business leaders outlook - small business 2014€¦ · 12 months leading up to the 2014 chase...

Business Leaders Outlook

SMALL BUSINESS2014

2 | Small Business Leaders Outlook: Introduction

For several years, a theme in business leaders’ outlook was

uncertainty. What would happen with federal fiscal policy and

the tax changes that come out of it? How were new rules for

the financial sector going to ripple through the economy? And

perhaps most prominently, how would federal healthcare reform

really look upon rollout, and how would it affect the choices small

businesses have to make?

In some ways, a lack of answers was more limiting than bad

answers. Business leaders need facts on which to base plans. In the

12 months leading up to the 2014 Chase Business Leaders Outlook

survey of small businesses, several of those issues moved forward

in the halls of government and began to take more concrete shape.

As a result, this year’s survey sees some shifts in the concerns

and outlook of the nation’s small businesses. Healthcare costs, the

ability to grow sales and revenue, taxes and economic conditions

are still very much on their minds, and at least half say they’re

“very” or “extremely” concerned about those issues. Among those

leading concerns, healthcare costs and taxes have declined notably

as worries from 2013, while economic conditions and sales and

revenue growth have held constant.

The survey finds a small business community eager to move forward

but not yet ready to limit its options. Its leaders appear to prize working

capital and liquidity over commitments to capital investments. They

expect rising sales and profits to meet most of these cash needs,

and their planned pursuit of credit remains modest. Even though they

anticipate rising income, however, few plan to increase hiring.

A brightening view of the broader world

In a pattern that has become consistent, small business leaders feel

more confident the closer they are to home: Nearly three-quarters are

optimistic or very optimistic about their own company’s performance,

and only about one-quarter feel that way about the global economy.

As some uncertainty clears, business challenges remain

Chase Small Business Banking | 3

The high optimism about own-company and own-industry

performance has remained roughly constant. What’s different in

2014 is improved confidence in the world outside the company’s

walls. “Optimistic” or “very optimistic” responses increased by 5

percent for the local economy, 5 percent for the national economy

and 5 percent for the global economy.

Outlook on the national economy varies somewhat by industry.

Wholesale and professional services companies are more optimistic

about it than others. Meanwhile, the construction industry leaders

were more likely than others to be “very optimistic” about industry

and company performance. Regionally, the West and Midwest

showed the most significant increases in optimism on the global

and national economies, and respondents in the South and West

boosted their optimism about their local economies.

21%

28%

24%

29%

3%

6%

8%

11%

2%

5%

2%

2%

1%

1%

6%

7%

4%

5%

3%

3%

26%

21%

38%

32%

45%

40%

15%

18%

10%

12%

46%

44%

50%

53%

11%

11%

12%

11%

20%

20%

Very optimisticOptimisticVery pessimistic Pessimistic

What is your outlook on the following for the next 12 months?

Global economy

2014

2014

2014

2014

2014

2013

2013

2013

2013

2013

National economy

Local economy

Industry performance

Company performance

“�I�am�confident�in�the�economy.�I�have�

grown�my�business�year�over�year�in�‘the�

great�recession’�and�now�feel�as�though�

the�4-plus�years�of�hard�decisions�are�now�

going�to�pay�off�in�spades.”�

—A member of the Chase Small Business Online Community

4 | Small Business Leaders Outlook: Revenue and Sales Growth

Revenue and Sales Growth


Sales growth, economic uncertainty, taxes, cash flow, credit and

healthcare costs are the challenges most business leaders named

among their top three business challenges for 2014. However, a

majority of small businesses expect revenue and sales to grow,

along with profits.

The most common “top three challenges” are the same top six

answers that appeared in the 2013 survey, in the same order.

However, a look inside those results shows notable movement. Some

of these shifts are more significant than others, but it may be notable

that concerns that relate more directly to business operations—

such as cash flow—have increased or held steady. Meanwhile,

external and policy-based concerns such as the economy, taxes and

healthcare costs have eased, as developments in government and

around the country continue to reduce uncertainty about those issues.

Same chief concerns, but in different proportions

Increase moderately Increase substantially

What are your expectations for your business for the next 12 months?

Revenue / Sales

16%

13%

51%

46%

2014

2013

Profits

14% 48%2014

2013

Capital expenditures

25%5%2014

2013

Credit needs

24%9%2014

2013

10%

6%

8%

45%

24%

22%


Regulatory requirements / changes 17%

Maintaining or increasing productivity19%

What are the top three most significant challenges facing your business in 2014?

Being able to grow sales / revenue

Taxes

Managing cash flow

Availability of capital / credit

Costs of commodities

Other

Foreign competition / competitive environment

U.S. competition / competitive environment

Lack of consumer confidence

Uncertainty of economic conditions

51%44%

42%

32%

26%

25%

24%

16%

17%

13%

13%

10%

8%

11%

0%

4%

5%

35%

29%

28%

26%

Healthcare costs 20%

Managing labor costs13%

Managing all other costs15%

Limited supply of candidates with the right skills 14%

10%

9%

8%

4%

2%

20132014


were concerned about them—although “very concerned” declined

four points compared to 2013. Managing cash flow was a top-

three challenge for 28 percent of leaders, and 37 percent said they

were notably concerned about it. Just over one-quarter said the

availability of capital or credit was among their top three challenges,

and just over a third said they were concerned about it.

