Businesses looking ahead warily. (Economic Cross Currents).

How's business?

Two years ago such a question would have elicited high-fives all around.

A year ago it would have brought groans.

But now, almost year after the Sept. 11 attacks and a bottoming out of a 9-month national recession, the question prompts answers laced with nuance, frustration and a touch of wishful thinking.

The economy enters the last quarter of 2002 just a few hairs above stagnation. Job growth has been weak, corporate profits modest, and consumer spending shows signs of slowing down.

All this has experts conflicted on what the coming months might bring. Some expect another recession, while others see breakthrough expansion. A third camp looks for the continuation of incremental growth that's not quite a recession but not quite a recovery either.

None of which is comforting to L.A. companies wishing to drum up business in the final three months of the year, and begin budgeting for 2003.

For many, the problem continues to be capital. Despite stunningly low interest rates that have pumped up housing sales all year, businesses are having a tough time getting access to money - whether through banks or private lenders. Much of that crunch is the aftermath of corporate debt swelling to $4.8 trillion, or almost half that of the annual gross domestic product.

"I am not as confident of recovery as I was a few months ago," says Steven Cochrane, director of regional economics with Economy.com. "The availability of capital is being constrained in ways that could impede recovery - the weak stock market makes it difficult for private equity firms to raise money, and commercial banks have tightened their lending standards."

Here in L.A., as elsewhere, business is up, down and sideways. Most companies have had to modify their strategies, products, pricing and workforces in an attempt to adapt to their depressed environment. The Business Journal chronicled the experiences of three small companies to get a pulse of the economic climate.

The Cutter

Walking around his Vernon warehouse, Barry Baszile can run through a list of reasons why it's so quiet on a weekday afternoon. In the end, all explanations lead to Sept. 11.

His company, Baszile Metals, buys raw aluminum and processes it - cutting it to size and drilling holes where needed. He works primarily on smaller orders for aerospace companies that his larger competitors can't afford to take on.

Now, with orders from the commercial airlines virtually halted, Baszile points to stacks of sheet metal: excess inventory. A row of industrial saws sits dormant instead of cutting raw metal into profits.

"We had to lay a bunch of our guys off," says Baszile, concluding the tour.

Layoffs are not uncommon among manufacturers these days, and for the time being they have worked for Baszile. Lowering personnel costs has made it possible for his company to stay current on bank debt and continue with what work is available. The entrepreneur also used $250,000 of his own money to pay the remaining workforce and maintain inventory.

Shortly after Sept. 11, Baszile Metals applied for a special low interest loan offered by the Small Business Administration to companies whose business had been hurt by the terrorist attacks. He didn't get it, Baszile says, because the SBA didn't see how his company could grow in the current environment.

The rejection still irks Baszile - the tone of his voice sharpens each time he goes through the story. But he didn't have time to worry about. it with business falling off; it was easier to just step in with his own money. "I don't feel like putting up a fight," he says.

As the commercial airline business faces more troubles, Baszile is moving to diversify by bidding on new bus and rail projects for the Los Angeles Metropolitan Transportation Authority. And he is looking at other areas, like fashioning freeway call boxes out of the same aluminum that had been used to build Stealth Bombers.

"I can't just sit around and wait for the aerospace industry," he says.

It's not the first time Baszile has had to diversify. The Louisiana-native moved into public transportation when the aerospace industry exodus hit in the '90s. More recently, he started a trucking service at the company's Seattle facility.

While he has seen downturns before, Baszile says this one is especially scary. He is reluctant to take on new bank debt or use his own money for business investments. "We're going into areas where there is little additional capital needed to diversify," he says.

Sept. 11 turned a steady decline in manufacturing activity into a free fall, forcing him to take drastic steps. In its best year, 1998, Baszile Metals generated revenues of $18 million. That has fallen to less than $7 million.

Baszile remains optimistic, though he notes, "I don't know of anything that is strong in the manufacturing area. That makes me wonder about a speedy economic recovery."

