According to the Wells Fargo/Gallup Q1 2019 Small Business Index Survey, small business owners report feeling less optimistic about their financial future (Index score of 46, down 13 points) and less optimistic about the what lies ahead for their business (Index score of 60, down 10 points), most likely due to decreased revenues. While the survey reports an overall Index score of 106, which is the seventh quarter in a row where the Index score is over 100, it did decline from the previous quarter’s record high of 129.
Of the small business owners surveyed, 45 percent said that their company experienced an increase in revenue, which was 10 percentage points less than the previous quarter. Conversely, 25% of small business owner respondents reported a decrease in revenue, which is 8 percentage points higher than the previous quarter. Considering these responses as a whole, it makes sense why small business owners are less optimistic than previous quarterly reports indicated.
Anticipating and Preparing for an Economic Downturn
Based on the feelings and general lack of optimism about the future of their businesses, 77% of small business owners said they felt either ‘somewhat’ or ‘very’ prepared for a potential economic downturn in the future. Researchers at Wells Fargo/Gallup sought to find a link between business owners who dealt with the 2008 recession and their preparedness now in 2019. They found that 75% of small business owners reported that they feel more prepared for an economic downturn now than they did in 2008; only 14% said they were less prepared than they were in 2008. Compiling a list of ‘lessons learned’, researchers found:
- 19% of respondents said they made a point to manage their capital conservatively and are more frugal
- 12% said they more closely monitor their cash flow
- 9% said they are better at planning after living and working through the 2008 recession
One Wells Fargo senior economist stated that he believed these responses point to small business owners simply being more cautious, versus actually fearful of an expected economic downturn. This makes sense considering that 67% of small business owners felt that 2019 would be prosperous, while 29% felt 2019 would be difficult.
In the event of an economic downturn, having adequate cash reserves to fund emergencies would seem to be a prudent step. At Imperial Advance, many of our most forward-thinking clients are seeking working capital now, in advance of a downturn, as liquidity options shrink during a recession or economic crisis.
Biggest Small Business Challenges
For the fourth quarter in a row, the biggest challenge small business owners claim, at 16% of respondents, is hiring and retaining employees. Coming in at a close second, at 15% of respondents, was the idea that attracting new business leads is the biggest challenge. Rounding out the top four is being financially stable/having a steady cash flow at 9%, and challenges with taxes, at 8%.
To read the full report and see all of the statistics, visit Wells Fargo/Gallup’s Q1 2019 Small Business Index report.