Finding solutions amid recession
While lawmakers in Washington grapple with an economic rescue plan, small-business owners aren’t waiting to take steps to survive the deepening recession.
Layoffs, sweeping reviews of business models, increased client hand-holding and sped-up product launches are underway at local firms, with some predicting growth despite the tough economy.
“My focus isn’t on a handout, my focus is to have the leadership skill and visionary skill to bring a lot more relevance to my business through becoming far more remarkable,” said Michael Donner, third-generation owner of Barco Uniforms Inc., which employs 175 people in Gardena.
Small-business owners, who have yet to see much benefit from the $700-billion bailout launched amid last fall’s market meltdowns, also face unknown fallout from the state budget crisis. If a budget agreement isn’t reached by Sunday, the state controller has said he will delay certain payments 30 days, including those owed to thousands of businesses.
Local cities are also struggling -- Los Angeles is expected to face a $433-million budget gap in the fiscal year starting July 1 and a $550-million gap the next fiscal year -- with many looking to boost fees and taxes. In Beverly Hills, voters will consider a ballot measure March 3 to change how many businesses are taxed, shifting from a flat tax based on the number of employees to a tax based on gross receipts. The city expects an annual revenue boost of about $5 million to $7 million if the change is approved.
“Cities are feeling the revenue shortage, so what’s happening is they are coming to small business to try to get more money,” said Bonnie Nijst, chief executive of Zeesman Communications Inc. in Beverly Hills.
Nijst said she recently had to pay $750, almost double the previous fee of $450, to renew her line of credit with a major bank. Her interest rate was hiked to prime plus 2.25 percentage points from prime plus 1 point, and she and co-owner Arthur Zeesman were required to personally guarantee the $150,000 line. She’s also finding that her bank is taking longer to give her access to large deposits.
She finds the situation especially annoying given the taxpayer money the banking industry has received as part of the bailout.
Customers are also taking longer to pay or to sign up for new services, she said.
“All this impacts cash flow,” Nijst said. “That’s a huge thing. It impacts your ability to make payroll, sometimes, in a tough month.”
To help cut costs, the small-business owner, a former president of the Los Angeles chapter of the National Assn. of Women Business Owners, laid off one full-time employee and two part-time workers this month.
The move was part of a comprehensive review the firm is putting itself through.
“On Jan. 5, we all sat down and we said, ‘OK, everything is on the table: how we do what we do, the resources we use and who’s going to be doing it,’ ” Nijst said.
At a recent board meeting at GNW-Evergreen Insurance Services in Encino, positioning for growth in down times was also on the agenda.
“We have been watching this come for some time,” said Karen Oxman, a principal at the 70-employee insurance agency with roots that go back to 1930. “We’ve been in a bubble that was just completely over the top: people living off their homes that had value way above what anybody should have counted on.”
Clients have been laying people off, cutting wages or hours, or both. One company she worked with no longer opens on Fridays or Mondays. A real estate client caught in the credit crunch recently declared bankruptcy.
Although Oxman predicts the economy will get worse before it improves, she still expects her firm, which has annual revenue of about $10 million, to eke out growth of 1% to 2% for the year. That will include working hard to make up for lower billings.
“In a market like this, when things are tight, there is also a lot of movement, and we feel we are fairly well positioned” to attract new clients, she said.
The firm is also looking to help clients benefit from potential opportunities and be wary of unexpected costs in the downturn. As a full-service insurance agency, it regularly works with clients to help them lower risk and cut costs.
“The soft market will not stay, so one of the things we are doing is to work with our clients to position themselves for the future,” said Oxman, a board member and a Southern California regional director for the industry trade group Insurance Brokers and Agents of the West.
Hasty layoffs, ill-prepared wage cut decisions or other cutbacks could come back to haunt a business owner in what she expects to be a more aggressive legal environment.
As employee counts change or sales decline, insurance premium costs can also shift. The credit crunch has also hit the premium finance market, which has made it harder for some firms to pay for needed nonstandard insurance products.
“Now is the time to be getting really good advice, not just to hunker down and hope you ride it out,” Oxman said.
Uniform designer and manufacturer Barco Uniforms, which was started by Donner’s grandfather in 1929, is also looking to thrive in tough times.
The business owner’s action plan includes using lean business management practices to become more competitive, a focus on creating breakthrough products and inspiring confidence in employees.
“In response to the recession challenge, we are kind of reinventing our business model,” said Donner, whose firm serves the medical community, as well as corporate clients including the major fast-food restaurant chains.
Barco also has a long history of supplying uniforms to Hollywood, he said, including television’s “Dr. Kildare,” the movie “Patch Adams” and, more recently, “Seven Pounds.”
The company also outfits the medical personnel of ABC’s “Grey’s Anatomy” and last year released its first Grey’s Anatomy Professional Wear by Barco collection. The collection -- which includes T-shirts decorated with the show’s signature “Seriously?” -- also uses new fabrications with moisture-wicking properties found more often in active sportswear.
“It was my stimulus package for my customers in ’08 and it will be a stimulus package in ’09 plus other remarkable things that hopefully will be successful,” Donner said.
In April, Barco plans to feature in its fall catalog a colorful new collection to be manufactured under a license from Crayola. Trend research shows that bright colors are popular during hard times, said Iris Amano, Barco’s director of marketing and multimedia.
It’s all part of Donner’s determination to deliver “remarkable” products that generate customer excitement and sales, a strategy he is accelerating for 2009, a year he expects sales growth to hit double digits.
“It’s difficult to do,” Donner said. But “when you are remarkable in a recessionary time, you do it well, you pull it off, then you can grow your business as a result.”