What to Expect in 2019: Consumer, Economic and Financial Trends

 

By Rieva Lesonsky

Most of us small business owners start the new year with mixed emotions. We’re hopeful and optimistic about growing our businesses, yet with anxious about all the challenges we know we’ll face.

To find out what lies ahead, I’ve collected a number of tips, predictions and advice from people in the know. We’ll be exploring general consumer, financial and economic trends, as well as what to expect in the fields of marketing, technology, retail, HR and money.

We also have contributions from guest authors—just look for the What to Expect in 2019 illustration all week.

 

4 Critical Small Business Trends for 2019 and Beyond

Guest post by Sydney Ivey, General Manager for Small Business, Bank of America Merchant Services

As fewer consumers choose to pay with cash, the competition for a share of their wallets—whether literal or digital—is growing fiercer. The ability to accept multiple payment methods will be one of several key factors that set successful small businesses apart in the future. In 2019 and beyond, small business owners should focus on new technologies and strategies that can help increase sales and expand a loyal customer base.

As we head further into the New Year, I recommend small businesses capitalize on the following four trends based on survey results from more than 500 U.S. small business owners and over 500 consumers.

1—Accept mobile and digital payments: Nearly half (46%) of small businesses accepted digital payment methods in 2018, up from 36% in 2017, according to my company’s 2018 Small Business Payments Spotlight.

Small business owners say digital payments create efficiency, allowing them to process more transactions per hour, and give customers a better overall experience. They also note that nearly everyone carries a mobile device, making digital payments readily accessible to most consumers.

Owners and managers surveyed expect these trends to continue in the year ahead. Nearly 60% say customers’ use of digital payments will increase in the next five years, and more than half expect a growing number of their competitors to accept a mix of credit and debit cards, mobile and digital payments.

Furthermore, consumers say they’re becoming more comfortable paying for goods and services on their mobile phones. Nearly a quarter want to be able to pay with a mobile device or digital wallet, and 35% say they’re no longer willing to tolerate lines while shopping in person, preferring the convenience of mobile checkout.

2—Grow with e-commerce: Small businesses with growth ambitions are increasingly turning to e-commerce as a greater number of consumers shop online. More than half of the consumers say they shop online more than they did five years ago, while 44% say they’ll likely research a product or service online prior to purchasing it.

Small business owners are taking notice of this shift—51% report operating an e-commerce site in 2018, up seven percentage points from 2017. Retail and wholesale small businesses take the lead in this area, with nearly three-quarters indicating they run an e-commerce site. Meanwhile, just 34% of restaurants do so. This means those businesses that already have a site or plan to launch one in 2019 have a substantial opportunity to gain market share from competitors lagging behind the trend.

Wisely, small business owners are prioritizing the mobile experience. Owners say the most important e-commerce site feature they look for is the ability for customers to use mobile devices to make purchases from their business.

3—Protect against data breaches: Data breaches, which threaten sales and customer loyalty, are only growing costlier. According to the report, nearly 40% of small businesses that experienced a data breach reported a financial hit in excess of $50,000—including costs to remedy the issue. This is a substantial increase from the year before, and often enough to seriously impact a small business’s cash flow.

Data breaches also raise the possibility of reputational damage, which can be disastrous for small businesses. More than one-fifth of consumers surveyed say they would never again shop at a small business that experienced a breach. Few small businesses are positioned to sustain this kind of blow to their customer base.

For these reasons, data security should be placed high on small businesses’s priority lists for 2019.

Fortunately, owners increasingly understand the range of things they could and should be doing to improve payment security and reduce fraud. This includes using firewalls and complex passwords, blocking unsecure sites on business devices, updating point-of-sale equipment and ensuring compliance with industry standards.

4—Focus on customer loyalty: A surprising number of consumers—62%—say they sign up for loyalty programs at businesses they frequent. They’re looking for rewards points for purchases or visits, as well as instant discounts. A small minority are also interested in exclusive announcements, coupons or personalized discounts.

