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Discover® Small Business Watchsm: Economic Confidence Tumbles In March

March 29, 2010

Small Business Owners Sour on Current Conditions for Their Businesses, See Economy Getting Worse

TAX TIME: No Relief from the Government: 72% of Small Business Owners Did Not Find Tax Breaks; 54% Frustrated by Income and Self-Employment Taxes

RIVERWOODS, Ill., Mar 29, 2010 (BUSINESS WIRE) --There is little spring optimism in the hearts of more than half of America's small business owners, who see conditions for their businesses getting worse in the next six months, according to the Discover(R) Small Business WatchSM. After some upward trends for most of last summer and into the fall, Discover's monthly check on the pulse of small business owners measured 75.7 in March, down 9.2 points from February and back to the levels of a year ago.

"We've seen bigger month-to-month drops, but there is clearly a pattern here: Small business owners don't like what they're seeing - both at home and in the larger economy - and they're responding by pulling back, rather than just holding the line," said Ryan Scully, director of Discover's business credit card, who commissions the monthly survey. "Tax season could be having an effect on the overall mood, especially because they're still not seeing any relief from the government."

The March results were marked by a surge in the number of small business owners who say economic conditions for their own businesses are deteriorating: 53 percent of them say the climate will get worse in the next six months, compared to only 37 percent who answered that way in February. Of the remaining respondents, 20 percent said things are getting better, 20 percent said things are the same, and 6 percent are unsure.

When asked about their intentions to invest in their businesses, 52 percent said they would decrease spending, up from 43 percent in February, while 27 percent said they would make no changes, and 18 percent said they plan to increase spending.

Other March Confidence Indicators:

  • Little faith was expressed for the direction of the larger economy, as 58 percent said it is getting worse, up from 44 percent in February; while 22 percent think it is getting better, down from 31 percent the prior month; and 16 percent said it's staying the same, versus 24 percent last month.
  • Views on the current economy were relatively unchanged over February: 59 percent rated the economy poor, 31 percent called it fair, 6 percent said good, and 1 percent chose excellent.
  • Cash flow issues remained largely unchanged: 46 percent said their businesses encountered temporary cash flow issues in the past 90 days that caused them to hold off on paying some bills, 47 percent did not have issues, and 7 percent weren't sure.

TAX TIME: Small Business Owners Can't Get a Break

In February, 70 percent of owners told Discover that federal stimulus efforts have had no impact on their businesses, while 17 percent said it hurt their businesses. Only 10 percent reported being helped by federal efforts.

So it was no surprise in March when 72 percent of small business owners said they were not able to take advantage of tax breaks for their businesses or themselves for 2009, while 19 percent said they had, and 9 percent weren't sure.

When asked which of the following taxes caused the most frustration, owners said:

  • Federal income taxes, 29 percent
  • Self-employment taxes, 25 percent
  • Real and personal property taxes, 7 percent
  • Employer portion of Social Security taxes, 5 percent
  • Sales taxes, 4 percent
  • Unemployment taxes, 3 percent
  • State income taxes, 2 percent
  • Excise taxes, 1 percent
  • Not sure, 24 percent

Tax Preparation

Finding and organizing tax preparation documents was very to somewhat difficult for 42 percent of small business owners, and not very or not at all difficult for 54 percent of them.

Even though 70 percent of small business owners use a professional to do their taxes, 73 percent of them say the preparation and documentation process is somewhat to very time-consuming. Among the general population surveyed this month, 51 percent of people say they use a professional to do their taxes.

Of those small business owners who said they were not hiring a professional, 62 percent said they were using computer software, down from 71 percent last year.

Tax Returns and Extensions

Twenty-four percent of small business owners are expecting a refund this year, 28 percent will break even and 39 percent will owe taxes. Nine percent were not sure. Among non-business owners, 50 percent expect a refund, 18 percent will break even and 21 percent say they owe taxes. Ten percent weren't sure.

For those who expect to owe taxes, 43 percent of small business owners said they would likely file for a tax extension, compared to 30 percent of people in the broader population who will likely seek more time. About half of those filing for extensions in both segments said they were doing so because of the economy.

The views and opinions expressed by small business owners and consumers who participate in the Small Business Watch survey are their own and do not necessarily reflect those of Discover Financial Services or its affiliates.

About the Small Business Watch

The Discover Small Business Watch is a monthly index measuring the relative economic confidence of U.S. small business owners who have less than five employees, a segment that consists of 22 million businesses producing more than a trillion dollars in annual receipts. The Watch is based on a national random survey of 750 small business owners. It is commissioned by Discover Business card, which strives to offer the best business credit card for American small businesses, and is conducted by Rasmussen Reports, LLC (www.rasmussenreports.com), an independent survey research firm. The numeric index is calculated by assigning values to responses to a set of six consistent questions. The base value of the Watch was established at 100.0 based on surveys conducted in August 2006. In addition to generating the index, the Small Business Watch surveys small business owners every month on key issues, and polls 3,000 consumers four times per year to gauge purchasing behavior and attitudes towards small businesses. For past results and survey data, visit www.discovercard.com/business/watch. For information on Discover Business card, visit www.discovercard.com/business.

About Discover

Discover Financial Services (NYSE: DFS) is a direct banking and payment services company with one of the most recognized brands in U.S. financial services. Since its inception in 1986, the company has become one of the largest card issuers in the United States. The company operates the Discover card, America's cash rewards pioneer, and offers personal and student loans, online savings accounts, certificates of deposit and money market accounts through its Discover Bank subsidiary. Its payment businesses consist of Discover Network, with millions of merchant and cash access locations; PULSE, one of the nation's leading ATM/debit networks; and Diners Club International, a global payments network with acceptance in more than 185 countries and territories. For more information, visit www.discoverfinancial.com.

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SOURCE: Discover Financial Services

Jon Drummond
Discover Financial Services
224-405-1888
jondrummond@discover.com
or
Lauren M. Onis
Burson-Marsteller
212-614-4069
lauren.onis@bm.com