Recession, layoffs fuel many to start small businesses

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Recession, layoffs fuel many to start small businesses

By Laura Petrecca, USA TODAY

http://www.usatoday.com/money/smallbusiness/startup/week1-exploring-small-business-options.htm

SAN DIEGO — Inside a freshly renovated building, 27 restaurant trainees scurry around sweeping, shaping dough and cutting 12-inch practice pizza crusts into eight slightly misshapen slices.

"Keep your elbow up" and "Turn your wrist ⅛-inch at the end" are among the slicing tips practicing pizza cutters hear from scrutinizing store managers.

It's 9 a.m. on a Friday in August. The recession that started in December 2007 plods along as businesses continually fold, jobless claims tick up and millions of families desperately try to make mortgage payments and curtail spending.

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Yet in this eastern San Diego strip mall, hopes abound.

Here, in three days, the first CiCi's Pizza buffet in California will open. The chain is known for cheap prices, peppy workers and a variety of pizza toppings.

For CiCi's Enterprises and its nearly 650 other restaurants in 32 states, this is an entree into a potentially lucrative market at a time when many of CiCi's expansion plans had to be scuttled because of the economic crisis.

For franchise owners Melissa and Andre Carter, it's a new beginning.

When the restaurant opened to a long line of CiCi's lovers on Aug. 10, the Carters' venture became one of nearly 30 million U.S. small businesses.

In this recession, starting a business from scratch or buying a franchise has been the way out for many. Of job seekers who gained employment in the second quarter of 2009, nearly one in 10 — 8.7% — did so by launching their own businesses, according to outplacement firm Challenger Gray & Christmas' quarterly Job Market Index. That start-up pace is up from 6.4% in the first quarter and is twice the rate reported in Challenger's 2008 second-quarter update.

The business owners nearly all believe they have enough energy and ambition to succeed — but statistics for success aren't on their side. Even in non-recessionary periods, about half will fail in their first five years, according to the Small Business Administration's Office of Advocacy.

From laid off to start-up

Many have become entrepreneurs by force. With 6.9 million jobs lost since December 2007, and work difficult to find, laid-off employees have created consulting firms, launched eBay businesses and signed on with direct-sales firms such as Avon to earn money.

"These are people that two years ago did not aspire to own a business, but circumstances have dictated that they look at freelance opportunities" and other business ventures, says Ken Yancey, CEO of non-profit entrepreneur mentoring group Score.

Not everyone, of course.

Austin-based Tom Nall, 66, had a retirement party from his job as a chili marketer on a Friday, took Saturday and Sunday off and was back working Monday on a new liquor business.

Nall was asked to be a consultant on the early stages of the launch of a tequila company. But instead of just advising, he thought the concept of an all-organic liquor was so enticing that he became a partner and the point person for raising capital. Now CEO, he says he has invested more than $100,000 in the Republic Tequila venture and has raised money from about 25 other investors.

"I think entrepreneurs are going to play a big part into bringing the United States back to economic stability," Nall says.

Small businesses employ a little more than half of all private-sector workers, pay 44% of total U.S. private payroll and have generated 64% of net new jobs over the past 15 years, according to the SBA's Office of Advocacy.

It's difficult to pinpoint any definitive long-term trends about small businesses leading the country out of recessions, but statistics show that for firms with no paid employees — "non-employer" firms — their creation rate goes up in a downturn, says Brian Headd, an Office of Advocacy economist. Using IRS data as a guide, the number of non-employer firms jumped 8.1% from 2007 to 2008, says Headd. When the economy was doing well in the late 1990s, non-employers had annual increases of about 2% to 3%.

About 75% of small businesses are non-employer firms. The rest are employer businesses — those with paid employees.

Employer firms typically decline or remain flat during tough times. Yet a study from entrepreneur-focused group Ewing Marion Kauffman Foundation shows that business creation in general ticked upward last year.

In 2008, an average of 320 out of 100,000 adults created a business each month — representing about 530,000 new businesses a month. That's a slight increase from 2007.

High start-up costs

The Carters — she's 36, and he's 42 — spent years kicking around the CiCi's Pizza idea. They had taken their kids to the chain when they lived in Texas and liked the pairing of affordable prices and friendly atmosphere.

They looked into opening a CiCi's in Texas but couldn't get a desirable location. After the Carters moved to San Diego a couple of years ago, they attended a CiCi's franchise expo in February 2008 and got the rights to open the first buffet in California. (CiCi's has a carry-out-only restaurant in Gardena, Calif.)

