Issues For Florida Communities 3 Small Business Firms In Rural North Florida

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Issues For Florida Communities 3 Small Business Firms In Rural North Florida
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Babb, E.M.
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University of Florida Cooperative Extension Service, Institute of Food and Agriculture Sciences, EDIS
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"Publication date: May 1994."
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"IFC-3"

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IFC3 May1994IssuesforFloridaCommunities3 SmallBusinessFirmsinRuralNorthFlorida1 E.M.Babb,L.J.Beaulieu,C.H.Gladwin,B.F.Long,A.Moseley,D.Mulkey,andD.Zimet2Changesinthestructureofagriculturehave permanentlyreshapedruralAmerica.Thenumber andsizeoffarmsandofbusinessesneededto supportagriculturehavechangeddramatically.This hasresultedinmigration,newpatternsof employment,anddifferentsourcesofincome.Asa result,ruralareasseekwaystoexpandemployment opportunitiesandtheirtaxbasestosupport infrastructureandpublicservices.Rural entrepreneurshipisviewedasasourceofeconomic activitywhichwillpermitruralcommunitiesto remainviable.Mostofthenewjobscreatedduring the1980'swereinfirmswithfewerthan20 employees.Smallfirmscanthusplayanimportant roleintheeconomicdevelopmentofacommunity. Theyarealsomorevulnerabletobusinessfailure. During1950-85,about85percentofthefailures werecausedbylackofexperienceinalineof businessandbylackofmanagerialexperience.If firmsdonotprospertheywillnotgenerate economicdevelopmentintheircommunities.The purposesofourstudyweretoidentifythe characteristicsofbusinesseslocatedinruralareas andtodeterminefactorsthatinfluencedtheir success. Amailquestionnairewasusedtocollectdata fromsmallbusinessesintencountiesinNorth Florida(Figure1).Someofthesecountiesareclose enoughtourbancenterssothatresidentscan commutetourbanjobsandurbanresidentsmay provideamarketforproductsoftheruralcounty. Othercountiesarequiteremotefromurbancenters andthetransportationsystem.Thecharacteristicsof thesampledcountieswerediverse(Table1). Questionnaireswerereturnedby926firms.CHARACTERISTICSOFFIRMSAbout75percentoftheowner/managersinour samplestartedtheirownbusiness(founders)rather thanbuyinganexistingone(non-founders).They wereheavilyinvolvedinretailtrade(36percent)and services(38percent).Theremainderwerein agriculturalservices,forestryandmining(7percent), constructionandmanufacturing(8percent), insurance,realestateandfinancial(6percent)and other(5percent).SubstantiallymoreNorthFlorida foundersthannonfoundershadpreviouslystarteda businessandalargerpercentagehadprior experienceinthesameindustry(Table2).These maybeexcellentreasonswhyfoundersstartedanew 1.ThisdocumentisIFC-3,FloridaCooperativeExtensionService,InstituteofFoodandAgriculturalSciences,UniversityofFlorida.Publication date:May1994. 2.D.J.Zimet,associateprofessor,E.M.Babb,C.H.Gladwin,B.F.LongandD.Mulkey,professor,A.Moseley,economicanalyst,FoodandResource EconomicsDepartment.L.J.Beaulieu,professor,Departmentof4-HandOtherYouthPrograms.CooperativeExtensionService,InstituteofFood andAgriculturalSciences,UniversityofFlorida,GainesvilleFL32611. AreportoftheresearchonwhichthisarticleisbasedisavailablefromE.M.Babb.StaffPaperSP91-13. TheInstituteofFoodandAgriculturalSciencesisanequalopportunity/affirmativeactionemployerauthorizedtoprovideresearch,educational informationandotherservicesonlytoindividualsandinstitutionsthatfunctionwithoutregardtorace,color,sex,age,handicap,ornational origin.Forinformationonobtainingotherextensionpublications,contactyourcountyCooperativeExtensionServiceoffice. FloridaCooperativeExtensionService/InstituteofFoodandAgriculturalSciences/UniversityofFlorida/JohnT.Woeste,Dean

