SMALL BUSINESS. Business Leaders Outlook

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1 SMALL BUSINESS Business Leaders Outlook

2 Table of Contents Introduction 4 Digital Marketing 30 Revenue and Sales Growth Taxes and Regulation 9 18 Small Business Summary Middle Market and Small Business Comparison Talent 25

3 Small Business Leaders Outlook: Growing Optimism Rooted in Practicality Small businesses are and will continue to be great drivers of innovation and growth. Serving nearly 4 million of these dynamic businesses across the country, Chase is in the fortunate position of supporting individual clients as well as observing macro regional and national trends. To that end, we are pleased to present the Small Business Leaders Outlook Study. We hope this resource will provide valuable insight into the small business segment overall and help you reflect on your own outlook for the year ahead. This report provides the collective viewpoints of 2,000 US small business leaders who took part in this, our third annual survey. They shared opinions on a wide range of topics, ranging from talent and taxes to sales and marketing tools. You ll also see a comparison of outlooks between small business and middle market companies. My Chase colleagues and I are pleased to provide you with this year s report and welcome the chance to hear your thoughts, concerns and ideas as a result. JENNIFER PIEPSZAK CEO, Chase Business Banking 3

4 Introduction

5 Domestic Optimism Continues Its Rise as Concerns Over Some Challenges Ease What is your outlook on the following for the next 12 months? (Percent of Responses) As small businesses move even further past the recession and its after-effects, and as some uncertainties and concerns continue to ease, their leaders optimism about the national economy continues to climb for the second year in a row. Looking out over, these leaders are significantly more optimistic about the national economy now than they have been for the past three years. Furthermore, their pessimism about the national economy continues to decline and is down decidedly from last year. GLOBAL ECONOMY NATIONAL ECONOMY LOCAL ECONOMY Pessimistic Optimistic

6 What is your outlook on the following for the next 12 months? (Percent of Responses) NATIONAL ECONOMY LOWER REVENUE COMPANIES Pessimistic The survey responses are broken out into two segments: those representing higher-revenue businesses (with annual revenues of $500 thousand to under $20 million) and those representing lowerrevenue businesses (with annual revenues of $100 thousand to under $500 thousand) to examine their similarities and differences. Optimism is Greatest Closest to Home This heightened optimism is much more pronounced in the higher-revenue segment of small businesses, whose leaders confidence in the national economy this year has risen as dramatically as their pessimism has fallen. Leaders in the lower-revenue small business segment also indicate significantly greater optimism about the national economy, continuing the Optimistic HIGHER REVENUE COMPANIES rise they showed last year. In fact, the percentage of them who indicate they are very optimistic has now doubled. Meanwhile, small business leaders are even more optimistic about their local economies than they are about the national economy, with both the higherand lower-revenue segments sustaining the rise in local-economy optimism they registered last year. What s more, small businesses overall have sustained similarly high levels of optimism regarding their own industries performances, with those with higher annual revenues slightly outpacing others in their optimism about their industries. The Midwest s small business leaders optimism about the local economy has grown the most from last year to this. In 2014, 45 percent said they were optimistic, but this year that optimism has spread to 61 percent.

7 I think the economy has been moving in the right direction for a while now! I have hopes for more of the same in. a member of the Chase Small Business Online Community But, it s their own companies performances over the coming year that small businesses across the board are most optimistic about. This has remained true since 2013, the year in which this survey was first conducted. As also evidenced year to year, optimism rises as company revenues increase. That is, higherrevenue businesses tend exhibit more own-company optimism (77 percent this year) than lower-revenue companies (64 percent) when anticipating their businesses coming annual performances. As the View Broadens, Optimism Dims Small business leaders domestic outlook compared to their global outlook confirms that they generally feel more optimistic about things they are closer to and feel more able to have an impact on from their own companies to the national economy. This year, as in previous years, small businesses are far less optimistic about the global economy than the national economy. Relatively few small businesses are currently engaged in doing business globally. Therefore, their perceptions about the global economy could be driven more by headlines than by direct experience. In fact, there is a rise in those who indicate they are pessimistic about the global economy this year, particularly among lower-revenue small businesses. 7

8 Challenges Persist, but Concern Around Many is Easing This year, small business leaders concerns around certain areas of challenge are continuing to ease, reflecting their growing optimism about the national economy. Fewer regard the regulatory environment s impact on their companies ability to expand as a stumbling block. Their concerns about taxes continue to ease, perhaps because as tax policy has disappeared from the national headlines, business leaders have become less sharply focused on it. Healthcare-cost concerns are easing, as the new regulations have finally begun to take effect and businesses are, consequently, now dealing with their realities rather than operating under a cloud of uncertainty. In conjunction with their growing optimism about domestic economic conditions, their level of concern around the uncertainty of economic conditions continues to inch downward. And, since credit appears to be available to those who want it, businesses are less concerned about this. Nevertheless, challenges are challenges, and small business leaders perceive them according to their own specific realities. I ve had two of my best years ever. But, I m in a very volatile business, so I live by the theory, Neither success nor failure is permanent. a member of the Chase Small Business Online Community

