Gulf Coast Entrepreneurs Face Reality
Woodrow J. Wilson went to the Small Business Development Center (SBDC) in Baton Rouge a week ago seeking help for his New Orleans-based business. His company, Gulf South Animated Motion Technologies Inc., sells a patented new line of fiber optics products, with headquarters on the ground floor of a building just a few blocks from his alma mater, Xavier University. When the levees broke, the building flooded and his business was immediately underwater.
Wilson's been in this business for more than four years and had originally projected sales of $200,000 for 2005. "It takes you that long just to turn the corner on a business," he says. "We had just begun to get to the position where we thought we would be able to make it as a business when this major interruption and disruption came along."
The safety clothing his company produces can be seen at night and in inclement weather. Most items are manufactured in China--but they were stored at a New Orleans warehouse for the upcoming busy season: college football games, the holiday bowls, Mardi Gras. "We lost our inventory, and we lost the opportunity to sell the product in our most heightened season," says Wilson. "A lot of our customers' accounts receivables can be written off also--we've run out of cash. We don't have any cash to continue the business, and many of our customers don't have money to pay us."
But, according to Wilson, his business was one of the lucky few--he had enough information on hand to be able to apply for an SBA disaster loan quickly. "My tax returns just happened to be somewhere else, above water," Wilson says. He also got a call from a business in Baton Rouge that offered to let him use an empty room they had as a temporary office. He got a new cell phone and started to make more contacts. With a borrowed broken desk, a PC and an old chair, he was back in business. As a Louisiana native, he loves his jazz and his French Quarter, and he can't imagine leaving the state. "I'm going to stay in Louisiana, no doubt about it," he says.
As Wilson listened to the president's speech on September 15, he was heartened by links he heard between entrepreneurship and minorities. "I was very enthusiastic about what I heard--it's not often that you hear that from public officials," says Wilson. "He wanted Louisiana companies involved in rebuilding. He also specifically said he was looking for minority-owned businesses, which is something very refreshing to hear the government say. New Orleans is a majority minority-owned city. He's putting the resources to work and not just saying it, and I'm sure we're going to see some action.
"If the recovery effort wants to use Louisiana businesses," adds Wilson, "I have safety products and medical supplies, tools and pharmaceuticals and many things that may be needed for the cleanup. We just hope some Louisiana companies will be able to [work] as contractors and subcontractors on the actual work."
The Senate Testimonies
Mississippi entrepreneur Richard Harris was personally invited to testify on Thursday, September 22, before the Senate Committee on Small Business and Entrepreneurship, headed by Sen. Olympia Snowe (R-Maine), who spent Tuesday, September 20, in the Gulf Coast area surveying Katrina's damages.
Harris has some heartbreaking numbers of his own for the committee. He worked hard to build Harris Homes LLC, one of the largest independent housing contractors in the storm-ravaged Ocean Springs, Mississippi area. At 42, the former trades and industrial instructor heads a company built brick by brick over the past decade. Last year, his total sales were about $3.5 million, and he hoped to sell more than $5 million in 2005.
Before the storm, business was so good that Harris had 24 houses in the works, 12 of them under contract to eager buyers. He employed 60 to 80 subcontracted workers on any given day, with a payroll running close to six figures each week because of the volume of work. On average, his team completed one house every other week. "Nobody had a bigger customer base than me," Harris says, "but because I was doing so well and had so much out and in progress, the properties are working against me right now."
As of Monday, Harris had $3 million in projects outstanding, and $300,000 in vacant property. The deductible on his storm-damaged properties was high enough that he now faces $100,000 in out-of-pocket expenses to fix them up, which will tie up all his working capital.
The really bad news, he says, is that those 12 homes were pre-sold at pre-Katrina prices, numbers he can't hope to deliver on with increased costs and lengthened turnaround times. "I've had to seek legal advice, and I'm going to stop construction, because my money and inventory are tied up," Harris says.
Even recovery efforts themselves have slowed Harris' own attempts to get his business up and running again. The majority of his carpenters went to work for the Blue Roof program, FEMA's efforts to rebuild, clean out debris and pick up trash. In fact, since FEMA purchased the local debris pits Harris had been using for years, the rate to dump debris from clearing new land has soared from $1 a cubic yard to $4 a cubic yard, quadrupling his lot preparation costs.
The cabinet shop Harris relied on "went underwater," he says. So did the plumbing and electrical businesses. "Small businesses are the backbone of the community, and more than half my subcontractors are underwater. It's like the whole skeleton structure broke down," Harris says. "A lot of small businesses' customers are no longer there. It's a sad day, because small businesses are the backbone of this community, and so many of them are damaged that it's going to take more money and more time than anybody has realized yet."
There have been precious few breaks--the banks have frozen interest on his loans for two months--but that's a drop in the bucket for Harris. He's talked to the SBA but says he's been told it'll take 90 days to get money, if he qualifies for it--and if it will even help. He's also talked to an accountant and an attorney. "I've tried not to be hasty," he says. "I've tried to look at the variables."
What those variables tell him is that despite a housing shortage in the Gulf Coast, there are no workers and no working capital--nor even fixed expenses to estimate. Three weeks after Hurricane Katrina, he looked at his own finances in ruins and concluded that he'd have to sell his real property and land--hopefully the building lots will be worth more in Katrina's wake, but he's not banking on it--liquidate everything he owns to pay off his bank loans, and scale back as his business, like the entire Gulf Coast, struggles to get on its feet again. "It's kind of ironic that I have to do that when I'm a contractor and four out of five houses here have damages and need repair," he says.
A general contractor licensed with the state, Harris has had enough of friends and strangers alike assuming he's in the right business to clean up after Hurricane Katrina, literally and figuratively.
"It hurts my feelings when people think that since I'm a contractor, with everything that needs to be fixed, I'm going to do great . . . that's not the case," he says, adding that insurance claims will be long in coming with the breadth of the devastation and noting how difficult it is to get to the properties needing estimates for insurance. "The contractors that are going to make money are storm contractors coming in from out of town. They'll be bringing their own help, and they didn't lose everything in the storm surge."
Harris feels for small businesses across the Gulf Coast region, many of whom he says will need bridge loans to get over the recovery hump while they sort things out. But perhaps the most acute shortage is accurate and reliable communication. "The biggest thing businesspeople need is realistic, truthful and proper information--they're not getting straightforward information to make their decisions," he says.
Without that, getting through the red tape will be like working your way out of quicksand. "It's like one big washtub of indecision going back and forth," Harris says. "There's no quick fix or magic wand to wave--everything is in turmoil here.
"I do think the Coast will come back stronger and better than before," Harris says, "but it's going to take a lot more time and patience than people realize at the moment."