Is the optimism hoping or really believing?
As we look towards 2011, small business owners are saying that they have an optimistic outlook. But what someone says out loud often differs from the look in their eyes, which in today’s market is one of fear. I think that the outlook can be characterized as more hoping than believing- so let’s call it cautious optimism.
Here are a couple of areas where caution is certain:
Growth in Customer Demand
Clearly there is pent up consumer demand to spend. However, consumers are being very careful about where they are spending their money and are looking for deals. There’s a reason that master-purveyor of group deals- Groupon- grew so quickly this year. Best Buy missed their Q3 earnings because of a failure to provide deep discounts and electronic buyers went to Walmart, Target and Amazon.com for those items instead. Clearly, it is still a buyer’s market.
So, with that said, is all consumer demand good demand? I would say probably not. Most small business owners are having trouble covering expenses and price-sensitive consumers demanding steep deals will not only eat into margins, but aren’t the type of customer that makes a business viable over the long haul.
Capital/Lending
The word is that the banks are making lending to small businesses more of a priority in the coming year. Bank of America says that it is adding on 1000 small business bankers to its staff in 2011, focusing on businesses under $3 million in sales. Citigroup says that it is going to add another 200 bankers for small businesses- but their definition is $20 million in sales and under.
But will this put more capital in the coffers of the small business owner? Probably not a lot. Even with more of a focus, the reality is that the fundamentals of the businesses- and their owners- are shaky at best. Is it likely that the banks, even with more attention on the segment- will substantially change their risk profile? We surveyed small business owners at CarolRoth.com and found that most of the owners were having a hard time covering their basic overhead. Capital investments need to be invested to produce a return- lending to cover expenses isn’t a high priority.
Without solid fundamentals or strong proof that capital will be invested for a return, small businesses will have a hard time finding capital- whether it is equity or debt.
Too Much Administrative Work
The final issue for 2011 is that there are still too many small businesses with weak business models and too much time spent on tasks that don’t produce revenue. In our survey, on average, entrepreneurs were spending over 40% of their time on administrative and other tasks that don’t add one cent to the bottom line of the business. With proposed changes to 1099 legislation kicking in late this year and that, according to the Wall Street Journal, 141 items in the tax code are temporary/expiring provisions, it’s no wonder that small business is suffering- the entrepreneurs don’t have enough time to work on their businesses. The best thing that the government could do to give small businesses the best chance of success is to simplify the rules, regulations and paperwork an entrepreneur faces to let them have the time to actually run a business.
