Operations, Environment & Expectations
Small Business Operations: Small businesses report stable business health, slightly more hiring
This quarter, most small businesses continue to report consistent, high satisfaction with the state of their cash flow and business health. In fact, self-reported comfort with cash flow and increased hiring are both up slightly.
For starters, nearly three-quarters (73%) of small businesses say they are comfortable with their current cash flow, up slightly from last quarter (67%) and returning to levels last recorded in Q3 2023 (72%).
Also, about two-thirds (67%) of small businesses report that the overall health of their business is good, unchanged from last quarter and relatively stable since Q2 2022. Small businesses with more employees remain more likely to report good business health.
This quarter marks the first time there have been no significant differences in reported cash flow comfort by business size since the start of the study in Q2 2017*. For both business health and comfort with cash flow, sentiments are consistent regardless of sector, gender of ownership, generation of ownership, or length of business operation.
Approximately one-fifth (22%) of small businesses say they have increased staff in the past year, up slightly from last quarter (16%) and similar to levels recorded this time last year (23%).
As with business health, small businesses continue to be more likely to report that they have increased staff in the past year if they have more employees. However, small businesses with 1-4 employees are now slightly more likely than last quarter to say they have increased staff in the past year (20% vs. 12%, respectively). Even so, fewer small businesses with 1-4 employees or 5-19 employees report having increased staff over the past year compared to businesses with 20-500 employees (20% and 22% vs. 36%, respectively).
Small businesses in retail are more likely to report increasing staff than those in services or professional services (29% vs. 17% and 20%, respectively). Small businesses in manufacturing fall in the middle: 26% say they have increased staff over the past year. Finally, small businesses that have been in operation for 10 years or less, as well as those owned by Gen Z or millennials, are more likely than their older counterparts to say they have increased staff in the past year.
*Beginning in Q2 2020, an online approach was used in place of the typical phone methodology. This change in mode may be responsible for some of the shifts in the data after Q1 2020.
Small Business Environment: Perception of economy highest in three years
This quarter, small business perceptions of the national economy are the highest recorded since Q3 2021, when 34% said the national economy was in good health.
In fact, about two in five small businesses say the U.S. economy (36%) or their local economy (42%) are in good health this quarter. While these readings are statistically unchanged from last quarter, they are both 12 percentage points above readings from this time last year (24% and 30% in Q2 2023, respectively).
There are different perceptions of the economy based on the gender of the business owner and sector a business is in. For the third consecutive quarter, small businesses owned by men are more likely than those owned by women to say the national or local economy is in good health. By sector, small businesses in professional services remain more likely than their counterparts to say the national economy is in good health. But, for the first time since Q3 2023, there are no sector-by-sector differences in perceived local economic health.
Since last quarter, slightly fewer small businesses say that the time or resources spent on compliance requirements have decreased or stayed the same in the past six months (62% vs. 68% in Q1). In fact, slightly more (35%) say that the time or resources spent on compliance have increased compared to last quarter (29%).
Further, slightly, but not significantly, more small businesses now say that competition has increased over the past six months (35% vs. 30% in Q1). Breaking a nearly two-year trend of no differences in reported increases to competition by business size, small businesses with 1-4 employees are now more likely than those with 5-19 or 20-500 employees to say competition has increased in the past six months (39% vs. 30% and 29%, respectively).
Small Business Expectations: Most small businesses expect revenue to increase
Small businesses are increasingly optimistic about the future. Plans to increase staff and investment are both up this quarter, and revenue expectations for next year reached the highest levels recorded in this survey.
Notably, the majority of small businesses (73%) now say they expect revenue to increase in the next year, up slightly from last quarter (67%) and on par with the highest level of optimism ever recorded in mid-2023 (71% in Q2 and Q3 2023). The widespread expectation that revenue will increase in the next year is consistent across business size, sector, and gender of ownership.
In addition to increasing revenue expectations, 41% of small businesses now say they expect to increase staff in the next year, up seven percentage points from last quarter and on par with late 2023 (40% in Q3 and Q4 2023).
Likewise, nearly half (46%) of small businesses also say they expect to increase investment in the next year, a 10-percentage point increase from last quarter and the highest recorded since Q4 2022 (47%).
While sentiment is consistent by gender of business owner for expectations of increased investment, male-owned small businesses are more likely than female-owned small businesses to say the plan to increase staff over the next year (45% vs. 35%, respectively). Furthermore, small businesses in operation for ten years or less and small businesses owned by Gen Z or millennials are more optimistic about future hiring and increased investment than those in operation for 11+ years or those owned by Gen Xers or baby boomers or older, respectively.