9 Revenue and Sales Growth

10 Business Expectations are Intertwined with Perceived Business Challenges Revenue/Sales and Profit Expectations Next 12 Months (Percent of Responses) LOWER REVENUE HIGHER REVENUE COMPANIES COMPANIES REVENUE/ REVENUE/ SALES PROFITS SALES PROFITS What are your expectations for your business for the next 12 months? The Northeast s business leaders (43 percent) are less likely than those in other regions to believe that their profits will increase this year. Increase moderately Increase substantially Great Expectations? Mainly, Yes. The majority of respondents expect that their businesses will see both increased sales and increased profits over, and more higherrevenue company leaders expect to grow these substantially compared to last year. Slightly more than half of lower-revenue companies expect to grow their sales or profits this year. Having indicated enthusiastic expectations last year, their expectations for sales and profit growth have now returned to 2013 levels.

11 I m confident in my business s outlook for. My services are in demand, and my client base is increasing. a member of the Chase Small Business Online Community Given Challenges and Concerns, Where Lies the Path to Growth? Most small businesses (72 percent) plan to achieve growth this year by attracting new customers. This is by far their most cited growth-strategy focus. However, among larger-revenue businesses, 8 percent fewer are likely to focus on this over the coming year than they were last year. Small businesses overall are also somewhat less likely to expand their product/service offerings (35 percent this year versus 45 in 2014), though this remains their second most-common strategy. Upselling/ cross-selling to their existing customer base, similarly, remains the third most-common growth strategy, with higher-revenue businesses 7 percent less likely to use this tactic than last year. There are also some differences between the two business segments relative to other, less frequently cited growth strategies. Those planning growth through mergers rose this year, most significantly among higher-revenue companies. This segment of small businesses is also more likely than lowerrevenue companies to seek growth through adopting new channels, expanding target markets domestically and globally and participating in acquisitions. And, they are more likely to focus on these this year than they were in Most of these growth plans are aimed at domestic growth, since most small businesses do not have foreign operations, thus few are expecting growth to come from global markets. Of those (22 percent) small businesses that do conduct business internationally, more sell to than buy from foreign markets, but these and other international activities are, not surprisingly, seen much more frequently in higher-revenue businesses than in lower-revenue companies. 11

12 Capital Expenditure Expectations: Next 12 Months (Percent of Responses) LOWER REVENUE COMPANIES HIGHER REVENUE COMPANIES What are your expectations for your business for the next 12 months? Increase moderately Increase substantially As they pursue growth this year, small businesses overall expect to increase capital expenditures at a level on par with previous years. However, in keeping with their strategic growth plans, such as expanding into new markets, adopting new channels and participating in mergers, significantly more higher-revenue businesses than last year expect to increase their capital spending. I believe my business can grow if I add certain pieces of equipment, and I believe I will get a return on investment that will let me make the payments. a member of the Chase Small Business Online Community

13 As a small business owner, I believe economic trends are showing improvements in most areas. However, generally speaking, the economy has to improve for about six to twelve months for consumers to feel confident enough to start utilizing their excess spending money on services we provide. Even though the economy is improving, it will likely need to stay strong for a good time frame to significantly improve my bottom line. a member of the Chase Small Business Online Community How concerned are you about the following challenges? (Percent of Responses) REVENUE/ SALES GROWTH UNCERTAINTY OF ECONOMIC CONDITIONS Not at all concerned HEALTHCARE COSTS Very concerned MANAGING ALL OTHER COSTS Extremely concerned TAXES

14 Easing Concerns About Some Significant Challenges Small businesses project that the biggest challenge they will face in is growing revenue. After increasing sales/revenue, the next most cited concerns are uncertainty of economic conditions, taxes, and healthcare costs, followed by managing cash flow. Though uncertainty of economic conditions remains the second-greatest area of concern to small businesses in general, higher-revenue companies exhibit less concern about this than lower-revenue businesses. This likely reflects their significantly higher levels of optimism about the national economy and their own companies performances this year. Professional services companies are less concerned about managing labor costs than other companies in most other industries. Only 7 percent of them list this as a top concern. While both segments are most concerned with growing sales/revenue, lower-revenue business leaders are more concerned than other leaders. Because they have less concern about other top challenges, they may be placing most of their focus on their revenue-growth concerns. Small business leaders perennially cite taxes as a top area of concern. However, though lower-revenue companies continue to rank this as their thirdgreatest area of concern, they are 5 percent less concerned about taxes this year. Higher-revenue companies, however, are more concerned about managing cash flow labor and all other costs than about taxes, which they this year rank fifth in terms of level of concern.

