Small Business and Its Impact on Georgia 2022-2023

SMALL BUSINESS AND ITS IMPACT ON GEORGIA

WHY SMALL IS GREAT

Small firms and their distinctive offerings provide custom products and services that are otherwise unavailable, are a convenience for residents and visitors to our state and help create the community character and local charm that defines our hometowns.

Learn more about the University of Georgia Small Business Development Center

Entrepreneurial ventures provide hundreds of thousands of jobs in Georgia for both business owners and employees. Small businesses not only supply principal incomes for families, but also meet unique needs for part-time employment, temporary employment, supplementary income or that first job opportunity. The innovation and creativity that entrepreneurs deliver to the marketplace appear in all types of businesses, and whether high tech or personal services, these engines of economic growth are found in every big city and small town throughout Georgia.

The University of Georgia Small Business Development Center (UGA SBDC) assists thousands of entrepreneurs every year across our state. The UGA SBDC is a Public Service and Outreach unit of the University of Georgia and is funded through a cooperative agreement with the U.S. Small Business Administration and partnering institutions (Georgia State University, Kennesaw State University, Clayton State University, Valdosta State University, Georgia Southern University, University of West Georgia and Morehouse College).

The UGA SBDC provides business training and one-onone consulting to small business owners and prospective entrepreneurs. Over the past five years, individuals who have sought assistance from the UGA SBDC have created more than 1,900 new businesses, added more than 13,000 jobs, raised more than $1.08 billion in loan and equity financing and generated over $9.2 billion in sales.

According to the latest impact study, firms that sought longterm UGA SBDC assistance experienced sales growth of 24.1 perent versus the 10.3 percent growth of a typical Georgia firm and job growth of 17.1 percent versus the 3.7 percent growth of a typical Georgia firm.

We believe small is great and have produced this report to cover some of the impacts small businesses have in Georgia. This publication provides an overall look at Georgia’s small business environment and shines the spotlight on several noteworthy industries.

Most importantly, this publication helps illuminate the contributions made by Georgia’s entrepreneurs to the economic well-being of all Georgia citizens.

GEORGIA BY THE NUMBERS

1.2 M Small Businesses in Georgia

99.6% of Georgia Businesses are Small

36.6% of Georgia Small Businesses are Minority-Owned

1.7 M Small Business Employees in Georgia

42.5% of all Private-Sector Employees

87.5% of all Georgia Exporters are Small Businesses

Source: “Small Business Profile – Georgia.” U.S. Small Business Administration, Office of Advocacy, 2022.

GEORGIA RANKINGS

Sources:

1 “Top States for Doing Business 2022,” Area Development, 2022.

2 “These are the 10 States with America’s Best Workers,” CNBC, Jul. 2022.

3 “Most Minority-Owned Small Businesses,” MaxFilings, Web, 2023.

4 “Fastest Growing State By GDP,” Forbes, May 2022.

5 “18th Annual Rankings Report: State Rankings,” Business Facilities Magazine, Aug. 2022.

6 “Best States for Black Entrepreneurs in 2022,” Merchant Maverick, Feb. 2022.

7 “Best States for Female Entrepreneurs,” NorthOne, 2023.

8 “Best States to Start a Business,” Visual Capital, 2022.

#5

#10

Georgia Small Business Employment Profile

The state’s unemployment rate is at 3.1 percent - an all-time low. This number has remained steady since August 2022 and is much lower than the U.S. national unemployment rate of 4.4 percent.1

On an average annual basis, the number of jobs in Georgia will rise by 0.1 percent, compared to a 0.5 percent decline predicted for the U.S. The small positive gain reflects job growth in the first half of 2023 that is offset by the losses predicted in the second half of the year.1

While job losses are expected in 2023, an economic recovery is expected to begin in early 2024.1

1.7 MILLION Small Business Employees2

1.2 MILLION Small Businesses in Georgia2

SMALL FIRM EMPLOYMENT BY INDUSTRY2

Demographic Profile of Georgia Small Business Owners

Georgia continues to exhibit a wide spectrum of diversity among the state’s entrepreneurs. The U.S. Small Business Administration Office of Advocacy found that women own 46.1 percent of Georgia businesses, with there being 36,913 female-owned businesses with employees across the state.1

