Wanted: an agenda for small business.
But even yesterday isn't soon enough. Hall is president and CEO of The Designers Inc., a Silver Spring, Md. clothing manufacturer. The beleaguered business owner says the nation's retail slump has caused customer traffic to dip nearly 20% in the stores that sell his line of suits and casual sportswear. One of the outlets that sells his suits even shut its doors. "it's been very difficult," admits Hall, 34, whose 7-year-old company posted $1.1 million in sales last year. "Things have certainly slowed down," he says.
Like many small business owners, Hail blames the Bush administration for the economy's weakness. "There has been no leadership from the top," he says. "I've become so disillusioned.''
So have other small business owners. (For the purpose of this article, BLACK ENTERPRISE defines a small business as one with sales between $200,00D and $10 million. They are large enough for BE's Making It column, but too small for the BE 100's.). Earlier this year, the Small Business Service Bureau Inc. (SBSB), a Worcester, Mass.-based lobbying organization, surveyed 35,00[:) small business owners (many of whom are white)and only 1% believed that Bush helps them. Since 1984, that figure has decreased from the 14% that thought President Reagan was helpful. What's more alarming is that 68% of the small business owners believe Bush is doing a poor job at assisting small businesses. Those kinds of numbers are impossible to ignore-especially in an election year. And this presidential election is shaping up as nothing less than crucial for black business. An increasing number of small business owners in urban areas nationwide are looking to the government for economic relief and for it to finally establish a small business agenda for their needs. The grim fact is, the survival of many of these businesses depends on it.
It will take more than enterprise zones and "putting America first," for small businesses to navigate the coming year. That's why owners are eager for the election: Whoever is in charge at 1600 Pennsylvania Avenue will make a profound difference on how small businesses fare in 1993--and through the decade.
Small Businesses Challenges
Fostering small business development is in vogue partly because of this year's presidential election and knee-jerk concern for urban businesses since the Los Angeles riots. Unfortunately, a lethargic economy is blunting the decade-long boom of creating small businesses by African-Americans. And although the recession has officially ended, many business owners don't believe it. Consider: The economy grew a disappointing 1.4% from April through June-- less than half the rate of the first quarter. If you're a small business owner, that's bad news.
The nation's credit crunch also is slowing success. Even venture-capital fund managers who helped fuel the 1980s business boom are pessimistic. Since 1987, the Small Business Administration (SBA) reports that new-venture capital declined from $4.2 billion to about $1.1 billion last year. (An exception is Fairview Capital, a new fund that plans to raise $250 million exclusively for minority businesses.) Additionally, despite low interest rates, banks are not eager to lend. The struggle to get c a pital, says John R. Winston, national assistant director for the Washington, D.C.-based Minority Business Development Agency (MBDA) "will be the thing that will keep most black business owners from making it. Bankers continue to redline, and they still have little, if any, faith in a minority's ability to weather these times."
But these aren't the only issues bothering small business owners. Many believe that business-related legislation--on issues such as health insurance and mainstreaming disabled workers--may trim profits. Additionally, entrepreneurs are waiting to see how the final report of the U.S. Commission on Minority Business Development will be received by Bush and Congress. (At press time, the president had not commented on the report.)
Recently, despite lip service regarding the promotion of minority business, the federal response has been reactive. For example, since the LA. riots, Bush allocated $600 million to rebuild small businesses and homes. And last June, Congress approved $500 million more for national summer youth employment programs and SBA loans.
The administration also called for creating urban enterprise zones in 300 areas nationwide. But not everyone is a fan of the concept. Some small business leaders fear that companies looking for tax havens stand to gain more from enterprise zones than community residents and entrepreneurs. "If these enterprise zones are just going to be window dressing, then they won't work," says Dolores C. Ratcliffe, founder and president of the Los Angeles-based Association of Black Women Entrepreneurs (ABWE). "Black businesses need assistance on multiple fronts."
