How To Help Small Businesses In North Carolina

Transcription

1 1 A publication of the Small Business & Technology Development Center

2 2014 State of Small Business and Entrepreneurship Steady Growth in North Carolina Business Survival: How Getting Help, Helps Plus: NC Small Business Facts small business activity & promise 2014 State of Small Business and Entrepreneurship 2 ACROSS NORTH CAROLINA

3 About the SBTDC The SBTDC is a business advisory service of The University of North Carolina System administered by NC State University. Its offices across the state are hosted by the campuses of The University and provide business counseling and educational services for thousands of small to medium-sized businesses each year. Since 1984, the SBTDC has helped over 130,000 entrepreneurs make their businesses better. Companies that teamed up with the SBTDC increased their revenue at more than three times the rate of growth for the average NC firm.

4 Table of Contents Introduction North Carolina s Business Support Resources Lynn Douthett, District Director, U.S. Small Business Administration s North Carolina s District Office... 2 Continued Economic Recovery Brings Growth Opportunities for North Carolina s Small Businesses Scott Daugherty, State Director, North Carolina Small Business and Technology Development Center (SBTDC)... 3 Economic Outlook and Trends Steady Growth in North Carolina Dr. James Kleckley, Director of East Carolina University s Bureau of Business Research... 4 Business Survival: How Getting Help, Helps Mari Howe, SBTDC, Senior Research Analyst... 6 NC Small Business Facts Small Business Employment in North Carolina... 8 North Carolina Exports... 8 Survival Rates of Establishments in North Carolina... 8 Employment Size of Enterprise for all NC Industries... 9 Demographics of All North Carolina Businesses... 9 Job Creation by Firm Size NC Business Rankings Lending Investment NC Small Business Innovation (SBIR) and Small Business Technology Transfer (STTR) Funding Firms and Employment in NC by Industry Size and Firm Size Small Business Success: North State Aviation Seeks Help and Thrives... 12

5 State of Small Business and Entrepreneurship North Carolina s Business Support Resources Lynn Douthett, District Director, U.S. Small Business Administration s NC District Office In North Carolina, we connect small businesses to partners that are effective in helping them start and grow their business. These federal and state supported business assistance resources are among the best in the country. The Small Business Technology and Development Center, a university system program and an SBA resource partner, is widely recognized nationally as among the best business development organizations in the nation. Sixteen locations offer entrepreneurs access to experienced professionals for consultation and training. The Small Business Center Network (SBCN), with offices at each of our 58 Community Colleges, reflects the strong commitment by the Community College System in educating prospective business owners as well. In addition to the SBTDC, other SBA resource partners include two Women s Business Centers, 10 SCORE Chapters and the Veterans Business Outreach Center. Each delivers significant levels of highly valuable education, training and business advisory services to startup firms and existing businesses. In 2014, our partners counseled and trained over 28,000 entrepreneurs. A special initiative engaging all SBA partners and the SBCN is the DOD / SBA Boots to Business initiative, designed for military members who will be transitioning to civilian life. Since January 2013, over 500 veterans have received this training in NC. Our lending partners also help our entrepreneurs grow successful companies. Their commitment to capital access builds a stronger economy. In Fiscal Year 2014, SBA approved 746 SBA 7(a) loans totaling almost $383 million and 99 SBA 504 loans totaling $66.1 million. That s almost a half billion dollars for North Carolina s small businesses 845 loans for almost $449 million. An additional $1.5 million has reached borrowers through SBA s microloan and Intermediary Lending Pilot programs. The effective collaboration among SBA, resource partners, and lenders is a remarkable example of how small businesses benefit from public-private partnerships. Together, we give North Carolina small businesses tools they need to create jobs, innovate and strengthen our economy. 2