One in five ranked healthcare costs among their top three challenges,

which represents a four-point drop from year to year. Assessed as

a standalone question, more than half of the respondents said they

were “very” or “extremely” concerned about healthcare costs. That

made it one of the most pressing issues, even though “extremely

concerned” responses fell five points from year to year.As before, the top perceived challenge is the ability to grow sales

and revenue. But it has intensified this year: It is the only answer

in either year to make more than half the respondents’ lists, and 7

percent more people named it among their top three challenges. In

a separate question that didn’t involve ranking business challenges

but tested each one on its own, this remained one of the top

concerns. More than half said they were “very concerned” or

“extremely concerned” about it.

The second issue on the list was uncertainty of economic

conditions; 35 percent called that a top-three concern, but that

represents a seven-point drop from last year. Asked about this

challenge alone, half said they were very or extremely concerned.

Among the other high-ranking concerns this year, taxes made

29 percent of the top-three lists and half of respondents said they

Industry spotlight: Professional services

Small businesses in the professional services arena

showed particular concern over productivity and healthcare

costs, and their concern over environmental regulations

grew this year. They’re more optimistic than most of their

counterparts about the national economy. On their “wish

lists” for government action priorities, they had less demand

than they did last year for deficit reduction. Like other small

businesses, those in professional services continue to

move into the social media sphere—but compared to other

industries, they’re more likely to use LinkedIn.

Regional spotlight: the Northeast

Many small businesses across the country report they

have little need to use credit this year, but the Northeast

stood out in one respect: Businesses there were 6 percent

more likely than in 2013 to say they would not apply to

borrow because they’d recently been denied credit. Small

businesses in the Northeast also showed less demand than

last year for deficit reduction measures from Washington.


A limited supply of job candidates with the right skills was a low-

ranking answer when business leaders named their top three

challenges; only 14 percent selected it. But when respondents

reacted to each issue individually, the talent shortage was the only

challenge to increase significantly year to year. One in 10 said they

were “extremely concerned” about finding people with the right skills.

2014 2013

31% 34%19% 21%5% 5%Uncertainty of

economic conditionsUncertainty of

economic conditions

34% 35%18% 16%5% 7%Being able to

grow sales / revenue Being able to

grow sales / revenue

How concerned are you about the following challenges?

22% 24%15% 16%18% 16%Regulatory

requirements / changes Regulatory

requirements / changes

17% 19%28% 30%10% 7%Limited supply of candidates

with the right skills Limited supply of candidates

with the right skills

8% 6%30% 33%21% 25%Taxes Taxes

14% 10%27% 28%25% 30%Healthcare

costsHealthcare

costs

Not at all concerned Very concerned Extremely concerned


Rising expectations for sales and profits, but capital spending looks flat

Two out of three small business leaders expect revenue and

sales to increase “substantially” or “moderately” over the next

12 months, which represents an eight-point increase from last

year. Almost two out of three now expect profits to do the same,

a seven-point increase.

The expectation of a cash influx does not correspond to heightened

plans for capital spending, though. The 30 percent who see

substantial or moderate increases in that category are unchanged

nationally from the 2013 results. Meanwhile, businesses in the

Midwest were 8 percent less likely this year than last to project

increased capital spending over the coming 12 months.

Seeking growth in familiar ways, on familiar ground

There was little movement from 2013 to 2014 in the avenues small

business leaders said they’ll pursue to generate company growth.

Attracting new customers remains the answer for more than three-

quarters of them, and other organic means such as expanded

product and service offerings, up- and cross-selling to existing

customers and moving into new domestic markets round out the top

answers. Only a handful cited plans for mergers or acquisitions.

Small business also continues to view overseas as foreign territory.

Fewer than 10 percent said global market expansion figured into

their 2014 growth plans, and three-quarters said they neither buy,

sell nor have operations in foreign countries—slightly fewer than

last year but still the prevalent answer by far. Among those with

no overseas ties, more than nine in 10 report no plans to create

them—through either sales, purchases or operations—in the next

three years. Of those companies that do sell or operate in foreign

countries, three out of five report that activity makes up one-quarter

or less of their total sales. Only 10 percent say the global market

accounts for more than three-quarters of their sales.

Industry spotlight: Retail

Among industries, retailers showed a particularly

heightened concern over sales and revenue growth for

2014. But among small businesses that plan to hire this

year, retailers were more likely to cite anticipated sales

growth as the reason. Retailers nationwide showed a strong

and growing reliance on Facebook and Twitter.


Financing in pursuit of cash—or cash instead of financing

Just over 33 percent of small business leaders anticipate their credit

needs to rise, a slight uptick from last year, while just under 40

percent say they don’t plan to use financing at all this year. Among

those who will take on debt, the leading reason is to amass working

capital—significantly more popular than the number two response,

capital equipment purchases, and an increase over the same

response in 2013. Other double-digit uses of intended financing

included the purchase of software and IT and the purchase of

structures and facilities.

