In a show of optimism, small businesses have been doing a lot of capital spending
In a show of optimism, small businesses have been doing a lot of capital spending
While big businesses will be reporting their earnings this week, it was small businesses’ turn on Tuesday: The National Federation of Independent Business released its Small Business Optimism Index for September. And believe it or not, it was up — for the third straight month.
Inflation and labor are businesses’ two biggest problems. Literally 0% of survey respondents said they plan to increase inventory.
The report as a whole has as much bad news as good news in it. But one thing that stood out was that 56% of all businesses have made capital expenditures in the last six months, like buying equipment for production lines or more vehicles for a service fleet.
That’s the highest since March of this year. While it’s still below pre-pandemic levels, it’s a sign that some businesses are trying to get out ahead of whatever’s coming in this economy.
For some businesses, capital expenditures can be about trying to survive in a tough market. That’s the story at 21st Amendment Brewery in the San Francisco Bay Area.
“We actually bought eight new fermenting vessels,” said Nico Freccia, the brewery’s co-founder.
Beer sales have struggled this year, he said. Consumers are cutting back and competition keeps growing. His new vessels will let the brewery start branching out beyond craft beer and into things like nonalcoholic beer and hop water.
“You know, we are realizing, like a lot of small brewers, that you’re not necessarily going to continue to grow your business significantly just with craft beer. So you have to expand into other areas,” Freccia said.
More equipment can help a business work around the tight labor market too.
“We have had a big challenge getting staff,” Freccia added, “so, you know, more equipment does make you more efficient. It does potentially make it easier to operate with fewer people.”
Small businesses usually borrow to make capital expenditures. With interest rates rising, some businesses are borrowing now instead of later, according to Holly Wade with the National Federation of Independent Business.
“Thinking through what financing might look like in the next few months may have accelerated those who were thinking about it, but hadn’t gone through with purchasing.”
Not every business needs to borrow. Steve Chu co-owns two fast-casual sandwich shops in Baltimore called Ekiben, and he’s about to open a third.
“We’re, like, a month or two out, and, yeah, so we’ve had to buy a bunch of equipment,” Chu said.
That includes refrigerators, ranges and fryers. Chu is buying all of it with cash, which means he doesn’t care about interest rates. On one hand, he feels like he’s going broke.
But on the other, “what we’re seeing in the restaurant scene is, like, a big pivot from fine dining to a more, like, fast-casual, lower price point,” Chu said.
Opening a third location chock-full of shiny new equipment will let him capitalize on that pivot.
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