Small Business Outlook For 2011

What challenges are local small businesses facing in 2011? From the lack of adequate financial resources and the impact of health care reform to low-cost marketing resources, we'll touch on the issues facing small business owners nowadays. And, we'll offer some pointers for local small businesses.

Guests

Robert Lopez, Director of Lending with Accion San Diego

Sudarshan Shaunak, Director of Small Business Development Center at Mira Costa College, Oceanside

John Arensmeyer, CEO of Small Business Majority, a non-partisan advocacy group

Read Transcript

MAUREEN CAVANAUGH: I'm Maureen Cavanaugh and you're listening to These Days on KPBS. The last few years have been a roller coaster ride for small businesses. If you visit local shopping centers, you can see the evidence that the great recession caused many retailers and small entrepreneurs to give up the fight. But at the same time high levels off unemployment have spurred some people to give up searching for jobs and start a business of their own. Study, we're checking in on the issues facing small business in San Diego this year. And I'd like to welcome my guests, Sudershan Shaunak is director of small business development center at Mira Costa college in Oceanside. Sudershan, welcome.

SHAUNAK: Thank you, Maureen.

MAUREEN CAVANAUGH: Doctor Robert Lopez is also here, he's director of Accion in San Diego. [check].

LOPEZ: Thank you, Maureen.

MAUREEN CAVANAUGH: And we are asking our listeners to join the conversation, especially if you're a small business owner. Give us a call, tell us how you're doing. Our number is 1-888-895-5727. That's 1-888-895-KPBS. Sudershan, what the -- would you say are the two biggest problems facing small business entrepreneurs today?

SHAUNAK: You know, Maureen issue the first thing, of course, is there are not many people coming into the stores to buy the product or services like you said in the introduction. That's one problem, and the second one is that small business owners often lack sufficient qualified management to grow their business. Unfortunately what that does is it ends up with the business owner often working in the business rather than working on growing it.

MAUREEN CAVANAUGH: I see. So where in perhaps a few years ago, before the lending tightened up, and we faced these hard times, much of a business owner's -- small business owner's job description will be to try to grow their business outside the day-to-day operations of the business?

SHAUNAK: Absolutely true. And you know, one of the things that's happening, because of the lack of resources, A, with not enough customers coming in, and B, with insufficient capital, the business owner is ending up doing some of the many simple but necessary administrative tasks. Instead of doing what they're good at, which is really helping grow the business.

MAUREEN CAVANAUGH: And that also sounds as if they've let go of their employees.

SHAUNAK: Unfortunately that is the truth. Because when they look into making cost reductions, one of the areas that gets cut often is the number of employees. Which means the owner themselves or the owners themselves ended up doing more of the administrative tasks rather than growing the business.

MAUREEN CAVANAUGH: Now, at the small business development center at Mira Costa college, you've also found that many owners don't know much about financial management. They don't really know how to run the financing of their small business in an optimal way. Is that true?

SHAUNAK: And there's a lot of truth in that, Maureen. What happens is small businesses often fail because they really don't know where they stand financially. And the truth of the matter is they may not be aware that even in these tough economic times, there is help available to them. And the wonderful part about that help is that it comes at no charge to them. The small business development center program is a federally funded program for the small business administration. And our mission, really, is to help provide management skills and training to small business owners so that they can improve their business. Let me give you an example. Several years ago back, in fact in 2000, a small company by the name of west end landscape management company came to the business development center. They really did not have [check] so we've been helping them for the last 10, 11 years, and they meet with us on a quarterly base us, we review their financials, make sure their accounting is correct. Today, wester employees more than 50 people and has [check].

MAUREEN CAVANAUGH: I see. Even in this business climate.

SHAUNAK: Absolutely. There are opportunities for those people who run their businesses efficiently, and I think following this downturn, these businesses that have survived and are lean and efficient will be able to really thrive as the economy turns back up.

MAUREEN CAVANAUGH: My subject is small businesses in San Diego. The issues and challenges they face this year. My guests are Sudershan Shaunak, he is director of small business development center at Mira Costa college up in Oceanside. Robert Lopez is also here, he's director of lending with Accion in San Diego. Now, Robert we've heard for a couple of years that it's [check] is that still true?

LOPEZ: It is still true, it is a difficult situation to go out there and find business finance will upon. We are seeing signs that the credit markets are opening up a little bit. But going into 2011, it is going to be a situation where financing still will be difficult. Most owners, what they need to do, is really figure out like Suda said, a way to become more efficient in their business, find deficiencies in their business and correct them to increase the cash flow that they do have. There are other resources available, nontraditional lenders such as axion San Diego, [check] and even the City of San Diego has some programs where people could get financing if they look for it.

