The Future of Small Business | Q2 Quarterly Economic Report 2024

Q2 Quarterly Economic Report: The Future of Small Business

Fostering growth and increased opportunity for Georgia’s small business sector

Key Drivers

Small business continues to be disproportionately affected by relatively higher interest rates and a competitive labor market. Reports demonstrate inflation and interest rates continue to frustrate small business executives. The Federal Reserve Bank recently announced it would hold its benchmark rate steady meaning consumers and small businesses will continue to operate with higher costs for loans and event goods and services. Small businesses may have more significant challenges due to limitations in resources, but may lean into strengths as they often are more agile and adaptable to changing market conditions.

According to the Georgia Chamber Foundation’s Executive Insights Survey 1, talent and workforce availability continues to be a top challenge. While homeownership and workforce development rank as the most important issues impacting workforce competitiveness, triple the number of small business executives selected these as opposed to large business executives. Additionally, economic expectations may remain one of the largest hurdles of all; The Federal Reserve Bank’s small business reports2 indicate that while revenue, employment and profitability all increased from 2021 to 2022, expectations have worsened.

Top Challenges

In 2023, while Georgia ranked 4th nationally with 277,626 new business applications , there was nearly a 10% decrease in the number of business applications over the last year

Additionally, Georgia ranks 9th nationally in terms of number of jobs created by start-ups in their first year, but 35th in terms of the early survival rate of start-ups3. While national economic uncertainty might be impacting the overall decline in the number of business applications, more efforts are needed to bolster our small business sector. These indicators reveal that increasing access to resources is required to sustain healthy, growing small businesses.

While minority demographic groups comprise 48% of Georgia’s population, minority business enterprises account for only 21.3% of privately-owned Georgia businesses and only 12.2% of the annual revenues earned by these businesses4. Findings from the Federal Reserve Bank indicate that while profitability increased over the last year, small businesses still self-report little improvement in financial condition. Georgia’s increasingly diverse business community includes not only racial diversity, but many women, veteran, and second-chance owned businesses that continue to struggle with access to capital, financial, and other resources.

Top Opportunities

The state of Georgia ranks 45th nationally for its percent of business applications expected to form a business within the next four quarters 5. This clearly demonstrates there is an opportunity to better prepare potential entrepreneurs as they develop their business plans and business models.

Research shows that social capital is invaluable to small business and entrepreneurial success leading to increased funding and resources. The state of Georgia has numerous organizations that exist to further cultivate social capital, but increased access to these offerings is needed to assist more communities and more small businesses6

Talent acquisition and retention continues to be a challenge for all businesses, but especially small businesses that have fewer resources to recruit and retain.

However, Georgia remains a hub for talent with nationally recognized workforce programs . Enhancements to these programs can help bridge the gap to ensure small businesses have the talent to thrive.

U.S. Small Business Overview

The landscape of small businesses in the United States is represented by several key trends, reflecting the intricate economic factors and regulatory conditions that shape the entrepreneurial environment of the nation and our state. In the last two years there has been a noticeable decline in loan availability, hindering small enterprises from obtaining necessary startup and expansion capital. Inflation and high interest rates persist as significant challenges, with fewer rate cuts anticipated by the Federal Reserve Bank, exacerbating the financial strain on small businesses.

There are 33.4 million small businesses in America, accounting for 99.9% of all businesses

Small businesses are credited with just under two-thirds of the new jobs created from 1995 to 2021

In 2021, a record breaking 5.4 million new business applications were filed in the U.S. 7

Fewer small businesses are expecting real sales growth, while many report having increased labor costs. These trends are concerning, particularly for those operating with smaller profit margins. Furthermore, small business owners are reporting declining optimism as measured by the National Federation of Independent Business’s (NFIB) Small Business Optimism Index reflecting a prevailing pessimistic outlook on the economy among small business owners nationwide, with levels lower than that of 20208

However, amidst these challenges, there are signs of resilience and growth within the small business sector.

The Fiserv Small Business Index , which measures small business sales performance, shows a consistent upward trend from April 2020, with notable increases observed from February to March each year. Moreover, while certain subsectors face distinct challenges, others are experiencing notable growth; for instance, health and personal care retailers saw a substantial year-over-year increase of 14%9. Additionally, a record-breaking number of new business applications filed indicates that entrepreneurs continue to tenaciously pursue opportunities10. It is likely that factors such as relatively high interest rates and prices continue to contribute to pessimism across the nation, despite positive performance.

