For Small Businesses, the Tide Is Turning | Street Fight

For Small Businesses, the Tide Is Turning

For Small Businesses, the Tide Is Turning

Small business concept.

With a high percentage of retail consumer spending — as much as 20 percent by some estimates — occurring in the last six weeks of the year, the fourth quarter is a good time to take the temperature of business owners. The latest iteration of Thumbtack‘s long-running Economic Sentiment Survey of nearly 18,000 small business owners recorded a slight uptick in sentiment, following seven solid months of declines from March to September and a leveling-off in October. Even after the drop from earlier in the year, overall sentiment remains higher than at any point in 2014 or 2013.

Respondents indicated a slightly more optimistic outlook about the future — the economy in general and their finances and profitability in particular. Their outlook about their current financial situation remained flat, however.

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Business owners in the South were by far the most optimistic on a regional basis, while those in the Northeast were least optimistic — trends that have persisted throughout the year. Thumbtack’s Small Business Friendliness Survey, which asks business owners to rank their states and cities according to criteria such as the ease of starting a business, ease of hiring, and regulations, and then aggregates these results into an overall business friendliness score, has consistently found southern states to be more hospitable to small businesses.

By contrast, California and New York, the first and third-largest states by GDP, respectively, have consistently received low marks from business owners. In fact, California got Fs (the lowest possible grade) in ease of starting a business, business regulations in general, labor regulations specifically, tax code, licensing requirements, and environmental regulations — startling results given that California is the focal point for the sharing economy. But perhaps it indicates a disparity in business climate for technology startups vs. small service-oriented businesses that do things the old-fashioned way.

Thumbtack is not alone in examining small business sentiment. Yelp released its first annual Small Business Pulse Survey this week. Based a far smaller sample of 901 companies that counted themselves as Yelp members, it uncovered a highly positive outlook for 2016: 85 percent of respondents said they expect their revenues to grow next year, with an average projected growth of 26 percent. Young companies were even more bullish, predicting a nearly 50 percent increase in revenues in 2016. Restaurateurs, a core Yelp constituency, were the most positive.

Both surveys honed in on a similar set of hurdles that small business owners face. Acquiring new customers is by the largest challenge. The vast majority (85 percent) of Yelp businesses said digital marketing had helped them grow their customer base. Respondents in both studies also indicated small businesses struggle with competition (the Thumbtack survey focused on other small merchants while Yelp asked them about larger businesses).

Credit — or lack thereof — is another sticking point. Over 40 percent of respondents in the Thumbtack survey said they would like access to credit to expand their businesses. Yet only around 28 percent got most or all of the amount they needed. Approximately 27 percent of business owners seeking credit were not able to get a loan either because they were turned down or the terms were too onerous; nearly 35 percent said they didn’t apply at all because they assumed their application would be turned down.

Weighing the results of these two different studies suggests an overall optimistic outlook. In the three years that Thumbtack has been conducting its economic survey, sentiment has tended to rise in the first quarter, undoubtedly driven in part by the results of the holiday season. Assuming that pattern holds true, the uptick in November will begin to accelerate in December. It will need to kick into high gear in the new year if business are to achieve the level of growth the Yelp survey respondents expect.

Noah Elkin is Street Fight’s managing editor.