Small Business Optimism Slips as Tax Burden Weighs Heavily

The biggest challenge currently facing small businesses in the U.S.? Taxes.

This is based on the most recent National Federation of Independent Business (NFIB) Optimism Index released Tuesday (July 8). It was reported via the monthly sentiment index that optimism dipped slightly, falling 0.2 points to 98.6, which is still barely above the 51-year average of 98.

“Small business optimism held steady in June, even as uncertainty declined,” said NFIB Chief Economist Bill Dunkelberg. “Taxes continue to be the number one concern on Main Street, though many businesses are still grappling with the quality and cost of labor.”

The report revealed that 19% of small business owners identified taxes as their most critical issue, up one point from May, and marking the first time in four years that the figure has reached this level.

Inventory concerns also played a role in the overall dip in optimism. A net -5% of business owners (seasonally adjusted) reported their inventory levels as "too low," a drop of 6 points from the previous month. The NFIB noted that:

“This indicates a net increase in inventories. In June, 7% of owners reported inventories as too low, down from 8% in May, while 12% said inventories were too high, compared to 7% the previous month. This component contributed most to the index’s decline.”

Expectations for improved business conditions also softened. The net percentage of owners anticipating better conditions declined by 3 points to 22%, seasonally adjusted. Despite the drop, this remains a historically strong reading compared to the 51-year average of just 3%, according to the NFIB.

Additionally, the net percentage of owners expecting higher real sales volumes fell by 3 points to 7%.

Research from PYMNTS Intelligence highlights a geographic divide in small business sentiment.

“SMBs in major urban centers are generally optimistic, citing steady growth and rising profits,” PYMNTS noted."In contrast, organizations in suburban, small-town, and rural communities are feeling a greater sense of concern about long-term viability."

These concerns arise from a whole host of forces: the return of workers to urban offices - resulting in a diminishing customer base for many rural businesses; general economic uncertainty; simply not having the capital financing.

Further research from PYMNTS shows just how precarious the financial health of many SMBs has become: half of surveyed businesses say they rely entirely on day-to-day sales or existing cash reserves to stay afloat.