Small Businesses Expect to Grow Despite Concerns about the Economy, According to the OPEN from American Express 2005 Semi-Annual Small Business Monitor; Hurricane Katrina Dampens Confidence, but Six-Month Growth Outlook Remains Strong

Business Wire, Oct 3, 2005

NEW YORK -- Business growth remains the top priority for small business owners in the U.S., and more respondents expect their businesses to grow over the next six months despite concerns about the economy - 49%, up from 44% a year ago, according to the OPEN from American Express(SM) 2005 Semi-Annual Small Business Monitor conducted prior to Hurricane Katrina.

Post-Hurricane Katrina, the percentage expecting business growth over the next six months despite concerns about the economy remains steady at 50%. However, the percentage expecting the current economic climate to negatively affect their business rose to 24%, up from 15% pre-Katrina. Among women business owners, those expecting a negative impact on their business climbed to 30% from 20% pre-Katrina. Conversely, a year ago, just 16% of women business owners expected the economy to negatively affect their businesses.

OPEN from American Express(SM) and International Communications Research fielded the semi-annual small business monitor between August 8-19, and after Hurricane Katrina, from September 8-15, 2005.

Business Priorities

Prior to Katrina, business growth was the top priority for a third of the nation's small businesses owners (35%) - on par with last year (36%) - followed by maintaining their current business (33% versus 34% last year), and managing cash flow (11% versus 12% last year). Post-Katrina, top business priorities include business growth and maintaining current business (31% each), followed by managing cash flow (15%).

Hiring Plans

With a notable exception between 2002 and 2003, those business owners with hiring plans had been steady over the last three years until Hurricane Katrina - 26% in fall 2002, 34% in fall 2003, 35% in fall 2004 and 37% this fall. Immediately following Katrina, however, the percentage of business owners with hiring plans over the next six months fell to 31% of respondents. For women business owners, plans to hire tumbled to 20%, from 34% pre-Katrina and 36% last fall.

Energy Costs

In response to generally higher energy costs, a third of all small business owners (33%) say they have reduced energy use to save money post-Katrina, up from 29% pre-Katrina. Interestingly, fewer overall now say they will raise prices in response to higher energy costs (31% pre-Katrina versus 26% post-Katrina).

"This may be an indication that many small businesses are still trying to tighten their belts during this period of high energy costs rather than pass on the increased costs to customers," said Susan Sobbott, president, OPEN from American Express.

Nevertheless, business owners are feeling the pressure of higher costs for fuel and other energy sources. In the post-Katrina survey, two-thirds (65%) of small business owners say higher energy costs have a significant or moderate impact on their business. When asked how energy costs are affecting their business, 19% cite a squeeze on profits, and 13% report cash flow issues.

Capital Investments

While plans to make capital investments - such as computers, software, office equipment and real estate purchases - had remained relatively steady between fall 2005 (63%) and fall 2004 (61%), those plans declined five percentage points to 58% post-Katrina. Among women respondents specifically, 51% say they plan to make capital investments in their business in the next six months, down from 62% pre-Katrina, and 55% last fall.

Perhaps wary of the uncertain economic climate, many respondents are reluctant to increase capital investments as well. The percentage planning to increase investments dropped to 50% this fall from 60% the prior year. That caution persisted following Katrina, with 48% saying they plan to increase capital investments. Additionally, 47% say they plan to cut personal spending, compared to 37% before the hurricane.

Financial Risk-Taking

The percentage of respondents willing to take financial risks to grow their business dipped slightly to 54% post-Katrina, from 56% before the hurricane and 64% a year ago. Women business owners report a greater decline in financial risk-taking - with 45% saying they are willing to take risks after Katrina, down from 55% before, and 58% in fall 2004.

"In terms of investments and risk-taking, many small business owners are treading cautiously amid mixed economic news and rising business costs - particularly following an occurrence like Hurricane Katrina," said Sobbott, OPEN's president. "However, we see resiliency and continued confidence in business owners' growth outlook, even in the face of recent events."

Cash Flow

Pre-Katrina, slightly fewer respondents reported cash flow concerns compared to previous years - 50% in fall 2005, down from 52% in fall of 2004, and 58% in the fall of 2003. Post-Katrina, cash flow concerns - which include accounts receivable, the ability to pay bills and payroll on time as well as having enough cash on-hand to win new business - remain steady at 49%.

Business owners who report cash flow issues are most concerned about accounts receivable (14% pre-Katrina; 13% post-Katrina) and the ability to pay bills on time (14% pre-Katrina versus 19% post-Katrina). Nine percent are concerned with having enough cash on-hand to win new business pre-Katrina, similar to post-Katrina. They are also concerned by their ability to meet payroll (7% pre-Katrina versus 5% post-Katrina).