Business owner optimism is increasing, according to the most recent Wells Fargo/Gallup Small Business Index survey conducted November 4-10. Survey results show improved outlook for business owners over the next 12 months in revenues, cash flow and capital spending.

“After a year when optimism dropped to the lowest level in survey history, business owners appear to be turning a corner and looking ahead,” said Doug Case, Wells Fargo small business segment manager. “To support business owners as they begin focusing on growth, we have launched a new small business financial education website (www.wellsfargobusinessinsights.com) featuring an array of timely, relevant resources that can help them achieve their goals.”

Increased revenues over the past year also led to an improved overall Index score. The latest Index score came in at negative 4 (-4), a 24-point improvement over the previous quarter (July 2010) when the Index hit its lowest score in the survey’s history at negative 28 (-28). A score of zero indicates that small business owners, as a group, are neutral – neither optimistic nor pessimistic – about their companies’ situations.

“The improvement in optimism among small business owners appears to be more than statistical noise,” said Dr. Scott Anderson, Wells Fargo senior economist. “Better economic conditions including a strong lift in third quarter GDP – in particular new strength in consumer spending – are boosting small business owners’ perceptions for increased cash flows and revenues over the next 12 months. This improved optimism bodes well for the overall economy.”

The Index is the sum of “present situation” and “future expectations” of small business owners for six key measures, including financial situation, cash flow, revenues, capital allocation spending, job hiring and credit availability. The “present situation” score improved significantly this quarter to negative 19 (-19) from negative 26 (-26) in July 2010. “Future expectations” of small business owners jumped from negative 2 (-2) in July to a score of 15 this quarter, the highest future expectations score since Q3 2008.

The Q4 2010 results demonstrate an 11-point increase year-over-year for the overall Index score. Present situation and future expectations scores also show year-over-year improvements of five and six points respectively. Since its inception in 2003, the Index has reached a high of 114 in the fourth quarter of 2006 and a low of negative 28 (-28) in Q3 2010.

Of the six key measures described above, the following served as the main drivers of the Index score during this survey period:

Future Expectations:

- Capital Spending – 24 percent expect their companies’ allocation for capital spending to increase over the next 12 months, up from 17 percent in Q3 2010.

- Cash Flow – 50 percent expect their companies’ cash flow to be “very good” or “somewhat good” over the next 12 months, up from 43 percent in Q3 2010.

- Hiring – 18 percent expect the overall number of jobs at their companies to increase over the next 12 months, up from 13 percent in Q3 2010.

- Revenues – 44 percent of small business owners expect their companies’ revenues to increase a lot or a little over the next 12 months, up from 38 percent in Q3 2010.

Present Situation:

Revenues – 29 percent reported increased revenues over the past 12 months, up from 21 percent in Q3 2010.