Georgia is also home to 472,976 minority-owned businesses which accounts for 36.6 percent of the state’s businesses.1 Georgia ranks fifth in the nation for states with the most minority-owned businesses.2

The state of Georgia continues to experience population growth with an estimated 10,912,876 people living in Georgia as of 2022. This is a 1.9 percent increase from 2020.3

With Georgia’s business friendly environment and historical results, we can expect to see women-owned and minority-owned businesses continue to grow in both numbers and influence.

BUSINESS OWNERSHIP SHARE BY DEMOGRAPHIC GROUP

46.1% women-owned

36.6% minority-owned

7.6% veteran-owned

8.4% Hispanic-owned

Source: “Small Business Profile - Georgia.” U.S. Small Business Administration, Office of Advocacy, 2022.

Economic OUTLOOK

In 2021, I predicted that Georgia’s economy would fully recover from the COVID-19 recession and would continue to expand throughout 2022. That is what happened, but Georgia’s economy grew more slowly than expected due to the aggressive shift in the Federal Reserve’s monetary policy to combat higher than expected inflation. My main prediction for Georgia’s economy is that the post-pandemic expansion will end and a mild recession will begin in the second half of 2023.

I expect the 2023 recession to last about 6 months, which is short. On average, the length of post WWII recessions is 10 months. A 2023 recession is not inevitable, but it would take near perfect monetary policy plus a lucky break to avoid one. I put the probability of recession at 65 percent. It will be extremely difficult for the Federal Reserve to cool down the economy enough to contain the highest inflation in 40 years without triggering a recession. Although I expect both the U.S. and Georgia economies will be in recession, Georgia’s economy is better positioned to weather a recession than the U.S. economy.

My forecast calls for Georgia’s inflation-adjusted GDP to decrease by 0.2 percent in 2023, which is smaller than the 0.7 percent drop I expect for US GDP. What will subtract from or add to 2023 GDP growth? I expect less spending on structures to subtract the most from GDP growth. Housing is the “canary in the coal mine” when it comes to recessions caused by Federal Reserve policy moves. Housing is the most interest sensitive sector of our economy. Similarly, tighter credit conditions and higher interest rates will cause businesses to spend less on nonresidential structures. Higher interest rates and lower profits mean decreased spending by businesses for equipment, which will subtract from GDP growth. Inventory changes will subtract slightly from GDP growth. Spending by consumers will neither add to nor subtract very much from GDP growth, which is good because consumers account for about 70 percent of GDP. That stability is one reason I expect the 2023 recession to be mild.

Government spending will add to GDP growth, especially spending by state and local governments. Higher spending on intellectual

DR. JEFFREY M. HUMPHREYS DIRECTOR, SELIG CENTER FOR ECONOMIC GROWTH, TERRY COLLEGE OF BUSINESS, UNIVERSITY OF GEORGIA

“My main prediction for Georgia’s economy is that the post-pandemic expansion will end and a mild recession will begin in the second half of 2023.”

property and software will add to GDP growth. Put it all together, and Georgia’s GDP for the year is approximately flat. That is not good, but it is far better than our experience in recent recessions. For example, Georgia’s GDP declined by 4 percent in 2020. In the Great Recession, Georgia experienced back-to-back years of negative GDP growth –GDP declined by 2 percent in 2007 and by 4 percent in 2008. I do not expect Georgia’s labor market to get hit very hard by the 2023 recession. On an annual average basis, the number of jobs will rise by 0.1 percent, which is better than the 0.5 percent decline we expect for the U.S. The small positive gain reflects job growth in the first half of 2023 that’s offset by job losses in the second half of 2023.

One reason I do not expect many job losses is that employers will be slow to lay off workers. Employers went to great lengths to hire enough workers in the wake of the pandemic and know that workers will be in short supply on the other side of the recession. In addition, many of the economic development projects that Georgia landed over 2020-2022 will be completed in 2023-24, which will offset jobs losses in other industries.