Georgia Small Business Overview

Georgia’s small business landscape reveals both resilience and growth. Most notable, Georgians maintain confidence in the state economy although national confidence has declined. This indicates willingness to continue to support state and local economic opportunities, and to bolster local and small business.

From March of 2021 to March of 2022, small businesses contributed to over 68% of the net increase in jobs in Georgia11

Georgians must uplift small businesses as they continue to act as significant economic drivers in then state.

Small businesses in Georgia employ over 1.7 million people, and these employees make up 42% of all Georgia employees

Over the past 5 years, small businesses in Georgia have created over 15,000 jobs and generated over $10 billion in sales

87.8% of all Georgia exporters are small businesses, indicating significant impact on the state’s broader economy

Source: University of Georgia Small Business Development Center, ‘Small Business and its Impact on Georgia’

Georgia businesses have historically outperformed national measures; Georgia small business employment grew by 27.3 percent between 1995 and 2019, which exceeded the national small business employment growth rate 12 Small businesses support some of Georgia’s most talent-driven industries, as well as in high-intensity industries. Healthcare and social assistance, and professional scientific and technical services make up some of the top small business industries in the state by employment. Furthering resources and innovative solutions for small businesses will in turn support the state’s most critical industries.

Fiserv

Small Business Index Insight

The newly released index highlights national and state level small business sales growth based on timely sales information available at the industry level. The index uses 2019 as a base year, and year over year insights provide additional context to the performance of our small businesses.

Georgia’s index closes out Q1 of 2024 holding steady, with March of 2024 just slightly under the March 2023 index. Small businesses continue to maintain sales, averaging a month-to-month increase over Q1. The index in Q1 2024 is down slightly from the previous year, but the average Q1 transaction index is up nearly three points from 2023. This is consistent with trends in the rate of total consumer spending for all businesses in Georgia, which, while slowed slightly in 2023, continues to trend upwards.

Georgia’s small business index in manufacturing saw impressive growth from Q1 of 2023 to Q1 of 2024, at nearly 12%. Entertainment, and science and technical services experienced significant growth during this time as well. Notably, the finance and insurance industry suffered one of the largest decreases in the index over the year as well.

Regionally, Georgia’s small business index has fallen behind national trends, primarily concentrated in Georgia’s mid-size metropolitans, such as Macon, Valdosta, and Augusta. It is possible that these metro areas may suffer from a resource gap; they may not host the larger ecosystem that the Atlanta-area supports but are also unqualified for rural-dedicated resources.

Meanwhile small businesses in non-metropolitan areas have experienced an index growth of over 5%, well-outperforming both the state and the Atlanta

area.

This demonstrates a significant opportunity to further grow the state’s rural small business sector to new levels of success, and to continue to evaluate resources for small businesses across the state. The Georgia Chamber is proud to present these exclusive insights in partnership with FISERV, a member of the Georgia Chamber.

About the Fiserv Small Business Index™

The Fiserv Small Business Index is published during the first week of every month and differentiated by its direct aggregation of consumer spending activity within the U.S. small business ecosystem. Rather than relying on survey or sentiment data, the Fiserv Small Business Index is derived from point-of-sale transaction data, including card, cash, and check transactions in-store and online across approximately 2 million U.S. small businesses.

Benchmarked to 2019, the Fiserv Small Business Index provides a numeric value measuring consumer spending, with an accompanying transaction index measuring customer traffic. Through a simple interface, users can access data by region, state, and/or across business types categorized by the North American Industry Classification System (NAICS). Computing a monthly index for 16 sectors and 34 sub-sectors, the Fiserv Small Business Index provides a timely, reliable and consistent measure of small business performance even in industries where large businesses dominate.

To access the full Fiserv Small Business Index visit fiserv.com/FiservSmallBusinessIndex

Financial Capital Trends

In the last two years there has been a decline in loan availability, hindering the growth and sustainability of small enterprises to obtain necessary startup and expansion capital. Inflation and high interest rates persist as significant challenges, and relief is not expected to come soon. When access to financing through institutions declines, small businesses may turn to personal funding sources. The Fed reports 66% of small businesses using the owners or family members personal savings in the past 5 years13

40% of small businesses applied for business financing within the past year.

96% survey respondents in Georgia businesses say they are facing financing challenges, with 85% reporting increased costs of goods and services being the largest

From 2021 to 2022, applications to loans and advancement increased from 25% to 40%

Source: The Federal Reserve Bank, Fed Small Business; ‘2023 Report on Employer Firms: Findings from the 2022 Small Business Credit Survey’

Despite the decline in applications for pandemic-related financial assistance, there has been a noteworthy shift in the types of financial support sought by small businesses.

