Tapping the Survival Instinct

Entrepreneurs can't afford to sit tight if, as many suspect, the economy deteriorates. Now, more than ever, is the time for hard decisions

Although little is certain -- except uncertainty -- on the economic and political fronts for the next several months, few small-business owners can afford to simply stand by wringing their hands. Instead, they need to figure out how to do business in the murky months ahead, when they can expect to see corporate earnings fall, entire industries stumble, and the consumer go into hiding.

In the wake of the Sept. 11 terrorist attacks, the small-business world is developing survival strategies as it rethinks, individually and collectively, its prospects for the short term. As Julie Scofield, head of New England's Smaller Business Assn., puts it: "The things we had to look forward to in the economy have kind of gone away."

Some of the things small-business owners worried about before Sept. 11, such as the Patients' Bill of Rights and the Bankruptcy Reform Bill, are unimportant for now. Today, all entrepreneurs really want from Washington is incentive -- in the form of tax breaks -- to try to keep businesses, investors, and consumers from taking a seat on the sidelines.


  In addition to the economic stimulus that might be gained from the Fed's rate cuts, the small-business community wants Congress to pass a capital-gains tax reduction, to accelerate or make permanent some of the provisions in President Bush's tax-relief package, and to step up some of the capital-expense tax write-offs for small business. Some also hope Congress has enough time and focus left over to reduce trade barriers because, even in the face of war, it still makes sense for them to expand internationally.

"Capital gains is at the top of our list because we need to boost progrowth incentives for entrepreneurship, for risk-taking," says Raymond J. Keating, chief economist for the Small Business Survival Committee. "Any kind of policy measures that will boost confidence in the general economy, and boost investor confidence, are critical at this point," he says, suggesting that the tax cuts be accelerated so their progrowth aspects can be felt sooner.

As Congress appropriates $40 billion for recovery and defense spending and earmarks $15 billion to keep the airlines flying, it is considering stepping up certain provisions in the tax-cut package passed in June, enlarging some tax breaks for capital investment, and cutting the capital-gains tax. For now, the Senate Small Business Committee is focusing on disaster loans to companies directly affected by the attacks, as well as loans for small-business owners called to service as members of the National Guard. The big-picture economic issues for small business aren't yet on the front burner, says Dayna Hanson, a spokeswoman for Small Business Committee Chairman John Kerry (D-Mass.).


  Small-business leaders are trying to keep their colleagues from following what might be their first instinct in this economic and political climate: hunkering down and waiting it out. "It's the entrepreneurs who are going to make a difference," says Barry Cargill, vice-president for government relations at Michigan's Small Business Assn. "I hope to God they do go out and borrow money. If this country doesn't invest in itself, we are going to be in a recession -- and that recession is going to last a very long time."

What every small-business owner should be doing, their leaders say, is looking at their companies and assessing the prospects for the near and longer terms. Some niches -- offsite computer data storage or armored security, for example -- will grow in the wake of the attacks, but many others will shrink. Unlike those businesses located near the World Trade Center, a restaurant owner in Hilton Head, S.C., doesn't have shattered windows and white dust all over his furniture. He has still has a problem, however, because he relies on vacationers, who are expected to be in short supply as people avoid flying and spending money on the eve of war.

"In certain sectors, you will see a positive effect," says Sandra Hernandez Adams, president of the National Association of Women Business Owners, who is quick to add: "But in a majority, we're going to see a negative effect." As the owner of Strategic Micro Partners in Miami, a software consultant to legal firms, she is busy working with clients on disaster-recovery strategies. Her advice to the majority of small-business owners: Figure out how you need to change your business to minimize the negative impact of the political and economic upheaval.


  "It's easy to lose focus when times are good," says Scofield, whose 1,000 members sell to other businesses rather than consumers. "Now's the time to get down to basics: Dust off some of the tried and true sales fundamentals -- have good internal systems and grind away at them."

Most companies will need to be more focused and aggressive about sales and marketing as the buying climate turns even more conservative, say small-business advisers. It's a good time to be in touch with your investors or your bank, the experts advise, to buffer them from any surprises -- and perhaps to get a line of credit in place as part of a safety net. Most companies will want to cut costs, and some might consider cutting prices to boost sales. For a time, breaking even might be all a company can manage, says John Puchalla, senior economist at Moody's Investors Service. "But that's surviving."

In the short term, business owners shouldn't expect any sleight of hand from Congress or elsewhere, Puchalla says, even though accelerated tax cuts and federal spending this year might mean a stronger recovery next year than could otherwise have been expected. Consumer spending and capital investment is on hold as people and businesses get their bearings in a world that's unlike any they've known. Until people feel more secure, no tax cut or economic stimulus will be big enough to make them spend, Puchalla points out.


  Scofield understands that. "At the end of the day, small business is a very responsible community," she says. "They want well-reasoned, well-thought-out tax relief, but my reading of the business community is that they want leadership from government. We don't know how rocky this road is going to be in front of us. People will feel a steadier hand on their individual helms if they feel the long-term approach to this crisis is being handled thoughtfully and responsibly."

In one sense, there are individual helms. In a larger sense, everyone is in the same boat.

By Theresa Forsman in New York

Edited by Robin J. Phillips