Operations, Environment & Expectations
Small Business Operations: Small Businesses See Declines in Business Health, Cash Flow Comfort
This quarter, small businesses report lower business health and cash flow comfort--but steady increases in staff.
Nearly seven in ten small businesses (63%) say their business is in good health this quarter, down slightly from last quarter (67%). Similarly, 66% now say they are comfortable with their cash flow, down from last quarter (72%), but stable from one year ago (67%).
One area that has remained stable is staff increases in the past year. One in five (20%) small businesses report having increased staff in the past year, in line with Q4 2024 (22%). Consistent with historical patterns recorded from the start of the study in Q2 2017 *, small businesses with more employees are more likely to report good business health, comfort with cash flow, or increased staffing than those with fewer employees.
There are no significant differences in reported business health by sector this quarter. However, comfort with cash flow varies greatly. Small businesses in services (57%) are less likely than those in manufacturing (79%) and professional services (70%) to say that they are comfortable with their cash flow. Additionally, those in services are less likely than other sectors to report they have increased staff in the past year (9% vs. 21-31%, respectively).
Similar to last quarter, there are also no significant differences in business health or cash flow comfort by length of business operation. However, consistent over the last year, small businesses in operation for 10 years or less are more likely than those in operation for 21+ years to say they have increased staff in the past year (24% vs. 11%). In the same vein, small businesses owned by Gen Z, millennials, and Gen Xers are more likely than those owned by Baby Boomers or older generations 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: Small Business View of Economy Is Stable
Twenty-nine percent say the U.S. economy is in good health, in line with both last quarter (32%) and this time last year (32%). Also, when it comes to their local economy, around two in five small businesses (37%) say it is in good health, similar to where it was throughout 2024.
By sector, those in services are significantly less likely than other industries to say that the national economy is in good health. Similarly, those in services are also less likely to report that their local economy is in good health.
However, small businesses say they see less local competition this quarter. About three in ten (29%) say competition from smaller or local companies has increased compared to six months ago, stable from this time last year (30% in Q1 2024), but down from last quarter (34%).
This quarter, small businesses with less than five employees are less likely to report increased time or resources spent on compliance. Continuing a more than year-long trend, male-owned small businesses are more likely than those owned by women to say the national and local economies are in good health. However, there are no significant differences by gender when it comes to competition or time spent on compliance.
By generation of owner, small businesses owned by Gen Zers or millennials are more likely than those owned by Gen Xers to say the U.S. and local economies are in good health. Additionally, they are more likely than small businesses owned by Baby Boomers and older generations to report increases in competition and time/resources spent on compliance.
Small Business Environment: Small Businesses Upbeat About the Future
Most small businesses remain optimistic about their future, although there has not been a significant increase in expectations around revenue, staff, and investment in a year (since Q2 2024).
A strong majority (69%) of small businesses say they expect revenue to increase in the next year—this is slightly off record-highs reported last year (73% in Q2 and Q3 2024). Meanwhile, 37% expect to increase their staff and 43% say they plan to increase their investment in the next year. Compared to Q1 2024, small businesses are more likely to say that they will increase their investment (43% vs. 36%).
By sector, small businesses in manufacturing are more likely than those in services to say they expect to increase investment. Those in manufacturing are also more likely than all other industries to plan on increasing staff in the next year (56% vs. 25-37%, respectively). In contrast, there are no differences by sector when it comes to expectations for increased revenue in the next year.
Additionally, small businesses with fewer than five employees are less likely than their counterparts to say they expect to increase staff or expect revenue to increase in the next year.
Similar to last quarter, each measure of business expectations—future increases in revenue, hiring, and investment—varies significantly by gender of owner and generation of owner. Male owned small businesses are significantly more likely to expect increases in investment, staffing, and revenue.
Along these lines, small businesses owned by Gen Zers, millennials, and Gen Xers are more optimistic about future hiring and investment compared to their Baby Boomer and older generation counterparts.
