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Small Business Owners Show Optimism In Union Bank's Annual Economic Survey

union-bank-logoAfter experiencing increased sales and fewer layoffs in 2010, more Los Angeles County small business owners report an improved outlook on profits, hiring and capital expenditures in 2011. However, business owners are balancing their increased optimism with conservative measures to protect their business, according to Union Bank’s 11th Annual Small Business Economic Survey released today.  

The survey—the largest to date with nearly 3,000 participants statewide—found a full 61 percent of small business owners believe 2011 will be a better year in terms of profitability, a 10 percent increase from last year and a 27 percent increase from 2009. This is the most optimistic Los Angeles owners have been since 2007 when 72 percent of owners anticipated improved profitability.  

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“After years of belt-tightening, careful spending and trying to hold the line on staffing levels, small business owners are growing weary of just ‘hanging on,’ and they’re ready to return to profitability,” said Executive Vice President Todd Hollander, head of Union Bank’s Business Banking group. “I think the profitability point is the most positive development from our survey, and it proves again why small businesses are truly the backbone of the U.S. economy.”  

The improving profit expectations follow a year of increased sales for business owners, with 40 percent of respondents reporting greater sales in 2010 compared with 2009, up 12 percent from last year’s survey. Los Angeles owners reported fewer layoffs in 2010 than owners in any county surveyed. Fourteen percent of business owners incurred layoffs, down three percent from last year. Fewer owners in this region than most other counties surveyed (3 percent) anticipate layoffs in 2011.    

Planned increases in hiring and capital spending add to the optimism. Twenty-four percent of owners expect to increase staffing levels this year, up six percent from last year. More owners in this region than most other counties surveyed (28 percent) plan to increase their capital expenditures this year, up seven percent from last year and double the percentage from 2009. Still, most owners show restrained optimism with 72 percent expecting to maintain the same staffing levels, 62 percent expecting to keep capital expenditures similar to last year, and 39 percent anticipating continued vendor negotiations for lower costs in 2011.      

“After weathering substantial challenges during the economic downturn of the last few years, it’s understandable that while small business owners are increasingly hopeful, most remain conservative in their planned expenditures,” said Hollander. “The good news is that optimism continues to edge up in terms of profitability, hiring and capital expenditures. Many small business owners are waiting to see what 2011 brings before concentrating on growth.”    

While the majority of business owners (59 percent) believe that their business will have experienced a recovery by the end of 2011, 29 percent believe they have already experienced an economic recovery. Forty-one percent anticipate a recovery in 2012 and beyond.    

With half of the owners cutting their operating costs last year, 39 percent reducing their debt and 42 percent negotiating with vendors for lower costs, business owners are seeking government assistance in the same areas as the previous year. Fifty-seven percent of owners would like to see the government focus on tax cuts for small businesses, 37 percent favor temporary tax incentives to encourage small businesses to invest in jobs and 29 percent would like lower health care costs to ease the burden for small businesses. Despite the passage of the Small Business Jobs Act of 2010—legislation providing small banks with $30 billion to encourage lending to small businesses, $12 billion in tax incentives and expanded Small Business Administration (SBA) loan programs—only eight percent of owners were strongly motivated to apply for these loans or credit.  

“For many small business owners who have struggled with debt over the past few years or who think that banks aren’t lending, it will take some time to return to a mindset of applying for loans,” said Senior Vice President Heather Endresen, manager of Union Bank’s SBA government lending. “At Union Bank, we have credit available for qualified candidates, continuing our nearly 150-year legacy of lending to small businesses. We’re proud to be one of the most active small business lenders in the western U.S.”  

According to the survey, the Jobs Act also has little impact on owners’ hiring plans. Only four percent said their planned staff increase is directly attributed to the new legislation. Most small business owners, while remaining somewhat cautious, are tenacious and want to return to hiring and growing their businesses, according to Aida Alvarez, the former head of the Small Business Administration during the Clinton Administration and a member of UnionBanCal Corporation’s board of directors.  

Since 2008, Los Angeles owners, as owners statewide, have continued to identify the state’s economy as the top challenge in running a business in California. Forty percent of owners listed this as their primary challenge. This reflects another part of the survey which found that the majority of business owners (56 percent) felt the state’s budget crisis had a moderate or significant impact on their business.    

Owners in Los Angeles and statewide ranked state and local business taxes as the second biggest challenge. This is the primary concern for 38 percent of Los Angeles owners.  

Los Angeles owners (26 percent) as owners statewide, ranked local business regulations as the third biggest challenge. This is the first time that Los Angeles respondents ranked state and local business regulations among the top three challenges since the survey first included this question in 2004.    

The national economy was the fourth biggest challenge and concern about workers’ compensation costs tied with health care costs as the fifth biggest challenge. This region had the fewest number of owners (22 percent) who experienced increases in their workers’ compensation insurance premium in 2010. On average, their premium increased 13 percent.  

Other Survey Highlights

· More owners in this region (27 percent) than all other counties surveyed applied for a business loan or access to credit in 2010. Of these business owners, 38 percent were denied a loan or access to credit. Of those denied, 69 percent were unable to find alternate financing. · 39 percent do not have a business line of credit, up three percent from last year.
· 42 percent reported no change in their pricing of products or services in 2010. Twenty-seven percent of owners raised some prices and lowered others in 2010.
· 41 percent offer health care coverage to their employees, down three percent from the previous year.
· Los Angeles owners said the top three advantages of doing business in California are: (1) opportunities for growth, (2) favorable climate, (3) and family ties. Statewide, favorable climate ranked first and opportunities for growth ranked second. Owners in Los Angeles and statewide ranked family ties third.  
· 11 percent said social networking Web sites significantly changed their communication with customers or the way they promoted their business.
· 9 percent plan to make changes in their ownership structure. Of these, 23 percent plan on transferring all or part of the ownership and another 21 percent plan to take on a partner.
· 49 percent offer paid vacation benefits, down 11 percent since 2008.
· 39 percent are communicating more with employees and 26 percent are offering more flex time and part-time schedules to keep employees motivated during these tough financial times.