Inflation Concerns Linger at Record High
Revenue Concerns Grow Alongside Persistent Inflation Worries
Inflation, at 58%, reached its highest level of concern since tracking began on this issue. Inflation concern increased by six percentage points compared to this time last year (52% in Q1 2024). However, its shift from last quarter’s level of concern at 55% to this quarter’s 58% is not statistically significant. Inflation is also the top concern across business type, with the highest level of concern among businesses in average health (67%), businesses in the Midwest (65%), and businesses owned by Baby Boomers and older (64%) generations.
The second biggest concern for small businesses, revenue, saw a significant jump this quarter. Revenue has been the second biggest challenge for the past five quarters and concerns about it increased by 10 percentage points this quarter (from 25% in Q4 2024 to 35% in Q1). This puts revenue at its highest level of concern for small businesses since Q3 2021 (34%), when tracking began on this issue (surveying revenue as a concern).
The jumps in revenue concern were most pronounced among businesses in the manufacturing (+16%) and professional services (+14%) industries. Businesses in the Midwest (35% vs. 19%, +16% quarter-over-quarter change), South (34% vs. 21%, +13%), and West (39% vs. 26%, +13%) also saw significant increases in concern with revenue, catching up to businesses in the Northeast, which saw no significant change (33% vs 36%, -3%).
Similar to last quarter, small businesses with fewer employees are significantly more concerned with revenue; 44% among businesses with 1-4 employees compared to 22% among businesses with 5-19 employees and 14% among businesses with 20-500 employees.
Small businesses voiced significantly less concern over issues other than inflation and revenue. Third-tier concerns include affording employee benefits or healthcare (14%), access to credit or a loan (14%), supply chain issues (13%), and interest rates (12%).
There were minor differences in concerns across regions. Small businesses in the South were more likely than those in the Midwest to say access to credit or a loan was one of the biggest challenges (17% vs. 9%). Additionally, small businesses in the Midwest were most concerned about supply chain issues and more likely than those in the Northeast to mark supply chain issues (18% vs. 10%) as a challenge.
Jacksonville, FL
Small Businesses Highly Value Leadership Experience
By sector, small businesses in professional services (71%) and manufacturing (69%) are more likely to value previous internship experience than those in services (57%) or retail (54%).
Small businesses also see value in education, although less than in work experience. Small businesses are especially looking for training or certification in using AI. At least two in five say they would be more likely to hire an entry-level employee if they:
- Have training or certification on how to use artificial intelligence (49%)
- Have a bachelor’s degree (47%)
- Have a master’s degree (43%), or
- Took economics classes in school (41%).
In the same vein, more small businesses say that trade schools/technical colleges are the best at preparing new workers for the workforce. Nearly all small businesses say trade schools or technical colleges (94%) are very or somewhat effective at preparing new employees to enter the workforce. According to small businesses, trade schools outrank both 4-year colleges or universities (72%) and high schools (51%) in their ability to prepare new workers.
Park City, UT
Most Say Entry-Level Hires Are Ready for the Workforce
Of the small businesses that evaluated the quality of new recruits, a majority (59%) say the quality of these potential new workers is good or very good, unchanged from Q2 2022 (60%). This optimistic outlook on applicants is higher compared to Q2 2017, where more small businesses rated the quality of potential recruits as fair or poor rather than good.
Small businesses are also more likely to say that the entry-level employees their business has hired in recent months are prepared for the workforce, with 57% saying entry-level employees are prepared compared to 20% that say they are not prepared (22% did not apply or have not hired entry-level employees).
Small businesses with 1-4 employees are significantly less likely to feel entry-level employees are prepared to enter the workforce (46%) compared to businesses with 5-19 employees (77%) and businesses with 20-500 employees (75%). However, much of this difference is due to the fact that businesses with 1-4 employees are significantly more likely to have not hired entry level employees (33%).
By sector, businesses in manufacturing (67%) are the most likely of the industries surveyed to say entry-level employees are prepared for the workforce and the services sector is least likely to say the same (51%). Retail (61%) and professional services (56%) fall in the middle.
Young employees have had an impact on the way many small businesses operate. These changes range from growing their online presence via social media or a business website (28%), offering flexible work hours (25%), working to update technology (16%), and increasing work from home or hybrid work options (14%). Just one in four small businesses (27%) say they have not changed anything because of young employees.
Majority Plan to List Compensation with Job Descriptions
When it comes to attracting new talent, small businesses employ a variety of offerings. The most popular things small businesses plan to offer include: More flexible working hours, listing the compensation of open positions, increasing pay, and sick leave.
Out of these offerings, offering more flexible working hours is the most commonly offered, with 67% of small businesses saying they plan to offer this in the next year, unchanged from Q4 2023 (68%).
Listing the hourly pay or salary range for each open position in the job description is the second most popular offering, with 62% of small businesses saying they plan to offer this. The growth in this offering is noticeable and fairly sudden: This increased by 12 points compared to Q4 2023, when 50% of small businesses said they planned compensation transparency.
There’s a significant age gap when it comes to offering this salary transparency, with small businesses owned by younger generations more likely to offer this transparency. In fact, Gen Z- or Millennial-owned businesses (74%) are more likely to report plans to offer salary transparency compared to Gen X-owned (61%) and Baby Boomer and older owned (47%) businesses.
Similarly, one in ten small businesses say simply having young workers has increased salary transparency at their business, including 16% of Gen Z- and Millennial-owned businesses. Additionally, Southern small businesses are more likely than those in the Midwest to plan on offering more salary transparency (68% vs 54%) and is the region with the highest reported percentage of small businesses offering this.
Other planned offerings include increasing pay (55%), offering sick leave (52%), offering current employees incentives/higher incentives for referrals (50%), and providing health, dental and vision benefits (47%). Fewer small businesses plan to offer partial or full reimbursement for childcare (28%) or more benefits like reimbursement for continued education (37%).
Across all of these offerings, Gen Z- and Millennial-owned businesses are more likely to plan to offer these benefits than businesses owned by their older counterparts. Similarly, businesses in operation 10 years or less and small businesses with 20-500 employees are also more likely to offer most of these offerings compared to their older or smaller counterparts.
By industry, services businesses tend to be the least likely to offer many of these benefits, while manufacturing is the most likely.
Chicago, Illinois