Higher sales brighten small business outlook.

CPAs are more likely to find small business clients in an optimistic mood than they were a year ago, according to the latest National Federation of Independent Business (NFIB) survey of more than 2,300 small business owners, which was conducted in January. The NFIB's small business optimism index for the fourth quarter of 1992 jumped to 102.1 (1978 = 100), a gain of 3.4 percentage points from the previous quarter, to reach its highest level since April 1992.

Even the depressed labor market showed some signs of improvement. In the first quarter of 1993, 16% of the companies surveyed planned to increase total employment, while only 7% expected staff reductions. The 9% net gain in hiring plans was more than double the corresponding gain in the January 1992 survey and a three-percentage-point gain over the previous quarter.

Small businesses were hesitant to borrow--despite the fact that rates remained low. The average interest rate paid by small companies during the fourth quarter of 1992 dropped to 8.7%, the lowest level in the survey's 10-year history. Nevertheless, the percentage of companies borrowing at least once per quarter remained at a record low of 33%.

The renewed optimism was most evident in the rising number of companies planning price hikes in the first quarter of 1993. Nearly one-fourth (24%) of the small companies surveyed said they would raise prices in the first three months of the year, up from 18% in the previous survey and a record low of 16% in the July 1992 survey.

E. Burns McLinden, a partner at Councilor Buchanan & Mitchell, PC, in Bethesada, Maryland, and a member of the AICPA division for CPA firms private companies practice executive committee, agrees small companies generally are more optimistic about the future. But, he said, "it's primarily because they have been depressed for so long. Many companies have cut back so far that they must hire now just to be prepared for a modest recovery. There may be some pent-up demand to raise prices to allow for a slight improvement in profit margins. In short, this year may be better than last year, but it will be a mixed bag in many areas."