A survey released today by Union Bank of California, N.A., shows that small business owners have grown increasingly cautious as the economic climate has become more uncertain.
That caution is impacting respondents profit outlooks for the year as well as spending and hiring plans. Californias economy was the No. 1 challenge facing small business owners surveyed in January, replacing workers compensation costs, which held the top spot since 2004.
The banks annual survey, which has been tracking trends among small business owners for the past eight years, found 52% of respondents statewide believe 2008 will be more profitable than 2007, a 15% point decline from last years results. 51% of the respondents reported greater sales in 2007, a 12% point drop from the previous year.
Respondents are showing caution with capital expenditures as the economy slows. Only 26% plan to increase spending on equipment and building improvements in 2008, while 62% plan to spend the same amount.
Another area where the majority of respondents plan to keep expenses the same: staffing levels. 71% expect to maintain their staffing levels in 2008. Only 23% plan to add positions this year, a 7% point decline versus 2007. In 2006, 36% of respondents expected to add staff.
While most small business owners surveyed are not expecting to hire new employees, the majority is not planning layoffs, either. 95% of respondents said they do not anticipate layoffs in 2008. However, 10% of those surveyed in January said they were forced to layoff employees for economic reasons last year.
“This annual survey is an excellent barometer of issues facing small business owners. While the group surveyed has become increasingly concerned about Californias economy, a majority still expects an increase in profits in 2008. Thats good news for California as a whole because small business is a powerful driver of the economy,” says Masa Tanaka, president and CEO, Union Bank of California.
The subprime mortgage crisis does not appear to be having a widespread impact across the state. Approximately 50% of respondents said they have seen no impact from rising foreclosures. However, for those respondents who have noticed a dip in business, the biggest impact has been felt in Riverside and San Bernardino counties. In Riverside, 39% of respondents said customers are spending more conservatively. In San Bernardino, 45% have seen customers spending less. That compares to 35% statewide.
Those figures mirror recent foreclosure data released by real estate tracking firm RealtyTrac that shows the Riverside-San Bernardino metro area had the fourth highest foreclosure rate among the countrys largest 100 metro areas in 2007.
While the California economy has become the No. 1 challenge of nearly 50% of respondents, up 15% points from 2007, worry about rapidly increasing workers compensation costs has declined. 33% of respondents surveyed are concerned about workers compensation costs, down from 43% in 2007. Small business owners surveyed ranked state and local business taxes as the third biggest challenge.
The workers compensation crisis appears to have decreased as a major issue on several fronts. In addition to moving down on the list of challenges facing small business owners, only 19% of respondents said workers compensation insurance costs increased in 2008 compared to 20% in 2007. The majority 65% said their insurance premium remained the same, while 16% said costs declined.
For the third year in a row, a majority of business owners indicated that they do not offer healthcare coverage to employees, up from 52% in 2007. Santa Clara County continued to buck the trend, with 73% of its small business employers offering healthcare benefits.
For those employers that offer healthcare benefits, 40% said rising healthcare costs have not impacted their business, while 24% said they have shifted a larger portion of healthcare costs to employees or reduced health benefits.
Retirement benefits and 401(k) plans are scarce among small business owners surveyed. Only 17% offer 401(k) plans and 12% offer retirement benefits. The most common benefit offered is vacation pay.
In spite of the cautious outlook for 2008, respondents believe opportunities for growth continue to be the No. 1 advantage of doing business in California. Family ties ranked No. 2 and climate No. 3.
Like many in the country, the small business owners surveyed are monitoring the presidential election. 48% said they are paying closer attention to this years presidential race compared to previous years.