The vast majority of small businesses in the U.S. took a financial hit during the Great Recession. For years, as the recession gripped the economy, the outlook for small business growth remained grim. But today, some five years later, small firms with fewer than 100 employees are finally feeling optimistic about the future, according to a recent American Express OPEN Small Business Monitor survey.
Completed in October 2013, the survey found that 87 percent of small business owners in the nation see the proverbial glass as “half-full” when it comes to the future success of their businesses. In Florida, a whopping 83 percent of Sunshine State entrepreneurs shared that sentiment.
Jennifer Reed, owner of the Sugar Monkey, a popular bakery in West Palm Beach, is one of those optimistic entrepreneurs. She is looking forward to expanding her business from a commercial space to a retail store front in 2014.
“We’ve been around for six years,” Reed said. “It’s been challenging at times, but we’ve weathered the storm and just started hiring again in preparation to expand.”
But for every small business owner like Reed who decides to make plans to grow, there are many facing challenges that prevent future expansion in the New Year, according to John Arensmeyer, founder of Small Business Majority, an advocacy group based in Washington.
“While small firms are more confident about the future, they will continue to face challenges in 2014,” Arensmeyer said. Healthcare costs, taxes and the effects of the gridlock in Washington are tops in the minds of small business owners, he said.
Affordable Care Act
For businesses struggling to understand how the Affordable Care Act will affect their bottom line, Arensmeyer recommends doing research to dispel misinformation and assuage any fears they may have.
“Small businesses need to stay calm, get educated about the law and find out what is means to them,” Arensmeyer said. “For example, many small businesses believe they will have to pay for health insurance for their employees. But, in reality most small companies won’t be required to offer coverage at all. Firms with 50 or more employees, however, will have to offer coverage in 2015 or risk fines from the federal government.”
Some small business owners are also confused about tax credits they may qualify for under the new law.
“There are tax credits available for businesses that decide to provide coverage for their employees,” Arensmeyer said. “But again, businesses need to get educated and find out exactly what they may be eligible for.”
In addition to doing their own research, he advises small business owners to consult a qualified insurance agent to get accurate information.
“These professionals are well-versed in the impacts of the Affordable Care Act on small businesses,” Arensmeyer said. “The challenge is not in complying with the law — it’s in getting all the information you need to make the best decision for your company about offering health coverage to your employees.”
Understanding the tax code and how it applies to small businesses is another challenge small business will need to tackle head on in 2014, according to Katie Vlietstra, vice president for government relations and public affairs for the National Association for the Self-Employed.
“Small businesses, those with one or two employees and the self-employed definitely worry about how the tax code will affect them in 2014,” Vlietstra said. “In terms of taxes, they are going to get hit from a few different directions. For example, although they say it’s not a tax per se, some businesses will face financial penalties related to the new healthcare law and others will have to make sense of complicated tax law to figure out how it applies to them.”
But the news on the tax front isn’t all bad for small business owners. According to Vlietstra, 2014 will be the first year small businesses, particularly the self-employed, can take advantage of a new, simplified process for claiming the use of a home office on their taxes. The new optional deduction is capped at $1,500 per year based on $5 per square foot for up to a 300 square feet space. According to the Internal Revenue Service, the simplified process will reduce the paperwork burden on small businesses by roughly 1.6 million hours annually.
“It’s a big victory for the small business,” Vlietstra said. “Anything that simplifies the tax code and helps owners navigate it easier is a victory.”
With expansion plans underway in West Palm Beach, the Sugar Monkey’s Reed is on the hunt for retail space. But like many small businesses looking to expand, sticker shock has set in.
“Prices per square foot for retail space are pretty high,” Reed said. “You have to approach the process cautiously, especially if you’re looking at prime locations where leasing can be competitive.”
Closer to home in Miami Beach, the local Chamber of Commerce often hears from frustrated small business owners who are being priced out of high traffic retail locations.
On Miami Beach’s iconic Lincoln Road for example, business leaders are worried that the high cost of retail space will change the character of the area. “If the only ones that can afford the leases are major brands and chain stores, the small mom and pop shop or café won’t be able to exist on Lincoln Road,” said Jerry Libbin, president and CEO of the chamber and a former Miami Beach city commissioner.
Perry Martino, owner of Perfect Gifts, a gift shop formerly known as the Pink Palm, felt the impact of rising costs for retail space firsthand in 2012. “We had been on Lincoln Road as Pink Palm for over 20 years,” said Martino. “Then all of a sudden in 2012, we got a notice that the building had been sold and that are rent was going to increase to over three times what we were paying at the time.”
Martino had been paying approximately $15,000 a month for his space at 723 Lincoln Rd. “The new landlord told us that if we chose to renew the lease, our rent would climb to over $45,000 a month. I was in shock.”
But Martino didn’t panic. Instead, he got to work immediately to find a new space, tapping available resources like the Chamber and knowledgeable real estate professionals to help him. “When this happened to us, the first place we turned was to the Chamber,” Martino said. “They saw what was happening and offered to assist us in moving the business to a new location.”
After eight months of searching, Martino found a space at 1516 Washington Ave., just a block and a half from his old Lincoln Road location. “I believe we made a good decision,” said Martino. “We are paying half the rent we paid when we were on Lincoln Road and we’re still getting the foot traffic from the area. We could not have done it without the Chamber.”
So what advice does Martino have for small business owners in the same boat?
“First, stay calm,” said Martino. “You need to keep a cool head to make a good decision for your business. Then, be sure to reach out to the resources you have around you – join the chamber, get help from others in your industry. Also, be willing to compromise on your new location because for some business owners if you’ve been in a retail location for a long time, you get attached to it and you don’t want to leave. Maybe you won’t be able to get a new space on the same block. Instead, think about moving a few blocks away like we did.”
For Joaquín García-Larrieu, manager of IT Support Miami, a computer consulting firm in business in Coral Gables for more than 12 years, the search for space to expand his growing company also has been challenging.
“We’re looking at downtown Miami, one of the prime locations in the county” García-Larrieu said. “So prices are high, but we are taking our time and considering everything before we take it a step further and sign a lease.”
Finding innovative ways to attract new customers has long been a concern for small businesses. Competition is fierce and consumers are bombarded with thousands of marketing messages from companies trying to get their attention.
In Miami Beach, the Chamber of Commerce offers an affinity program called InCard to help enhance brand loyalty and increase customer traffic for the businesses in its membership.
“We now have an app that gives people the latest deals being offered by Miami Beach merchants,” said Michael Goldberg, chairman of the Miami Beach Chamber of Commerce. “The InCard has actually worked out great for the small businesses who are part of it.”
Alice Bredin, small business advisor for American Express OPEN, also advises companies to remember that while attracting new customers should be a top priority, retaining customers that are already spending money with your company is just as important.
“It’s tough out there,” Bredin said. “But there are things that small business owners can do to stand out.
“Our Small Business Monitor survey showed us that as Florida business owners sharpen their focus on customers, nearly all offer incentives to customers for repeat business like special deals, advance notice of sales and new product offerings,” Bredin continued. “Asking for client referrals is another way to generate new business.”
That tactic worked for Reed.
“We’ve been around for a long time based solely on word of mouth,” Reed said. “We don’t necessary focus on marketing ourselves. Instead, we focus on making sure that every single product that leaves our bakery is the absolute best it can be. We let our excellent work do the marketing for us and bring business in the door.”