In 2022, the share of firms applying for traditional loans, lines of credit, or merchant cash advances surged to 40%, a significant increase from the 25% reported in 2021.

Source: University of Georgia Small Business Development Center, ‘Small Business and its Impact on Georgia’

Interestingly, while the primary motivation for seeking credit remains meeting operating expenses, there has been a substantial year-over-year rise in the number of businesses seeking financing for business expansion purposes 14 .

This shift underscores a growing confidence among small business owners in their ability to invest in and grow their ventures, despite the lingering challenges posed by the pandemic and national economic uncertainty.

Cultivating Social Capital

Where larger businesses and corporations may have a network of internal resources available to them, small businesses oftentimes rely on outsourcing for skilling, reskilling, capital loans and more. However, small businesses may also have fewer resources to dedicate toward seeking out reliable and trustworthy partnerships for growth. Social connection can impact the uptake of resources and programs available to small businesses; aid as a gateway to accessing financial capital by mitigating risk through reputation; and open access to pools of industry knowledge.

In a 2022 survey by McKinsey, only 28% of respondents said they are actively seeking out new professional relationships 15 .

As much as 30% of successful venture capital deals may come from former colleagues and business associates compared to 10% from cold-pitched or standard methods 16 .

A study from the University of Maryland found that social connections significantly impacted the likelihood a small business took up a Payment Protection Program loan 17 .

In the case of small businesses, challenges in accessing financial resources often manifest from lack of organizational or technological capabilities associated with those smaller firms.

Strategic relationships may be competitively advantageous as entrepreneurs build their business, both via relationships, and by the industry knowledge gained from partnerships and resources18.

Furthermore, professional relationships specifically have the greatest impact on a business’ boost in economic success. Attending networking events, speaking at conferences, sharing resources, and participating in referral networks and professional organizations may all be beneficial in growing a social capital network.

Talent and Workforce Trends

Employees in Small Businesses

Talent shortages persist in the national, and Georgia labor markets, and may impact small business owners more heavily because they often have fewer resources to dedicate toward talent acquisition and retention.

For small businesses, their greatest cost is often labor.

More than half of Georgia small businesses (53%) say they are likely to hire in the next six months, but nearly 6 in 10 say the top challenge they face when hiring new employees is finding quality candidates19. However, small business owners may also retain greater flexibility in their hiring structures to capitalize on marginalized talent pools and innovate talent solutions.

Currently 9.6 million open jobs in U.S.; only 5.8 million unemployed workers to fill them

Nearly 60% of Georgia small businesses say their top hiring challenge is finding quality candidates

Talent acquisition remains the biggest challenge for small businesses

45% of small business owners report licensing requirements for operation and/or employees, condensing the pool of available talent

Source: Small Business Majority, March 2024, ‘Georgia Small Businesses Support Expanding Occupational Licensing for Justice-Impacted Individuals’

Additionally, navigating certification and licensing requirements can serve as an additional layer in recruitment. 45% of small business owners report occupational licensing requirements for the ownership and/or operation of their business. This affects the talent pool from which business can recruit, and many small business owners are turning to a variety of untapped talent including second chance hiring.

86% of small business owners in Georgia say they would support reforms that would allow people with non-violent criminal records fairer access to occupational licenses. Working with pipeline solutions such as apprenticeship programs may also offer small businesses not only additional resources to train and recruit talent, but further relationships in their key industry areas20

Talent & Workforce Trends: Developing Entrepreneurs and Small Business Owners

While finding talent is a top challenge for small business owners, ensuring our current and future workforce has the knowledge to be successful entrepreneurs is a key piece of the puzzle. As stated earlier in this report, Georgia ranks 45th nationally 21 for its percent of business applications expected to form a business within the next four quarters. This illustrates a preparedness gap and educational institutions are responding accordingly.

Entrepreneurship Education in K-12 School Systems

The Georgia Foundational Leadership and Entrepreneurship Experience (FLEX) , an affiliate of the Georgia Chamber, focuses on creating prosperity and revitalizing rural entrepreneurial ecosystems through the educating students on establishing small businesses. FLEX was created through a collaboration among the Fitzgerald High School College and Career Academy, Fitzgerald-Ben Hill County Chamber of Commerce and the Fitzgerald and Ben Hill County Development Authority to foster the entrepreneurial spirit within the next generation.

FLEX is currently operating in 10 communities across the state and is in a growth phase. Additionally, the Georgia Chamber Foundation is sponsoring the implementation of FLEX in three North Georgia rural communities due to generous support of private donors.