6 Continued Economic Recovery Brings Growth Opportunities for North Carolina s Small Businesses Scott Daugherty, State Director, NC Small Business and Technology Development Center I am pleased to present the 2014 Annual State of Small Business Report. This is the 20th annual edition of this Report prepared by the SBTDC. It provides a snapshot of the size, well-being and economic scope of North Carolina s small to mid-sized companies. The success and vitality of our state s small business sector is a direct reflection of the state of the national economy. The data presented in this Report confirms the continuing improvement of the nation and state economies new business startups are rising, small and mid-sized businesses are growing, access to capital is increasing and unemployment is decreasing. North Carolina also has another advantage it continues to be perceived as a very special place to live. As a consequence of this, we continue to experience population growth at rates higher than the national average. These new North Carolinians are making a real, positive difference in our economy including starting and growing businesses here. This Report confirms the improving state of our economy. Small business contributions to this are impressive We have over 800,000 small firms They employ 1.5 million people They account for 45% of private sector employment They contribute nearly one half of our gross state product Our small businesses are home grown. They are not recruited from elsewhere, they do not seek and seldom receive grants and incentives to locate or expand here, nor are they likely to move to another state to accept a better offer. But, they sure are clearly important to our economy and our continued economic growth. The state offers services and support to small businesses from startups through mid-sized growth companies. In fact, it has what is arguably among the nation s best small business development resources. These include the Small Business Center Network of The Community College System which is focused on providing entrepreneurship training, information and counseling to startups and micro businesses and the SBTDC, a statewide business and technology extension service of The University System which focuses on providing in-depth management counseling and educational services to existing businesses with employees and to emerging technology firms. These two organizations provide an extensive range of complementary services to thousands of North Carolinians each year. They are the help that helps businesses grow in North Carolina. The women and men starting and growing small to midsized businesses in North Carolina deserve our recognition and our thanks for their contribution to our growing economic well-being State of Small Business and Entrepreneurship 3

7 State of Small Business and Entrepreneurship Steady Growth in North Carolina Dr. James Kleckley, Director of East Carolina University s Bureau of Business Research North Carolina s growth and development is tied directly to the health of the United States economy. In fact, research has shown that national growth has accounted for approximately 70 percent of North Carolina s growth since Over the past few years the nation s influence has been more acute lately accounting for 90 percent of the job increases. Thus, to effectively evaluate North Carolina s health, we must first look at the strength of the national economy. United States Table 1 provides an overview of the nation s major economic indicators. The inflation adjusted Gross Domestic Product (GDP) has grown modestly since This 2.2 percent average GDP pace has been characterized by relatively low inflation (2.1 percent annual average since 2010) and historically low interest rates. In fact, from April 2012 to May 2013 the conventional mortgage rate fell below 4.0 percent. The low interest rates have not provided a stimulus to the economy as some had anticipated and as many had hoped. Building permits and housing starts and many associated residential construction jobs remain well below historical averages. Employment has grown at a steady, but moderate pace. The unemployment rate has drifted downward, but remains above its pre-recession level. The nation s economy has continued to grow during 2014 although severe winter weather impacted activity. GDP grew at a 2.2 percent rate during the first half of the year. Establishment employment growth through August climbed above its 2013 monthly average (215,400 new jobs versus 194,300 last year). The August 2014 unemployment rate stood at 6.2 percent and building permit activity has averaged over one million units through July. Table 1 provides a good summary of domestic growth steady, but unspectacular. Since the beginning of 2010, when year-to-year GDP growth again turned positive, the annual pace of change has averaged 2.2 percent and has remained within a fairly narrow band (from 1.2 percent to 3.1 percent). TABLE 1 Major Economic Indicators - United States Average Annual Change Real Gross Domestic Product (% change) Consumer Price Index (% change) Conventional Mortgage Rate (%) Population (% change) Establishment Employment (% change) Labor Force (% change) Resident Employment (% change) Unemployment Rate (%) Real Personal Income (% change) Real Retail and Food Service Sales (% change) Building Permits (thousands of units)

