By Brad Buttermore
Managing Partner and Chief Financial Officer
Business optimism has risen to its highest level since 2004, as Main Street prepares for business-friendly policies under President Donald Trump that could be good for the PEO and staffing industries.
The Index of Small Business Optimism reached 105.8 in December, an increase of 7.4 points over November’s numbers and the highest month-over-month increase since the survey began in 1986, according to the monthly survey produced by the National Federation of Independent Business (NFIB).
Rising the most in the NFIB’s index was the expectation of better business conditions, which shot up from a net 12 percent in November to a net 50 percent in December. Sales expectations rose by 20 percent.
Small businesses expect a relaxation of financial regulations, lower taxes and less bureaucracy under Trump, which has PEO firms, staffing firms and other businesses feeling hopeful.
Borrowing by small businesses in the U.S. ticked up in November, in the wake of the presidential election, according to the Thomson Reuters/PayNet Small Business Lending Index, which rose to 129.9 in November from 119.8 in October. Small business borrowing is considered a barometer of economic growth.
PEO and staffing industries to benefit
There are 1.1 million businesses in the U.S. that have 10 to 99 employees — the target market for most PEOs, according to a 2016 report on the state of the PEO industry from NAPEO, which notes that small business optimism has recovered significantly since the Great Recession ended in 2009.
While every recession is followed by job gains, the gains after the Great Recession have been fairly lackluster.
However, as small businesses see more opportunities for growth under Trump, PEO and staffing industries will have the opportunity to partner with companies that seek the expertise of staffing firms to fill permanent and temporary jobs and PEOs to outsource their human resource functions.
This outsourcing will allow them to focus on what they do best — their core business operations — while outsourcing ancillary but necessary functions.
Explaining the value proposition
It’s imperative that PEOs and staffing agencies hone in on how to best reach this target market while optimism is high and small businesses are open to spending on outsourced services.
There’s a value proposition that staffing and PEO firms will want to present: PEO clients grow faster, have lower rates of employee turnover and higher rates of business survival than other comparable small businesses, according to NAPEO.
In addition, PEOs offer a broader array of services than most small businesses have access to on their own yet with a lower administrative cost. State and federal mandates, meanwhile, have been increasingly complex, which is opening doors for PEOs to help small business navigate the morass.
Small businesses have room to grow
As we know, small business is the backbone of the U.S. economy, but the number of jobs created by establishments less than one year old has decreased from 4.1 million in 1994 to 3 million in 2015, according to the Bureau of Labor Statistics’ Business Employment Dynamics (BED) program.
Of the nine business classes in the BED series, the six smallest (249 employees or smaller) have seen their shares of private sector employment decrease since the early 1990s, while the three largest size classes (250 or more employees) have seen their shares of total employment increase.
We are hopeful that a reduction in onerous and costly regulations, combined with a more favorable tax structure supported by the Trump administration, will go a long way toward changing the trajectory for small businesses, encouraging new startups and growth for existing small businesses.
Capital Alliance Corporation is a Dallas-based investment banking firm with an extensive international reach and a 40-year history of providing trustworthy advice to private company shareholders who want to sell their businesses. Our team has deep operational and M&A experience across many sectors, including human capital management.
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