Better Your Business

Small Businesses Are Hiring Again, but Cautiously

Kathleen Finlay | Radius Images | Getty Images

Nina Vaca is interviewing job applicants at her staffing company again after putting hiring on hold at the end of last year.

Vaca expects to hire more than 50 people for her firm, Pinnacle Technical Resources, by the end of 2013. Demand is soaring for the high-tech temporary workers it places at large corporations. The reason for her caution: Months of uncertainty about federal taxes and budget cuts has disappeared.

"It's a great time to double down. People are looking for information technology talent," says Vaca, whose 160-employee company is based in Dallas.

Vaca's story will sound familiar to small business owners across the country. They want to add staffers, and many are hiring, but they're taking their time before they commit to a new employee. Many are waiting for signals that revenue will remain strong. They want to be sure they can afford the added expense of new workers.

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Their caution helps to explain the slow but steady growth in jobs nationwide. Companies of all sizes have added an average of 163,000 jobs a month since March, according to the Labor Department. Surveys released last week by payroll provider ADP and software maker Intuit showed that small business hiring is picking up some modest momentum. The ADP survey, for example, showed that small businesses added 58,000 jobs in May, up from 42,000 in April. But that's well below the average of 129,000 at the start of 2006, when the economy was booming.

Vaca held off expanding her staff while she waited to see what impact federal budget cuts would have on companies. But by the end of the first quarter, she could see that companies needed temporary high-tech workers, and that her business would be strong enough to pay for her own hires. She expects her revenue to rise 12 percent to 15 percent this year.

"We were cautious in our hiring, and then literally, (business) exploded," she says.

Some owners are waiting to hire because they need to be sure they can pay salaries and still meet their other expenses -- staffing is a flexible expense, but expenditures like rent, taxes and utilities are not.

Susan Shelby didn't fill an open position in her Boston-based public relations firm for three months because she wanted to be sure she could afford a new employee.

A part-time staffer quit in February, and Shelby wanted to replace her. But Shelby was planning to move her company, Rhino Public Relations, into an office for the first time after having operated with everyone working out of their homes. The move was occurring in early April, and she didn't want to make a new hire until she knew what her expenses and revenue were likely to be.

"Every single decision has to be weighed against, where is this money going to come from?" says Shelby, who has three full-time and three part-time staffers.

She's now in the process of making that hire—an account executive who will work with clients on their publicity.

"Now that I see what the costs associated with the office are going to be, I can have a better comfort level to bring someone in," Shelby says.

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Start-up companies that have little or no revenue can't make many hires unless they get money from investors.

Personify, a company that makes videoconferencing software, held off hiring late last year in part because investor money was scarce. The economy and the uncertainty over the federal budget and taxes made investors wary, CEO Sanjay Patel says.

But, the company, based in Chicago, also has to be cautious because it must answer to investors about how it uses their money.

"We weren't in a situation where we could just grow to our hearts' content," Patel says. "It all had to be justified according to the business plan."

Lack of Qualified Applicants?

Personify's hiring process has also been slowed by a shortage of skilled job candidates. The company is building a sales and marketing team, but while there are many salespeople around, they're not all qualified to sell a complex high-tech product, Patel says.

"You have to be able to speak confidently about a very new technology when a prospective customers asks about how we do what we do," he says.

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A lack of qualified applicants is one of the reasons why many small businesses have been slow to hire, according to surveys including the monthly report on hiring by the National Federation of Independent Business.

Patel estimates that he considered between 20 and 30 people for three positions he recently filled. The company, which has 26 employees, hired one staffer in December, another in May and has a vice president of marketing arriving this month. Personify may hire as many as eight more staffers this year, Patel says.