Almost Three Years On, Inflation Still Dominates Small Business Concerns
Other concerns don’t come close to inflation unease
Other concerns don’t come close to inflation in small business leaders’ minds. Revenue continues to rank as small businesses’ second biggest concern (25% selected as top concern) for the fifth consecutive quarter, levels that are similar to last quarter (28%). About one-fifth of small businesses say that affording employee benefits (17%) or rising interest rates (17%) are their biggest concern, levels that are in line with last quarter. Further down the list, one in ten (7%) small businesses say they are most concerned about employee well-being or morale, unchanged from last quarter (6%).
Small businesses in manufacturing (69%) and services (57%) are more likely than those in professional services (44%) to cite inflation as a key problem facing small businesses. About half (52%) of those in retail say the same.
Additionally, the smallest small businesses are more concerned about their revenue. Small businesses with 1-4 employees (29%) or 5-19 employees (20%) are more likely to cite revenue as the biggest challenge facing small businesses than those with 20-499 employees (9%).
Top 5 biggest challenges facing small business owners
San Francisco, CA
Regulatory compliance has an outsized impact on small businesses
Day in and day out, small businesses must deal with a host of regulatory compliance issues. Whether it’s paying taxes, filling out permits, or renewing licenses—there is a good deal of paperwork that goes along with running any small business. Dealing with regulatory requirements is a pain point for many small businesses and some of them feel the burden of meeting these requirements falls more heavily on them.
In fact, small businesses feel that complying with regulations is more arduous for them than it is for their larger competitors. About seven in ten (69%) small businesses say that small businesses spend more per employee to comply with regulations than larger competitors. About two in five (42%) say it is difficult to keep up with regulatory and compliance requirements.
When small businesses face a complex regulatory compliance issue, they are most likely to report turning to a general Google search (77%), followed by other business owners (67%), consultants (65%), and outside legal counsel (59%). Small businesses in the professional services sector are more likely to report that they would likely turn to consultants (75%) or outside/contracted legal counsel (66%) than small businesses in the service sector (57% and 52%, respectively).
While just two in five small businesses say they are likely to turn to social media (43%), those in the retail sector (55%), those owned by Gen Zers or millennials (56%), and those in operation for ten years or less (50%) are more likely than their counterparts to say they would likely to turn to social media regarding a complex regulatory compliance issue.
Raleigh, NC
Most say regulatory compliance holds back growth
The manufacturing and professional service sectors are more likely to report feeling regulatory burdens than those in retail. Small businesses in manufacturing (51%) and professional services (57%) are more likely than those in retail (37%) to say their business spends too much time fulfilling regulatory compliance requirements. Small businesses in the service sector fall in the middle (42%).
Furthermore, small businesses owned by men are more likely than those owned by women to say that they spend too much time fulfilling regulatory compliance requirements (56% and 36%, respectively).
Business size also informs what small businesses may be spending more time and effort on related to regulatory compliance. While there is no difference in time spent on taxes, small businesses with 20-499 employees are significantly more likely to report spending time on hiring and health insurance benefits compared to those with 1-4 or 5-19 employees. Small businesses with 20-499 employees, as well as those with 5-19 employees, are also more likely than those with 1-4 employees to say they spend time on payroll, cybersecurity, or benefits.
Percentage of small businesses that agree they spend too much time fulfilling compliance and regulatory requirements (by industry)
Taxes and record-keeping are most arduous, time-consuming tasks
Perhaps not surprisingly, completing taxes and record-keeping are the most time-consuming tasks for small businesses. Although a majority of small businesses say that payroll and licensing take a fair amount of time, they are still more likely to report spending time on taxes and recordkeeping.
Taxes (73%) and recordkeeping (73%) rank as the top two areas of regulatory compliance that small businesses report spending a great deal or fair amount of time on each year. A majority also say they spend at least a fair amount of time on payroll (62%), licensing, permits, and/or (re)certification (59%), and cybersecurity, data protection, and privacy (53%).
There are some marked differences in reported time spent on various regulatory compliance issues by sector. Small businesses in manufacturing and professional services are more likely to report spending time on licensing, permits, and (re)certification than those in services. Meanwhile, small businesses in retail and professional services are more likely than those in services or manufacturing to report spending time on cybersecurity, data protection, and privacy.
