Visa USA Forecasts Small Business Spending to be $4.7 Trillion This Year

SAN FRANCISCO, CA – Visa USA today introduced its small business spending forecast and segmentation analysis, providing a long-range and comprehensive view into the future growth of small business spending in the United States. This analysis, part of Visa’s broader Commercial Consumption Expenditure™ (CCE) initiative, is the latest in a series of analytical activities to further understand business payment needs.

The small business segment – businesses with under $25 million in annual sales – accounts for one-third of all expenditures by businesses in the United States. According to Visa’s CCE analysis, non-payroll spending by U.S. small businesses will increase an estimated 5.4 percent this year to $4.7 trillion, and expand further to reach $5.3 trillion in 2008.

“This study, illustrating how and where small businesses spend, helps Visa and our Members better understand and anticipate the growing payment and information needs of this segment,” said David Cramer, senior vice president, commercial solutions, Visa USA. “Small business spending already represents a significant percentage of all commercial expenditures – and is on the rise. Collectively, we have an opportunity to help streamline their financial processes and improve payment efficiency.”

Core Business Services Top Small Business Expenditures
The largest share of small business expenditures (34 percent) is comprised of core business services, such as legal, accounting, insurance and shipping and mailing. Spending on these core services, which also include other professional services such as consulting, as well as temporary services, is expected to grow 5.7 percent in 2005 to $1.6 trillion.

Other key components of the forecast include:

• Rent (currently 8 percent of small business spending) is anticipated to exceed $400 billion in 2005 and continue to grow at a double digit rate over the next three years.
• Advertising and marketing is expected to reach nearly $250 billion in 2005 and see a compound annual growth rate of approximately 9 percent over the next three years.
• Small businesses will spend $1.1 trillion, or 23 percent of all expenditures, on maintenance and operating supplies, including utilities, telecommunications services, computers and data processing, and office supplies in 2005.
• Travel and entertainment costs, such as airline travel, auto rental and lodging, represent nearly $100 billion of small business expenditures, and are expected to grow at nearly 6 percent per year over the next three years.
• Raw materials and manufactured goods spending will increase to $800 billion in 2005, representing 18 percent of small business expenditures.
• Other spending categories, including capital equipment and all other non-payroll expenses, are expected to reach more than $400 billion in 2005.

“With the introduction of our small business spending forecast, Visa continues to make industry-defining contributions to frame and measure major economic trends,” said Wayne Best, senior vice president, interchange strategies, Visa USA. “This expansion of Visa’s CCE metric comes at a time when it is more important than ever to recognize and track the commercial payment opportunity, as small businesses transition to more efficient forms of payment.”

Visa plans to update its CCE small business spending forecast on an annual basis.

Small Business Spending Trends
Since 2000, spending on small business general-purpose cards has grown by 20 percent annually, while volume on Visa’s small business products has increased by 33 percent per year during the same time period. The explanation for this industry-leading growth lies in Visa’s focus on tailoring its programs to address the payment and cash flow needs of small businesses by offering versatile payment products and services.

“Trends indicate that more and more businesses are moving away from checks as a form of payment and are looking to utilize credit or debit card options in their operations,” Cramer said. “Visa and its Member financial institutions remain committed to meeting the unique needs of the small business segment and will continue to develop products that align these business priorities.”

About Visa Commercial Consumption Expenditure
Visa’s Commercial Consumption Expenditure (CCE) index is the first financial metric to standardize how business and government spending is tracked within the United States. Created by a team of Visa research and economic experts, CCE draws on government data in methods similar to the Personal Consumption Expenditure (PCE) index, which annually monitors consumer-related spending. By using measures from the Bureau of Economic Analysis and the Census Bureau, CCE offers an unbiased and consistent way to monitor business expenditures within the United States that is consistent with gross domestic product accounting.

CCE is comprised of four key data elements including intermediate inputs, wholesale and retail purchases, private fixed investment and government spending. The small business spending forecast incorporates the broader CCE data set, as well as proprietary data provided by Global Insight.