Small Businesses Staying Lean, Wary Of Hiring

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Optimism is growing about the U.S. jobs market. Fewer people are applying for unemployment benefits, and hiring is up. The lion's share of new jobs are coming from small and medium-sized firms. But even if the economy comes roaring back, many small businesses aren't likely to hire with wild abandon.

"It's a huge commitment, when you're a very small firm, to add someone," says Kate O'Sullivan, director of content for CFO magazine. "And I think that the outlook is still not completely firm."

Doing More With Less

CFO magazine, along with Duke University, co-sponsors a quarterly survey of financial executives. Their latest report shows that one-quarter of small businesses never expect to get back to their pre-recession staffing levels.

O'Sullivan says this is partly because businesses generally have already learned to do more with less.

Enlarge this image toggle caption Courtesy of Nettles Country Courtesy of Nettles Country

"They've really looked at a lot of creative ways to do more things with fewer people," she says. "So they have invested in the technology; they have invested in the equipment. They've sort of rejiggered work schedules so they have people working overtime. But they're very hesitant to add more people, because they just recently have gone through the experience of laying people off."

Rose Corona runs Big Horse Feed & Mercantile, a retail operation in Temecula, Calif. The company recently lost two employees who moved away, and Corona doesn't intend to replace them.

Instead, she installed a new software program to help her keep track of inventory — which used to be counted by hand.

"We may save a few labor hours here and there, but in essence I will use fewer people to do more things," Corona says, like building up her online retail business — with her current staff.

"That means a lot of these girls who know how to take photographs are going to be taking a lot of photographs, so we can slap those on the Web — which has gotten totally ignored because we just don't have the bodies to do it."

Gala Nettles owns Nettles Country, which supplies Corona's business. The company, based in Madisonville, Texas, manufactures stirrups for saddles, among other things. Nettles says she doesn't see hiring anywhere on the horizon.

"The recession is still alive and well for the small-business owner," she says.

Higher Prices, Fewer Customers

The recession is still alive and well for the small-business owner.

Nettles says higher prices for everyday goods mean customers have less money to spend on her products. Rising gasoline prices have eaten into their budgets, she says, and even potato chips that used to cost $2.39 now cost $2 more.

"It's very hard sometimes for a normal person to relate to how that bag of chips relates to the bottom line," she says. "But it does."

Nettles says she has ideas for new products she'd like to launch. But they remain only concepts because the company doesn't have the manpower to design or make them.

"We could definitely use a couple more people, but we can't afford them. We cannot afford them," she says.

Private Employment, By Company Size Millions of workers Notes Employees by size of payroll, seasonally adjusted. Small: companies with fewer than 50 workers; medium: 50-499 workers; large: 500 or more workers

Nettles, like Corona at Big Horse Mercantile, chose not to replace two employees who moved recently. Most of Nettles' remaining six full-time employees are family members who are now working longer hours to pick up the slack.

Investing In Capital Improvements

Precision Machine Works is also doing more with less. Since last July, the Seattle-area airplane parts firm has added 11 people to its staff of 166 — mostly on its production floor.

Bill Helenberg, the company's chief financial officer, says that in anticipation of Boeing's production of its 787 Dreamliner, Precision Machine tripled capital investments to make its machines more efficient. Now, they require less idle time.

"An outgrowth of that is ... labor costs increase while all that volume increases. But we're doing so much more efficiently," Helenberg says. Essentially, "labor's not increasing as much as demand's increasing."

As a result, Helenberg says, Precision Machine will have to hire two-thirds fewer people than it would have before the recession.