Being first in came with a big price tag. To open a buffet franchise, an initial investment typically ranges from $448,510 to $712,860, according to Coppell, Texas-based CiCi's Enterprises. CiCi's to-go franchises cost less.

The Carters put down $30,000 for a franchise fee, then shelled out tens of thousands more on expenses such as equipment, ingredients and hiring and training workers. They will owe the corporation a 4% royalty on sales and at least $2,300 a month for an advertising fund.

The couple's initial financing — through now-troubled lender CIT — fell through. But after some legwork, they secured a loan with a private lender.

They were lucky. Others have had a much more difficult time getting funding during the recession.

Dennis and Lisa Morton also were approved by CiCi's to open a franchise, theirs in the Chicago area. They also lost CIT funding but can't secure another loan.

"At this point, we are out $60,000" because of franchising costs, training expenses and legal fees, Lisa says. They've gone to 56 banks but are still without a lender.

They signed on with CiCi's in April and had a year to open a restaurant. CiCi's extended that timeline, but Lisa is still worried.

"We pretty much took everything that we had for the down payment," she says. "At that time, the bottom hadn't dropped out (of the stock market) yet."

As the Morton family struggles to cut spending — as well as find financing — the whole family, which includes two teens, is feeling the pinch.

"There were just so many high hopes in this house," Lisa says. Now, "There's been a lot of crying."

It's not just new franchise owners reeling over tight credit markets and tight-fisted consumers.

Across the country, about 200,000 franchise-related jobs have been lost, and more than 15,000 retail units have closed, according to International Franchise Association CEO Matthew Shay.

CiCi's has had its troubles as well. In addition to significantly scaling back on its expansion plans because of the credit crunch, it also had 39 store closures in 2008. The company says the percentage of systemwide stores that closed remains near its historical annual average of 6%, but because it had more stores in the system in 2008, the actual number of closures was up from the previous year. It blames the recession, as well as factors such as poor store location and management, for those closings.

The company did manage to bring in higher revenue despite the recession, at $580 million, a 1.8% rise over 2007. Yet, that increase was smaller than the 5.4% revenue rise from 2006 to 2007, even though there were more stores in the system in 2008.

'A little bit of variety'

Around 7 a.m. on Aug. 7, Melissa Carter is driving to the first full day of employee training. By 7:45 a.m., she is catching up with her recently hired store managers. A few hours later, she is showing workers the CiCi's way of doing things: how to stock the salad bar (very neatly) and how to greet customers (very loudly, with a cheer of "Hi, welcome to CiCi's!")

Her bright red shirt and quiet authority make her stand out from her hired managers and the men in staid blue button-downs that came from CiCi's corporate office to help with the launch.

She is the leader, but a mere two years ago, her restaurant knowledge was at the same level as most of these trainees: barely there.

Carter has a law degree from South Texas College of Law and worked in the legal field in Texas and California. But that career wasn't for her long term. "I'm not really cut out for working in an office, being in one place all day every day," she says. "I need a little bit of variety."

She has a diverse day now, serving customers, making shift schedules, determining inventory and working on budgets.

Like Carter, many potential franchisees come from other industries, says CiCi's Enterprises President Craig Moore, who is retiring this year. Often those folks don't realize that while they're pursing their entrepreneurship dream, customers simply see them as a pizza provider. "In the restaurant industry, you're a servant," Moore says. "You're no better than a servant."

As for Carter, she is a servant to thousands of people each week. Opening week alone, she had about 6,000 patrons.

She works up to 70 hours a week. Leading up to the grand opening, her workday was longer, often 15 hours. At one point during the opening, she joked that she needed three days straight of sleep to make up for all the slumber she has missed.

Those long hours will likely continue, as they do for most small-business owners.

Slightly more than 60% of them say they toil six or seven days a week, while only 22% of the general population say they work that much, according to Discover Financial Services' Discover Small Business Watch May survey of entrepreneurs who have fewer than five employees.

Carter has reaped some early rewards for her work. Opening week, she pulled in about $30,000 in revenue, Moore says. While the CiCi's system average is nearly $1 million a year, early signs show that the San Diego CiCi's could take in more. Moore says it could take in $1.5 million in annual revenue.

But the actual take-home profits can vary greatly. Robert Rinaldi, who owns a CiCi's franchise in Niles, Ill., says he has brought in "decent numbers" after his Aug. 31 grand opening. Yet sky-high expenses — such as $10,000 monthly rent — gnaw at the bottom line.

