As the Owner and CEO of a small business, I have learned valuable lessons about running an effective organization. You learn quickly that you need to be able to budget and make decisions that benefit both your company and your employees. However, one of the most concerning issues facing American small businesses is the current tax situation. Simplicity is key for the growth of a company, especially in its early years, and taxes can be an absolute headache when it comes time to prepare and file. The 2017 Small Business Taxation Survey reported that 84 percent of respondents were forced to pay an external tax practitioner or accountant to handle their taxes. Conversely, if a business owner tries to do their taxes in-house, they lose valuable time and run the risk of being audited. Both situations create piles of red tape and the result is a lull in the rate-of-growth or even worse, a loss of initiative to start new businesses all together. Leaving party politics aside, when it comes to improving current tax laws, one of the biggest hurdles is changing the current laws on the books. Both sides of the aisle are guilty of coming up short when passing comprehensive tax legislation that bodes well for small businesses. This is a real and pressing issue that is evident to small business owners across the United States. NSBA President and CEO Todd McCracken said this best, “The overwhelming majority of small businesses believe Congressional failures—partisanship and a lack of effort—are the biggest challenge facing reform, and one-third don’t believe tax reform will ever be enacted.” Small businesses foster vital competition and innovation that is crucial for America’s economy. It’s for reasons like these that the National Small Business Association conducts this annual survey. Looking forward is my hope that we may simplify the tax system to cultivate economic growth for small business and encourage more start-ups.
If you want to know about the major issues facing small business a new survey by the National Small Business Association makes it clear. The top two are ones that I know well; the cost of healthcare and the amount of time I spend just trying to figure out regulations.
When I testified in Washington, DC before the House Committee on Small Business in 2015 I said, “Time and again, I hear from my small business clients and suppliers about their desire to have a more simplified approach to complying with federal regulations and their paperwork requirements. Yet, more often than not, small-business owners find themselves buried under mountains of paperwork when they could be helping their customers, hiring new employees and expanding their businesses. For a small business, I have a lot of advisors. Just to give you a sample, I use an accounting firm, an insurance firm, a corporate lawyer, an HR lawyer. In the past, I used an environmental lawyer for issues with a building I wanted to buy. And the list goes on. It’s not that I don’t love lawyers, my brother is one, but each one of these resources is costing my company money and the time to deal with all of the regulations.”
It is interesting that in 2017, not a lot has changed. In fact, at a time when businesses are craving simplicity, complexity is what we are getting. I would love to get simple instructions, requirements that I could understand and that are more black and white than grey. I would also love to get back some of the time I spend on paperwork. One of the things I love about data is that it confirms what I think I know intuitively. According to the report, http://www.nsba.biz/wp-content/uploads/2017/01/Regulatory-Survey-2017.pdf business owners are spending more than 20 hours a month and at least $12,000 a year dealing with regulations.
Today there is some good news, the U.S. Senate confirmed the nomination of Linda McMahon as U.S. Administrator for the U.S. Small Business Administration (SBA). It was, according to many, a rare show of bi-partisanship with a vote of 81-19. McMahon is known as a former wrestling entertainment executive. I am hoping she takes on the fight for small business and gets some big wins.
If you knew you were going to get a big influx of business would you be more likely to hire people. If you had a handle on where interest rates were headed might you think about getting a loan for new equipment? If you thought the economy was going to improve would you launch a new product line?
Recently, the National Small Business Association released its NSBA Mid-Year Economic Report and it is not surprising that the number one challenge that small business owners face is economic uncertainty and most are expecting a flat economy in the next 12 months. However, if you ask them about their own business there is a very interesting twist.
According to the report, “When it comes to confidence in their own business, small business remains relatively positive, with 72 percent saying they are confident in the future of their own business. Although slightly lower than just six months ago, it is in-line with historic trends whereby small-business owners are much more confident in their own business than the overall economy.”
