GDP numbers not so rosy for small business
The U.S.’s latest GDP figures show the economy is growing at its fastest pace in years, but small businesses are still reeling.
According to government data, U.S. 2009 fourth-quarter GDP grew at a 5.6-percent clip – the fastest pace since 2003. Government stimulus, greater exports and less-severe reductions in business inventories have been credited with the growth, but data from Sageworks, which compiles financial information on privately-held companies, paints a far bleaker picture for small businesses.
Drew White, Sageworks’s chief financial officer, said the survey results representing “tens-to-hundreds of thousands” of U.S. privately-held companies, showed a marked decline in 2009 revenues. White said 2009 fourth-quarter sales, by small private businesses with less than $10 million in annual reported revenues, were down 6.4 percent (see the full report). That was a significant decline from the previous year, when 2008 fourth-quarter sales increased 2.4 percent. Pre-recessionary 2007 figures showed an increase of 5 percent. As a barometer, White said a 3-percent growth rate was “reasonable.”
“Seeing a 6-percent decline is pretty dramatic,” admitted White, who noted it was a good indicator of the degree to which small businesses have been hammered during the current recession. “It’s almost like a 10-percent differential – huge.”
White said as long as consumers refrain from spending, small businesses will continue to remain in survival mode, which likely means reductions in overhead, such as payroll and advertising.
“Everything has gone down when revenue goes down,” said White, who pointed out that over the last four years small businesses have reduced their payrolls – as a percentage of total sales – from 19 percent to 15 percent. This despite the majority of private companies being able to reduce their debt-to-equity ratios from 2.7 percent to 2.25 percent. “You would think if they kept their employees and sales went down, payrolls as a percentage of sales would go up, well it’s actually gone down as a percent of sales and sales have gone down, so they’ve really cut.”
VIDEO: New class of startup aims for quick revenues
peHub‘s Dan Primack spoke with Reuters about a new kind of startup that’s designed to develop an idea and then be snapped up by a larger company.
As Primack explains, these startups differ from the traditional sort in that they tend to be interested in creating targeted web services or applications rather than conventional companies with longer-term growth ambitions.
“The hope for these companies isn’t to create the next Google or the next Cisco, the goal is to create a little application that Google or Cisco or Facebook or Twitter wants and then will purchase,” he explains.
Primack says startups of this new variety are often cheaper to start and run, and tend to realize revenues very quickly because they are designed to create a one-off service.
Many have been reared by Y Combinator, a Silicon Valley-based venture outfit that invests in young startups and helps them fine tune their applications or services.
Watch the interview with Primack below.
This is nothing new. Back in the 1990′s, they called this concept “built to flip”, and was quite common during the dot.com bubble. It’s probably even older than that.
Yet ZERO mention about small business lending from banks in america. the consumer isnt the only group that feeds small business, the banks do. this may come as a shock to some…but the banks still arent lending. why is that you ask? well lemme tell you why, because they are getting free money from the treasury instead of having to pay for it like they used to. now they can make money on that free money without having to take a risk on the average small business/lending and boost their balance sheets without any risk to the bank at all. obama is single handedly killing small biz in america.