Rinaldi, who also had difficulty obtaining financing, says he's relieved to finally get the restaurant open. But he adds that his stress level is high.

"Now it's going to be constantly monitoring the labor and sales (levels) to keep it going," he says. "If I stick it out, I think it can be a successful store. I just don't know if I have the working capital to keep it afloat."

Millions of other small businesses are buckling under economic pressures.

More than 60% of small businesses polled by the National Small Business Association in late June and early July reported revenue declines over the past 12 months. That's the first time a majority of small-business respondents cited decreases since NSBA began asking the question in 1993.

Two in three also cited profit decreases. Only 18% of firms said profits were increasing.

In 2008, there were 43,546 business bankruptcies, according to the Administrative Office of the U.S. Courts. That was up from 28,322 in 2007. For the first half of 2009, 30,333 businesses have already filed for bankruptcy.

Those figures don't count personal bankruptcy filings that some small-business owners claim instead of a business bankruptcy.

1,000 served

On opening day, the CiCi's workers certainly delivered a friendly and festive atmosphere. Some of the female workers tied balloons to their ponytails, and throughout the day, workers cheerily greeted lines of customers with enthusiasm.

At 8:24 p.m., the restaurant remained filled. "It's been crazy," says Carter, who at various points in the day couldn't remember the combination to the store safe or the location of her car keys.

By the 10 p.m. closing, about 1,000 people had been served.

After the last customer walked out, Carter's husband, Andre, sits with two buddies in a back booth. He works in ground operations for Southwest Airlines but has committed much time to the CiCi's launch as well.

"I hope I'm not working for a non-profit," he quipped earlier that day, as he surveyed the restaurant.

He seems satisfied but exhausted.

It's been "positively overwhelming," he says. "I've literally had about four hours sleep for the third day now. … It takes every little ounce of energy to muster up and go forward, but that's what we call perseverance."

In front of the restaurant, Melissa Carter is sweeping the floor.

Later that night, the duo joke that they might as well sleep on the air hockey table in the restaurant's game room because they have to be back again early the next day to do it all over again.

"It's been a long day, we're tired and achy," Melissa says.

Nearly three weeks later, she sounds energized again. She's taken a rare afternoon off to get some errands done.

On her agenda: business calls.

"I just got off the phone," she says. "I'm negotiating a lease on a second (CiCi's) now."

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Getting Started October 23, 2009, 12:00PM EST text size: TT

The Rise of the 'Homepreneur'

New research shows the economic importance of home-based businesses: They account for more than half of all U.S. businesses and employ more people than venture-backed companies

By John Tozzi

More than half of all U.S. businesses are based at home. These companies often are dismissed as quaint hobbyist ventures, but new research suggests that's a mistake. An estimated 6.6 million home-based enterprises provide at least half of their owners' household income. Together these "homepreneurs" employ one in 10 private-sector workers, and by many measures they're just as competitive as their counterparts in commercial spaces.

Ask Stephen Labuda, the 35-year-old president of Agency3, a Web development firm he runs from his home in Cambridge, Mass. A former programmer at Deutsche Bank (DB), Labuda started building Web sites as a side job in 2003 and took the venture full time three years later. Agency3's revenue is in the millions, and Labuda is about to hire his fifth employee, who will work remotely, like the rest of the staff and the slew of contractors he taps. "I'm not intending to go rent office space," he says.

You can trace the rise of home-based businesses to the early days of telecommuting in the 1980s and the mass adoption of the Internet in the 1990s. Cloud computing, online collaboration, and smartphones have accelerated the trend, and recent research clarifies the economic significance of companies like Labuda's. "We're seeing more and more home-based businesses that are real businesses," says Steve King, who coauthored the new report with his wife, Carolyn Ockels. (The couple runs Emergent Research, a small research and consulting shop, from their home in Lafayette, Calif.) The pair analyzed U.S. Census data and Small Business Administration research, along with data from the Small Business Success Index, a survey of 1,500 companies sponsored by Network Solutions and the University of Maryland's Robert H. Smith School of Business.

wide acceptance and legitimacy

Here's more of what they found: The 43% of home-based businesses that provide at least half of the owners' household income are, on the whole, smaller than non-home-based companies. Only about 35% have revenue above $125,000, compared to 75% for non-home based businesses. But they measure up to other small companies on key aspects of doing business, including access to capital, benefits to workers, marketing, and innovation. On average they have two employees, including the owners, and together they employ more than 13 million people—more, King notes, than venture-backed companies. (Venture-backed companies employed 12.1 million people in 2008, according to the National Venture Capital Association.)

