Survival Tips For Small Business Owners

The recession is rebounding and large companies are feeling optimistic about their futures. But recent reports say small businesses have become more pessimistic. Host Michel Martin speaks with money coach Alvin Hall about what's behind these contrasting opinions and how small businesses can survive.

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MICHEL MARTIN: I'm Michel Martin, and this is TELL ME MORE, from NPR News.

We're going to switch gears now from international news and talk about an issue closer to home. We're going to talk about small businesses. In a few minutes, did you ever dream of owning a Korean deli, working back-breaking hours for not a lot of cash? No, you say? Neither did writer Ben Ryder Howe, but he did it, anyway, all for the love of his Korean-American wife and in-laws. We'll find out about some of his adventures a little later in the program.

And this matters because it's a clich´┐Ż that happens to be true: small businesses are the engine of the economy. And Bloomberg Business Week recently reported that small business owners are more pessimistic about their futures, while the people who run large companies are now more optimistic about the potential for future growth.

We wanted to know what was behind these contrasting opinions and what things small businesses might want to consider right now in order to survive. So we've called upon our regular contributor on matters of personal finance and the economy, our Money Coach Alvin Hall. Alvin, welcome back. Thanks for joining us.

ALVIN HALL: I'm glad to be here to talk about this subject.

MARTIN: Well, you know, you actually also are a small business owner yourself.

HALL: Yes, I am. I own a consulting business, and we design training programs about the financial markets.

MARTIN: So, a number of indexes, the National Federation of Independent Businesses, Small Business Optimism Index and a number of other surveys of this type all seem to report the same thing, that their small business owners' sense of optimism about the economy and about their futures has fallen in this last quarter from the beginning of the year. Why might that be?

HALL: I think there has been no pickup in sales for small businesses. I know speaking for myself and for my friends who I talked to yesterday about their sales, they've all seen sales either go down slightly or stay flat. So that sort of sucked some of the optimism out of them. Also, you find that it can be either very industry-specific or specific to your local economy. And in some cases, some businesses are picking up a little bit, but most of them are staying flat because people are simply not spending money.

MARTIN: But, you know, small business owners, according to a number of surveys, the small business owners say that they plan to increase their selling prices, but they realize that that's not going to last. Why would they be increasing their prices at a time like this, when people still aren't buying?

HALL: Two things have happened. One, they've seen the cost of certain goods and services go up, such as gasoline. So if your services are dependent on that, you're going to have to knock them up. Also, the other issue is that inventories have shrunk. If you are a person who's delivering a certain type of good - a widget, say, or trying to sell that widget on. And once the inventories shrink, you can raise the prices a bit.

But everyone knows that as soon as supplies go up again, your customers will say, well, can I get a better deal? Because they're monitoring that supply chain, also. So they probably will not be able to sustain those price increases.

MARTIN: One of the other issues that small business owners seem to be talking a lot about is the access to credit.

HALL: Yes.

MARTIN: And even though the spigots seem to be opening for large companies, small business owners are still reporting that they're having a very hard time getting access to credit. Do you think that that's - is that an experience you've had, and why is that?

HALL: That's an experience that my best friend has had. He runs a small business out of Greenwich, Connecticut. And he has been applying for loans because they use part of the loan to subsidize a business, provide them with working capital from week to week or month to month. And they've found getting the loan more and more difficult. They saw certain credit cards cancel. They saw certain credit lines cut. So they don't feel that the banks are on their side. So what he and his partner have been doing, they've gone from one bank to another until they were able to locate a bank that would understand their business and try to help them get the financing that they need. So I think people need to start thinking outside of that traditional bank, where you may have had that relationship for years and years and years. You may now need to start shopping around, because maybe there's another entity out there that will listen a bit more.

MARTIN: Well, it wasn't a loan shark, was it? I mean...

(Soundbite of laughter)

HALL: No. He did not go to a loan shark. Although...

MARTIN: We don't have to worry about his kneecaps, do we?

HALL: No, no. He went to a traditional bank. But that's interesting about the loan shark. Another friend of mine started an art gallery, and she was having a hard time getting financing for that. So she went online and found a service where people were willing to fund some young businesses.

MARTIN: Well, this is always the big sort of question at a time like this: expand or scale back? For example, if you owned a coffee shop, does it make more sense - or if you're a breakfast spot, does it make sense to, you know, try to offer lunch now, or scale back and maybe cut the number of products that you offer and focus just on the few things that you do, like really great coffee. What's your advice at a time like this?

HALL: I think that if you believe in your business and you've done your research very well, and you know realistically when your business is likely to become profitable, it can still be a good time to start a business. In my neighborhood here in Manhattan, two blocks from where I live, there was a shop that was empty and we noticed that this little sandwich shop was going in there, selling croissants, burritos, sandwiches in the middle of the day and then entrees in the early evening.

At lunchtime the other day, there were 24 people - I counted - coming out of the door waiting to go in. There are four other sandwich shops within five or six doors from there, but this one has somehow captured the idea and people are talking about how good the croissants are, how good the coffee is there. Is it because it's new? I don't know, but nonetheless, this guy, I talked to him, he said when we opened the business we thought we'd get a lot of traffic here because of the neighborhood and maybe the neighborhood was looking for something fresh and new.

So if you have a good strategy, you know how long it will take you to turn a reasonable profit, and you have enough of a safety net to carry your business to that period of time, then it could be a good time to start a business.

MARTIN: Alvin Hall our regular contributor on matters of personal finance and the economic, our Money Coach. And he was kind enough to join us once again from our studios in New York. Alvin, thank you so much for joining us.

HALL: You're most welcome.

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