In exchange for these perks, consumers are willing to share a wide range of personal information, including their email address (80%), name (75%), gender (63%) and mailing address (59%). However, social media handles are off limits: Just 12% of shoppers say they would be willing to share things like their Facebook, Instagram or Twitter usernames.

Small businesses that start or expand loyalty programs aimed at meeting consumers’ needs can deepen relationships with their customers and strengthen loyalty, building a moat that’s too deep for their competitors to leap.

A strategic approach for 2019: Holding ongoing conversations with a trusted payments provider can help owners apply emerging technologies that suit their business’s size, industry and customer base. Small business owners and managers who focus on these key trends can give their companies a leg up on the competition and build deeper bonds with the customers that make them successful.

 

People vs. AI, Facebook, Instagram & More

Mariah Bliss, Customer Communications Expert for Simply Business, offers several predictions:

Being a jack-of-all-trades isn’t going to work anymore. Being able to do it all might seem like the best way to make more money, but as a business owner, it’s more important to focus on doing one thing really well. Expertise matters—and in 2019, customers will want to spend their money with experts in their trade who are truly passionate about what they do.

Human relationships will outweigh AI. In 2018, it seemed like every other news headline focused on how AI would replace the need for human workers. But here’s the thing—more companies than ever are investing in building relationships with their customers—and in order to do that, they still need the magic of interpersonal, human connections. While AI will definitely impact some industries, business owners shouldn’t panic, as the power of the human relationship will still reign supreme in 2019.

Businesses will focus on stability. Experts are predicting that 2019 should still be economically sound, but there are signs that the market may slow down. That’s why a significant number of small business owners will focus on building up their savings and planning strategies for any potential hiccups in the market.

Stop ignoring Facebook and Instagram stories. Facebook and Instagram stories are here to stay, so if your business has been ignoring them, you’re missing out. In 2019, take the time to focus on different features of Facebook and Instagram stories, including how you can use them to reach out to your customer base.

 

Now’s the Time to Get Your Finances in Order

Ian Crosby, cofounder and CEO of Bench Accounting, says, “We’ve been putting the economy on performance enhancing drugs in the form of cheap debt for the past decade. Now that party is coming to an end as the feds raise interest rates to fight inflation and we’re going to feel some painful withdrawal. As interest rates go up, regular families are going to spend more money serving their mortgages and lines of credit and have less money to spend at local restaurants and shops. When a recession arrives, everyone is going to pull back on spending at the same time leaving small businesses in a lurch. That means small business owners need to get their finances in order. Now is the time to reduce expenses, not the time to expand.”

 

Remote Workforce, Side Hustles & the Digital Future

Eric Dahl, director of B2C product marketing at Brother International Corporation predicts:

Remote workforces will continue to rise: 2018 was a pivotal year for remote working and as we head further into 2019 that is not going to slow down. Good talent is becoming increasingly difficult to find and sometimes business owners are not able to find the right people for the job where they are. Hiring remote workers who are the best fit for the business will not only improve your business, but also significantly cut down costs on things like office space.

Side-hustles will become the main-hustle and there will be a surge in self-employment: With millennials making up much of today’s workforce, the modern workplace is shifting drastically. The millennial workforce places a heavy emphasis on personal satisfaction, so striking out on their own is rewarding. Self-employment brings a sense of increased control over your work-life balance, the work you are doing and overall happiness. This year, we will see a spike in the number of home offices and self-employed workers.

Automated office supplies replenishment will become the norm: Convenience rules today’s society. From delivery food services to free two-day shipping, people are increasingly expecting their goods and services to be available to them at their convenience. Small business owners have much more to worry about when it comes to managing their business. In the vein of convenience, having auto-replenishment services to eliminate the worry and need to constantly restock things like your ink or toner for your printer will become a normal service for businesses everywhere.

