Small Business Owners Feel States Are Failing to Support Them
Jack Erb•Thumbtack's Economist •Last updated Oct 26, 2022
Last updated Oct 26, 2022
During the pandemic, the federal government took unprecedented measures to help small businesses persevere, such as the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) programs. Now, many of these programs have stopped and local service professionals are facing uncertain economic times on their own — worried about the future of their businesses and how local, state, and federal entities will support them moving forward.
Each year, we survey thousands of local service businesses across the country on the state of their businesses, their economic outlook and their sentiment on local, state and federal government support. This report represents the largest continuous study in the U.S. of small business perceptions on government policy, primarily within home maintenance, home construction, and home systems industries (making up 34 percent of industries surveyed) as well as in events, education, health and wellness, pets, and business services.
Our 2022 findings suggest that state and federal funding to help small businesses survive (and thrive) in the pandemic has significantly reshaped ways of thinking about the government’s role in supporting small businesses. Today, local professionals are increasingly wary about what the future may bring — and increasingly dissatisfied by the degree to which they can expect local, state, and federal municipalities to help them navigate the future. At the same time, consumer sentiment towards small businesses is strong; Americans told us they’re doubling down on supporting local pros and willing to pay a premium to do so.
In the survey, small business owners gave 43 states grades ranging from “A+” to “F” in categories such as overall “small business friendliness, regulations, taxes, training opportunities, and more.” This year’s results deviate from the norm and clearly showcase small businesses’ concerns around the state of the economy: 21 states received a “F” grade and only one state — Delaware — received an “A+.”
Here’s what over 2,800 small business owners across all 50 states told us this year.
Slipping report cards for small business support.
This year, the federal government received a “F” grade from small businesses — down from its “C+” in last year’s report. Only one in four small business owners consider the federal government to be supportive of skilled professionals like them. This number increases slightly to 30 percent of respondents feeling supported by state governments, and to 32 percent for local governments — though both scores are also down compared to last year.
When asked to rate each level of government’s small business friendliness, professionals gave Delaware the highest ranking grade with an “A+” followed by Idaho (“B+”) and Arkansas (“B-”). Florida and Mississippi both received “C+” grades; Hawaii, Maine, and Oklahoma all received “C” grades; and Colorado, New Mexico, Rhode Island, South Carolina, and Utah all received “C-” grades from local service professionals.
In 2022, more states received an “F” grade from small businesses than ever before. The 21 states rated as “failing” on overall small business friendliness this year were Arizona, California, Connecticut, Illinois, Indiana, Kentucky, Louisiana, Massachusetts, Maryland, Minnesota, Missouri, North Carolina, Nebraska, New Jersey, New York, Oregon, Pennsylvania, Tennessee, Texas, Washington, and Wisconsin.
At a more granular city level, the top-scoring city on “small business friendliness” was Boise, ID (receiving an “A-”), followed by Orlando, FL with a “B+” and Providence, RI with a “B” grade.
How do your state and city rank? See the comprehensive scores here:
Mixed sentiments about the road ahead.
Earlier this year, small business professionals told us that while they were beginning to worry about the future state of the economy, they remained optimistic about the health of their own businesses.
Today, survey respondents are more alarmed. Small business owners report trepidations about what the future may bring, with nearly half of all service professionals (49 percent) anticipating business conditions worsening in the next three months. Concern is especially prevalent among Gen Z small business owners, with 61 percent anticipating hard times ahead. More specifically, 37 percent of pros of all ages reported concerns around “work slowing down” in the case of a recession and 78 percent said hiring is a pain point.
The prevailing uncertainty also impacts how small business owners are thinking about retirement. Among pros who are looking into retirement options (18 percent), a majority (64 percent) say they’ve delayed their plans due to financial concerns — and an additional 20 percent want to retire but don’t have someone to whom they can sell or leave their business.
In response to the economic climate, pros say they’re already making operational adjustments. 41 percent say they’re reducing the distance they’re willing to travel for jobs, citing high gas prices and increased efficiencies that come from scheduling jobs in proximity to one another. 72 percent have raised prices compared to last year, with the highest impact coming from the increased cost of materials and supplies (29 percent) followed by the cost of energy and gas (24 percent).
Still, small business owners remain steadfast as they look ahead at long-term growth plans. 61 percent of small business owners expressed interest in future expansion, with 29 percent planning to do so in 2023 and roughly 15 percent waiting until economic conditions improve. Businesses with five or more employees are the most bullish on growth: 88 percent say they’d like to expand, and 48 percent have plans in place to do so this year.
Consumer support of small businesses remains strong.
There’s no such thing as a crystal ball, but we do know from past data findings that consumer behavior reliably foreshadows future pro sentiment (by approximately a six-month lead time). That’s why we also surveyed more than 1,000 consumers (gen-pop) to find out where small businesses fit into their current spending decisions.
The responses from this survey show cause for optimism, especially as we head into the holiday season. Over one-third (37 percent) of consumers say they’re directing more spending towards small businesses in 2022 compared to last year. And the majority report a preference for using small, local businesses — with 80 percent saying that shopping local factors into their spending decisions and 50 percent saying it’s a primary consideration.
Notably for local pros as they compete against national conglomerates, we also found that the average consumer is willing to pay a 10 percent price premium to keep their dollars local. This increased to a 16 percent premium for Gen Z and a 14 percent premium for Millennials.
What drives consumers’ desire to support small local businesses over national chains?
Respondents overwhelmingly reference a sense of connection and responsibility to their community. “Supporting the local economy and/or my neighbors” was statistically tied with “friends or family connections” as the top reasons for seeking out local businesses.
The pursuit of entrepreneurialism prevails.
Headlines about the economy are changing fast, and small business owners have been riding a rollercoaster for the past few years. Yet our Small Business Friendliness Survey of small business owners found that respondents continue to embrace their entrepreneurial paths — with 31 percent of pros telling us they took the leap to launch their businesses despite the turbulence of the last two years.
Seasoned pros tell us that markets will fluctuate, but the gratification of having autonomy and ownership of one’s destiny remains constant. Both newly minted small business owners and longtime pros reported that “ability to be their own boss” was the most common motivator for starting their own small businesses, followed by “schedule flexibility,” and “the ability to pursue their passion.”
Gen Z small business owners are a small but mighty cohort whose future looks bright. 80 percent of these youngest respondents started their businesses in the past two years — a strong indication that small businesses will continue to be a central part of the future economy. Gen Z small business owners are more diverse than previous generations, with better gender balance, strong Latinx representation, and nearly double the LGBTQIA+ representation. They’re also the most likely generation to say their businesses are their primary source of employment, with 48% generating more revenue in 2022 than at the same time the previous year.
How we can better support small businesses.
Small business owners are no strangers to resilience. As inflation continues to impact a multitude of industries, pros are optimizing operations and showing creativity in spades — but they can’t go it alone. There are a number of steps government officials can take to support them during this challenging time.
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