Back

Discover® Small Business Watchsm: Small Business Confidence Levels Off In June Increased Cash Flow Issues Lead To Dip In Index

June 28, 2010

MAJOR EVENTS: U.S. Stock Market, Gulf Oil Spill and European Debt All Having Some Effect on American Small Businesses

MOTIVATION: Desire to Own a Small Business Still Strong, but 40% of Small Business Owners Have Considered Changing Their Business Models, Most Due to Economy

RIVERWOODS, Ill., Jun 28, 2010 (BUSINESS WIRE) --

Small business owners' economic confidence leveled off in June, halting a two-month rise, according to the Discover(R) Small Business WatchSM. The index dipped to 86.1 this month from 87.4 in May as rising concerns over temporary cash flow issues offset some improvement in the way small business owners see the climate for their own operations. Small business owners reporting temporary cash flow issues jumped to 51 percent in June, up from 45 percent in May and the highest since January. Forty-five percent of owners reported no cash flow issues, down from 48 percent in May; and 4 percent were unsure. The Watch recorded a slight increase in confidence about how individual business owners were faring: 30 percent say economic conditions for their businesses are improving, up from 28 percent in May; 43 percent said conditions are getting worse in June, down from 44 percent in May; and 34 percent said things are staying the same, up from 24 percent in May. "Many small business owners are working harder than ever to make payroll, pay their bills and keep their businesses running," said Ryan Scully, director of Discover's business credit card. "Last month, more owners reported increasing their spending, which is good news. However, if sales are lagging this month, it's possible that cash flow was more of an issue." In June, 29 percent of small business owners said they believe the overall economy is getting better, falling from 35 percent in May; 51 percent say the economy is getting worse, steady from the previous month; and 16 percent see the economy as the same, up from 12 percent in May. Other June Confidence Indicators:

  • While the number of small businesses rating the economy as poor fell to 51 percent from 56 percent in May, the percentage rating the economy good or excellent held steady at 12 percent. Thirty-seven percent rated the economy fair, up from 32 percent in May.
  • 43 percent of owners said they plan to decrease spending on business development activities such as advertising, inventories, and capital expenditures, down from 46 percent in May; 25 percent planned to increase spending, no change from May; and 29 percent are planning no changes in spending on development, up from 25 percent in May.
POLL: Some Small Business Owners Feeling Negative Effects from Major World Events When asked to rate separately the impact on their businesses of the performance of the U.S. stock market, the oil spill in the Gulf of Mexico and the European debt crisis:
  • 51 percent of small business owners said the stock market was having some negative impact on their businesses, while 37 percent said it had no impact at all, and 10 percent felt some positive effect.
  • 30 percent said the gulf oil spill has had some negative effect, while 63 percent said it had no impact at all, and 4 percent indicated that it has had some positive effect.
  • 40 percent have felt some negative impact from the debt crisis in Europe, while 51 percent said it had no effect, and 6 percent said they have experienced some positive effects.
POLL: Entrepreneurial Spirit Holds out Against Rough Economy The shape of the economy over the past two years apparently hasn't had a huge impact on the American entrepreneurial spirit - 53 percent of small business owners would not take a job for the same or more money, and fewer owners than last year would make the switch. Thirty-four percent of small business owners said in June that they would take a job, if offered, for the same or more money; which is down from 36 percent in 2009, but still up from 30 percent in 2008. Some small business owners have considered a business change: 40 percent of respondents said they've recently considered modifying their business model or entering a new line of business. Among those making the consideration, 50 percent selected "The recession severely hurt my business" as their reason, with the other half choosing from the following list of reasons:
  • 17 percent - "My industry is changing."
  • 11 percent - "I can't make enough money in my current business."
  • 5 percent - "There's too much competition in my industry."
  • 5 percent - "I'm losing interest in my current business."
  • 8 percent - "Some other reason."
The two main reasons for becoming a small business owner have remained the same since the Watch first asked the question in 2007 - more flexibility with their time and being their own bosses. This year 50 percent of small business owners selected one of those two reasons, compared to 46 percent in 2007. As for the other reasons they had to choose from compared to 2007:
  • 16 percent said they did it for a "feeling of accomplishment," up from 14 percent
  • 10 percent cited "making more money," down from 19 percent
  • 9 percent said they "needed a job," up from 8 percent
  • 12 percent cited "some other reason," up from 11 percent
When asked what it would take for them to consider selling their business: 41 percent said they would never sell; 27 percent aren't sure; 18 percent would need a premium on what they've invested; 11 percent would need enough to pay back what they've invested; and 3 percent would take a discount on what they've invested to exit the business. The main challenges of running a small business remain consistent over last year, with 34 percent of owners citing finding new business as their main challenge, down from 40 percent in 2009, followed by the difficulties of:
  • 23 percent - Government rules and regulations
  • 11 percent - Managing cash flow
  • 7 percent - Getting good employees
  • 4 percent - Managing healthcare and other insurance costs
  • 11 percent - Some other challenge
  • 5 percent - Not sure
A majority of small business owners continue to see running their businesses as riskier than working for a large company, but this year only 31 percent said starting a business was riskier than they originally thought it would be, down from 47 percent who believed so in 2009. 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 (http://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 http://www.discovercard.com/business/watch. For information on Discover Business card, visit http://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 http://www.discoverfinancial.com. Photos/Multimedia Gallery Available: http://www.businesswire.com/cgi-bin/mmg.cgi?eid=6341837&lang=en

Small business owners' economic confidence leveled off in June, halting a two-month rise, according to the Discover(R) Small Business WatchSM. The index dipped to 86.1 this month from 87.4 in May as rising concerns over temporary cash flow issues offset some improvement in the way small business owners see the climate for their own operations.