So why are small business owners positive? When you own a business you learn pretty quickly to deal with surprises, unexpected events and the roller coaster that is just a part of doing business. You almost become immune to bad news. Let’s face it we all think we can be better, faster and stronger than the competition. But when it comes to taxes, the cost of health care and gridlock in Washington- it’s not a pretty picture for small business.
Small business owners have a lot of demands on their time. That’s why they are concerned with the amount of time spent to comply with federal taxes. I gave up counting the hours but about half of those surveyed said they spent more than 40 hours a year. Honestly, my bet is that some of them don’t even take 40 hours of vacation time. The other issue is the cost of complying. I know many of the forms are so complicated that I can’t fill them out without an accountant’s help. So how serious is this issue? The report states, “More than half say that federal taxes have a significant to moderate impact on the day-to-day operation of their business.”
Small businesses understand the need to budget and live within their budget so it is no surprise that they want Congress and the next President to do the same and reduce the national deficit. Of course there are a variety of ways to do that. Those surveyed believe, “we should address the national deficit is to reform and reduce entitlement spending, followed by targeted cuts for certain federal agencies and program.
Those are the highlights of the report and you can read it all on the NSBA website. I love to see the results of surveys and especially this one because it gives a great historical context to the information. See if you agree with these small business owners or have a different perspective.
You might think that the numbers say it all but I believe we need to look deeper. According to the Small Business Administration (SBA), there are 27.9 million small businesses in the United States and they make up 99.7% of U.S. employer firms. These businesses employ about 50% of the country’s private sector workforce. For a time, small business was one of the few bright spots in the economy –growing and creating jobs. But recently the positioning of small business as the “little engine that can pull us out of the economic downturn” has stalled.
You might be surprised to know that business start-ups are in a massive decline and that is creating an economic growth crisis. The Economic Innovation Group (EIG) released a study about the collapse of new businesses during the recovery.
Co-Founder John Lettieri addressed a group of small business owners at a recent event in Washington DC sponsored by NSBA. Lettiere said, “The startup-less recovery should serve as a wakeup call to policymakers. The U.S. is entering an era in which growing geographic disparities and a missing generation of new enterprises could threaten access to opportunity for millions of Americans.” This was echoed by other speakers who pointed out that new businesses are critical to net new job creation. John Dearie, Acting CEO of the Financial Services Forum and author of Where the Jobs Are, said what many small business owners have espoused for years. Increasing regulations and tax burdens are deterring many from starting businesses.
So, what is my takeaway from all of this? There are a few key things to consider. First, you must be a risk taker to open a small business. I am not sure if the risks are greater today than in the past decade. But, anecdotally I know that many would-be entrepreneurs are turning their backs on business-start-ups because they believe given the uncertainly of the economy the risk is not worth taking right now. Capital is another issue. Many of the small business owners I know, like me, used the equity in our homes to get started. Younger people today are often carrying huge student loans, have little savings and no equity. Getting a loan is next to impossible. Finally, there is the question of the passion and desire to be self-employed, to build and create a business. Millennial entrepreneurs are, according to research, missing in action. A report by the SBA says it all.
As the owner of a mature small business you might wonder why I care. It’s simple, new business start-ups are critical. They create jobs and help train talent for all of us. Start-ups keep businesses like mine from getting too set in our ways. We have to keep fresh to compete. Finally, true innovation often comes from those who are new to the business world. My hope is that this trend will not continue because it does not bode well for businesses large or small.
If you don’t mind a huge generalization, I believe that small business owners are an upbeat and positive group. You have to be to start and run a business especially during uncertain economic times. This week when the National Small Business Association (NSBA) released its Year- End Economic Report for 2015, the results were interesting.
Small businesses are less optimistic than they were six months ago about the economy, 32 percent say it is worse off compared to 28 percent back in July. At the same time, there was an increase in the number of small-business owners who are confident in the future of their own businesses. In fact the report states, “75 percent of small-business owners expressed confidence in the future of their own businesses—up from 71 percent six months ago, and the highest this indicator has been in four years.”
