Small Business Optimism Climbs, but Employment Stalls

The number of small-business owners who project increases in employee size in the coming 12 months remained level at 26 percent.

There is an improved overall economic outlook for America's small-business owners, when compared with five years ago, according to the results of a survey conducted by the National Small Business Association (NSBA), which found that almost two-thirds (59 percent) of small-business owners either expect growth in the coming year or already are growing, a notable jump from 50 percent just six months ago.

Interestingly, despite positive growth in economic outlook, there was very little change in small-businesses revenue and profits over the last 12 months and similarly stagnant growth in projections for both revenue and profits in the coming 12 months. There also was relatively little change in growth strategies planned for small business in the next year, the survey revealed.

"Unfortunately, small-business owners didn't express that same positive growth when it comes to their own business," NSBA President and CEO Todd McCracken said in a statement. "Past and projected growth in jobs and revenues remained stagnant while small businesses availability to garner financing dropped—two key indicators that go hand-in-hand."

The number of small businesses relying on loans from large banks and earnings of the business was down from previous surveys, and the number of small businesses relying on community bank loans, credit union loans and credit cards remained virtually unchanged.

In addition, small businesses reported virtually no change in employment numbers from six months ago. Today, just 18 percent report increasing their employee size, while 26 percent report decreases in employee size, resulting in negative net employee growth.

Looking ahead, the number of small-business owners who project increases in employee size in the coming 12 months remained level at 26 percent. On a slightly positive note, those who anticipate decreasing their workforce dropped modestly from 16 percent six months ago to 14 percent today.

Employee compensation remains relatively stagnant, with 41 percent reporting increases in the past 12 months (unchanged from six months ago) and 40 percent projecting increases in the coming 12 months (down two percentage points from six months ago).

For the first time, NSBA asked a number of questions about small-business interaction with the Internal Revenue Service (IRS) and found that close to half of small businesses (43 percent) have been the subject of an IRS audit or follow-up action in the last 10 years. More than one-third of small-business owners report they personally (not their business) have been audited or receiving some kind of IRS follow-up action in the last 10 years.

Among those small firms that did have additional interaction with the IRS in the last 10 years, a full-fledged audit was the most common response, followed by requests for more information and additional tax payments.

"Small businesses, despite a more positive overall economic outlook, continue to struggle with growth and hiring," the report concluded. "Not only are our elected officials not doing enough to improve the U.S. economic situation, oftentimes, they are causing—by their inability or unwillingness to deal with serious issues facing the country—slow growth and a lack of longterm economic security among small businesses."