SMALL BUSINESSES EXPECT TO GROW DESPITE CONCERNS ABOUT THE ECONOMY, ACCORDING TO THE OPEN FROM AMERICAN EXPRESS(SM) 2005 SEMI-ANNUAL SMALL BUSINESS MONITOR
Hurricane Katrina Dampens Confidence, But Six-Month Growth Outlook Remains Strong
NEW YORK, October 03, 2005 -- Business growth remains the top priority for small business owners in the U.S., and more respondents expect their businesses to grow over the next six months despite concerns about the economy 49%, up from 44% a year ago, according to the OPEN from American Express(SM) 2005 Semi-Annual Small Business Monitor.
OPEN from American Express(SM) and International Communications Research fielded the semi-annual small business monitor between August 8-19, and after Hurricane Katrina, from September 8-15, 2005.
Post-Hurricane Katrina, the percentage expecting business growth over the next six months despite concerns about the economy remains steady at 50%. However, the percentage expecting the current economic climate to negatively affect their business rose to 24%, up from 15% pre-Katrina. Among women business owners, those expecting a negative impact on their business climbed to 30% from 20% pre-Katrina. Conversely, a year ago, just 16% of women business owners expected the economy to negatively affect their business.
Business Priorities
Prior to Katrina, business growth was the top priority for a third of the nation's small businesses owners (35%) on par with last year (36%) followed by maintaining their current business (33% versus 34% last year), and managing cash flow (11% versus 12% last year). Post-Katrina, top business priorities include business growth and maintaining current business (31% each), followed by managing cash flow (15%).
Hiring Plans
With a notable exception between 2002 and 2003, the percentage of business owners with hiring plans had been steady over the last three years until Hurricane Katrina 26% in fall 2002, 34% in fall 2003, 35% in fall 2004 and 37% this fall. Immediately following Katrina, however, the percentage of business owners with hiring plans over the next six months fell to 31% of respondents. For women business owners, plans to hire tumbled to 20%, from 34% pre-Katrina and 36% last fall.
Energy Costs
In response to generally higher energy costs, a third of all small business owners (33%) say they have reduced energy use to save money post-Katrina, up from 29% pre-Katrina. Interestingly, fewer overall now say they will raise prices in response to higher energy costs (31% pre-Katrina versus 26% post-Katrina).
This may be an indication that many small businesses are still trying to tighten their belts during this period of high energy costs rather than pass on the increased costs to customers, said Susan Sobbott, president, OPEN from American Express.
Nevertheless, business owners are feeling the pressure of higher costs for fuel and other energy sources. In the post-Katrina survey, two-thirds (65%) of small business owners say higher energy costs have a significant or moderate impact on their business. When asked how energy costs are affecting their business, 19% cite a squeeze on profits, and 13% report cash flow issues.
Capital Investments
While plans to make capital investments such as computers, software, office equipment and real estate purchases had remained relatively steady between fall 2005 (63%) and fall 2004 (61%), those plans declined five percentage points to 58% post-Katrina. Among women respondents specifically, 51% say they plan to make capital investments in their business in the next six months, down from 62% pre-Katrina, and 55% last fall.
Perhaps wary of the uncertain economic climate, many respondents are reluctant to increase capital investments as well. The percentage planning to increase investments dropped to 50% this fall from 60% the prior year. That caution persisted following Katrina, with 48% saying they plan to increase capital investments. Additionally, 47% say they plan to cut personal spending, compared to 37% before the hurricane.
Financial Risk-Taking
The percentage of respondents willing to take financial risks to grow their business dipped slightly to 54% post-Katrina, from 56% before the hurricane and 64% a year ago. Women business owners report a greater decline in financial risk-taking with 45% saying they are willing to take risks after Katrina, down from 55% before, and 58% in fall 2004.
In terms of investments and risk-taking, many small business owners are treading cautiously amid mixed economic news and rising business costs particularly following an occurrence like Hurricane Katrina, said Sobbott, OPEN's president. However, we see resiliency and continued confidence in business owners' growth outlook, even in the face of recent events.
Cash Flow
Pre-Katrina, slightly fewer respondents reported cash flow concerns compared to previous years 50% in fall 2005, down from 52% in fall of 2004, and 58% in the fall of 2003. Post-Katrina, cash flow concerns which include accounts receivable, the ability to pay bills and payroll on time as well as having enough cash on-hand to win new business remain steady at 49%.
Business owners who report cash flow issues are most concerned about accounts receivable (14% pre-Katrina; 13% post-Katrina) and the ability to pay bills on time (14% pre-Katrina versus 19% post-Katrina). Nine percent are concerned with having enough cash on-hand to win new business pre-Katrina, similar to post-Katrina. They are also concerned by their ability to meet payroll (7% pre-Katrina versus 5% post-Katrina).
Following Hurricane Katrina, business owners say they are more likely to delay purchases (25%) than before the hurricane (16%). Post-Katrina, fewer (26%) will use personal or private funds to manage cash flow than before Katrina (33% this year versus 28% in 2004). The percentage planning to use a charge or credit card to manage cash flow remains steady at 13% before and after the hurricane (versus 15% a year ago).
Healthcare Costs
Looking to contain rising costs, fewer respondents offer healthcare coverage to their employees dropping to 54% pre-Katrina, from 59% in the fall of 2004, and 60% in 2003. The percentage remained the same post-Katrina. Nearly one-third of small business owners (31% pre- and post-Katrina) feel the primary way policy makers can help improve access to healthcare is by supporting affordable small business health plans. Other respondents cite healthcare tax credits (11% pre-Katrina and 10% post-Katrina), more competition among health plans (10% pre-Katrina and 11% post-Katrina), self-employed tax deductibility (9% versus 7%), medical liability reform (7% versus 8%), health savings accounts (6% versus 7%), flexible spending accounts (5% versus 3%) and instituting a national healthcare plan (4% versus 1% post-Katrina).
Survey Methodology
The OPEN from American Express Semi-Annual Monitor, released each spring and fall, is based on a nationally representative sample of 626 small business owners/managers of companies with fewer than 100 employees, pre-Hurricane Katrina; the same survey was continued post-Hurricane Katrina where 338 interviews were completed. The survey was conducted via telephone by International Communications Research (ICR) prior to Hurricane Katrina from August 8- August 19, 2005 and following Hurricane Katrina, from September 8- September 15, 2005. The poll has a margin of error of +3.6%.
About OPEN from American Express
OPEN is the American Express team dedicated exclusively to the success of small business owners and their companies. The OPEN Team supports business owners with unparalleled service. With tailored products and services, the team delivers purchasing power, flexibility, control and rewards to help customers run their business. Specifically, business owner customers can leverage an enhanced set of products, tools, services and savings, including charge and credit cards, convenient access to working capital, robust online account management capabilities and savings on business services from an expanded lineup of partners. To obtain more information about OPEN(SM) click here, or call 1-800-NOW-OPEN to apply for a card or loan. Terms and conditions apply.
American Express Company is a diversified worldwide travel, financial and network services company founded in 1850. It is a world leader in charge and credit cards, Travelers Cheques, travel, financial planning, business services, insurance and international banking.