In 2023, I expect the unemployment rate to rise, but not too much. Georgia’s unemployment rate will average 3.8 percent in 2023 compared to 3.3 percent in 2022. Georgia’s unemployment rate will remain well below the U.S. unemployment rate of 4.4 percent, which means the Federal Reserve is likely to stop tightening monetary policy before labor market conditions get bad in Georgia.

In many ways both the U.S. and Georgia economies are fundamentally sound. Why then, do I expect a recession? There are three reasons: (1) tight money/credit due to extremely high inflation; (2) recent energy price shocks; and (3) negative wealth effects due to declines in asset

prices. The Federal Reserve’s rapid shift from an extremely stimulative monetary policy to a very restrictive policy is the main reason I expect a recession. The Federal Reserve said it will do whatever it takes to tame inflation. If you hit the economy over the head enough times with massive rate hikes, eventually it falls.

I expect the recession to be mild and short. Mild, because the labor market is strong, households balance sheets are in decent shape, and households are still sitting on unanticipated savings accumulated during the pandemic. In addition, several large economic sectors (e.g., health care, education, hospitality, and state & local government) will still be rebounding from the pandemic. It will be easy for those industries to post year-over-year gains. The recession will be short because the Federal Reserve will be mindful of its dual mandate. I believe the Fed will not tolerate the degree of economic damage that would result from raising policy interest rates high enough to achieve its explicit inflation target of 2 percent. We believe the Fed will settle for 3 percent inflation. If I am correct, the 2023 recession will only last two quarters. Should the Fed insist on 2 percent inflation, then recession will be longer and more severe.

There are state-specific forces that will help Georgia’s economy better weather the 2023 recession than the U.S. economy. One main advantage is the enormous number of projects in Georgia’s economic development pipeline. In FY 2022, Georgia posted another record year in economic development. There were 358 projects, over 51,000 jobs, and over $21 billion in investments. Foreign direct investment was especially strong. Thus far, FY 2023 looks like it will be another good year for Georgia’s economic developers. CONTINUED

Another factor behind my expectation that Georgia’s economy will do better than the U.S. economy is that Georgia will get more leverage than most states from higher new vehicle sales. I expect U.S. auto sales to increase by about 15 percent in 2023, which is an unusual forecast for a recession year. Typically, auto sales tank during recessions, especially when the recession is triggered by higher interest rates. The explanation is simple. Many folks that wanted to buy a new car could not do so because not enough cars were available. New car dealers had a strong advantage over buyers, especially for popular models. Not surprisingly, many people kept their current cars longer than they would if market conditions were normal. The average age of cars on the road rose to a record 12.2 years. Many cars on the road are at the end of their economically useful lives. They need to be replaced. In 2023, more new cars will be available for purchase. Pent up demand will be unleased, and sales of new vehicles will soar. The nation’s automobile manufacturing industry is becoming increasingly concentrated in the Southeast. Georgia has had immense success growing the electric mobility industry. For example, Hyundai Motor Group will invest $3.5 billion to build its first dedicated electric vehicle manufacturing plant near Savannah, creating 8,100 jobs. The Hyundai project is the largest economic development project in Georgia’s history.

In closing, I expect the post-pandemic expansion to end and a recession to begin. The recession is likely to be mild and short. The Federal Reserve’s move from easy to tight money will trigger the recession. Housing is already in recession and will suffer the most, but several large economic sectors will continue to expand. Georgia’s labor market will hold up well. Georgia’s unemployment rate will not rise very much. I expect an economic recovery to begin early in 2024.

ECONOMIC OUTLOOK

SELIG CENTER FOR ECONOMIC GROWTH, TERRY COLLEGE OF BUSINESS, UNIVERSITY OF GEORGIA

Georgia’s OUTLOOK

Georgia’s economy is better positioned to weather a recession than the U.S. economy because:

The Georgia forecast calls for inflation adjusted GDP to decrease by 0.2 percent, compared to 0.7 percent for the U.S.

Georgia has a large amount of economic development projects in the pipeline.

