Top 10 Concerns Of Small Business OwnersThe question I am most often asked about small business owners by civilians (non-small business people), like reporters, for example, is what are the greatest concerns, problems, challenges, etc., that small business owners face. As a small business owner myself, I have my own response, because I live that life every day. In my role as The Small Business Advocate, I answer for the heroes that I serve, based on what they tell me when we make contact.
Recently, William Dunkelberg, chief economist for the National Federation Of Independent Business (NFIB) and a member of our Brain Trust, sent me a survey that the NFIB has been conducting periodically since 1973. In this survey, they ask their members to identify the "single most important problem facing your business today." Respondents are given a list of 75 business problems and asked to rank them in order of the most important to the least important. I found the answers to this survey were very close to mine and to what my audience has told me.
If you are younger than thirty, and maybe even younger than 40, you might be surprised at the all-time winner as the number one problem facing small business owners: inflation. Inflation is a de facto tax, and for much of the 70s and part of the 80s, this tax was often in double digits.
Thanks to the firm hand and "tough love" FED Chairman Paul Volker imposed on the U.S. economy for most of the 80s, and the subsequent continuation by Volker's successor, Alan Greenspan, of the mantra that "the only good inflation is a dead one," inflation has been virtually neutralized and, consequently, dropped out of the top spot about the turn of the last decade. By the time we entered the 21st century, only 1% of the NFIB survey respondents ranked inflation as their #1 problem.
Now I want to list the top 10 "problems and priorities" identified by respondents of the NFIB's most recent survey, followed by my interpretation of the problem and some thoughts on possible solutions
Cost Of Health Insurance
This issue has two components: Health insurance for owners, and coverage for employees. Many small business owners left jobs where health insurance was part of their employment package. As they venture out on their own, they are faced, often for the first time in their lives, with the extremely expensive proposition of paying for health insurance for themselves and their families based on an individual policy, rather than being part of a large group. Too many times the financial struggle of starting and growing a small business precludes budgeting hundreds of dollars per month for health insurance for the owner and his or her family. It's not at all surprising that this concern has been elevated to the top of the list.
With regard to providing employees with health insurance, the problem is similar to the owner's: The company just may not be big enough to carve this expense out of the profits, assuming there are profits. In today's extreme competition for workers, providing health insurance is necessary for a company to be competitive. But regardless of why an employer is motivated to provide insurance for employees, when the company just can't afford to deliver this benefit, it becomes a competitive problem for the company, and adds to the stress of the owners.
Solutions: The best solution I can recommend for this problem is to find a way to become part of a larger group. Many chambers of commerce offer group health insurance for their members at rates approaching corporate group discounts. Another alternative, and the one I like best, is to do business with an employee leasing firm. Whether you are a sole proprietor with no employees, or if you have 100 employees, this is an excellent alternative for many reasons, but the best one is you can accrue the discount benefits of becoming part of a health insurance buying group of thousands of employees. Don't worry, the leasing relationship is just administrative. You still hire, fire, and manage your employees just as you would otherwise. Take it from me, THIS WORKS!
Federal Taxes On Business Income
The federal income tax Americans paid in 1998 hit an all time record as a percent of GDP, 21.7%. More even than during WWII, and 2.7% higher than just five years prior. With the largest tax increase in U.S. history having been passed in 1993, it's no wonder that this issue ranks high on the list of problems of small business owners. Someone once said that paying taxes is a high class problem, because it means you had profits. One problem unique to small business owners ties in with the health insurance issue: Small businesses that are structured other than as a C Corporation, (which is the majority of small businesses) cannot deduct all of their health insurance benefit costs the way their larger competitors can.
But things are looking up: Thanks to the efforts of small business lobbying groups like the NFIB, and The Small Business Survival Committee (SBSC), small business owners can now deduct an increasing percentage of health insurance expenses, on the way to full deductibility within a couple of years. Prior to around 1997, small business owners paid for employees health insurance benefits 100% with after tax dollars. Other progress we've made on the tax front is the ability to expense certain capital items in the year of purchase, rather than depreciating them over several years. I believe the 2000 tax year allows for $19,000 of capital expensing, on the way to $25,000, in $500 annual increments.
Solution: Support the groups who work for improvement in small business public policy, contact your elected representatives directly and tell them how this problem affects you, your company, and your employees, and then vote for the candidates who have solid small business voting records.
Locating Qualified Employees
Finding employees these days, qualified or not, is not a problem, it's a crisis. Lately I have said that five years ago you took prospective employees' application, but today, you just take their pulse.
Bob McTeer, President of the Dallas Federal Reserve Bank told my audience recently that, "In America today, we have full employment." Competition is fierce, and small companies are often at a disadvantage in recruiting good folks. When a prospective employee comes in for an interview, the owner and the business are now more on the hot seat than the prospect. "What can your company do for me" is heard more often today, instead of the other way around.
