Number of owners pessimistic about future of U.S. economy doubles March 2020 level; only 24% express optimism
Roughly half of owners expect lower or flat revenue in 2021 versus pre-pandemic
Confidence in achieving business' financial goals drops from 57% to 34%
Number of owners who say they plan to retire sooner jumps more than 100% since last August
One-third of business owners had to increase investments in technology to meet new customer needs
Entrepreneurs of color are 43% more likely to experience problems when applying for PPP loans
The newest quarterly Business Owners' Outlook from Wilmington Trust, developed in collaboration with its parent company M&T Bank, finds that business owners' confidence has dropped almost 30% in less than a year. As many owners struggle to keep their businesses successful during a volatile time, the number who plan to retire sooner than expected has doubled with a surprising increase of 110%. The study, The rush to retire, surveyed 1,007 business owners nationally, comparing large and small businesses, while also focusing on entrepreneurs of color (EOCs) to examine their perspectives and experiences.
Declining confidence, rapid digital adaptation lead to accelerated retirement plans
The pandemic has wreaked havoc on business owners, with the latest Business Owners' Confidence Index falling from 59 points just before the pandemic to 42 in early 2021. The number of owners who are pessimistic about the future of the U.S. economy has almost doubled since March 2020. Additionally, roughly half of owners expect lower or flat revenue in 2021 versus pre-pandemic figures, while their confidence in achieving their business' long-term financial goals dropped from 57% to 34%.
Another challenge for owners has been ramping up digital investments to respond to changing consumer behaviors. To try to stay ahead of these shifts, one-third of entrepreneurs have increased their investments in technology during the pandemic. Their top priorities include e-commerce (39%), overall tech equipment/infrastructure (38%), social media (33%), and digital advertising (28%). However, the increased focus on technology and the investments required may be giving older owners second thoughts about how long to remain at the helm.
Rush to retire
Many owners are moving up plans for retirement or transition. Since August 2020, the number of owners of larger businesses planning to retire sooner than expected jumped by 110%, while the number of owners of smaller companies doubled. Furthermore, their confidence in passing along their business to a successor is eroding. In March 2020, half were very confident that their personal and business assets would be well managed if they were to die or become unable to manage them. In our latest survey, only 34% said the same.
"We highly recommend owners take this time to revisit their long-term business and personal planning," said Stuart A. Smith III, national director of Business Value Strategies for Wilmington Trust and M&T Bank Emerald Advisory Services®. "To upgrade their technology, they may need to seek outside investment in the most cost-effective way possible, which will impact their valuation. But if they really are experiencing burnout and want to retire or sell sooner, they will need a well-planned transition. Beware of the quick-and-dirty exit plan, because it's usually both."
Paycheck Protection Program (PPP) disparities and the ongoing push for greater diversity among business owners
The Business Owners' Outlook study also found that significant divides remain between entrepreneurs of color and non-minority business owners (NMOs). When engaging with the Paycheck Protection Program, EOCs are 43% more likely to experience problems when applying than NMOs. Business owners ranked their top three issues as: generating documents for loan applications and forgiveness (46%); accessing the application online (45%); and difficulty understanding the requirements for loan forgiveness (43%).
Moreover, 92% of EOCs cite diversity as either very or somewhat important, but only 70% of NMOs feel the same. More EOCs (91%) also stress the importance of working with external partners that take action on diversity than their NMO counterparts (70%). Across the board, our data show that roughly one-third (30%) of NMOs say that addressing diversity is not very or not at all important.
"We know that entrepreneurs of color continue to experience challenges securing capital for their businesses, with the pandemic exacerbating these conditions," said Detra Miller, head of Minority & Women-Owned Business Banking, M&T Bank. "It's important that they work with an experienced banker that they can trust to help introduce them to new networks, identify solutions to optimize cash flow, establish new and extended lines of credit, and set up payment deferrals or explore alternative funding options if needed."
A recent webinar hosted by Wilmington Trust and M&T Bank and focused on the study results and highlighted the stories and perspectives of business owners, including how they have reacted to the U.S. economic outlook, their transition planning, and technological adaptation.
Survey methodology: Owners of businesses with annual revenue of $1mn+ were asked to complete an internet-based questionnaire to ascertain their views on the U.S. economy, the state of their business, future plans for their business, and impacts of the COVID-19 pandemic. The survey took place January 25 through February 10 among 1,007 business owners, with 228 of these identifying as people of color.
About WilmingtonTrust Wilmington Trust's Wealth Advisory offers a wide array of personal trust, financial planning, fiduciary, asset management, private banking, and family office services designed to help high-net-worth individuals and families grow, preserve, and transfer wealth. Wilmington Trust focuses on serving families with whom it can build long-term relationships, many of which span multiple generations.
Wilmington Trust has clients in all 50 states and numerous countries, with offices throughout the United States and internationally in London, Dublin, Paris, and Frankfurt. For more information, visit www.WilmingtonTrust.com.
About M&T Bank M&T Bank Corporation is a financial holding company headquartered in Buffalo, New York. M&T's principal banking subsidiary, M&T Bank, operates banking offices in New York, Maryland, New Jersey, Pennsylvania, Delaware, Connecticut, Virginia, West Virginia, and the District of Columbia. Trust-related services are provided by M&T's Wilmington Trust-affiliated companies and by M&T Bank.