Is now the time to start a small business? How can the government help smaller companies? What mistakes do first-time entrepreneurs make? The administrator of the SBA answers all these questions and more.
Is now the time to start a small business? If past is prologue, it might be. During down economic times, start-ups are encouraged if only because lenders want to circulate money, and small (including home-based) businesses are a relatively low-risk proposition: There were only about half as many small-business bankruptcies in 2002 (38,155) as there were in 1988, a relatively prosperous time.
The 23 million existing small businesses in the United States will likely be joined by half a million new ones this year. Naturally, the Small Business Administration is eager to help existing small businesses as well as those still in the planning stages. The SBA develops and supports entrepreneurs through a vast network of resource partners, while also advocating for all small businesses at all levels of government.
Helping that process along is SBA Administrator Hector V. Barreto. Since taking his post in 2001, Barreto has overseen a portfolio of direct and guaranteed business loans and disaster loans worth more than $45 billion. Barreto’s experience in the world of entrepreneurship began when he helped his parents by working in, and later co-managing, a family restaurant, an export/import business and a construction company in his home town of Kansas City, Mo.
Small businesses account for more than half of all high-tech jobs. While Barreto is realistic about the difficulties of lean times, he’s bullish on the small-biz market, especially in the tech sector.
A lot of our readers are small-office/home-office (SOHO) business owners. How can the SBA help them?
The basic rules for being a successful business owner aren’t really that different for SOHOs than for any other business owner. That’s why the services the SBA offers cover the fundamentals while being flexible enough to tailor to any individual business.
For example, every business owner can benefit from good advice from someone who’s already been there. That’s why the SBA has a partnership with the Service Corps of Retired Executives (SCORE)–it’s a network of volunteers, all over the country who can serve as advisors and mentors to business owners who are just starting out.
Every business owner can also benefit from access to capital, learning how to write a business plan, or sharpening their management skills. That’s what our SBA District Offices and Small Business Development Centers are there for.
What kinds of challenges in particular are small businesses facing right now?
Their current challenges are the challenges they’ve always faced: access to capital, capacity, and opportunities.
Another ongoing challenge for small firms is the need to have a voice at the table when it comes to government decision making–at the local, state and national levels. The SBA is here to help them with that, to act as an advocate for them.
Small businesses want to be able to keep more of the money that they earn, and that is always a challenge. Another top concern for them is access to affordable health care–something that is important for their families, as well as their ability to be competitive as a business. It can be difficult to attract and retain high quality employees if a firm cannot afford a health-care plan for them.
Are these different from the challenges they faced say, 10 years ago?
No, on balance the challenges tend to stay about the same…to a higher or lower degree, depending on the economic cycle. Technology has eased some past challenges. Obtaining information, for example, is much simpler today, which has helped level the playing field with big business.
Technology has also made the SBA more efficient, which means small-business owners can access the help they have always needed with fewer steps. Our Web site, for example, is an enormous resource that they can use without ever leaving their offices or homes.
What are some of the most common mistakes made by first-time small-business entrepreneurs?
I often say that business owners “don’t know what they don’t know.” In other words, a common mistake is starting before you’re really ready. And if you’re not ready, you’ve probably overestimated how long it will take to get off the ground, while underestimating the amount of resources you’ll need–both capital and human resources.
The way to avoid all of this is to do your homework. Have a good business plan. Make sure you have a source for capital (start-up as well as cash-flow and growth capital). Carefully evaluate your human resource needs (how much staff will you need, how much will you need to pay them, etc.).
Finally, it is important to critically evaluate and really understand your own strengths and weaknesses. Be honest with yourself, and if there is an area where you need help, get it–whether through a partnership or hiring good people. This can mitigate a lot of future mistakes.
You have to know where you can go for answers as well, and SBA’s resource partners can help with a lot of this. SCORE volunteers, for example, can help business owners learn from the mistakes of others instead of from their own mistakes.
Which industries are looking most advantageous for small business right now? Which are slumping?
I hate to pick winners and losers, because it really does depend on two variables: where an entrepreneur is and what the needs are in his or her community; and what their individual talents are. Anyone who wants to be successful in business must ask themselves: What is my talent, my distinct competitive advantage? For example, is it price? Speed? Service? Identifying that advantage and exploiting it is the most important ingredient for building a successful business, regardless of industry.
Have you found that in the current economy, people are more hesitant to start a small business? If so, do you feel a cautious attitude is justified at the moment?
There is no doubt that small businesses, and the American economy, have faced challenges over the last few years. We were already slipping into recession in the first quarter of 2001, and then terrorists hit us hard and caused a negative economic ripple effect. On the heels of that blow there were corporate scandals that damaged confidence.
However, I see great optimism in the small-business community, and a terrific interest in starting small companies. The SBA Web site has 1.5 million visitors a week–people who spend time on the site, researching. That tells me there are a lot of people out there who want to be their own boss.
The number of SBA loans is higher than ever this year as well. We’ve backed 35 percent more loans than ever before–and the increase is across all demographic groups. More people are also coming to our Small Business Development Centers. I think that interest in small business start-ups is strong, which means that entrepreneurs need agencies like the SBA more than ever.
Keep in mind, too, that a great way of creating your own job is by starting your own small business. You might end up creating a job for a few others while you’re at it.
In your estimation, how has the Internet changed the lives of small-business owners?
I think it has changed their lives dramatically. The reason is simple: knowledge is power. The ability to gather information and intelligence on their industry easily and quickly has increased the ability for small business to compete with big business.
The Internet has also opened countless doors to sell goods, buy materials, meet business contacts, register for conferences, apply for special certifications–the list is almost endless. If business owners take the time to learn to use it effectively, the Internet can almost always change their business for the better, if it hasn’t already.
What are some computer or other technologies that small businesses should keep an eye out for?
The great thing about small business and technology is that small business itself is what makes technology better. The future is already here–it’s up to small business to use the technology in the most creative ways. It’s not a question of “if” one takes advantage of it. It’s a matter of “must.” One that is particularly interesting to me is wireless technology, especially from a sales perspective. The ability to take your laptop wherever you go, give presentations with it, keep your database with you at all times, and be in constant communication with your office and your clients, wherever you are…this is very exciting.
Another area that is extremely important to every business is the technology being used and developed for security. Everything from physical security to online security is impacting businesses of every size.
Are there any legislative initiatives that current or prospective small-business owners should pay attention to?
A critical bill that is in Congress right now is one that would create Association Health Plans (AHPs). The new law would allow trade associations and other professional and community organizations (chambers of commerce, for instance) to offer health insurance to their members under ERISA rules (the same rules that allow large employers to offer insurance, exempt from state regulation). The bill, titled The Small Employer Health Benefits Program Act (H.R. 660 in the House and S. 545 in the Senate), could potentially provide access to affordable health insurance to millions of small business owners and their employees. The legislation was passed in the House and is awaiting consideration in the Senate Small Business and Entrepreneurship Committee.
The President’s Jobs and Growth package–passed by Congress and signed into law by the President this May–had some significant elements for small business. Because of the changes it made to the tax code, 23 million small business owners will receive, on average, an annual tax cut of $2,209. The reduction in the top marginal income tax rate, for example, benefits small-business owners more than anyone else. That’s because so many small-business owners file their business income on their individual forms. Eighty percent of the benefit of reducing that top rate is going to small business. Also significant was the increase in business equipment expensing. The Jobs and Growth plan quadrupled the amount, from $25,000 to $100,000 to encourage small business to invest in equipment.