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Business Series: Unveiling the Pulse of Local Business

Business Series: Unveiling the Pulse of Local Business

Key Findings from the First Citizens National Bank 2nd Annual Economic Survey

The past few months have highlighted the volatile and uncertain nature of the business world. Amidst these challenges, it becomes even more important for businesses to have a clear understanding of the prevailing conditions and to strategize accordingly. To help provide perspective on the region’s economic dynamics for local businesses, The First Citizens National Bank recently conducted our second annual economic survey to gain insights into the current business climate and identify the key issues facing businesses in Northern Central Ohio. Throughout the year, we’ll share our findings and their implications for local businesses as they plan for the next six- to 24 months.

The survey, conducted in February 2023, sought input from business owners and executive management leaders across Northern Central Ohio markets. For the sake of this survey, company sizes were categorized as the following:

  • Microbusiness: Sales under $1 million
  • Small business: Sales $1 million to $10 million
  • Middle market: Sales $10 million to $50 million
  • Commercial: Sales over $50 million

Are companies better off in 2023? It depends. Larger companies continue to fare better, but smaller firms, especially microbusinesses, are struggling. Across a variety of issues, Commercial businesses in general expressed more positivity, while smaller businesses are still experiencing a variety of challenges that are negatively impacting the way they do business.

According to respondents, the State’s economy faces three significant issues. Inflation was the top concern (30.7%), followed by the job market (18.6%). Additionally, 8.1% of those surveyed cited the lack of skilled workers as a major issue. Micro- and Small Businesses expressed greater worry about unemployment and the labor market, while commercial businesses were more concerned about affordable healthcare and the political environment. It is crucial to address these concerns to ensure a healthy and prosperous economy for the State in the coming year.

The specific challenges of the Pandemic have largely passed – in fact, Covid-19 was no longer seen as a major threat — only to be replaced by equally worrying concerns of inflation, weakening demand, and a tight labor market. According to 34.1% of respondents, the single greatest threat to economic growth for their companies in the coming year is inflation. This suggests that the rising prices of goods and services pose a significant challenge to businesses’ ability to grow. A labor shortage was identified as the greatest threat by 14.4% of respondents, indicating that finding and retaining skilled workers is a pressing concern. Rising production costs were seen as the greatest threat by 9.6% of participants, suggesting that increased expenses for manufacturing or operational processes could hinder economic growth. Additionally, 5.4% of respondents expressed concerns about sales, indicating that generating sufficient revenue could be a challenge. Interestingly, inflation was considered the greatest threat across all segments and job titles, while rising production costs specifically worried the commercial segment. These responses highlight the diverse range of challenges businesses anticipate facing and provide valuable insights into potential obstacles to economic growth in the upcoming year.

Looking Ahead

In 2022, 42% of companies felt very optimistic about their future prospects; this year, only 14% feel that way, likely due to various factors such as market conditions, economic uncertainties, or specific challenges faced by different business segments. Interestingly, commercial companies displayed the highest level of optimism, while micro-businesses expressed the least optimism. Companies are less optimistic and more cautious about the coming 12 months. Primary reasons for this outlook are the weakening economy, inflation, and a challenging labor market, which are the same top three concerns as expressed last year.

However, this year feels a little different for two reasons: 1) A majority of companies believe they have already taken all the major cost-cutting steps they can and have fewer avenues to explore, and 2) Owners and executives are feeling the strain of a third year in a row of extraordinary business challenges.

The threat of Recession has replaced Covid, especially for smaller firms. Overall, 58% of companies express concern about a Recession. In 2022, when asked whether their company could survive another significant recurrence of Covid, 10% said no. In this year’s survey, 31% said they would struggle to survive the impact of a Recession.

Businesses have a mixed outlook about how they’d do in the event of a recession with a significant portion anticipating difficulties, particularly among the Middle Market and microbusinesses, while a considerable percentage of commercial businesses are confident in their resilience or growth prospects. Survey responses revealed that 31.3% of companies expressed concerns about their ability to cope or even survive under such circumstances. The Middle Market segment had the highest percentage of companies (47.2%) facing potential struggles or uncertainty, followed closely by microbusinesses with annual sales under $500,000 (52.6%). On the other hand, 40.5% of commercial companies believed they would be unaffected or even experience growth despite the challenging economic conditions.