The Georgia Department of Education recently launched an Entrepreneurship Pathway in the Business, Management, and Administration Career Cluster. This is available for high school students in districts that choose to implement it. This program plays an important role in exposing students to the opportunity of becoming an entrepreneur and better preparing them for success in this sector.

Some schools also choose to operate locally-based enterprises to give students hands on experience with making products, developing a marketing strategy and business plan, and engaging with customers. Projects like these are supported by the Georgia Chamber Foundation’s Rural Workforce Preparedness Grant in partnership with the Georgia Department of Education.

Entrepreneurship Education in Post-Secondary Institutions

Many post-secondary institutions host centers for existing local businesses and current entrepreneurs. S ome examples include the University of Georgia’s Small Business Development Center (SBDC), Georgia Tech’s Advanced Technology Development Center (ATDC), and the University of West Georgia’s Stone Center for Family Business, Entrepreneurship, and Innovation. These centers serve as important resources to the community and a catalyst to link research to new business outcomes.

Additionally, many post-secondary institutions offer undergraduate or graduate certificates or degree specialties focused on entrepreneurship. This formal training and education are invaluable to ensure our next generation of talent is prepared to create and grow small businesses across the state.

Diversity in Small Business

Georgia’s diverse population makes it a talent hub and center for economic vitality. However, challenges exist is proportionately for minority-owned businesses (MBEs). While minority demographic groups comprise 48% of Georgia’s population, MBEs account for only 21.3% of privately-owned Georgia businesses and only 12.2% of the annual revenues earned by these businesses 22. Nationally, black owned businesses have grown significantly, but fall behind even other minority groups in share of ownership.

By number of firms, white owned businesses make up about 85%, Asian 11%, Hispanic 7% and Black 3% 23

Veterans own about 7.5% of small business in Georgia 24

Women make up 46% of small business owners in the state 25

Individuals impacted by the justice system are 45% more likely to start a business 26

Access to capital and financing, lack of both time and material resources and navigation of regulatory structures all often disproportionately affect minority small business owners 27

Veterans own about 7.5% of small businesses in Georgia 28. However, nationally, veteran-owned businesses are on the decline 29. While Georgia is above the national share of veteran owned businesses, the majority of ownership is concentrated among older generations, with a dwindling stream of newer, younger entrepreneurs. Veterans’ organizations report that regulatory gaps in knowledge and front-end financing can pose significant barriers to entry.

Georgia women make up 46% of small business owners in the state, overseeing an estimated 500,000 businesses. Supporting women-owned businesses remains a priority as women’s participation in the labor force is generally lower than that of men. Of women who may have chosen to exit the workforce in the last 5 years, two major barriers to re-entry remain child and family care, and feelings of burnout. Oftentimes, business ownership can give women a pathway to desired flexibility and career movement that they may not be able to achieve as quickly otherwise 30 .

Finally, second chance hiring plays a significant role in Georgia’s small business ecosystem as well. Over 4.5 million Georgians have some type of criminal record31, yet individuals seeking to re-enter the workforce may face marginalization. Individuals who have been impacted by the justice system are reportedly 45% more likely to start their own business 32, which, in turn, may decrease recidivism rates and positively impact Georgia’s economy and communities alike.

Black- or African American-owned businesses made up greatest share of firms in District of Columbia, Georgia, and Maryland in 2021

Among all clssifiable U.S. employer firms in 2021, % of firms in each state with Black or African American majority

Source: PEW Research Center, February 2024, ‘A Look at Black-Owned Businesses in the United States’

Local Small Business Resources

Chambers of Commerce and business organizations across the state of Georgia have had great success utilizing business incubators and working groups to increase access to resources for small businesses by leaning into industry experts, social connections and pooling knowledge resources.

Highlights

The OneForsyth Inclusion Incubator partners with industry and education experts to provide additional business resources to their members. They feature insights such as building and leveraging social capital and community, offering examples of talent and workforce solutions and hosting networking events and strategic opportunities.

The University of Georgia’s Small Business Development Center has a rich history of success in supporting businesses across the state. 18 locations provide tools, training and resources to help small businesses succeed.

The Toccoa Stephens County Chamber of Commerce’s “Let’s Go” program seeks to identify, engage and provide support for high-growth entrepreneurs and their teams in the earliest stages of their business. They incorporate brainstorming sessions with chamber staff, mentorships program, and structured business plan amenities to offer support in some of the most common high-demand areas for young businesses.

The Seeds Center was recently launched by the Valdosta-Lowndes Chamber of Commerce. It is an entrepreneur resource center specializing in customized research and data, which aids emerging business leaders in targeting their services and developing tailored business and marketing plans. This resource and its services are supported by Georgia Power Company and the City of Valdosta, underscoring the importance of public-private partnerships.

