Operations, Environment & Expectations
Small Business Operations: Small businesses report good cash flow, business health
This quarter, most small businesses are reporting consistent, high satisfaction with the state of their cash flow and business health.
About two-thirds of small businesses say the overall health of their business is good (65%) and that they are comfortable with their current cash flow (67%). These readings are consistent with last quarter and have been relatively stable for the past year and a half.
As in the past, small businesses are more likely to report good business health and comfort with cash flow if they have more employees. By gender, male-owned small businesses are more likely than female-owned businesses to report good business health, a difference last observed in Q2 2022.
Small businesses in the professional services sector are most likely of any industry to report their business is in good health (76%). Around three in five small businesses in manufacturing, services, and retail say the same. A similar number of those in professional services, 73%, feel comfortable with their cash flow, marking a significant difference between them and retailers (62%). Small businesses in manufacturing and services fall in the middle (66% and 64%, respectively). This differs from last quarter, when small businesses in the retail industry were more likely than those in services or professional services to say they were comfortable with their cash flow.
Nearly one-fifth of small businesses (16%) say they have increased staff in the past year, consistent with last quarter (17%) and this time last year (19%). As with business health and cash flow, small businesses continue to be more likely to report that they have increased staff in the past year if they have a larger number of employees, including 40% of those with 20-500 employees, 20% of those with 5-19 employees, and 10% of those with 1-4 employees. There are no significant differences by sector.
Small Business Environment: Small businesses get more positive about the economy
Small businesses are slightly more positive about the economy at the start 2024 compared to the end of last year. This is true whether they consider the national or their local economy.
This quarter, one-third (32%) of small businesses say the U.S. economy is in good health, a seven-percentage point increase from last quarter and a 12-percentage point increase from Q1 2023. Similarly, about two in five (38%) small businesses say their local economy is in good health, an eight-percentage point increase from last quarter and a nine-percentage point increase from this time last year.
Small businesses in the professional services sector, as well as those owned by men, are more likely than their counterparts to report good national and local economic health. These differences are similar to those recorded in Q4 2023.
While small businesses are slightly more positive about the economy this quarter, their perceptions of increased competition and the time and resources spent on compliance requirements are stable from Q4 2023 and consistent with levels from this time last year.
Thirty percent of small businesses say competition has increased over the past six months, and 29% say the time or resources spent completing compliance requirements has increased in the past six months.
Continuing a near two-year trend, small businesses’ perceptions of increased competition are consistent across business sizes. Yet, similar to last quarter, small businesses with 20-500 employees are more likely than those with 5-19 employees or 1-4 employees to say the time or resources spent on compliance has increased compared to six months ago (47% vs. 25% and 28%, respectively).
Small Business Expectations: Most small businesses expect revenue to increase
While small businesses’ perceptions of the economy have improved from the same time last year (Q1 2023), their expectations for the future are generally consistent with Q1 2023. Notably, most small businesses expect revenue to increase over the next year, similar to findings last year at this time.
About two-thirds (67%) of small businesses say they expect next year’s revenue to increase, stable from last quarter (65%) and consistent with Q1 2023 (64%).
Also, about one-third of small businesses say they expect to increase investment or staff in the next year (36% and 34%, respectively). Each of these measures dropped slightly, but not significantly, since last quarter. They now more closely resemble sentiments from Q1 2023 (38% and 37%, respectively).
Some small businesses have particularly optimistic expectations. When compared to their counterparts, small businesses in operation for 10 years or less, those owned by people of color, and those owned by Gen Zers or millennials, are especially likely to have a “growth mindset,” reporting plans to increase staffing and investment in the next year.
Future plans also vary by business size and sector. Small businesses with 20-500 employees are more likely than those with fewer employees to say they plan to increase staffing and investment or anticipate higher revenue in the next year. By sector, professional service firms continue to be the most likely to report increasing staffing in the next year, especially when compared to manufacturers. New this quarter, small businesses in professional services are also more likely than those in any other sector to say they plan to increase investment or anticipate higher revenue.
Expectations for the next year (by business size)
