The slow economy has caused some small businesses, like Express Sales Lincoln-Mercury (above) in Manlius, to close their doors. (Liam Migdail-Smith)
Dean Assimon was five when his father opened the Express Sales showroom in Manlius. Now, 60 years later, it’s empty.
“It was not the closing of a business, ” Assimon said. “It was the end of an era.”
Assimon’s Express Sales Lincoln-Mercury is one of more than a million of the nation’s small businesses hit hard by the recession. The federal Small Business Administration defines small business as one with fewer than 500 employees. In New York State, one in four small businesses has failed since 2008. Nationally, the figure is even higher, with 27 percent small businesses going under.
Consider these figures from Small Business Administration:
- Nationwide, 43,546 small businesses announced bankruptcy in2008 — a 53.8 percent increase from 2007.
- In New York State, 1,849 small businesses announced bankruptcy — a 34.5 percent increase from 2007.
- Nationwide, 1.5 million small businesses are closing.
- In New York State, 105,896 small businesses are closing.
The reasons: weak sales and tight credit, say experts. And many small business owners also blame a higher minimum wage, according to a survey conducted by National Federation of Independent Businesses in September 2009.
Here’s a closer look at those culprits:
- Weak sales:
The National Federation of Independent Businesses is the trade association for 350,000 members, including more than 10,000 in New York. In its survey, the group asked its members for information about their business health in the recession. Of those 897 responding, 32 percent of small businesses said their biggest problem is poor sales. Quarterly profit trends were the worst in the survey’s 36-year history, with 50 percent reporting declines compared to 14 percent reporting gains.
But shrinking demand affects different kinds of businesses in different ways, said Tom Lumpkin, professor of entrepreneurship and emerging enterprises at Syracuse University. “Luxury items, fancier cars, longer vacations — these are likely to be hit harder,” he said. “Consumer staples, food, fuel, and utilities are not likely to be hurt as badly.”
- Tight credit:
The survey also found that 14 percent of respondents reported loans are harder to get. And 15 percent more business owners expect it will be harder to arrange financing, according to the survey. In addition, the continued poor earnings and sales performance has weakened the credit worthiness of many potential borrowers.
Tight credit is a real problem, said Lumpkin of SU’s entrepreneurship program. Many small businesses use credit cards and revolving credit for short terms loans, he said. “As long as they are making their payments for those on time, they still have access to credit,” he said. “But new creditfor expansion is harder to get. Obtaining new loans for expansion is the primary problem.”
- Higher minimum wage:
Many small firms blame a higher minimum wage of $7.25 per hour for hurting their profit, according to the survey. That, they say, causes them to either lay off workers or postpone hiring new ones. In September, the survey reported, 23 percent of respondents said they had reduced employment. Over the next three months, 16 percent said they plan to cut jobs.
Higher minimum wages mean higher expenses because salaries and wages are typically the biggest expense a business faces, said SU’s Lumpkin. “To avoid those expenses, small business hire fewer people or lay people off,” he said. “Those who remain employed often have to work harder or longer hours and/or increase productivity.”
In the past, small businesses often led the nation out of recession. They are a major force in net job change and create 80 percent of new jobs, according to Small Business Administration. Locally, statewide and nationwide, small businesses all account for more than 99 percent of all employers.
SU entrepreneurship professor Lumpkin describes small businesses as a job-growth engine because they can often bring workers back into the work force more easily than large business. “Just as small firms can often make decisions to contract more quickly, frequently they can also expand their workforce more easily than a large corporation,” he said.
In a recession, small businesses have weakness as well as opportunities, Lumpkin said. “Recession are more damaging to small businesses because they do not have the kind of deep pockets that large businesses have to absorb the shock of declining revenues,” he said.
As small businesses struggle in the recession, the federal government is proposing new programs to help them. In early December, PresidentBarack Obama’s administration proposed using some of the federal stimulus package to help small businesses. Among those solutions to small business’ troubles:
- A one-year elimination of the tax on capital gains from new investments in small business stock
The stimulus package allowed a 75-percent exclusion from capital gains taxes on small business investments. It is, the administration said, the groundwork to help small businesses better generate jobs, growth and innovation.
- A new tax cut for small businesses to encourage hiring in 2010
The administration said a short-term tax incentive would encourage small businesses hiring and support employment. The administration has promised to work with Congress to design a tax cut for the hiring incentive.
- A cut in fees and an increase in guarantees for small businesses that borrow through major Small Business Administration programs in 2010
Obama has called both changes by the Small Business Administration. He also called for continued Treasury Department efforts to use the government’s bailout money to support increase lending to small businesses.
But for the Assimon family car dealership in Manlius, all that comes too late.
“We had great customers, great friends,” Assimon said. “They knew our families. They knew our kids. That’s what a family business is. And it’s never coming back.”
(Lynette Chen is a graduate student in magazine, newspaper and online journalism.)
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