By Dianne Crampton
Is running a small business three times more stressful than raising children? The answer is yes according to a new Bank of America Small Business Owner Report.
“We know how much small business owners give up to make their businesses successful, but despite their sacrifices, they are still optimistic about the future,” said Dean Athanasia, Preferred and Small Business executive at Bank of America. “Therefore, we believe that the financial services industry, the business community and the general public must continue to take steps to support the growth and success of our small business sector.”
Confidence in local economy and their own decisions fuel optimism
Small business owners have more confidence in their local economy than the national economy. When asked about the next 12 months, 42 percent expects their own local economic conditions to improve compared to 35 percent who expects the national economy will improve.
However, reservations about the state of the national economy did not dampen optimism among small business owners regarding their future business prospects. Nearly seven of 10 (69 percent) small business owners view their local economy as very important to their business’s success. Moreover, reflective of the independent character that typifies most small business owners, the majority of respondents (53 percent) stated that their own decisions, rather than the overall health of the economy, are more likely to influence business outcomes. This sentiment was particularly strong among young small business owners, those between the ages of 18 and 34 (66 percent).
Confidence was further evident in two key indicators of performance – hiring and revenue expectations. Nearly one-third (31 percent) of small business owners expect to expand their workforce in the next 12 months, while more than half (56 percent) plan to keep their staffing levels consistent year over year. Among those small businesses planning to hire, owners expect to increase the number of employees by 25 percent on average. Furthermore, 61 percent of all respondents forecast a revenue increase, and 32 percent projects that revenues will remain the same.
But tellingly, when considering the potential impact of national economic issues, survey respondents listed the effectiveness of U.S. government leaders (75 percent) as their most pressing concern. Other concerns included commodities prices, such as oil and gas (73 percent), recovery of consumer spending (71 percent) and health care costs (70 percent). Credit availability (54 percent) ranked in the bottom three considerations along with the trade deficit and the global stock market unrest, as shown in the graph below.
Credit and cash management tools available but underutilized
Although 71 percent of small business owners believe they have enough capital to effectively run their business, survey findings suggest a good number of small business owners may not be leveraging readily available tools and resources to help make cash management easier. For example, even though 45 percent of small business owners cited not being paid on time as their biggest impediment to cash flow, less than one-third (31 percent) sought guidance from their bank on best practices for expediting collections while only 29 percent uses electronic invoicing.
When asked to describe their point of view on lending criteria and requirements to obtain a line of credit, a quarter (25 percent) of respondents said that today’s lending requirements are appropriate and should not change, while an additional 20 percent believes that further requirements should be put in place to obtain a loan in order to protect small business owners from defaulting.
Moreover, while credit appears to be available – more than three-quarters (78 percent) of applicants who applied for a loan within the past two years were approved – small business owners may not be taking advantage of their lines of credit to further business objectives. Of the 64 percent of small business respondents holding an open line of credit 50 percent earmark the money for emergency purposes only, rather than using it as day-to-day capital.
From a TIGERS perspective, it would have been impossible to expand my company after three years of bootstrapped operation without the SBA loan we acquired to bring the TIGERS Team Wheel™ game to market. But many businesses — most of them Women’s Owned Enterprises — are still bootstrapped and this makes highing new employees difficult.
Small business owners value professional financial advice
Only slightly more than a quarter (27 percent) of small business owners describe themselves as being very financially savvy when it comes to running their business. The remaining respondents admit to needing occasional or ongoing expert help.
In selecting their banking relationships, small business owners prioritize convenience (20 percent), relationship rewards (18 percent) and access to local expertise (17 percent). When asked what single aspect of their banking experience they would change, small business owners most frequently cited an enhanced level of expertise and more customized services.
“As the economic environment becomes more complex, Bank of America is committed to providing small business owners with dedicated resources to stay ahead of their financial needs,” said Athanasia. “Through our 1,500 associates who work with small businesses across the country and our 1,200 Merrill Edge financial solutions advisors, small business owners can benefit from highly specialized advice from local experts who intimately understand the full range of their business and personal financial needs.”
Marketing is key to growth
For nearly half of survey respondents (47 percent), increasing the marketing of their business to acquire new customers is the most important action they plan to take to generate additional revenue, surpassing a combination of increasing sales to existing customers (14 percent), better cash flow management (12 percent) and acquiring additional capital (8 percent).
Notably, despite the prevalence and growing influence of social media, survey findings indicate that small business owners may not be leveraging this marketing tool to its fullest potential. Only 38 percent of SBOs who use social media to market or promote their business engage in conversations with customers, while less than half (47 percent) utilizes social media to offer discounts and deals to their customer base. Conversely, nearly two-thirds of survey participants (64 percent) wish they took better advantage of technology innovations to help manage or market their business.
About the Bank of America Small Business Owner Report
Braun Research conducted the Bank of America Small Business Owner Report survey by phone between March 17 and April 9, 2012 on behalf of Bank of America. Braun contacted a nationally representative sample of 1,000 small business owners in the United States with annual revenue between $100,000 and $4,999,999 and employing between 2 and 99 employees. In addition, 300 small business owners were also surveyed in nine target markets including Los Angeles, Dallas, Washington, D.C., New York, Boston, Chicago, San Francisco, Atlanta and Miami. The margin of error for the national sample is +/- 3.1 percent, and +/- 5.7 percent for the oversampled markets, with both reported at a 95 percent confidence level.
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