The nation’s auto manufacturing has become increasingly concentrated in the Southeast and U.S. auto sales are expected to increase by 15 percent in 2023.

Georgia’s unemployment rate is expected to rise an average of 3.8 percent in 2023, compared to 3.2 percent in 2022. This is well below the U.S. unemployment rate of 4.4 percent.

GEORGIA BASELINE FORECAST 2022-20231

UNITED STATES BASELINE FORECAST 2022-20231

Source:

1. The Selig Center for Economic Growth, Terry College of Business, University of Georgia, 2023.

Industry Spotlight PROFESSIONAL SERVICES

The professional services sector accounts for nearly 12,000 business establishments in Georgia and includes jobs in:

• Accounting

• Tax Preparation

• Bookkeeping

• Advertising

• Public Relations

• Legal Services

Within this sector, legal services account for the most businesses, with more than 6,000 businesses in the legal field in Georgia.1 Accounting, tax preparation, bookkeeping and payroll services come in second within the sector for number of establishments, accounting for 4,500 businesses in Georgia, combined.1 Advertising and public relations jobs rank third, with 1,180 establishments around the state.1

Payroll for professional services has seen substantial growth. From 2018-2020 payroll increased by 13.2 percent, which equates to just over $3 billion.1 The number of employees, however, has seen a slower growth rate of just 7.8 percent over the same time period.1 This finding signifies employers are absorbing job duties among current staff, allowing them to use a smaller number of employees and pay them a higher rate.

From 2018-2020, employee growth in legal services, accounting, tax preparation, bookkeeping and payroll has remained relatively constant, with only small incremental growth. Comparatively, advertising and public relations related services, have displayed rapid employment growth in the past few years, with a 53.3 percent increase from 20182019, but as of 2020 has started to plateau.1

Small businesses with five or less employees account for 66 percent of businesses within the professional services sector in the state.1 This could indicate that much of the work in these industries can be done with a small number of employees, or independently as sole proprietors with contract work.

Much of the growth in this sector can be attributed to the growth of the digital age, with the number of internet users doubling in the past 10 years2. The growing digital world opened a new platform for businesses to advertise. In addition, the pandemic pushed even more businesses to go digital in order to keep their business open while social distancing. As a result, the dollars spent on social media ads in the U.S. has tripled since 2017.3

Doing business online is a trend from the pandemic that will stay, leading to onging growth of the digital advertising sector. Digital ads have taken over more traditional forms of advertising – including print and classifieds – and account for more than two-thirds of global ad spending4 .

CREDITORS BUREAU ASSOCIATES Macon, GA

Profesional Services STATS

12,000 establishments in Georgia1

13.2% increase in payroll in professional services from 2018-20201

Ads placed on internet search engines, social media, and television streaming services continue to be on the rise. In fact, Statista projects that search advertising alone will account for $174.43 billion dollars of digital advertising dollars spent in the US in 2027, with social media advertising and video advertising following closely behind.3

x3 the amount spent on social media ads in Georgia has tripled since 20172

Sources:

1. “Annual Business Survey,” United States Census Bureau, 2020.

2. “Digital 2022: Global Overview Report”, Data Reportal, Web, April 2023

3. “Digital Market Insights: Digital Advertising, United States”, Statista, Web, April 2023.

4. “Digital to Account for Two-Thirds of Global Ad Spend This Year”, Marketing Charts, GroupM -2023 Global Mid-Year Forecast Report Web, July 2023

Industry Spotlight FINANCIAL SERVICES

The financial services sector in Georgia includes:

• Credit intermediation and related services

• Funds, trusts and other financial vehicles

• Insurance carriers and related activities

• Securities, commodity contracts and other financial investment activites

Most employees within this sector work with insurance carriers or credit intermediation establishments, accounting for 80% of the financial sector payroll in Georgia.1

Since 2018, there has been steady growth in the fields of credit intermediation and related services and insurance carriers. These fields grew steadily since 2018, but began to stagnate in 2020.1

There was a 4.1 percent increase in the number of employees in the financial services industry from 2018-2019. The payroll growth in the same period grew 14 percent, signifying higher pay in the growing field.1