When small businesses fail, so does the economy. For example, the Bureau of Labor Statistics (BLS) projected that new businesses would have added only about 144,000 jobs in 1991, compared with 1.5 million in 1990. Why such a decline? When small businesses don't do well, they don't hire. It's that simple,
Presidential candidate Bill Clinton says he can solve that problem. Among other things, his economic plan advocates creating a nationwide network of community development banks to provide loans for small entrepreneurs, creating urban enterprise zones and strengthening the Community Reinvestment Act to reduce redlining. Harriet Michel, president of the New York City-based National Minority Supplier Development Council Inc., which promotes business between minority companies and the public and private sector, is guardedly optimistic. "We're not really sure what Clinton's plan is, but at least he's paying attention," she says.
On The Road To Recovery
Most of the nation's small business owners suffer from what can be called a severe case of economic shell shock, They still are recovering from a recession that hit them harder than any other sector of the economy. For instance, according to The Dun & Bradstreet Corp., a New York City marketer of business information and related services, U.S. business failures rose almost 16% in the first five months of 1992 to 42,118 from 36,355 in the same period of 1991. Business failures were up in all industries including real estate, finance, insurance. Bankruptcies in the wholesale and retail trade sectors remained at high levels. Wholesale trade failures rose 21.3% for the first five months of 1992 and retail trade failures increased 15.7% for the same period.
However, the recession is only part of the reason business failures ballooned. Dwindling markets and a weakened financial sector also played a role in why a number of companies collapsed.
Despite the gloom and doom, small business owners believe the worst is over. The feeling is that "The Big Small Business Shakeout" has hit bottom. An SBSB survey says 31% of the 35,000 small business owners polled believe the business climate is improving, up from 8% in 1990. And last May in a study by the SBA's Office of Advisory Councils, which monitors the private sector's view on small business issues, 73% of those surveyed said small businesses have continually improved.
African-American business owners--many of whom struggle even when the economy is solid--are surprisingly hopeful. Jacques E. Thermilus, president of the $7.5 million Urban Construction Inc. in Miami, is one example. "I'm hoping that the president--whoever it is--will really help the small business owner," Thermilus says. "We need to pump some money in the urban areas."
Bettye Davis-Lewis, CEO of Diversified Health Care Systems, Inc. in Houston, is another example of a glass-is-half-full entrepreneur. Davis-Lewis also plans to increase capital spending by 20% for her home health care service and projects her revenues will grow from $300,000 to $400,000 this year. "We want to branch out into more rural areas because there is such a lack of accessibility to health care, and people need it," she says.
Battling The High Cost Of Health Care
Health insurance. Mention those two words to small business owners and the first thing they'll say is: "Too costly." And they're right. Thirty-four million to 37 million Americans have no health insurance. The Congressional Budget Office reports that 80% of the uninsured are in families with at least one worker, and the majority of these are in small businesses. The situation is even more severe for African-American business owners who more often than not have fewer financial resources.
The Consumer Price Index shows medical costs rising at nearly 2.5 times the overall inflation rate. The average policy costs more than $300 per month for a family and more than $180 per month for an individual. In 1990, business owners spent an average of $3,000 per employee on health insurance. Small employers pay as much as 20% more than large employers for the same coverage. There are two reasons for this: Larger companies can negotiate lower premiums, and more paperwork often is involved in processing small business premiums.
Health care costs will consume close to 13% of the gross national product this year--a percentage projected to grow to nearly 17% by the end of the decade. Close to two-thirds of the more than 5,000 entrepreneurs responding to a recent survey by the Visa Business Card and the National Federation of Independent Business (NFIB) in Washington, D.C., cited medical insurance costs as a "critical" problem.
That was the case for Thermilus of Urban Construction. He says he's had a tough time finding affordable coverage for his 21 full-time employees. "We screened about a half-dozen companies for a policy, before we found one."
