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Small and mid-sized businesses are optimistic about future growth, but a bit less than in 1996, according to the sixth annual survey of small and mid-sized business owners conducted by Arthur Andersen's Enterprise Group and National Small Business United (NSBU).

Economic Outlook. Small and mid-sized business owners are split in their expectations for economic growth. During the next 12 months, about half of the owners surveyed expect the economy to continue to expand, while the other half expect growth to flatten out. Three percent of owners are anticipating a recession.

The majority of owners surveyed expect increases in profits, sales/revenue, and employee compensation in 1997, but their expectations are more subdued than last year. Expectations for hiring also are down.

* 65% of owners expect their profits to rise, a decrease from 70% in 1996--and the average expected rise in profits is 4.4 %, down from 5.8% expected in 1996

* 69.4% of owners expect their revenue to rise, a decrease from 76% in 1996--and the average expected rise in revenue is 5.4%, down from 6.9% expected in 1996

* 54.6% of owners expect employee compensation to increase, down from 58% expected in 1996

* 34.3% of owners expect to hire more employees, down from 39% expected in 1996.

Despite a more moderate outlook, companies are continuing to improve. Although they have scaled back their growth projections a bit, small and mid-sized business owners still are investing to improve their operations. A large majority of owners, 89.2%, reported that they made significant changes in their businesses. More than half, 56.5%, of owners said they made technology enhancements. These improvements included computer system upgrades by 52% of owners and changes to better utilize the Internet by 19.4% of owners.

Other changes included:

* Improving productivity (38.5%)

* Developing new products and services (35.9%)

* Increasing employee training (24.3%).

The economy plays a key role in businesses' success and owners' optimism. To a large degree, small and mid-sized business owners believe that factors outside of their control have the greatest influence on their companies. This is supported by the fact that 40.9% of owners cited the economy as the biggest determinant of their success and survival. Owners identified several other factors as challenges to their success, including:

* Taxes (36.9%)

* State and Federal regulations (33.9%)

* Lack of qualified workers (27.2%)

* Labor costs (24.5%)

* Keeping up with technology (23.5%)

The study results are based on 953 surveys of owners of small and mid-sized businesses. Results were weighted using U.S. Bureau of the Census business firm data. *

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