2014 Economic Forecast: Insights from Small and Mid-Sized Business Owners

A Higher Degree of You 03.10.14

2014 Economic Forecast: Insights from

Small and Mid-Sized Business Owners Craig Everett, Ph.D., MBA

Director, Pepperdine Private Capital Markets Project

A Higher Degree of You

bschool.pepperdine.edu/privatecapital

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PUBLISHED BY

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ACKNOWLEDGEMENTS I’d also like to thank the following people at The Graziadio School of Business and Management for their contributions:

Linda A. Livingstone, Ph.D.

Dean and Professor of Management

David M. Smith, Ph.D.

Senior Associate Dean and Professor of Economics

John K. Paglia, Ph.D.

Associate Dean and Associate Professor of Finance

Mark Chun, Ph.D.

Director, Center for Applied Research

Mike Sims

Executive Officer, CER

F. Douglass Gore III

Director of Public Relations

Bill Bleuel, Ph.D.

Professor of Decision Sciences

Irina Shaykhutdinova

Research Analyst

and consultant

Simon James, Ph.D.

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• 25 questions

• Invite to participate distributed to sample from Dun & Bradstreet Credibility Corp.’s business database

• 3,615 completed responses

• Where relevant, responses are segmented by revenues sizes (<$5 million; $5 million to $100 million)

• Responses collected from Jan 29 – Feb 28, 2014

ABOUT THE 2014 ECONOMIC FORECAST SURVEY



This research was made possible with the support of Dun & Bradstreet Credibility Corp., the leading provider of credit building and credibility solutions for

businesses.

DUN & BRADSTREET CREDIBILITY CORP.

Jeffrey Stibel Chairman and Chief Executive Officer

Judy Hackett,

Chief Marketing Officer

Aaron Stibel Senior Vice President, Technology

Liz Gengl

Director, Marketing and Communications

Brenda Gary Vice President, Marketing Operations

Lauren Simpson

Marketing and Communications Manager

Bernice Brennan Manager, Creative Services & Marketing Communications

Trenice Taylor

Marketing Manager

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2014 ECONOMIC FORECAST

Projections in January 2014 Projections in January 2013

Whole sample

<$5 million $5-$100 million

Whole sample

<$5 million $5-$100 million

This year US GDP 0.6% 0.6% 1.2% 0.4% 0.3% 0.6%

Next year US GDP 1.2% 1.1% 1.7% 0.9% 0.9% 1.0%

Probability of US recession in the next year 29.2% 29.9% 23.0% 36.2% 36.9% 32.9%

US Housing Prices 2.8% 2.8% 3.5% 3.0% 2.9% 2.2%

S&P 500 4.0% 4.0% 4.3% 3.4% 3.5% 3.5%

US Unemployment Rate (12/31) 7.7% 7.7% 7.1% 8.0% 8.0% 8.0%

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CONFIDENCE IN GDP GROWTH PROJECTIONS

