Hike if You Like

If you've been fantasizing about raising prices, this might be the time to make your dreams come true. The National Federation of Independent Business' June survey found that 25% of small companies hiked prices in the previous quarter--the fifth straight month the number exceeded 20% and the greatest string of increases since 1996. Meanwhile, only 7% lowered prices, suggesting new pricing power among the nation's small companies.

That's some change. Rather than raise prices and risk losing customers, most entrepreneurs have focused on boosting efficiency. But for many small companies, productivity gains no longer keep pace with cost increases--especially with fast-rising health-care and labor costs. ''Margins are deteriorating,'' says NFIB Chief Economist William C. Dunkelberg. Price hikes, he says, are occurring across all industries, with construction and professional services leading the way.

E. Martin Davidoff, owner of an eight-person accounting firm in South Brunswick, N.J., raised his rates about 3% this year and plans a similar step for early 2001. Even that might not protect his margins. Labor costs, he says, are up nearly 30% over the past 12 months. So Davidoff is working to become even more efficient by investing in computer systems and offering new perks to stop costly employee turnover.

Davidoff's modest price hikes have met change users' habits. More than 20 million Netheads are estimated to now use the software. That's up from 1 million a year ago. And more than 1 million users are joining each month. ''We see piracy as being a huge market enabler. Piracy has created the market for portable music players,'' says Gene Hoffman, CEO of eMusic, a Web music company that sells MP3s. Before Napster, says Hoffman, most music downloaders were members of a small group of hardcore aficionados and pirates. Now, he says, ''more customers aronomy begins to slow--not a problem at the moment. Economic growth registered a greater-than-expected 5.2% in the second quarter, compared with 4.8% in the first quarter. The quickening pace may well spur an inflation-wary Federal Reserve to raise interest rates a seventh time, when it meets Aug. 22, in an effort to slow things down. So a word to the wise: If price hikes are your dream, you'd better act now--before you're jolted back to reality.

For more on coping with inflation and price hikes, click Online Extras at smallbiz.businessweek.com

By LARRY KANTER

CHART: Sticker Shock

I'm O.K., You're Not

Small-business executives are increasingly gloomy about the national economy--yet many expect their own companies to beat the odds, says a quarterly survey by Heller Financial in Chicago. Similarly, the NFIB's monthly survey found optimism at a seven-year low--and sales expectations up. Why the contradiction? ''A downturn creates opportunities to gain market share,'' says Heller CEO Richard J. Almeida. In fact, many entrepreneurs see the dot-com shakeout as a chance to recapture some lost business.

CHART: Small-Company Owners and Execs See Tougher Times

More Net Names

The search for the perfect Internet domain name is about to get a lot easier. On July 20, the Internet Corporation for Assigned Names & Numbers (ICANN) voted to increase the number of available Web addresses by adding new suffixes (or ''top-level domains'') to the usual dot-coms, dot-nets, and dot-orgs. The move should be a boon to entrepreneurs, many of whom have ventured onto the Web only to find their preferred domain name already taken. Lacking the cash to buy the address, most have had little choice but to come up with a clumsy alternative, hampering e-commerce efforts from the start.

ICANN has yet to reveal the new suffixes. The agency expects to have the framework for the new addresses in place by the end of the year, and entrepreneurs should be able to register names soon afterward. So stay tuned, lest you find yourself locked out a second time.

By NAWEEN MANGI

Tax Breaks for Renewal

How would you like to pay no capital gains when you sell your business? Thanks to Congress, it's not out of the question--provided your business is in the right neighborhood.

The House of Representatives voted on July 25 to create 40 ''renewal zones'' in poor communities across the country that would be eligible for a number of incentives and tax breaks, including the exemption from capital-gains taxes on the sale of a business held for at least five years. Businesses in the zones also would receive tax breaks to help offset environmental cleanup costs.

Unlike this season's other tax-reform packages, it's likely that this legislation will become law. The White House backs it, and the measure, which passed the House by a vote of 394-27, has the strong support of Democratic leaders in the Senate.