Small Business Confidence Rises as Cash Flow Issues Decline

RIVERWOODS, Ill.–Economic confidence among small business owners rose slightly in June as cash flow concerns abated and the mood on the economy held steady, according to the latest Discover® Small Business WatchSM. The monthly index rose to 80.9, up from 78.1 in May.

“Cash flow problems are back to levels that are more in line with what we’ve typically seen since the Watch began nearly three years ago,” said Ryan Scully, director of Discover’s business credit card. “Cash flow concerns usually erode confidence because they represent something tangible to a business owner, more so than an expectation or perception about the economy.”

June Highlights:

• 42 percent of small business owners say they have experienced temporary cash flow issues in the past 90 days, down from May’s record high of 49 percent.
• 26 percent believe economic conditions are improving, up from 23 percent in May, while 57 percent believe conditions are getting worse, which is unchanged from the previous month; 14 percent said the economy is staying the same, and 4 percent weren’t sure.
• 59 percent of small business operators rate the economy as poor, down 1 percent from May, while 8 percent rate the economy as excellent or good, and 30 percent called it fair.
• 49 percent of owners see economic conditions for their businesses getting worse, up 1 percentage point from May; 25 percent see conditions improving, also up 1 percentage point; 22 percent say conditions are the same; and 4 percent weren’t sure.
• 51 percent of small business owners say they plan to decrease spending on business development over the next six months, down from 53 percent in May; 22 percent plan to increase spending, and 24 percent are not planning any spending changes.

POLL: More Say They Would Leave Their Business for Higher Paying Job, Generating New Business Gets More Challenging

“The economy clearly seems to be taking its toll on the independent spirit of small business owners,” Scully said. “This year 36 percent told us they are willing to walk away from their own business to earn more money working for someone else – a jump from 30 percent last year. They are spending much more time this year trying to find new business and deal with government regulations.”

While independence and flexibility continue to be the main reasons why people start their own businesses, a sense of accomplishment and needing a job also gained ground as key motivators compared to the last year:

• 24 percent say they started a business to have more flexibility with their time, down from 29 percent in June 2008.

• 22 percent cited the ability to be their own boss.
• 15 percent said they wanted a feeling of accomplishment, up from 11 percent last year.
• 12 percent started their own businesses to make more money.
• 10 percent cited needing a job, up from 7 percent last year.
• 14 percent answered “Some other reason” when asked why they started their businesses.

When asked about the most challenging aspect of owning a business:

• 40 percent chose finding new business, up significantly from 31 percent in June 2008 and 28 percent in June 2007.
• 23 percent cited government rules and regulations, up from 13 percent in 2008.
• 11 percent said managing cash flow, a noticeable drop from 19 percent in 2008 and 21 percent in 2007.
•  7 percent said employing good people.
•  4 percent said managing insurance costs.
• 11 percent answered “Some other aspect” and 5 percent weren’t sure.

The source of financial capital for starting their businesses is largely unchanged over the past three years: 45 percent said they used personal savings followed by:

• 19 percent, bank loans
• 16 percent, funding from family and friends
•  8 percent, credit cards
•  4 percent, second mortgage or equity loan
•  8 percent answered “Some other way.”

Health Care Poll: Owners Split on Universal Healthcare

“While many small business owners feel constrained by the costs of offering health insurance to their employees, they’re still split on whether they want the government to get involved,” Scully said. “This is a further indication of their independent streak and their aversion to government intervention in running their businesses.”

Seventy-eight percent of small business owners said they do not offer health insurance to employees, and they are split on whether America needs a universal healthcare system: 48 percent of them said the country does not need a government-run option, 45 percent said it does and 7 percent weren’t sure.

Of those who offer health insurance, 62 percent said a government mandate to either provide insurance or pay a fee would have a negative impact on their businesses; 16 percent said the effect would be positive; 11 percent said it would have no impact; and 3 percent weren’t sure.

The views and opinions expressed by small business owners and consumers who participate in the Small Business Watch survey are their own and do not necessarily reflect those of Discover Financial Services or its affiliates.

About the Small Business Watch
The Discover Small Business Watch is a monthly index measuring the relative economic confidence of U.S. small business owners who have less than five employees, a segment that consists of 22 million businesses producing more than a trillion dollars in annual receipts. The Watch is based on a national random survey of 750 small business owners. It is commissioned by the Discover Business Card, which strives to offer the best business credit card for American small businesses, and is conducted by Rasmussen Reports, LLC (www.rasmussenreports.com), an independent survey research firm. The numeric index is calculated by assigning values to responses to a set of six consistent questions. The base value of the Watch was established at 100.0 based on surveys conducted in August 2006. In addition to generating the index, the Small Business Watch surveys small business owners every month on key issues, and polls 3,000 consumers four times per year to gauge purchasing behavior and attitudes towards small businesses. For past results and survey data, visit www.discovercard.com/business/watch. For information on Discover Business Card, visit www.discovercard.com/business.

About Discover Financial Services
Discover Financial Services (NYSE: DFS) is a leading credit card issuer and electronic payment services company with one of the most recognized brands in U.S. financial services. Since its inception in 1986, the company has become one of the largest card issuers in the United States. The company operates the Discover Card, America’s cash rewards pioneer, and offers student and personal loans, as well as savings products such as certificates of deposit and money market accounts. Its payments businesses consist of the Discover Network, with millions of merchant and cash access locations; PULSE, one of the nation’s leading ATM/debit networks; and Diners Club International, a global payments network with acceptance in 185 countries and territories. For more information, visit www.discoverfinancial.com.