15 Healthcare-cost concerns also continued to lighten for small businesses overall this year, as they have since 2013 and particularly since the ACA has gone into effect. Comparatively, higher-revenue businesses have the greater concern about healthcare costs, although their degree of concern about these costs has dropped significantly (down 7 percent from last year). This is likely due to their having now become more familiar with the realities of the new healthcare legislation and put measures into place to offset additional costs. Lower-revenue companies, on the other hand, are not as concerned. The tax credits available for the insurance coverage some small businesses do provide are likely partially contributing to an ease in healthcare cost concerns. Notably, concerns about the availability of capital and/ or credit have eased significantly this year for small businesses on the whole, and significantly more for lower-revenue companies. As the economy improves, small businesses are less concerned with regulatory issues and more concerned with competition and changing technology. Domestic competition seems to be more of a concern as businesses get larger. Dealing with changing technology, which small businesses are slightly more concerned about this year than last, also seems to be a particular area of rising concern for higher-revenue businesses. Their level of concern over this has risen by a significant 9 percent this year. The Midwest s small businesses are more concerned with healthcare costs than businesses in most other regions this year, with 27 percent of them listing this as a top concern.

16 What type of impact has the reduction in oil prices had on your organization? 8% NEGATIVE IMPACT 50% POSITIVE IMPACT A decline in gas prices leaves more disposable income available for consumers, and we expect this will positively impact our business. a member of the Chase Small Business Online Community 42% NO IMPACT Another topic small business leaders were asked This year, survey respondents weighed-in on about this year was how lowered oil prices have cybersecurity. For the group as a whole, this challenge affected their businesses. Between June and resonates quite a bit, ranking just behind the December 2014, the price of oil fell by more than 40 challenge of maintaining or increasing productivity. percent. This survey was conducted from late January Higher-revenue companies even rank it just ahead to early February of this year, giving respondents a of productivity concerns, with 41 percent concerned chance to assess the price decline s impact on their about it, but lower-revenue companies, too, are businesses over the previous six months. Overall, the concerned, at 33 percent. They now have a significant positive effects far outweigh the negative. Although 9 percent higher level of concern about this. the percentage of higher-revenue companies negatively impacted is small, they are twice as likely to have experienced a negative impact as lowerrevenue companies. 16

17 Construction companies are less likely to consider financing this year than they were last year. Whereas 31 percent of construction company leaders indicated no anticipated need for financing in 2014, 49 percent of them indicate they will not need it this coming year. While Some Will Seek Outside Financing, Others Will Rely on Internal Resources for Growth Over the next 12 months, just over half (52 percent) of small businesses anticipate the need for additional financing, 9 percent fewer than anticipated needing it last year. Those who intend to seek financing are most likely to do so for the purpose of raising working capital, although 9 percent fewer cite this purpose compared to last year. Among the higher-revenue segment, about two-thirds expect to need financing this year, relatively unchanged from last year. Significantly fewer businesses, especially among lower-revenue companies, expect their need for credit to increase this year. As was true in past years, those who expect to need financing are most likely to use a line of credit, with 60 percent indicating this choice. Business credit cards are the next most common choice among those seeking additional financing, although fewer plan to use this option this year. Most respondents who don t expect to need financing cited having generated sufficient capital internally as their main reason. In fact, 31 percent of small businesses feel that they have sufficient capital internally to finance their plans without borrowing. Consistent with their greatest optimism about the national economy, business leaders this year less often cite economic uncertainty than they did last year. They also less frequently cite having been denied credit previously. Selling, Transferring Ownership of, or Exiting Businesses is Not on Most Companies Agendas Most survey respondents say they do not have plans to sell, transfer ownership of or exit their businesses over the next 10 years. In fact, over two-thirds of them have no such plans, in keeping with last year s findings. Of those who do have such plans, the majority say they re planning to sell or transition ownership to another individual. When asked whether they have a formal succession plan in place, 73 percent say they do not. 17

18 Taxes and Regulation

19 Regulatory Environment Seen as Less of a Stumbling Block to Business Expansion, as Certain Concerns Ease Government regulation is generally an ongoing concern of small business, but this year s survey responses indicate that 14 percent fewer company leaders think the regulatory environment is making it more difficult for their businesses to expand and hire more workers. In fact, those who say it is actually making it easier to expand have increased from last year particularly among higher-revenue businesses. Less Potential Regulatory or Policy Threat to Company Growth Survey participants identify the same top four areas of potential regulatory or policy threat to their businesses as they did last year: (1) taxes; (2) healthcare regulation; (3) fiscal policy (government spending); and (4) payroll/employment taxes. Taxes and healthcare regulation the two challenges that businesses express the greatest concern over are also the top two potential regulatory/policy threats they perceive to their companies growth. However, they feel less threat to growth from these this year. Their concern about the threat of taxes fell by 7 percent, and their concern about the threat of healthcare regulation fell by 8 percent. Concerns around fiscal policy (government spending) and payroll/employment tax, the next two areas perceived as having the greatest potential threat to small business growth, similarly fell by 8 percent. 19

