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No Rebound Yet For Smallest Businesses

Posted by: John Tozzi on November 30, 2009

Confidence among America’s smallest business owners fell to the lowest level since February, according to the latest Discover-Small Business Watch. The survey, conducted by Rasmussen Reports, polls a random sample of 750 business owners with five or fewer employees on six core questions each month. Together businesses of this size make up 22 million of the nation’s roughly 26.6 million firms.

The survey asks small business owners questions about how they feel about the economy, and questions specific to their businesses, like whether they plan to hire or lay off workers. I picked out three business-specific questions and charted them below. (View the full-size image here.)


Here are the precise questions:

Over the next six months, will your company increase or decrease spending on business development activities such as advertising, inventories, and capital expenditures? (The blue line indicates percentage planning to decrease business spending.)

Over the past 90 days, has your business encountered any temporary cash flow issues that caused you to hold off on paying some bills? (The red line indicates percentage that responded yes.)

Over the course of the next few months, will your company be hiring more workers, laying off workers, or making no change in the workforce? (Green line indicates percentage planning to lay off workers.)

The percentage of companies citing cash flow problems and the percentage cutting business spending are moving in tandem, and both are now above the 50% mark. That’s not a good indicator for recovery. Likewise, the 15% planning to make layoffs is double the number planning to hire.

Note also that (like most small business research) this doesn’t factor in survivor bias: the firms that have already closed doors in this recession are not around to be surveyed.

The Discover-Small Business Watch offers more evidence that the small business economy is lagging behind Wall Street and the Fortune 500. It’s evident in credit conditions (firms that borrow in the capital markets largely have credit restored, while firms that borrow from banks don’t). The gap may be understating the employment situation (because smaller firms and self-employed people are not counted as quickly as larger firms) and overstating GDP growth (ditto).

This survey taps into those smallest employers and self-employed business owners who aren’t well-represented right away in official economic statistics. The spending and hiring decisions of 22 million microbusiness owners affect the broader economy. According to this survey, there’s no recovery for them yet.

Reader Comments

Domenick Celentano

December 1, 2009 07:51 AM

Many "micro-businesses" are started and run by artisan entrepreneurs, or more simply people who have a subject matter expertise that turned into a business. We all recognize these type of businesses... most of the building trades fall into this, many small food startups are another example since the owner is a great cook or baker.

What many of these businesses are running into is the now overused but true axiom of “the new normal”. If we look at retail as just one example, Big Boxes, Off Price Retailers are changing the landscape. The consumer is embracing Affordability over Value. Social Networking and Mobile Marketing are fast becoming effective customer engagement tools.

A recover for small business will come from the economic recovery AND a change in how they do business in the future.

The phrase, “keep doing what you are doing… keep getting what you got” is now truer than ever.

Domenick Celentano
Kean University
College of Business
Marketing Department

Peggy Lee

December 1, 2009 01:28 PM

I agree in some part with Mr. Celentano's post in that Social Media and Mobile Marketing will certainly help small business. I actually have a consultancy that does this for many small businesses, online and store fronts and retailers alike. However, I must differ in the opinion that small business will benefit from the Stimulus Package. What went to small business. Zero. And with the new "trickle down" theory, once ridiculed when Reagan used it for tax reductions, are we assuming some of the money given to the banks, AIG and states will "trickle down" to small business? The only thing that you can be sure of is that the new health care costs will "tickle down" to small business in the form of higher premiums and/or penalties.

Yet Entrepreneurism will survive! I do believe that 100%. It will just make the survival rate decrease. And why will it survive? Because most of us are Capitalist, not Socialist

Johnnie Firari

December 1, 2009 01:43 PM

The support needs to grow for small businesses. As I know the fears of current business owners, I do not think it will stop people from starting something of their own. When no one will hire you, people turn to utilizing their skills to create income resulting in the start of their own business.

Bert Person

December 1, 2009 02:35 PM

Wow...I disagree with Mr. Celentano's post for many reasons. I have been a small business owner for 25 years averaging 5 to 10 employees. All three graphlines seem to be a true indicator of the business climate here in the Midwest. We can social media and go to market with the "new" tools available, but if "they ain't buyin'...they ain't buyin'."