It seems ironic but I don’t think it is hard to explain. Many business owners, myself included, started out working for a business there was not much control over their life and career. They dreamed about owning a business, running it and growing it. At some point, they took that leap of faith. Why? These individuals decided it was better to bet on themselves than someone else. That, I believe, is why the survey results show that business owners are confident that they will be successful even if the economy is not strong or conditions not ideal for their product or service.
Look no further than the popular Shark Tank and you will see this play out in many episodes. Time and time again, entrepreneurs are told by the Sharks that their idea is not commercially viable, the business can’t be scaled, the cost of the product is too high and the list goes on. These entrepreneurs don’t get offered a deal. In the post-presentation interviews, individuals often say they will succeed despite what they have been told. Sometimes they are right. Sometimes the Sharks are right. The point is that business owners believe in their businesses which might partially explain the survey results.
Business owners must also be positive about their employees because 57 percent of the companies increased employee compensation over the last 12 months. This is an indication that small business owners understand that employees, often much fewer in number than larger firms, are critical to the success of their company. And, let’s face it, it costs a lot to recruit and train new employees.
But the news was not all good. Many small businesses still report issues with access to financing. Cybersecurity is also a constant problem. NSBA found that, “attacks cost small businesses on average $7,115.26. For those firms whose business banking accounts were hacked, the average losses were $32, 020.56”
Perhaps the biggest takeaway for me was that 58 percent of those surveyed believe that the economy will be flat over the next twelve months. So where do I stand on all of this? I agree with this assessment but…. I am still really positive about the future of my business! Call me an optimist. To read all of the NSBA survey results, follow this link.
I am not much for resolutions. But, in the spirit of the New Year I would like to offer one that makes a lot of sense for small business owners. First, here is a little history. Over many years small business owners have been working to get some certainty about tax credits and deductions. Some will know this as “tax extenders” others might know Section 179 expensing. Essentially, small business owners have been working to try and get Congress to make some of the provisions permanent or to at least get multi-year extensions.
When I spoke before the Small Business Subcommittee in March of 2015 I talked about the economic outlook and challenges that small businesses like mine face. I specifically mentioned how important it is for my company to deduct the cost of the asset in the year that we purchase it, especially since technological equipment (video cameras, lights, etc.) needs updating sooner than the 5 to 7 years that it is required to be depreciated over.
Business is hard enough and when you add in uncertainty it is difficult to plan. Many business owners I know were waiting, literally until the last minute to see what was happening before making buying decisions. That meant a “shopping spree” in the last few days of the year. Talk about stress at the holidays! I talked about this very thing to a reporter from the Associated Press who interviewed a number of sources across the country. It’s worth a read. http://bigstory.ap.org/article/a3645e8ce6c241e89be02841ffe1c427/small-bu…
The good news is that all that has changed. In December, right before the Christmas holiday, small business owners got a nice present from Congress. It approved legislation and made some of the tax extenders permanent. It was part of a bi-partisan deal and you can find out more about it at www.nsba.net or Protecting Americans from Tax Hikes (PATH) Act of 2015.
So what is the resolution? I think a great one is to use this present wisely. For the first time in many years small business owners, like me, can take a more thoughtful approach to buying decisions. We can look at investing in our businesses with a long-term lens. To get started, I would like to share a couple of the strategies I have employed that might be useful.
Don’t make buying decisions in a vacuum. Business owners should work with those on the front lines to determine what the organization really needs. In my company, I regularly sit down with my videographers and editors to find out what they want. I ask them to do the research on the products and make recommendations. I encourage them to do their own cost/benefit analysis. After they make recommendations I review them and make the final decision. This gets everyone thinking like an owner. Sometimes, they decide we do not need a specific piece of equipment other times they say it is imperative that we do an upgrade.
Don’t just look at cost. Too often business owners look at the price tag instead of the value that a purchase can offer. Does the purchase make your operation more efficient? Will it improve your security? Help differentiate your organization from the competition?
