Joblessness, tax questions sow doubt for Southern Nevada’s small businesses

These aren’t happy days for small companies.

And that matters because 60 percent of net new-job growth in Nevada in the last decade came from companies with 20 or fewer workers, according to the National Federation of Independent Business. How business owners feel about the year ahead hints at whether they’ll expand in coming months.

“If they don’t feel optimistic, they’re not going to be hiring, investing in capital expenditures or buying inventory,” said Randi Thompson, director of the federation’s Nevada chapter.

The newest optimism numbers bode poorly: Small-business owners say they’re worried. Experts say that means poor hiring at least through June, though some Nevada business owners say they weathered the worst of the recession and adjusted operations to work with whatever 2013 hands them.

“I’m an eternal optimist, but I see the writing on the wall,” said Leslie Parraguirre, owner of local interior design firm Colours. “I have tremendous concerns as a small-business owner, and I’m fearful for companies like mine. We will not likely grow in 2013.”

Surveys of optimism and hiring show Parraguirre has plenty of company.

GROWING GRIMNESS

Consider Illinois-based payroll-services company SurePayroll’s new Small Business Optimism Outlook. The survey found that 55 percent of company owners felt good about their near-term business prospects in the fourth quarter, down from 70 percent in the first quarter. And the National Federation of Independent Business’ latest Small Business Optimism Index turned in its second-worst performance since March 2010, with 70 percent of owners saying it’s a bad time to expand.

Observers blamed a broad range of factors for the malaise.

Start with Washington, where Congress and the White House tangled to the brink of the fiscal cliff, waiting until New Year’s Eve to pull back on trillions in federal tax hikes and spending cuts. That game of chicken left businesses unclear about tax burdens and budgets in 2013, said Bill Dunkelberg, the federation’s chief economist. The debate’s not over, either: Federal lawmakers are already digging in on whether to boost the nation’s debt ceiling in March. And then there’s Obamacare, which takes full effect on Jan. 1, with fines for companies that don’t cover full-time workers.

State and local issues have only added to the confusion, Thompson said. Nevada still has an above-average foreclosure rate and nation-leading joblessness. What’s more, the state legislative session begins Feb. 4, and there’s already talk of new taxes on companies’ gross profits to help fund education. Between Washington and Carson City, companies “don’t know what their taxes will be, and they don’t know what it’ll cost to hire,” Thompson said. “They’re not going to act until they know what’s going on.”

Local businesses agreed they have no idea what’s going to happen.

Rhett Marek, owner of event planner Las Vegas Entertainment Productions, said it’s too early to tell how December’s fiscal-cliff deal and the upcoming debt-ceiling talks – which he called “very scary stuff” – will affect business. Higher taxes on affluent earners could mean less discretionary income for Marek’s business, or it could help sales if company owners see write-offs in corporate entertaining. For Marek, uncertainty has bred uncertainty.

“Back in the day, we could plan six months out, because companies would plan six months out, and we knew what our calendar would look like,” he said. “Now, we can be two months out and have no idea if we’re going to have zero business going forward, or be busier than we’ve ever been.”

Nor does Reno-based Kimmie Candy Co. expect expansion in 2013. President and CEO Joe Dutra said government gridlock and federal health-insurance reform mean he’ll mechanize before he adds workers.

“Small-business owners like myself risk everything every day,” Dutra said. “For us to take chances in growing the company and hiring new people and exploring new markets, we need to have some comfort in the basic fundamentals of our government and know what the deal is.”

Business is also up in the air at Colours.

Commercial business picked up for the design firm in the fall, and has stayed relatively strong, Parraguirre said. But 2012 started strong, too, and sales still hit a wall in August. Parraguirre froze wages and cut her 12-person staff in half in 2011, and she doesn’t see a green light to build back up. The end of the 2 percent payroll tax holiday makes it harder to convince young employees that they can afford to stay with Colours. She had to fight to keep a longtime line of credit in 2012 despite never missing a payment and having excellent credit. She’s not sure Washington knows how to help small-business owners. And a gross receipts tax could add $40,000 a year in levies that would force her to “rethink my entire business paradigm.”

