U.S. SMEs Foresee Business Growth in 2018, Despite Ongoing Challenges

By Ian Watson


“Cautious optimism tempered by an appreciation of the challenges inherent in running a business during uncertain times.” That sentiment best sums up the current state of mind of U.S. small and medium-sized enterprises (SMEs), based on the findings of our latest Global Business Monitor survey of 150 U.S. SMEs and confirmed by what we are seeing and hearing on the ground every day from SME owners across industries and around the country. Against the backdrop of an improving domestic economy and despite concerns about the political situation, U.S. SMEs are anticipating renewed growth in their businesses even as they struggle with a myriad of challenges, ranging from onerous regulation and rising costs to managing cash flow and managing bad debt. Their ability and resources to tap growth opportunities while navigating these challenges will not only determine the success or failure of their individual businesses, but also the overall health of the SME sector and its critical role in the U.S. economy.

SMEs are confident about the U.S. economy, less so about the global economy
This year’s survey shows U.S. SMEs in a relatively upbeat state about the U.S. economy. Sixty-seven percent of SMEs describe the current U.S. economic performance as positive, up significantly from 50 percent in 2016. Their outlook for the domestic economy is also optimistic with 39 percent expecting the U.S. economy to improve further, while 36 percent expect it to maintain its current performance.

Their perception of the global economy is less positive, with almost 73 percent expressing concern over uncertainty. Specifically, SMEs see the political situation in the U.S. as the biggest threat to the global economy. This is an interesting development since the new administration was elected in part on policy proposals to put American businesses and jobs first, which resonated well with the business community. However, there are signs that this increased confidence may be wavering as progress on the new administration’s pro-business reforms slows. Delays in tax reform, healthcare reform and the future of key trade deals such as the North American Free Trade Agreement (NAFTA) are all causing SMEs to pause.

However, these political concerns appear to have little impact on business sentiment. According to the study, 59 percent of SMEs say their own sales have grown over the past 12 months, up from 36 percent in 2016. Additionally, over the next 12 months, 63 percent expect sales to grow. With lingering concerns about the outlook for the global economy, U.S. SMEs see expanding in the domestic market (21 percent) as their greatest business opportunity, while only three percent cite exporting as a growth opportunity. These findings reflect the heavy domestic orientation of SMEs, with fewer than one in five currently exporting or importing.

Many challenges remain for U.S. SMEs
While sentiment and growth are up in the U.S., the Global Business Monitor finds that SMEs still face a number of challenges. The two biggest current challenges for SMEs are government regulations (49 percent) and rising overheads/costs (48 percent), which are also seen as the top two challenges over the next 12 months. In fact, U.S. businesses are almost evenly split on whether they view government policy as favorable (44 percent) or unfavorable (45 percent).

In the coming year, nearly one-third of SMEs (31 percent) expect cash flow to be one of their greatest challenges. This concern is compounded by issues surrounding collecting payment from customers, which 41 percent of SMEs cite as the most problematic aspect of managing their cash flow.=

With regard to payment practices, U.S. businesses wait fewer days for payments than any other country. In contrast to more than 45 days in both France and Singapore, U.S. SMEs wait just 23.5 days for payment from customers, making it the quickest country with payment turnaround for the second consecutive year.

Additionally, the study shows that U.S. businesses are also less likely to suffer from bad debt. Twenty-five percent say they have suffered from bad debt over the past 12 months, compared with the study average of a third (33 percent). Of those businesses that have suffered from bad debt, the average sum written-off stands at $73,000.
With an easing of monetary policy from the Federal Reserve in recent months, two-thirds (66 percent) of SMEs are anticipating little or no impact on their business from further increases in interest rates.

With confidence high and markets competitive, 61 percent of SMEs are looking to boost sales by investing in sales and marketing. Half or more are also investing in training and development of existing staff (55 percent), IT and digital technology (54 percent) or recruitment (50 percent).\

In order to finance their business, one quarter (25 percent) of SMEs currently make use of external finance, up slightly from over a fifth (22 percent) in 2016. Almost half (49 percent) believe that access to finance in the current market is excellent or good, ranking the U.S. in the top three markets in relation to the availability of finance (alongside Canada and Singapore). Despite this, less than one in ten (8 percent) anticipate seeking additional external finance over the next 12 months.

What we will see next year
According to the latest U.S. Census, SMEs account for over 99 percent of registered U.S. businesses. As significant drivers of the U.S. economy, it is important to understand their outlook on the state of business as a barometer to the entire economy. From what we gathered this year, U.S. SMEs are going to continue investing at home in 2018, despite waning confidence in any political progress in Washington. Still, SMEs will need to navigate through government regulations, lower overhead costs and develop consistent sources of cash flow to remain competitive in the world’s largest economy. 



Ian Watson, Chief Executive Officer of North America at Bibby Financial Services

Ian Watson has been Chief Executive Officer of Bibby Financial Services North America since July 14, 2016. He joined the North America team after previously serving for more than six years as the Chief Executive Officer of the Asia-Pacific region at Bibby Financial Services. In this position he helped grow Bibby Financial Services’ presence in the region from two to six countries, led the executive boards of the businesses in Australia, New Zealand, Singapore, Hong Kong, Malaysia and India, and increased revenues from the region by nearly three times previous levels to deliver a profitable contribution to the group.

A senior executive with extensive international experience in commercial finance and asset based lending,Watson has a proven track record working with growing international organizations and serving on corporate boards.

Prior to joining BFS, Watson was Executive Director for GMAC Commercial Finance in the United Kingdom. He is a graduate of Rye College and Kingston University.