Most Small Biz Owners Say We Are Already in a Recession

While there is some optimism for our nation’s 33 million small businesses, many believe we are already in recession territory. With high interest rates, inflation, skilled labor shortages, supply chain issues, increased energy costs, material costs and runaway insurance rates, it is harder for them to turn a profit. The sacrifices of small business owners go relatively unnoticed, and the majority of small business owners are not taking a salary.

According to a recent survey conducted by the National Federation of Independent Business Owners, (NFIB), when it comes to the national economy, “over half (58%) of owners assessed the national economy as poor, only 1% reported excellent, 9% reported good, and 32% reported okay. As for when the U.S. economy will enter the next recession, 52% of small businesses think the U.S. is already in a recession. Two percent think the next recession will start in the July-September period, 17% believe a recession will occur in the OctoberDecember period, 20% reported the January-June 2024 period, and 10% reported July 2024 or later.”

I reached out to the NFIB and Chief Economist for the NFIB William Dunkelberg shared with me, “Small business owners are paid out of the bottom line, money left after paying workers, operating costs, taxes and regulatory costs. Inflation that approached 10% (annual rate) has driven the costs to new highs while the Administration is using tax revenues to hire more tax collectors and looking for ways to raise taxes on owners (e.g. eliminating expensing). Sales are slowing, making it more difficult to cover costs, and all of this reduces the earnings of owners and entrepreneur.” A Forbes Advisor survey shows that 64% of small business owners aren’t paying themselves a salary out of their small business.

More NFIB data demonstrates that 58% of small business owners who borrowed or tried to borrow reported high interest rates as their largest complaint in accessing financing. 23% reported it was a moderate issue and only 13% said it was a mild issue.

As per Business News Daily, “The health of the financial system is essential to small business operations,” said Holly Wade, Executive Director of NFIB’s Research Center. “While most owners are currently satisfied with their ability to borrow, the escalating cost of financing associated with high interest rates is a significant issue for many.” They also report, “Due to rising prices from higher inflation rates, many small business owners are forgoing their salaries to cover their business expenses,” and “lower profits, supply chain issues and increased resource costs are some of the challenges business owners face because of inflation.”

However, there are some signs of improving conditions as small business owners are expecting better business conditions over the next six months, 31 percentage points better than last June’s reading. The NFIB Small Business Optimism Index increased to 91.9 in July but is still below the historical average of 98 and has been below the average for 19 consecutive months. Onefourth small businesses have been raising prices, but this is down 29% from May.

According to the Small Business Administration, small businesses employ about 46% of the private workforce and make up over 40% of the U.S. economy. This number has consistently shrunk since the mid-1990s. Over the last four years I have traveled to about two-thirds of the states, and I have spoken with hundreds of small business owners across America. The story is almost always the same. “I don’t know how I am going to expand or stay in business with my astronomical overhead.” On one hand you have some optimism about the future for small business and on the other, how much more can small business owners take and keep absorbing the hits. This remains to be seen and may be a factor in next year’s election.