Within the financial services sector, one area to watch is fintech. According to Forbes Advisor, fintech, short for financial technology, is any type of technology used to augment, streamline, digitize, or disrupt financial services. Fintech includes a wide variety of financial

concepts, from something as simple as a mobile check deposit, to peer-to-peer lending and crypto exchanges. 4

The fintech field is experiencing a boom and Georgia is reaping the benefits. The top 50 Georgia-based fintech companies generate annual revenue of more than $72 billion.5 In addition, more than 30,000 professionals in Georgia, and 130,000 globally, are employed by Georgia based Fintech firms.5 Of particular note, 70 percent of all fintech transactions on a global scale pass through Georgia.5

This industry continues to evolve, therefore the future impact of cloud computing, artificial intelligence and blockchain technology is difficult to estimate.

The fintech industry is also beginning to share the market with some traditional banks which provide new, digital-friendly banking services and integrate digital payments, microfinancing and robo-advisor services to existing bank accounts.6

Financial Services STATS

Sources:

increase in payroll for jobs in financial services

70% of all fintech transactions on a global scale pass through Georgia5

$72B revenue generated by the top 50 fintech companies in Georgia5

1. “Annual Business Survey.”, United States Census Bureau, 2020.

2. “Digital Market Insights: Fintech, Georgia”, Statista, Web, April 2023.

14% growth in payroll from 2018-20191 MAYO

3. “Digital Market Insights: Digital Advertising, Georgia”, Statista, Web, April 2023.

4. “What is Fintech?”, Forbes Advisor, Web, 2022.

5. “Georgia Has Emerged as a World Leader in Fintech due to the Presence of an Unprecedented Number of Financial Technology Industry Leaders”, Georgia.org, Web, 2023.

6. “3 FinTech companies impacting Iran’s financial services industry?”, IBS Intelligence, Web, August 2022.

Industry Spotlight CHILD CARE SERVICES

Small businesses are an important part of the child care industry in Georgia. According to U.S. Census data, of the employees working in the child care services sector within the state, 73 percent are employed at small businesses that have 5-49 employees.1

From 2018-2020, the total number of child care service establishments remained stable, but the number of employees in that sector has increased.1 In 2020 alone, over 1,000 individuals were hired in the industry1, likely due to the additional employees needed to execute Center for Disease Control (CDC) and safety requirements established during the pandemic and replace employees that left the industry during the Covid-19 pandemic. In addition, more employees were likely hired to fill in as staff had more absences due to Covid-19 quarantine periods.

Within that next year, a nationwide shortage of early childhood educators began. According to a study from the National Association for the Education of Young Children (NAEYC) released in 2021, four out of every five respondents from child care centers reported a staffing shortage, with 15 percent stating they had 6-15 fewer workers than needed.2 Of those respondents, 78 percent said insufficient pay was the main reason educators left their positions.2 This shortage made it difficult to keep operating centers open and to start new child care centers.

To combat these challenges, in June of 2022, Georgia Department of Early Care and Learning (DECAL) released a spending plan to distribute $1.97 billion in remaining funds from the Coronavirus Response and Relief Supplemental Appropriations Act (CRRSA) and American Rescue Plan Act (ARP).3

Through CRRSA, $403,660,875 was distributed to help mitigate the negative financial impacts of the pandemic on Georgia’s child care industry.3

Additionally, $1,573,679,980 was distributed through ARP. A portion of these funds are earmarked as stabilization funds to support child care establishments and ensure the stability of Georgia’s child care industry. The remainder of these funds are allocated as additional Child Care and Development Fund (CCDF) dollars. These funds can be used to support child care providers, families with young children and Georgia’s early childhood education (ECE) workforce. The CCDF dollars can also be used for ECE infrastructure, enhancing child care quality, and increasing access to care.3

Thanks in part to these fundings, DECAL expects the number of licensed child care centers to increase and help stabilize the child care industry across the state.

