How Does Your Small Business Growth Compare To This New National Index?
You might argue that we already have enough firms measuring the “health” of US small businesses and that sometimes the pictures they paint are at odds with one another.
Most of them take snapshots on a monthly or quarterly basis. While these are useful and interesting, sometimes we make too much of their results. Frankly, month-over-month or quarter-over-quarter results always vary and we can misinterpret minor changes.
The newest player in this crowded field is the Bank of the West Small Business Growth Index and I think it has some good things going for it. First, it’s yearly, so the ups and downs that it reflects are tied to a significant passage of time. Second, it’s looking at some very solid measures of growth rather than attempting to measure something rather elusive, such as “confidence.” Finally, I like it because it gives you some real bench marks against which you can judge the performance of your own small business.
Its first small business growth index – recently released here – gives us a rating of 54. Anything less than 50 would be a contraction within the small business sector. Anything over 50 reflects small business growth. Since this is the first year of the index, we can’t put this in historical perspective. However, it’s safe to say that 54 represents cautious growth. But when we look at the components of the index, it becomes somewhat more revealing.
Index components
The index is a combination of these figures for the last 12 months (current statistics in parenthesis):
- The percentage of businesses that made investments in themselves (78 percent),
- The percentage of businesses that posted higher profits (41 percent),
- The percentage of businesses that saw increased revenues (39 percent),
- The percentage of businesses that experienced increased sales (39 percent), and
- The percentage of businesses that made cutbacks (37 percent).
How do you rank compared to those benchmarks? Are you among the US small businesses that have invested in themselves? This is one of the most encouraging numbers here because it tells us that small business owners are confident enough to lay down bets on their companies.
Making smart investments
It’s a fact that to enjoy the kind of success that we all aspire to, it requires investment. No business ever became great by cutting back. Sure, there are seasons when small business owners must be prudent, but they also need to look for strategic opportunities, like a running back who sees that little crease in the defense and takes advantage of it. (A little nod to the first days of the football season!)
For example, if physical expansion makes sense for your small business – either a larger facility or additional locations – taking advantage of a depressed real estate market would make a lot of sense. Your business would be poised to come roaring back when the negativity has been wrung out of the daily news.
Here’s how those new investments break down:
- Developing new products or services, 35 percent;
- Boosting marketing spend, 28 percent; and
- Hiring new staff, 24 percent.
In the “profit and loss column,” as I reported above, 41 percent of small businesses were more profitable in this year than the previous year, and on average their profits went up 25 percent. Not bad. On the other side of the balance sheet, 24 percent reported a loss.
If you used the components of this index to give your business a yearly report card, where would you be? Are you at the average, above average, or as my elementary school teachers would have put it: Is yours a business that “needs improvement”?