Small and medium-sized businesses are showing stronger current financial health and an increase in hiring, despite the ongoing impacts of COVID-19, according to the results of a new national survey by Principal Financial Group. At the same time, a shifting environment, lingering economic impacts from the pandemic and increasing employee turnover have made businesses more cautious about their 12-month outlook.

“The last 18-plus months have tested small businesses and caused many to fundamentally change their businesses, find new ways to operate, take care of their employees, and get work done,” said Amy Friedrich, president of U.S. Insurance Solutions at Principal.

The latest Principal Financial Well-Being Index, in its eighth year, reveals the gap between smaller and larger businesses is narrowing when it comes to growth and financial improvement. The survey identifies smaller businesses as those with fewer than 500 employees, and larger businesses having 500 or more employees.

Smaller businesses report greater financial improvement (59%) compared with this time last year (31%); similarly, larger businesses report financial improvement (80%) when compared with last year at this time (63%). Smaller businesses are catching up to the improved economic performance relative to their larger counterparts.

These findings are from the latest WBI pulse survey of 500 employers from companies with two to 10,000 employees and span a wide array of industries, with more than half of the employers falling within finance/insurance, professional/scientific/technical, construction, manufacturing and information management industries.

While most businesses included in the survey reported being fully operational (60%), many smaller businesses continue to struggle to move forward, with only 55% at full operation, compared with 66% of larger businesses. The lingering economic effects of COVID-19, protecting employee health and wage inflation – a new addition to the list – are among the top concerns of small to medium-size businesses. Other concerns include the cost of health care, cybersecurity, work-life balance and increasing revenue.

Smaller businesses in particular are concerned about the year to come. Only 46% of smaller businesses feel confident about their financial situation for the next 12 months, compared with 63% of larger businesses, a gap that has widened to a 17-point difference. As the pandemic continues, businesses are cautious about the future economic outlook as they expect more change to come.

Infographics with the survey results can be found at this page on Principal’s website.