Entrepreneurship has always been inherently risky, but which threats are the most damaging to American local businesses? We polled nearly 2,300 small business owners in all 50 states to find out.
To create our Small Business Threat Index, we asked respondents to evaluate dozens of prominent business threats on the basis of how much damage they would inflict on their companies. These include threats to the physical business, exposure to legal liability, online hazards, and uncontrollable risks from the policy and political arenas.
In addition to ranking threats according to damage potential, our study revealed how much financial runway local companies have (hint: it’s not much), how they’re mitigating against business hazards, and how resilient they are when big problems do occur. Read the full report below.
“Extremely damaging”
In analyzing the survey data, our primary gauge of perceived risk was the ratio of respondents who said a threat would be “extremely damaging” to their business.
Here are the top 10 responses:
Clearly, the perception among Main Street entrepreneurs is that dramatic events affecting the physical property are most damaging, likely because a preponderance of local businesses are brick-and-mortar storefronts.
The fear over a slowdown in sales reinforces the finding in our previous research that revenue generation is a top concern for small businesses, and the revelation from this survey that most SMBs operate on a razor’s edge with regard to cash on hand (see the next section).
Operating hand to mouth
Access to cash is a classic problem for small business owners. To understand the relationship between cash on hand and risk assessment, we asked respondents how long they could stay in business without any cash flow. Alarmingly, 1 in 5 American small businesses wouldn’t even survive one month if sales completely stopped, and 3 in 4 would last less than 6 months.
Here’s how long SMBs can survive without revenue:
Not surprisingly, access to cash reserves has a profound impact on how a business owner views threat impact. In our analysis, we found a consistent pattern: the smaller the respondents’ cash reserves, the more likely they were to see any given problem as potentially devastating. In many cases, in fact, owners with a smaller safety net are 2-3 times more likely to consider a threat to be “extremely damaging” (and as high as 6 times).
Small business resiliency
When threats do happen, how do small businesses bounce back? We asked respondents to identify which hazards their businesses had overcome over the years as a measure of resiliency.
Here are the 10 threats small businesses are most likely to have overcome:
It’s noteworthy that many of the most commonly overcome obstacles are also those that strike the most fear into respondents. Familiarity with these threats seems to intensify fear of them rather than providing a been-there-done-that confidence.
Perceived non-threats
Another way to evaluate how small business owners think about threats to their livelihood is to ask them what they’re not worried about. We ranked business hazards according to how many respondents said they would be “not damaging at all” to their companies.
Here are the top 10 “non-threats” to small businesses:
At least half of these responses deal with employees, which makes sense considering that many U.S. small businesses are either sole proprietorships or very small operations with a few employees.
Here’s how many employees respondents’ businesses have, including the owner:
Beyond employees, we found it curious that 22% of respondents said inability to obtain financing wasn’t a concern, considering the cash flow issues we outlined previously. In further analysis, however, we found that owners who said financing is a non-issue are:
- 50% more likely to have at least a year of cash reserves
- 29% less likely to have less than one month’s cash on hand
SMB generation gap
We filtered respondents by age to look for trends among Millennials, Gen X’ers, and Baby Boomers. We found surprising alignment in many areas, with a few notable exceptions, which are laid out in the chart below:
While owners from different generations view business threats similarly, they do tend to approach threat mitigation differently. This could partly be attributed to older entrepreneurs running more established businesses with steadier cash flows.
Conclusion
American small business owners perceive threats to their physical business and revenue to be the most damaging, likely because they run thin-margin companies with little room for error. Due to small financial buffers and risk mitigation strategies that are out of line with self-described catastrophic threats, potentially millions of small businesses are a disaster away from shutting down forever.
Methodology:
Womply polled 2,261 small business owners in all 50 U.S. states via an online survey in August 2017.