Health care costs again leading concern of small business

Small Business Research Board

The cost of health care has replaced concern about energy and fuel as the leading issue impacting small businesses, according to the latest Small Business Research Board (SBRB) study released in April 2007.

International Profit Associates (IPA) cosponsored the study. IPA, with more than 1,800 professionals, is the largest privatelyheld provider of management consulting services to small and medium-size businesses in North America. IPA is based in Buffalo Grove, IL.

The quarterly nationwide poll of small business owners and managers indicated that concern about health care costs is the leading issue in three of the four regions throughout the country and in two of the four business categories in which individualized data is reported. Small businesses in the Northeast, Midwest and South/Southwest reported that health care costs were the leading concern. Construction and contracting companies along with manufacturing firms nationwide concurred. Health care costs tied as the second greatest issue among food service and processing companies and was the third great concern among transportation businesses.

Health care costs were the second greatest issue as reported in the previous study conducted during the fourth quarter of 2006. Energy and fuel costs were identified as the leading issue during the prior report and didn’t finish among the current study’s top three. Concerns about economic conditions and the issue of taxes finished second and third behind health care costs.

"It is interesting to note that purely domestic issues such as concerns about health care and taxes have overtaken worries about energy and fuel as the leading issues faced by small businesses," said Gregg Steinberg, President of IPA.

"Energy and fuel availability and costs have leveled considerably reducing the uncertainties and gyrating costs that caused business owners and managers so much grief. Meanwhile, these same businesses are being challenged by much more time sensitive beginning of the year issues such as renewal of health care insurance coverage with higher premium amounts and the planning, preparation and filing of corporate and personal tax returns," Steinberg added.

Overall, respondents participating in the current survey are sending a mixed message about their faith in the economy. The national SBRB Small Business Confidence Index (SBCI) dropped nearly two points to 40.78 from 42.71 in the prior quarter. While concern about the economy is now the second leading issue, the slight decrease can be more attributed to far lower revenue estimates and hiring projections for the next 12 months. Opinions and projections about the strength of the economy, revenues and hiring looking forward 12 months are the three key ingredients to determining the SBCI and providing the basis for quarterly and annual comparisons.

Nationally, 40.07% of the respondents believe the economy will improve during the next 12 months, up from the 39% from the winter 2006 quarter. However, 53.71% of the respondents believe their revenues will increase during the same period, a decrease of nearly five points from the 58.5% who forecasted improved revenues late in 2006. Furthermore, small businesses are reducing hiring projections with 28.71% of the respondents noting their intention to increase staffing, which is a decline from the 31% previously recorded.

"Businesses are less optimistic than the previous quarter about the strength of the economy and recognize the need to change their revenue projections and hiring plans. It appears that more business owners and managers are prepared to be both realistic in modifying their revenue predictions and proactive in adjusting their hiring levels should it be necessary," said Steinberg.

REGIONAL RESULTS
The confidence of small business registered declines in the Northeast by slightly less than three points to 40.3 and in the Midwest by nearly 10 points to 32.33. The drop in the Midwest was precipitated by declines in all three measurement categories demonstrating deep pessimism about business prospects for the next 12 months. Meanwhile, small businesses in the South / Southwest and Mountain States and West Cost are more optimistic, each reporting higher SBCI tallies of 42.67 and 49.98 respectively.

INDUSTRY RESULTS
The construction and contracting industry reported a second consecutive quarter with an increased SBCI. The sector’s SBCI rose to 43.4, more than one point better than its previous 42.04 score from late last year. This is a positive sign for the industry, which had an SBCI of under 31 points in the third quarter of 2006.

The food service and food processing category held steady with an SBCI of 38.03, a slight decrease from the 38.8 that was previously recorded.

Transportation companies appear to be the most pessimistic of the industries measured, reporting nearly a 10 point decline in its SBCI to 36.1 from 45.7. Transportation companies 12 month revenue estimates are far less than the estimates rendered in the final 2006 study.

Manufacturing companies also are less optimistic about revenues during the next 12 months as well as hiring needs. These factors combined to drop the Manufacturing SBCI to 37.0 from 43.2.