Small Business is Key to Our Economy

A leading Park Rapids banker has said he believes that the economy will not turn around until the housing market turns around. With the foreclosure rate increasing around 17% over last year, this is not encouraging. Taking that thinking a step further, one could say the housing market will not turn around until more jobs are available. In August of 2010, the United States had an unemployment rate of 9.6% while Minnesota was better at 7.0%. More jobs would mean more income and therefore more spending for homes and other necessities.

The fastest and most sustainable way to increase jobs is through small businesses. The Small Business Administration defines a small business as having fewer than 500 employees, although the definition does vary somewhat by industry. Details can be found at www.sba.gov/size. Nationwide, small firms represent 99.7% of all employer firms and over half of all private sector employees. They pay 44% of total U.S. private payroll and have generated 64% of net new jobs over the past 15 years. They produce 13 times more patents per employee than large firms. From these statistics it is plain we need to encourage and help small businesses succeed.

Statisticians will tell you that one-time events such as federal stimulus infusions are “special causes” and are not sustainable, as they do not change the process or system. To change the system, we need to understand the problems of small businesses.

Seven out of ten new employer firms last at least two years, and about half last five years. Very small firms with fewer than 20 employees annually spend 45% more per employee than larger firms to comply with federal regulations.

Premium increases and administrative costs of health insurance for employees is an ever-increasing challenge for small business. The new health-care law impact is yet to be fully understood but early indications are that it will heighten the problem, not solve it for small business.

Patricia Schaefer writing for Business Knowhow lists seven reasons for business failure.

1. You start your business for the wrong reasons, i.e., make money or not have to have a boss rather than a strong passion for the work, drive, and initiative.

2. You have not developed strong management and leadership skills.

3. You have insufficient capital and have not developed a long-range financial plan to fully understand how much capital you will need and when.

4. You have not selected the optimum location to reach your target customers.

5. Lack of planning. You will need a business plan for at least three years including marketing, operations, human resources, and financial plans.

6. Overexpansion. A little success at one location does not mean you will automatically be successful at other sites. Controlled growth is important to make sure you do not overextend your capabilities in marketing, staffing, financing, etc.

7. You do not understand how to capitalize on social marketing techniques. A professionally designed and managed web site is mandatory as a minimum.

Solving these problems of small businesses is key to job creation and therefore economy. Some are difficult like the administrative costs of regulations and insurance and may be out of our hands. Others can be solved with help. Free counseling is available from SBDC and SCORE to help with development of the business plans and management development. Free templates can be downloaded by going to www.score.org, clicking on Business Tools, and then clicking on the desired template. Sharing the plans and continuing discussions with local bankers will provide guidance on financial matters.

It is key to our economy for our small businesses to survive and thrive. To do this, they can take advantage of free resources on a continuing basis to help them improve, grow, and provide more jobs.

Dr. Deming used to put forward a theory in his famous seminars about jobs that has some relevance to this discussion. He said if you work to improve the quality of your processes (including your management process), your costs will decrease and your product/service will improve, your productivity will increase, you will capture more market share with better quality and lower price, you will stay in business, and provide jobs and more jobs. He would go on to say, “so simple.”