Small businesses improve, but have far to go

In an encouraging sign for the economy, small business confidence, finances and hiring are all doing much better, according to a slew of recent reports. However, just like larger businesses, smaller companies are still very hesitant about new investment and adding jobs.

One of the difficulties in assessing how small businesses are faring is the wide range of companies that fall into this category. For the U.S. Small Business Administration, it can mean a firm with as many as 1,500 employees and up to $21 million in annual sales.

For some of the largest of small businesses -- privately held companies with less than $10 million in annual revenue -- sales have increased every year since 2009, and profitability has more than doubled. That's the finding of a report released this week by Sageworks, a financial information company.

The report, an analysis of financial statements, said these companies have boosted sales at an average of 6 percent to 8 percent each year since 2009, with last year seeing a 6.5 percent average increase. Net profit margins improved from about 3 percent in 2009 to more than 8 percent in 2013.

On the hiring side, the Paychex/IHS Small Business Jobs Index showed hiring slowed at firms with 50 or fewer workers in May, but even so the rate is higher than at any time since early 2005. Last month, the index, which analyzes year-over-year changes in worker counts, dropped to 101.15 from 101.26 in April. That's slightly higher than it was a year ago at this time. Last October, it had fallen 100.6 before rebounding to its current reading.

The 100 of the index equals the hiring rate in 2004, a period of expansion before the start of the economic downturn. Its all time low was 94.87 in July 2009.

This is in line with another report on hiring by the smallest businesses, also released this week, which showed May had the largest single monthly job increase in the past year. The Intuit Small Business Employment and Revenue Indexes showed these firms added 35,000 jobs last month. That's three times the average of 12,000 new jobs per month added since April 2010. The indexes are based on anonymized, nonidentifiable aggregated data from approximately 231,000 small-business employers.

Intuit also found average monthly pay for small-business employees increased 0.6 percent in May from April, rising $17 to $2,804. That works out to a yearly wage of about $33,600. This increase came even though hourly wages remained unchanged at $15.90 for the fourth consecutive month. Employees made more money by working longer hours, which were up by 0.8 percent, or 48 minutes.

The Wells Fargo/Gallup Small Business Index, released in mid-May, showed continued optimism among small-business owners. The reading from this quarterly survey was up by two points from the previous quarter.

While all this is an improvement, it is still just an improvement from a very low point.

The Intuit survey also reports that since April 2010, the first post-recession month that the index reported positive growth, the smallest businesses have added 575,000 jobs. To put that in perspective, that's roughly three months' worth of the average number of jobs the nation as a whole has added this year.

Also, the Wells Fargo future expectations score is higher than at any point the since the start of 2008, but it's well below prerecession levels. The National Federation of Independent Businesses headlined its May report on small-business optimism, "Optimism improves, but don't get too excited."

There's also some reason to doubt that even this momentum will continue. A survey released Monday by Newtek, a small-businesses service company, found 70 percent of owners had no intention of hiring in the next six months. The Wells Fargo survey found only 21 percent planned to hire in the next 12 months, consistent with a Citibank survey that found 25 percent likely to hire.

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    Constantine von Hoffman is a freelance writer and writing coach. His work has appeared in outlets such as Harvard Business Review, NPR, Sierra magazine, Brandweek, CIO, The Boston Herald, TheStreet.com, CSO, and Boston Magazine.

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