Difficult third quarter wipes out growing small business optimism

Over the last several years, the improving economy has brought the small business community back to a strong standing. Over the course of 2015 optimism among small business owners has been quite high in comparison with the norms seen in the previous few years, but more recently it has started to come back down again for a variety of reasons.

Through the middle of November, optimism among entrepreneurs was rated a 54, down from the 59 seen three months earlier, and marking the lowest score observed since July of 2014, according to the latest Wells Fargo/Gallup Small Business Index. That number was also down significantly from the rating of 71 observed as early as January of this year, and the big reason why this is the case is that fewer companies are reporting revenue growth these days.

Entrepreneurs are feeling a bit down, but still carry some optimism.Entrepreneurs are feeling a bit down, but still carry some optimism.

What's the takeaway?
Indeed, only 39 percent of companies said in the latest poll that their revenues are up at least a little bit over the last 12 months, down from 49 percent in January, the report said. Meanwhile, and perhaps as a result, only 47 percent of owners say they expect revenue growth within the coming 12 months, down from 55 percent over the same period.

"This has been an unusually slow economic recovery for everyone, and small business owners are certainly feeling that," said Mark Vitner, managing director and senior economist for Wells Fargo Securities. "With the economy growing as slowly as it has been, it's been difficult for many business owners to increase their sales, and this has been particularly burdensome for firms who have seen expenses rise, including healthcare costs. As a result, many have been reluctant to invest in equipment, expand their operations and hire staff, even as business owners in general have seen gradual improvement in their financial situation and cash flow over the last few years."

Other trends
In addition, these conditions seem to be having a negative effect on other small business efforts, the report said. For instance, 26 percent say they have increased capital spending in the last 12 months, down marginally from 27 percent on an annual basis. Similarly, only about 1 in 6 companies increased hiring in the last 12 months, down very slightly from 18 percent a year earlier. On the other hand, 26 percent plan to hire in the next 12 months, a number that is unchanged from the same time in 2014.

Finally, though, it should be noted that these issues come at a time when 65 percent of owners say their companies' financial positions are either "very" or "somewhat good," up very slightly from the 64 percent who responded similarly a year earlier, the report said. However, 64 percent was also the number seen in the previous three quarterly polls as well, indicating that most owners think they're holding steady.

Firms that want to position themselves for success going forward may do well to consider the benefits of crafting a sound financial plan and perhaps looking into commercial loans that could help them to make their companies grow more quickly.

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