Among companies that don’t plan to borrow, there was just as

clear a storyline. Almost two in five said the reason they won’t

use financing is that they don’t have to—increased revenue and

profits are generating the cash they need. That answer was

significantly more common than it was a year ago. Fewer small

business leaders—about one in five, or 5 percent fewer than last

year—say economic uncertainty is what’s keeping them from

assuming new debt.

What financing mechanism will these businesses use? Just under

two-thirds said they will use lines of credit, and about half will use

a business or commercial credit card. A quarter say they’ll borrow

using personal credit cards.

“�I�expect�slight�improvement�in�2014.��

I�have�been�seeing�some�signs�already.�

People�are�less�afraid�to�spend�money.”�


12 | Small Business Leaders Outlook: Taxes and Regulation

Taxes and Regulation


It’s safe to say business leaders regard government regulation with

perennial concern, and the 2014 survey results bear that out. Three

out of five small business leaders express the view that the current

regulatory environment has made it more difficult to expand and hire

new workers—a result precisely equal to what they said in 2013.

Only 2 percent say regulations make hiring easier.

Look within the overall number, though, and there is notable

change from last year. Healthcare regulation remains the

regulatory threat about which the most small business leaders

are “extremely concerned”—one-third of them say so. The next

three leading answers all have to do with taxation and government

policy—taxes overall, fiscal policy and payroll taxes—and for

each of these three threats, “extreme concern” fell off compared

to 2013. This may reflect the fact that longer-term agreements

among members of Congress appear to have broken the cycle

of deadlines and “cliffs” that lent so much uncertainty to previous

years. This is not to overstate the change, however, because

the three tax categories remain the leaders’ greatest regulatory

concerns apart from healthcare.

Other oft-cited regulatory concerns among small business leaders

included local and state regulations, industry regulations and labor

rules. Financial industry regulation—which also saw some reduction

in uncertainty with the implementation of more Dodd-Frank provisions

and which applies to only some of the businesses in the survey—was

an extreme concern to only 12 percent of respondents.

Regulations still weigh heavy, but in changing ways


Healthcare changes shift from theory to reality

As designed upon its passage in 2010, the Affordable Care

Act was to bring some of its most significant changes in 2014.

Adjustments since then, most notably the federal government’s

decision to delay implementation of some key employer mandates,

have made 2014 less of a turning point than expected. Nonetheless,

most business leaders, like most people, have a more concrete

understanding of the law and its effects than they had a year ago,

and uncertainty about its impact has subsided. That may contribute

to the fact that only 17 percent of businesses said regulation was

one of their top three challenges for 2014, even though healthcare

costs remain a point of significant concern for them.

In that environment, two-thirds of small businesses report they

do not cover health insurance for their employees—a response

statistically identical to last year’s. Another finding that shows little

overall movement is the 70 percent of small businesses that say

they do not feel a competitive disadvantage because they don’t offer

coverage. However, the larger small businesses in the survey did

show a significant jump in the belief that the absence of coverage

leads to a competitive disadvantage. Two out of five of those larger-

company leaders feared this effect, eight points more than in 2013.

Perhaps in part because many of their companies fall below the

50-employee threshold in the law, almost nine out of 10 of the

small businesses that do not offer health insurance today said they

Regional spotlight: the Midwest

The Midwest was one of the regions whose optimism about

the global and national economies grew the most from year

to year. The Midwest was the only region where businesses

reported a year-to-year decline in their likelihood to increase

capital spending. They have less concern than last year

about taxes and deficit reduction, and more concern than

last year about the talent shortage. Among businesses that

plan to hire, those in the Midwest were more likely this year

to say overworked staffs were the reason for it.

“�The�morale�of�the�country�is�impacted��

by�the�gridlock�in�Washington,�DC.�Until��

we�see�cooperation�and�teamwork�out�of��

the�politicians�then�we’ll�continue�to��

grow�slowly.”�



believe the healthcare mandate will not affect them. Of those who

do not offer insurance now, 6 percent said they would pay

penalties rather than add insurance, and 5 percent said they would

add insurance. Among the larger companies surveyed, however,

10 percent said they would add insurance.

Among companies that do offer coverage to their employees, cost

control is a pressing concern. The survey asked what they have

done to offset higher healthcare costs—and what they plan to do

about them in the future.

Among actions already taken, about one-third of leaders say they

have imposed higher deductibles, and one-quarter say they’ve

required employees to pay a greater percentage of healthcare

costs. About as many have restrained hiring because of those

costs. Decreasing benefits, limiting coverage to the legal minimum,

offering medical savings accounts and reducing employee hours to

below the 30-hour full-time threshold were other commonly cited

approaches, as was eliminating or charging for spousal coverage.

Fully 30 percent of respondents said they haven’t taken any steps

to address rising health costs.

Turning to actions companies may take in the future, leaders

identified the same top four options as the ones who had already

taken steps. About a quarter will raise deductibles, and almost that

many will restrain hiring or have employees pay more. More than

one-third say they do not plan any future steps to respond to the

rising cost of healthcare.

Actions planning to take Actions already taken

None 30% 36%

What actions has your company already taken / does your company plan to take to offset the higher costs of healthcare?

