Strategists urge new thinking to weather economy

[caption id="attachment_63529" align="alignright" width="280"] Clockwise from top left: T.J. Van Voorhees, Kristin Johnson, Roy Martinez, Deborah Steinthal[/caption]

NORTH BAY -- While many North Bay small businesses continue to grapple with the lingering challenges that emerged during the worst part of the recession, regional experts agree that key strategies have helped some companies to position themselves more strongly in a changed business landscape.

Common strategies for small businesses that have remained successful in this period have included a closer look at individual performance metrics, a greater utilization of contract employees and an embrace of new markets for growth.

Yet the current period of slow recovery has left a number of enduring challenges for small businesses. Consumer habits have shifted, prices have risen for raw materials, and access to capital remains a primary concern, according to small business experts.

In a time of narrow margins, T.J. Van Voorhees, CEO of Larkspur-based small business consultancy, Pacific Crest Group, stressed the importance of looking at operating costs individually. By identifying how expenses like staff and other metrics affect cash flow, many companies that are currently well positioned have avoided making cuts that would cause long-term harm.

"If companies just say 'Well, this is what we have in the bank,' the results have been brutal," said Mr. Van Voorhees. "Sometimes people are reacting and cutting staff, but they're not cutting staff based on metrics. They're cutting staff based on their gut."

Small business confidence remains mixed during the recovery. Using 1986 as a benchmark of "100" on its confidence index, the National Federation of Independent Businesses found overall optimism was 92.8 in October. A fall in confidence began to reverse after reaching nearly 80 in early 2009, after peaking near 110 in late 2004. The Bay Area Council found an overall optimistic outlook for the third quarter, with its composite index showing 61 out of 100, and values above 50 showing confidence for growth.

In Sonoma County, a composite index compiled from surveys of company executives by the Economic Development Board found small business confidence at a five-year high in the second quarter of 2012. Responders remained cautious about the economic recovery, expecting a full recovery is one to four years away, according to the report.

A sense of caution towards hiring continues both locally and nationally, and some employers have been able to expand operations by hiring contractors instead of full-time employees. The decision can allow for savings in insurance, tax and other employee costs. But Kristin Johnson, regional director of the Northern California Regional Small Business Development Center that oversees programs in the North Bay, cautioned that the IRS is increasingly pursuing cases of improper classification.

"The businesses that have survived this recent period are very lean," she said. For those looking to hire, "be transparent about the security of the job. Tell applicants that your company is in recovery."

In many cases, small businesses that survived the recession emerged with a hit to their credit score, making financing more difficult to obtain, Ms. Johnson said. In addition, a traditional source of collateral for small business loans -- an owner's home -- lost significant value during the real estate crash.

The U.S. Small Business Administration launched a number of new lending programs to address those pressures, leading to record-setting SBA loan amounts across the North Bay in recent years. The so-called JOBS act of 2010 allowed the SBA to temporarily increase its backing of loans through the program, and a new program known as Small Loan Advantage allows rapid turnaround for smaller value loans up to $350,000.

Meanwhile, the same economic conditions have lead to a boost in angel investment, as some high-net-worth investors turn towards promising companies and away from impressions of a lackluster stock market, Mr. Van Voorhees said.

In advance of Sonoma Mountain Business Cluster's annual investor summit later this month, Roy Martinez, acting executive director, said that willingness to invest in entrepreneurial ventures is climbing.

Mr. Martinez is also outgoing chair of the North Bay Angels investor group, and said that there was little to speak of in terms of deals when he began his tenure there two years ago.

"We've turned a corner," he said of the small business climate. "During our last meeting, we were talking about all of these deals that we're getting done."

Companies on the larger end of the small business spectrum -- which, according to federal definitions, stretches up to 500 employees -- have experienced less difficulty in achieving necessary financing, experts said.

However, growth-minded, mid-sized businesses still face a changed consumer, with growing consumer confidence still considered low by historic standards. To grow, those companies should consider markets outside of their traditional base, said Deborah Steinthal, managing director of Scion Advisors in Napa. Looking internationally, Ms. Steinthal's food and beverage industry clients have seen skyrocketing demand in some markets.

"Were looking at more headwinds going forward. The good news is -- many are experiencing success in new markets," she said.

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