SMB Self-Confidence Only Goes So Far

Small businesses present some conflicting views on the U.S. economy these days. SMEs are often dubbed the “lifeblood” of the economy, so small business success should promote economic success, right?

Indeed, the latest PYMNTS.com Store Front Business Index found that SMBs are growing faster than U.S. GDP — a good sign for the “backbone of the American economy.”

A new survey released by Bank of the West and BNP Paribas Group finds that entrepreneurs don’t necessarily feel that way.

According to the data released in the 2016 Annual Bank of the West Small Business Growth Survey, published on Tuesday (July 26), small businesses may have confidence in their own success but are more doubtful when it comes to strength of the U.S. economy overall.

Researchers found that 81 percent of small business respondents expect to either do well or very well over the next year.

“Small businesses are still in growth mode,” reflected Bank of the West Chief Economist Scott Anderson in a statement. “They are certainly investing more in their businesses than they did last year.”

Those investments include new product and service offerings, entering into new markets, investing in new partnerships and international expansion. More small business owners this year also expect to hire new staff compared with 2015, and more small business owners also expect to invest in operational technology.

Nearly a quarter of small business owners said that they don’t have any financial issues that are weighing heavily on their minds.

In 2016, small business owners are less likely to report profitability decline over the last year, compared to the data found in the 2015 report. What’s more, 44 percent said their revenues increased in the last year, compared with 39 percent in 2015. And more than half of small business owners said they are planning significant expansion for the year ahead.

And small businesses know they have an impact on the broader economy. According to the report, 84 percent of these business owners agree that owning a small business means they can contribute to their local economy.

With all of this good news, one might expect the national economy to follow suit.

“Small business owners are the backbone of the American economy,” said Michelle Di Gangi, executive vice president of Bank of the West’s SME banking operations.

But small business owners’ self-confidence isn’t necessarily reflected in their national outlook.

Economic Stress

Four in 10 small business owners have a negative outlook for the national economy over the next year, an increase from 2015 levels. Economic strength poses a barrier to growth for SMEs, too, with 80 percent reporting that the economy is either a somewhat significant or very significant challenge. That’s more than the impact of rising business costs, competition or regulation, according to these business owners.

According to Bank of the West’s Anderson, this finding isn’t so surprising.

“There’s been a lot of negative news in the press about the economy,” he stated.

While 2016 reveals an increase in small business optimism overall, entrepreneurs this year aren’t without their worries and challenges.

Nearly one-third of small business owners said managing cash flow was their top concern, surpassed only by personal issues of saving enough to retire and ensuring the financial stability of their families. More than a fifth said concerns about having enough funds to invest in their business were keeping them up at night.

A strong U.S. dollar and rising labor expenses are stressing out the finances of small businesses, while the majority of business owners said it’s becoming more difficult to find and retain talent.

The majority of small business owners also admitted that owning their own business was more stressful than they had initially anticipated; 64 percent said they wish they had more resources to help them with the job.

Even so, Bank of the West found, small business owners are content with their position within the economy. The vast majority agree that the benefits of owning a small business outweigh the negatives.

Small business owners may not have confidence in the economy, but with confidence in themselves, analysts may still see a positive outlook for the U.S. on a national scale.

“While a volatile economy and political uncertainty impact their business growth plans, small business owners remain resilient,” said Di Gangi. “With a realistic eye toward the business climate, they are cautiously confident in their near-term business success and continue to invest in the time and resources to get there.”