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Wells Fargo/Gallup Survey: Small Business Optimism Dips in Second Quarter

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Small business owners reported being less optimistic in the latest Wells Fargo/Gallup Small Business Index, due to small declines in how they regard their business financial situation, most notably current revenues. The modest decline in optimism follows a significant jump in small business optimism at the end of 2014 and early 2015.

In a quarterly small business survey conducted April 6-10, the overall Index score, which measures small business owner optimism, dipped from 71 in January to 64 in April, representing the first significant decrease since November 2012. The second-quarter Index score is still considerably higher than it was in the second quarter of 2014 when the score was 47 and 2013, when the score was 16.

Several factors contributed to the decrease in optimism this quarter, including:

  • Lower revenue In the April survey, 42 percent of small business owners reported that their companys revenues increased over the past 12 months, down from 49 percent in January. However, the percent of business owners indicating revenue had increased is up from a year ago when it was 36 percent.
  • Slight drop in credit expectations When asked about access to credit, almost a third (30 percent) of small business owners said it was very or somewhat easy to obtain credit when they needed it, down slightly from 34 percent in January. Another 25 percent said credit was very or somewhat difficult to obtain in April, up from 20 percent in January and relatively unchanged from a year ago when it was 24 percent.

In a few areas, small business owners reported incremental improvements in their business, including:

  • Highest Cash Flow in Seven Years Fifty-eight percent of small business owners reported that their companys cash flow was very or somewhat good over the past 12 months, up from 54 percent in January and 50 percent a year ago. The percentage of business owners reporting good current cash flow is the highest since the first quarter of 2008.
  • Improved Financial Situation Sixty-five percent of small business owners rate their companys financial situation as very or somewhat good, unchanged from the January survey and up from 57 percent a year ago.

The latest Index scores show that while small business owners are in a better place now than a year ago, some still face challenges in this economic environment, said Lisa Stevens, Wells Fargo head of Small Business. A decline in revenues can influence business owner perceptions of current conditions and temper their optimism for the year ahead. Despite the pull back in optimism this quarter, theres more certainty in todays economy than at this time last year, and were seeing more promising trends.

Challenges

When business owners were asked to identify the most important challenge facing their business, several concerns rose to the top of the list in the April survey. Business owners said their top concern was attracting customers and finding new business (14 percent), followed by government regulations (11 percent) and the economy (11 percent). These top challenges have been consistently reported as top concerns of small business owners since early 2013, when the question was added to the survey.

Small Business Hiring Landscape

In the April survey, small business owners also were asked about hiring trends and plans. Just 16 percent of small business owners reported increasing the number of jobs at their company in the last 12 months, compared to 19 percent in January 2015 and 14 percent at this time last year.

While small business owners report finding qualified staff as their biggest hiring challenge, 40 percent said that the candidates who apply for jobs at their business are over- or under-qualified for the position, and another 33 percent report not having the time and resources to devote to finding the best candidates.

Beyond these challenges, small business owners are faced with an increasingly competitive hiring landscape today. In the April survey, small business owners cite several perceived barriers to hiring the most qualified staff, including:

  • More than two-thirds (68 percent) say they cant compete with the benefits and salaries that larger companies offer.
  • Fifty-seven percent believe they cant afford to offer the benefits that qualified candidates want.
  • Almost half (48 percent) are unable to offer full time status to qualified candidates.
  • Forty-five percent cant offer flexible schedules or telecommuting options, and another 40 percent say they cant provide technology such as smart phones, tablets or laptops to qualified candidates.

In spite of these challenges, business owners who are not looking to hire are most likely to report that they simply do not need employees (76 percent). While less than one in four employers (22 percent) report that they are planning to hire in the next 12 months, among those who do, most will turn to their personal networks and technology to help them find new staff. Such is the case with Mark Bitterman, owner of Portland, Ore.-based The Meadow Marche, Inc., which sells fine sea salts, dark chocolate and other gourmet items.

