Small Business’s Financial Picture: Are We Out of the Woods Yet?

How are small business owners feeling about their financial situation these days? According to Capital One’s latest Small Business Barometer Survey, there’s good news and bad news. The good news is small business owners overall are more optimistic about the future. The bad news is, they’re still not quite ready to spend and hire.

Capital One’s quarterly survey polls small businesses nationwide about their current financial condition and their projections for the next six months. The most recent report, which surveyed entrepreneurs about the first quarter of 2011, shows many small businesses’ financial performance is improving, but their economic outlook, although optimistic, is still guarded.

“Many small businesses in the U.S. are on increasingly solid ground and, while we are still seeing businesses taking a cautious approach to spending and hiring, overall business conditions appear to be improving and their economic outlook has been growing more positive over the past two quarters,” says Pete Appello, Executive Vice President of Small Business Banking at Capital One.

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Here are some specifics from the survey:

  • The majority (61 percent) of businesses feel confident that their 2011 business performance will be better than it was in 2010.
  • Forty-three percent of small business owners say their firm’s financial position is better than it was one year ago, up 6 percentage points from the fourth quarter of 2010 and 13 percentage points higher than the third quarter of 2010.
  • Nearly half (46 percent) say their firm’s financial position has held steady relative to one year ago.
  • Just 10 percent say their financial position has worsened over the past year–down from 18 percent in the fourth quarter of 2010, and the smallest percentage of small businesses reporting financial decline since the survey began one year ago.

But while their finances are improving, U.S. small businesses are still keeping a tight hold on the purse strings. Fewer than one-third (29 percent) expect to add employees over the next six months, which is similar to previous results over the past year.

And slightly less than one-fourth (23 percent) say they plan to increase spending on business development or investments in the next six months. Most (67 percent) will keep spending at current levels.

When asked what challenges will affect their businesses in the next six months, competition was key. Thirty percent of respondents say competitors will place “quite a lot” or “extreme” pressure on their businesses during the next six months.

Prices were also an issue. One-fourth expect fuel prices will place “extreme” or “quite a lot” of pressure on their businesses over the next six months. And 21 percent say that price margins and profitability will place “quite a lot” or “extreme” pressure on their businesses in the near future.

Interestingly, cash flow, interest rates and customer payments were of much less concern to small businesses. All of this suggests that small businesses are nearly out of the woods when it comes to many financial issues…but could quickly find themselves back in dire straits if economic pressures don’t ease.


Rieva Lesonsky Rieva Lesonsky is a Columnist for Small Business Trends covering employment, retail trends and women in business. She is CEO of GrowBiz Media, a media company that helps entrepreneurs start and grow their businesses. Visit her blog, SmallBizDaily, to get the scoop on business trends and free TrendCast reports.

7 Reactions
  1. I echo this article. We have been going pretty strong but the urge to jump in and start hiring is just not there yet. We will however keep a list of part-time and contract resources available!

    Great article!

  2. While many SMBs are succeeding, the general economy isn’t providing any major indications that we’re about to turn the corner. The cautious optimism seems justified.

  3. The numbers do make a lot of sense although I was surprised cash flow was not a major concern as I have been reading articles of record turn-downs for small business financing which has lead to an explosive growth in the alternative small business lending industry.

  4. I definitely agree with this substantial post. Most small business are well motivated to reach their goal and achieve success with their business venture. However, their are many options to cut the operational cost of a small business to lessen the burden in finding funds. Utilization of free online tools in helping small business owner run their business effectively is the best option small business owner can opt to.

  5. Rieva, thanks for the post. The small business owners I talk with are all very cautious. Manufacturers are automating first, then hiring only when it’s imperative. Confidence in the future of our economy is still an issue in hiring, planning and forecasting.

  6. Hi Rieva,

    Glad to hear that businesses are improving, with the recession in the economy in the past few years, small business owners have seen really bad times. Looking at the statistics, it’s good to observe the positive change. Let’s hope that the coming years bring about more improvement. Thanks for sharing!

    Riya Sam
    Training for

  7. Rieva,

    Thanks for the info.

    The good news;

    “Nearly half (46 percent) say their firm’s financial position has held steady relative to one year ago.”

    Considering how things “feel,” I guess that’s the best we can do for now.

    I’m a little worried about how things will pan out this summer, but I’m pluggin away like there’s no tomorrow!

    We’re all in charge of how we view our own economies.

    The Franchise King®