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Local business dreams dry up

In tough times, small firm closures more common

POSTED: February 8, 2009 12:40 a.m.
TOM REED/The Times

"For Rent" signs are becoming common on businesses around the downtown Gainesville square.

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With his specialty shop for drummers, Drums 101, Aaron Hughes thought he had found a niche in the music marketplace and a dependable livelihood.

Since opening in 2002, the Gainesville store had solid sales, peaking with nine part-time employees in late 2006 when business was thriving.

Then came the recession.

"We saw it coming, because we were in an expendable income business," Hughes said.

As construction work dried up, so did half of Hughes’ customer base of hobby drummers. By late 2007, sales were down 20 percent. By the middle of last year, a revolving credit account from one of the store’s drum vendors had been slashed from $40,000 to $15,000. A local bank that typically loaned Hughes $10,000 every year for the store’s Christmas inventory purchases "wouldn’t even talk to us," he said.

By October, sales were down by 40 percent. After Hughes was given five days notice to vacate from Inland West, the leaseholder of Village Shoppes of Gainesville off Dawsonville Highway, he closed down Drums 101 for good.

"I’m starting over now," said Hughes, 33, who took a job as an assistant band director for North Hall High School and is thinking of returning to school after his wife completes her nursing degree. "I thought this would be my career forever."

Each month, more small businesses in Hall are shutting down, among the most visible signs of a deep and painful economic recession. Some only survived for a year or two, while others, such as the Sound Shop music store in Lakeshore Mall, Rudolph’s Restaurant on Green Street and Archie’s Sporting Goods on Skelton Road, have been local mainstays for decades.

Public records show applications for new business licenses and license renewals are down slightly. The city of Gainesville sent out about 2,400 occupation license renewal notices that were due Jan. 15, and about 750 have not been returned. Officials say there is always a high percentage of late payers, and that a definitive picture won’t be available until April.

"We do know we are down some," said Tracy Morris, a senior financial technician for the city of Gainesville. "You can look around and see that some businesses have closed."

Hall County business licenses, about three-quarters of which are for small, home-based businesses, peaked in the 2004-05 fiscal year and have been going down since, from 4,578 in 2005-06 to about 4,236 in 2007-08.

This January, there were 584 county business license renewals, compared with 767 in January 2008. Renewals were down in six of the last seven months from the previous year. There have been 2,502 business license renewals in the first seven months of fiscal year 2008-09, compared with 2,626 at the same point last fiscal year.

The Times was able to name about 20 Hall County businesses that have closed since the third quarter of 2008.

Yet even in good times, businesses fail. The federal Small Business Administration estimates that while 637,100 new employers opened in the U.S. in 2007, another 560,000 closed. About two-thirds of new businesses survive for two years, 44 percent survive for four years, and 31 percent make it seven years, according to the SBA.

Add those odds to dwindling consumer confidence and a crushing credit freeze, and small businesses that ordinarily would thrive are still being faced with closure, economists say.

"It’s just the natural tendency in the market economy for some businesses to fail," said Roger Tutterow, a professor of economics at Mercer University. "That’s the story in a healthy economy. When you go into one where there’s a significant downturn in activity like the current one, then you tend to see more business failure. Even some business models that might have worked in good times face challenges when the economy goes soft."

Hughes didn’t need an expert to tell him that tough times were coming."It started getting really tense in February of last year," Hughes said. "Before that, we had the worst November ever, then the worst December ever, then the worst January. By the time Wall Street figured out we were in a recession, we had known for a year."

Jeff Hills was living his dream with his own restaurant, the Flowery Branch Yacht Club, a upscale eatery inside a Victorian Queen Anne cottage in downtown Flowery Branch. Reviews were good, and Hills and his wife, Alina, built a loyal clientele of customers since opening in May 2002. At its peak, the restaurant employed 12.

As the economy stalled, business slid, until Hills was faced with the inevitable around Thanksgiving 2008. Christmas party bookings dropped by 90 percent from the previous year. Hills let his staff go and ended regular dining service, though the restaurant still has a valid liquor license and is available for banquets, receptions and catering.

"We were waiting for people to show up and they just weren’t," Hills said. "I’m 45, and this is the first time I’ve really been hit by something like this. It just turned deathly slow."

The numbers that Hills’ and Hughes’ businesses employed may seem small, but they add up. The SBA estimates that small firms with fewer than 20 employees employed 21 million people in 2005.

In the current wave of job losses and rising unemployment, small business closures can’t be overlooked, experts say.

"For the most part even during the good times, it’s the smaller, more entrepreneurial businesses where a lot of the job growth occurs," Tutterow said. "Now, in terms of job loss, my guess is it’s across the board (large and small). We’ve got large businesses that are cutting payroll in an effort to contain costs, and some small businesses that are recognizing they are not going to be able to expand as much as they had hoped."

So called "white-tablecloth" restaurants have been among the hardest-hit in the food service industry, and Hills believes many of the customers he served at the Flowery Branch Yacht Club chose to cut back.

"Most of our customers came from affluent areas, and when their stocks lost 40 percent, that took away their dining dollars," Hills said.

Hills said he is trying to rethink the restaurant business, to "brainstorm" a new model for success.

"I love my restaurant, I love my building, I love what I did," Hills said. "I failed just because of the economy."

Hills said he’s kept busy writing recipes and experimenting in his home’s commercial-grade kitchen.

"I’m not giving up," he said. "I’m just disillusioned."



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