With rising costs and a lackluster economy all around, small businesses are feeling vulnerable. How are they faring?
“It’s obvious our businesses and individuals are getting hit right now in multiple ways with double-digit increases in the costs of gasoline, electricity, natural gas, corn prices, medical costs and health and other insurance rates,” says Ron Aldridge, state director of the National Federation of Independent Businesses (NFIB). “As similar costs impact government and schools, then the economic impact back on the businesses and individuals whose taxes support these functions only gets worse, especially as many anticipate increases in local taxes from property reappraisal.
“Couple these with the mortgage situation and only time will tell whether many businesses can weather this storm. As families and family businesses are making their necessary cuts and belt tightening, we only hope that our government does the same.”
Holding its own
At Stanford Feed & Seed near Carrollton, Laverne Stanford, who owns the business with her husband, Harmon, said so far the family business is holding its own as there’s some swapping going on.
“The feed business is down, and some people are selling their horses and cattle because feed is so high,” she said. “But more people are planting gardens so we’re selling more seed and chemicals.”
Sales of fertilizer are also down as the cost of this and other products continue to rise. At this time last year, the Stanfords were paying $9 for the same amount of ammonia nitrate that costs them $15.50 now.
“We paid just under $400 last year on a load of feed out of Nashville. The last load we got was $833,” she said. “Taxes concern us too. In 1983 when we started this business, we paid $200. Last year we paid $2,000.”
Doug Gurley, director of the Mississippi Small Business Development Center at the University of Mississippi, says the greatest threat to small businesses is the reduction in employment by, or closure of, larger businesses within the area they serve.
“Smaller communities dependent upon a major employer are naturally more vulnerable than larger more economically diverse communities,” he said. “So, it depends upon where the small business is located.”
Linda Ferguson, owner/president of Safeway Cleaners in metro Jackson, is not facing area employment reductions, but says energy costs are her main concern.
“That includes the cost of plastics, chemicals, petroleum solvents and employees going back and forth,” she said. “We have had to adjust. Fuel affects everything. Every invoice we get has a fuel surcharge.”
Safeway doesn’t deliver to homes but delivers to drop off sites and to hotels for valet service. That part of the business recently had a rate adjustment, something she says should have been done earlier.
Ferguson also is not pleased with the manufacturing of hangers in China that used to be made in this country. “Our government in its wisdom let hanger makers outsource that to China. I held out as long as I could but now I have to import them,” she said. “I have to pay more for them and with a tariff. It’s insane.”
ll, she remains optimistic because the majority of her customers have stuck with the family business that’s been serving the community for 40 years.
Forensic accountant Keith Campbell of Gulfport says small businesses become more vulnerable to fraud in a slow or recessive economy. What has been identified as the “Fraud Triangle” has one leg called rationalization.
“Fraud can destroy a small business,” he said. “Rationalization is the ability of a potential fraudster to justify their act of fraud. When the economy slows, employees sometimes rationalize fraud by telling themselves ‘the company owes me this; I haven’t received a raise or I am just borrowing a little money from petty cash for gas until the prices go down.’”
Harold Neal, co-owner of Upton-Neal Interiors in Pearl, sees a slowdown in new home construction, but the business is doing well with commercial and re-modeling projects.
“New construction is really affected, but we do a cross section of work, and that diversification helps keep us going,” he said. “We’ve been here 40 years and ups and downs always come.”
He’s paying installers more due to rising fuel costs and is regrettably seeing some construction business people going bankrupt.
Henry Thomas, director of the Small Business Development Center at Jackson State University, lists reasons why small businesses are more vulnerable to economic slow downs.
“Small businesses usually have little or no cash reserves. They tend to be debt heavy and can not borrow any more to get past the tough times,” he said. “Also, there is little fat to cut in the budget, and they usually are not the strongest company in their market and may not be able to pass on price increases.”
Finally, Thomas finds that small businesses’ management may not see the big picture and how it will affect their firm in time to make changes.
On the Mississippi Gulf Coast, retired psychology and business professor Louis J. Finkle reflects upon the issues affecting small businesses in the coastal counties post Katrina.
“As a partner in a chain of school supply stores and volunteer for the Service Corp of Retired Executives, I have many opportunities to communicate with entrepreneurs throughout the three counties on a daily basis,” he said. “Costs of doing business have risen much higher and faster than the pricing of services and products offered to the public. This has, in most cases, reduced the net margins needed to sustain profitability.”
Other issues include: the difficulty of getting insurance coverage and the rising cost of that coverage; obtaining qualified labor; fuel price increases; and, the decrease in spending for goods and services.
“This decrease in spending is causing many retailers to cut prices while the cost of goods keeps escalating,” Finkle said. “By the time the federal government admits we are in a recession, we will either dive toward a depression or begin its rebound.”
Contact MBJ contributing writer Lynn Lofton at email@example.com.
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