8 TABLE 2 Major Economic Indicators - North Carolina Average Annual Change Population (% change) Establishment Employment (% change) Labor Force (% change) Resident Employment (% change) Unemployment Rate (%) Real Personal Income (% change) Real Retail and Food Service Sales (% change) Building Permits (thousands of units) North Carolina The unemployment rate has continued to fall since its recessionary-induced peak, as seen in Table 2. Inflation adjusted retail sales and real personal income have grown modestly but sometimes erratically since Building permit activity has followed the national trend, in that growth took some time to develop and the units permitted have remained below historical averages. While tighter credit standards, foreclosures, and consumer uncertainly have contributed to dampened housing demand, relatively fewer new residents also had an impact. As one can see in Table 2, North Carolina population growth has slowed significantly in the past few years. Establishment employment growth in North Carolina since the recession has paralleled the pace found nationally. The three year average growth rate for the State was 1.6 percent, but this average followed a three year average drop of 2.2 percent (1.9 for the United States). In fact, we are still waiting for the North Carolina job count to climb to the pre-recession peak. The job gains and losses since the beginning of 2008 have varied across the spectrum, as shown in Table 2. The state lost 49,500 net jobs over the period. Ten industries lost a combined 183,900. The drops were led by manufacturing (85,900) and construction (72,800). Conversely six industries gained 134,400 total jobs. The gains were led by Professional and Business Services (70,700), Leisure and Hospitality Services (25,700), and Health Care (21,700). Unlike the nation, new job creation in North Carolina has slowed during 2014 (from a monthly average of 6,600 new establishment workers in to 5,100 new workers per month this year). Still, North Carolina has grown steadily since coming out of the recession. The July 2014 unemployment rate has fallen to 6.5 percent. During the past year (2013q2 to 2014q2) only three of the sectors listed in Table 2 lost employment (State Government, Federal Government, and Social Assistance). And if national growth accelerates and past trends hold true, the rate of North Carolina s job growth will once again surpass the national average. Summary The National Federation of Independent Business (NFIB) publishes a monthly small business newsletter. The most recent update (September 2014) suggested that economic activity will continue to expand, but will not accelerate anytime soon for its members. This supports many economic forecasters that suggest the near term outlook for the nation will be more of the same a growing economy but one that does not create enough jobs to put everyone back to work. And if the national trend holds, North Carolina s economy also will see more of the same steady and modest growth State of Small Business and Entrepreneurship 5

9 State of Small Business and Entrepreneurship 6 Business Survival: How Getting Help, Helps National business survival rates provide useful insights as to where the country s new companies are more likely to survive. While national ranking is noteworthy, states care about business survival data for two other, very specific reasons: it tells them how appealing the state is as a place to start a business and how effective the state is at supporting its business community. With the recent release of establishment age and survival data from the US Bureau of Labor Statistics Business Employment Dynamics (BDM) series, attention focused on businesses established in 2007 the last full year before the Great Recession and the consequent decline in new business formation. Using six year survival data for firms established in 2007, we can evaluate how companies which started before the downturn, rather than in the heart of it, have fared through the recession and long recovery period. So how does North Carolina stack up? North Carolina tends to fall in the upper to middle of the pack when it comes to business survival rates, but often makes up for this with a higher volume of establishments being created and surviving over time. In 2007, just before the beginning of the Great Recession, 43.5% of companies born were still open for business in North Carolina ranked 25th in the country and fell 2.7 points below the national rate (46.2%). Ten year survival rates for businesses born in 2003 offer a long term comparison for the pre-recession data: North Carolina rose to 16th with a survival rate of 36.6%, while closing the gap between the state and national rate (37.2%) for business survival. Looking at just survival rates, North Carolina doesn t stand out as a state where companies have an above average chance of making it for the long haul. But when looking at establishment birth rates, it s clear that entrepreneurs saw North Carolina as a great place to start their businesses in 2003 and And, perhaps more importantly, a larger number of those businesses survived in North Carolina than in 45 other states during the worst economic downturn of the century. In the highest year of establishment births since 1994, North Carolinians started 25,296 new businesses in Mari Howe SBTDC, Senior Research Analyst 2007 ranking 5th for establishment births across the country. Only three much larger states California, Texas, and New York had both a higher number of establishments surviving until 2013 and a higher survival rate. In 2003, the second highest year of establishment births according to BDM, North Carolina ranked 8th for establishment births and 7th for number of establishments surviving 10 years only California, Texas, and Pennsylvania surpassed North Carolina for both the number of surviving establishments and survival rate. While 2003 and 2007 were exceptional years for establishment births, they most likely mark peaks in the state s economic cycle not uncommon before a recession rather than an increasing trend in business starts. On average, 17,002 companies start in North Carolina annually, and the state ranks 10th for births across the lifespan of the BDM data series. This relatively high startup volume may well be responsible for helping North Carolina weather the Great Recession and slow recovery. Business survival rates remain relatively stable over time, regardless of ups and downs in the economy. As a result, years with more establishment births tend to have a proportionally higher number of surviving establishments than other years in their age cohort. Record high establishment births in 2007 make an excellent example of this point. On average, 8,045 businesses born annually survive to their sixth anniversary. Of businesses started in 2007, 11,004 were still operating in 2013 the highest number of businesses to survive to their sixth year since 1994 and 2,959 more businesses than usual. Higher numbers of establishment births in 2007 and 2008 resulted in more businesses than average surviving to 2013 despite business survival rates for these years dipping to the lowest point on record. These years likely helped offset significant declines in company starts and ultimately, surviving establishments, in the following two years and during the slow return to normal levels since 2011.