Digital is the future, but paper isn’t going away just yet: These days it’s easy to do everything digitally to save time. However, while going digital can simplify things, paper will still be necessary. Document management solutions will help digitize documents like bills and business records and keeping the hard copies will only be necessary if the digital files somehow get lost. Paper and digital will continue to complement each other when it comes to effectively managing documents.

 

Mobile Payments Soar

Bank of America Merchant Services’ Derrick Carpenter predicts:

Mobile payments become more dominant: Though mobile/digital payments have been around for years now, they will continue to become more and more important in 2019. In fact, from 2017 to 2018, the number of small businesses accepting digital payment methods jumped 10 points and we predict this trend will continue—jumping by double digits yet again in 2019.

Investing in EMV®: Data breaches will continue to make headlines in the New Year, and businesses must invest in security and fraud prevention. To help prevent security breaches at the point of sale, more businesses—including the smallest of small businesses with less than 20 employees—will invest in EMV chip card technology. Currently, 66% of SMBs have enabled EMV technology, but we expect this number will rise above 70% in 2019.

E-Commerce opportunities continue to grow: More small business will turn to e-commerce in 2019, as a greater number of consumers shop online. Currently, 51% of small businesses run an e-commerce site—up seven percentage points from 2017. We expect this percentage to jump again in the coming year.

(EMV is a registered trademark in the U.S. and other countries, and an unregistered trademark elsewhere. EMV® is a registered trademark owned by EMVCo LLC.)

 

AI & Giving Back

Tips from Meredith Schmidt, EVP and GM of Small Business and Essentials at Salesforce.

Tip #1: Invest in AI: AI is a hot topic for SMBs as we head into the new year. Our research shows 55% of SMBs report insufficient time as a challenge to running their businesses. Thankfully, the right AI solutions can fix this. For example, responding to customer service requests is critical to customer satisfaction, but it can be extremely time consuming. By using platforms with AI, SMBs can automate the process and cut response times significantly, ultimately enhancing the level of service provided to the customer.

Tip #2: Stand out by giving back: Did you know that most millennials prefer to shop at companies with pro-social messaging? When companies believe in and support a cause, both potential customers and potential employees take notice. Salesforce has seen firsthand how creating a culture that focuses on philanthropy attracts the best and brightest talent. Even the smallest effort can make a big impact for your company culture and connecting with your community.

 

Online Lending

Krista Morgan, Co-Founder & CEO, P2Binvestor says, “There is quite a bit of uncertainty surrounding the state of the economy for 2019, and that could have a substantial effect on small business. SMBs require working capital, and if sales start to slow down, they may need to rely on access to quick funding—something that has been traditionally difficult to find during a recession or economic downturn. But 2019 is a new year, financial technology has advanced, and there are a lot more options for business owners aside from going to a bank and asking for a loan. Having access to more online lenders will be beneficial to small businesses and may even help many of them survive a theoretical recession.”

 

2019 Outlook for Small Business

Guest post by Kurt Rathmann, serial entrepreneur and founder & CEO of ScaleFactor.

ScaleFactor looks at the most critical factors driving growth in the small business sectors across the U.S. We think the outlook is strong for SMB growth in 2019, as indicated by demand, access to capital and access to qualified labor. Bottomline, keep your books tidy and your employees happy.

Growth Factor #1: Demand—2019 Prediction: Strong demand will continue in 2019!

Demand is the consumption side of the supply and demand equation in a free market, and the single most impactful factor that contributes to the growth of a small business.

We measure Demand by looking at several different economic metrics.

• Per Capita GDP growth rate.Considered the most comprehensive indicator of overall economic health, Per Capita GDP is experiencing strong growth rates in the range of 2-4% per annum over the last several years and is expected to continue in 2019. Per Capita GDP is the total value of all the goods and services less imports that changed hands in a given time period. It is driven mostly by personal consumption, government spending, and investments in inventory.
• Disposable income.Real disposable income made robust increases of 2.5% in the preceding quarters. As an indicator for personal consumption, the main contributor to Per Capita GDP, we watch this metric closely as a leading indicator for rising or falling demand. The recent strong and steady increases in disposable income bodes well for small businesses for the coming quarters into 2019.
• NFIB Small Business Optimism Index. This index aggregates sentiment across important demand indicators that small businesses see, such as plans to add inventory, make capital improvements, and hire more employees. The seasonally adjusted index has been a reliable predictor of the recent economic recovery and continues to trend at historically high levels.