Sixty-five percent of businesses saw sales increase last year compared to 2021. But only 30% of companies find themselves ahead of where they were pre-Covid. Among micro businesses, 50% reported being below or struggling, indicating the highest percentage among all segments. For small businesses, 35% expressed similar challenges. Surprisingly, no middle market company stated that it was doing much better, with 39.2% reporting being below or struggling. However, 37.5% of commercial companies reported improved performance.

All businesses report that their customers are increasing their use of eCommerce and using physical locations less, continuing the major shifts experienced during Covid. Twenty six percent of businesses saw sales via eCommerce grow by >25% last year, compared to 22% in the prior year. Overall, 48% of businesses generate 10% or more of sales via eCommerce. Commercial companies had the highest percentage of companies (78.6%) reporting increased sales. On the other hand, smaller businesses faced greater challenges: 15.1% of micro businesses saw a sales drop of over 25%, while 21.6% of small businesses experienced a sales drop of over 10%. Over half of the companies reported that less than 10% of their sales were generated through eCommerce. However, 21% of commercial businesses generate more than 50% of their sales through eCommerce, highlighting a higher level of online business activity in this category. The healthcare and agriculture industries were identified as having the lowest percentage of sales coming from eCommerce. It was also found that companies that already had higher percentages of business from eCommerce tended to experience the strongest growth.

Following the Pandemic, 66% of businesses said they were planning capital investments. That percentage has dropped to 42% for 2023.Many businesses have major projects or investments on the horizon in the coming year, with priorities differing among businesses of different sizes, reflecting their specific needs and growth strategies. Micro businesses placed a strong emphasis on new construction projects (20.5%) and hiring (17.9%). Small businesses, on the other hand, prioritized hiring (22.6%) and upgrading technology (16.9%) as their major projects or investments. In the middle market segment, the focus shifted to exploring new markets (23.1%) and upgrading technology (20.5%). Among commercial businesses, new hires (20%) and upgrading technology (16.7%) were identified as their primary areas of focus for the coming year.

In addition to Hiring and Benefits, companies are budgeting more for Technology – particularly IT systems upgrades, eCommerce, and Payments – Marketing, and Risk/Fraud Prevention. The number of companies increasing spending in these areas is almost double that in 2022. A quarter of small- and microbusinesses and 37.5% of middle market companies plan to invest in improving their websites, recognizing the importance of having a strong online presence. Additionally, 35% of commercial and middle market companies plan to invest in eCommerce, indicating a focus on expanding their online sales capabilities. Payments technology is also a priority, with 27.6% of small businesses and 25% of middle market companies planning investments in this area, possibly to enhance payment processing efficiency. Furthermore, a significant number of commercial companies (55%) and middle market companies (31.3%) plan to invest in IT upgrades, reflecting their recognition of the importance of staying technologically updated.

While the Labor Market lags Inflation as the major concern for 2023, it’s a challenge that is affecting every business in multiple ways. Half of all companies plan to increase investment in hiring, pay and benefits this year, three times the number in 2022. In addition, 31% plan to support/accommodate greater work schedule flexibility and 18% plan to invest in technology to support remote workers. Larger companies tended to consider a wider range of options when addressing staffing issues, indicating their capacity and resources to explore different strategies. Commercial companies were most likely to focus on increasing pay and offering flexible schedules and remote work options to attract and retain employees. This suggests a recognition of the importance of competitive compensation and work-life balance in the current job market.

As a community bank deeply committed to the success of local businesses, the insights gained from this survey will be instrumental in guiding our efforts to provide valuable resources and advice in the coming year.

If your business could benefit from the trusted expertise of a business banking partner as you navigate the challenges of the current environment, First Citizens National Bank is here to help. Call to set up an appointment with a member of our Commercial team today.

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