Small Businesses Are Still In Recession

Overall, the U.S. economy finished 2009 with what appears to be, on paper at least, to be a strong burst of growth. Yet for small businesses, the recession drags on, a new report shows.

Commerce Department said Friday that the GDP rose 5.9 percent from the third quarter, driven mainly by a rise in inventories in part due to federal stimulus spending. However, much of the GDP was skewed by data from larger companies such as Boeing, and as such, do not accurately reflect the activities of small businesses, said Drew White, chief financial officer of Sageworks Inc., a financial information firm in Raleigh, North Carolina.

According to Sageworks’ report, smaller businesses saw their sales shrink 6.4 percent in 2009.

White said that small businesses have reacted to the dramatic decline in revenue by maintaining liquidity and cutting expenses.

“They’ve cut advertising and payroll, and they are taking longer to pay their vendors because their inventories are sitting on the shelf longer and they, themselves, are getting paid more slowly,” White said. “As a result, the whole economic cycle has slowed for them.”

According to Sageworks’ report, inventory stayed on the shelves of small businesses on average four days longer in 2009 than the year before. As a result, it took an average of three days longer to collect receivables, and three and a half days longer for small businesses to pay their vendors.

Advertising costs were cut, down to 1.22 percent of total sales. Payroll was reduced by nearly four percentage points, to 15.2 percent in 2009.

Drew predicted that small businesses’ revenues in 2010 will continue to be dampened as long as consumer spending and employment levels remain depressed.