Imposed higher deductibles

Restrained hiring

Decreased quality or breadth of benefits offered

Offered medical savings accounts

Limited coverage to the minimum permissible under the law

Provided wellness program

Dropped employer- sponsored coverage

Reduced employee hours to fewer than 30 per week

Dropped spouse coverage/added surcharge for spouse coverage

32% 25%

Required employees to pay greater percentage of costs

25% 23%

24% 24%

18% 14%

12% 10%

12% 14%

11% 12%

10% 8%

7% 7%

5%5%


Is the current regulatory environment making it easier or more difficult for small and medium sized businesses to expand and hire new workers?

60%

2%

38%

More difficult

No impact

Easier


If they were in charge: business leaders’ regulatory wish lists

In each year’s survey, business leaders have the opportunity to

name the three areas they would most like the government to focus

on to support their growth in the next 12 months. As they did last

year, leaders opted for a lower, simpler tax structure: Lowering tax

rates, with accompanying reductions in credits and deductions,

appeared on 63 percent of their lists, the only response more than

half the respondents chose.

Half the respondents wished for a reduction in regulation, a slight

increase from 2013. And with the threat of a fiscal cliff sharply

diminished this year in the wake of agreements in Washington, just

fewer than half asked for federal deficit reduction—7 percent fewer

than in 2013. Just as many said they wanted financial stability and

better access to capital, the same as in 2013. Other commonly

chosen desires were infrastructure improvements, workforce

development, a comprehensive jobs plan and consumer protection,

most of which roughly mirrored 2013 levels.

Industry spotlight: Manufacturing

Concern over labor costs and the shortage of skilled talent

grew as a concern for manufacturers in 2014, and they

showed more concern than most other industries over

foreign competition. Among businesses that said they’d

use financing, manufacturers were the most likely to say

their borrowing would go toward foreign trade and capital

equipment purchases. Their expressed likelihood to borrow

for structures, facilities and working capital increased

compared to 2013. This group showed a notable increase

this year in expectations for sales and revenue increases.


Lower tax rates and reduce credits and deductions

Reduce the federal deficit

Ensure financial stability and access to affordable capital

Improve infrastructure

Create and foster a skilled workforce

Create a comprehensive jobs plan

Protect consumers’ interests

Reduce regulations

63%

50%

48%

48%

25%

21%

20%

18%

Which three areas should the government focus on in the next 12 months that would best support the growth of small and medium sized businesses?

Respondents were allowed to select three options.

20 | Small Business Leaders Outlook: Talent

Talent


Even though a growing majority of small business leaders anticipate

revenue and sales to rise in the coming year along with profits,

most of them plan to stand pat on their headcounts.

Two-thirds of companies say they intend to keep full-time

employment the same over the next 12 months. About a third

anticipate increases, and only a handful project declines.

A marginally more positive pattern holds true for part-time

employment, with about three in five projecting no change and 35

percent saying they’ll take on more people. Plans for compensation

follow suit: 36 percent say employee compensation will likely rise,

and three in five small business leaders say they anticipate no

changes this year.

Those reported projections for employment and compensation

closely mirror what leaders said in 2013.

Most small businesses expect activity to rise, but fewer plan more hiring

“�Attracting�a�quality�workforce�is�always�

a�challenge�for�a�small�business�owner.��

Hiring�the�right�candidate�the�first�time�

can�make�a�huge�difference�in�a�small�

company’s�bottom�line.”�



What are your employment and compensation projections for the next 12 months?

4% 67% 29%Full-time employees

4% 61% 35%Part-time employees

4% 60% 36%Employee compensation

Decrease Remain the same Increase


There was, however, a notable distinction among small businesses

of different sizes. Those in the smaller range roughly paralleled the

overall findings. But small businesses with more than $500,000

in annual sales revealed more aggressive plans. They were 9

percent more likely than the smaller cohort to plan increases in full-

time employment and 11 percent more likely to plan increases in

compensation—which in itself represents a seven-point increase

over the same response in 2013.

Insufficient demand

Uncertainties about higher healthcare / insurance costs

Increased efficiency / productivity

Uncertainties about regulations or government policies

Increased taxes

No need for new employees

Few skilled / qualified workers available

Other

No desire to expand / happy with current level/family business

Limited access to capital

Company’s financial position has deteriorated

Worries about the sustainability of the economic recovery

39%42%

35%39%

30%32%

24%

21%20%

20%

20%26%

17%16%

11%8%

6%

6%2%

1%

1%10%

What are the primary reasons for restraining your hiring plans?

20132014

Regional spotlight: the South

Small businesses in the South showed the least concern

about consumer confidence, greater confidence than last

year about their local economies, and the most optimism

about sales and profit growth for 2014. Their concerns

about regulatory reduction, infrastructure improvement

and the talent shortage all grew from 2013 to 2014. More

leaders in the South than last year said they have plans in

place to sell or transfer the business.


Sales demand is a chief driver of plans to hire—or plans not to

If the majority of small businesses nonetheless say they will restrain

their hiring plans, it’s worth knowing why. Business leaders who

plan no hiring growth for 2014 were most likely to cite insufficient

demand (39 percent) as a primary reason, followed closely

by worries about the sustainability of the economic recovery

(35 percent). Just under a third said worries over insurance or

healthcare costs would keep their hiring in check. But a quarter,

up from a fifth last year, said they wouldn’t need to hire because

increased efficiency and productivity were generating more from

the people they already had. The number who said they have no

need for new employees also rose sharply from year to year.