MAUREEN CAVANAUGH: Well, you know, the old saw is you go into a bank and nobody will lend you money unless you don't really need it. What do you have to show nowadays? Do you have to go in with a very strong business plan? What do you need to show a lender?

LOPEZ: I think what lenders want to see today is more of a business that is growing and is looking to expand rather than put a Band-Aid on a problem. If you go into a bank looking for a loan to make payroll or to pay debt, that's really risky for a banker of that's really risky for any lender. So what you want to do is really make sure that the reason you're borrowing is to expand your business and to grow it, and not really just to put a Band-Aid on it want.

MAUREEN CAVANAUGH: I see. So they won't help you if your business is failing, but if you're trying to, let's say if you're trying to buy more machinery for your business or so forth, then you have a better chance.

LOPEZ: Definitely, if you're buying machinery, if you're trying to hire employees to expand your business, if you need to increase supply because of the demand, you're definitely gonna have a better chance. And whether this was 2005 or now, you know, the same criteria is gonna apply to any type of lending of you're gonna have to have decent credit, you can't really be delinquent on your credit file, obviously no one wants to lend when you're not able to meet your current obligations. You also want to show that do have character, and also capacity to pay; you know, although you might have situations where you have excellent credit, you might not have the cash flow or the ability to make your loan payments. And most lenders don't want to put you in a situation why you're north gonna be able to meet your obligations.

MAUREEN CAVANAUGH: Right. We have several people who want to join our conversation about small business in San Diego. Our number is 1-888-895-5727. Daniel's on the line from Clairemont. Good morning, Daniel, welcome to These Days.

NEW SPEAKER: Thank you so much Maureen, and thank you for the people that are helping us today. I have a small business, D&B enterprises that do consulting a lot of timeless for nonprofits, and the situation comes is that nonprofits are just really drained right now, and a lot of people are seeing that there's not the resources there, so they're not going to the nonprofits for help, so they're losing clientele at the same time. The one problem I kind of have is that we bailed out a lot of banks, we as taxpayers, and now they're looking at us, and they were failing at that time, and that's why we bailed them out. And now as the person has just said, that if you're in a little bit of a tripping up situation, they're not gonna be looking at you. And I think this is where if any bankers are listening right now, and I know ax I don't know's been doing a great job, you gotta give us a break a little bit. We gave you a break, now it's time to give us a break, and be a little bit trusting, and at the same time, maybe bring in some consultants to help us out a little bit. Of there's a lot of small business people that are retired out there and can help out, and maybe they could afford to fund them to help out at classes right there at the bank.

MAUREEN CAVANAUGH: That's a great call. Thank you, Daniel, thank you for that. And I'd like to get your reaction to that Sudershan.

SHAUNAK: You know, we do, Maureen, offer a lot of workshops, there are three business development centers spread out throughout San Diego and imperial county. There's one in Imperial County, one at Southwestern college [check] at Mira Costa college in Oceanside, we amongst the three of our centers run pretty close to 200 to 250 workshops a year helping small businesses learn the, you know, the techniques and tricks to improve their businesses. On top of that, we have consultants at all these locations who provide at no fee one-on-one confidential customized business counseling to the small business owner.

MAUREEN CAVANAUGH: I see. And people can take advantage of that how?

SHAUNAK: Absolutely. Let me share with the listeners a couple of telephone numbers. The first one is the telephone here at the small business center at Mira Costa college, and that's 7607958735. And our website, Maureen, is www.sandiegosmallbiz, that's all one word, sandiegosmallbiz, B-I-Z.com. And people can go in, look at all the workshops that we offer, and and also for existing businesses request1 one-on-one counseling.

MAUREEN CAVANAUGH: I want to take another call. We're taking your calls at 1-888-895-5727. John is calling from Clairemont. Good morning, John, and welcome to These Days.

NEW SPEAKER: Good morning, guys. Actually my comment almost echo's the previous caller's comment regarding banks and credit. And my question to the small business development gentleman that's on the phone right now is what services do you guys offer for small businesses in terms of obtaining credit? And also we've heard a lot from Obama in regards to helping out small businesses. Is there anything, any new programs that are available to through the small business administration in regards to helping us correct these cash flee issues?

MAUREEN CAVANAUGH: John, thank you for the call. And let me direct that to Robert Lopez with ax I don't know.