20 A notable area of rising concern to small businesses this year is the potential threat of energy regulation. At 24 percent, overall concern about this has risen by 4 percentage points since last year. This is particularly so among higher-revenue businesses, whose concern has grown by 10 percent this year to reach 31 percent. This may have to do with lower oil prices, which have had an overall positive threats on small businesses and the fear that new regulatory developments may emerge around them. Another rising concern is particular to higher-revenue businesses. Their leaders register greater concern (a 9 percent rise from last year to 24 percent this year) about foreign trade policy, and certainly have more concern about this than lower-revenue businesses. Oil could have an impact down here in Texas, so that is the big one that worries me. Other areas look good, so I think overall things will be decent. a member of the Chase Small Business Online Community

21 Do you cover health insurance for employees? (Percent of Responses) TOTAL LOWER REVENUE COMPANIES HIGHER REVENUE COMPANIES No Yes Difference from 2014 Healthcare Coverage Expands With the Affordable Care Act now in effect, there is some movement indicated in survey data about how small businesses are perceiving, reacting to, and planning around healthcare regulation. This year sees a significant rise in small businesses that provide health insurance coverage for their employees. Although the rise is seen mainly in higherrevenue companies, lower-revenue companies are also covering employee health insurance more often this year than last year. Those who do not provide it are likely among the vast majority of small businesses that do not reach the 50-employee threshold ACA stipulates for mandatory health insurance provision. 21

22 What actions has your company taken to offset the higher costs of healthcare? (Percent of Responses) IMPOSED HIGHER DEDUCTIBLES REQUIRED EMPLOYEES TO PAY GREATER PRECENTAGE OF COSTS RESTRAINED 19 HIRING 24 OFFERED MEDICAL SAVINGS ACCOUNT PROVIDED WELLNESS PROGRAM DECREASED QUALITY OR BREADTH OF BENEFITS OFFERED LIMITED COVERAGE TO THE MINIMUM PERMISSIBLE UNDER THE LAW REDUCED EMPLOYEE HOURS TO FEWER THAN 30 PER WEEK DROPPED SPOUSE COVERAGE/ADDED SURCHARGE FOR SPOUSE COVERAGE DROPPED EMPLOYER-SPONSORED COVERAGE NONE Those that do not offer health insurance coverage are significantly less concerned about this placing them at a competitive disadvantage this year. Only 23 percent of those who do not offer coverage are concerned about this now versus the 30 percent concerned last year. Higher-revenue companies have somewhat more concern about this, likely due to more often meeting the ACA headcount threshold for mandated employer coverage than lower-revenue businesses. With the ACA now in effect, over three-fourths of companies who offer healthcare coverage to their employees have taken actions to offset the higher costs, an increase from last year. The most common action was passing those costs on to employees, by imposing higher deductibles and/or requiring employees to pay a greater percentage of costs, followed by restraining hiring. Going forward, companies similarly expect to take these same three primary actions in response to healthcare cost concerns, with restraining hiring the top action planned by small businesses overall this year, as it was last year. 22

23 The cloud of regulatory changes that may or may not materialize always makes me wonder where we ll have to be in three to five years. a member of the a member of the Chase Small Business Chase Small Business Online Community Online Community We Wish the Government Would Focus on Small business leaders were asked which three areas they want the government to focus on over the next 12 months to best support small-business growth. Their responses indicate some shifts in the level of urgency among their priorities from last year. Their first priority for government focus is lowering tax rates and reducing credits and deductions. Second, they want the government to reduce regulations. Their third priority is reducing the federal deficit, although this is less urgently expressed by respondents this year. The next most-cited priority is ensuring financial stability and access to affordable capital, also saw a drop-off in urgency this year across the board. This likely ties into the easing of concern expressed about credit availability this year, coupled with the decrease in expected need for outside financing. Something new asked of survey participants this year was whether they thought the government should focus on immigration reform. Across segments, 20 percent of small business leaders felt government focus on this would support their growth. 23

24 Which 3 areas should the Government focus on in the next 12 months that would best support small and medium-sized businesses? (Percent of Responses) LOWER TAX RATES AND REDUCE CREDITS AND DEDUCTIONS REDUCE REGULATIONS REDUCE THE 40 FEDERAL DEFICIT 48 ENSURE FINANCIAL STABILITY AND ACCESS TO AFFORDABLE CAPITAL IMPROVE INFRASTRUCTURE IMMIGRATION REFORM 20 CREATE AND FOSTER A SKILLED WORKFORCE CREATE A COMPREHENSIVE JOBS PLAN PROTECT COSUMERS INTERESTS CYBERSECURITY LEGISLATION EXPAND FOREIGN TRADE OPPORTUNITIES

