While most small business owners believe that the country and the national and state economies are headed in the wrong direction, the vast majority have confidence in the direction of their own companies, according to Union Bank’s National Small Business Economic Survey released this week.
The survey—which included 200 participants statewide and 500 outside of California—found that while nearly half of those surveyed (48 percent) feel the climate for their small business has worsened in the past two years, an equal number anticipate an improved climate in the next two years. Mindful of past economic challenges, yet hopeful about the future, the majority of respondents plan to maintain the same staffing levels (84 percent) and capital expenditures (57 percent) in 2012.
“This survey demonstrates the strength and resolve of those at the helm of small business across the nation who, despite the lack of confidence in the direction of the overall economy, are confident in their own ability to chart a positive course for their business,” said Union Bank Executive Vice President Todd Hollander, head of Business Banking. “These entrepreneurs have become experts at navigating through challenging economic times, and it makes sense that they’re moving forward with cautious optimism.”
“Thirty-five percent reported that they are not doing a tremendous amount of layoffs,” said Oscar Dominguez, Union Bank Vice President and Manager of the Newhall/Stevenson Ranch branch. “Personal service, auto repair, beauty salons, dry cleaning and those type of industries, 55 percent of them expected the overall climate to improve over the next two years.”
“I see that on the local level, here in our valley I see where people are adapting to what our economy is doing, what the environment is doing, in the market so I think we’re working harder with what we have, not necessarily increasing, but still trying to be profitable and to maximize what is available to us in terms of resources available to us, such as the Small Business Development Center.”
Among the industries surveyed, significantly more respondents in the construction or engineering fields (91 percent) believe the national economy is headed in the wrong direction. This finding coincides with another part of the survey that found that 13 percent of respondents in the construction or engineering fields, more than those in all other industries surveyed, believe that the overall climate for their business will greatly worsen in the next two years and none believe it will greatly improve.
While most respondents are planning to maintain the status quo following a year of almost equally distributed sales—32 percent reported greater sales, 35 percent indicated the same sales and 33 percent reported lower sales—more businesses are budgeting for capital spending than hiring. Only nine percent of respondents plan to boost staffing this year, while 20 percent plan to increase capital expenditures.
Significantly fewer California respondents (7 percent) are planning to add staff this year compared with last year (24 percent) and four percent fewer California businesses are planning to add staff than out-of-state businesses (11 percent). Conversely, more California respondents (24 percent) are planning increased capital spending in 2012 than those outside California (18 percent). For California businesses, planned increases in capital expenditures decreased three percent from last year.
Among the industries surveyed, respondents from retail stores were most optimistic about capital spending and staffing, with one in four expecting increased capital spending and 11 percent anticipating increased staffing.
Overall, about one in five small businesses incurred layoffs in 2011 and seven percent expect to trim their staff in 2012. One in four California respondents reported employee cutbacks in 2011, five percent more than non-California businesses (20 percent).
Businesses in the construction or engineering fields suffered significantly more employee cutbacks in 2011 than those in all other industries surveyed, with 35 percent reporting layoffs. Further, 13 percent of businesses in the construction or engineering industries expect decreased staffing this year, more than all other industries surveyed. Those in the professional services sector (5 percent) reported the least layoffs in 2011.
Only one in 10 businesses applied for a loan or access to credit in 2011. The majority (61 percent) of those who applied were approved and about a third of those approved (32 percent) received a government-assisted loan. Significantly less California businesses applied for a loan in 2011 (9 percent) than the year before (23 percent).
While 18 percent of respondents indicated that their business had been positively impacted by actions taken by the government since the recent economic downturn, only seven percent of respondents reported benefiting from the Small Business Jobs Act—legislation providing small banks with $30 billion to encourage lending to small businesses, $12 billion in tax incentives, and expanded Small Business Administration (SBA) loan programs. California businesses (4 percent) were less likely to report benefiting from the Small Business Jobs Act than those outside the state (9 percent).
