Small, independently owned businesses on a decline nationwide
Small, local businesses are feeling the heat of big corporations disrupting their markets, forcing some to close up shop.
Prairie Lights, an independent bookstore downtown, is seen on Monday, November 12, 2018. (Sid Peterson/The Daily Iowan)
November 12, 2018
Small businesses are on the decline across the country, recent research shows, as they face difficulties in getting started that their larger competitors don’t face.
According to data from U.S. Small Business Administration, small businesses account for 48 percent of employment in the U.S. A report published by Forbes states eight out of 10 small businesses that start up fail in the first 18 months.
“Small businesses in the country have always faced challenges,” University of Iowa economics Professor Anne Villamil said.
Research conducted by Villamil illustrated that small businesses had risky returns. Because independent firms have owners who invest substantial personal funds, the risk gets compounded, she said.
“The funds are not diversified, which is the first rule of finances,” she said. “If you’re putting all your money in your own business, that means you don’t have a diversified portfolio.”
Close to 90 percent of owners work at their firms, she said. People in the family also work there.
“This also increases risk, because if the firm goes under, you’ve lost your job, and you’ve also lost your family’s jobs,” Villamil said.
Small businesses also have difficulty getting financial backing, such as loans, she said.
“Recently, all firms in the U.S., but especially small firms, are facing a tight labor market and increased health-care costs,” Villamil said.
Small businesses, however, will always be an important part of the dynamic U.S. economy, she said.
“Many firms start in garages and kitchens, and some grow to become Facebook or Martha Stewart Living,” she said. “Most do not grow to this size, measured in number of employees or assets, but people also value other aspects of entrepreneurship, such as participating in a family firm.”
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The trends in small businesses closing have been seen before, Villamil said. The tight labor market and increasing health-care costs are relatively new.
“The labor market fluctuates over the business cycle, and health-care costs are a concerning trend, because most working-age people receive health insurance through their jobs,” she said.
Villamil said that although small businesses are largely declining nationally, privately owned bookstores are on the rise.
Competition from online behemoths such as Amazon have been difficult for Prairie Lights, founder Jim Harris said.
“This is documented nationally because even large bookstores are going out of business,” he said. “It is very difficult to do business.”
Prairie Lights has found opportunities such as author appearances and readings to attract people, he said.
“Independent businesses are centerpieces of community,” he said. “They add an element of emotion for the people living in the community.”
Iowa Book, unlike Prairie Lights, aggressively markets itself and sells Hawkeye gear to increase revenue, he said.
Artifacts, which has been in Iowa City for 23 years, is one of the few stores of its ilk in the area.
Steve Squires, who manages the establishment, said the store has been lucky to be in a good location, and it has great people who bring in unique antiques on consignment.
“With any business, there is always a bad possibility,” he said. “We don’t perceive that, but I think we would we would try to anticipate any changes and steer around. We are in a decent enough position right now.”
