With a drop in consumer spending across most categories, small-business owners feel even less confident than earlier this year about making growth-related decisions for their companies. This is a key finding in the second American Express Small Business Financial Confidence Report.
Conducted in late May 2023, this recent report sampled 550 US small businesses, ranging from fewer than 10 to 550 employees, segmenting responses by size.
The inaugural Small Business Financial Confidence Report found 54% of the small-business owners surveyed felt very confident in their ability to make sound growth decisions. However, the recent survey shows 49% feel confident in making financial decisions. Large-size small businesses (which have 101-500 employees), seemed to drive this decrease.
Inflation and the state of the economy play significant roles in shaping my confidence in the growth potential and stability of my company.
—Vaibhav Kakkar, CEO, Digital Web Solutions
Several factors contributed to the decrease since the previous survey conducted in March 2023. Most (80%) of all small businesses surveyed in May agree the current economy is negatively impacting their long-term financial confidence, with 35% noting inflation as a primary concern. Other top concerns included operating costs (34%), labor costs (31%), and consumer spending (26%).
Overall, nearly two thirds of respondents (72%) believe inflation will be worse or the same in 2024.
Economy and Inflation Impacting Small Business Confidence
The report showed the current economy and inflation are weighing on many small-business owners’ minds and affecting their long-term financial confidence.
“Inflation and the state of the economy play significant roles in shaping my confidence in the growth potential and stability of my company,” says Vaibhav Kakkar, CEO of Digital Web Solutions, a web development company. “These factors impact consumer spending power, market demand for our products and services, and even interest rates on loans or investments. The uncertainty can make decision-making more challenging as my company strives to balance short-term profitability with long-term sustainability.”
Inflation tends to have a domino effect for small businesses, resulting in other top concerns cited in the study.
“Rising inflationary pressures often result in increased operating costs, including higher wages, office rent, and other expenses,” says Riva Jeane May Caburog, media coordinator at personal injury law firm Nadrich & Cohen. “This can squeeze profit margins and hinder our ability to invest in growth initiatives. Moreover, inflation can impact the purchasing power of potential clients, leading to a possible decline in demand for our legal services. As individuals face higher costs of living, they are hesitant to seek legal representation or pursue personal injury claims.”
Heightened Interest & Shifting Perceptions of AI
Since the last report, interest in artificial intelligence has increased amongst respondents. In the May report, 25% of small businesses not currently prioritizing AI would consider using the technology in the future, compared to 20% in the March report.
Reasons for harnessing AI can be linked back to the concerns seen in the survey surrounding operating costs, labor costs, and consumer spending. This is the case at Awning, a short- and long-term rental company.
“One of my top concerns is the rising costs of goods and services, the labor market, and the pressure these factors place on our operating margins,” says Dennis Shirshikov, Awning’s Head of Growth. “Even a small increase in costs can significantly impact a business like ours. It's a bit like navigating a ship in rough waters: you're always on alert. To stay nimble, we have taken advantage of various AI tools.”
Despite more overall interest in AI since the first report, mistrust surrounding the technology has also increased. Between March and May, mistrust in AI rose by 39% among small business owners not considering using the technology in the future. Mistrust was the top explanation (43%) why small business decision makers are not considering the use of AI, compared to 31% in March.
Recent Bank Failures Impacting Small-Business Owner Confidence
Not surprisingly, recent bank failures have impacted small-business owners’ confidence. The May survey found nearly half of small businesses (48%) stated the early 2023 bank failures had no impact on their bank provider confidence levels. However, the survey also found an even split between small-business owners feeling greater or less confidence (both 26%) in their banking provider.
According to the report, nearly half (48%) of all small-business owners surveyed believe customer service is the most important factor when considering new banking partners.
Despite the dip in small-business decision makers’ confidence, those resilient individuals running our nation’s small businesses remain focused on enduring.
“The pandemic and inflation demonstrate how quickly external factors can disrupt our business models,” says Shirshikov. “But such events also show us how capable we are of responding to those challenges, pivoting, and finding new ways to thrive. Such challenges are a stark reminder that as a small business, our greatest strength lies not in our size – but in our ability to adapt quickly and efficiently.”
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