Guy T. Dunn, vice president of marketing and sales for Scott & Sons Maintenance Inc., a Clifton Heights, Pa.-based facilities maintenance and service company, laments that his firm can't even afford to look for a health plan for its workers. "We want to give our employees health insurance benefits, but it's just too expensive," Dunn says. "I know they would love for us to pay for something."
To make health care affordable for more Americans, Congress is considering several reform bills. For example, Sens. Lloyd Bentsen (D-Texas) and Dave Durenberger (R-Minn.) sponsor the Better Access To Affordable Health Care bill. It aims to make health care more affordable for small business owners by allowing self-employed individuals to deduct the full cost of the health insurance; enabling small businesses to form health insurance purchasing groups to reduce administrative and medical costs; and expanding Medicare benefits to cover a number of preventive care services.
Small black-owned businesses that are victims of redlining should find it easier to obtain coverage in a small business purchasing group like the one in the BentsenDurenberger bill. Many insurance companies have refused to write policies for such businesses as bars, restaurants and hair salons. "The element you want to look for in these bills," says Lisa M. Caroll, vice president of health services for the SBSB," is: Will it prevent insurers from discriminating against certain kinds of businesses?"
The Bentsen-Durenberger bill, however, has some drawbacks. For example, the owner of a business not considered "high risk" might end up paying the same premium as those that are high risk because all are in the same purchasing group.
There are no easy answers to solving the problem and it's impossible to please everyone. For example, Gov. Clinton proposes a "play or pay" health insurance policy to force employers to either provide health coverage for their workers or pay a new payroll tax.
The NFIB estimates that the proposal will cost nearly $90 billion in the first year, would force business owners to pay more than $42 billion in increased insurance premiums or tax penalties and cost tax payers more than $44 billion in higher taxes or bigger deficits. NFIB claims between 1 million and 2 million small business jobs would disappear and the growth of start-up companies would decrease sharply if Clinton's plan became law.
Making Room For The Disabled
If you're a small business owner and have never given much thought to hiring a handicapped person or redesigning your office to accomodate the needs of a disabled worker, you'd better start now.
Thanks to the Americans With Disabilities Act (ADA), employers with 25 or more workers must comply with new regulations that prohibit discrimination in employment practices. The ADA, effective July 26, also says offices must now accommodate a handicapped person's needs. For example, if an employee who uses a wheelchair can't use your bathroom or fit through one of your doorways, you could be slapped with a lawsuit.
The new measure has serious implications for small businesses. The question is: How many business owners actually know what the law means to them? The answer: Not many. "Right now, this law is a big question mark," says William J. Dennis Jr., NFIB's senior research fellow.
Forward-thinking entrepreneurs, however, are taking crash courses on the new law. "The average business owner should take the time, energy and expense to decide how he has to comply," says Darrell S, Gay, managing partner at Minter & Gay, a New York City law firm. "Contact the Equal Employment Opportunity Commission (EEOC)for the employment provisions and the Justice Department for the accommodation provisions. Remember, anyone who has 25 or more employees can ba sued. There will definitely be an increase in the number of charges by disabled persons because the grayness of the law will cause some confusion."
It's clear that the ADA will be a blessing for some businesses and a curse for others. The law will create a new business for many entrepreneurs. Construction firms are salivating since they project that many businesses will have to redesign their offices to accommodate handicapped employees.
Black-owned law firms also may benefit. To avoid lawsuits, smart small business owners are getting early legal consultation to determine how to comply. "This law will create a new industry just like the environmental laws did," notes Weldon Latham, senior partner at the Washington, D.C.-based law firm Shaw, Pittman, Potts & Trowbridge. "This will be a growth industry."
The ADA, however, won't be a boon for all. Since many black-owned firms are undercapitalized, it will be tough for them to comply with the law -- especially when it comes to building ramps, workstations and bathrooms. "This law will certainly hit the smaller businesses harder than it will the larger companies," Latham says.
For more information on ADA requirements that affect employment, contact the EEOC at 1801 L St. NW, Suite 501, Washington, DC 20036, or call 800-USA-ABLE.
