Small business crunched by fuel prices

By Nick Carey

FORT WORTH, Texas (Reuters) - Many U.S. small business owners say soaring fuel costs are eating their profits at a time when the economy is already weak, making them more cautious about expanding or hiring.

"In theory we could pass on extra costs with fuel surcharges," said Vince Puente, part owner of Southwest Office Systems Inc (SOS), which sells and services copy machines and other office equipment to companies in the Dallas-Fort Worth area. "However, our competitors are all bigger than us and aren't doing that, so surcharges would kill us."

"With gas rising 5 to 10 cents a week, you have to find ways to cut costs," he added.

SOS has 70 employees and 2007 revenue of $16 million.

But Puente said his freight costs have gone up as the companies hauling his office machines apply fuel surcharges.

SOS has also just had to raise the amount of gasoline it pays employees for driving to visit clients to 42 cents from 36 cents per mile (1.6 km), at a cost $3,000 a month.

"That money comes straight out of my pocket," Puente said, adding that he has now also put his assistant in charge of administering equipment leasing, a revenue-generating job.

"We can't afford many jobs that don't bring in revenue because we're not as fat and happy as we used to be," he said.

Small businesses like Puente's are the backbone of the U.S. jobs market and vital to job creation.

In 2002, the United States had 112 million paid employees, according to Census Bureau data. About 56.4 million, or just over 50 percent, worked at companies with fewer than 500 employees.

But with crude oil prices now above $130 a barrel -- doubling in the past year and rising sixfold since 2002 -- the squeeze of absorbing these costs for transportation and utilities is intense as revenue comes under recession pressures.

"Small businesses are caught in the scissors between high fuel costs and rather slow economic growth," said University of Maryland economist Peter Morici.

That leaves small businesses in a bind. Should they pass on fuel costs to customers? Or absorb those costs, surrender profits and cut expansion, therefore creating fewer jobs?

"My concern is what fuel is doing to the bottom line of American small business owners," said Todd McCracken, president of National Small Business Association. "But if they use fuel surcharges, what does that do to inflation and the economy?"

"COMMUTING ON MY FUEL BILL"