25 Talent

26 Decreased Economic Uncertainty and Expected Sales Growth Encourage Hiring What are your employment and compensation projections for the next 12 months? Employment Projections: (Percent of Responses) TOTAL FULL-TIME Similar to last year, small businesses that plan to increase their numbers of full-time employees EMPLOYEES or maintain them at current levels far outweigh those who plan to cut their full-time headcounts. PART-TIME EMPLOYEES Higher-revenue businesses, not surprisingly, plan to increase their full-time employee hiring more than lower-revenue businesses do. Plans to hire more part-time workers this year declined this year from their levels overall, particularly for lowerrevenue businesses. FULL-TIME EMPLOYEES 2 LOWER REVENUE COMPANIES Sales growth is the primary driver of change. This has been the top reason respondents give each year, but fewer cite it this year. They cite decreases in labor costs and decreases in economic uncertainty more frequently than in 2014, reflecting their greater optimism about the improving economy. Higherrevenue companies, meanwhile, are more likely than those of lower-revenue businesses to increase hiring due to a need for employees with skills their current workforces don t have. PART-TIME EMPLOYEES FULL-TIME EMPLOYEES PART-TIME EMPLOYEES Decrease Remain the same HIGHER REVENUE COMPANIES Increase 26

27 What are the primary reasons for increasing your hiring plans? (Percent of Responses) EXPECTED SALES GROWTH CURRENT WORKFORCE OVERWORKED NEED SKILLS NOT POSSESSED 35 BY CURRENT WORKFORCE 34 COMPANY S FINANCIAL POSITION HAS IMPROVED This year, 40 percent of manufacturing companies are likely to hire more fulltime employees, compared to 28 percent last year. LABOR COSTS HAVE DECREASED DECREASED ECONOMIC UNCERTAINTY HIGH EMPLOYEE TURNOVER Those small business leaders who do not plan to increase their hiring of full-time employees this year say this decision is based, first and foremost, on insufficient demand and respondents cite this reason more often this year than last. Also in keeping with their increasing optimism about the national economy, fewer business leaders cite worries about the sustainability of the economic recovery as a reason to restrain hiring. Nevertheless, this remains their second most common reason. Higher-revenue businesses are more likely to restrain full-time hiring because of regulatory or government policy uncertainties. Businesses uncertainties about higher healthcare costs remain the third reason for not hiring more full-time staff this year, despite general concern about these costs having declined. 27

28 What are your primary reasons for restraining your hiring plans for full-time employees? (Percent of Responses) INSUFFICIENT DEMAND WORRIES ABOUT THE SUSTAINABILITY OF THE ECONOMIC RECOVERY UNCERTAINTIES ABOUT HIGHER 25 HEALTHCARE/INSURANCE COSTS 30 INCREASED EFFICIENCY/ PRODUCTIVITY INCREASED TAXES UNCERTAINTIES ABOUT REGULATIONS OR GOVERNMENT POLICIES COMPANY S FINANCIAL POSITION HAS WEAKENED LIMITED ACCESS TO CAPITAL 17 NO NEED FOR NEW EMPLOYEES NO DESIRE TO EXPAND/HAPPY WITH CURRENT LEVEL/FAMILY BUSINESS

29 Employment Compensation Projections: (Percent of Responses) Compensation Levels Remain Stable or Increase Overall, about 98 percent of small businesses plan to increase or maintain compensation levels this year, which is consistent with last year. Higherrevenue companies plan to increase compensation more than do lower-revenue companies, at about the same relative proportions as last year. In turn, lower-revenue companies, more than higherrevenue companies, are planning to maintain current compensation levels again, at about the same relative proportions as last year. TOTAL SMALLER COMPANIES LARGER COMPANIES The Higher the Revenue, the Greater the Skills Gap Small business leaders show about the same level of concern as last year about the limited supply of skilled candidates. Overall, 27 percent are extremely or very concerned. As might be expected, this concern is greatest, at 36 percent, among higher-revenue companies, as they tend to need more employees with more sophisticated skill sets. To address this lack of appropriately skilled available talent, small businesses are most commonly offering higher wages and increasingly trying to recruit and retain older workers. They are also, this year, more likely than last year to accept lower skill sets. What are your employment and compensation projections for the next 12 months? Decrease Remain the same Increase 29

30 Digital Marketing

31 Does your business currently use any of the following? (Percent of Responses) COMPANY WEBSITE FACEBOOK PAGE LINKEDIN ACCOUNT TWITTER ACCOUNT Small Businesses are Engaged With Technology PAID DIGITAL ADVERTISING BLOG 2014 Usage has grown for two of the most widely used social media tools, Facebook and Twitter. To a certain extent, small businesses could be using these channels in lieu of building company websites, perhaps because of the relative ease they offer and perhaps because of their naturally more viral nature. Businesses are still more likely to use a company website than any other digital channel (69 percent). About half of them have LinkedIn (51 percent) and Facebook (52 percent) pages, and a third (33 percent) have Twitter accounts for their business Do not have, plan to get in the next 12 months Currently have

32 Our industry is changing. We need to learn to use technology better and to encourage our customers to do the same. If we do the same old thing, we re going to lose out to those who can keep innovating and coming up with fresh ideas to present to the market. a member of the Chase Small Business Online Community a member of the Chase Small Business Online Community 32