Big Boxes and Off Price Retailers have already changed the landscape. This is nothing new. They had choked out the "Mom and Pop Shops" years ago. What the small business owner needs is customers. Customers that want to, or need to, spend money. We need access to those people, whether next door or around the world. We need capital to pursue those potential customers. We need a less intrusive and less taxing government to free up time and cash flow.

Mark Habermann

December 1, 2009 03:39 PM

The bigger issue as I see it is we have unfair competition from other countries. US Manufacturing cannot compete with the Chinese and other Asian countries. We have a completely unfair trade imbalance. Unless we can bring trade into balance we'll never regain the wealth this country earned and now is giving to every other country, all in the name of a "global economy". We need to raise tarrifs on ALL imports so that the costs are competative with US manufacturing costs, and americans can go back to work.

Chris Lawson

December 1, 2009 03:45 PM

I've been self employed for 8 years and only in the past 3 years have I struggled like this. The answer for me has been to diversify. I now run my business along with 3 other micro-businesses which include an affiliate marketing site, a product based website and I've joined a well-known MLM. Yes, this sounds hokey and no, I cannot make my ends meet by any one of these, but I am finding that with the help of sites like Craigslist and a new one I found, , I can build these up to make just enough to make what I was making 3 years ago without a tremendous amount of extra effort.

Ralph Jensen

December 1, 2009 04:23 PM

Mr. Person has hit it on the head. As a small business owner the problem is the lack of customers willing to spend money.

With all the uncertainty about new government programs and the increasing taxes to fund them, consumers are being very conservative about spending. And, there is no way small businesses are going to hire if it is not profitable to do so.

The economy is in for a long slow recovery because our legislators are more interested in party politics, re-election, and stupid one time shots in the arm that do little to the boost consumer confidence.

Mas Hayakawa

December 2, 2009 11:46 AM

I own a retail business and I started preparing for recession in end of 2007. Things were going too good feeling the bubble and it was too obvious the recession was coming. My other competitors waited until end 0f 2008 to realize they were in trouble and when they panicked it was too late. Big boxes have been around for long time and any business school will tell you, small businesses can survive with diffrentiation and specialization. But you have to be good at it. You have to be better and faster than those executives at big companies. Small business must also know how to handle cash flow which most of amature entreprenuers don't know. People still buy in recession but you have to know what to sell and how to sell. All those social media is wastful for most businesses unless your business model is built around it (like Koki). Keep communicating with your customers but social media is not going to increase your business - it will keep your existing cutomers. I assume that the current bottoming of recession will continue for a year or two. I just hope government will help small business with health care, worker's comp ins, and taxes so we can improve our cash flow to start investing in the next expansion.

Linas Mazeika

December 2, 2009 06:35 PM

We have been in the corrosion protection business for the last 6 years and this has been our best year so far.
You have to look for new product development, new industrial customers and new geographies. Once you aim in these three dimensions, growth will come from the combination of them.
Existing customers can not afford to let their equipment fail and that motivates them to use our materials. New customers realize that the best time to stop corrosion is before it starts.
Once you develop a feeling of trust in your end user, you become more than a supplier, you begin to be their technical partner, helping them to solve tough problems.

Chad Allender

December 2, 2009 09:04 PM

I guess what I see might be a little different from others. I own and operate a Small Personal Services Company. The company is still young (7 yrs) & is based on the economy and the ability of people to feel that they can spend money without to much worry.

We are a luxury so in general we are the first to be cut out. I started back-peddling last year, to cushion the fall that I saw coming. It helped but when it finally got to the point of an almost stop industry we were in trouble. Falling lower than I had expected and holding there has made my once strong young company vulnerable to failure.