Holding Steady

Two weeks ago Joe Werner shipped out samples of his Chatsworth company's furniture to the Merchandise Mart in Chicago for a trade show later this month. He hopes that next year he'll be able to ship more.

The president of Werner Woods, a furniture wholesaler, says he has lots of great ideas, and he might even try his hand at adding a new line to his existing outdoor furniture business.

All he needs is money.

"When you're a small business, capital is with you every single day," he says.

Werner faces the same roadblock as lots of small businesses. While confident of future growth, he's had a hard time getting financing to expand his catalog of products. "The better we can do in getting new capital, the more products we will have," he says.

Werner has been at it for some time. In the '80s he and his wife had a retail store in Orange County called Nigel Imports, dealing exclusively in rosewood furniture. Then came the recession of the early 1990s and the market for expensive furniture evaporated in Southern California.

"That damn near broke us:' he remembers. "I wanted to branch out into wholesale, so if one area of the country fell into hard times we would have a greater possibility of building a better business."

He founded Werner Woods in 1995, and over time he, his wife and daughter have pumped in $1 million to keep it going. The furniture is designed by Werner and contract designers and then manufactured in Thailand.

The company has grown from four employees to nine, including Werner's wife and daughter, and has about 28 contract sales representatives. Revenues last year were about $1.4 million, and this year Werner expects that to reach $2 million.

There is no certain logic for where the growth has come from. The housing boom, he said, has been little help. "A lot of people seem to be buying houses they can barely afford and don't have money for furnishings," says Werner.

Year-over-year revenue growth tells only part of the story. He has had some employees double up on jobs and has been keeping a closer eye on expenses.

And he has prepared two sets of projections for next year.

If he can land a $750,000 loan from the Small Business Administration he thinks he can hit $3 million in revenues. If the loan fails to come through, well, he said he'd rather not discuss that.

"If we would have had access to more money earlier, we would be much further ahead in our growth," Werner says.

Looking ahead, Werner Woods is focusing on growing with what they've got. In the next year, assuming the SBA loan is approved, Werner plans on renting new warehouse space to supplement an existing 20,000-square-foot facility. Looking out two years, he says the company would like to add four more full-time employees. All of this, though, depends on how much money the company can get.

"Like most small businesses we are under-financed," Werner says.

Funding Expansion

Cyrus Hadavi, founder and chief executive of supply chain management software company Adexa, knows too well what a difference a year makes. In the technology business, it can feel like several lifetimes. And last year, Hadavi nearly lost one of his.

In August 2001, a $340 million stock deal to acquire his Los Angeles company fell through. The impact on his 250 employees was all Hadavi could think about.

"I knew the news could put my employees and our customers into a bit of a spin and there was no time for that," he says.

Hadavi realized he would have to act quickly to consolidate his customer base and go on the hunt for another round of venture financing.

It took nearly a year from the time the deal with FreeMarkets Inc. fell apart, but last month Hadavi got his funding boost - a $15 million cash injection from investors led by New York-based Wasserstein Venture Capital. It is the fourth round of funding Hadavi has received since he founded the company eight years ago, bringing the total to $54 million.

"We see Adexa poised to be the major beneficiary of an IT spending recovery sometime next year:' says Townsend Ziebold, Wasserstein's president.

Adexa's software uses modeling technology to manage inventory, job processes, track business plans and warn management when things steer off course.

And in a year that has seen corporate spending on information technology grind to a virtual halt, Adexa was able to increase its customer base and boost revenues to a projected $54 million this year, up from $50 million a year earlier.

In years past, 8 percent revenue growth might have seemed meager, but 2001 was different.

By increasing its marketing efforts and slashing prices on licenses, Adexa was able to achieve its year-on-year growth. "What we have to offer is a strategy for cost-cutting," says Hadavi. "It has strong appeal to customers in both a boom and a bust market. We are constantly demonstrating the return on investment for a potential customer."

Armed with his $15 million in new funds, Hadavi is watching the company's revenues and the state of the economy very closely.

"The new funds provide us a better cushion should the economy worsen in the second-half of the year," he says. "The budgets for IT spending are definitely out there. The real question is when they will start actually spending it."