10 Establishments Surviving by Year in Business Number of Establishments Surviving YEARS 9 YEARS 8 YEARS 7 YEARS YEARS Year of Business Formation 5 YEARS 4 YEARS 3 YEARS 2 YEARS 1 YEARS Firm Births Due to the stability of business survival rates over time, this graph shows how a rise in business formations in 2007 equates to more survivors in the long run, relative to post-recessionary years with lower establishment birth rates. Source: US Bureau of Labor Statistics Business Employment Dynamics While historically steep declines in business formation hit every state, few states had the same advantage of posting record growth in establishment births just before the Great Recession hit. North Carolina was one of only two states to experience double digit (43%) growth in establishment births in Establishment births in neighboring South Carolina grew 36% and 16 other states experienced single digit positive establishment growth. The remaining 32 states experienced no or negative growth preceding the downturn. Researchers at George Washington University recently found that there is a positive relationship between business survival and time spent receiving business counseling. They examined multi-year client data from the Small Business Administration s resource partners: Small Business Development Centers (like the SBTDC in North Carolina), SCORE, and Women s Business Centers. In addition to improving a business s chance of survival, the researchers found that clients who received SBDC faceto-face counseling on business plans, marketing plans, or financial strategy were significantly more likely to report positive financial outcomes in market share, sales, cash flow, and profit margin. The SBTDC in North Carolina, for instance, is committed to improving the odds of survival for small and medium businesses through high quality, in-depth counseling, valueadded technical assistance, and meaningful connections with clients. On average SBTDC clients have 3 times the revenue growth and 6 times the employment growth of North Carolina businesses which do not receive assistance from the SBTDC. That s why we believe that getting help helps in the lifecycle of any business. SBTDC s Impact on Business Growth 12.2% 3.5% 8.4% 1.8% 5 Year Average Growth for SBTDC Clients NC Average Source: SBTDC Impact Assessment Studies SSTI. Useful Stats: Six-Year Survival Rates, Entrepreneurship, and the Great Recession, accessed 9/25/14. US. Bureau of Labor Statistics. Business Employment Dynamics Establishment Age and Survival Data State of Small Business and Entrepreneurship 7

11 State of Small Business and Entrepreneurship Small Business Employment In 2011, there were an estimated 819,038 small business in North Carolina. There were 162,421 employers businesses and 97.9% were considered small businesses with fewer than 500 employees. In 2011 North Carolina s small businesses employed 1.5 million people with an annual payroll of $51.7 million. Survival Rates of Establishments North Carolina Share Surviving Until 2012 NC Small Business Facts 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 15,697 establishments opened North Carolina Exports In 2013, North Carolina exports reached an alltime high of $29.3 billion, an increase of 1.4% from Four out of the top five sectors, Chemicals, Transportation Equipment, Computer & Electronics and Textiles & Fabrics experienced revenue gains while Machinery experienced a decrease of 4.1% or $177 million. North Carolina s exports continue to build on years of growth since the bottom of the recession. Source: NC Department of Commerce 25,296 establishments opened 14,674 establishments opened

12 Employment Size of Enterprise for all NC Industries (2011) Employment Size # of firms % of total firms Paid Employees Annual Payrolls ($1,000) 0-4 employees 98, % 164,438 $5,542, employees 28, % 186,203 $5,633, employees 17, % 231,742 $7,198, employees 14, % 534,645 $17,793, employees 3, % 414,224 $15,627, employees 3, % 1,753,340 $51,794,706 All firms 165,895 N/A 3,284,592 $131,631,342 SBA Office of Advocacy Demographics of All North Carolina Bussiness (2011) Minority Male / Woman Veteran 28 Equally Male and Female Owned 53 Male 11 Woman Number of All Businesses Share of All Businesses (%) Male Owned 433, Woman Owned 232, Minority Owned 131, , Veteran Owned 87, State of Small Business and Entrepreneurship 9

13 State of Small Business and Entrepreneurship Job Creation by Firm Size North Carolina NC Business Rankings #3 #3 #4 #5 #5 Year Total Jobs Created Top State Business Climate 14 Site Selection Magazine Best State for Business 13 Chief Executive Magazine Best States for Business 13 Forbes Top States for Doing Business 13 Area Development Magazine America s Top State for Business 14 CNBC Employment Size of Firm ,902 48,937 39,897 39,897 81,302 64, , , ,560 44,444 36,215 35,235 70,512 49, , , ,797 42,985 36,467 32,953 63,966 48, , , ,970 41,250 31,741 31,256 69,842 44, , ,022 North Carolina small businesses have seen consistent job growth from Small firms, those with less than 500 employees, created more than half of the jobs in North Carolina versus firms with more than 500 employees. Source: U.S. Census Bureau, Business Dynamics Statistics (BDS) 10