0%

20%

40%

60%

80%

100%

Very unsure Somewhat unsure Neither confidentnot unsure

Somewhatconfident

Very confident

9% 10%

35% 38%

8%

7



CONFIDENCE IN BUSINESS GROWTH PROSPECTS COMPARED TO ONE YEAR

AGO

2014 VERSUS 2013 RESPONDENTS

0%

20%

40%

60%

80%

100%

More confident Somewhat moreconfident

Neither more norless confident

Somewhat lessconfident

Less confident

2014 27% 29% 24% 10% 11%

2013 21% 24% 25% 15% 15%

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Impediments

Most Influential Least Influential

Respondents in 2014

2013

Respondents in 2014

2013 Whole sample

<$5 million

$5-$100 million

Whole sample

<$5 million

$5-$100 million

Limited access to capital 18% 19% 13% 22% 44% 42% 56% 36%

Government regulations (tax, healthcare) 39% 38% 48% 42% 17% 18% 11% 16%

Global political and/or economic environment 30% 30% 28% 29% 6% 6% 4% 5%

Domestic (U.S.) economic and/or political environment

13% 14% 12% 9% 33% 33% 28% 43%

THE MOST AND THE LEAST INFLUENTIAL IMPEDIMENTS TO U.S. GDP GROWTH NEXT YEAR

9



YEAR WHEN U.S. UNEMPLOYMENT RATE FIRST REACHES 6% OR BELOW

0%

20%

40%

60%

80%

100%

2014 2015 2016 2017 2018 2019 2020 Sometimeafter 2020

8%

19% 23% 18%

13%

3% 4% 12% 14%

22% 17% 16% 10%

2% 3% 12%

2014 2013

10



CHANGES IN ECONOMIC FORECAST OVER THE YEARS

January

2014 January

2013 January

2012 January

2011

This year US GDP (Q4/Q4) 0.6% 0.4% 0.7% 2.0%

Next year US GDP (Q4/Q4) 1.2% 0.9% 1.9% 2.5%

US Unemployment Rate (12/31/2012) 7.7% 8.0% 8.7% 9.1%

US Housing prices (Q4/Q4) 2.8% 3.0% -0.8% -1.8%

S&P 500 (Q4/Q4) 4.0% 3.4% 2.5% 6.5%

Probability of US Recession in 2012 29.2% 36.2% 32.0% 28.4%

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NUMBER OF EMPLOYEES BUSINESSES ARE PLANNING TO HIRE IN THE NEXT

SIX MONTHS BY SIZE

0%

10%

20%

30%

40%

50%

0 1-2 3-5 6-10 11-15 16-20 21-30 31-40 41-50 101 -200

Morethan200

Whole sample 42% 33% 14% 6% 2% 1% 1% 0% 0% 0% 0%

< $5 million 45% 33% 13% 5% 1% 1% 1% 0% 0% 0% 0%

$5 million -$100 million 23% 26% 22% 13% 6% 2% 3% 2% 1% 1% 1%

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SIX MONTHS WITH REVENUE SIZE UNDER $5 MILLION, 2014 VS 2013

0%

20%

40%

60%

80%

100%

0 1-2 3-5 6-10 11-15 16-20

2014, <$5 million 45% 33% 13% 5% 1% 1%

2013, <$5 million 48% 34% 11% 4% 1% 0%

13




SIX MONTHS WITH REVENUE SIZE BETWEEN $5 MILLION AND $100 MILLION

2014 VS 2013

0%

20%

40%

60%

80%

100%

0 1-2 3-5 6-10 11-15 16-20 21-30 31-40 41-50 Morethan 50

2014, $5M - $100M 23% 26% 22% 13% 6% 2% 3% 2% 1% 1%

2013, $5M - $100M 32% 22% 18% 12% 6% 2% 4% 1% 1% 1%

14



PERCENTAGE OF RESPONDENTS WHO RAISED PAY FOR EMPLOYEES IN THE

LAST 12 MONTHS BY SIZE

15

0%

20%

40%

60%

80%

100%

Whole sample <$5 million $5-$100 million

52% 48%

74%

45% 42%

66%

2014 2013



PERCENTAGE OF RESPONDENTS WHO PLAN TO RAISE PAY FOR EMPLOYEES IN

THE NEXT 12 MONTHS

16

0%

20%

40%

60%

80%

100%


58% 55%

79%

45% 36%

58%

2014 2013



PERCENTAGE OF RESPONDENTS WHO PLAN TO GIVE EMPLOYEES RAISES TO

ACCOUNT FOR THE INCREASE IN PAYROLL TAX

17

0%

20%

40%

60%

80%

100%


12% 13%

8% 9% 9% 8%

2014 2013



PERCENTAGE OF RESPONDENTS WHO THINK INSTABILITY IN WASHINGTON DC

IS NEGATIVELY IMPACTING THEIR ABILITY TO HIRE

18

0%

20%

40%

60%

80%

100%


57% 58%

49%

61% 62% 57%

2014 2013



PERCENTAGE OF BUSINESS OWNERS WHO PERSONALLY MADE MORE MONEY

LAST YEAR THAN YEAR PRIOR

19

0%

20%

40%

60%

80%

100%


42% 41% 52%

37% 36% 47%

2014 2013



PERCENTAGE OF OWNERS WHO PERSONALLY EXPECT TO MAKE MORE MONEY

NEXT YEAR

20

0%

20%

40%

60%

80%

100%


42% 41%

52%

37% 36% 47%

2014 2013



POLICIES TO HELP SPUR U.S. JOB CREATION

0%

20%

40%

60%

80%

100%

Regulatory reform Tax incentives Increased access tocapital

Education reform Increasedcompetitive

position withforeign trade

partners

Repeal or ModifyAffordable Care Act

2014 13% 19% 22% 6% 8% 32%

2013 28% 28% 26% 6% 13%

2012 28% 21% 30% 5% 15%

2011 17% 19% 44% 14%

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POLICIES SUPPORTED IN 2014

41%

78%

60%

31%

49%

58%

38%

31%

0% 20% 40% 60% 80% 100%

Raising the debt ceiling when limit is reached in early…

Balanced US Budget

Comprehensive immigration reform with a path to…

Democrats retaining control of the Senate in November

Repeal of the Affordable Care Act

Significant Reform of the Affordable Care Act

Continuation of "Quantitative Easing" by Federal Reserve

Congress continuing to extend long-term…

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HOW WOULD RESPONDENTS BE IMPACTED IF UNEMPLOYMENT BENEFITS ARE

NOT EXTENDED BY SIZE (MULTIPLE CHOICE)

0%

20%

40%

60%

80%

100%

I would lose businessbecause many of mycustomers depend

directly or indirectly onunemployment benefits.

It would be easier for meto hire employees.

I am unsure how mybusiness would be

impacted.