“Laying people off for the first time in 30 years in business felt like cutting my arms off,” Parraguirre said. “I don’t want to go through that ever again.”

Few business owners do like laying people off, and that could be why local hiring stalled in 2012. SurePayroll’s Small Business Scorecard showed that employee counts among local companies fell 5.7 percent from January to December, while the average biweekly paycheck slumped 2 percent, to $1,583. SurePayroll President and CEO Michael Alter said higher payroll taxes left less discretionary income for travel and leisure spending, and federal-debt woes piled onto companies’ concerns.

“The Las Vegas economy is decelerating,” Alter said. “There’s a lot of uncertainty in the face of less consumer stimulation, and when that happens, you’re going to see business owners sit on the sidelines and watch.”

Added Mike Yoder, chief technology officer at Las Vegas information-technology firm WinTech: “Debt negotiations will have a negative impact on businesses in general, whether it’s a matter of increased taxes on the payroll side or uncertainty about what the government does with some of these big decisions. It’s all going to have an impact on indecision within businesses.”

That’s why Alter forecasted sluggish hiring in the first half of 2013. What’s more, regardless of how Congress handles the debt ceiling, businesses could feel the pain. Another short-term agreement would prime business owners to expect more bruising battles with unclear outcomes in the next year, while a long-term solution that raises revenue and cuts spending would slow down the economy in early 2013, Alter said.

“I think it’s going to be a challenging year,” Alter said.

That’s not true for every small business, though.

AREAS OF OPTIMISM

Yoder said he expects growth in some individual sectors, including health care, as baby boomers age, and in information technology, as downtown development takes off. The debt-ceiling showdown isn’t affecting WinTech’s plans to increase its four full-timers to a dozen or more software developers, sales executives and support personnel by 2013’s end. Yoder credited the rosy company forecast partly to Zappos founder Tony Hsieh’s $350 million downtown-revitalization fund, which allots $100 million to small businesses and tech startups.

“The economy in general may suffer this year, but there’ll be pockets of growth, and we hope to be one of those pockets,” Yoder said.

That’s also the case at NetEffect, a local IT-consulting firm. Some of the company’s clients are seeing new contracts and customers, and that means more demand for NetEffect’s electronic security and infrastructure services, President and CEO Jeff Grace said. What’s more, the company in July got the state’s first-ever gaming license for an IT-service provider, allowing the business to manage hardware and software systems inside casinos regulated through the Gaming Control Board.

“We’re very uniquely positioned in the marketplace, so naturally, we’re optimistic,” Grace said.

But it’s a cautious optimism, he added, mostly because half a decade of recession taught businesses the perils of over-exuberance. Still, Grace said he expects NetEffect to grow from 14 people at the end of 2012 to as many as 25 people by late 2013, including adding swing and graveyard shifts for the first time.

Las Vegas Entertainment Productions won’t let uncertainty take it completely out of the game in 2013, either.

Marek said he plans to hire in 2013, though he’s not sure exactly how many people or in what positions. He added that he’s confident about the year ahead, mostly because the company got lean in the recession to survive whatever lies ahead. It pared its full-time staff from 20 to 12, and employees no longer specialize in one area, such as tent setup or catering. Everyone knows how to do everything, for maximum flexibility.

“You just have to be optimistic. You have to hope for the best and plan,” Marek said. “We plan to handle anything we get. If we have a month with no business, we’re prepared. If we have another month of record-breaking sales, we’ll handle that, too. The economy taught us to tighten our belt and use what we need rather than what we think we want.”

Contact reporter Jennifer Robison at
jrobison@reviewjournal.com or 702-380-4512.
Follow @J_Robison1 on Twitter.

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