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Grow Your Business Finances

Despite Increased Revenue, SMB Hiring Has Slowed

image for Monkey Business Images/Shutterstock
Monkey Business Images/Shutterstock
  • 35% of small businesses polled said they hired between four and 10 new employees in the last year, while 54% of medium businesses said they did the same.
  • 43% of small businesses financed their growth through credit card spending.
  • Tech is taking over for CFOs, as 58% of SMBs say they use an accounting or back-office tech solution, while 76% said they do not have and don't plan to hire a full-time or fractional CFO.

A new survey by ScaleFactor offers new insights into the current state of financing for small businesses. The State of SMB Finance Report, released earlier today, examined how small businesses are growing, as well as how they finance that growth.

Researchers polled 500 randomly chosen "principal decision-makers" on the financial decisions being made at their firms. What they found, according to the survey, was good news for the bottom line for businesses with 500 or fewer employees but potentially bad news for people looking to find work.

With a stable economy and a competitive job market that largely favors workers, 2019 is primed for small businesses growth. Though researchers reported that only 4% of respondents said they saw revenue decrease over 2018, more than half said they didn't hire anyone in the last year.

With so few respondents saying they experienced a decline in revenues, researchers looked into the average growth of businesses in that time. Researchers found that 11% of polled SMBs saw a revenue boost of more than 100% in 2019, while 44% saw increases of between 10 and 100%, and 24% said they experienced a bump of less than 10%. Only 17% said their revenues were the same as in 2018.

Even though 79% of respondents said they saw an increase to their bottom line, 53% of very small businesses with fewer than 20 employees didn't hire anyone in the last year. Small businesses with 20 to 99 employees fared slightly better, with 35% reporting that they hired between four and 10 new employees during that time, while 54% of medium businesses with 100 to 500 employees also said they hired that many workers.

Salary costs (18%) were blamed the most for the apparent hiring reduction. Other hindrances included a skills shortage (13%) and the cost for healthcare and other benefits (10%).

Though overall hiring may have slowed down for small businesses, one office position has seen a steep decline in recent years. According to the survey, chief financial officers (CFOs) may be having a hard time finding work, as 76% of SMBs reported either not employing one full time or having no plans to hire one.

Just 7% of very small businesses and 24% of small businesses said they planned on hiring an accounting consultant or fractional CFO in 2019, while none of the midsize businesses polled said they would.

Kurt Rathmann, founder and CEO of ScaleFactor, said the decline in CFOs stems largely from small businesses turning to digital finance management solutions. "Small businesses are able to scale in new ways, which provides them with new opportunities for growth and the ability to succeed without having to fall back on the traditional hiring methods and markers of success," said Rathmann. "Though small businesses' hiring is often incremental, we see that they are more willing to adapt to the new waves of technology being introduced into the workforce, which empowers small businesses to be leaders of innovation."

According to the survey, 58% of respondents said they currently use an accounting or back-office software solution because it provides "time savings and fewer mistakes."

When it comes to adopting AI-driven solutions, researchers found that the size of the business matters. Among participating medium-sized businesses, 97% said they were currently using an accounting technology program, while 90% of small businesses and 57% of very small businesses said the same.

Along with hiring and tech trends, ScaleFactor's inaugural study also examined how small businesses fund their growth. What researchers found was that a company's profits, credit cards and personal savings tend to drive SMB growth.

Like tech adoption, size matters when it comes to which type of financing a small business uses to grow. For very small businesses, 34% said employees reinvested their company profits, while 43% of small businesses said they used a credit card to cover expenses. For medium-sized businesses, securing a loan from a financial institution was the most frequently used option at 62%.

Andrew Martins

Andrew Martins is an award-winning journalist with a Bachelor of Arts in journalism from Ramapo College of New Jersey. Before joining business.com and Business News Daily, he wrote for a regional publication and served as the managing editor for six weekly papers that spanned four counties. Currently, he is responsible for reviewing tax software and online fax services. He is a New Jersey native and a first-generation Portuguese American, and he has a penchant for the nerdy.