What about small business that do plan to increase hiring? By a

wide margin, their most commonly cited reason was expected sales

growth. More than four leaders out of five cited it, twice the number

who cited the number two reason, that their current sales forces

were overworked. The need for skills not present in the current

workforce and improvements in the company’s financial position

were the other responses to reach double digits, in a category that

saw little change from 2013. Retailers are placing more emphasis

this year on sales growth as a reason to bring on new people.

Expected sales growth

Need skills not possessed by current workforce

Company’s financial position has improved

High employee turnover

Decreased economic uncertainty

Labor costs have decreased

Other

Current workforce overworked

84%85%

42%37%

34%30%

29%27%

7%

7%

6%

4%

2%3%

1%5%

What are the primary reasons for increasing your hiring plans?

20132014


Finding candidates with needed skills is a rising concern

Between intention to hire and actual hiring, however, lies the task of

finding the right fit. Here, the persistent “talent paradox” continues

to hold sway, with companies struggling to land the right talent even

amid continued high unemployment.

More small business leaders (29 percent) said they were “very”

or “extremely” concerned about the limited supply of skilled

candidates than said they were “not at all concerned” (25 percent).

The year-to-year movement is most telling here: The “concerned”

responses increased compared to 2013 while “not concerned” fell

by a corresponding degree.

Business leaders are sticking to established plans as they work

to combat the talent shortage. When asked what steps they are

taking, they gave responses almost identical to last year’s: Two-

fifths said they were offering higher wages to targeted candidates,

and just as many said they were focusing recruitment and retention

efforts on older workers. Non-financial rewards, willingness to

accept lower skill sets and changes in policy were other commonly

cited approaches.

Industry spotlight: Construction

In naming their top business challenges, small businesses

in construction were more likely to cite productivity and

a limited supply of skilled job candidates. But they also

had greater expectations than other sectors for increases

in sales, revenues and profits, and they were more likely

than others to be “very optimistic” about the performance

of their own industries and own companies. Along with

manufacturers, they were the group most likely to say

they plan to use financing to acquire capital equipment.

Financing for working capital was also a rising response

in the construction industry, though more leaders in that

category also said they might not seek financing this year

because they fear they won’t qualify.


Planning for the future

One of the greatest talent milestones a small business faces is a

change at the top. This year, more leaders reported they have plans

to sell, transfer or exit their businesses within certain periods: 9

percent within two years or less, 14 percent within the next three

to five years, and 18 percent within the next six to 10 years. The

58 percent of business leaders with no transition plans represent a

five-point drop. The South, in particular, is more prone to have plans

to sell or transfer compared to last year.

However, the percentage of small business leaders who report

they have formal succession plans in place dropped to just over

one-quarter. Among those who say they will leave their businesses

within a defined time window, just over one-third intend to sell to

another individual and 16 percent plan to sell to or merge with

another business. The plan to sell or merge is more prominent

among larger small businesses, 23 percent of whom report this

intention. Among small businesses overall, there was a notable

drop in the number who plan to liquidate, down to 11 percent.

28 | Small Business Leaders Outlook: Digital Marketing

Digital Marketing


The growth of digital and social media is a familiar fact in general

society. The growing embrace of these media by small businesses

is a less well-known but parallel development. Across every major

channel, a greater percentage of respondents than last year

said they “currently have and plan to keep” company websites,

LinkedIn accounts, Facebook pages, Twitter accounts, paid digital

advertising programs and blogs.

Websites, LinkedIn and Facebook all neared or exceeded 50

percent use, with websites nearing three-quarters adoption.

Current LinkedIn and Facebook use rose seven points from 2013.

And a smaller but stable number of small businesses, ranging from

11 to 17 percent, report for each of these media channels that they

do not have them but plan to adopt them within the next 12 months.

Retailers are more likely than their counterparts in other industries

to use Facebook and Twitter, and their use of both has increased

this year along with their use of blogs and paid advertising.

Meanwhile, professional services companies use LinkedIn more

than other industries do.

The social media surge was largely consistent among small

businesses of different sizes, though larger businesses were

slightly and uniformly more likely than smaller ones to use each of

the digital media types. The greatest year-to-year change among

the larger businesses was a 13-point jump in LinkedIn use, and 9

percent more of them turned to Twitter. Smaller businesses showed

the greatest year-to-year movement into LinkedIn and Facebook,

each of which increased by 6 percent.

The world grows more digital, and small business follows suit


Does your business currently use any of the following?

Company website

LinkedIn account

Facebook page

Paid digital advertising

Blog

Twitter account

71% 68%

49% 42%

46% 39%

12%

Do not have, plan to get in next 12 monthsCurrently have, plan to keep

12% 11%

11% 10%

12% 11%

26% 21%

13% 12%

22% 18%

16% 16%

16% 14%

17% 15%

2014 2013


Beyond the “on” switch: degrees of importance, degrees of difficulty

Most people have seen social media accounts or pages that don’t

reflect a lot of care on the part of their owners. If the small businesses

in the survey are active in these channels, does it automatically

follow that they care about them? Small business leaders’ sense

of the importance of digital advertising and social media advanced

somewhat in 2014 but still has plenty of room to grow.