14 Lending In Fiscal Year 2013, North Carolina small businesses hit the second highest dollar total ever with 917 loans that totaled over $465 million, surpassing 839 loans for over $432 million in Fiscal Year SBA approved 797 loans in North Carolina through its flagship 7(a) program and 120 loans through the SBA s 504 fixedasset financing program. Investment Source: SBA In 2013, North Carolina venture capitalist invested $259 million in 50 deals. Source: PwC/NVCA MoneyTree Report, Data: Thomson Reuters NC Small Business Innovation (SBIR) and Small Business Technology Transfer (STTR) Funding The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs are one of the largest sources of early-stage capital for innovative small companies in the United States. These programs allow US-owned and operated small businesses to engage in federal research and development (R&D) that has a strong potential for commercialization. Through the SBIR/STTR Federal R&D funding program, North Carolina s high-tech businesses received 110 awards totaling $52.4 million dollars, $14.6 million for Phase I and $37.7 million for Phase II funding. Source: and Firms and Employment in NC by Industry Size and Firm Size 2011 (in thousands) Employer Firms Employment Non-Employer Total < 500 % of small Total <500 % of small Selected NC Industries Firms firms firms Construction 83,825 21,170 21, % 168, , % Manufacturing 9,977 7,859 7, % 403, , % Wholesale Trade 11,097 9,319 8, % 164,372 88, % Retail Trade 55,031 20,092 19, % 446, , % Finance, Insurance & Real Estate 88,236 13,407 12, % 209,258 71, % Professional, Scientific & Technical Services 79,482 20,719 20, % 185, , % Healthcare / Social Assistance 48,061 17,281 17, % 540, , % Accomodation / Food Service 8,652 13,695 13, % 345, , % All Other Industries 272,256 42,353 42, % 820, , % TOTAL 656, , , % 3,284,592 1,531, % 2014 State of Small Business and Entrepreneurship 11

15 State of Small Business and Entrepreneurship 12 Small Business Success North State Aviation Seeks Help and Thrives North State Aviation opened its doors in 2011 with five employees, the know-how of the aviation industry and an entrepreneurial spirit. That year, Charlie Creech, Jim McPhail and Russ Kota worked on just 11 planes making repairs. In the four years since then, they have worked on over 400 airplanes and have 35 contracts, including their major partnership with United Airlines. The road wasn t easy and just like so many other ventures, there were challenges that needed to be overcome. Charlie took advantage of the help available to him by utilizing the counseling at the SBTDC. As a result, he is an example of how these resources improve a business s chance of survival as well as increase financial outcomes. Together, Charlie and the SBTDC were able to put together a comprehensive business plan, obtain the necessary funding, negotiate the space at Smith Reynolds Airport and develop strategic partnerships which were able to launch them into their four years of remarkable growth. SBTDC State Director Scott Daugherty initially met with the management team and the NC Secretary of Commerce to discuss this major new venture. Obtaining funding was one of the most essential obstacles in those early days and SBTDC business counselor Barry Phillips was assigned the project of raising money. He was able to help by assisting in developing a business plan with multiple complex financial projections, and went with the management team to meet with banks and investors. They ultimately obtained financing from the State, the airport authority, and private investors to supplement their own investment. Today, North State Aviation has 383 employees on staff including 100 veterans and a payroll of $14 million. United Airlines praised North State for its rich culture and impressive performance against their key focus areas of quality, delivery and cost. They have also been honored as one of the top 50 employers in Forsyth County, and boast an economic impact of $32 million annually in the Winston-Salem area. North State Aviation is an inspiration to small businesses across North Carolina as well as a testament to the fact that Getting Help, Helps.

16 State of Small Business and Entrepreneurship Please address comments or suggestions to the editor at SBTDC, 5 West Hargett Street, Suite 600, Raleigh, NC This material is based on work supported by the U.S. Small Business Administration (SBA). Any opinions, findings, conclusions, or recommendations expressed are those of the author(s) and do not necessarily reflect the views of the SBA. All/part of this publication may be reprinted without permission as long as it is sourced. All facts unless otherwise referenced are from the U.S. Small Business Administration s Office of Advocacy. SBA publications used in this report include the 2013 Small Business Profile: North Carolina