Author: Anna Rathbun, Chief Investment Officer

The Main Street Index (MSI) takes the pulse of and gauges the outlook for small and mid-sized businesses (SMBs) amid the current economic downturn. The results from the third quarter of 2023 show three primary areas of concern for SMBs: a potential recession, interest rate hikes and a shortage of skilled workers.

These concerns are all related to an underlying lack of confidence in cash flow, which is becoming a concern in part due to PPP funding drying up. 35% of respondents said they have “wavering to no confidence” that they have sufficient cash flow to continue operations in the event of an economic downturn. In other words, SMBs are feeling less confident that they could endure the financial challenges of a recession.

Potential Recession

67% of respondents are expecting a downturn in the economy, and 57.9% listed a recession as one of their top concerns. SMBs are making both defensive and offensive moves to combat the expected challenges that a recession could bring. 44% of respondents are increasing their cash base (defensive), 46% are cutting overhead (defensive) and 62% are increasing sales efforts (offensive).

Interest Rate Hikes

More than three quarters of SMBs (78%) are experiencing higher borrowing costs, and for 41% are seeing their funding needs impacted. This is striking compared to Q2, when only 27% were feeling the pain of higher borrowing costs.

Skilled Worker Shortage

A total of 29% of SMBs are not utilizing their workforce to its full capacity. 21% are underutilizing but retaining their workforce to stay ahead of the skilled worker shortage, while 8% are thinking of cutting their underutilized workforce as a cost-saving measure. The labor market is already showing signs of weakness, according to the Bureau of Labor Statistics, ADP and the CBIZ Small Business Employment Index.

Cash Flow is Crucial

Concerns about interest rates, a potential recession and the skilled worker shortage will be top of mind for many SMBs in the coming months. It is important to note that all of these concerns are directly related to growing concerns about cash flow.

A recession would directly impact cash flow, and interest rate hikes are already impacting funding needs for many SMBs. The phenomenon of hoarding skilled workers also negatively impacts cash flow. Cash flow is the lifeblood of any business, and there is a thin line between being concerned about cash flow and going bankrupt. 

Investment advisory services provided through CBIZ Investment Advisory Services, LLC, a registered investment adviser and a wholly owned subsidiary of CBIZ, Inc.