To keep up with our growing business and seasonal staffing needs, weve hired 20 employees across our three locations in the last year. We plan to add two additional full-time employees this year, said Mark Bitterman, owner of The Meadow Marche, Inc. We try to give our staff as much support as possible, including flexible work schedules, heath care and retirement benefits, and vacation. We also turn to our existing employees for referrals when were looking for new employees.

A vast majority of small business owners (88 percent) say that their most commonly used resource for finding employees is asking friends, family and other business owners for recommendations. Another 26 percent of owners report using LinkedIn or another business social media site to source candidates. Few small businesses report using a paid recruiter (7 percent).

When asked about hiring practices in the past, 79 percent of small business owners reported having contacted previous employers for references, while another 28 percent said theyve conducted a paid criminal background check. A fourth of survey respondents (25 percent) say they look up a candidates postings and history on personal social media sites, such as Facebook and Twitter.

Small Business Index Key Drivers

Wells Fargo and Gallup survey small business owners across the nation each quarter to gauge their perceptions of their present situation (past 12 months) and future expectations (next 12 months) in six key areas: financial situation, cash flow, revenues, capital spending allocation, hiring, and credit availability.

Wells Fargo/Gallup Small Business Index Scores: Q2 2014 Q2 2015

Overall Index Present Future
Score Situation Expectations
Q2 2015 (surveyed April 2015) 64 24 40
Q1 2015 (surveyed January 2015) 71 28 43
Q4 2014 (surveyed November 2014) 58 21 37
Q3 2014 (surveyed July 2014) 49 18 31
Q2 2014 (surveyed April 2014) 47 14 33

About the Wells Fargo/Gallup Small Business Index

Since August 2003, the Wells Fargo/Gallup Small Business Index has surveyed small business owners on current and future perceptions of their business financial situation. The Index consists of two dimensions: 1) Owners ratings of the current situation of their businesses and, 2) Owners ratings of how they expect their businesses to perform over the next 12 months. Results are based on telephone interviews with 601 small business owners in all 50 United States conducted April 6-10 2015. The overall Small Business Index is computed using a formula that scores and sums the answers to 12 questions six about the present situation and six about the future. An Index score of zero indicates that small business owners, as a group, are neutral neither optimistic nor pessimistic about their companies situations. The overall Index can range from -400 (the most negative score possible) to +400 (the most positive score possible), but in practice spans a much more limited range. The margin of sampling error is +/- four percentage points. The highest Index reading was +114 in the fourth quarter of 2006, and the lowest reading was -28 in the third quarter of 2010.

About Wells Fargo

Wells Fargo & Company (NYSE:WFC) is a nationwide, diversified, community-based financial services company with $1.7 trillion in assets. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 8,700 locations, 12,500 ATMs, and the internet (wellsfargo.com) and mobile banking, and has offices in 36 countries to support customers who conduct business in the global economy. With approximately 266,000 team members, Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 29 on Fortunes 2014 rankings of Americas largest corporations. Wells Fargos vision is to satisfy all our customers financial needs and help them succeed financially. Wells Fargo perspectives are also available at Wells Fargo Blogs and Wells Fargo Stories.

Wells Fargo serves approximately 3 million small business owners across the United States and loans more money to Americas small businesses than any other bank (2002-2013 CRA government data). To help more small businesses achieve financial success, in 2014 Wells Fargo introduced Wells Fargo Works for Small Business a broad initiative to deliver resources, guidance and services for business owners and a goal to extend $100 billion in new lending to small businesses by 2018. For more information about Wells Fargo Works for Small Business, visit: WellsFargoWorks.com. Follow us on Twitter @WellsFargoWorks.

About Gallup

For more than 70 years, Gallup has been a recognized leader in the measurement and analysis of peoples attitudes, opinions and behavior. While best known for the Gallup Poll, founded in 1935, Gallups current activities consist largely of providing marketing and management research, advisory services and education to the worlds largest corporations and institutions.

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