The recession may be over (at least according to economists) but America’s small businesses are still in cost-cutting mode. In an October 11 article, SmallBizTrends.com cites a National Bureau of Economic Research study. It’s findings? “Owner pessimism is up”, causing cash flow problems that result in fewer business owners expanding sales. Capital investments, hiring, and compensation increases are all down as well. Since these smaller businesses have yet to emerge from the recession mindset, let’s look at how they’re saving money.
One of the most pronounced and painful ways that small businesses are saving money is by not hiring. SmallBizTrends (citing U.S. Bureau of Labor statistics) found that new start-ups hired close to five employees in the third quarter of 2007, as opposed to fewer than four in fourth quarter 2009. Nor is this surprising: with the business climate more uncertain than ever, small companies are concluding that they simply cannot afford to pay salaries, benefits and government obligations like Social Security.
After all: should business slow down, the company is still on the hook for all of these costs, whether there is any work for the employee(s) to do or not. Thus, increasingly, new employees are being avoided when possible.
More Independent Contractors
Instead, companies have turned to independent contractors to save money. In May 2009, eWeek reported that “Use of independent contractors by businesses rose to a record level in the month of April, as businesses placed in economic peril by the economic downturn look for ways to cut costs.”
“Using more independent contractors is a win for business owners because the owners are not responsible for the contractors’ payroll taxes or benefits,” said company President Michael Alter.
Independent contractors, unlike employees, are hired on a piece-rate or per-project basis, meaning they do specific jobs and are dismissed once nothing remains to be done. At time of writing, eWeek found that one out of every 25 people working at a small business were being paid as independent contractors rather than employees.
Another way small businesses seem to be saving money is by warming up to telecommuting. According to National Small Business Association research in 1997, a mere 9% of small businesses allowed and supported telecommuting at that time. But ten years later, in 2007, that number had leapt to 19%. And today, an astonishing 44% of small firms let their employees telecommute when their job description (customer support, for instance) permits.
Needless to say, an employee who telecommutes does not need to utilize a company’s office space, restroom facilities, meals or other costly, in-person amenities. The employees themselves also benefit by saving money on both gas and wear and tear on their vehicles. The 25% leap in small business telecommuting in just three years no doubt signifies how much companies are saving during the recession.
Other businesses are attempting to save money by “going green” in their offices, stores and warehouses. In March 2009, Kiplinger discussed at length how much loan money is available for small businesses that want to go green:
“Now firms can borrow up to $4 million to build, buy or retrofit facilities with energy saving technology resulting in a 10% reduction in energy consumption.”
One company (Comedy Works) reported receiving a $3.6 million loan toward the purchase and installation of between fifty and ninety solar panels at its Greenwood, Colorado venue. In addition to the loan proceeds, these panels are slated to cut Comedy Works’ energy costs by “an estimated $7,000 to $8,000 annually.”
Delaying Capital Expenditures
National Federation of Independent Businesses statistics also reveal that far fewer small businesses are investing in capital expenditures (plant and equipment.) In November 2007, their data shows that nearly 60% of small businesses had made capital expenditures like trucks, office equipment or plant facilities in the previous six months, while nearly 30% were “planning” to do so in the next three months.
By August 2010, just over 40% of small businesses had made such purchases in the last six months, and roughly 15% were planning on it in the next three. Like the decreases in hiring and the rise in independent contractor usage, this likely reflects the weakened confidence of the business community. A company that fears for the next six or twelve months of its status quo survival is generally not eager to add a fleet of new vehicles or expensive new office equipment to its liabilities.
Are you a small business owner who’s still focused on cutting costs and saving money? Share your experience below.