NEW YORK — Don’t look for a small business boom anytime soon.
Many company owners aren’t interested in expanding, and many have no plans to hire.
They don’t trust the economy. In a survey released in September by Bank of the West, 80 percent of nearly 500 small business owners called the economy a barrier to growth.
There are indeed signs the U.S. economy may be slowing because of weakness in trading partners like China and Canada. Earnings are down at many big U.S. companies, and manufacturers are exporting fewer goods. These developments have an impact on small businesses and contribute to a vicious cycle — when small companies aren’t trying to grow or hire, it helps slow the economy further.
They’re saying, ‘2015 hasn’t been as great as we thought it was going to be. I’m not ready to invest or hire.’
Owners’ caution was clear in September hiring reports, including one from payroll company ADP (ADP) that counted 37,000 new jobs at its small business customers, down 63 percent from a monthly average of nearly 100,000 the first eight months of the year.
Owners were more optimistic in the spring when the economy was recovering from a tough winter, according to the National Federation of Independent Business, whose Small Business Optimism index was at a high for the year of 98.3 in May; in September it was at 96.1.
Gene Marks, owner of The Marks Group, a consulting firm based in Bala Cynwyd, Pennsylvania, says the owners he’s spoken too aren’t as confident as they were earlier this year.
“They’re saying, ‘2015 hasn’t been as great as we thought it was going to be. I’m not ready to invest or hire,’ ” Marks says.
Uncertainty about the economy piles onto concerns individual owners have about their businesses:
Once Burned, Twice Shy
Brent Ridge and Josh Kilmer-Purcell have always known a weak economy could threaten their business selling products like food, clothes and bedding made on farms.
They started the company, Beekman 1802, in 2009 after both lost jobs to the recession. They’ve built the business by reinvesting money they’ve made back into it, never taking on debt.
“We believed the reason the economy faltered was because people were playing around with money that wasn’t theirs,” says Ridge, whose company is located in Sharon Springs, New York.
They’ve added two or three people a year the past few years, bringing their staff to 11, after getting a deal to sell pasta sauce to 250 Target stores. Now, the discount store chain wants their products in all its nearly 1,800 stores.
Still, while Ridge says the company has been thriving, he and Kilmer-Purcell plan to hire only when they really need to.
“I don’t think there’s ever going to be a time when we throw caution to the wind,” Ridge says.
Learning From the Past
Orit and Robert Pennington learned taking on too many employees can jeopardize a company.
TPGTEX Label Solutions was successful after its 2002 start, and grew to a staff of about 15. But the Houston-based company, which makes software to print barcode and other labels, didn’t have the income to justify its expansion.
The Penningtons had to downsize, and by 2013 they and a freelancer were the only employees.
“We were doing things too fast and the business model was not perfect,” Orit Pennington says.
The company is growing again, adding four employees in the last year. But the Penningtons have turned down opportunities to significantly expand the business.
Annie Pace Scranton has the money to pay another employee for her company, Pace Public Relations, but she’s hesitant to hire.
She can’t be sure her clients, many of them medical practices or other small businesses, won’t cut their marketing budgets and in turn, her revenue.
Scranton already has some saying they don’t have the money for marketing. Others hire her five-year-old New York-based firm for several months rather than a year or more.
She’s using more freelancers when there’s more work than her staff of three full-timers can handle.
“I don’t think it’s smart or fair to a prospective employee to hire them when I can’t commit to supporting another salary,” she says.