33 In which of the following ways does your company use mobile technology? (Percent of Responses) MANAGE BUSINESS FINANCES/ BANKING VIA MOBILE DEVICES ACCEPT CREDIT CARD PAYMENTS VIA MOBILE DEVICES MAKE PAYMENTS VIA MOBILE DEVICES COMPANY HAS A DEDICATED MOBILE WEBSITE Smaller Revenue Companies Larger Revenue Companies Since 2013, higher-revenue companies have increasingly used Facebook pages, Twitter accounts, digital advertising and blogs, with significantly more of them viewing these as very or extremely important to their businesses in keeping with this higher-revenue segment s greater use of these channels. Overall, 28 percent of leaders believe social media is important to their business and, at 35 percent (a 7 percent rise from last year), leaders in the higher-revenue segment are even more likely to take this view. Mobile Technology Use for Business Management Is Gaining Ground This year s survey, for the first time, asked business leaders about their use of mobile technologies, which is gaining tremendous ground as a preferred channel for business use. Small businesses, like others, are indeed turning to mobile devices to manage their businesses. Over half of them use mobile technologies, with those in the higher-revenue segment more likely to take advantage of these tools. Those businesses that use mobile technologies most commonly use them to manage business finances and/or banking (30 percent) and to accept and make credit card payments (25 percent each). Next year s survey will track the direction their use of mobile technologies takes. Social Media and Digital Advertising Challenges Don t Deter Usage Participation in social media and digital advertising presents challenges to only a relatively small portion of businesses. Of those few who do indicate challenges, most (8 percent) say cost remains their greatest concern. Higher-revenue businesses are more likely than others to indicate also being challenged when it comes to seeing the results, effectiveness and/or benefits from their investment in digital and social media. 33

34 Small Business Summary

35 Small Businesses: Realistic Optimists or Optimistic Realists? It s never been easy to successfully run and sustain a small business. It takes a lot of hard work, a lot of can-do spirit and a lot of tightrope walking. But small businesses are the engines that drive quite a bit of the innovation in our society. And they often do this while performing miracles, or at least amazing feats, with their budgets. They re as nimble as they are vigilant, but most of all, they are courageous. This year, the spirits of small business leaders seem to be high, despite lots of natural caution and notwithstanding plenty of perennial challenges. Both segments those with higher annual revenues together with those whose are lower have the most optimistic outlook on the domestic economy this year than in the past three years of this survey, which says a lot. Typically, small businesses take longer to feel the direct effects of a recovering economy than larger ones do. Although they hear about it in the news, and may even feel it in the air, they might not see it on their balance sheets for a while to come. But, that doesn t stop them from expecting growth or planning for it. Their challenges may, and do, remain the same, but their degree of concern about many of these has lightened a bit. That feeds the flame of growing optimism, yes. But it s also an indication of enduring realism. If there s anything a small business leader is, it s a realist and for realists to feel more optimistic is a very good sign, indeed. I m very optimistic about our business. We re adding people and planning some significant expansion in. a member of the Chase Small Business Online Community

36 Middle Market and Small Business Comparison

37 Economic Outlook Brightens Domestically, Dims Internationally The Chase Business Leaders Outlook survey is conducted among leaders of businesses representing two distinct segments: small businesses, with annual revenues of between $100,000 and $20 million, and middle market businesses, with annual revenues between $20 million and $500 million. While the survey is tailored differently to each segment, the vast majority of its questions are asked in the same way of all survey participants. This provides the opportunity to compare and contrast the general findings from both surveys. Because marks the fifth year the middle market survey has been conducted, and the third year of the small business survey, trends among each group are readily observed. This section of the Business Leaders Outlook will compare this year s overall small business and middle market business results, highlighting notable trends within each. In general, both groups feel even more optimistic about the national economy this year than they felt last year. Historically, both segments have felt much less optimistic when considering the global versus the national economy. This year, unlike last year, both small and middle market businesses have grown more pessimistic about the economy outside the US. Both business segments agree about their top two challenges being able to grow revenue and uncertainty of economic conditions. However, middle market businesses third-greatest challenge is the lack of available skilled talent, whereas for small businesses taxes come third. Small and middle market businesses generally feel less negative effects from the regulatory environment, but have differing levels of concern around specific regulations. Middle market businesses are more optimistic than small businesses about increasing revenue and sales this year. They also plan to increase their hiring of full-time employees more than small businesses. Both segments are less worried this year about the availability of capital or credit, but the majority of companies within both segments anticipate no need for outside financing. Overall, neither segment views the regulatory environment as a major challenge to business expansion.