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SmallBusinessFirmsinRuralNorthFlorida Page2businessandnonfoundersacquiredanexisting business. Owner/managersprovided57percentofthe fundsusedtostartorpurchasethebusiness(Table 3).Someowner/managersinNorthFloridaoperate morethanonebusiness(22percent)andholdmore thanonejob(16percent).Thismaybebecause theirfirmsarerelativelysmall.Most owner/managersdidnothaveanagricultural backgroundandmanydidnotcomefromrural areas.Smallbusinessesdonotappeartobe providingalternativeemploymentforthosewho ceasefarming. Comparedtoruralnonfounders,the psychologicalprofileoffoundersinoursample mightbecharacterizedasfollows: (1)moreaggressiveandcompetitiveinachievement ofgoals,(2)morewillingtotakerisks,(3)more active(leadership)inagroup,(4)betterpersonal relations,and(5)moreanxiousandlesstolerantof frustration.Mostofthepsychologicaltraitsofrural founderswerenotgreatlydifferentthanthoseof ruralnonfoundersormanagersreportedinother studies. Thepersonalandbusinessprofileofrural foundersmightbecharacterizedasfollows:(1) morepriorexperienceinstartingabusiness,(2) greaterincidenceofpriorexperienceinthesame industry,(3)lesslikelytohavesomecollegetraining, (4)greateruseofstart-upcapitalfromownfunds, (5)greatergrowthofsales,and(6)smallertotal sales(size).Nonfoundersweremorelikelytohave priormanagerialexperience.Thefactthatfounders operatedsmallerbusinessesmayaccountforthe findingthattheyweremorelikelytoholdotherjobs andoperatemorethanonebusiness.Neither foundersnornonfoundershadstrongtiesto agriculture.FIRMPERFORMANCEOwner/managerswereaskedtoratetheir satisfactionwiththeperformanceoftheirfirm duringthepastfiveyears.Mostfirmsreportedthat theirperformance"metexpectations"(Table4). Satisfactionwithperformancewashigherforthose firmsthatwerelargerandhadhighergrowthof sales. Growthofsalesaveraged6.5percentannually andtherewerefewdifferencesingrowthamongthe differenttypesofbusiness(Table4).Thegrowth ratesdidnotgreatlyexceedtherateofinflation. Thiswasnotsurprisingsince74percentoffirms wereinretailtradeandservicesinruralareaswith slowpopulationgrowth.Thesizeoffirminour studywassmallerthanthosereportedforurban areas. Basedonpersonalinterviewsof52North Floridafirms,theirperformancewouldbejudgedas satisfactory.Totalfamilyincomewas$42,800, higherthantheaverageforcountiesinwhichfirms werelocated.Sixty-threepercent,or$30,000of totalfamilyincomewasgeneratedbythebusiness. Returnonassetswas6.8percentwhilereturnon equitywas9.9percent.Althoughprofitabilityofthe firmswasmodest,theyhadstrongbalancesheets. Currentassetswerethreetimescurrentliabilityand debtwaslessthanathirdofthetotalinvestmentin thebusiness. Figure1. FloridaSmallBusinessSurveyStudyAreaSUMMARYRetailandservicebusinessesarethedominant typesofbusinessinruralNorthFlorida.Forthe mostparttheygeneratesatisfactoryreturnsfor owner/managersbuttheydonotgeneratehighlevels ofemploymentandincomewhichmightbefound formanufacturingfirmsthatmakesalesoutsidethe localarea.Inareaswheremanyresidentscommute tootherplacesofwork,theretailandservice businessesmayplayanimportantroleinkeeping communitiesviable.Intheabsenceoflocalfirms thatprovideservices,residentsmightrelocateto theirworksiteswhereservicesareavailable.In additiontoprovidingemploymentandincomefor thoseinvolvedinruralbusinesses,theyalsoimprove thequalityoflivingforotherruralresidents.

