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Fed Survey: Small Businesses Are Experiencing Growth & Financial Challenges

According to the latest Small Business Credit Survey – a survey conducted by 12 Federal Reserve Banks – the world is broadly looking better for entrepreneurs. Companies are growing, business owners are optimistic and jobs are increasing.

But while the wide brushstrokes – gathered from the answers of 8,169 small employers – were pretty, some of the details could’ve been rosier. The survey found “continued financial challenges for some segments of firms” and featured a laundry list of small business weak spots in need of improvement.

So, let’s look at some of the core findings from the survey, the good and the bad.

What’s Going Right

First, here are some of the positive findings from the Small Business Credit Survey.

  • “A majority of firms reported they were profitable and had growing revenues.” Also, more companies reported profitability, revenue growth and employment growth in 2017 than they did in 2016.
  • 66 percent of companies expect to grow revenues this year.
  • 44 percent of companies expect to hire new employees this year.
  • 46 percent of companies received the full amount of financing they requested – up from 40 percent in 2016.

That last stat might not seem particularly glamorous compared to the others, but it’s just as vital. Financing is the lifeblood of growing small businesses, so the fact that banks and other financiers are opening up their purse strings even just a bit should be an encouraging development for the scores of small businesses that may need to tap that same well in the near future.

What Could Use Work

Again, the report included a few details that weren’t as encouraging and showed that small businesses still face a number of hurdles, even as America’s economy continues to expand.

  • The majority (59 percent) of credit applications were for the purpose of expanding, which is a positive. However, “borrowing needs also reflected uneven cash flow and cost pressures,” with many borrowing to support wages or to refinance.
  • Roughly half of businesses that did not apply for credit did so because they were either worried about being turned down or simply had an aversion to debt.
  • 70 percent of “micro firms” (annual revenues of $100,000 or less) and 61 percent of startups (companies between zero and five years old) received less financing than they requested.
  • 65 percent of respondents “experienced financial challenges” over the past year, including paying operating expenses (40 percent) and credit availability (30 percent).
  • Personal funds were the solution of choice for financial challenges; 67 percent of small businesses owners used their own personal finances to support their companies, and 39 percent took out additional debt.

If one or more of those situations sound familiar, here are a few pieces of advice:

Debt is not your enemy. Yes, small businesses can easily hinder themselves by taking out too many loans. But many early-stage companies simply can’t achieve a profit without first reaching some sort of scale, and financing is the only realistic way to achieve that scale. The key is understanding small-business debt and using it responsibly. Also, don’t let fear keep you from seeking out the funding you need now – because thanks to rising interest rates, it very well keep becoming more expensive.

Business money management isn’t easy. A common thread among companies seeking out financing is that those who weren’t doing it to grow were doing it because operational expenses were just too overwhelming. Yes, some businesses are going to be more capital-intensive than others, but some companies are simply not skilled at trimming the fat. If you don’t already, sit down and put together a budget for the full fiscal year – and then stick to it. We have tips to help you with budgeting, as well as advice on how to better manage your money on a more short-term basis.

Talk to us. Your small business might specialize in internet apps, air-conditioning repair or wedding cakes. But if you’re like most growing companies, chances are accounting and budgeting aren’t your forte. That’s where McManamon & Co. comes in. We offer a wide array of accounting services – everything from doing your taxes to teaching staff how to balance the books – and broader consulting services for things such as recruiting personnel and developing cash-flow strategies.

The environment is right for small business success. If you’re struggling, we can help you make the changes you need to join your growing peers. Reach out to McManamon & Co. by contacting us online or calling us at 440.892.9088.


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