38 What is your outlook on the following for the next 12 months? (Percent of Responses) Degrees of Optimism Follow a Pattern SMALL BUSINESS MIDDLE MARKET As survey responses have shown year to year, small business leaders optimism generally tends to diminish as they look farther away from their own GLOBAL ECONOMY GLOBAL ECONOMY companies and locales to the national economy and, ultimately, the global economy. Widening the lens to their local economies, both groups have largely maintained the upswing in optimism they registered last year. Viewing the NATIONAL ECONOMY NATIONAL ECONOMY national economy, both groups indicate an even stronger sense of confidence than they did last year. Middle market businesses in particular exhibit a leap in such optimism. Opening the lens fully to survey the global economy, LOCAL ECONOMY Pessimistic LOCAL ECONOMY Optimistic both groups, having felt more positive about the global economy last year, now indicate not only less optimism but also greater pessimism. Middle market leaders are less enthusiastic about the global economy than are small business leaders. 38

39 What are the top 3 challenges facing your business in? (Percent of Responses) SMALL BUSINESS MIDDLE MARKET REVENUE/ SALES GROWTH 50 REVENUE/ SALES GROWTH 63 UNCERTAINTY OF ECONOMIC CONDITIONS TAXES UNCERTAINTY OF ECONOMIC CONDITIONS 35 MANAGING CASH FLOW 25 LIMITED SUPPLY OF CANDIDATES WITH THE RIGHT SKILLS 35 HEALTHCARE COSTS MAINTAINING OR INCREASING PRODUCTIVITY LABOR COST MANAGEMENT 34 MANAGING ALL OTHER COSTS 18 REGULATORY REQUIREMENTS/CHANGES 33 AVAILABILITY OF CAPITAL/CREDIT REGULATORY REQUIREMENTS/CHANGES US COMPETITION/ COMPETITIVE ENVIRONMENT 24 LABOR COST MANAGEMENT 14 US COMPETITION/ COMPETITIVE ENVIRONMENT LIMITED SUPPLY OF CANDIDATES WITH THE RIGHT SKILLS LACK OF CONSUMER CONFIDENCE 10 COST OF COMMODITIES 10 CYBERSECURITY 8 FOREIGN COMPETITION/ COMPETITIVE ENVIRONMENT COST OF COMMODITIES FOREIGN COMPETITION/ COMPETITIVE ENVIRONMENT CORPORATE OR SUB-CHAPTER S TAXES AVAILABILITY OF CAPITAL/CREDIT 11 LACK OF CONSUMER CONFIDENCE

40 Challenges and Concerns Converge and Diverge Both segments of business leaders continue to view sales and revenue growth as their greatest challenge of all. Middle market businesses have greater expectations for increasing both sales and profits than small businesses. The two segments also agree on their secondgreatest challenge: uncertainty of economic conditions. Small business leaders degree of concern about this remains unchanged. Middle market leaders concern, though, has eased somewhat from last year, as they grow more confident in the national economy. Small and middle market business leaders opinions diverge on what their third-greatest challenges are. For middle market leaders, it is the limited supply of appropriately skilled job candidates. Small business leaders, however, place this talent issue much lower on their list of challenges. This difference might be attributable to two factors: first, small businesses have fewer open positions to begin with; second, middle market companies often require higher skill levels for their open positions. Instead, small businesses are far more concerned about taxes and, because of this, ranked it as their thirdgreatest challenge. The two segments assign differing levels of significance to other challenges, as well. Middle market businesses place more importance on regulatory requirements and managing labor costs. Small businesses, by comparison, are more preoccupied with healthcare costs though their degree of concern about these has eased significantly this year and with managing cash flow. Both groups are less concerned about the availability of capital and credit than last year. Small businesses see this as a more significant challenge than middle market businesses.

41 Similarities Emerge in Business Expectations and Plans for Growth The majority of both segments leaders continue to expect to increase their revenue and sales, middle market companies more so than small businesses. The two segments expect about the same modest levels of capital expenditure as anticipated in Their expected credit needs have declined proportionally to similar levels. Attracting new customers is again the primary growth strategy for both groups of respondents. This is particularly so among small businesses, who cite this more often than middle market leaders. Both segments plan to focus on expanding or diversifying their product and service offerings. Both segments interest in product diversification declined this year, with small business interest consistently lower than middle market. The declining focus on diversification in both middle market and small businesses may be because it is expensive to expand offerings. Indeed, both groups reported concern about economic uncertainties. Small businesses in particular are concerned about managing cash flow, while middle market businesses are focused on managing labor costs. Middle market companies are much more involved in global business than small companies. Though they register more pessimism this year about the global economy, many have plans for global expansion over the next five years. Fewer middle market and small business leaders anticipate the need for outside financing over the coming year than they did in Both groups attribute this to having generated sufficient capital internally. Small businesses less often cite economic uncertainty this year as a reason for not needing financing, perhaps reflecting their greater optimism about the national economy. Middle market leaders who do anticipate the need for financing most often say they plan to purchase capital equipment or make acquisitions. Small business leaders, meanwhile, cite working capital needs as their primary purpose for seeking financing, followed by purchasing capital equipment. They cite both of these at lower levels than last year. Seeking financing for purchasing facilities markedly declined. Both business segments prefer to use a line of credit for the financing needs they anticipate. 41

