Best time to own a small business is now, poll says
These are the good old days for America's small business owners.
A majority of those polled are defying the fitful economic recovery and regulatory obstacles, and proclaiming there’s never been a better time to own a small business, according to a nationwide survey by insurance giant Allstate.
A related Allstate/USA TODAY small business barometer rated their overall health as strong amid higher sales and payroll growth -- a sign that firms with fewer than 100 employees could help the economy weather the current rough patch. Of 25 major metro areas, Orlando and Indianapolis scored highest, while New York and Los Angeles ranked lowest.
"The environment (for small businesses) is certainly as good as it’s been since before the recession" of 2007-09, says Mark Zandi, chief economist of Moody’s Analytics.
Fifty-three percent of those surveyed are going further and stating that now is the best time to be a small business owner. Their positive outlook is rooted in the benefits of new technology, the generally improving economy and more favorable lending conditions.
The survey of 2,640 small business owners was conducted in November, before this year’s increased stock market volatility and intensifying concerns about a faltering global economy. Still, the results are consistent with other recent evidence of strong hiring by small businesses and underscore that they’re positioned to underpin solid economic and job growth this year, offsetting the struggles of larger companies.
"They’re more insulated from the turmoil going on overseas and less concerned with what’s going on in the stock market," Zandi says. Small businesses export relatively little compared to their mid- and large-sized competitors and aren’t dependent on their stock values to finance acquisitions.
Allstate conducted the survey in part to gauge the challenges facing its national network of independently owned agencies. "Despite some global and national economic uncertainty, local entrepreneurs are bullish about their prospects," says Stacy Sharpe, senior vice president of corporate relations at Allstate.
Of the small businesses surveyed, 61% said they were doing well, and nearly 80% said that over the past three months their business grew the same or more than it did in the year-ago period.
Thirty-one percent were hiring or planning to do so in the next three months, up from 22% that brought on new employees the previous three months.
Allstate Small Business Barometer
Red Thinking, a five-year-old direct marketing and branding company based in northern Virginia, doubled its sales in 2015, up from 25% average growth in previous years, says owner Jennifer Sterling. She cites the firm’s decision to aggressively market to real estate developers amid an accelerating housing recovery and the improving economy.
The 10-employee business added two staffers last year and plans to hire two or three more in 2016, Sterling says, including a web designer and project manager. Although business is off to a slow start this year, she largely chalks that up to seasonal factors and says her clients are starting numerous projects that should fuel another sharp rise in revenue.
"I don’t see things slowing down at all," Sterling says.
The unsettled business climate so far in 2016 appears to have had at least some impact on small enterprises. In January, the National Federation of Independent Business's monthly index of small business optimism slipped, though a similar Wells Fargo measure rose sharply to the highest level in a year.
Small business job growth, meanwhile, showed no sign of flagging last month and continued to outpace gains by larger firms, as it has since September 2014, according to giant payroll processor ADP. That’s when the dollar began strengthening and oil prices started falling, developments that eventually clobbered manufacturers’ exports, as well as energy investment and related production.
A big reason for small firms’ resilience and optimism is that they’re leveraging new technology and greater availability of capital, two factors they assign very strong ratings in the Allstate/USA TODAY barometer.
New business formation in the second quarter of 2015 increased at the fastest pace in 17 years, Labor Department figures show. And 90% of U.S. business owners said they were willing to start a new enterprise last year, according to a September survey by the Entrepreneurs’ Organization.
"Technology is more readily available and that’s making it (easier for businesses) to start up and get customers," says Vijay Tirathrai, CEO of the Entrepreneurs’ Organization.
For example, he says, new online services help small businesses manage their relationships with customers for relatively small monthly fees, compared to in-house software that costs tens of thousand dollars or more.
Noting that all of Red Thinking’s employees work at home, allowing it to reduce costs and attract top talent, Sterling says the firm would not exist without web services that make it possible to easily share documents, route calls and voicemail, and hold video meetings.
"We’re at home but still connected," she says. "You’re just so many steps ahead of somebody who tried to do this five years ago."
Banks, meanwhile, have opened the credit spigots wider for small businesses the past year after maintaining tough standards since the 2008 financial crisis, though conditions have tightened a bit recently. Nearly 60% of the small firms surveyed by Allstate said it wasn’t difficult to obtain a loan the past three months.
Expo Logic, of East Norriton, Penn., which handles registration for trade shows and conferences, took out a $3 million loan last year to acquire a competitor as sales grew 30%, up from a typical 20%, says CEO Jeff Cooper. Cooper credits software that makes online registration data seamless for customers and higher attendance at events., He recently hired three workers and plans to add four more to his staff of 45 this year,
He says the first bank he approached approved the loan, which was backed by the Small Business Administration.
Other small businesses face hurdles. Since September, monthly sales at the Savoy Restaurant in Tulsa, Okla., have fallen vs. the year-ago period as a result of the plunge in crude prices and widespread layoffs in the oil patch, says owner Evan Kelamis.
Although the 90-year-old, family-owned eatery has withstood oil’s boom-and-bust cycles for decades, Kelamis fears the current downturn could linger. "I don’t feel good about things," he says. Kelamis did not increase his 22-employee staff last year and is cutting costs, but the restaurant is still profitable and he doesn’t plan layoffs.
Kelamis directs more ire at what he calls a growing regulatory burden that has made obtaining a building permit for expansion more arduous, subjected him to worker compensation audits and forced him to hire lawyers to handle employee dismissal cases.
"Being a business owner has never in my professional lifetime entailed more risk and a greater burden to be in compliance with an increasingly complex set of rules and regulations," he says.
Twenty-three percent of the small businesses surveyed by Allstate cited taxes as their biggest problem and 21% pointed to regulation, making those the biggest obstacles behind attracting customers. More than nine in 10 said the regulatory burden has stayed the same or gotten worse the past year.
"The top issue is rising healthcare costs," as a result of the Affordable Care Act, says Bill Dunkelberg, NFIB’s chief economist.
The health care reform law will add $67,000 in costs this year for restaurant group owner Bob Bernstein as it forces businesses with the equivalent of at least 50 full-time employees to provide coverage for 95% of them. Bernstein owns six coffee shops and restaurants in the city, and employs 60 full-time and about 60 part-timers.
He plans to open two more eateries this year, noting, "Nashville is growing like crazy." But that has a downside. The sharply rising rents his employees must pay and an influx of chain restaurants are forcing him to raise wages about 7% this year. That, along with the higher health care costs, will squeeze his profits. In coming years, Bernstein says the added costs may mean he’ll open fewer new restaurants. For now, he’s still riding Nashville’s boom.
"I think we’ll be fine in 2016," he says.
