While the passage of the economic stimulus plan last month and Fed rate cuts may have influenced February's upturn, the mood is considerably darker now.
Sastry Rachakonda, Discover

After an upward tick in February, small business owners' economic confidence took a sharp drop in March, casting the Discover Small Business Watch to its lowest point since its inception in August 2006. The monthly index in March was 77.8, a 13.1-point decrease from February, and nearly 40 points lower than a year earlier.

"While the passage of the economic stimulus plan last month and Fed rate cuts may have influenced February's upturn, the mood is considerably darker now, said Sastry Rachakonda, of Discover. "All of the Watch's negative data points increased, causing the double-digit drop."

March Key Findings:

-77 percent of small business owners feel that economic conditions in the U.S. are getting worse, an increase from 67 percent in February.

-53 percent rate the U.S. economy as "poor" compared to 36 percent who said the same in February. Only 16 percent rate the U.S. economy as "excellent" or "good."

-48 percent of small business owners say they see economic conditions for their businesses getting worse over the next six months, up from 34 percent in February. This is the lowest level of confidence expressed by owners regarding their prospects during the 20 months.

-47 percent say they have experienced cash flow issues over the last 90 days, a slight increase from 43 percent in February. This is the highest we have seen since the launch of the index

"Of the key indicators in our study, temporary cash flow issues showed the least amount of change, which generally indicates that Main Street tends to be more consistent," Rachakonda said. "What has seemed to change dramatically is the way small business owners are interpreting what they perceive in the national economic picture; they realize it could be some time before business picks up."

When asked which issue is most important in the 2008 election, 47 percent of small business owners cited the economy, up 12 percentage points since January. Following the economy as the most important election issues are: immigration, 12 percent; the war in Iraq, 11 percent; national security, 8 percent; health care, 8 percent; government ethics and corruption, 8 percent; Social Security, 1 percent; and 4 percent were not sure.

Poll: Many Business Owners Feel Burden of Tax Preparation as Time Away from the Business

"Three out of four business owners find the preparation and documentation process time consuming," Rachakonda said. "Complexity of the tax code is big distraction that takes their focus away from building their business."

When it comes to using an accountant or choosing do-it-yourself software, the human touch still has the advantage: 74 percent of business owners hired a professional, 15 percent used a software program and 9 percent did neither. These percentages remained about the same compared to 2007.

Tax Poll Highlights:

-41 percent of small business owners say it is somewhat or very difficult to find and organize the documents they need to file their taxes.

-29 percent indicated that the tax preparation process is very time consuming and another 46 percent find the process somewhat time consuming.

-71 percent of small business owners say that the complexity of the tax code is a distraction from their focus on the needs of their businesses.

Of those who are expecting a tax refund this year, 44 percent of consumers and 38 percent of small business owners say they will use it to repay debts. Twenty-seven percent of consumers say they will use their refund for personal use, while 19 percent of small business owners say they will use the extra cash for business purposes.

Small business owners are more likely than consumers to use a tax professional: 74 percent of small business owners plan to get help, while only 58 percent of consumers said they would.

51 percent of small business owners say that tax professionals are worth the fees they charge, compared to 41 percent of consumers who agree.

Word of mouth is a determining factor when hiring an accountant: 54 percent of small business owners seek "someone they know and trust," and 26 percent more seek a "referral from friends or relatives." The percentages are similar among consumers, with 49 percent depending on someone they know and 25 percent taking a referral from family and friends.

"Aside from the tax insights, this poll clearly points out the importance of word-of-mouth advertising to small business owners," Rachakonda said. "Accountants, contractors, real estate brokers – all small business owners – understand that quality of service for their current customers is their best friend when it comes to winning their next customer."