LOPEZ: Well, there is a program that's in the development stage, it's a pilot program that's gonna be introduced through the SBA, that's a [check] where local grass-roots organizes sort of like ax I don't know, [check] are gonna be able to participate in distributing some SBA funding which is huge.

MAUREEN CAVANAUGH: And SBA, of course, small business administration.

LOPEZ: The small business administration, obviously. But it's a big deal because with the first bailout, we heard that lending criteria is still tight for banking. And with local grass root organizations, we're able to maybe have better terms or able to look at criteria a little bit different, or we might be able to put more money out on the street compared to what basics are able to do at this time. Obviously banks have to respond to their stock holders. Organizations have to respond to the community. And because of that, I think this could be a great deal of success with this program coming up. We don't have too many details yet because it's rolling out in March. But I would keep an eye out about that in the news.

MAUREEN CAVANAUGH: And I do want to introduce a third guest, John Arensmeyer is on the line with us right now. He's CEO of small business majority, a nonpartisan advocacy group. And one of the reasons John is with us is because another thing that's changing for small business is healthcare reform. Some people think the new regulations about healthcare reform are a burden on small business. Others think that they help a great deal. And John Arensmeyer is here with us. Has the healthcare bill created problems for small business, John.

ARENSMEYER: Hi, Maureen, good to be on. Actually the small business -- the healthcare bill has a lot of promise to alleviate what's been a tremendous burden for small businesses of we've known for years, all of our work with small businesses and all of the research that we've done that healthcare is the single biggest problem facing small business, and the biggest issue is cost. [check] Jonathan Grueber that showed that small business costs [check] and something had to be done, the very sorts of the very type of legislation was enacted he modeled and found that there would be significant cost savings over time. So there are a whole variety of mechanisms in the bill to start bringing down costs and by the way, to, alleviate the deficit as well.

MAUREEN CAVANAUGH: You know, we hear a lot though that a lot of small businesses don't actually feel this way about the new healthcare reform programs and the tax credits and the insurance exchanges and so forth. Is it because, could you think do you think is it because they don't understand it or are there areas where it actually could hurt some small businesses?

ARENSMEYER: Well, unfortunately, there's one way more heat than light shown on the healthcare lawn since it's been passed. And we think this is unfortunate. And listening to it all across the state, in fact we started in San Diego working with the Chamber of Commerce there, they were particularly interested in learning more about the bill. And they were very enthusiastic about it, we had a tremendous representation at their offices last year. And what we find is that people just don't know, as you say, they don't know what's in the law. And they need to be educated. We find once they find out about the small accident tax credits, about the prospect of setting up competitive marketplaces otherwise known as exchanges where they can actually buy insurance in the same way that the big businesses buy, with the economies of scale and spreading the risk, that they become really interested. So it really is root now a question of communication, and unfortunately a lot of people [check] this is very damaging to small businesses who just want to know, they just want practical information so they can make decisions about their future.

MAUREEN CAVANAUGH: Well, how can small businesses find out if they are eligible for, let's say, a tax credit in the health reform law.

LOPEZ: There well, there are a variety of ways. A number of organizations including us have simple calculators on websites, we have one on our website, it's just a couple of inputs about average wage of employees and someone of employees, and you get an answer as to how much you can save. The IRS has information about this. Basically, the tax credit is going to benefit in one form or another, potentially just about 80 percent of all California small businesses. Any business with fewer than 25 employees, which is well over 90 percent of businesses, and with an average wage of under 50000 a year, which those are a few businesses but the study that we did last year showed that it would in fact cover 80 percent of businesses, they stand to benefit. The other source of information is through their accountants. Now is tax season coming up of, and we really urge small businesses to talk to their accountants with it. Unfortunately some CPAs haven't been fully educated on this, and we're making the full effort to get the word out to them, because it's so important this time of year. But in fact, if you choose to cover [check] way more likely than not to be able to get at least some benefit from this tax credit.

MAUREEN CAVANAUGH: I'm speaking with John Arensmeyer, he is with the small business majority, a nonpartisan advocacy group. My other [check] and Sudershan Shaunak, he is direct offer of proof of small business development at Mira Costa college in Oceanside. We're taking your calls at 1-888-895-5727. And hesia is calling us from Del Mar. Good morning, Lisa, welcome to These Days.

NEW SPEAKER: Hi, thanks for taking a my call. I own a small independent book store in the New York. It's a very loved and cherished part of our community, and really part of our intellectual culture. But we have really had a hard time, you know, fighting this downward trend in sales over the past three years. Of course that's because of this new digital trend, we don't really now how strong got it's gonna -- how much it's gonna stay, and the recession. So for the past couple of years we have been working on a new model for a book store, an independent book store in the 20th century. And it actually has not been very successful for us. We've become lean, efficient, creative, we have new programs, we have -- we've done as much social media outreach as we can, but what the gentleman at the very beginning of the call said is absolutely true. I really can't grow the business because I have no capital. And I -- and I have to cut payroll so drastically that I'm receiving books, you know.

