Small Biz Not Taking Recession Lying Down

According to the American Express OPEN Small Business Monitor, many small business owners are finding new resources to tap and new ways to manage costs beyond the traditional steps of laying off staff or cutting back on staff hours.

Nearly half of business owners (45%) are open to bartering for new products or services with customers or suppliers and nearly one-quarter (23%) report their barter activities have increased due to the economic environment.

Additional steps include:

• 48% have instituted hiring freezes
• 30% are no longer taking a salary
• 27% have a family member working pro bono
• 25% are renegotiating leases and supply contracts
• 16% have cut benefits
• 18% work a second job

Among the 18% of entrepreneurs working a second job to manage through the recession:

• 43% are in the services industry
• 41% describe their location as a home-based business
• Have been in business for an average of fifteen years
• Have average annual revenues of $620,000
• Employ an average of seven people
• Are an average age of 48

Not all entrepreneurs view the current economic environment as a hardship; in fact, a distinct group (37%) says that the current economic environment actually creates opportunities for their business. Among these opportunistic business owners, two-thirds have a positive outlook on the economy, half plan to make capital investments and just over one-third plan to hire. Nearly all of these glass-half-full entrepreneurs (92%) say that managing through the recession has made them a better business owner, compared to 77% overall.

The majority of this positive cadre of entrepreneurs (86%) has small firms between one and nine employees, and nearly half of these upbeat business owners (48%) are found in the services industry, according to the American Express OPEN Small Business Monitor.

Retailers have emerged as the most optimistic group of business owners, but they still find themselves faced with challenges:

• They are the most likely sector to find themselves sacrificing personal finances (67%) and most likely to stop taking a salary to deal with the recession (42%)
• Many are concerned with cash flow (59% vs. 56% last fall), due in part to less-than-stellar holiday sales last season and larger than necessary inventories
• Less are likely to have capital investment plans (32% down from 37% six months ago) versus other industry sectors
• However, one-third of retailers identify themselves as "Opportunists," those that make the best of a bad situation (30%).

Services Sector

Compared to the broader community of business owners, optimism is higher among business owners in the services sector as well:

• According to the report, they are more likely than retailers and manufacturers to have capital investment plans such as technology investment (49%, up slightly from 45% last fall) and hiring (30%, vs. 26% of retailers and 19% of manufacturers), which provide the backbone of services businesses
• They are less likely than retailers and manufacturers to have experienced cash flow issues (54%, on par with 52% last fall), perhaps due to the fact that their businesses are not dependent on a product and associated costs
• Many say the recession has made them a better business owner (79%) and the current economy creates new opportunities for their business (41%)
• They identify themselves as "Survivors" (38%)

Manufacturing

While business owners in the manufacturing sector also identify themselves as "Survivors", they reversed their outlook of six months ago:

• Just 34% of manufacturers have an optimistic outlook, down significantly from six months ago (52%)
• The manufacturing sector is more likely to experience cash flow issues (71%, up dramatically from 47% last fall), due in part to their resistance to cut expenses (they were the least likely industry group to do so)
• They are the least likely to have hiring plans (19%, down from 30% six months ago)
• Cash flow concerns stable, despite economic uncertainty

Cash, Cowed?

Cash flow continues to be an issue at the top of the priority list for small business owners, but even now in the midst of the recession it is well below its spring 2002 zenith (86%). The number of entrepreneurs experiencing cash flow issues this spring (57%) is on par with both the previous fall (55%) and spring (56%).

Among cash flow concerns, the biggest worry for business owners overall is the ability to pay bills on time (17%). One-quarter of business owners in the retail sector (27%) are concerned about the ability to pay bills on time (versus 16% of manufacturers and 10% of services companies). Additional concerns for businesses include accounts receivable (15%), having enough cash to win new business (10%), the ability to meet payroll (9%) and the ability to accurately track cash flow (7%). Less than one-quarter of all business owners (24%) believe their accounts receivables are too high; however, six-in-ten entrepreneurs (61%) are concerned about having cash available to pay bills over the next six months.

American Express OPEN Small Business Monitor, released each spring and fall, is based on a nationally representative sample of 727 small business owners/managers of companies with fewer than 100 employees. The anonymous survey was conducted via telephone by Echo Research from February 24- March 9, 2009. The poll has a margin of error of ±3.6%.