Growth Factor #2: Access to capital—2019 Outlook: Cautious optimism—Keep your books credit-worthy!

Most small businesses do not generate excess free cash flow, so access to growth capital is a key accelerant for their business growth. The most common sources of small business capital are personal and commercial lending, and equity capital, so we look at the leading indicators for the health of those sources.

A decade of low-cost lending rate policies used to recover from the recession are now over. Access to growth capital for small businesses that are run well will remain strong. Although the cost of borrowing will continue to rise for small business, it will remain far below historic highs. The Fed signaled its plans to raise rates at least twice more through 2019 on concerns of rising inflation. However, those inflation concerns may not materialize due to anemic global growth, impending trade wars, and deflating fuel prices thanks to production gains in the US energy sector.

We measure access to capital by looking at several different metrics.

• Stock markets capitalization trends. Strong gains over the last few years in the DJIA, S&P500, and Nasdaq Composite have tapered recently, or even corrected a bit. Robust growth followed by stability in market capitalization causes investors to look for alternative investment vehicles, which help small business find sources of capital in both private debt and equity placements.
• U.S. Fed funds rate. With historically low rates at 2.25%, the post-recovery rise of this key lending rate back from near zero levels has occurred quickly in the last two years. But we do expect lending costs will continue to rise as long as GDP growth rates stay above 2%. The Fed cites tight labor markets and rising wages as the harbingers for inflation, so we look closely at those metrics.
• Angel and seed investing. Early stage investing has consistently deployed $1.5-$2B of small business capital every single quarter since 2014, making angel/seed investors, micro-VC, family offices, and even crowdfunding the new wave of small business financing. The trend in 2018 had been fewer deals, but larger placements, and to more small businesses that actually produce revenue vs pre-revenue—all signs that the industry is maturing.
• Venture capital and private equity markets. VC and PE deal flow metrics posted record numbers in 2018. Initial Public Offerings also had a big year in 2018, raising $46B, and IPOs are poised to have an even stronger year in 2019. Strong market cap appreciations and corporate balance sheets over the last few years have made it easier for venture capital and private equity shops to raise funds from private and institutional investors, signaling the increasing availability of venture and private equity capital will be available for the right companies in 2019.

Growth Factor #3: Access to qualified labor—2019 Prediction: Attracting, training, and retaining great employees is the #1 job for small business owners in 2019.

Small businesses hire half of the employees in the U.S., dominated by the people-intensive retail and service sectors. Small business owners know that skilled employees are their most important asset and finding, training, and retaining them has become more difficult in 2018.

The metrics we follow closely are:

• Compensation & wage growth.A third of small businesses reported increasing compensation to attract or retain employees, trending at historic highs. Real wage growth, however, has lagged behind economist’s expectations for a tight labor market, growing about 10% in the last decade in real dollars, and maintaining in a historically narrow band on an inflation adjusted basis. Strong hiring in high-paying sectors such as construction and energy may change that.

• Unemployment rate. Historically low at 3.5%, a third of small businesses reported open positions they could not fill due to a lack of qualified candidates. For service-provider and retail sectors that are employee intensive, this becomes the number one obstacle to growing the business.

Based on these indicators and predictions, the trend toward further growth in small business sectors is illuminated, and SMB owners can feel confident of this strong outlook for 2019.

 

Are You a Risk Taker?

See how you compare with your fellow small business owners on taking risks, based on statistics from Insureon and Manta.