The so called Stimulus Packages & Financial Help that is out there for the Small Company's really isn't. So many of the Lenders Boast that they are lending and that the government backs loans up to 80%, well the more that they say they do it seems the less they actually do do. I have tried to find any avenue to help my small company make it thought the winter months into a more warmer atmosphere, summer. But with the consumers spending less & less, we are forced to down size even more or to do the ultimate, to close.

The forecasts are correct It will be a slow road to recovery and that the ones that survive will be stronger, But what about the company's that should survive? What if there product is better, but the competitors cut cost so low that we as genuinely solid company's struggle or fail. How does that make it a better economy?

I guess my question is, When you have done and or tried everything to stay on top, What do you do when you can't. I've been at my trade for almost 20 years, what do I do to survive. I've tried everything in my power, but the Lenders that Lend, do not seem to be lending the way the government say's that they are, and in the end it does not look like they are going to start back up anytime soon.

So yes we are in economic crises, a depression. So how do the right small company's stay afloat? I don't know. Holding on seems to be a fools dream anymore, and having your own piece of the pie, seems to be for the deeper of the pocket people.

Eric Holtzclaw

December 3, 2009 09:39 AM

As a small business owner and having successfully run a profitable company for the past 8 years that has made the INC 5000 two years in a row, I agree with this article.

We have been in the throws of renegotiating a relatively small line of credit that helps us pay our vendors and employees while we await payment from our customers.

We have seen in 2008/2009 large companies are taking advantage of the economic conditions and paying slower - 15 to 30 days slower. This is can have a major impact on the cash a small company needs and will affect the overall lines of credit that are available to businesses.

So, it's a perfect storm for small companies. Banks aren't lending or renewing credit lines, customers aren't paying as quickly, and the small business relies on vendors/contractors/employees to keep their doors open.

Don't believe the rhetoric out there from the banks that received bailout money from the government. They would like you to believe the claim they are lending more, when if you compare what they are lending within a given quarter to what they are closing or having paid off, they are actually removing about 1/2 of the available credit every quarter.

Ryan Johnson

December 3, 2009 02:48 PM

>>The bigger issue as I see it is we have unfair competition from other countries. US Manufacturing cannot compete with the Chinese and other Asian countries. We have a completely unfair trade imbalance.<<

The largest problem for small businesses right now is there is no lending available. In early 2008 we pioneered a print on demand service for custom playing cards. Traditionally most specialty market playing cards printing is sent off to China or India and small companies must order 2000 to 3000 decks. In offering Print on demand, we produce as little as 25 at a time. We're bringing some of that business back to the US.

Problem is, we're utterly slammed. Been operating at max output most of this year and turning down the bulk majority of potential new clients as demand has far outstripped our current production capacity. We need additional equipment to expand more quickly to meet that need. The more expensive printers (which can at times cost as much as a small house) would normally be affordable under standard lease terms, but not right now. Those are imposible to get. A couple other pieces of equipment we need are new designs, but we must have them built. That takes finiancing. That and 90% of the machine shops here in Michigan went belly up, getting something like this done afforably has been proving to be a challenge.

Normally a growing business will finiance these growth issues through bank loans or lines of credit. Those just aren't available to small business right now. Doesn't make achieving that growth impossible, but doing on the month to month profits does make it somewhat slower.

GOB Retail


January 21, 2010 05:40 PM

I think its obvious that we have really lost our customer, I have been in remodeling or new construction for more than 25 years and the last 5 have been the toughest. I noticed a change in our customer base a while back, maybe 15 years ago, we started losing the regular Joe's and most of our customers seemed to be better financed, we went from Teachers and Manager level people to wealthier customers and we had less of them, I live in Central Texas and all the small manufacturing facilities have closed in my area, I think manufacturing builds a base in our economy, Three things have happened in our economy that has made a signifigant effect, closing of manufacturing plants, alot more illegal aliens, much more outsourcing of mid level white collar jobs, almost like a attack of the middle class and the middle class can be a good customer, especially if he has a good paying job, if he has a job he can pay to have his house fixed, buy a new truck and the wife can spend too, therefore making for a good balanced economy, face it folks, we have to renegotiate the trade and outsourcing deals, plus immigration.

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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