Small Businesses Find Growth Challenging Year Over Year
When a growing business needs to fulfill orders, compensate its employees, and manage operating costs, obtaining a loan or some form of credit can be essential – especially in the early stages. But access to capital can be a significant challenge for small to medium-sized businesses.
The Pepperdine Private Capital Access Index (PCA) is a quarterly indicator produced by Pepperdine Graziadio Business School with the support of Dun & Bradstreet. The index is designed to measure the demand for, activity of, and health of the private capital markets. The purpose of the PCA Index is to gauge the demand of small and medium-sized businesses for financing, the level of accessibility of private capital, and the transparency and efficiency of private financing markets.
This quarter’s survey covered several topics of relevance to small and mid-sized businesses going into 2019; significant findings of the Q1 study have been highlighted below.
The Impact of Current Events
There were a lot of big policy changes in 2018, and many have speculated on how exactly they would affect small and medium-sized businesses.
When asked how they were impacted by the latest government shutdown, 82% of respondents said there was no impact to their business, 13% said that it negatively impacted their business revenue, and 5% said that it impacted their ability to pay their bills on time.
When asked to predict the impact that retaliatory tariffs from China on US goods will have on their business, 36% said none, 17% said very little, 29% said some, 10% said very much, and 8% felt that it would greatly impact their business.
Finally, when asked how adjustments to the corporate tax code in 2018 were impacting their business, 48% said there was no impact, 47% felt the impact was positive, and 5% said the changes negatively impacted their business. Because the study was conducted in Q1, it will be interesting to see if these numbers change as the year progresses and more businesses complete their taxes.
Trends Discovered in Q1 2019
The data gathered and analyzed for the PCA Index in the first quarter of 2019 highlighted some interesting trends. According to data gathered from the businesses surveyed, overall access to and demand for capital decreased approximately 9% since the first quarter of 2018. At this time last year, the need for financing for planned growth or expansion, including acquisitions, was at an all-time high. While this demand dropped roughly 8% from last year, it is still greater than demand for financing for most other purposes, aside from working capital fluctuations.
The results of the survey shed light on some significant challenges weighing on business owners’ minds in 2019. For medium-sized businesses (those with annual revenue between $5 million and $100 million), 42% of respondents said their greatest challenge was attracting and maintaining a quality workforce. Conversely, the greatest challenge for respondents with revenues of less than $5 million per year was finding and maintaining profitable customers. This illustrates that as businesses grow to the point where their customer base stabilizes, optimizing internal processes (such as finding and retaining quality talent) become a key factor in sustaining the growth they have achieved. However, 17% of small businesses in the growth stage identified maintaining a quality workforce as their greatest challenge, and 14% responded that their challenge was acquiring the capital needed in order to grow.
The greatest opportunity in the upcoming year identified by respondents of all sizes was enhanced productivity (23% of all respondents). Eighteen percent of all respondents listed diversification as their greatest opportunity, and 13% cited increased investments in technology and innovation. Respondents experiencing enhanced productivity are likely using diversification methods – whether it be with their clients, products, or portfolios – as well as the latest technology.
Key Takeaways for Small Businesses
Maintaining the working capital to hire and retain quality employees who, in turn, will attract and serve quality customers is an ongoing process. However, by applying innovative technology and diversifying your customer base, you can increase the efficiency and productivity of your hiring and lead generation processes. Here are some steps you can take to begin moving in the right direction:
- Analyze customer data to understand where to meet customers, whether this means enhancing your online presence or diversifying your physical locations.
- Diversify your customer base. Businesses can sometimes become dependent on a significant client or group of clients for a majority of their revenue. By diversifying, you decrease the risk that your revenue streams will be affected by current events.
- Offer employees something that larger competitors can’t. Get to know them and what they really value in an employer. Empower them to play a pivotal role in the growth of your business.
- Build and maintain strong business credit to increase your chances of securing the capital you need to maintain growth in all of these areas.
For more results, view the full report here: