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Why Aren't Small Business Owners Smiling?

Written by Ken Gaebler
Published: 7/14/2015

A new survey of small business owners indicates that small business owners lost confidence this month. Here's why they have no right to be unhappy.

The National Federation of Independent Business (NFIB) reports that its small-business optimism index dropped to 94.1 in June.

Small Businesses Should Be Optimistic, Not Pessimistic

That's down from 98.3 in May, and it suggests that the economic situation in the second half of 2015 may not be as rosy as we'd all love for it to be.

These Guys (and Gals) Are In the Dumps

In fact, a number of NFIB sub-indices, all of which are down, suggest that business owners are more gloomy than I think they have a right to be.

They indicate that earnings projections are down and that plans to increase inventories are also weaker than those from previous reports. With respect to sales, the number of owners reporting increased sales in the past three months dropped 6% as compared to the prior three months.

The Problem Is That Down Is Contagious

When these numbers are down, the negative outlook can become a self-fulfilling prophecy. If businesses stop investing in inventories, it has a ripple effect on their suppliers, on hiring and on all sorts of other things that matter.

There are also the psychological ramifications of business owner negativity, with some smart folks believing that this sort of pessimism is contagious.

In fact, a study by Facebook and Cornell University suggests that emotional contagion, a phenomenon in which emotional states can be transferred to others, increasingly occurs even outside of in-person interaction between individuals.

Turn That Frown Upside Down

How on earth can you be down, business owners? Here are some pick-me-ups to put you in a better mood.

  • This Is a Good Economy. We have a better economy than we've had in years. Since February, unemployment claims have stayed below 300,000. The labor market is strong. Wages and salaries are up, which means more people will be in a position to buy from small businesses. Yes, your labor costs may bump a bit, but your topline revenues will grow faster than your labor costs will.
  • Stock Market Is Up. As I write this, the Dow Jones Industrial Average sits at 18,031. It was 6,547 in 2009. That's lots of happy people who will now be willing to buy things they've been holding off on. Translation? That money is coming your way.
  • Retail Sales Are Up. Case in point, people are spending freely. Retail sales grew at 1.5%, 0.2%, and 1.2%, respectively, in March, April, and May. Yes, retail sales dropped a bit in June, but you only have to walk into your local shopping mall to realize that folks are spending like crazy these days.
  • Gas Is Cheap. If your business buys gas, you have no reason to be in a bad mood. The average price for a gallon of gas in the U.S. has dropped 24 percent since last year. For businesses that don't buy much gas, it means your customers have more money in their pocket they can send your way.
  • Money Is Virtually Free. If your business needs credit, you should be able to get it easily. Even when the Fed raises interest rates later this year, business credit will still be dirt cheap.
  • Housing Prices Are Rising. We've had 40 consecutive months of increases in housing prices. That means household net worth is rising (indeed, the U.S. hit a record high of $84.9 trillion earlier this year), which should stimulate spending and increase consumer confidence in the economy.
  • Consumer Confidence Is Up. Sure enough, the Conference Board reported today that its consumer confidence index rose to 101.4 in June, up from a May reading of 94.6. Savings are up and household debt is down. So, it's no surprise that people are feeling good!
  • Government Finances Are Improving. For the first eight months of the U.S. government's fiscal year, the deficit was down 16.3 percent from last year. Who would have thought that was possible? It's great news.
  • China, Russia, Greece and the Middle East Are No Big Thing. There's a lot of negative news out there that you can safely ignore. In the long term, these things sort themselves out. Seriously, they are no big deal. Macroeconomist Charles Jones of Stanford University puts bad things in perspective: "As bad as the Great Depression was, it was temporary." There are always ups and downs and fear-mongering news cycles, my friend.
  • Business Exits Are Thriving. There's a ton of money out there to buy out businesses, and it's allowing many business owners to sell businesses that were previously unsellable. That's incredibly good news for those of you who have spent years building up your companies.

Keep Your Eye on the Prize, Business Owners

See what I mean? Things are not as bad as you think.

The key is to focus on your business and not be distracted by all the talk around you.

Warren Buffet said it best. He recently advised business owners not to worry about things outside of their control. He says you should "just keep doing things that make sense, you want to keep customers happy, and if you are in a reasonably good business, you are going to do fine over time".

So, get back to business, company owners. Stop wasting your time on things that don't add much value (e.g., completing NFIB optimism surveys).

Turn that frown upside down. Then, go find a few new customers and make them happy.

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