Staff Writer

Washington — Some U.S. small companies are shifting gears to go faster after the recent recession. Dennis Carmichael, co-founder of ERT Systems, a five-year-old company that sells a wireless tracking system for first responders to emergencies, saw a significant increase in orders five months ago. He has hired two new employees since, and the company, based in Ann Arbor, Michigan, is doing better.

“But we are still below where we were three years ago” in terms of revenue, he said.

Other small businesses have not seen much improvement, even after the recession ended in 2009.

“It was the longest recession as well as a deep one,” said William Dunkelberg, chief economist at the National Federation of Independent Businesses (NFIB), a small-business lobbying group. “So your reserves are stretched.”

The Great Recession ended in June 2009 after 18 months, making it the longest economic slump since the Great Depression of the 1930s, according to the National Bureau of Economic Research. The U.S. economy shrank 4.1 percent from the fourth quarter of 2007 to the second quarter of 2009, according to Commerce Department figures.

Consumers are reluctant to spend, and credit remains tight. As the economy wavers rather than going straight on the road to recovery, some small and medium-size companies pull ahead, while others stall. For example, most small construction contractors continue to suffer because of little activity in the homebuilding sector. The depressed real estate market is also a drag on those business owners who used their own homes or real estate holdings as collateral or as a cash source to invest in their businesses or hire. Nearly all small-business owners own their homes, and about half own all or part of their companies’ buildings or land, according to a 2009 NFIB report ( http://www.nfib.com/Portals/0/PDF/AllUsers/research/studies/Small-Business-Credit-In-a-Deep-Recession-February-2010-NFIB.pdf ) (PDF, 1.54MB).

But being more flexible and better at processing information than are large corporations, small businesses are resilient during recessions. Their basic survival tactic is to “defer all the spending they can,” Dunkelberg said.

That is exactly what Carmichael did when the orders for wireless systems “dropped off the cliff.” He and his partner laid off four workers, asked the remaining ones to work overtime and froze wages.

Laying off employees, however, was not an option for Tracy Hadley because her company, Harmonious Scents, had none. So instead, she cut inventories and negotiated better deals with website maintenance companies and Internet service providers. The 12-year-old Salt Lake City–based company sells oils intended to relieve pain and treat other ailments.

Contrary to the popular perception, small businesses do not just hibernate during economic downturns. They position themselves to take advantage of opportunities that arise when the economy starts improving.

“You still want to have your company’s name and good employees, and you want to make sure that your former customers remember you,” Carmichael said. In the past two years, he has worked the phones to keep in touch with big clients in the automotive industry, a tactic, he said, that is paying off now.

Betsy Hanscom, the founder of Maine Warmers, has taken Web-design classes so she can upgrade her company’s website herself rather than contract out the job as she initially planned. She also has tried to figure out how to use social networking platforms such as Facebook and e-mail marketing to draw more people to her website. Her 10-year-old company, based in Scarborough, Maine, sells heating pads.

Hadley of Harmonious Scents is considering taking hairdressing classes to gain expertise that she believes could help her reach more potential clients.

Despite all efforts, some small companies went down during the recession and others will meet the same fate before the economy significantly improves. And that is OK, according to Gene Marks, the owner of Marks Group PC, which provides consulting and technology services to small businesses. Marks, in an article published by Bloomberg BusinessWeek ( http://www.businessweek.com/smallbiz/content/jan2009/sb2009015_212410.htm ), says that those that survive will be leaner, more fit and stronger.

Some small companies actually thrive in hard times: for instance, those that sell goods such as bread and bagels or services such as mobile applications. Others take advantage of opportunities created by the misfortune of companies hit by a recession. For example, cheaper rents for retail or office space have been a boon for independent restaurants, gyms and other office-based companies that want to expand or relocate to premier addresses.

The health of the small-business sector is important for the U.S. economy because in normal times small and medium-size companies contribute about half of the gross domestic product and employ about half of the private work force, according to Dunkelberg.

Small business’ confidence remains today at recession levels, according to an NFIB June survey ( http://www.nfib.com/Portals/0/PDF/sbet/sbet201007.pdf ) (PDF, 486KB). That is why business owners seem unwilling to hire or invest, Dunkelberg said. To encourage them to do so, a bill pending in Congress ( http://www.whitehouse.gov/the-press-office/2010/09/10/fact-sheet-president-obama-has-signed-eight-small-business-tax-cuts-law- ) would establish a lending fund and provide them with tax breaks.

U.S. entrepreneurs are more optimistic about longer-term prospects, according to a May Citibank survey ( http://new.citi.com/2010/05/americas-small-business-owners-undaunted-by-recession.shtml ). More than 70 percent of the survey’s respondents said they would start their businesses again, even if they knew in advance the challenges they would face, and more than half would recommend small business to their children as a career choice.

(This is a product of the Bureau of International Information Programs, U.S. Department of State.  Web site: http://www.america.gov)