Small business owners are the most optimistic they have been since the start of the Great Recession, according to the latest findings from the Wells Fargo/Gallup Small Business Index conducted in February 2017.
In the quarterly small business survey, which measures the optimism of small business owners, the overall Index score increased significantly to 100 in February, up from 80 in November and up 33 points from a year ago. This marks the highest optimism reading since July 2007 when it was also 100, and represents a return to pre-recession levels.
Small business index key drivers
Several factors contributed to the jump in small business optimism this quarter, most notably, how business owners rate their current business conditions. The present situation score – how business owners gauge their perceptions of the past 12 months – shot up 16 points to 40 in February, representing the largest quarter-over-quarter increase in the history of the survey. The future expectations score – how business owners expect their businesses to perform over the next 12 months – climbed four points to 60.
Other key drivers this quarter included:
- Better financial situation – Seven in 10 (71 percent) said their current financial situation is very or somewhat good, up from 66 percent in November
- Increasing revenues – Almost half (45 percent) said their business’s revenue increased a little or a lot over the past 12 months, up from 37 percent in November
- Stronger cash flow – Sixty-four percent said that their cash flow was very or somewhat good over the past 12 months, up from 55 percent in November
- Access to credit – Forty percent said that credit was somewhat or easy to obtain over the past 12 months, up from 34 percent in November
“As small businesses are the backbone of our economy, it’s promising to see that business owners have entered 2017 feeling confident and that many are seeing positive trends in their businesses,” said Lisa Stevens, Wells Fargo head of Small Business. “Our latest survey shows us that more business owners are reporting stronger current financials and are well positioned for the coming year, which is helping boost the Index score to its highest mark in nearly a decade. There are many reasons for small business owners to feel optimistic about the future in today’s economy, and we hope this momentum continues in the year ahead.”
Looking through a long-term lens
Small business owners were asked about their retirement plans in February, and overwhelmingly the survey found that most plan to work for as long as possible with 73 percent expecting to either cut back on work but always maintain some involvement in the business, or never retire until they are unable to work. Another 19 percent expect to sell or transition the business in order to do something else and just six percent said they expect to retire and stop working completely. In fact, more than half of survey respondents said that if money were no object today, they would continue working in their business either full or part-time; 27 percent said they would retire completely and 17 percent said they would start another new business.
The February survey also found that most small business owners do not have a clear strategy for business succession, as 70 percent said they do not have a formal, written plan in place to outline what they’ll do with their business when they retire or are unable to work. When asked the main reason why they do not have a transition plan for their business, more than half (51 percent) said it is not a priority at this time and 17 percent said they don’t know today how they’ll transition the business. Twenty-one percent cited some other reason, and seven percent said they do not have time to work on a plan. Of the small business owners who do not currently have a formal, written plan, 59 percent plan to create one before they retire or stop working.
“A great challenge for small business owners can be developing a business transition strategy for how to handle business operations when they are ready to retire,” said Tony McEahern, head of Wealth Planning for Wells Fargo Private Bank. “Building a transition plan should be part of the overall business planning process from the beginning. It’s important to put a formal succession plan in place, which outlines the management roles as their business grows, evolves and changes.”
Small business owners are saving for the future
Small business owners also said they are actively saving for retirement. In the February survey, 82 percent of small business owners said they are currently saving or investing money toward their retirement, and 76 percent said they think they’ll have enough money to live comfortably in retirement, up 10 percentage points from when this question was last asked in January 2014. Small business owners also reported fewer concerns regarding their financial matters in retirement:
- Forty-six percent said they are very or moderately worried about being able to pay medical costs of a serious illness or accident in retirement, down from 57 percent in January 2014
- Less than half (42 percent) are very or moderately worried about being able to build back retirement savings lost during the recent economic downturn, down from 50 percent in January 2014
- Just 21 percent said they are very or moderately worried about being able to sell their business when they are ready to, down from 33 percent in January 2014
Small business challenges
When business owners were asked to identify the most important challenges facing their business today, government regulations rose to the top of the list (14 percent) followed by attracting customers and finding new business (12 percent) and taxes (9 percent). Hiring and retaining quality staff, the economy and financial stability/cash flow were also reported as top concerns (8 percent). These challenges have been consistently reported as the top concerns of small business owners since early 2013, although the order of concerns shifts from quarter to quarter.
About the Wells Fargo/Gallup Small Business Index
Since August 2003, the Wells Fargo/Gallup Small Business Index has surveyed small business owners on current and future perceptions of their business financial situation. The Index consists of two dimensions: 1) Owners’ ratings of the current situation of their businesses and, 2) Owners’ ratings of how they expect their businesses to perform over the next 12 months. Results are based on telephone interviews with 602 small business owners, with annual revenues up to $20 million, in all 50 United States conducted February 6-10, 2017. The overall Small Business Index is computed using a formula that scores and sums the answers to 12 questions — six about the present situation and six about the future. An Index score of zero indicates that small business owners, as a group, are neutral – neither optimistic nor pessimistic – about their companies’ situations. The overall Index can range from -400 (the most negative score possible) to +400 (the most positive score possible), but in practice spans a much more limited range. The margin of sampling error is +/- four percentage points. The highest Index reading was +114 in the fourth quarter of 2006, and the lowest reading was -28 in the third quarter of 2010.