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SmallBusinessFirmsinRuralNorthFlorida Page3Basedonthepersonalandbusiness characteristicsandpsychologicaltraitsof owner/managersintheNorthFloridasample,there donotseemtobeinherentproblemsthatforeclose entrepreneurshipinruralareas.Rewardsof entrepreneurshipinruralareasseemsatisfactory. Thus,programsdesignedtofosterentrepreneurship arepotentiallyonecomponentofa"ruralpolicy." Ruralowner/managersshouldbeabletoenterurban areasandprosperthereandruralareasshouldbe abletoattracturbanowner/managers. Table1. FloridaSmallBusinessSurvey:CharacteristicsofStudyAreaCounties Counties Population1987 (1000) 1987PerCapita PersonalIncome* Population** TotalRetail Sales** Non-Agricultural Employment** PersistentLowIncome Walton 27.5 $8,883 High High High Union 10.7 6,530 Low High Low RemoteRuralLowPopulation Liberty 5.0 8,568 Low High Low Franklin 8.5 8,103 Low Low Low Gilchrist 7.1 11,168 Low High High Wakulla 13.7 9,738 High Low Low UrbanMediumPopulation Escambia 278.4 12,149 Low Low Low Bradford 24.1 9,050 High High Low Okaloosa 149.0 12,087 High High High Suwannee 26.2 9,852 Low High Low *Allstudyareacountiesarebelowstateaveragepercapitaincomefor1987of$15,370. **High/lowindicatesgrowthratesinpopulation,totalretailsales,andnon-agriculturalemploymentthatareabove/below stateaveragesforthe1982-1987period. Source:AlldataarefromFloridaTrendEconomicYearbook ,Spring1988. Table2. PriorBusinessExperienceofNorthFloridaSmallBusinessManagers Characteristic Founders Nonfounders All Previouslystartedabusiness(%) 41.2 28.0 37.9 Nomanagerialexperience(%) 31.0 27.0 30.1 Priorexperienceinthesameindustry(%) 56.6 40.9 52.7 Yearsexperienceinsameindustry 10.0 12.1 11.6 Ageofbusinessfirm 11.0 24.0 14.0

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SmallBusinessFirmsinRuralNorthFlorida Page4 Table3. CharacteristicsofNorthFloridaSmallBusinessManagers Characteristics Founders Nonfounders All Operatemorethan1business(%) 22.2 19.4 21.5 Holdotherjobs(%) 17.1 11.4 15.7 Ownfundsusedtostartbusiness(%) 61.2 41.7 57.2 Operateafarmnow(%) 14.5 11.8 13.9 Neverfarmedfull-time(%) 76.3 83.9 78.1 Fatherfarmed(%) 21.3 16.8 20.2 Somecollegetraining(%) 58.5 65.3 60.2 Table4. PerformanceofNorthFloridaBusinessesbyTypeofIndustry Industry PerformanceMetExpectationsa Sales($000) AnnualSalesGrowth % Agriculture,forestry,mining 2.8 290.0 5.0 Construction,manufacturing 2.9 310.0 6.8 Retailtrade 2.9 155.0 5.8 Businessandpersonalservices 3.0 90.0 6.3 Insurance,realestate,financial 3.0 120.0 8.3 aSatisfactionwithperformanceoffirmratedonscale1=fellfarbelowexpectations,5=greatlyexceededexpectations Articlesmaybereproduced,inwholeorinpart,withoutspecialpermission.Newspapers,periodicalsandother publicationsareencouragedtosubmitpreviouslypublishedarticlesofinteresttotheirreaders.Creditisrequestedifsuch articlesarereprinted.SendeditorialcommentsorcorrespondenceconcerningaddresschangesormailingtoD.Mulkey, andJ.R.Gordon,Editors,FoodandResourceEconomicsDepartment,Box110240,UniversityofFlorida,Gainesville, Florida32611.