Most small business owners view themselves and other SBO’s as risk takers. Here’s why:

• 84% of business owners consider the average small business owner to be a risk-taker.
• 74% consider themselves to be a risk-taker with business decisions.
• 58% consider themselves to be a risk-taker in their personal lives.

The top 5 risks business owners say they took are:

• 20% left a stable job and/or took a significant pay cut to start a business.
• 16% took out a loan.
• 15% offered a new service or product.
• 15% hired employees.
• 13% sold assets or went into debt to help fund their business.

What risks will you take in 2019?

 

Side Hustle 2.0: What You Need to Know to Thrive in the 2019 Gig Economy

Guest post by Marcos Jacober, CEO of Life Hacks Wealth, founder of Airbtheboss and author of the new book Eat This Mr. President.

New and aspiring business owners often work a full or part-time job that pays their bills while they have a “side hustle” that brings in extra income. Unfortunately, their “day job” takes up most of their time. How can you make your side hustle your major source of income? It’s much harder than it used to be. In the past, a successful side hustle required learning how to use the built-in promo tools to advertise yourself and target the right audience. Simply being listed on the gig platform and being available was enough because there was virtually no competition. Uber was new, Etsy promotion tools drove traffic, and you didn’t need to be a super-host to get bookings on Airbnb. Now, competition has raised the bar and created new challenges. The “gig” marketplace is expanding, and this shift is changing the rules of the game. In order to make money from a side hustle in 2019 you need to have new strategies in place.

I came to the United States as a Brazilian immigrant with just $100. My first goal was to make $800. Once I did, I looked for more opportunities. I eventually got a well-paying job as a truck driver. However, I was always on the road, making deliveries, so I set up a real estate side hustle. I concentrated on making enough money from real estate, which took less time, to replace the income from my truck driving job, which took up much more time. Once I earned enough income from real estate to equal the income from the driving job, I was able to quit driving and work in real estate full time.

The key to side hustle success in 2019 is to find a side hustle that leverages your abilities or resources, not your time.  There are many different ways to do this and some gig platforms are better suited for this than others. Think about what assets do you have that you could use right now? Is there a car sitting in your driveway that you don’t use a lot? Rent it out on Turo (a much better option than Uber or Lyft) because someone else will drive it, and you’ll earn the money without spending any time in the car. Do you have a spare room in your house? Rent it out on Airbnb and bring in more income without working more hours.

Give yourself a reasonable timeline to establish a side hustle and start making money. In the beginning, you of course need to have your traditional income or enough capital saved to cover your monthly expenses. If you choose the right side hustle, it is fully possible and totally reasonable to have the business up and running and generating the same cashflow in 180 days. Use this strategy to develop a side hustle, earn enough income from that activity to cover what you’d lose from your day job, and then develop other activities.

Once you’ve developed a successful side hustle, you can use the extra time you’ve gained to develop more hustles. If you’re renting one Airbnb, use your additional income to rent more Airbnbs and bring in even more income. Keep leveraging resources rather than time. Look at getting a virtual assistant, who can handle emails, schedule meetings and keep you from getting bogged down in the details. Use software and time management tools to save time.

Once your side hustle becomes a main hustle, your income stream will have a snowball effect. You’ll not only grow income because you’re working on projects you feel passionate about, you’re using your additional time to increase revenue that you wouldn’t have earned in the first place. Instead of working a $5,000 per month job, you’re making $10,000 or $50,000 per month following your passion projects.

 

Are You Prepared for a Disaster?

Natural disasters such as fires, tornadoes and hurricanes can wreak havoc on small businesses, and most small business owners don’t have a disaster recovery plan in place. According to research from Insureon and Manta, here are some best practices you should implement in 2019.

• 61% of small business owners lack a formal disaster recovery plan.
• 31% don’t know if their businesses would survive if it were forced to close for more than a month. 13% are confident it wouldn’t.
• 56% say they could survive a closure lasting more than one month.
• 40% carry business interruption insurance.
• 10% have been forced to temporarily close due to a natural disaster.