The word "locating" is instructive because, as I have said, most prospects in the labor pool are already working. Called "passive employees," employers looking for workers must first find prospects, and then "steal" them from other firms. This kind of "raiding" has become commonplace, and adds to the stress level of all employers, but especially small ones.
Solution: Think of your employees as internal customers, and just like paying customers, find out what they want, what motivates them, what makes them happy, and what you can do to make them successful so they come back year after year. Focus on investing in training and retention of your internal customers the way you think of investing in marketing for paying customers.
Unreasonable Government Regulations
Isn't that redundant: Unreasonable government regulations? Small business owners recognize that for society and the marketplace to work, there have to be rules and regulations. The first problem is that in America today, too many rules and regulations are being created and enforced by people who don't really understand their full impact. The second problem is especially tough for small businesses, because compliance with any governmental reg requires the time and attention of one of the company's owners or valuable employees. All of these folks are already wearing many different hats just to keep the business afloat, and any distraction to comply with even worthy regulations costs the company direct resources, AND lost opportunity. Therefore, unreasonable regs are seen as especially egregious.
Solution: Same as the solution to #2. Support the groups who work for improvement in small business public policy, contact your elected representatives directly and tell them how this problem affects you, your company, and your employees, and then vote for the candidates who have solid small business voting records.
Social Security Taxes
First, there's the fundamental issue of whether the money younger generations of Americans pay into social security is a good investment. Millions of small business owners fit in the "younger" category, and they see the productivity of funds put in their businesses and other real investments. Second, the maximum level of annual earned income subject to social security tax just went over $80K. Third, employees only pay half of their withholding tax, with the other half paid by the employer. Social security is one of the withholding items someone appropriately termed payroll "burden." Every time payroll levels go up for a small business due to minimum wage increases, competitive wage pressures, etc., an additional 6.75% of that number must be added on, and sent to the government.
Solution: There is currently no abatement from social security taxes. However, there are new proposals being made by certain candidates. Listen to the debates, and decide which proposal fits your attitude about where we should be going with social security, then vote for that person. Welfare is dying, anyone who wants a job today can get one, and 50% of Americans are invested in the stock market. What to do with social security is the last great debate between liberals and conservatives. Get involved in the debate.
State Taxes On Business Income
Some states are worse than others, but any tax on a small business, state, federal, local, or inflation, is a threat to survival because it sucks valuable capital out, often at a time when that capital is most needed.
Solution: Hold state and local politicians responsible for their actions with regard to raising taxes and spending money.
Worker's Compensation Costs
Like state income tax, the level of this problem varies from state to state, and like a tax, the expense increases as payroll increases. This problem is also like the employee health insurance issue, in that small companies going it alone pay higher unit rates than those who buy for a large group.
Solution: The employee leasing alternative is a good way to hold down worker's compensation insurance costs. I'll say it again, THIS WORKS!
This issue is very closely related to problem #4, unreasonable government regulations. Somebody has to do the paperwork, and small businesses need that somebody to be buying, selling, creating, building, planning, etc. - not doing government paperwork.
Solution: Same as the solution to #2 and #4.
For a long time now, we've been the beneficiaries of relatively low energy costs, especially petroleum. But in a very short period, crude oil has gone from around $10 a barrel to over $30. This is nuclear inflation, resulting in a nuclear de facto tax. Many small businesses have significant direct energy expenses, plus pay freight charges from suppliers. When gasoline prices increase 50% in less than a year it affects everyone, but small companies in certain industries are put in great jeopardy. And yes, big companies have the same problem. But recent increases in fuel costs cut deeper into the profits, and therefore the viability, of small businesses than it does the big guys.
Solution: This is a good time to take a look at your processes to make sure you eliminate wasteful activity, and wring as much efficiency out of your operation as possible. Let adversity create opportunity.
Frequent Changes In Federal Tax Laws
In 1919, the 1040 form was two pages long and had two pages of instructions. Today, the simplest 1040 form has 33 pages of instruction, and the entire IRS tax code has 5.5 million words. If a small business owner does his or her own taxes, new changes are new things to learn, taking away time from selling, planning, and creating. If the work is hired out to a CPA firm, changes and new forms mean more expense. Also, it's difficult to conduct effective tax planning when the target keeps moving.
Solution: Same as the solution to #2, #4, and #8. It's your money, get involved in the process.
There will always be a list of Top 10 Problems in the world of small business, but notice that six out of the top ten problems identified today are related to government. Solving market challenges are often productive exercises. Solving a problem created by government is almost always regressive, unproductive, and expensive.
Write this on a rock... Get involved in the public policy processes affecting small business, so that one day, all of our Top 10 Problems will be market challenges that can then be turned into opportunities.