August 6, 2008

Small Businesses Battle Big Problems

By Ramit Plushnick-Masti The Associated Press

PITTSBURGH - Small business is risky business these days.Costs are rising, profits are shrinking and the ability of the big guys to keep prices relatively lower is drawing away customers.Things are so bad that many small enterprises, which account for about 99 percent of the country's businesses, say they are hanging by a thread that might soon snap."We are basically losing money every month, about $1,000 a month. It's been about two, three months now," said Tom Weisbecker.Weisbecker owns Isaly's in western Pennsylvania where patrons sit on green barstools at a Formica countertop and gobble the legendary Slammer, a sandwich stuffed with a half-pound of chipped ham and smothered in onions and cheese. Prices for many of those ingredients have skyrocketed in the past year."We know our customers are already feeling the pinch with the gas prices and when they go to the grocery store. We're trying to hold out, but we can't go on much longer," said Weisbecker.In barely a year, the cost of pork has jumped by 50 cents per pound, while beef is up 20 percent; a five-gallon jug of canola oil that used to cost $15 is at $40; a 50-pound bag of flour jumped from $7 to between $20 and $25.And then there are fuel surcharges of between $5 and $9 that have been added to nearly all deliveries during the past six months.In the meantime, wages haven't grown and the job market is tepid, at best. Recently, the Labor Department said the nation's unemployment rate jumped to 5.5 percent in May - the biggest monthly rise since 1986 - as wary employers cut 49,000 jobs. Average hourly earnings for jobholders rose to $17.94 in May, up 0.3 percent from the previous month.The feeble employment market might be making consumers less willing to spend. Also, paychecks aren't going as far as they did before food and fuel costs rose."In a good economy, you can makes mistakes. But in a bad economy ... you can't afford to make a mistake," said Larry Lagattuta."I am three very bad decisions away from bankruptcy at any given time," said Lagattuta, who has been running Enrico Biscotti Co. on the Pittsburgh Strip for 15 years.Over Christmas, he made hundreds of shipments; 2007 was his best year ever.The last quarter was his worst.A National Small Business Association survey of 500 small-business owners in February found that sales and profits had dropped and job growth was at the lowest point in 15 years, problems that could have a significant impact on an already shaky U.S. economy.The survey also found that 71 percent of business owners have a "negative outlook" on the economy compared to 43 percent a year ago; confidence in their business' success dropped from a high of 81 percent a year ago to 70 percent now.A separate survey done by the National Federation of Independent Business found that for the first time in 25 years, small-business owners cited inflation as their single biggest concern, rising from 4 percent a year ago to 14 percent in April.The survey of more than 1,765 businesses showed that for the first time in a decade, skyrocketing insurance costs were not the No. 1 concern.As gas and food prices climb, consumers are bypassing small businesses and seeking out bargains in places like Costco Wholesale Corp., which reported a 32 percent jump in its fiscal third-quarter profit, surpassing Wall Street expectations."The bad thing that's happening to us, is the economy is driving people to shop at the big-box stores ... They can buy their staples and pick other things up so they don't have to use gasoline," said Cindy Baker, who has been a gift shop owner for 20 years, half at her current location, Collage, in Pittsburgh's bustling Strip District."This is the first time I can say I've really seen a pinch in my business," she said.Just like airlines and car companies, some small-business owners are shrinking and letting people go to survive the squeeze.Last month, the Oklahoma City gas station owned for 22 years by brothers Harley and Hadley Hintergardt shut its doors for good because of rising gas prices. Harley Hintergardt said the station suffered because unlike big chain gas stations, they didn't have a convenience store or full-service auto shop to fall back on."We were the victim of high gas prices," Hintergardt said. "Everybody thinks that we were making the money selling at the pump at the gas station. And trust me, we were not."

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