Other

5% 20%

60%

14% 5% 19%

61%

15% 4%

28%

53%

14%


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DETAILS ABOUT THE RESPONDENTS

GEOGRAPHIC LOCATION

Less than or equal to 10

11 - 25

26 - 50

51 - 75

76 - 100

101 - 150

151 - 200

more than 200

CA

OR

WA

MT ND MN

IDWY

SD

NV

UT

AZ

CO

NM

TX

NE

KS

OK AR

LAMS AL

FL

GA

TNSC

NC

VAWVKYMO

IL

IA

WIMI

INOH

MD

PANJ

NY

ME

NHVT

MA

RICT

HIAK

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INDUSTRY

25

32%

11%

9% 8%

7%

7%

5%

4% 3%

4% 3%

3% 3% 1% Services

Construction

Finance & real estate

Retail trade

Manufacturing

Information technology or services

Health care

Wholesale trade

Educational services

Arts, entertainment or recreation

Transportation and warehousing

Forestry, fishing, hunting or agriculture

Unclassified establishments

Utilities & mining




ANNUAL REVENUES

26

6%

26%

24%

13%

18%

4% 3%

2% 1% 3% $0 or pre-revenue stage

$1 - $100,000

$100,001 - $500,000

$500,001 - $1,000,000

$1,000,001 - $5,000,000

$5,000,001 - $10,000,000

$10,000,001 - $25,000,000

$25,000,001 - $50,000,000

$50,000,001 - $100,000,000

$100,000,001 - $500,000,000



ANNUAL REVENUES CHANGE FOR LAST 12 MONTHS: WHOLE SAMPLE

27

5%

2% 2% 4% 4% 3%

4% 2% 3%

26%

9% 6%

8%

5% 4% 4% 2% 2%

6%

1.3%

0%

5%

10%

15%

20%

25%

30%

Decline Increase



ANNUAL REVENUES CHANGE FOR LAST 12 MONTHS : REVENUES UNDER $5M

28

6%

2% 2% 4% 4% 3% 4%

2% 3%

27%

8% 6% 7%

4% 4% 4% 2% 2%

6%

0.8% 0%

5%

10%

15%

20%

25%

30%

Decline Increase



ANNUAL REVENUES CHANGE FOR LAST 12 MONTHS :

REVENUES FROM $5M TO $100M

29

1% 2% 2% 2% 2%

6%

2% 2%

20%

12%

8%

13%

7% 6%

5% 3% 2%

4% 5.6%

0%

5%

10%

15%

20%

25%

Decline Increase



ANNUAL REVENUE CHANGE EXPECTATIONS

(NEXT 12 MONTHS): WHOLE SAMPLE

30

2% 1% 1% 2% 2% 2% 1% 2%

21%

13%

10% 12%

6% 6% 5% 3% 2%

8% 8.2%

0%

5%

10%

15%

20%

25%

Decline Increase




(NEXT 12 MONTHS): REVENUES UNDER $5M

31

2% 1% 2% 2% 2% 2% 1% 2%

22%

13%

9%

12%

6% 5% 5%

2% 3%

9% 8.3%

0%

5%

10%

15%

20%

25%

Decline Increase




(NEXT 12 MONTHS): REVENUES $5M TO $100M

32

1% 1% 1% 2% 3% 2% 2%

18%

16%

13% 14%

7% 7%

4% 3%

1%

5%

7.3%

0%

5%

10%

15%

20%

Decline Increase




ANNUAL INCOME

33

7%

53%

28%

5% 6%

1% Negative (net loss)

$0 - $100,000

$100,001 - $500,000

$500,001 - $1,000,000

$1,000,001 - $5,000,000

More than $5,000,000




FIRM AGE

34

7% 8%

7%

8%

14% 21%

35%

Less than 1 year

At least 1 but less than 2





20 or more




NUMBER OF EMPLOYEES

35

7%

36%

22%

12%

6%

4% 4% 3%

2% 2% 2% 0 1-2

3-5 6-10

11-15 16-20

21-30 31-50

51-100 101-200

More than 200



About Pepperdine Private Capital Markets Project

The Pepperdine Private Capital Markets Project at the Graziadio School of Business and Management is the first simultaneous,

comprehensive, and on-going investigation of the major private capital market segments. The research seeks to understand the true

cost of private capital across market types and the investment expectations of privately-held business owners; providing lenders,

investors and the businesses that depend on them with critical data to make optimal investment and financing decisions, and better

determine where the opportunities to create lasting economic value may be realized. Download reports and find more information at

http://bschool.pepperdine.edu/privatecapital.

About Pepperdine University’s Graziadio School of Business and Management

Founded on the core values of integrity, stewardship, courage, and compassion, Pepperdine University’s Graziadio (GRAT-ZEE-ah-

DEE-oh) School of Business and Management has been developing values-centered leaders and advancing responsible business

practice since 1969. Student-focused, experience-driven, and globally-oriented, the Graziadio School offers fully accredited top-ranked

MBA, Masters of Science, and bachelor’s completion business programs. More information found at

http://bschool.pepperdine.edu/newsroom/.

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Thank You Craig Everett, Ph.D., MBA

Director,

Pepperdine Private Capital Markets

Project


[email protected]

310.506.8543


mailto:[email protected]

mailto:[email protected]

Economy & Finance

2014 Economic Forecast: Insights from Small and Mid-Sized Business Owners