Consult your advisors. While the tax consequences may guide your buying decisions, they should not be the only consideration. Get the full picture and then make the best decision based on the information.
The bottom line is this. Lots of people worked really hard to get this legislation passed. Make a resolution to take advantage of the win and move your business forward in 2016.
I am not talking about holiday shopping. I am talking about “shopping” for your business. Last year, I like many individuals waited, and waited and waited for word about the expired tax extenders. Just in the nick of time, tax extenders were approved. Of course by that time many did not have time to shop.
This year, it seemed like there would be a replay of the scenario, kind of like that movie “Ground Hog Day” where the same thing keeps happening over and over again. I decided not to get caught up in the replay and began researching what equipment we would need over the summer. In the fall, I put in a new server, bought new computers, upgraded our firewall and bought necessary equipment. People asked why I was doing that not knowing if Section 179 expensing would make purchases a little less painful. It was simple. I could not wait to invest in the equipment that would keep my business competitive. We are constantly buying or updating equipment and the out-of-pocket expense is significant but it is also necessary.
Other business owners I know have taken a wait and see attitude as is evidenced by this Associated Press article. http://www.bigstory.ap.org/content/joyce-m-rosenberg For many the decision to invest is tied heavily to tax regulations. In my position as the Vice Chair of Advocacy for NSBA, I have received countless calls the past few weeks from business owners who are ready to open up their checkbooks.
Today there was good news about the Protecting American from Tax Hikes (PATH) Act of 2025. This is a potential bi-partisan deal that would make some tax extenders permanent and provide multi-year extensions for others. This is still subject to approval in the House and Senate but it is going to be taken up in the next few days. Hopefully, they will get it done before they leave for the holidays. If you want to learn more about this go to http://www.nsba.biz/?p=10565
Assuming that this passes, I believe it is a game changer for small business. To begin, I think it will help us return to the days when people actually did plan. We can be more thoughtful over a number of years about what we do rather than reacting to what might be attractive in the short term. It will encourage investment in our businesses and the tools and equipment our employees need to be successful.
The bill also has provision for extending the research and experimentation credit. The strength of small business is its ability to think creatively and innovate. In my home state of Michigan, companies that are now well-known started as small businesses. Among them are Ford Motor Company, Gerber Baby food and Herman Miller. By providing this credit we encourage the up and coming small businesses to follow suit. So is it time to start shopping? I hope so and we all need to stay tuned.
When comes to what is important to small business different sources come up with different answers. They are all valid, just different. When the National Small Business Association asked small business owners about the number one concern the response was taxes followed by access to capital. Seems reasonable and having just returned from NSBA’s Washington Presentation I heard a lot about tax reform, specifically that small business owners are concerned that they will be left behind if reform does not include a solution for the millions of pass through small businesses. http://www.nsba.biz/?s=corporate+tax+reform+pdf&x=10&y=3
But there’s also growing body of research that shows that small business owners are more concerned about getting and keeping clients. According to an article in eMarketer, “Spring 2015 research by Ebiquity for American Express looked at a different list of priorities and here, keeping current business and revenue sources was the No. 1 company priority cited by US SBOs, at 38%, followed by growing the business (34%).”
In a study by Constant Contact, one of the most recognized email marketing solutions, two-thirds of small business owners reported that finding customer was their biggest concern. This is followed, not surprisingly, by retaining existing customers.
So what is the reality? I think that small business owners have lots of concerns and what they report as the top concern may be affected by who is asking the question, how it is asked and the timing of the survey. But, the bottom line is this. I see a theme here. The major concerns expressed by small business centers around our two greatest stressors; time and money!
When it comes to taxes it is not just the taxes. Nearly one in three small business owners report spending more than $10,000 per year on the administration of federal taxes. Not to mention the time it takes us to fill out reports and work with accountants. It’s that time and money thing.
The same is true for finding and keeping clients. The costs associated with sales marketing programs can vary widely. The time that you spend trying to develop a relationship with potential customers can be significant. If they don’t end up working with you all that time and money goes to waste.