The leaders who said digital advertising is “not at all important” or

“not very important” (41 percent) do slightly outnumber those who

say it’s “very important” or “extremely important” (33 percent). For

social media, “not important” responses outweighed “important”

ones 42 to 30 percent. However, “important” advanced five points

for social media and three points for digital advertising compared

to 2013. “Not at all important” was down five points this year for

social media and four points for digital advertising.

When small business leaders were asked what challenges they

were facing with digital advertising and social media, few significant

roadblocks emerged. The most frequently cited problem, cost,

appeared on only 9 percent of surveys, and that represents a five-

point drop from 2013. Four percent cited a lack of time, which is

also five points below the 2013 response. Other issues, such as

seeing the return on investment, keeping sites updated, targeting

the right demographics, staffing and required technical knowledge,

were all low-single-digit responses that changed little from last year.

Regional spotlight: the West

Taxes declined this year as a concern for business leaders

in the West. They expressed less concern this year about

local, state and environmental regulations, and were

among the most optimistic about the global and national

economies. They expressed less demand this year for

deficit reduction as a government priority. Among those

who said they’d be hiring in 2014, leaders in the West were

more likely to say overworked staffs were the reason.

Industry spotlight: Wholesale

Small businesses in the wholesale sector were among the

most optimistic about the national economy. They showed

a particularly strong concern over sales and revenue

growth but also had a particularly strong expectation that

sales, revenues and profits would grow this year. This was

the industry most likely to name foreign competition as a

top-three concern—and the number of wholesalers who

said so doubled compared to last year. They were also

more likely this year to indicate they’d use financing to

help fuel foreign trade.


As one participant in the Chase Small Business Online Community

noted, “Having a social presence is becoming more and more

important, and if you ignore it, you will be left behind.” But another

said, “Keeping content fresh and relevant can be challenging.

And in an environment like social media where you can’t control

what other people say or do, I’m always concerned about my

company’s reputation and how it is perceived. … If you don’t take

care of a problem, it can easily end up on your page for hundreds/

thousands to see.”

How important are digital advertising and social media to your business?

22%19% 16% 17%

15%24% 21% 16%

22%20% 16% 14%

21%25% 14% 11%

Social media

Social media

Digital advertising

Digital advertising

Not very important

Not at all important Very important

Extremely important

2014

2013

34 | Small Business Leaders Outlook: Comparing Small and Middle Market Businesses

Comparing Small and Middle Market Businesses


This year’s Chase Business Leaders Outlook survey included

executives from two groups: small business leaders with annual

sales between $100,000 and $20 million, and middle market

business leaders with annual sales between $20 million and

$500 million. Surveying both audiences for the second year in

a row provides a holistic view of the opportunities, challenges and

trends facing a wide range of American businesses—and provides

insight into how their outlooks compare to one another based

on size and strategic goals, and how they differ from 2013. The

questions asked were almost identical from one group to the next,

but many of the answers showed significant differences in the way

business leaders perceive the year ahead.

In broad terms, middle market business leaders appear to be more

optimistic about the national economy, their local economies and

their own companies’ performance than small business leaders.

This might reflect the greater sense of engagement and control that

size brings, or that middle market organizations feel they have less

to fear from short-term ups and downs.

However, respondents from mid-sized businesses are more

concerned than ones from small businesses about regulations and

labor issues, and appear to have higher expectations for revenue

and sales growth for the coming year. Small businesses are less

concerned about government fiscal policy than middle market

businesses but are more concerned about payroll and employment

taxes. Middle market businesses are more likely to be tied to the

global economy through sales, purchases and operations—and

therefore slightly more confident than small businesses when it

comes to the global outlook. Hiring plans also seem to differ among

the two groups, with middle market business leaders more likely

to report plans to increase their hiring and compensation in the

coming year than their small business counterparts.

Size aside, the outlook is bright


From the global economy to the home office, varying degrees of optimism

As the chart at the left shows, both small and mid-sized businesses

uphold the pattern that leaders feel increasingly optimistic the

closer they look to home. Middle market businesses have a

somewhat more optimistic view than small businesses of the

global and national economies, which could reflect their greater

degree of engagement and feeling of control in large markets.

PessimisticOptimistic Neutral

What is your outlook on the following for the next 12 months?

15%58%27%

24%47%29%

13%33%54%

32%26%42%

17%26%57%

9%31%60%

12%30%58%

7%30%63%

Global economy

Middle market

Middle market

Middle market

Middle market

Small business

Small business

Small business

Small business

National economy

Local economy

Industry performance

3%17%80%

7%20%73%

Middle market

Small business

Company performance


What are the top three most significant challenges facing your business in 2014?

