ONE-THIRD OF WYOMING EMPLOYMENT FOUND IN SMALL BUSINESSES

Small business plays an important part in Wyoming's economy. Establishments employing one to four people have the highest firm counts in every Wyoming county. Information on firm size and geographic location can be tracked using Wyoming Unemployment Insurance (UI) records. Employers must provide UI coverage for employees when their payroll reaches $500 or more in a calendar year or when an employer acquires the assets of a business. This article examines the significant role of smaller companies and makes comparisons with larger Wyoming businesses in terms of firm counts, average number of employees, and average wage figures. Also discussed are failure/success rates, advice for those contemplating starting a business, and information about services that assist small business formation.

For the purposes of this article, the definition of a small business will be up to 19 employees. A large business includes 20 or more workers. Firm counts are approximate because some firms are not covered by UI. Excluded are some agricultural workers and domestic services, railroad workers (covered by their own special federal program), self-employed, churches and several other cases. Another factor that decreases firm counts occurs when multiple firms report under one UI account number. An example is five restaurants reporting total employment and wages under one UI number, resulting in a decrease of four in the total Wyoming firm count. Data used in this article are from the first quarter 1995, Covered Employment and Wages (ES-202) program, which analyzes quarterly UI records.

Across Wyoming, approximately 89.5 percent (16,484) of all firms fit into the small category. This leaves only 10.5 percent or 1,943 businesses with 20 or more employees. Natrona County is the leader in the number of small businesses (zero to 19 workers) at 2,347; Laramie County is second with 1,934 firms; Teton and Fremont Counties are next at 1,291 and 1,137 respectively. Looking at the larger companies (20+ employees), Laramie County is on top with 297 firms; Natrona County is next at 257; Sweetwater and Campbell Counties are close at 168 and 155 respectively. See Table 1 for firm counts by number of employees and county. The zero employee category includes firms that had no employees during March of 1995. These businesses may be "seasonal" (open in winter or summer months only, such as skiing, national parks and recreation areas, restaurants, motels, construction . . .). There might not have been enough activity in March (and possibly other months) to employ any workers.

In the first quarter of 1995, there were approximately 407 new Wyoming firms with a total of 1,090 workers. The number of workers was calculated using March's employment figure. For the purposes of this article, business acquisitions were considered turnovers rather than new firms. Excluded from this count are new businesses reporting zero employment and wages, unless they are considered seasonal. Among 407 new businesses, 401 fell into the small category, with 946 (86.8%) people finding employment. Large companies had six openings, employing 144 (13.2%) workers. There were not any new companies with 50 or more workers opened during this time. Table 2 includes counts for new small firms and March employment by county. Some data are not available due to the "confidentiality rule." To protect the identity of cooperating firms, covered employment and wage data are withheld if: (1) The industry consists of fewer than three firms or (2) a single firm accounts for 80 percent or more of the industry's employment.

January 1995 data shows 35.8 percent (72,530) of Wyoming employees working for a small business, with the remaining 64.2 percent (130,237) employed by a large business. Generally, the average monthly employment of the large firm category is higher; however, there were two exceptions. Johnson and Sublette Counties had slightly higher average monthly employment in the small category. Average monthly employment numbers for small versus large firms in Teton, Park, Crook and Natrona Counties were very close. Explanations may be: Johnson, Sublette and Crook Counties each have the highest percentage of small businesses (around 95%); Teton and Park Counties have many smaller establishments dependent upon tourism and seasonal recreation from Yellowstone and Grand Teton National Parks. Ranked second in population, Natrona County has the highest number of small firms in the state. Figure 1 compares the average monthly employment by county for small versus large companies.

How does the average monthly wage compare for small and large businesses in Wyoming? Looking at Figure 2, it definitely appears higher for the larger firm. Some small establishments may be unable to pay their employees as much, but underlying factors contribute to the lower wage averages. Industries commonly known for paying lower wages, such as Services and Retail Trade, may be predominant in small firms. These industries are likely to have many part-time workers and a high proportion of turnover (those laid off, fired, or quit). Both factors decrease average monthly pay. The average wage of large firms is higher, partially due to industries that generally have higher incomes, such as Mining. Any large bonuses or severance payments might also skew the averages on either side. The average monthly wage of large Wyoming firms is notably higher in Sweetwater and Campbell Counties, $2,938 and $2,691 respectively. These counties have large operations in coal mining and oil and gas extraction, with Sweetwater also involved in trona (soda ash) mining. Each of these business activities has very high earnings.

What about the risks involved opening a new business and the chance of becoming unemployed for employees of these new ventures? Richard Nelson Bolles states in his book The 1996 What Color is Your Parachute?,

". . . at least 65% of all new businesses fail within their first five years of operation--that's more than one out of every two. . . . The good news is that if you survive this early-on period, things start to look up. The risk decreases. There are two evidences for saying this. First, only about 25% of new businesses fail in any given year; so, taking it on a year to year basis, you have a 75% chance of not going belly-up that year. Secondly, there are about 28 old businesses in the U.S. for every new business that starts up. So the national bankruptcy/failure rate--taking all businesses into account--is much lower than most people think. In one year recently [1986], out of each 10,000 businesses in the U.S., only 120 failed. That means that 9,880 out of each 10,000 businesses survived."

Bolles says the experts recommend easing gradually into any business venture while you still have your regular job. He stresses research and homework before jumping into anything. Bolles believes interviews with owners in the same business you are considering will provide important insight. Ask about problems that occurred and the steps taken to overcome them. Also question them about what skills and knowledge they think are necessary to make this type of business successful. He advises talking with employers at least twenty-five miles away. These people may be more likely to supply information, without being concerned that eventually, you might take business away from them.

The U.S. Small Business Administration (SBA) offers business advice and financial assistance. Their pamphlet, Today's SBA Means Business, states "The estimated 20 million small businesses in America today account for 39 percent of the GNP [gross national product], provide half of America's work force and generate 53.5 percent of all sales." Established in 1953, the SBA is a government agency that provides a variety of both financial and development assistance programs for small entrepreneurs. The SBA's primary financial "General Loan Program" promotes small business formation and growth by guarantees of up to 80 percent of the loan amount provided by commercial lenders. Their various business development programs focus on marketing and management training information. There is no charge for individual counseling and group seminars can be set up for a small fee. There is one Wyoming office located in Casper (phone 307-261-5761). A series of prerecorded messages about all of the SBA programs is available by calling 1-800-827-5722. The University of Wyoming Small Business Development Center (SBDC) is a relatively new service that just finished a successful first year. The SBDC provides consultation services and training programs with offices in Cheyenne, Casper, Powell, Rock Springs and part-time in Gillette. To obtain more information, call the state office in Laramie at 1-800-348-5194.

Small businesses account for about 36 percent of the work force in Wyoming. Approximately 89 percent of all firms in the state fit into this small category. These firms help decrease unemployment, which will eventually reduce unemployment insurance tax rates. Lower tax rates may serve as an incentive for new business growth, creating jobs and helping to boost Wyoming's economy.

Carol Toups is a Senior Statistician with Research & Planning, specializing in the ES-202 Covered Employment and Wages program.

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