Every day seems to make it harder to stay in business for Michelle Rogers, owner of Double R Country Store in Palm Bay, Florida. She and her father, Steve Rossi, teamed up 15 years ago to start an online warehouse that sells farm, ranch supplies and other goods, like wild bird seed and Amish-made baskets. With business humming six years ago, they expanded into a brick-and-mortar store.
The business, which employs six people including her husband, Lance, brings in $600,000 to $800,000 in gross revenue annually, according to Rogers. But given high overhead, it is hard to turn a profit, she said. Competing with giant retailers is an uphill battle, and the store is still recovering from a costly Internet fraud three years ago. Often, Rogers skips a paycheck so she can pay suppliers.
“It’s hard to change people’s mentality, when they can go to Wal-Mart and get things for half the price,” said Rogers. “The big-box chains are surrounding us. They get so many different breaks and benefits that it’s hard to compete.”
Many people romanticize the idea of running a small business, but it’s not so easy in today’s environment. Entrepreneurs face competition from all over the globe via the Internet. Low-cost loans are still hard for very small firms to get despite an improved credit climate. Health insurance for the self-employed remains a costly burden for many. Perhaps as a result, many Americans aren’t even attempting to start a business—once a big part of the American dream of independence. The Brookings Institution, a nonprofit research organization, found in a recent study that business creation has been declining for several decades.
Read More Small business job engine sputters
Stephen Furnari, a New York City attorney who advises small businesses, says that from his vantage point, many owners’ top struggle is to find enough customers at a time when Americans’ paychecks often can’t keep pace with rising costs for groceries and other essentials. “Wages have been largely stagnant,” he noted.
“Fifteen years into it, it’s like a child to me. I gave birth to it and watched it grow. It’s not anything I want to give up on.”
Before the recession, home owners were able to tap home equity lines of credit to buy extras or roll credit card debt into their home equity lines, but that well has remained pretty dry since the recession. “Take that out of the equation and there’s less discretionary spending,” Furnari said.
Businesses that cater to other businesses have also been hit, affecting their cash flow. The average late payment for small businesses on bills past due is 7.66 days, according to the Cortera Small Business Index. That is down from a high of 12.8 days in December 2012, but similar to rates in 2010, after the recession officially ended in mid-2009.
Furnari, who runs two co-working spaces in New York City for attorneys called Law Firm Suites, said he has seen the impact his customers, who have reported that their clients are paying them more slowly. “I had a conversation with a lawyer who says his collections were running up to 90 days,” he said. “The problem is that his clients’ clients were slow to pay. It was trickling down to him.”
Against the Odds
Of course, not all of the obstacles facing small business come from outside. Many new owners lack the know-how they need to manage cash flow and other critical functions, according to experts.
“Knowledge and an understanding of what a small business needs to do to be successful are key obstacles for small business,” said Jennifer Friedman, chief marketing officer of CT Small Business, an affiliate of professional services information company Wolters Kluwer. For instance, many aren’t organized in a way that gives lenders confidence, Friedman said.
There are some signs that more people may be trying to beat the odds and start businesses, despite the Brookings Institution’s findings. Across the country, incorporations have risen 16 percent since 2009, according to data CT recently compiled from secretaries of state.
Meanwhile, recently released data from the Census Bureau found that the total number of nonemployer firms—those with no employees except the owners—rose from 22.4 million in 2011 to 22.7 million in 2012. Some of those firms have far greater reach than one or two individuals because they rely on help from contractors.
However, they are not the fast-growing job creators many say are necessary for the country’s economic recovery. Owners who want to hire say they are stymied by conditions that still make it hard for small business to operate.
J. Patrick Saunders, founder of a Colorado Springs, Colorado-based engineering firm that does business under the name SMEP Design Group, wants to hire two people but has not been able to get the bank financing to expand, in part because Saunders is hesitant to put his house up as collateral. As a Vietnam veteran who served in the Navy, he had hoped to hire and train two veterans to help them avoid the unemployment gap that often follows an active tour of duty. “I know how hard it is,” he said. “When I got out of the service, I couldn’t get hired.”
Meanwhile, the 12-employee firm, which relies heavily on government contracts, is recovering from the federal budget sequestration last year. It had a good year in 2012, bringing in $2 million, but suffered a body blow when the government hit the brakes on its operations. “We lost about half of our business,” he said. “That just about killed us.”
Nonetheless, many firms like his do survive, often because of the scrappiness of the owners. The Small Business Administration says that about two-thirds of businesses with employees survive at least two years, and about half survive five years, according to data published in 2012.
Saunders and Rogers are running campaigns on crowdfunding site Indiegogo, overcoming their reservations about going public with their situations. (Saunders’ campaign is here and Rogers’ is here.) “It can be a little awkward. You’re kind of exposing yourself that you don’t have the resources to do something,” Saunders said.
But that beats the alternative: closing. Neither he nor Rogers are willing to do that.
As Rogers put it, “Fifteen years into it, it’s like a child to me. I gave birth to it and watched it grow. It’s not anything I want to give up on.”