In some of these companies, the operations are concentrated in the owner's home. Others use their residence as a headquarters but do most of their work at clients' homes or offices. The variety of home-based businesses cuts across industries, but the top sectors are business and professional services, construction, retail, and personal services.

A few trends are driving the growth of sophisticated home businesses. First, technology has made it easier to start and run a business from anywhere. But just as important, there has been a change of consciousness in the business world to recognize home-based enterprises as legitimate.

Labuda has seen that shift at Agency3. "When I first started, I really felt compelled to go rent an office. I felt like in order for me to be taken seriously as a business, I had to have an office that my clients could come to," he says. It didn't matter—clients didn't want to visit him. Labuda meets most of them at their businesses or at coffee shops. He also uses on-demand office space, where he can rent a conference room by the hour, if needed.

lower costs are a competitive edge

Now, Labuda never feels that his working from home damages Agency3's credibility. Instead, it's a selling point. "It's reflected in our pricing that we don't have the same kind of infrastructure costs and fixed costs that some of our competitors do," he says.

Indeed, the most obvious financial benefit for home-based entrepreneurs is lower operating costs. A 2006 SBA study compared tax returns of sole proprietors who deducted home-office expenses with those who deducted commercial rent. That analysis found that home businesses, on average, had lower sales and net profits than companies in commercial spaces. But profitable home-based ventures retained a greater share of their total receipts as net income: 36%, vs. 21% for non-home-based businesses.

King predicts that as large companies try to reduce their fixed costs by outsourcing business functions, small home-based enterprises will play an even larger role in the economy. "Over the next 20 to 30 years, you could see the percentage of people who are self-employed and home-based double, potentially," he says.

Tozzi covers small business for BusinessWeek.com.

Higher jobless rates could be new normal

(Now is the time to start working on that second/third or fourth income stream)

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October 19, 2009

http://detnews.com/article/20091019/BIZ/910190400

Higher jobless rates could be new normal

TOM RAUM
Associated Press

Washington -- Even with an economic revival, many U.S. jobs lost during the recession may be gone forever, and a weak employment market could linger for years.

That could add up to a "new normal" of higher joblessness and lower standards of living for many Americans, some economists are suggesting.

The words "it's different this time" are always suspect. But economists and policy makers say the job-creating dynamics of previous recoveries can't be counted on now.

Here's why:

The auto and construction industries helped lead the nation out of past recessions. But the carnage among Detroit's automakers and the surplus of new and foreclosed homes and empty commercial properties make it unlikely these two industries will be engines of growth anytime soon.

The job market is caught in a vicious circle: Without more jobs, U.S. consumers will have a hard time increasing their spending; but without that spending, businesses might see little reason to start hiring.

Many small and midsize businesses are still struggling to obtain bank loans, impeding their expansion plans and constraining overall economic growth.

Higher-income households are spending less because of big losses on their homes, retirement plans and other investments. Lower-income households are cutting back because they can't borrow like they once did.

That the recovery in jobs will be long and drawn out is something on which economists and policy makers can basically agree, even as their proposals for remedies vary widely.

Retrenching businesses will be slow in hiring back or replacing workers they laid off. Many of the 7.2 million jobs the economy has shed since the recession began in December 2007 may never come back.

"This Great Recession is an inflection point for the economy in many respects. I think the unemployment rate will be permanently higher, or at least higher for the foreseeable future," said Mark Zandi, chief economist and co-founder of Moody's Economy.com.

"The collective psyche has changed as a result of what we've been through. And we're going to be different as a result," said Zandi, who formerly advised Sen. John McCain, R-Ariz., and now is consulted by Democrats in the administration and in Congress,

Even before the recession, many jobs had vanished or been shipped overseas amid a general decline of U.S. manufacturing. The severest downturn since the Great Depression has accelerated the process.

Many economists believe the recession reversed course in the recently ended third quarter, and they predict modest growth in the nation's gross domestic product over the next few years. Yet the unemployment rate is currently at a 26-year high of 9.8 percent -- and likely to top 10 percent soon and stay there a while.

"Many factors are pushing against a quick recovery," said Heidi Shierholz, an economist at the labor-oriented Economic Policy Institute. "Things will come back. But it's going to take a long time. I think we will likely see elevated unemployment at least until 2014."