Revenue / sales growth Revenue / sales growth

Regulatory requirements

Taxes

Managing labor costs

Managing cash flow

Limited supply of talent


U.S. competition

Healthcare costs

Taxes

Managing all other costs

Limited supply of talent

Managing labor costs

Foreign competition


Cost of commodities

Foreign competition


U.S. competition

Cost of commodities

Maintaining or increasing productivity


Regulatory requirements



66% 51%

40%35%

33%

29%

33%

28%

31%

26%

23%

20%

19%

19%

12%

15%

11%

13%

10%9%

10% 4%

8%

10%

14%

17%

Middle market Small business


Current concerns and future plans

In naming their top three business challenges for the coming

year, the two groups agree on the biggest—revenue growth and

economic uncertainty issues—but diverge sharply on others. Middle

market businesses are more worried about regulations and labor

cost, and small businesses worry more about taxes and cash flow.1

Middle market leaders have more robust expectations for revenue

and sales growth than small business leaders, and while both

groups have modest plans for capital spending, middle market

respondents are more likely to project increases in this area for the

coming year. When asked about their strategies for growth in 2014,

the two groups name the same top approaches: attracting new

customers, expanding and diversifying offerings, up- and cross-

selling, and expanding within domestic markets. However, small

businesses plan to place more emphasis than middle market ones

on attracting new customers and less on developing new offerings.

In keeping with their size and scope, middle market businesses

are much more likely to plan overseas market expansion and

acquisitions than small businesses are.

There were fewer parallels between the two groups on the subject

of financing, and most of the differences appear to stem from

the changes in scale from one group to the next. Among those

who plan to borrow, the need for capital equipment purchases

is the primary driver for middle market business leaders—at

a 13 percent higher rate for this area of spend than for small

businesses. Small business leaders, on the other hand, are

most likely to borrow to fulfill working capital needs, which they

report a 6 percent higher need for than their mid-size business

counterparts. Acquisition is also one of the top reasons

(23 percent) middle market leaders plan to use financing, but

only 6 percent of small businesses report the same intent.

Among executives who say they won’t need financing in 2014,

both groups cite the same two reasons for staying out of credit

markets for now—increased revenue and concern about ongoing

economic uncertainty. However, middle market businesses

are much more likely (73 percent) than small businesses (37

percent) to rely on current cash flow to maintain expenses without

borrowing, and small businesses are more likely (21 percent)

than the middle market ones (16 percent) to be dissuaded from

borrowing by economic uncertainty.

1 Middle market and small business leaders chose from a slightly different menu of responses for this question, but the different priorities were still notable.


Employment

More than half of middle market leaders say that they expect to

increase hiring this year, but less than a third of small business

leaders report the same expectation. Meanwhile, small businesses

are much more likely to project increases in part-time hiring.

Consistent with their expectations for sales growth—and perhaps

driven by their response to the talent shortage—middle market

businesses are also 27 percent more likely to plan increases in

employee compensation in 2014.

Small and middle market business executives who plan to hire

this year cite many of the same reasons for doing so, in the same

proportions: expected sales growth, overwork of the current

workforce, lack of needed skills among the current workforce or

an improved financial position. Differences among the two groups

begin to appear when discussing the rationale behind not hiring.

For middle market leaders, the greatest reason for restraining hiring

this year is their focus on increased efficiency and productivity—

they cite this twice as often as small business leaders do—as well

as concerns over healthcare uncertainties. Insufficient demand is

a reason listed nearly equally among the two groups—and among

small business leaders, it’s the most common reason reported.

Both groups report some concern over a perceived shortage of

job candidates with the right skill sets for their open roles, though

this concern is greater among middle market leaders. The real

differences on this topic emerged when executives were asked what

they plan to do about it. Two-thirds of middle market respondents

say they would use in-house training programs to address the talent

shortage, against only 4 percent of small businesses. Offering higher

wages is one of the top two talent management strategies for small

business leaders, and one that is 7 percent more popular among

their mid-sized business counterparts. Both groups say they will

work to recruit and retain older workers, though this strategy was

almost twice as popular among small businesses. Small businesses

are also about two and a half times more willing to accept lower skill

sets at a lower wage to secure talent in place.


Taxes and regulations

Do regulations affect middle market businesses more than smaller

ones? Middle market business leaders seem to believe so: They are

10 percent more likely than small businesses to say the regulatory

environment makes it more difficult to expand and hire new workers.

The question of regulatory “wish lists”—what business leaders

would like to see the government focus on—is yet another area

where small and middle market businesses report many of the same

priorities, but in a different order. Small business leaders appear to

place more emphasis on dollars-and-cents issues.

Two-thirds of middle market leaders report that they’d like to see

reduced regulation, which is 16 percent higher than among small

business leaders. For small businesses, the top choice is simpler,

lower taxes, which is the number two answer for middle market

companies. Both groups place significant emphasis on reducing

the federal deficit and ensuring financial stability and access to

capital, though the latter answer is 20 percent more common for

small businesses.

Middle market businesses are significantly more likely than small

businesses to express concern about healthcare regulations,

while small businesses are more likely to be concerned about

taxes. Some questions delving into the specific areas of regulatory

concern illuminate distinct differences in how businesses of

different sizes look at the regulatory landscape. Small businesses,

for example, report much less concern about fiscal policy, industry

regulation, labor regulation and environmental regulation than middle

market ones, while payroll and employment taxes weigh more

heavily on the minds of small business leaders.

