Owners Less Confident About Their Own Businesses and Overall U.S. Economy, But Cash Flow Situations Improve

October 2007

• Download Data (doc)
• Download Press Release (doc)
•  Print

At 96.8, the Watch dropped more than two points from 99.2 in September and has been on a downward trend since July when it was 107.3. The percentage of business owners who said conditions for their own operations were getting worse, 41 percent, represents the highest degree of skepticism recorded thus far noted in the 15-month-old survey.

One bright side in the findings: Fewer owners were having temporary cash flow issues, 42 percent, compared to 46 percent in September.

“Optimism among business owners is definitely clouded, and they are exercising increased caution toward business development spending. However, the upturn in the cash flow situation is definitely a positive sign,” said Sastry Rachakonda, director of Discover's business credit card. “If money is still coming in, there is still a sense of stability out there.”

Learn more about the research methodology for the Small Business Watch.

October Key Findings

• 35 percent of small business owners feel that economic conditions for their businesses are getting better, a decrease from the 40 percent in September and two percentage points lower than a year ago in October. Those who saw their conditions getting worse was 41 percent compared to 35 percent in 2006.
• 32 percent of owners said that they rate the overall U.S. economy as excellent or good, down from last month’s 39 percent and the lowest rating in this category since the Watch’s inception. In October 2006, 44 percent of owners rated the economy excellent or good.
• 42 percent said they had experienced cash flow issues over the last 90 days, a decrease from 46 percent in September, but higher than 34 percent from a year ago

POLL: Small Business Owners Overwhelmingly Prefer Face-to-Face Networking

• When asked which networking opportunities they use most, 67 percent identified non-online methods such as trade shows, local in-person groups or chambers of commerce. Six percent cited e-mail as their most-used method and another 6 percent cited online sites. As for financial benefits, 72 percent of small business owners say online networking has yet to have any impact on their bottom lines.
  
• As for consumer response, more than half, 55 percent, said they would not consider using a service or small business that they heard about on a social or business networking Web site.
  
  “Many small business owners reported little use of online networking; instead opting for face-to-face contact at local or industry events,” Rachakonda said. “The buzz that general-interest networking sites are generating hasn’t struck a chord with the Main Street small business crowd.”
  

Highest Online Usage and Effectiveness Tied to Industry-Specific Sites

• Industry-specific online communities had more small business owners as members than some of the more popular social networking sites. Nineteen percent of owners said they were a member of an online community that was specific to their industry, which was higher than their reported participation at some of the more popular general-interest sites, which attracted from 3 percent to 18 percent of small business owners.
  
• Industry-specific online networks also were reported to be more useful than even offline business networking vehicles. When asked how being a member of an industry-specific online community has most helped their businesses, 36 percent of small business owners cited new business leads and 37 percent chose getting useful business tips.
  
• In comparison, when asked to choose the biggest networking benefit of belonging to an in-person local business group, 21 percent reported getting new business leads and 16 percent reported getting useful business tips.
  
  “Clearly, sites with a specific purpose or serving a targeted industry are a lot more useful to business owners than general networking sites” Rachakonda said.
  

Online Networking Varies by Age Group

• While in-person networking is clearly more prevalent overall, not surprisingly, the Watch found that younger business owners use online networking the most. In the 18-29 age group, membership at general online networking sites reached as high as 41 percent at some of the more popular online networking communities. Membership among older age groups at the same sites is still significantly lower.
• “While online forums have not completely caught on with business owners yet, the younger business owners are using them a lot more. This is likely to be the wave of the future,” Rachakonda said.

The Discover Small Business Watch is a monthly index of the economic confidence of the nation's 22 million businesses with 5 or fewer employees. Learn about our research methodology.