The Small Business report: Hopeful, but cautious in 2013

by The City Wire staff ([email protected]) 110 views 

Small businesses are said to be the backbone of local community growth. And looking toward 2013 local business owners are hopeful the sluggish recovery will continue, but they are not anticipating a “banner year” just yet.

This cautious sentiment was also expressed in a comprehensive survey of 18,000 businesses by the Manpower Group. This quarterly survey found net employment outlook to be positive in early 2013. It was the strongest first quarter reading in five years with 17% of respondents expecting to add to their work forces in the first quarter.

But the vast majority – 72% of business owners – expect no change in hiring for 2013, in fact 8% expect to make cuts and 3% were still undecided.

Those sectors looking to add jobs include retail, hospitality and information. Many times jobs in these sectors are part-time or contracted independently and do not include benefits, according to Bill Fox, a counselor for the University of Arkansas Small Business and Technology Development Center in Fayetteville.

Wells Fargo economist Mark Vinter agreed, saying small business owners’ higher level of caution stems from concerns that they have less ability to control expenses with higher taxes on the horizon and still unknown costs related to health care outlays.

The Wells Fargo random survey of 607 businesses with less than $20 million in annual revenue reported this week small business sentiment has taken a pessimistic turn in the last two months.

For the 18th consecutive quarter, more businesses plan to reduce capital expenditures than to increase them in 2013, Vinter said.

Micah Neal, owner of Neal’s Cafe in Springdale, says this is the 68th year for his family’s business, but he’s not anticipating any real net growth per se. He said revenues are higher, driven by steady traffic and predominantly price inflation.

“We are making enough to pay our bills and thankfully had enough reserves to replace a few pieces of equipment this year out of necessity, but it’s still a long way from historical profit levels and I don’t see that changing in 2013,” Neal said.

He said volatile fuel prices are always a concern because of the impact they have on discretionary spending.

“When gas prices rise above $3.25 per gallon, customers began ordering water, sharing plates and forgoing dessert. Some will also come in less often because it’s either fill the tank and get to work or eat out,” Neal said.

He employs 24 people at the restaurant, which was reduced from 28 a few years back and says like many small businesses, he is running the operation about as lean as he can and will continue to do so.

“Payroll taxes are going to go up in 2013 and that will mean my customers will have less disposable income. That’s a concern, not just for me but everybody,” Neal said

Vinter says a family earning $50,000 will pay $1,000 more in annual payroll taxes when the rates return to the 2010 levels in January. He expects that will curtail discretionary spending in the first quarter of 2013 and forecasts a sluggish first half in terms of overall spending.

The employee-paid portion of payroll tax was rolled back from 6.2% to 4.2% for the past two years as a temporary relief measure given by the federal government. That will expire on Dec. 31. There has been no effort to extend the relief as it has cost the government $240 billion in lost revenue over the two-year period.

Maudie Schmitt, owner of Cafe Rue Orleans and Maudie’s Seafood Market in Fayetteville, said her biggest concern in 2013 is inflationary food costs related to corn, further exacerbated by the record drought in the nation’s bread basket states this year.

“Corn is used in so many products as a sweetener and of course it’s fed to the entire protein chain including catfish. Every invoice I pay is a few cents higher than previous one and there doesn’t seem to be an end,” Schmidtt said. “These higher costs will eventually have to be passed on to consumers, who will also be feeling a pinch from higher taxes in 2013.”

The National Restaurant Association reports the industry as a whole remains concerned about rising wholesale food costs pressuring bottom lines. About one-third of sales go toward purchasing food and beverages. Most restaurants pre-tax profit margins are already a slim 3 to 5%, according to the industry trade group.

Schmitt says Cafe Rue Orleans will celebrate its 13th birthday in January. “It’s a teenager in restaurant years and we have been blessed with a loyal customer base but also continue to face heightened competition from so many chain restaurants that serve less expensive dishes in high volume,” Schmitt said.

Cafe-Rue Orleans has 10 employees, only one full-time. The seafood market has two part-time employees and Schmitt says that’s likely to remain steady.

“I am naturally optimistic and excited about 2013, and I continue to talk with others in the hospitality sector in Fayetteville about the recovery we are seeing here. One area that still remains tepid is lunch crowds. People began brown bagging during the recession and while lunch traffic has improved some, it’s still no where near the pre-recession levels.” Schmitt said.

The trade association indicates there is substantial pent-up demand for restaurant services, with 2 out of 5 consumers saying they are not using restaurant as often as they would like; with improving economic conditions, that demand is likely to turn into sales.

Garner Building Supply in Rogers is a three-generation business of 64 years. Co-owner Landon Garner says the construction sector’s modest pick up early in 2012 was a sign of relief after several pretty rough years.

But he’s not yet convinced the family business will see any measurable growth in 2013 facing higher lumber costs, unpredictable health care benefit outlays and tax hikes.

“The sky isn’t falling or anything, but it’s been incredibly difficult to plan a head when we don’t know what the daily cost of doing is business is going to be to start 2013. We have already scaled down to a point where we can’t operate on any less. That’s the mindset of most small businesses these days. We run a very lean and conservative business, even more so in recent years,” Garner said.

The Garners have 12 full-time employees and provide health insurance for the entire staff. 

“We would love to add a position or two but right now we have no idea what that would cost us long term and the last thing any small employer wants to do is add a person and then have to lay them off a few months later. I have been with the company a decade and I am least tenured employee we have,” he said.

A few years back when the construction industry stalled the Garner’s added more hardware to their store and looked for ways to augment lost revenue, selling propane gas and a wider assortment of tools.

“We just have the one store, and we either make it or here or we don’t. Northwest Arkansas has been a great place to operate and I suspect 2013 will be okay. That’s if Congress and the White House can iron out a plan a head of the approaching fiscal cliff. Let’s hope they do,” Garner said.

Vinter says taxes are likely to go higher in 2013 — that’s just a fact. It will take households and businesses a few months to get used to paying more, which will likely mean a sluggish start to 2013.

Residential housing is one of the brighter spots in the national economy and Garner hopes that continues into 2013 because of the positive impact that makes on consumer confidence and overall sentiment.

One of the few employment sectors poised to grow in 2013 are jobs involving online media and related technology.

This didn’t come as a surprise to Rebecca Haden, owner of Haden Interactive in Fayetteville, who says she is looking to add a position within her small business right now.

“We are seeing more demand from other small business and professionals who know they need a web presence and are looking to outsource those services with companies like Haden Interactive,” she said.

Haden says the reason 50% of small businesses still don’t have a website or social media platform is because the feel they are too small.

“That is rapidly changing,” she added. “We are constantly hearing from doctors and lawyers who run small practices and they know they need to be online, and somehow think they should do it themselves, when in reality they outsource payroll and various other services all the time,” Haden said.

She is quite optimistic about 2013, because the potential for growth in her business remains quite constant as quickly as technology is evolving.
Haden interactive has three full-time employees and nine others who freelance at least part-time for the company.

She said as companies have scaled back to very lean work forces, outsourcing the social marketing part of the business is making more sense financially. They get an artist, photographer, creative writer and website designer and pay just for the job they need, without having to fund those benefits for four full-time employees.

The Manpower Group says as smart phones become more prevalent in every day s ociety, more companies are investing into technology-based marketing more than ever before. This is creating opportunities for companies in this field to grow.