While digital marketing is played up as important and it is, most small businesses find the most effective methods are the old fashioned ones. Word of mouth and networking top the list. This is certainly true for my company. Most of our large customers have found us through other customers. When you are recommended it is a huge step toward getting and keeping that new client.
So to end where I began, what’s important? EVERYTHING. As a small business owner you need to keep your eye on every aspect of the business and understand that at different times, different concerns will bubble to the top.
It’s almost April 15th. In fact it’s right around the corner so it should be no surprise that many small business owners are thinking about taxes. OK, let me be even more blunt- owners are dreading the thought of taxes because in takes time and money!
Here’s a couple of interesting statistics. According to NSBA, which today released its 2015 Taxation Survey, 1-in-4 small businesses spend more than $10,000 per year on administration alone of federal taxes. And, more than 1-in-5 spend 120 hours or more on federal taxes.
Time and again, I hear from my small business clients and suppliers about their desire to have a more simplified approach to complying with federal regulations and their paperwork requirements. Yet, more often than not, small-business owners find themselves buried under mountains of paperwork. Most small business owners are not tax or, for that matter, accounting experts. We are experts at running our businesses. That’s why we need to rely on outside resources. In fact, 85% of small businesses pay an external accountant to handle taxes. If you are lucky, and smart, you have a good accountant. So while they are doing your taxes you can spend more time helping customers, hiring new employees and expanding your business.
If you want to know more about what fellow small business owners report as the top issues facing their organizations, check out this survey. You’ll see you are not alone.
Once every two years a committed, vocal group of small business owners gather at the Small Business Congress presented by the National Small Business Association to help set priorities for advocacy. This year the conference was held in Phoenix and it lived up to its promise to bring together the true voice of small business. Those who attended from across the country had the chance to listen to leading policy experts from across the country about some of the issues that we all face every day. The topics included some of the ones you would expect; health care reform, the deficit and the state of small business. One very hot topic was cybersecurity. The sessions helped to frame what is likely going to be ahead in the 114th Session of Congress.
What I found most interesting were the sessions that debated the key issues and crafting of NSBA’s policy agenda. They fell into four big buckets- Taxation, Economic Development, Environmental and Regulatory, and Health and Human services. I recently became the Vice Chair for Advocacy for NSBA so I found myself scurrying in and out of all the sessions to try and get a flavor for what was top of mind for these business owners. The truth is that there are so many issues that setting an agenda required some “rules.” We asked the participants to try and set aside their own personal agendas and think about this from the broader perspective of all small businesses. We asked them to consider if this was an issue specific to small business or one where the small business perspective could add value to a broader conversation. We also asked them if the issue would affect the overall small business community.
At the end of the four sessions, participants had to pick their top three issues from the larger list that was debated. These went to the full group and then there was a vote to pick the Top 10. I won’t go into the results. You can read about them here. http://www.nsba.biz/?p=9297
What I will say is that I was so impressed with the quality of the discussion. Small business owners want to be engaged in the National conversation and they do their homework. If you want to do a little of your own homework on the issues spend some time on the survey results. It is likely to be a very busy year in DC and we all need to stay current.
Do you ever feel like you are on a treadmill dealing with the same concerns year after year? I do when it comes to small business issues. First a little background. In 2012, members of the National Small Business Association (NSBA) met in Washington, DC for the Small Business Congress to discuss an agenda for the 113th Congress. There were more than 30 different issues that were debated and the group settled on the Top 10. As the 114th Congress gets underway, I decided to take look back to get some perspective.
Here is the Top 10 list from the previous Congress as stated in the NSBA report.
1. Deficit Reduction through Tax, Spending and Entitlement Reform
NSBA urges policymakers to pursue economically responsible deficit reduction which includes entitlement and spending reform, and supports a simpler, fairer tax system that embraces NSBA’s principles: simplicity, fairness, transparency and predictability.