MAUREEN CAVANAUGH: Uh-huh, right.

NEW SPEAKER: And doing finances rather than really trying to reach out even more to the community. And I don't want another loan because we don't know what the future of the book store will be.

MAUREEN CAVANAUGH: Right. So you don't want another loan but you do want financing of some kind?

NEW SPEAKER: Well, what we need, actually, is simply more people who come into the store and don't just say this is such a lovely store. It's my favorite store in the world. I've been coming for years. We need them to buy. And unfortunately people can't understand afford to do that right now.

MAUREEN CAVANAUGH: Lisa let me get a response. Thank you very much for the call. And I want to put that to you Sudershan because I know that you were saying that we are approaching an up turn. Do you feel that strongly.

SHAUNAK: Yes, I do indeed, because here at SBDC, we provide the business counseling to over 600 people every year, and about 2000 people attend our workshops, and we can see the enthusiasm, and many of the people who we've been working with for seriously years showing financials to us which reflect an up turn in the economy. So I think terror opportunities. However, the point this last caller made is very valid because there are some industries which are going to suffer as new technologies take over. So one of the things I would say is look at diversifying somehow or the other, and take advantage of new technologies.

MAUREEN CAVANAUGH: Now, what that mean in practical fact? I mean, how would a book store diversify?

SHAUNAK: Well, I think they would have to, you know, she's already talked about looking into marketing herself using social media and things like that, but I think going out beyond the store, maybe attending some fairs, some other events where she could, you know, present what it is that she's selling, and also maybe having, you know, events at her store itself where people could be invited for other things more than just buying books. You know, maybe have some -- I don't know tasting some food or something.

MAUREEN CAVANAUGH: Getting people into the store, hoping that when they get there, they'll buy something.

SHAUNAK: Exactly.

MAUREEN CAVANAUGH: I'm wondering, you know, there's still -- even though there are signs that there is an up turn ahead, I wonder if I could ask you, Robert, if you have maybe a couple of tips for people to try to keep navigating their business now, while they're still waiting for that up turn to come.

LOPEZ: Sure. The last thing you want to do is come out of a recession where you're over leveraged, where you're not gonna be able to take advantage of the up swing and to take advantage of new opportunities and if you get yourself in too much debt during the recession just to survive instead of looking at internal issues that can off set those losses, then you might find yourself in a situation where you can take full advantage of opportunities that will be ahead. Of another thing that entrepreneurs need to realize is that investing in your business didn't necessarily mean that you have to invest with capital. Investing with your business also means that you invest in it yourself, as a business owner, and really find resources to expand your knowledge [check] ax I don't know has some workshops as well that are all tools that business owners can use in order to invest in themselves and to their business.

MAUREEN CAVANAUGH: And I want to ask you, John, you said you were on a listening tour of small businesses throughout California. And you started here in San Diego. We don't have a lot of time, but what is it that you heard?

ARENSMEYER: Well, are we heard much of what you heard from your other two guests and from your callers. Times are really tough for small businesses of and it's a variety of issues. Our listen [check] focused on [check] new healthcare law which is a huge problem for small businesses, but in fact it's part of a larger problem, and I think what your other guests have said is correct, there are other positive signs and small accidents need to get themselves in a position to take certainly of that. There was a very significant law passed last year signed by Congress, and presidents Obama, the small business jobs and credit act, which we were very involved in pushing through, and one of the things it does, in addition to a whole variety of tax credits, it does provide $30 billion of support for community banks which are two thirds of the source of lending for most small businesses, and I understand the last caller said she didn't want to take on anymore leverage, but we are hearing from small businesses across the state that in fact they are looking for capital to just get themselves rolling and keep themselves going through the recession.

THE COURT: John, we're gonna have to end it there. John Arensmeyer, Robert Lopez, Sudershan Shaunak, thank you so much for speaking with us about this.

SHAUNAK: Thank you Maureen.

ARENSMEYER: Thanks Maureen.

LOPEZ: Thank you.

MAUREEN CAVANAUGH: And if you'd like to comment, I know we couldn't get all of our callers onto the air, if you'd like to respond, please do. KPBS.org/These Days. Stay with us for hour two of These Days coming up in just a few minutes right here on KPBS.