42 Collectively, both small and middle market leaders put less emphasis on economic sustainability as a reason for not hiring. Employment and Compensation Plans Differ The two business groups have different hiring plans over the coming months. Like last year, more than half of middle market, but just over a quarter of small business, companies expect to increase hiring for full-time positions. Middle market leaders say their hiring plans are because of expected sales growth, overtaxed workforce, or a lack of the right skills in their current workforce. Small business leaders also expect sales growth to push increased hiring. They also cite a lack of skills and overtaxed workforce as drivers of hiring (but in reverse order compared to middle market). Part- time hiring will remain constant for middle market businesses. Small businesses, however, are slightly less likely to increase their hiring of part-time workers this year. The reasons middle market companies give for planning to maintain, or in some cases decrease, current employment levels are: increased productivity, insufficient demand, and worries about the sustainability of the economic recovery. Small businesses that plan to restrain hiring cite insufficient demand first, then worries about the sustainability of the economic recovery, followed by uncertainties about higher healthcare costs. Middle market leaders rank this as their fourth reason for restraining hiring, though 10 percent fewer cite this reason than in Middle market businesses plan to increase compensation nearly twice as often as small businesses. This reflects how middle market leaders generally have greater optimism for the performance of their own company, their industry and the national economy, as well as for increasing revenue and profit this year. Both groups are challenged by the lack of qualified candidates. Middle market business leaders voice greater concern about this (36 percent very or extremely concerned versus 27 percent of small businesses). A look at how they plan to respond to this challenge shows a corresponding difference in tactics. Middle market companies primarily plan to develop in-house training programs, offer higher wages and partner with community colleges to improve the skills among the talent pool. Small businesses will also offer higher wages, but secondarily, will increasingly recruit and attempt to retain older workers. More of them this year are biting the bullet and accepting candidates with lower skill sets. 42

43 Differing Degrees of Emphasis on Regulatory and Tax Concerns Both segments leaders see the regulatory environment as less of a barrier to expanding and hiring new workers this year. Middle market business leaders are 10 percent less likely (60 percent, down from last year s 70 percent) to say it s making expansion more difficult this year. Small businesses are even less likely than they were last year to perceive the regulatory environment as a stumbling block to expansion (down 14 percent from last year s 60 percent), and 9 percent of them say it s making such expansion easier. Although middle market and small business leaders both want the government to focus on the same things to support growth potential, they each prioritize these areas of focus somewhat differently. Of the 11 choices the survey gave, middle market companies first and foremost want the government to reduce regulations. They view lowering taxes and reducing credits and deductions as the second priority for government focus. Small businesses, too, want government to reduce regulations, but as a second priority. Their first priority for government focus remains lowering taxes and reducing credits and deductions. Reducing the federal deficit is the third priority on which both segments want the government to focus. But, the urgency they indicate around this third priority has dropped this year, especially among middle market companies. The top four potential policy or regulatory challenges this year remain the same as last year. However, both business segments now perceive each challenge as less of a barrier to their companies growth prospects. The two business segments place differing levels of significance on regulatory challenges outside of these top four. Middle market companies see a greater challenges coming from potential EPA and environmental regulations this year. Small businesses view energy regulation as having somewhat greater impact this year. They are nearly as concerned as middle market companies are about the potential threat to growth posed by industry regulation. But, they are less concerned than middle market leaders about labor regulation. 43

44 How concerned are you about the following policy or regulatory threats to your business growth prospects? (Percent of Responses) SMALL BUSINESS TAXES HEALTHCARE REGULATION FISCAL POLICY (GOVERNMENT SPENDING) MIDDLE MARKET PAYROLL/ EMPLOYMENT TAXES While both segments want the government to focus on reducing the federal deficit, this year they feel the issue is less of an urgent matter HEALTHCARE REGULATION FISCAL POLICY (GOVERNMENT SPENDING) TAXES INDUSTRY REGULATION Not at all concerned Very concerned Extremely concerned

45 Both segments are less concerned about healthcare regulation, likely due to gaining more familiarity with the realities of the ACA. Healthcare Insurance Coverage and Regulatory Responses Relate to Workforce Size The size of company workforces likely accounts for differences in how each segment approaches healthcare coverage. Of middle market companies, 98 percent provide health insurance coverage to their employees. Less than half as many small businesses provide such coverage, although their numbers increased somewhat this year. This is most likely because nearly 90 percent of them don t meet the 50-full-time-employee threshold. Both business groups are concerned about the potential threat to their growth prospects coming from healthcare regulation. To address rising healthcare costs, both business segments primarily plan to impose high deductibles or require employee payment of a greater percentage of costs, or both. Middle market businesses are more likely to take these actions. Small businesses are more likely to restrain hiring. About a quarter of both middle market and small businesses have no plans to address rising healthcare costs. 45