late 2021 and early 2022.
Gaithersburg, Maryland
Small Business Expectations: Small businesses remain cautious about the future
In parallel with growing anxieties around business operations and the business environment, small businesses now seem slightly less hopeful about the future. However, there was little change in planned investments for next year.
Looking ahead to the next year, two in five (38%) small businesses say they intend to increase staff and three in five (61%) say they predict increased revenues, each dropping slightly, but not significantly, by five percentage points since last quarter. These shifts in expectations bring both of these findings back to levels seen in late 2021/early 2022.
Small businesses with fewer than five employees are driving the shift around more cautious hiring intentions. Three in ten (31%) small businesses with fewer than five employees say they expect to hire additional staff in the next year—a nine-point drop from last quarter. The proportion of small businesses with at least five employees who say they intend to hire more staff remains consistent with last quarter.
More small businesses with a higher number of employees predict declining revenues over the next year. While those with fewer than 20 employees report relatively unchanged predicted revenues, a majority (64%) of small businesses with 20-500 employees say they predict revenues to increase in the next year, a 12-point drop from last quarter.
Unlike future intentions around staffing and revenues, the percentage of small businesses that say they intend to increase investment in the next year remains consistent (42% this quarter vs. 43% in Q2 2022).