2. Reduce Health Care Costs
Health care costs must be reduced and health care access improved by empowering consumers, increasing competition based on price and quality, and limiting medical liability.
3. PPACA Implementation
Clear and timely regulations are needed to implement the Patient Protection and Affordable Care Act, especially Health Insurance Exchanges.
4. Small Business Contracting
Improve small-business federal and commercial contracting opportunities, including SBIR commercialization, prompt payment issues, and other relevant matters.
5. Fundamental Tax Reform: The Fair Tax
The U.S. tax code is broken and requires broad reform such as the Fair Tax—a national, 23 percent sales tax—to institute fairness and common sense, and eliminate overwhelming complexity.
6. Access to Risk-Based Capital
Increase and improve access to risk-based capital for small businesses, including support for the Export-Import Bank, crowdfunding, credit union lending, and other alternative sources of capital.
7. Regulatory Reform & Paperwork Reduction
Small businesses need relief from the massive federal regulatory burden through proposals such as establishing a National Regulatory Budget and requiring a cost-benefit analysis of new regulations.
8. Family and Medical Leave Act
Oppose expansion of the Family and Medical Leave Act which would increase small businesses’ burden and represent unnecessary government intrusion regarding how to compensate employees
9. National Conference on Small Business
Work with a broad coalition of partners to create a National Conference on Small Business to address and promote long-term economic growth for America’s small-business community.
10. Expand Section 179 Expensing
NSBA urges Congress to permanently expand annual Section 179 expensing limits to at least $500,000, which will help small-business cash flow as well as provide broader economic benefits through investments.
It does not take much study to see that little progress was made although in December 2014 Congress did approve legislation extending the $500,000 Section 179 limit and the $2 million overall investment limit for tax year 2014.
In February, NSBA will once again hold its Small Business Congress in Phoenix. There will be advocacy discussions and small business seminars. http://www.nsba.biz/sbc/
I believe tax reform, the deficit and healthcare will continue to be issues. But, I look forward to meeting and hearing from small business owners around the country about their top priorities. When the voting is done, it will help craft NSBA’s agenda and I’ll be sure to share the results.
The news has been terrible for years so small business owners are hungry for some good news. They got it. In a recently released survey by the National Small Business Association (NSBA), there was a sense of confidence that finally things might be on the upswing. If you want to check out the whole report here is a link http://nsba.biz/docs/Mid-Year-Economic-Report-2014.pdf
If you just want the highlights here’s just a sampling of the results.
When asked to compare today’s economy with five years ago, 50 percent say it’s better—the highest it’s been in six years. If the business is doing well, then employees benefit. According to the survey employees are faring better. 3-in-4 small firms either increased employee compensation in the last year, or plan to do so in the coming year. Half of those surveyed also said that they had added new employees. This is a very good sign. There has been so much uncertainty that employers, myself included, have been hesitant to hire. No one wants to spend the time and money to add staff and train them only to have to cut back when business takes a dip.
The full report goes on to detail other positives for small business but it also highlights some very serious concerns. One of the biggest is inflation. We all hear about the inflation rate but it is easy to get lulled into denial when we hear the rate went up 2% during the last 12 months. It is quite another thing to see the numbers over time. I was doing some searching and found an inflation calculator. http://www.bls.gov/data/inflation_calculator.htm
It was interesting to do some research. For example, if you bought a $20 item in 2000 it would cost $27.67 in 2014. That is a 38.4% increase. That is just one item. My business is very equipment intensive so when you add up all the purchases in a year the inflation rate has a significant effect. Couple concern over inflation with the fear of rising interest rates and the economic picture is not quite as positive as one might think from the survey results. Still small business owners are resilient and forward thinking. Many of us know that we simply cannot sit still and wait for the economy to continue to improve. We need to invest to keep growing.
The NSBA Survey stated, “When asked about growth strategies planned for the coming year, 43 percent said they plan to employ new advertising and marketing strategies and just under one-third said they will expand internet and e-commerce operations.”
That confidence will be important as we finish off 2014