The Biggest Roadblocks to Small Business Growth
Daniel Kehrer cites 9 key findings from the Small Business Optimism Index.
By Daniel Kehrer
For the last 48 months in a row, the Small Business Optimism Index published by the National Federation of Independent Business (NFIB) has pointed to weak sales as the number one small business concern. And it’s a good bet that string isn’t over yet.
Another recent NFIB study that examined impediments to growth reveals some interesting findings about what business owners are thinking and planning on the growth and expansion front. Here are nine key findings:
- Modest Growth Preferred: While small business owners want their businesses to grow, most prefer modest growth over rapid expansion. About 72 percent would like to add employees in the next five years, usually about one to four positions. But some 18 percent of business owners don’t want to change size at all, and six percent would actually like to shrink.
- Not all Desired Growth is “New Growth.” While 41 percent want to add employees compared to where they were in 2008, 24 percent simply want to recoup employees lost over the last three years. Another 17 percent have down-sized their businesses more or less permanently, though a few in that group want to replace some of the positions lost during the Great Recession.
- Biggest Roadblocks are Business Uncertainty and Weak Sales. At the same time, business owners say the single most important indicator that would renew their confidence is increased sales. (Still, there are some businesses that say they are doing just fine; about eight percent see no serious impediments to growth.)
- Plans to Introduce New Products and Services Accelerate: In response, business owners are making changes and innovating more. Just over half who say weak demand is holding them back plan to make major changes in how they market their goods and services over the next few years. About 28 percent of that group (19% of all the business owners surveyed) plan to introduce a product, service or process that they have created, modified or significantly refined and to promote or license it as an innovation.
- Cash Remains King: Over half (53%) who think the lack of finance is an impediment also think that internally generated cash flows will be their most important source of financing any new business investments over the next five years. Bank loans will be the second most common source. However, there’s a problem here. One third of all business owners who complain of tight credit say that existing debts are “seriously constraining” their ability to finance desired business investment, and another 44 percent say it’s a problem. Just five percent plan to use banks as their primary source of finance and do not have debt or other “constraining financial obligations” that are holding them back.
- A Skilled Employee Shortage: Sixty-one (61) percent reporting the lack of skilled employees as an impediment (or 24% of all owners surveyed) would hire at least one additional employee right now if they could find people with appropriate skills. Over 37 percent (9% of the population) would employ more than one. During the depths of the Great Recession, almost three times as many had too few skilled employees on the payroll as had too many.
- Management Teams are Intact: Just 15 percent of small business owners cite the lack of a strong management or advisory team (accountant, attorney, etc.) as an impediment to growth. Of the group currently possessing a “management team,” 47 percent are highly confident their current team can provide needed guidance to reach the firm’s growth objectives.
- Red Tape Remains Ruinous: The regulatory thicket remains a concern. Nearly a third of all business owners surveyed had a current investment or project slowed down by a regulatory matter, with one quarter of them either cancelling a project scheduled over the last six months or abandoning project plans.
- Access to Technology not a Concern: Most business owners feel that they have sufficient access to technology to help their business grow. The practical capacity to access necessary technology is not often considered an impediment.