HARMONY LEARNING ACADEMY

Lithia Springs, GA

Child Care Services STATS

$406M distributed through CRRSA to help mitigate the financial impacts of the Covid-19 pandemic on the child care industry in Georgia3

$1.5B in stabilization funds to support and stabilize child care establishments in Georgia3

<5 employees

5-49 employees

>50 employees

Sources:

1. “Annual Business Survey.”, United States Census Bureau, 2020.

2. Survey: “Four in Five Child Care Centers in the U.S. Are Understaffed.”, National Association for the Education of The Young Child (NAEYC), Web, 2021.

3. “Georgia Department of Early Care and Learning’s Spending Plan for CRRSA and ARP Funds.” Georgia Department of Early Care and Learning (DECAL), 2022.

According to U.S. Census data, of the employees working in child care services sector within the state, 73 percent are employed at small businesses that have less than five employees.1

FOOD PROCESSING AND MANUFACTURING

There are currently 1,586 food processing facilities in Georgia.1 Over the past 10 years, 293 food processing companies have opened or expanded operations in the state, investing more than $4.75 billion into Georgia’s economy.1 Small businesses with 19 or less employees employ nearly 65 percent of the state’s food manufacturing workers.1

Payroll has steadily increased in this industry from 2019-2021, but total sales have seen an even more significant jump, showing a 7.6 percent increase in 2020-2021.2 While payroll has increased, the number of people employed has decreased.2 Many of these jobs are specialized and require higher pay. Thus, pay may have been increased for these jobs in order to recruit and retain talented employees in a high-turnover environment.

Within Georgia’s manufacturing sector, food manufacturing remains at the top in terms of number of employees, and second largest by revenue. Four of the top five global refrigerated warehousing companies have locations in Georgia. Overall, there are 189 million cubic squares of cold storage in the state.1

Much of Georgia’s success in food manufacturing is due to the state’s prime logistical location. Logistics play a major role in the success of the food manufacturing industry, due to the necessity of moving products in and out of these facilities quickly and efficiently to prevent spoilage. Thanks to the state’s robust rail system, highway infrastructure, the world’s busiest airport and the Port of Savannah – the fastest growing port in the nation – Georgia’s food manufacturers can exercise a competitive advantage. These transportation systems are only set to improve, with many interstate expansion and port projects underway. 1

In addition to ideal logistics and increasing pay scales, Georgia offers qualifying companies access to customized workforce training at no cost through Georgia Quick Start. This program, part of the Technical College System of Georgia, is continuously ranked the number one workforce training program in the nation.4

The University of Georgia’s College of Agricultural and Environmental Sciences also serves as a resource for food manufacturing companies through its Center for Food Safety. This group detects, controls and eliminates disease-causing micro-organisms and toxins, helping protect a safe and secure global food chain.3

Food Manufacturing STATS

$4.75B invested in the Georgia economy2

65% amount employed by small businesses within the food manufacturing industry2

189M cubic squares of cold storage in Georgia2

1,586 food processing facilities in Georgia2

EMPLOYEES

< 5 EMPLOYEES 39.30% 5-19 EMPLOYEES 24.58% EMPLOYEES100-249 7.74% 10.32%EMPLOYEES>250

About the UGA SBDC

The University of Georgia Small Business Development Center (UGA SBDC) provides business training and consulting services to help small businesses grow and succeed. Working with chambers of commerce, lending institutions and other business development organizations, the UGA SBDC educates business owners on how they can grow their businesses, as well as helps aspiring entrepreneurs improve their chances for success.

Considered to be one of the state’s top providers of small business assistance, the UGA SBDC can help in the areas of business planning, market development, access to capital, record keeping and a myriad of other topics through various educational and technical assistance activities.

The UGA SBDC is a Public Service and Outreach unit of the University of Georgia and is funded in part by the U.S. Small Business Administration (SBA). The University of Georgia Small Business Development Center is nationally accredited by the Association of SBDCs and SBA.

For more information, visit: www.georgiasbdc.org

EDITORIAL CONTRIBUTORS:

Dhananjay Singh

Josh Newman

Kim Broun

Alyssa Foskey

Macy Thomas

Beth Melnik

Dr. Jeffrey Humphreys

PHOTO CONTRIBUTORS:

University of Georgia

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