Small businesses and middle market companies in the U.S. are in growth mode, according to the American Express Business Growth Pulse. The survey found that ninety-two percent of middle market firms ($10M -$1B in revenues) and eighty percent of small businesses (with less than 100 employees and at least $250,000 in revenue) say growth is the top priority for their firms. A greater number of middle market companies anticipate their businesses to grow in the next quarter, with more than one-in-five of these firms (22% vs. 7% of small businesses) saying they expect their companies will be “expanding by leaps and bounds.”

However, the road to growth is not free from obstacles. Challenges exist regardless of business size and vary accordingly. Although the biggest hurdle to growth is acquiring new customers for small businesses (22%), middle market companies’ biggest challenges encompass issues that are outside their control, including managing the rising costs of doing business and increasing competition (each, 14%).

“Although small businesses and middle market companies are both focusing on growth, they are taking different paths to expansion,” said Susan Sobbott, president, American Express Global Commercial Payments. “Small enterprises will look to grow by acquiring new customers while middle market companies will look to expand by both acquiring new customers as well as making infrastructure and equipment investments in their business.”

While acquiring new customers presents a challenge to growth for many, small businesses view this action as their primary path to growth (39%). Middle market companies however are saying that both acquiring new customers and increasing investments in infrastructure and equipment would most help them grow (each, 15%).

Cash Flow Proves a Challenge; Middle Market Concerns Linked to Growth

Cash flow issues present another obstacle as businesses manage their day-to-day operations and strive for long term growth. Cash flow concerns are higher among middle market companies (65%) than small businesses (49%), with one-in-five middle market companies (20%) saying they are ‘very concerned’ (versus 8% of small businesses).

Middle Market Companies:

• Over the last quarter, nearly half of middle market companies (46%) say they experienced a cash flow crunch and nearly three-in-ten (28%) attribute their cash flow issues to investments in the business.
• Looking ahead, nearly four-in-ten (39%) middle market companies expect the ability to invest in long-term growth to be their greatest cash flow concern next quarter.

Small Businesses:

• Small business cash flow concerns are more likely to be related to day-to-day management of the business rather than plans for growth.
• Looking back several months, more than one-quarter of small businesses (27%) say they experienced a cash flow crunch. They attribute their cash flow issues in the previous quarter to an unexpected decrease in sales (28%). 
• Further, small businesses (25%) expect collecting accounts receivable to be the biggest cash flow worry next quarter.

When they experience a cash shortage, the primary method middle market businesses (23%) will use to obtain funds is to take out a business line of credit. Small businesses will dip into cash reserves (23%).

Long Term Growth Drives Financing Hunt; Middle Market Most Likely to Seek Financing

Growth is the main driver behind business’s quest for financing. According to the survey, the main reason small and middle market businesses would consider securing additional financing for their companies is in order to pursue a long term growth plan (31%). The top three reasons to seek additional financing vary by size of the business:

Small businesses say they would consider seeking additional financing in order to:

• Pursue a long term growth plan (26%)
• Get through short-term seasonal swings/business downturns (20%) 
• Take advantage of a short term growth opportunity (19%)

Middle market firms’ reasons for considering additional financing include being able to:

• Pursue a long term growth plan (41%)
• Take advantage of a short term growth opportunity (33%) 
• Invest in marketing, advertising or PR (33%) 
• Hire new employees (33%) 
• Offer a new line of products or services (33%) 
• Make capital investments the company has been putting off (32%)

Significantly more middle market companies (60%) compared to small businesses (25%) anticipate the need to pursue financing in the next 12 months.

When evaluating different business financing options, the most important decision-making factor for small businesses (74%) is the rates/fees charged. Middle market businesses say the most important decision-making factor when evaluating business financing options is ensuring that their data is protected against security breaches (61%), followed closely by full disclosure of loan details and rates/fees (60%).

Survey Methodology

The American Express Business Growth Pulse is the first in a series of surveys examining topics related to business growth for both small businesses and middle market companies. The study is based on a nationally representative sample of 1,000 U.S. small business owners/managers, defined for the purposes of this survey as companies with fewer than 100 employees and annual revenues of $250,000 or greater, and 501 middle market companies, defined for the purposes of this survey as companies ranging in size from $10 million to $1 billion in annual revenues. The anonymous survey was conducted online among financial decision makers, owners and managers by Teneo Strategy May 18-27, 2016. The poll has a margin of error of +/- 2.6% at the 95% level of confidence for the total combined sample of 1501, a margin of error of +/- 3.1% at the 95% level of confidence for the small business sample of 1000 and a margin of error of +/- 4.4% at the 95% level of confidence for the sample of 501 middle market companies.