Most Small Businesses Await Sales Bump Before They Invest

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Small business owners are approaching next year cautiously. A new survey has found that 41 percent of them plan on making capital investments, 12 percentage points lower than the portion who said they had made an investment in the past year. Most of the investments will be in new equipment.

Meanwhile, 57 percent of the small business owners said they would not be making capital investments in the next year. Many of them explained they felt their business did not need improvements.  Other reasons they cited for not investing were uncertainty of the future of their business and a lack of available revenue.

The Gallup report, prepared for Wells Fargo, concluded that the small business owners' outlook is unlikely to change before the presidential election in November, given the uncertainties of the economy.

"The factors inhibiting small business owners as they consider making capital investments over the next 12 months are consistent with the overall decline in owner optimism since April," the Gallup report said. "They also seem consistent with the slowing of the overall United States economy as well as declining economic confidence and a worsening unemployment situation.

"At the same time, two reasons small business owners most commonly say would make them more likely to make capital investments ?better sales and a more certain operating environment ?suggest this situation is unlikely to change in the near future."

The report established that the biggest factor driving optimism among businesses is a better-than-expected sales outlook.  Eight in 10 small businesses said they would be more likely to make a capital investment because of increased sales revenue.  Businesses also agreed that a more certain operating environment, lower federal taxes, and more affordable technology were other reasons for making investments. Additionally, 52 percent of businesses said government tax credits would be a reason to make an investment.

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Among the business owners planning to make an investment, 64 percent said it would be on new equipment and machinery.  Many businesses also planned on purchasing new computers, software and mobile devices.  Forty-one percent said they would expand or develop new products with an investment, while 28 percent said they would use it to make another long-term investment. Just 16 percent of businesses would invest in new facilities.

A majority of the businesses owners that do make investments said they will be doing so from the profits and revenue of their company. Overall, 93 percent said they would use revenues and profits of investments, while just 39 percent said they would use credit, and 31 percent said they would use their savings.

Generally, however, the decisions all came down to sales.

"Given the high unemployment rate and increasing gas prices, it seems unlikely small business owners will see an improved sales outlook anytime soon," Gallup reported. "Further, the run-up to the presidential election may increase economic uncertainty rather than reducing it. Thus small business may be in a holding pattern of sorts until the outcome of the Nov. 6 election is known."

The research, based on the responses of 600 small business owners, was conducted as a part of the Quarterly Wells Fargo-Gallup Small Business Index.

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