Small businesses comprise about 30 million companies in the United States and employ nearly half of the workforce. They play a significant role in the growth of the economy and today's historically low unemployment rate. But as they grow, they face a number of obstacles that can derail their success.
We surveyed more than 1,000 small business owners with annual revenue between $1 and $20 million across the U.S. to explore the largest challenges they face in today's economy and at various stages of building their business.
Specifically, we asked them about the obstacles they encounter when growing their companies; how technology impacts them — for good or bad; their concerns about and experiences with fraud and cybersecurity; and how they plan to exit their businesses when the time comes.
Throughout the course of this year, we will be unveiling the survey results and sharing resources aimed at helping small business owners overcome some of the challenges they identified.
Too frequently, business owners wait until the last minute to plan an exit from their company. This can cause them to miss out on opportunities - such as tax mitigation, passive income options and management training - that could increase their earnings and minimize transition challenges. Experts recommend a minimum of five, but ideally 10, years of planning in order to create a strategy that helps ensure that the hard work you've put into your business over the past years — or even decades — pays off.
Nearly half of small business owners don't have an exit strategy from their business, and only 42 percent of those with a plan said their plan was developed by a third-party expert.
Younger companies were less likely to have an exit strategy than older companies — 25 percent and 47 percent, respectively — however, half of the younger companies consulted with an expert to develop their exit strategy compared to just 36 percent of older companies.
For those with a defined plan, selling the company is the most common type of exit strategy for small business owners, with more than half saying they plan to sell to a known or unknown buyer.
Approximately 71 percent of small business owners have a retirement strategy, with 27 percent stating that the sale of their business will fund more than half of their retirement portfolio.
Small businesses are particularly susceptible to fraud loss. They are less likely to have the dedicated resources or deep pockets to react to a fraud event. That's why it's especially important to ensure small businesses are aware of how to prevent fraud and what to do if they do experience an attack.
Of the business owners we surveyed, more than half were concerned about cybersecurity threats to their businesses.
Those results were anticipated because, of the business owners who had experienced fraud — 21 percent — nearly 29 percent had experienced fraud related to cybersecurity.
One of every three business owners was concerned about their reputations being damaged online, although few businesses had experienced such fraud.
Of the businesses that had experienced fraud, roughly 37 percent of the resulting loss was less than $5,000. Not surprisingly, companies with less than $3 million in revenue were most likely to lose up to $5,000, whereas the majority of businesses with more than $3 million in revenue lost more than $5,000.
Technology is a crucial component of any business regardless of size or industry. The majority of business owners surveyed said that technology had a positive impact on their business, citing cutting costs as the key benefit. Conversely, those who said technology negatively impacted their businesses said the cost of technology is a strain.
About 78 percent of business owners agree that changes in technology have positively impacted their businesses.
A few business owners, about 22 percent, said changes in technology negatively impacted their businesses. They tended to be businesses with more than $3 million in revenue.
More than 70 percent of business owners reported that they upgrade their technology at least once a year.
Three out of four small businesses either have a website or plan to have one in the next year. Yet, a quarter of business owners don't have any plans to create websites for their companies.
Expanding a company can be a difficult task no matter how large or small your business is now. However, our research reveals that as businesses grow their revenue beyond $3 million annually, they experience more challenges to growth and tend to be more likely to work with their financial institution to address some of those issues.
Our survey respondents identified the top three challenges they currently experience as competition, revenue and access to skilled labor.
When asked about what challenges could potentially derail their business in the next five to seven years, there were many overlaps. However, respondents expressed increased concern about the potential of future government regulations and taxes.
Owners of businesses with $3 million or more in revenue said they face more challenges to pursuing growth than smaller business owners.
About 24 percent of all respondents said their financial institution played no role in helping their company grow, and an additional 38 percent said they received little help from their financial institutions.
But bigger companies appear to lean on their financial services providers more frequently: Of companies with more than $3 million in annual revenue, more than half said their financial institution played a large role or played somewhat of a role in their growth.
The 2018 City National Small Business Report polled 1,031 business owners, selected from research panels that represent populations of business owners and entrepreneurs from across the United States. We received between 800 and 900 responses per survey question, unless otherwise indicated. The individuals surveyed included men and women whose business revenue is between $1 and $20 million annually and who employ up to 250 employees.
The survey was fielded online from January through March 2018. Our aim was to help identify the primary challenges and opportunities faced by small to medium-sized business owners across industries in the U.S. by gauging attitudes around finance, technology, labor, competition and long-term goals and strategies for growth.
This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument. It is not specific investment advice. Readers must make independent decisions based on their own objectives and financial situations. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.