The new American dream: owning your own business.

D&B Study Shows Small Businesses Expect to Grow in '97; Debt Levels to Decline

For many years the "American Dream" was owning a home. But with trends toward corporate downsizing, outsourcing and transient employment increasing, the "new American Dream" has become business ownership

For the third consecutive year, Dun & Bradstreet's Survey of Small Business finds small business owners bullish on their future prospects. The survey segmented small businesses by size and industry and included women- and minority-owned firms. Overall, 88 percent of the small business owners surveyed in December 1996 said they were optimistic about the outlook for their companies in the coming year. In addition, two-thirds of the respondents (68 percent) expect their customer base to grow in 1997. Growth trends are also anticipated for company revenue, profits and value of receivables. At the same time, few expect company debt to increase - 40 percent of those carrying debt expect it to decrease, while 38 percent expect it to stay the same (see chart).

Increasing Confidence in the Economy and Technology Cited

Optimism may be driven by the perception among small business owners that the national economy will improve over the next 12 months. Nearly three-quarters of the respondents expressed a favorable outlook for the economy, up from 50 percent last year. Another key factor may be the rising impact of technology on small businesses. Tools such as personal computers and fax machines help 80 percent of small businesses with productivity and customer service. Cellular phones (19 percent) and other telecommunications services (16 percent) were also credited as major contributors.

Securing financing does not appear to be a problem for many small business owners, even if that means obtaining a second-party to guarantee the loan or line of credit. One-third of the respondents turned to commercial loans, credit cards and personal loans in 1996.

Finding Qualified Workers Is Biggest Challenge

While small business owners envision a bright future, they also acknowledge bothersome challenges and issues, some of which are longstanding. As in previous years, the biggest challenges small businesses face are finding qualified employees (49 percent); handling increasing insurance costs (44 percent); and dealing with increasing domestic competition (30 percent). Many difficult issues for small businesses are government-related, such as regulations and high taxes (40 percent), and a changing business climate (17 percent).

The study revealed that one in two small businesses provide employee health care benefits. Most owners reported that health insurance has either increased or remained constant. To combat the rising cost of insurance, 37 percent of respondents shopped for a new carrier in 1996 (up from 21 percent in 1995) while another 41 percent assumed the extra cost without passing it on to their employees.

Retirement benefits are even more difficult to come by, the survey indicated. They're offered in only 28 percent of small businesses. However, this 28 percent represents a 50 percent improvement over 1995. Of those companies that offer such benefits, 65 percent provide all of their employees with a retirement plan, usually through a 401-K.

Surprises

Two of today's hottest business topics - outsourcing and the Internet - have yet to translate their high profiles in the media to a starring role in the fortunes of small business. The majority of small businesses (65 percent) do not outsource any of their functions. Of those firms that do outsource, accounting/tax preparation (53 percent) and payroll (41 percent) are the most commonly outsourced functions.

While the percentage grew from 16 percent last year, only 25 percent of those surveyed have electronic mail, and just 5 percent cite the Internet as a key technology that affects their business. Conversely, the percentage of companies using online services, such as America Online, CompuServe and Prodigy, has nearly doubled to 36 percent since 1995.

Women-Owned and Minority-Owned Businesses

The areas where women-owned businesses differed from other small businesses were in revenues, technology and health care. In addition, they reported the lowest annual revenues, with a median of $99,000. Women business owners are less likely to have technological tools, such as cellular phones, 800-numbers, FAX machines, electronic mail and online services. They are also less likely than other businesses to provide health care benefits to employees (26 percent vs. 46 percent).

Minority-owned businesses are generally more optimistic about their prospects for success than other small businesses. In addition, they are more likely than others to absorb the extra costs of rising health care insurance (62 percent vs. 41 percent). A greater percentage of minority-owned businesses use online services (47 percent) than other businesses (36 percent).

Minority business owners are more likely to have uncollected debt and are twice as likely (48 percent vs. 24 percent) to experience difficulty in gaining access to capital.

The New American Dream

Most of the small business owners surveyed expressed the kind of level-headed optimism that usually results in success. When members of the fastest growing sector of our economy believe they will serve more customers and make more money, it means that they will spend more to aggressively pursue their goals, and that triggers growth. It's a self-fulfilling prophecy. And judging by the mostly positive responses of this survey, it seems millions more will be encouraged to pursue the "new American Dream" of business ownership.

For more information or a copy of the survey results, call 908.665.5435.

Accounts receivable warning signs

Extending credit to another company involves risk. Remember that untended receivables can get out of control in the blink of an eye. Here are some danger signals to watch for:

* slow payment or change in payment habits

* broken promises of payment

* unreturned messages

* post-dated or NSF checks

* refinancing or changing banks

* unauthorized return of merchandise

* selling at unusually low prices

* radical changes in buying patterns

* too rapid growth

For more information, contact D&B's Receivable Management Services at 1.800.333.6497.