28 February 2024

Small-Business Owners Feel Optimistic

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More small-business owners are starting the new year with a rosier economic outlook, and their optimism is due in large part to stronger sales during the 2014 second half. Roughly half of 830 small-business owners and executives said they expect economic conditions to keep improving in the year ahead, up from 38% who felt that way at the end of last year, according to The Wall Street Journal and Vistage International.

In addition, roughly 80% said they anticipate better sales in 2015, up from 77% who felt that way heading into 2014.In contrast to the “fits and starts” of economic growth in recent years, recent steady gains in the U.S. this time around “feel more solid,” especially following an upturn in his sales. “The time is right” to boost capital spending and hire new workers.

The upbeat forecasts for the coming year should be tempered by dashed expectations a year ago, when a similar rise in optimism among small firms was dampened by a harsh winter and weak sales. Apart from the weather, the issues facing small firms in the year ahead include health care, access to capital and hiring, and each one is capable of deflating a buoyant outlook.

Health-Care Quandary 

Starting in January 2015, businesses with more than 99 full-time employees must offer affordable health plans to their workers, while those with 50 or more employees have until January 2016 to get plans in place or face fines under the federal health-care law.

Many small employers are worried about added costs. In a recent survey of 900 businesses with fewer than 100 workers, 60% said employee participation in workplace health plans increased to 75% this year, up from 54% a year earlier. At the same time, 62% said per-employee premium costs were higher in 2014 than in 2013, according to the NFIB. To absorb the extra costs, many firms said they were forced to cut into profits, delay spending plans or raise productivity. At least 45% said they cut wages, according to the NFIB.

Other critics of the law say rising costs will likely prompt many of the smallest firms to drop employer-sponsored plans altogether and instead refer workers to individual insurance marketplaces. That study found that 61.4% of firms with fewer than 50 workers offered health plans in Sept. 2014, compared with 61.5% in June 2013, and that 83% of employees had enrolled in the plans, up from 80.7%. Small employers are better off shopping for a plan early in 2015, rather than waiting until the last minute to comply with the health law.

Limited Access to Capital 

Finding capital remains a big challenge for many small companies in the economic recovery. Banks held roughly $590 billion of small-business loans in the third quarter, according to the Federal Deposit Insurance Corp. That is still 17% below 2008 highs. Meanwhile, just 18% of banks eased standards for small-business loans in 2014, according to a report released in December by the Office of the Comptroller of the Currency.

Entrepreneurs are still waiting for the Securities and Exchange Commission to finalize rules required by the Jumpstart Our Business Startup Act of 2012 that will allow them to raise small sums from everyday investors, an arrangement known as equity crowdfunding.

Already, 17 states have enacted laws that let entrepreneurs raise funds from average investors in their state, but few firms have taken advantage of the new fundraising tool, state securities regulators say. Taking up the slack for small-business borrowers are alternative lenders, which typically make small but costly loans online. Many alternative lenders provide little transparency about the effective cost of their loans. But the U.S. Small Business Administration is exploring allowing these nontraditional lenders to reach borrowers via an SBA website if they meet certain standards for disclosure and cost.

Hiring Challenges 

Efforts by President Barack Obama to raise the federal minimum wage by 2015 to $10.10 an hour from its current $7.25 have been stalled in Congress. But small employers—especially franchise owners in the service sector—are facing minimum-wage increases in more than two dozen states, including five that approved increases in November.

A more competitive job market is likely to put pressure on wages and make it harder for small employers to find qualified applicants. Many small firms don’t have a dedicated human-resources department to tackle such issues head on.

Keith Walters, the chief operating officer at a Dallas real-estate-market research firm Axiometrics Inc., expects to hire 30 new employees next year, including analysts and sales and technology staff. He is expecting $3 million in revenue next year, up from $2.25 million in 2014.

Click here to access the full article on The Wall Street Journal. 

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