 

Do You Have a Budget for 2019?

Most small businesses (61%) operated without an official budget in 2018, according to new data from Clutch, the leading B2B research, ratings, and reviews firm.

Small businesses may not create a budget because the task is confusing or because they feel a budget is constraining. Small business owners who skip a budget, however, may put the financial health of their business at risk, experts warn. “Without a budget, you have no measuring stick to evaluate your goals and performance,” says Donna Conte, service area leader for accounting services at Warren Averett, a full-service accounting and advisory firm. “[A budget] is part of developing a business and its growth goals.”

Smaller businesses are more likely not to have a budget. Nearly 80% of small businesses with more than 10 employees created a 2018 budget, compared to only 26% of small businesses with 10 or fewer employees.

A budget becomes especially important as businesses grow. Among the small businesses that created a budget in 2018, 50% spent what they budgeted for in the first and second quarter of the year. However, 36% spent more than they budgeted.

If you want to grow, it’s imperative you create a budget in 2019. And you can successfully stick to your budget by keeping an eye on your original goals and reviewing your finances regularly.

 

Are You Planning to Sell Your Business in 2019?

According to SunTrust, a new wave in the “silver tsunami” is cresting as baby boomers exit the workforce. More than 2.3 million U.S. businesses are owned and run by baby boomers—many of whom have no clear plan for this transition. According to a SunTrust survey of business owners, 33% of baby boomers expect to transition the ownership of their businesses within the next 5 years, yet 36% don’t have a plan for that transition. As the timing for transition approaches, many are plagued by doubts such as the readiness of their successor (44%), operational continuity (32%), or the potential for layoffs (22%).

Few owners have comprehensively considered all of the possible routes for transition; the survey revealed that 42% have considered a purchase by a private equity firm or a third-party investor, 38% have considered passing the company down to the next generation of their family, and 18% have considered selling to employees.

Highlights

• One-third of baby boomer business owners expect to transition ownership of their business in 5 years or less. More than half (56%) expect to transition in 8 years or less.
• Baby boomer business owners have already received, on average, 3 offers to purchase their company.
• Top concerns about business transition are whether the successor is ready to take over (44%) and whether the outgoing leader feels financially prepared for the next step (34%).
  • Among those who expect to transition in 3 years or less, the impact of a potential trade war on their plans is actually much lower than for those expect to transition in more than 3 years (8% vs. 27%). This shows that baby boomer business owners expect the potential trade war to have a greater medium- or long-term impact than short-term.
• Excessive operational disruption is the top reason baby boomer business owners say would prevent them from accepting an offer to purchase their company (40%), followed by personal financial readiness (37%).
  • As a transition approaches, cultural disruption, emotional readiness and the strength of the offer become more significant determining factors.
• Developing a business transition plan significantly reduces concern around the potential for layoffs, from 29% to 19%.
• Survey respondents are most likely to turn to a Private Equity firm or third-party investor when transitioning ownership of their business (35%).
  • This is followed by passing down to the next generation (31%) – then followed distantly by employee ownership, competitor acquisition, outside hire, and passing down to an employee.
• Three out of five baby boomer business owners plan to retire fully after transitioning their business, but 21% do not feel financially prepared for retirement.
• SunTrust’s survey highlighted some differences between male and female business owners in the baby boomer generation.
  • Women are less concerned about all aspects of business transition than their male counterparts, by a margin of 4 to 14 percentage points.
  • More women than men expect to pass down their business to an employee (9% versus 5%) or sell to employees (17% vs. 7%). More men than women expect to be purchased by a PE firm or third-party investor (39% vs. 28%).
  • Men are twice as likely to decline an offer because it would cause too much operational disruption.
  • Male business owners are more aggressive—35% would not accept an offer if they thought it was not strong enough—compared to 17% of female respondents.
  • Women are more likely to retire fully after transitioning their business (70% vs. 54%).

Small business stock photo by ESB Professional/Shutterstock