Small business owners reporting temporary cash flow issues jumped to 51 percent in June, up from 45 percent in May and the highest since January. Forty-five percent of owners reported no cash flow issues, down from 48 percent in May; and 4 percent were unsure.

The Watch recorded a slight increase in confidence about how individual business owners were faring: 30 percent say economic conditions for their businesses are improving, up from 28 percent in May; 43 percent said conditions are getting worse in June, down from 44 percent in May; and 34 percent said things are staying the same, up from 24 percent in May.

"Many small business owners are working harder than ever to make payroll, pay their bills and keep their businesses running," said Ryan Scully, director of Discover's business credit card. "Last month, more owners reported increasing their spending, which is good news. However, if sales are lagging this month, it's possible that cash flow was more of an issue."

In June, 29 percent of small business owners said they believe the overall economy is getting better, falling from 35 percent in May; 51 percent say the economy is getting worse, steady from the previous month; and 16 percent see the economy as the same, up from 12 percent in May.

Other June Confidence Indicators:

  • While the number of small businesses rating the economy as poor fell to 51 percent from 56 percent in May, the percentage rating the economy good or excellent held steady at 12 percent. Thirty-seven percent rated the economy fair, up from 32 percent in May.
  • 43 percent of owners said they plan to decrease spending on business development activities such as advertising, inventories, and capital expenditures, down from 46 percent in May; 25 percent planned to increase spending, no change from May; and 29 percent are planning no changes in spending on development, up from 25 percent in May.

POLL: Some Small Business Owners Feeling Negative Effects from Major World Events

When asked to rate separately the impact on their businesses of the performance of the U.S. stock market, the oil spill in the Gulf of Mexico and the European debt crisis:

  • 51 percent of small business owners said the stock market was having some negative impact on their businesses, while 37 percent said it had no impact at all, and 10 percent felt some positive effect.
  • 30 percent said the gulf oil spill has had some negative effect, while 63 percent said it had no impact at all, and 4 percent indicated that it has had some positive effect.
  • 40 percent have felt some negative impact from the debt crisis in Europe, while 51 percent said it had no effect, and 6 percent said they have experienced some positive effects.

POLL: Entrepreneurial Spirit Holds out Against Rough Economy

The shape of the economy over the past two years apparently hasn't had a huge impact on the American entrepreneurial spirit - 53 percent of small business owners would not take a job for the same or more money, and fewer owners than last year would make the switch. Thirty-four percent of small business owners said in June that they would take a job, if offered, for the same or more money; which is down from 36 percent in 2009, but still up from 30 percent in 2008.

Some small business owners have considered a business change: 40 percent of respondents said they've recently considered modifying their business model or entering a new line of business. Among those making the consideration, 50 percent selected "The recession severely hurt my business" as their reason, with the other half choosing from the following list of reasons:

  • 17 percent - "My industry is changing."
  • 11 percent - "I can't make enough money in my current business."
  • 5 percent - "There's too much competition in my industry."
  • 5 percent - "I'm losing interest in my current business."
  • 8 percent - "Some other reason."

The two main reasons for becoming a small business owner have remained the same since the Watch first asked the question in 2007 - more flexibility with their time and being their own bosses. This year 50 percent of small business owners selected one of those two reasons, compared to 46 percent in 2007. As for the other reasons they had to choose from compared to 2007:

  • 16 percent said they did it for a "feeling of accomplishment," up from 14 percent
  • 10 percent cited "making more money," down from 19 percent
  • 9 percent said they "needed a job," up from 8 percent
  • 12 percent cited "some other reason," up from 11 percent

When asked what it would take for them to consider selling their business: 41 percent said they would never sell; 27 percent aren't sure; 18 percent would need a premium on what they've invested; 11 percent would need enough to pay back what they've invested; and 3 percent would take a discount on what they've invested to exit the business.

The main challenges of running a small business remain consistent over last year, with 34 percent of owners citing finding new business as their main challenge, down from 40 percent in 2009, followed by the difficulties of:

  • 23 percent - Government rules and regulations
  • 11 percent - Managing cash flow
  • 7 percent - Getting good employees
  • 4 percent - Managing healthcare and other insurance costs
  • 11 percent - Some other challenge
  • 5 percent - Not sure

A majority of small business owners continue to see running their businesses as riskier than working for a large company, but this year only 31 percent said starting a business was riskier than they originally thought it would be, down from 47 percent who believed so in 2009.

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 (http://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 http://www.discovercard.com/business/watch. For information on Discover Business card, visit http://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 http://www.discoverfinancial.com.

Photos/Multimedia Gallery Available: http://www.businesswire.com/cgi-bin/mmg.cgi?eid=6341837&lang=en

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