The Sentiment of Small Business

By Tim Devaney and Tom Stein

Small businesses represent a major part of a national economy. What's happening on Wall Street typically dominates news headlines, but small businesses play an integral role in the U.S. economy, and the same can be said around the world.

Small Businesses in America
How important is the sentiment of small businesses? Consider the following statistics from the U.S. Small Business Administration. Small businesses:

• Represent 99.7 percent of all employer firms.
• Employ just over half of all private sector employees.
• Pay 44 percent of total U.S. private payroll. 
• Have generated 64 percent of net new jobs over the past 15 years.
• Create more than half of the nonfarm private gross domestic product (GDP). 
• Hire 40 percent of high tech workers (such as scientists, engineers, and computer programmers). 
• Are 52 percent home-based and 2 percent franchises.
• Made up 97.3 percent of all identified exporters and produced 30.2 percent of the known export value in FY 2007.
• Produce 13 times more patents per employee than large patenting firms; these patents are twice as likely as large firm patents to be among the one percent most cited. 

As you can see, small businesses play a major role in the U.S. economy. Business owners can get a good feel of the market by evaluating how other small businesses view present and future conditions.

Small Business Optimism Surveys
There are several studies that you can track to monitor small business optimism. The National Federation of Independent Business (NFIB) is a nonprofit association founded in 1943 representing small and independent businesses.

The NFIB publishes a monthly Index of Small Business Optimism. The NFIB also periodically conducts other small business surveys, such as the Small Business Credit in a Deep Recession report.

Wells Fargo conducts a monthly survey measuring the mood of small businesses as well. The Wells Fargo/Gallup Small Business Index attempts to capture the level of small business optimism based upon financial situation, cash flow, revenues, capital allocation spending, job hiring, and credit availability.

What the Surveys Tell Small Business Owners
Of course, a survey can't capture the totality of what's happening on Main Street. But these surveys do provide a backdrop with which to judge the economic climate for small businesses. 

If your small business is struggling, then improvements in small business optimism surveys may signal that business will pick up. Alternatively, if small business optimism surveys suggest that conditions are deteriorating then it may be time to get lean. 

By staying abreast of how other small companies feel about doing business, you can make better decisions for the future.


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