The size difference does breed two very different outlooks on health

insurance. All but 3 percent of middle market businesses already

offer employee coverage, but only one-third of small businesses

do. Healthcare regulation and management of rising healthcare

costs were areas of specific concern for businesses of both sizes,

and both report plans to address these rising costs through higher

deductibles and greater employee cost-sharing strategies.

Overall, small businesses are less likely to have developed formal

plans to address the rising healthcare costs this year, and are more

likely to employ cost-reduction strategies such as restraint in hiring

to address immediate needs.


Middle market businesses are twice as likely to report that they

will ask employees to pay a greater share of the costs and are

15 percent more likely to say higher deductibles will figure into their

future strategies. Middle market companies are also five times more

likely than small businesses to offer employee wellness programs

and three times more likely to offer medical savings accounts—

possibly as strategies for off-setting the additional costs passed

on to their employees.

Almost half of middle market respondents say they believe failing

to offer coverage would put them at a competitive disadvantage.

Among small business respondents who don’t currently offer

coverage, about one-third have the same apprehension. In light of

the 50 full-time employee threshold under the Affordable Care Act,

many more small businesses that don’t currently offer insurance (89

percent) say that the new federal mandates won’t apply to them,

compared to 56 percent of middle market companies. Among those

who do anticipate an effect from the legislation, middle market

businesses are almost six times more likely than small ones to say

they’d react by adding employee coverage.

Selling or transferring ownership

Two-thirds of middle market leaders and almost as many small

business leaders report that they have no current plans to sell or

transfer ownership of their companies. Those who do have plans

to do so are about equally likely to anticipate this event occurring

between now and five years from now. But small business leaders

are 7 percent more likely than middle market leaders to plan a sale

or transfer in the six- to 10-year window.

Whether or not a company has leadership transition pinned to the

calendar, the unpredictability of circumstance makes it a good idea

to have a formal plan in place. In the middle market, businesses

are split almost down the middle, with 54 percent reporting a

current plan on the books. Only 26 percent of small businesses

say they have a succession plan in place, which may reflect the

more informal leadership structures many of these businesses

use, or a more organic expectation among family businesses that

succession is a simple matter of generational change.


Overall, the differences between outlooks from small and mid-

sized business leaders appear to correspond to the realities these

different groups face based on their business size. Some variations

are matters of degree, as with concerns over taxes or regulation.

Others reflect sharp differences in the way these businesses are

structured, as with healthcare coverage. Overall, there are probably

as many distinctions as there are businesses represented in the

survey—because in practice, businesses are arrayed along a

continuous spectrum of size, not two clearly defined groups, and

each has a different market to serve. However, these comparisons

can help us understand the ways business size affects a leader’s

outlook on the varied challenges and opportunities that lie ahead.

44 | Small Business Leaders Outlook: Conclusion

Conclusion

46 | Small Business Leaders Outlook: Conclusion

Uncertainty can be a roadblock for businesses of any size, but

uncertainty isn’t a single phenomenon. It comes from different

directions—the economy, the government, the globe—and takes

its form in many topics, such as regulation, taxes, and bottom-line

performance. The more leaders think they know what to expect,

the more confident they can be in making concrete plans.

The result is that small business leaders have a positive outlook

about what will happen to them in 2014 and a more cautious

outlook about what they’ll do in response. Sales, revenues and

profits? Most expect them to rise. Hiring, borrowing and capital

spending? Even with the anticipation of new cash, most expect

those indicators to remain stable.

Those findings, along with a pronounced interest in maintaining a

stock of working capital, suggest small business leaders want to

keep a nimble footing in 2014. They see some of the logjams in

their world beginning to break up. They see more options ahead.

And for now, they want to keep those options open.

The road ahead begins to clear


About the Chase Business Leaders Outlook Survey

In early 2014, Chase Business Banking and Chase Commercial

Banking conducted separate surveys of small business and middle

market executives to learn their views and plans with respect to

their companies, their industries, and the economy.

The 2014 Chase Small Business Leaders Outlook Survey, which

is the focus of this report, conducted a total of 2,387 online

interviews from January 15 to February 18, 2014 among Chase

business customers and panel participants from companies

with annual revenue of between $100,000 and $20 million. The

survey team conducted statistical testing between revenue groups

throughout the report to identify significant differences at the 95

percent confidence level. Respondents were weighted to ensure a

representative distribution across revenue size, region and industry.

The 2014 Chase Middle Market Business Leaders Outlook Survey,

whose results helped inform part of this report, gathered the views of

nearly 1,100 senior executives from February 4 to February 21, 2014.

The purpose of the study is to gain clearer insight into the business

and economic trends that influence the decision-making of

business leaders from a cross-section of industries and to provide

these executives with information regarding the perspectives and

actions of their peers.

© 2014 JPMorgan Chase & Co. All rights reserved. Chase and J.P. Morgan are marketing names for certain businesses of JPMorgan Chase & Co. and its subsidiaries. The material contained

herein is intended as a general market commentary, in no way constitutes J.P. Morgan research and should not be treated as such. Further, the information and any views contained herein may

differ from that contained in J.P. Morgan research reports.

business leaders outlook - small business 2014€¦ · 12 months leading up to the 2014 chase...

Documents