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Discover® Small Business Watchsm: Confidence Holds Steady Among Small Business Owners

February 28, 2011

Concerns over Temporary Cash Flow Offset Perceptions that Economy is Improving
TAX SEASON: Process Gets More Difficult to Organize and More Time Consuming, Few Take Advantage of New Tax Deductions

RIVERWOODS, Ill., Feb 28, 2011 (BUSINESS WIRE) -- Economic confidence among small business owners remained steady in February, as the monthly Discover® Small Business WatchSM index dipped slightly from 91.0 in January to 90.2. Although a few more small business owners said the overall economy is getting better, a rise in cash flow issues kept confidence flat.

Thirty-four percent of small business owners said economic conditions in the country are improving, up 3 percentage points from 31 percent in January; while 41 percent said conditions are getting worse, unchanged from January; and 20 percent said conditions are the same, down from 24 percent.

At the same time, 50 percent of small business owners reported encountering temporary cash flow issues within the last 90 days that caused them to delay paying bills, up 7 points from January; as 46 percent reported no temporary cash flow issues, down 3 points from the prior month. The average monthly percentage of small business owners who encounter cash flow issues in the 90 days preceding the poll is 43 percent over the past 55 months.

"Hope seems to be tempered by reality this month," said Ryan Scully, director of Discover's business credit card. "The number of small business owners seeing economic conditions getting better for their businesses is the highest we've seen since February 2008, but concerns over temporary cash flow show the biggest one-month spike since November 2009."

Other February Confidence Indicators

  • Small business owners' perceptions of the economic conditions for their businesses in the next six months were mixed in February: 33 percent said conditions are getting better, up from 31 percent in January; but 40 percent said things were getting worse, also up from 38 percent from January. Those who said conditions were the same dropped to 25 percent from 26 percent in the prior month, and the number of those who weren't sure was 2 percent in February, down from 5 percent.
  • 56 percent of small business owners rate the current economy as poor, down from 57 percent in January; 32 percent rate it fair, down from 34 percent; 7 percent rate it good, unchanged from the prior month; and 3 percent rate the economy excellent, up from 2 percent last month.
  • The number of small business owners who plan to increase spending on business development activities such as advertising, inventories and capital expenditures in the next six months was 28 percent, down from 30 percent last month. Forty-one percent will decrease spending on business development, up one percentage point from last month; 30 percent do not plan any changes, up from 27 percent last month.

Taxes: Process Getting More Difficult to Organize

More small business owners report that the tax preparation process is harder this year than in any of the four previous years: 56 percent said it was very difficult or somewhat difficult to find and organize the documents they need. In 2007, the first year the Watch tracked this data, only 39 percent found very difficult or somewhat difficult to find and organize their tax documentation.

The process also seems more time consuming. This year 80 percent of small business owners said the tax preparation and documentation process was somewhat or very time consuming, compared to 73 percent last year, and also the highest in the past four years.

The taxes that still frustrate small business owners continue to be self-employment and federal income taxes. When asked to choose from a list the taxes that frustrate them the most, small business owners chose:

Self-employment taxes, 30 percent
Federal income taxes, 25 percent
State income taxes, 8 percent
Real and personal property taxes, 6 percent
Employer portion of social security taxes, 5 percent
Unemployment taxes, 4 percent
Sales taxes, 1 percent
Excise taxes, 1 percent
Unsure, 21 percent

Few Took Advantage of New Deductions

Seventy-four percent of small business owners said they did not take advantage of any new tax deductions for their business this year, compared to 11 percent who did and 15 percent who were not sure.

Compared to the average consumer, small business owners prefer to hire a tax professional than use a software program. Among consumers, 49 percent hired a professional and 26 percent used a software program, while 25 percent did neither. For small business owners, 68 percent hired a professional, 19 percent used a software program, and 13 percent did neither.

Consumers, on the other hand, are expecting more refunds: 45 percent of consumers are expecting a refund this year, compared to 50 percent last year; while 20 percent expect to break even and 24 percent expect to owe taxes.

Twenty-six percent of small business owners are expecting a refund, 29 percent expect to break even, and 38 percent expect to owe taxes.

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 five 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.

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.

SOURCE: Discover Financial Services

Jon Drummond
Discover
224-405-1888
jondrummond@discover.com
or
Jessica Douglas
Burson-Marsteller
312-596-3441
jessica.douglas@bm.com