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November 09, 2023

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Small business owners attribute the revenue drop to mounting economic challenges

Boston, MA -- November 6, 2023:  Due to mounting economic challenges, the majority of small business owners (52%) expect that they'll make less revenue by the end of Q4 2023, than they earned during Q4 2022.

A variety of hurdles are culminating during a quarter that's supposed to be a boon to small businesses, but is turning out to be a disappointment for many -- at least so far. 

They point to reduced consumer spending, cumulative inflation, labor costs, and a variety of issues related to still-high interest rates: shrinking margins, increased difficulty in paying back loans or securing new ones, and their inability to afford expansion plans. 

These findings are part of Alignable's Q4 Revenue Report, released today. It's based on responses from 6,156 randomly selected small business owners surveyed from 9/2/23 to 11/5/23, along with input from historical polls of 40,000+ other small business owners over the past 18 months.

Why Economic Predictions Are So Daunting

Despite the U.S. federal government's recent report of significant economic growth, most small business owners say they have yet to reap the rewards of that broader trend. 

In fact, only 12% have reported seeing a surge in economic growth over the past few months. Another 11% say their sales are up a bit, but not by much. 

But 56% say their sales are "sluggish, at best" with 15% admitting their financial situation is dire.

Another 15% say the only businesses benefiting from the economy now are huge, national companies -- not small businesses.  

Given this sobering landscape, here are the main reasons why small business owners are worried they'll come up short for Q4, unless some major shifts occur in the economy:

·   Still-High Interest Rates: 55% of SMB owners polled said 19 months of climbing interest rates have cut into their margins, reducing revenues, and stunting their plans to grow or take out loans. This figure is up five percentage points from September, when it was 50%. And 38% of this group notes that the U.S. Federal Reserve will need to lower the rate by at least three points before SMB owners can start to recover.

·   Increased Struggles Repaying SBA Loans Or Landing New Ones: 36% of this group negatively impacted by interest rates, add that it has grown more challenging to pay back SBA loans that were secured prior to the many interest rate hikes or to secure new loans for expansion. "Interest rates are killing me," was a phrase mentioned by several small business owners taking this poll. 

·   Decreased Consumer Spending: 45% of Main Street retailers polled said they have seen a drop in consumer spending over the past month or two, instead of the increase they had hoped would happen. Some believe big box stores and major national online retailers are partially to blame, as many consumers have yet to break away from their COVID buying habits, which were largely online or at large retail chains. 

·   Revenue Loss: 42% are making half or less of the income they generated monthly prior to COVID. For businesses that are only one to three years old, this situation is even more dire: 53% of this group reports making less than half of what they made this time last year. 

·   Record-High Rent Delinquency: Both in October and September, the national rent delinquency rates for small business owners in the U.S. were a monumental 40%. That's the highest rate all year, up 10 percentage points from January, when it was just 30%.

·   Increased Rent Prices: 50% say they’re being charged more for rent now than they were six months ago, with 15% saying it’s 20% higher or more.

Taking these issues into account, let's identify the industries with the highest percentage of small businesses expecting to earn less by the end of Q4 2023 than they generated during Q4 2022. 

Low Expectations For Many Sectors

2023 has taken quite a toll on many small business owners and this ongoing struggle has left many with mixed feelings about how Q4 2023 will turn out. 

Those in the travel/lodging sector were most pessimistic as 67% believe they will make less this time of year than they did last year. Here are the percentages for many other industries:

·   64% -- Transportation 

·   62% -- Real Estate

·   59% -- Automotive

·   57% -- Gyms

·   54% -- Restaurants

·   52% -- Retailers, and 

·   52% -- Finance.

It's quite telling that normally stable industries including finance and legal were also on this list. 

Fifty-two percent of the accountants and other bean counters believe they'll make less in Q4 2023 than they did a year ago. For small law offices, that figure was 48%.  Those numbers give us pause.

Even more daunting, you see that 54% of those running restaurants, and 52% of independent retailers, believe they will come up short compared to Q4 last year.

With sobering figures like these, more consumers need to walk down their local Main Streets and spend more with merchants who require a prosperous Q4 to stay afloat. Otherwise, consumers run the risk of seeing more empty storefronts on their once-quaint Main Streets next year, and, ultimately, decreased town services and a sagging real estate market. 

While the news of how many small business owners across a wide variety of industries believe 2023's earnings will not even match 2022's revenues is discouraging, the picture among different demographic groups is just as concerning. 

All Demographic Groups Expect Less This Year

Looking at the chart below, it's remarkable that all demographic groups of small business owners share one thing in common -- their outlook for the rest of 2023 is rather pessimistic. The majority of each group (51% or higher) believe they won't earn as much as they did this time last year. 

Veterans, however, have the least positive expectations for Q4 2023, as almost six out of 10 of them (58%) anticipate they won't be able to match what they generated during Q4 2022. This is especially concerning, as veterans are usually the group of SMB owners, who have fewer economic issues. 

Just a few percentage points less pessimistic, 56% of minority-owned businesses, which have struggled consistently since the pandemic started, feel they won't be able to surpass last year's revenues.

And 52% of women-owned businesses are expecting less out of the rest of 2023, as well. Nonminority-owned businesses are right behind them at 51%.

Shifting from what demographic groups expect to what small business owners across different states believe shows some real extremes. 

SMB Majority In 11 Key States Predict Lower Results For Q4

This next chart is somewhat startling, when you look at the huge states with more than 50% of their small business owners predicting that Q4 2023 will end up being worse than what they experienced in 2022. 

And many were underwhelmed with their financial performance at that point, too. 

Florida tops the list with nearly seven out of 10 of the small business owners (68%) polled telling us their economic outlook for the rest of 2023 won't measure up to what they generated in Q4 2022. 

Expectations in many other states echoed this negative sentiment, but were a tad less severe. Here's the rundown:

·   MD -- 59% expect to make less in Q4 2023 than they did last year.

·   IL & TX -- 58%

·   VA -- 57%

·   CA & PA -- 56%

·   GA -- 54%

·   MN -- 53%

·   NC -- 52%

·   NY -- 52%, and

·   OH -- 51%.

Now, on the more positive side, there were some major states where fewer than 50% of SMBs believe they'll have a less rewarding Q4 in 2023 than in 2022. These include:

·   CO -- 49%

·   NJ -- 43%

·   AZ -- 42%

·   WI -- 39%, and

·   MI -- 38%.