Looking for some of the hottest small business industries? (See, "Hot Areas For Small Business" and chart, "Leaders Of The Pack,") One of the first places to start is health care. According to the Occupational Outlook from the BLS, the health service industry's employment levels are projected to grow to 11.2 million by the year 2000 frail 18.2 million in 1988.
Some of the health care industry segments that offer good opportunities include medical claims processing, home health care and medical products distribution. Other industries poised for growth include temporary help, environmental cleanup, international trade and talecommunications.
According to the American Express Small Business Performance Outlook, the forecast for small business depends on the nation's employment and industrial outlook. The top five states in terms of employment growth for the first qua rter of 1992 through the end of the year are projected to be Nevada, Kansas, Iowa, Arizona and Minnesota. The bottom five: Connecticut, New York, North Dakota, Pennsylvania and California.
Although black small business owners pay attention to such forecasts, mast are concerned about the outcome of the presidential election. In times of economic instability, African-American entrepreneurs often look to government for leadership--and help. Today is no different. Now that the concept of building up minority-owned businesses is center stage, black business owners are waiting to see whetherthe president--whoever he is--makes good on his pledge.
For More Information:
The small business arena is getting more competitive. The following sources should provide you with the information and contacts you need to survive in today's economy.
* Minority Business Enterprise Legal Defense and Education Fund (MBELDEF), 2201St., Suite 280, Washington, DC 29002; 202-543-0(00. The Fund is an organization which provides information and legal assistance in support of the development of minority-owned businesses.
* National Association of Minority Contractors (NAMC), 1333 F St NW, Suite 50e, Washington, DC 20004; 202-347-8259. This organization regularly disseminates information, including procurement opportunities, of importance to minority contractors.
* The National Federation of Independent Business (NFIB), Suite 700, 660 Maryland Ave. SW, Washington, DC 20024, 202-554-9000. The NFIB is the nation's largest advocacy organization representing small and independent businesses.
* National Minority Business Council (NMBC), 235 E. 45nd St., NewYork, NY 100117, 212-573-2385. The NMBC services the needs of minority-owned firms with help in procurement, training, education, advocacy and communications.
* National Minority Supplier Development Council (N MSDC), 15 W. 39th St., New York, NY 10018; 212-944-2430. Committed to matching minority-owned businesses with assistance in procurement opportunities, the NMSDC's database in cludes information on more than 15,000 vendors certified by its 46 regional councils.
* U.S. Small Business Administration (SBA), 409 Third St. SW, Washington, DC 20416; 800-827-5672. The SBA provides information ranging from how to start a business to sources of technical and financial assistance.
* Small Business Service Bureau (SBSB), 554 Main St., P.O. Box 1441, Wo rc ester, MA 01601-1441;508-756-3513. Tffi s n ational for-profit small-business service organization has more than 35,000 members.
* The National Association of Investment Companies (NAI C), 1111 Fourteenth St. NW, Suite 700, Washington, DC 20005; 202-289-4336. The NAIC, formerly known as the American Association of MESBICs (minority enterprise small business investment companies), offers a copy of its membership directory of approximately 150 venture capital firms, at a cost of $5.00.
* The Entrepreneur & Small Business Problem Solver, 2nd Edition by William A. Cohen (John Wiley & Sons, New York; $24.95 for paperback).
* How To Start, Run And Stay In Business by Gregory and Patricia Kishel, (John Wiley & Sons, New York; $9.95 for paperback).
* SBA Hotline Answer Book by Gustav Bede (John Wiley & Sons, Inc., New York; $14.95 paperback ,$29.95 for hardcover). If you're having a tough time reaching the SBA, don't worry about it. This book, professes to answer to 200 most commonly asked questions of the SBA Hotline and it covers a wide variety of small business concerns.
* The Small Business Bible by Paul Resnik (John Wiley & Sons, New York; $19.95 for paperback).
