MetLife and the U.S. Chamber of Commerce released their Small Business Index (SBI) recently, reporting that while small business owners have declining confidence in the national economy, most believe their businesses are faring well. However, for the fifth consecutive quarter, inflation ranks as the top concern, SBI data shows, affecting all operations, from raw material to transportation costs.

The index saw a slight drop this past quarter from 62.1 to 60, with only 20% of U.S. small business owners believing the U.S. economy is in good health. Last quarter, that figure came in at 27%. Additionally, only 38% of small businesses indicated plans to increase investments in the coming year, versus 47% last quarter.

Confidence in Operations Grow

On the other hand, small business owners were more confident in their operations. The majority (63%) said their businesses were in good health, while 64% were comfortable with their cash flow. Brett Sussman, vice president of American Express Business Blueprint, says he wasn’t too surprised by the report. Sussman believes that the COVID-19 pandemic incited an “entrepreneurial boom” in the U.S.

“During that time, people had the chance to sit back and ask, ‘What am I passionate about?’” says Sussman. “Technology also made it easier for small business owners to open their businesses, so we’re really seeing more than five million small businesses started each year in the past two to three years.”

While Sussman says it’s “never been easier” to start a small business, he notes they’re “quite hard” to maintain.

“That’s where financial management and financial education are particularly important,” says Sussman. “It’s really important when you start a small business to be very lean in cost and ensure your business model works. Cash flow and cash flow visibility—not cash—is king.”

For this reason, he says finding the right cash flow management system is increasingly important, with two-thirds of surveyed small businesses looking for better options. Current systems, he says, may not provide small businesses with the necessary efficiency and consolidation capabilities.

“When we surveyed small business owners, they felt that inflation will persist through the rest of 2023,” says Sussman. “So, they really have to understand their cash flow visibility. That’s incredibly important.”

Inflation Remains a Concern

Inflation costs topped the challenges facing small business owners, as in the previous four quarters, with a record-high 54% reporting that inflation marks the top challenge to overcome.

“Inflation is a real and consistent concern for small business owners,” says Sussman. “They’re seeing it in a number of places, most pronounced in their raw material costs. From lumber for construction companies to food ingredients or cooking oil, or the basic cost of doing business, such as shipping costs or buying computers, costs have all gone up.”

Hiring Becomes Less of a Problem

On a bright note, small businesses in the U.S. are seeing increased success in attracting and retaining employees. According to the most recent report, only 11% of small businesses indicate employee retention as a top concern.

“Small businesses are always focused on retaining and hiring the right employees,” says Sussman. “At the pandemic’s peak, that was a top concern as many people were going through the great resignation and moving around. I think the job market has changed a bit and people are staying more consistently, so it’s less of a concern than it was historically.”

Looking forward, Sussman believes small businesses will continue to boom in the U.S. thanks to lower barriers to entry.

“But that breeds a little more competition,” he says.