Despite recent upbeat news about the general economy, small business owners are reporting additional revenue loss at the close of Q4 2023, reports Alignable's December 2023 Small Business Revenue Report.
Earlier in autumn, 52% expected they'd make less in Q4 2023 than they did a year before, with 35% of that group saying they'd earn half or less of the income they generated during Q4 2022. But the reality of the situation is worse than what was predicted.
Due to cumulative economic challenges, 62% of small business owners now say they've had a disappointing Q4, as they're making less revenue than they did during Q4 2022. Of that group, 47% tell us they are earning half or less of what they generated in Q4 2022.
So, even more small businesses were affected by declining revenues than the 6,000+ respondents to our September/October poll indicated -- a figure that's up by 10 percentage points.
To put this all in perspective, you might recall that Q4 2022 was not exactly a great time for many small businesses. This time last year, 58% said they made less in Q4 2022 than they did in Q4 2021, with 45% of that group reporting that they had generated half or less of what they earned in Q4 2021.
These findings are part of Alignable's December 2023 Small Business Revenue Report, released today. It's based on responses from 5,040 randomly selected small business owners surveyed from 12/1/23 to 12/29/23, along with historical input from 100,000+ other small business owners.
Lower Inflation Rates Aren't Helping Most SMBs
A variety of hurdles culminated during a quarter that's supposed to be a boon to small businesses, but it turned out to be a letdown for many.
Of the 5,040 small business owners who participated in the most recent poll, many pointed to ongoing problems that have yet to be resolved by any general uptick in the economy. Here's a list:
- The No. 1 issue reported by small businesses in December was trouble "ramping up revenues," which marks the first time in over three years where coping with inflation came in as the No. 2 concern. To hammer home that sentiment, 61% added that their monthly revenues were down in December, compared to what they were in December of 2022.
- In fact, 37% now have at least one side job to help bring in extra revenue, and another 56% say they need a side gig to pay for extra expenses. That leaves only 7% saying that concentrating all of their efforts on the primary business they own is sufficient for the income they require.
- Though revenue generation is top of mind, the cumulative effects of inflation are still taking quite a toll on many businesses. In fact, only 11% of respondents say they're feeling the positive effects of lower inflation rates, while 64% say high prices on many goods and services are still reducing their margins, holding them back. Of the 64%, 37% say inflation is still significantly hurting their businesses, and another 2% have decided to shut down. Many note that, even if inflation rates are down, many prices are still much higher than they were a year or two ago.
- Still-high interest rates are also eating away at margins and limiting consumer spending -- at least among small businesses. In December, 52% of those polled said the lingering effects of high rates are causing them to backslide. And 46% of those most affected by the still-high interest rates say it will take the Federal Reserve lowering rates by at least three points until they feel they can start to recover. The high rates are blamed for squeezing margins, reducing consumer spending, and hurting SMB owners' ability to pay back SBA loans or secure new ones.
- For the second month in a row, 41% of renters said they couldn't pay their rent in full and on time, matching 2023's record high for rent delinquency in November. And 51% say they're coping with rent spikes.
- Only 33% of small businesses that started before COVID say they're making as much or more than they did monthly prior to the pandemic. That means 67% of those businesses have yet to fully recover from the COVID era and the economic upheaval that followed.
Taking these issues into account, let's identify the industries with the highest percentage of small businesses that earned less in Q4 2023 than in Q4 2022.
Many Industries Suffered In Q4 2023
These charts of the Q4 2023 numbers, compared to what SMBs earned in Q4 2022, is alarming.
And the Top 3 sectors reflect a correlation between still-high interest rates and their effects on the smaller players in their industries. In fact, in poll comments, many small business owners said that high interest rates are hurting individuals and small businesses much more than the rates are affecting many large corporations.
Nearly two-thirds of the realtors polled (65%) said they suffered lower revenues this quarter than a year ago. And that's up three percentage points from their prediction of 62% earlier in Q4 2023.
Construction firms weren't far behind, with 63% saying revenues are down from Q4 2022, again responding to the increases over the past year in interest rates. In fact, this 63% figure is 12 percentage points higher than what construction firm owners predicted in the fall, which was still significant at 51%.
While restaurants have fluctuated month-to-month in our studies, it's still disappointing to see that 63% of the independent restaurant owners came up short revenue-wise compared to what they earned last year. We're hoping this is a blip that can be reversed soon, as many restaurant owners have shown some great strides in recovery over the past six months.
Here's the rundown for other prominent industries in our study:
- 60% -- Gyms (Up 3%)
- 60% -- Travel/Lodging (Down 7%)
- 58% -- Automotive (Down 1%)
- 56% -- Musicians/Artists (Up 18%)
- 55% -- Law Offices (Up 7%)
- 53% -- Finance (Up 1%)
- 50% -- Beauty Salons (Up 10%)
- 50% -- Manufacturing (Up 3%)
- 50% -- Retail (Down 2%)
- 50% -- Transportation (Down 14%)
- 49% -- Marketing/Advertising (Down 1%)
There were some slivers of silver linings here as business did pick up for some in the transportation and travel arenas -- possibly due to lower gas prices over the past couple of months.
But entertainers had an even rougher quarter than they had imagined, as did some owners of beauty salons.
Meanwhile, the fact that half of all retailers polled said they made less this year than last, reflects poor sales on Main Street -- even on Black Friday and Small Business Saturday, which we found in other polls.
Main Street merchants' ongoing struggles with rent and unyielding competition from big box stores and online behemoths like Amazon seem to be taking a greater toll each year. Once again, we urge those who love having a robust downtown to spend more with locally owned stores and restaurants. If not, we will most certainly see more of them disappear.
It's also our hope that, if the Federal Reserve does, indeed, start lowering interest rates in the coming months, several of these industries could begin to rebound.
The still-high interest rates, based on this poll and others over the past few months, have represented yet another wave of challenges for small business owners -- COVID was first, inflation was next, and now a combination of high interest rates and issues generating revenue are wreaking havoc.
What SMBs In Key States Said About Revenues
Reflecting sentiments collected over the entirety of Q4 2023, many small business owners across several states reflected frustration over their revenues this quarter.
Here are just some of the highlights among the states with the highest number of respondents in the polls from September through December.
For December, we found that 67% of those polled from New York and Ohio said they made less in Q4 2023 than they did this time last year. They lead the pack, but their peers in other states are also suffering.
- FL & IL -- 64% of SMB owners in these states say they earned less in Q4 2023, than they did in Q4 2022.
- NC -- 63%
- CA & MD -- 59%
- PA & TX -- 58%
- CO -- 55%
- MI -- 54%
- NJ -- 53%
- WA -- 48%, and
- VA -- 44%.
To get more detailed findings on any states or Canada, please reach out to chuck@alignable.com, who can provide more data on different industries and demographics, as well.
To review past poll results, go here or to the Alignable Research Center.
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