* Starting Up Your Own Business compiled by Dr. G. Howard Poteet (Liberty Hall Press, Blue Ridge Summit, Pa.; $19.95 per text). This book offers expert advice on how to launch your own company, including information on howto write an effective business plan, find venture capital and develop new products.
* Street Smarts: New Ideas for Small Companies by William H. Franklin (Georgia State University Business Press, Atlanta, Ga.; $24.95). This book offers new ideas for small business owners, including how to compete in a service economy.
* The BLACK ENTERPRISE Video Guide to Starting Your Own Business ($39.95). This 90-minute video provides practical tips on everything from developing market strategies to securing financing for your new business. To order, call 800288-8729.
* Also, look out for more national entrepreneurial conferences sponsored by BLACK ENTERPRISE.
HOT AREAS FOR SMALL BUSINESS
Looking for business opportunities? Although the weak economy has done some serious damage to the nation's small business sector, there are still industries that are either growing or are ready to do so. It's no secret that small businesses are becoming major players in the game of economic hardball. Here are some of the hottest areas:
HEALTH/PHARMACEUTICAL SERVICES. Health and pharmaceutical services has been a growth industry for 20 years. The industry represents about 12% of the nation's gross national product and is growing at a 25% clip. The reason is simple: More people live longer and need nursing services or home health care, According to the National Center for Health Statistics in Hyattsville, Md., the average life expectancy increased to 75.3 years in 1989 from 74.7 years in 1984.
Three members of the Reed family Cynthia, Arjester and Hamish have cashed in on the boon since starting their medical products distribution firm three years ago. The siblings own Branches Medical Inc., a Lauderhill, Fla.-based company that sells such medical and surgical supplies as wheelchairs, braces and Band-Aids. "We're on to something hot here," says CEO Hamish C. Reed. "This is a recession-proof business and there's always going to be a lot of buying and selling."
TEMPORARY EMPLOYMENT. Pinching pennies has become a way of life in corporate America and that suits Allene Graves just fine. "Most companies don't want the expense of taking on permanent employees when they don't know what the future will hold," says Graves, president of The Answer Temps Inc. (TAT)in Washington, D.C., "so, they're turning to temp agencies until they feel secure."
More companies are doing just that and making such agencies as Graves'a success. Graves admits she had no idea of the industry's growth potential when she hung her shingle five years ago. TAT grossed $400,000 in sales in 1991 and expects to earn $700,000 in sales by the year's end.
HEALTH AND FITNESS. With the current resurgence of whole-body health promotion, the health and fitness industry is booming worldwide. In 1990, Americans spent $5.3 billion on health club memberships and $11 billion on sports clothing.
That's good news to Carlos Blackwell, owner of the American Lady Spa & Men's Gym in Houston. Blackwell's 3-year-old company earned $600,000 in sales last year and projects revenues of $750,000 in 1992. The weak economy has hurt many small businesses, but the 40-year-old Blackwell says it has done just the opposite for his facility. "The recession has been a tremendous boost to our business," says Blackwell, a former bodybuilder. "When a person is under stress, they may feel bad, but they still want to look good. It seems that the worse the economy gets, the better it gets for us."
IMPORT/EXPORT. It's a fact, American business has gone global and so are more small business owners. According to the Commerce Department, imports and exports rang up nearly $900 billion in business in 1990. "More business owners are realizing that they have to expand their market," says John Robinson, president and CEO of the National Minority Business Council Inc. (NMBC). "And if they can't do it here, they have to do it abroad."
Doing business internationally is not for everyone. It usually requires a lot of upfront expense in the time and travel it takes to establish contacts in business and government in a foreign country. You'll also have to invest in language and other training to enable you to communicate effectively despite cultural differences. It takes deep pockets and a lot of patience to establish profitable international business relationships.
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|Title Annotation:||B.E. Special Report on Small Business; includes an article on industries providing opportunity for small businesses|
|Article Type:||Cover Story|
|Date:||Nov 1, 1992|
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