Image: Perry Weaver
Al Goldis  /  AP
Perry Weaver works on a customer's 1968 Corvette at his Weaver Pro Tech auto repair shop in Concord, Mich. Weaver opened the repair shop last year after getting laid off by an auto supplier in late 2005.
updated 1/28/2009 4:26:52 PM ET 2009-01-28T21:26:52

As Perry Weaver fixes problems beneath the hood of a customer's pearl white 1968 Corvette, his biggest worry is the country's financial engine.

Opening the repair shop last year after getting laid off by an auto supplier in late 2005 was Weaver's attempt to gain more control over his employment destiny. But like other entrepreneurs these days, he is discovering that being in the driver's seat in a deepening recession carries significant challenges, not least of which is losing customers as they succumb to layoffs or job insecurity.

As employment options dry up, the number of people becoming self-employed sometimes increases during a prolonged recession, as it did in the early 1980s, according to Labor Department data. But that may not happen this time, experts say, because one of the hallmarks of this downturn is a very tight credit market, making it harder for new businesses to get bank loans.

"I've never seen an economy like this one," said Iris Cooper, director of the Entrepreneurship and Small Business Division in the Ohio Department of Development. "This one is different because of the weakness in the financial market."

The number of self-employed Americans fell 3 percent in 2008, Labor Department data show — evidence that many have been forced to close up shop, while others are reluctant to try going it alone. The number reported as self-employed, now slightly more than 10 million, began to drop in late 2007.

No region has been spared. New business registrations fell nearly 9 percent in Rhode Island last year. Oregon's new business applications dropped by more than 15 percent in the last three months of 2008. And Ohio received 20 percent fewer requests in 2008 for 1st Stop Business Connection kits, startup guides assisting small businesses.

Who's to blame?

At the Weaver Pro Tech auto repair shop, the main challenge lately has been customer retention.

Weaver, who committed his severance package from Lear Corp. and much of his savings to open the business, spent the summer courting potential customers at classic car shows in Michigan, Ohio and Indiana.

But three repair jobs scheduled for this winter have been canceled. One car owner lost his job; two others simply got nervous because of the tumbling stock market and rising unemployment.

The nation's unemployment rate, 7.2 percent in December, is at its highest level in 16 years — and in Michigan the rate is above 10 percent due to the auto industry's woes.

"It's a big hit on us guys trying to get started," said Weaver.

The battered economy is holding down consumer spending at exactly the time Mark Bunn's six-month-old music shop in Nampa, Idaho, could use a boost.

Bunn, who took a buyout from Micron Technologies Inc., invested much of his savings into The Music Shoppe, which sells guitars, amplifiers and a wide range of instruments for marching bands. But business has not been as brisk as he had anticipated.

The 47-year-old Bunn found a reasonably priced storefront in a high traffic location, and he hasn't hired any employees. Even so, making enough money to cover the rent on the shop and other basic expenses like health insurance is proving to be a struggle.

"It could be a few years before it becomes a viable business," Bunn said. "So you've got to be prepared and patient."

New small businesses may fail even in the best economies. To survive in tough times, entrepreneurs must pay closer attention to planning, inventory, budgeting and marketing, says the U.S. Small Business Administration. The organization says startup businesses fail most often because of insufficient capital, lack of management experience, poor inventory management and lack of initial planning.

Brenda Renzaglia certainly did her homework before opening Bella Angel Imaging in Maple Grove, Minn. The business records ultrasounds for pregnant women onto DVDs and synchronizes the images to popular music.

Renzaglia, 44, knew nearly two years in advance she was going to lose her job as a billing department manager at Eschelon Telecom Inc. because it was being bought by another company. She used the time to plan her opening on Dec. 1, one day after her layoff took effect.

So far, customers are filling her screening room, which has a 200-inch screen to view the ultrasounds, and Renzaglia isn't dwelling on the sour economy. Instead, she's focused on the positives of self-employment.

"I couldn't think of anything else I wanted to do," Renzaglia said. "Go fight hundreds of people to put in application at a major corporation? I didn't want to do that."

While Weaver is experiencing a rougher ride, he believes he can hold on until economic conditions improve.

Within a few years, Weaver hopes to move beyond his one-man shop and expand to a main street storefront with a couple of employees — potentially replacing his former $75,000 a year income.

"Will I get there (this) year? Probably not," Weaver said. "But will I get there eventually? Yes. I can see us making money at this."

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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