IPA Small Business Research Board survey indicates optimism waning about economy and revenue for remainder of 2005

BUFFALO GROVE, IL (August 11, 2005) – U.S. small businesses are expressing growing concern about increasing interest rates, finding quality employees and taxes, according to a new IPA SBRB study. These factors are tempering earlier optimism about the economy and revenue forecasts for 2005.

Highlights from the survey include:

• Concern about rising interest rates increased significantly from the previous IPA SBRB survey. The current survey was conducted before the Federal Reserve increased short term interest rates on August 9 for the tenth time since June 2004.
• Although a majority feels that the outlook for economy for the remainder of 2005 will be the same or better, the number of those expressing that the economy would be better decreased by 23% from the beginning of the year. At the same time, the number of those thinking the economy will be worse increased by 50%.
• About one-third of small businesses expect a significant (10 % or more) increase in revenue this year and 52% anticipate 2005 revenues to exceed last year’s. Both of these figures are significantly below the IPA SBRB study in April.
• Fewer small businesses say they will be growing the size of their staff, continuing a yearlong trend. In addition, small business owners now express growing concern about finding quality employees.

Revenue Results

Small business remains upbeat when comparing this year to 2004 with 36% of the small businesses surveyed expecting revenue improvement of 10 percent or more. Nevertheless, the reality of 2005 is setting in compared to April when 44% said they expected significant improvement.

Overall, 52% of small businesses responding indicate some revenue improvement this year down from 63% in the April IPA SBRB survey.

Staffing levels

In the current survey, 29% said they would be increasing the size of their staff. This is a decrease from 36% of owners who said they would be hiring in an April IPA SBRB survey. This continues a downward trend from the beginning of the year when 42% of small businesses said they would be increasing staff in 2005.

Only 9% of the small businesses indicated they were decreasing staffing levels for the remainder of the year, the same percentage as in April.

Economic Outlook

The overall percentage of those expecting the economy to be the same or better remained fairly constant with the beginning of the year, 85% in the current survey versus 88% at the beginning of the year. However, the percentage of those expecting the economy to be worse increased to 15% from 10% and the percentage of those who expected the economy to be better decreased to 43% from 53% at the start of 2005.

Single most important issue

The IPA SBRB studies have tracked the single most important issue to small business owners and senior managers throughout 2005.

The number of small businesses indicating that finding quality employees is the most important issue increased by 50% from the previous survey to roughly the same level as at the beginning of 2005.

Rising interest rates are becoming more critical to small businesses with a 75% increase from the previous survey. In addition, with the end of the year in sight, taxes increased by 25% as an important issue for small business.

"Finding and retaining employees is always a critical issue for small businesses," said Gregg Steinberg, President of IPA, the largest privately-held provider of management consulting and professional services to small and medium-size businesses in North America. "With healthcare costs remaining an important concern and the specter of increasing interest rates and taxes putting pressure on the bottom line, small businesses must find new and creative ways to attract and keep quality employees."

The results from three 2005 surveys are below.

"Overall, entrepreneurial optimism has flagged," Steinberg added. "With healthcare, high fuel costs and increasing interest rates entrenched as major issues and the outlook for revenue less optimistic, small businesses must focus with laser beam attention on their core competencies. They must drive efficiency and productivity to maximize profitability for 2005."