Regulatory compliance is a year-round task, and small businesses generally do not report that a particular season is more time-consuming from a regulatory compliance point of view than others (although slightly more say Q1 is more time-consuming than other quarters). A plurality of small businesses says they spend time or resources evenly throughout the year (33%), 22% say they spend the most time in Q1, 12% in Q2, 15% in Q3, and 17% in Q4.
Percentage of small businesses that spend either a great deal, or a fair amount of time, on compliance each year
Most have confidence in their regulatory compliance knowledge
Most small business owners and decision makers have at least some confidence in their knowledge of regulatory requirements. Even so, many report that handling regulatory compliance takes them too long and is hindering their company’s growth.
Nearly nine in ten (89%) small businesses agree they are confident in their knowledge about business compliance and regulation requirements. However, small businesses are slightly more likely to say they somewhat agree (47%) than strongly agree (42%) with that sentiment.
Additionally, while most small businesses (85%) agree they stay informed about changes to health care laws and regulations that would affect their business, significantly more say they somewhat agree (49%) than strongly agree (36%) with that statement.
Seven in ten say holidays are important for their annual profits
Most small business owners and decision makers have at least some confidence in their knowledge of regulatory requirements. Even so, many report that handling regulatory compliance takes them too long and is hindering their company’s growth.
Nine in ten small businesses (90%) in retail say that the holiday season is important to their annual profit, compared to 70% of those in services, 64% of those in manufacturing, and 60% of those in professional services. In particular, small businesses in retail are also the most likely of any sector to say the holiday season is very important (65%) compared to those in services (36%), professional services (35%), and manufacturing (26%).
Compared to two years ago—slightly fewer small businesses see the holidays as vital to their profits. Overall, seven in ten small businesses say the holiday season is important for their overall profit for the year. These levels are down nine percentage points compared to this time two years ago (79% in Q4 2022), but in line with Q4 2021 levels (70%).
The importance of the holiday season varies by length of business operation and generation of business owner. Small businesses in operation for ten years or less are more likely to say the holiday season is important to annual profit compared to those in operation for 11-20 years or 21+ years (76% vs. 62% and 56%, respectively). By generation, small businesses owned by Gen Zers or millennials are more likely than those owned by Gen Xers and baby boomers or older to say the holiday season is important to their overall profit for the year (85% vs. 73% and 43%, respectively).
Over half of small businesses say they will donate to charity
Over half (54%) of all small businesses say they plan to donate to charitable organizations and 40% say they plan to volunteer for charitable organizations this holiday season.
Larger small businesses with 20-499 employees are more likely to say they plan to donate (69%) or volunteer (56%) compared to those with 1-4 employees (50% and 34%, respectively).
Almost half plan to offer holiday discounts
Almost half of all small businesses report planning to offer holiday discounts this year—with retailers even more likely to offer them. Just under half (47%) of all small businesses say they plan to offer seasonal discounts during the upcoming holiday season. In retail, about two-thirds (68%) say they plan to offer seasonal discounts.
Larger small businesses are also more likely to report offering seasonal discounts in the upcoming holiday season, including 60% of those with 20-499 employees and 53% of those with 5-19 employees compared to 43% of those with 1-4 employees.
About one in five (22%) small businesses say they plan to hire seasonal employees for the upcoming holiday season. However, more retailers (33%) and Gen Z- or millennial-owned businesses (34%) report such plans. Overall, reported seasonal hiring plans are in line with Q4 2023 (19%), but they are slightly down from Q4 2022 (28%) and Q4 2021 (29%).
Thirty-nine percent of small businesses say they plan to extend regular business hours for the upcoming holiday season, including 47% of those in retail.
Among small businesses that plan to hire seasonal employees, the majority (78%) say they plan to offer hiring incentives or bonuses to attract seasonal employees. These small businesses that plan to hire seasonal employees also are more likely to say they plan to offer seasonal discounts (84%), extend regular business hours (77%), or volunteer for charitable organizations (54%) this upcoming holiday season compared to those who are not planning to hire seasonal employees (37%, 28%, and 36%, respectively).