Joyce Rosenberg: Small businesses are hiring again, but cautiously

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 have 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 nationwide. They want to add staffers, and many are hiring, but they're taking their time before they commit. 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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Expenses come first • 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."

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

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Answering to investors • 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 from home. 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 making that hire — an account executive who will work with clients on publicity.

Startup companies that have little or no revenue can't make many hires unless they get investor money.

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.

"We weren't in a situation where we could just grow to our hearts' content. It all had to be justified."

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 customer asks about how we do what we do," he says.

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Battling a trend • A lack of qualified applicants is one of the reasons 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.

Surveys show that the slow pace of hiring at many small businesses is likely to continue. A survey by The Hartford financial-services company during April and May found that 37 percent of small businesses plan to hire in the next year. A more optimistic reading came from research by Pepperdine University and Dun & Bradstreet Credibility Corp. They found that 58 percent said they plan to hire in the same period.

Many small businesses won't hire until they're sure there'll be a demand for their products or services.

Early this year, the Internal Revenue Service announced that regulations under the Foreign Account Tax Compliance Act, which aims at collecting taxes from individuals and corporations with earnings from offshore bank and financial accounts, would take effect Jan. 1, 2014. That was a positive sign for Mary Kopczynski, CEO of 8 of 9 Consulting, a financial-management consulting firm in New York.

Kopczynski says she believed when the act was passed in 2010 that the complex regulations would create a need for consultants at financial institutions. But she had to wait for the IRS to decide the effective date of the regulations before she could start adding to her staff of five.

"Last year, I didn't know if the demand was really there," she says.

She's now in the recruiting process, but, like Patel and other owners, is having a hard time finding skilled applicants — she needs people trained in law, finance and technology. So Kopczynski plans to hire 10 people and then run training sessions so her firm will be ready when the regulations go into effect.

Joyce Rosenberg covers small business for The Associated Press.