Concluding Takeaways

Georgia has a strong business climate which leads many citizens to pursue entrepreneurial endeavors. However, gaps in knowledge and preparedness exist, impacting a small business’ likelihood of survival.

Programs within our educational institutions will help bridge the gap for the next generation to be more prepared and better informed. Resources within local chambers of commerce and incubators serve as key tools for our current small business owners to sustain and grow their operations. Corporations play a pivotal role in developing clear pathways for small businesses and entrepreneurs to become partners within their supplier network.

Innovation and technology will drive the future of Georgia’s economy.

Our small business sector will be at the forefront of adapting to these

trends and opportunities to ensure the state’s economy remains competitive and dynamic

.

Endnotes

1 Georgia Chamber of Commerce Foundation, 2024 Executive Insights Survey

2 The Federal Reserve Bank, Fed Small Business; ‘2023 Report on Employer Firms: Findings from the 2022 Small Business Credit Survey’

3 Georgia Chamber of Commerce Foundation, 2024 Economic Competitiveness Redbook, pg. 131

4 Georgia Minority Supplier Council ‘State of Minority Owned Businesses in Georgia’

5 Georgia Chamber of Commerce Foundation, 2024 Economic Competitiveness Redbook, pg. 118

6 Duke University, The Fuqua School of Business, “The Duke Entrepreneurship Manual: the value of social capital”

7 US Chamber of Commerce, 2023, ‘The State of Small Business Now’

8 NFIB Research Foundation, April 2024, ‘Small Business Optimism Index: April 2024 Report’

9 Fiserv, March 2024, Small Business Index Indicators

10 US Chamber of Commerce Foundation, April 2024, ‘State of Small Business Now’

11 University of Georgia Small Business Development Center, ‘Small Business and its Impact on Georgia’

12US Small Business Administration Office of Advocacy, ‘2022 Small Business Profile: Georgia’

13 The Federal Reserve Bank, Fed Small Business, ‘2023 Report on Employer Firms: Findings from the 2022 Small Business Credit Survey’

14 The Federal Reserve Bank, Fed Small Business; ‘2023 Report on Employer Firms: Findings from the 2022 Small Business Credit Survey’

15 McKinsey & Company, August 2022, ‘Network Effects: How to rebuild social capital and improve corporate performance’

16 Harvard Business Review, April 2021, ‘How Venture Capitalists Make Decisions’

17 University of Maryland Robert H Smith School of Business, April 2022, ‘New Study Shows Social Capital as a Key Driver of Small Business’

18 Kraima Mohamed Taher. “Social Capital and the Economic Performance of Small Businesses: Role of Entrepreneurs’ Experience.” J Entrepren Organiz Manag 10 (2021): 339.

19 Small Business Majority, March 2024, ‘Georgia Small Businesses Support Expanding Occupational Licensing for Justice-Impacted Individuals’

20 Small Business Majority, March 2024, ‘Georgia Small Businesses Support Expanding Occupational Licensing for Justice-Impacted Individuals’

21 Georgia Chamber of Commerce Foundation, 2024 Economic Competitiveness Redbook, pg. 118

22 Georgia Minority Supplier Council ‘State of Minority Owned Businesses in Georgia’

23 PEW Research Center, February 2024, ‘A Look at Black-Owned Businesses in the United States’

24 US Small Business Administration Office of Advocacy, ‘2023 Small Business Profile: Georgia’

25 Georgia Chamber of Commerce Foundation, ‘Women in the Workplace Report’

26 Small Business Majority, March 2024, ‘Georgia Small Businesses Support Expanding Occupational Licensing for Justice-Impacted Individuals’

27 Georgia Minority Supplier Council ‘State of Minority Owned Businesses in Georgia’

28 US Small Business Administration Office of Advocacy, ‘2023 Small Business Profile: Georgia’

29 Stars and Stripes, January 2024, ‘Moving from the military to Main Street challenges a younger generation of veteran entrepreneurs’

30 Georgia Chamber of Commerce Foundation, ‘Women in the Workplace Report’

31 Georgia Justice Project, ‘Getting Georgians Back to Work’

32 Small Business Majority, March 2024, ‘Georgia Small Businesses Support Expanding Occupational Licensing for Justice-Impacted Individuals’

*The 2024 Executive Insights survey polled business leaders from across the state, and across all industries for their thoughts on the top challenges and opportunities facing Georgia this year. For more information, see full published results HERE