At best, many economists see an economic recovery without a return to moderate unemployment. At worst, they suggest the fragile recovery could lose steam and drag the economy back under for a double-dip recession.

"We will need to grind out this recovery step by step," President Barack Obama said earlier this month.

Obama and congressional Democrats are having a hard time agreeing on how to keep the recovery going and help millions of unemployed workers -- short of another round of stimulus spending amid rising voter alarm over soaring federal deficits.

So far, they've been unable to win even a simple three-month extension of unemployment insurance for people in states with jobless rates above 8.5 percent.

The extension easily passed the House earlier this month but is bogged down in the Senate over disputes over which states would get the funds. Hundreds of thousands of people have already lost their benefits or are about to lose them.

The White House credits the president's $787 billion stimulus plan passed in February for keeping job losses from becoming even worse. Since Obama took office in January, the economy has lost 3.4 million jobs.

Republicans argue that the stimulus program has not worked as a job producer and is a waste of tax money. And last week, the U.S. Chamber of Commerce launched a multimillion advertising campaign to celebrate small business entrepreneurs -- and to argue that further government intervention will not spur permanent job growth.

Chamber leaders called for creation of more than 20 million new private-sector jobs over the next decade, saying it's needed to replace jobs lost in the recession and to keep pace with population growth.

"The government can support a few jobs in the short-run" while free enterprise is the only system that can create 20 million of them, said Thomas Donohue, the chamber president.

To many economists, such a goal seems unreachable given today's altered economic landscape.

"It's a new normal that U.S. growth is going to be anemic on average for years. Right now, the prospect is bleak for anything other than a particularly high unemployment rate and a weak jobs-creating machine," said Allen Sinai, president of Decision Economics Inc. He says he doubts that unemployment will dip below 7 percent anytime soon.

Many economists consider a jobless rate of 4 to 5 percent as reflecting a "full employment" economy, one in which nearly everyone who wants a job has one. After the 2001 recession the rate climbed to 5.8 percent in 2002 and peaked at 6.3 percent in 2003 before easing back to 4.6 percent for 2006 and 2007.

Will unemployment ever get back to such levels?

"I wouldn't say never. But I do think it's going to be a long time," said Bruce Bartlett, a former Treasury Department economist and the author of the book "The New American Economy: The Failure of Reaganomics and a New Way Forward."

"The linkage between growth in the economy and growth in jobs is not what it was. I don't know if it's permanently broken or temporarily broken. But clearly we are not seeing the sort of increase in employment that one would normally expect," said Bartlett.

Legitimate Home Based Businesses & What You Need To Know To Find Them

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Business

Author:Pamela Lindberg

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Legitimate Home Based Businesses & What You Need To Know To Find Them

2009-10-12 11:16:34 - Finding legitimate home based businesses is not as hard to do as some people think it is. There are some things that you need to find out to see whether it is legitimate. Some opportunities are scams but there are more legitimate opportunities than you may think.

Legitimate home based businesses used to be hard to find online. However, now there are all kinds of legitimate home based businesses that you can choose from. All you need to do is to search for them.

However, there are some things that you need to do when you are trying to decide if a home based business is legitimate or not.

First, you need to check out the company thoroughly. Find out what type of customer service they have. You can do this by contacting them and see how long it takes for them to answer you. You also want to pay attention to how they respond, in other words what they say when they do respond.

Second, find out what type of products that they have and whether they would be something that you would want to promote. You don’t want to promote a home based business when their products are not worth promoting.Third, you need to check with the Better Business Bureau to check and see if they have any complaints against them. This is important to know before you join any business opportunity.

Fourth, talk to other people that are already involved in the business. They will be able to tell you better than anyone whether it is a legitimate home based business. The more people you talk to the better idea you will have of whether this is a good home business.
Fifth, find out if they actually pay on time. This is something that everyone wants to know because they start a home based business to make money. You don’t want to work hard to make money only to find out that the company will not pay you when and how much they say they will.

Sixth, find out how long they say it will take you to make money and what type of help they will provide you to get you making money. You don’t want to join a home based business that will promise you that you can get rich quick. These are usually scams. It will take some time and effort on your part to start making money with any business opportunity.

These are just a few things that you want to find out about a business before you join. You will be able to tell if this is one of the legitimate home based businesses out there very quickly by checking into all of these things. When you are satisfied that you have found the home based business that you like and you know that it is legitimate then join it and start on your way to making some money.