Of those who were helped by the Small Business Jobs Act, the majority (53 percent) said the biggest benefit was that it encouraged them to invest more in their business, followed by the provision of tax relief (45 percent) and greater access to capital or credit (35 percent).
“Union Bank has a nearly 150-year legacy of lending, and we have credit available today for qualified small business owners,” said Union Bank Senior Vice President Heather Endresen, head of the bank’s SBA and Government Lending group. “We remain committed to the growth of our specialized SBA lending unit and, for the first time, Union Bank was recently ranked in the top 10 of SBA 504 lenders for the markets we serve.”
Fifteen percent of respondents plan to make significant changes to the ownership structure of their business in the next five years. Of those planning changes, 36 percent plan to sell their business, 30 percent plan to take on a partner and 13 percent plan to transfer all or part of their business.
Significantly more respondents 56 years of age and older (56 percent of those ages 56 to 65 and half of those over 65) plan to sell their businesses in the next five years.
“These findings coincide with what we’re seeing in the marketplace as ‘baby boomers’ begin to explore the idea of selling their business,” Hollander said. “At Union Bank, our business bankers can help entrepreneurs seeking changes in ownership structure develop creative strategies to accomplish their specific goals.”
Nationally, 16 percent of respondents identified the statewide economy as the top disadvantage of operating a business in their state. The second largest disadvantage, listed by 15 percent of respondents, was the national economy. While 14 percent reported no disadvantage to doing business in their state, 10 percent of respondents identified state and/or local business taxes as the next largest disadvantage.
The top disadvantages differed between California businesses and those outside California. Twenty percent of California respondents listed the state’s economy as the top disadvantage of running a business in their state, while 17 percent of non-California respondents identified the national economy as the top disadvantage. Another 17 percent of non-California respondents reported no disadvantage to operating a business in their state.
California respondents (13 percent) identified state and/or local business taxes as the second largest disadvantage, while non-California respondents (15 percent) identified their statewide economy as the second largest disadvantage. Eleven percent of California respondents identified both housing costs and the national economy as the third largest disadvantage. Respondents outside of California (9 percent) identified state and/or local business taxes as the third biggest disadvantage.
Nationally, while 26 percent reported no advantage to operating a business in their state, the top three advantages identified were: cost of living (13 percent), opportunities for growth (11 percent), and favorable climate (10 percent).
In California, while one in four respondents reported no advantage to operating a business in their state, the top three advantages identified were: favorable climate (20 percent), proximity to major companies/entities that influence their business (13 percent), and opportunities for growth (10 percent).
Outside of California, while 27 percent of respondents reported no advantage to operating a business in their state, the top three advantages identified were: cost of living (17 percent), opportunities for growth (11 percent), and family ties (9 percent).
Nationally, 45 percent of respondents reported working somewhat or a lot more hours per week than the same period last year. Of those working more hours, 45 percent attributed the added time to increased business and 24 percent attributed it to decreased staff.
In California, 46 percent of those surveyed reported working somewhat or a lot more hours per week than the same period last year. Of those working more hours, 47 percent attributed the added time to increased business and 21 percent attributed it to decreased staff.
Outside of California, 45 percent of respondents reported working somewhat or a lot more hours per week than the same period last year. Of those working more hours, 44 percent attributed the added time to increased business and 25 percent attributed it to decreased staff.
Nationally, 41 percent of respondents said over the past two years, it was somewhat or much harder to access credit to grow their business. Forty-eight percent said it was about the same.
In California, 47 percent of respondents stated it was somewhat or much harder to access credit. Forty-three percent stated it was about the same.
Outside of California, 39 percent of respondents stated it was somewhat or much harder to access credit. Half of the respondents said it was about the same.
About the Survey
Union Bank, working with its survey partner, Kenexa, surveyed 700 respondents (200 in California and 500 nationally) online in January 2012. The small businesses must have been in operation for a minimum of two years and were defined for the survey as having $15 million or less in annual sales. Based on the sample size, national survey results reflect a +/- 4 percent margin of error 95 percent of the time; California results reflect a +/- 7 percent margin of error 95 percent of the time.