Summary: Need help with PR? If you are looking for a great PR firm, you've found one. Walker Sands is a leading Chicago PR firm with a strong track record that makes it one of top national PR agencies..

Edwin Worrell's Dollar Smart store is a gamble. He and his wife took the equity out of their home and insurance, maxed out their credit cards and bet their financial lives on a business with frighteningly tight profit margins.
(article continues below useful links)

So far, they are making it, he said. "We are in the black but just barely."

Dollar Smart has benefited from the tax cuts that put money into the pockets of consumers. On the other hand, the store has been squeezed as oil prices add to costs of shipping and to products made with the slick stuff.

Dollar Smart may be just one modest sliver in an $11 trillion-a-year economy. But its uncertain struggle to succeed is a window on the small-business sector, the health of which is crucial to the larger economy.

The sector accounts for 99 percent of U.S. companies and about half of all jobs. Although defined by the government as companies with fewer than 500 employees, most are clustered at the lower end of the scale: 89 percent have fewer than 20 workers, according to a study by the Yankee Group.

President Bush and Sen. John Kerry have argued bitterly over stewardship of the economy - but both say small business is pivotal.

The Bush campaign says, for example, that tax cuts provide an average of $3,001 to 25 million small-business owners. Kerry has decried rising health care premiums for small businesses and has promised that his plan would control those soaring costs.

The administration maintains that its policies have resuscitated an economy that was staggered by the collapse of the tech stock bubble, recession, the Sept. 11, 2001, terror attacks and a series of corporate scandals.

The Bush administration has pushed through a series of tax changes. Most of the attention has been on cuts in the top income tax rates that can affect small-business owners. Companies can also write off up to $100,000 in plant and equipment costs - four times the amount previously permitted.

Yet the economic result has fallen far short of administration predictions. And while small-business owners have benefited from the changes, that has not yet translated into a hiring boom.

Kerry argues that the president's policies have been inadequate and misguided and have yet to spur a robust recovery. He cites the sector's loss of about 1.5 million jobs since early 2001.

But the administration can point to the start of job growth in late 2003: Since then, the private sector has added 1.7 million jobs, less than produced in a typical recovery but dramatically better than the two prior years.

The administration's tax changes should get credit for encouraging people to swell the ranks of entrepreneurs, said economist William Gentry of Williams College in Massachusetts.

"People respond to the shape of the tax system," he said. "They are more likely to move to being self-employed. If you are a small-business person, you can find a lot of business meals. Small-business owners may have more opportunity to shelter income. If you work for the post office, it is hard to do that."

Robert E. Ross, owner of Kennesaw-based GEC Business Services, says small businesses - including his own - are encouraged by the tax changes.

"I think the climate overall is very favorable," said Ross, whose year-old, three-employee company offers accounting, tax and consulting help.

"Generally speaking, the tax code is very beneficial to the small business," Ross said. "When I explain to clients about the tax implications [to them], they get a slight smile and they say, 'That's real good news.' "

Costs have climbed

Small businesses carry special burdens.

For instance, while federal taxes have been trimmed, many states and municipalities - which cannot run deficits the way the U.S. government can - have raised taxes, especially on property.

Other business costs have also been climbing.

Much of the fault is in the dramatic rise in the price of oil over the past two years. Some trucking companies pass along the higher price of diesel in the form of higher shipping costs. Meanwhile, some plastic materials made with oil have likewise grown more expensive.

And while most measures show modest inflation, health care bills have been soaring. Unable to afford coverage for their employees, many small companies are at a disadvantage to big firms that can bargain with insurance companies for cheaper rates.

Overall, the odds against small-business survival are long: Every year, roughly 10 percent of companies with employees fail, according to the Small Business Administration.

"Most of the hiring may be done by small business, but most of the firing is done by small business, too," said Dean Baker, co-director of the Center for Economic and Policy Research. "Small business is an important segment of the economy. It's just that its importance is usually overstated."

The tax changes have not done much to rewrite the long odds, argued Baker.

"The vast majority of small businesses do not benefit much from the tax cuts. The owner is in the $40,000- or $50,000-a-year bracket. So they get $500 or a thousand bucks back," he said.

"What matters most is what sort of economic environment you have."

Edwin Worrell is upbeat but agrees that circumstances are challenging.

"I have very little tax advantage from being a small-business owner," said Worrell. "I pay myself a salary, and I pay taxes. And the corporation also pays taxes. I also pay $4,400 a year in property taxes. And I think that is about double from last year."

When he looks to the future, Worrell thinks his 3,100-square-foot store is connected to broader questions. While unhappy about "the quagmire" in Iraq, Worrell said he thinks economic recovery depends on a Bush victory.

Regardless of how the election turns out, the future of even a one-store discounter in Dacula is entangled with a global economy and its effect on U.S. consumers, Worrell said.

"We are affected by political and economic issues because of the money in the pocket of my customers. When they come into the store, I always ask them, 'How is your business?' "

SBA wins praise

One key tool for nurturing the sector - praised by both parties - is the Small Business Administration.

The SBA can target loan guarantees, federal contracts and advice to smaller, deserving companies.

"It is very much needed," said management professor Lisa Gundry, director of the Ryan Center at DePaul University in Illinois. "It is very difficult for [small firms] to seek financing the traditional routes. They don't have enough business experience."

The agency has had its budget clipped under Bush - something criticized by Kerry. But agency spokesman Evan Keefer says the SBA has done more with less.

For example, the SBA says that roughly a quarter of all federal procurement - $65.5 billion in contracts - came from small business last year. Moreover, the agency's flagship 7(a) program guaranteed a record 81,133 loans, and the SBA estimates that those loans resulted in either the creation or retention of 495,915 jobs, Keefer said.

Those records came despite decline in the agency's budget from $899.5 million in 2001 to $718 million in the fiscal year just ended, Keefer said.

"The SBA is stronger now than it's ever been," he said. "We are more efficient. We are doing more now than what we did in 2001."

Shaky progress?

Economists say most hiring early in a recovery comes from small businesses.

Nearly three years into the recovery, surveys of small businesses in general show improvement, along with continued shakiness and some potentially troubling trends.

Small-business confidence seemed to rebound this year from the 10-year lows of 2003. However, progress has been shaky, according to the 600,000-member National Federation of Independent Business.

In Georgia, small businesses have been expanding slowly through the year, according to SurePayroll Inc., one of the nation's largest payroll services. Less encouraging is the size of the paychecks, said Michael Alter, president of SurePayroll.

"You are seeing the average paycheck of these workers is dropping," Alter said. "You've got deflation in your salary."

The average salary at small companies in Georgia has slipped from $28,999 at the start of the year to $28,072 in early September, he said, and that trend is similar across the country as small businesses feel the impact of international forces.

"I think we are seeing the effects of the global economy," he said.

Copyright © 2004. The Atlanta Journal-Constitution.