"The most significant threat to our national security is our debt," Admiral Michael Mullen, Chairman, Joint Chiefs of Staff, August 27,2010

Tuesday, December 14, 2010

Small Business Owner Speaks

TheFundamentals is presenting this interview to provide first hand input from an individual who has run his own business and who has dealt with the issues that face most small business owners as they compete for clients and revenue; try their best to be good employers and good community citizens as well as successful business operators.

We preface the interview with the following facts and reference: According to the government, 50% of private sector jobs are contained within companies that employ less than 500 employees. In 2006, 60 million people worked for companies with less than 500 employees and 60 million worked for companies with 500 or more employees. Source: http://www.sba.gov/advo/research/rs359tot.pdf   That is a remarkable statistic. But here is an even more compelling fact about jobs and business size: between 1993 and 2009, 65% of the net new private sector jobs in the United States took place in businesses with fewer than 500 employees.

TF: Sir, thank you for agreeing to this interview. Were you aware of the significant impact of you and your fellow small business owners (SBO) in creating jobs?

SBO: You’re welcome. I was not. I knew that we were a factor but I was not aware of that level of importance. I wish, I hope, that more will learn about those statistics.

TF: We imagine that many small businesses have many fewer employees than 500 but they still provide many families with paychecks and insurance coverage and retirement plans.

SBO: Absolutely. We’re one of ‘em.

TF: How would you characterize the climate in America to positively promote small business?

SBO: Not good. I can only speak for the locale where we are located which is a Midwestern state. Small companies must be encouraged, supported and not encumbered with costs, taxes, fees, rules and regulations. We cannot afford to deal with the staff costs, the administration and paperwork, legal fees and lawyers going over rules and regulations, accountant and tax fees and the management time required to attend to these activities. I spend a lot of time on these matters. I am always worried about a law suit. The amount we pay to the state for unemployment insurance is a great concern. Health care costs are overwhelming. Most small companies cannot pay for all the burdens of an aggressive government setting policies and demands on their incomes and their management time and limited resources.

TF: Why don’t you move to a state with more favorable conditions?

SBO: I live here. My family is here. Most small companies are not mobile. We locate where we live. What happens is that small businesses will tend to thrive in a state that favors a pro small business climate and limits taxes, fees, rules and regulations and not thrive in another state that burdens small business with taxes, fees, rules and regulations? I guess I could move but I don’t really want to. And this state is not that much worse than others.

TF: What are the characteristics of small businesses that make it in the public interest to promote them?

SBO: Great question. First the employment numbers you just quoted. Also, smaller companies maintain fairly close relations with their customers. Customers know who to call if there is a problem or if something needs to be solved or expedited. Much more so than with large companies. How do we know this to be true? Think about your own situation. Think about when you deal with a small company like the local plumber or HVAC company and compare that experience to a call to the phone company or the cable company. Compare dealing with a local automobile repair shop with the large car dealer. Think about going to the neighborhood restaurant and compare that with a visit to a nationwide chain. Think about the continuity of employees; the likelihood of direct contact with another human; the telephone experience; the lower costs; the satisfaction of a job well done at a reasonable cost. We offer a lot.

TF: What’s it like to be a small business owner. Are you on the golf course a lot?

SBO: What’s a golf course? Let me tell you something. I’m involved in every aspect of the business. Clients and customers; with the creation and quality of the products and service we offer; with the client training and maintenance of the products and with the training of the staff. I have a couple of key employees I depend on but I know if something is working or not working. If an employee is performing or not performing. If the product or service has a quality problem. I don’t hold a lot of meetings or set up many committees. I know how much it costs to add an employee and how much the non productive cost for social security, Medicare, unemployment insurance; workmen’s compensation insurance; lawsuit exposure; IRA or 401k retirement program costs and medical premiums will be. I know this stuff cold. See how many large business managers know this. I worry about if we are vulnerable to law suits from disgruntled employees and what it will cost us if we have to let a poor performing employee go. All these factors influence the decision making of the small business owner. I worry all the time. I live with these matters 24/7.

TF: Do you make a lot of money?

SBO: On an hourly basis? I wonder if I am even getting paid the minimum wage. Seriously, I pay myself a salary at the same amount as the maximum amount for social security contributions. Any profits made by the business also go on my personal return because we file as an S corporation. So, I pay taxes on my salary and then pay increased marginal taxes on any profits made by their company. If these tax rates are 30 or 40% of the company’s profits, say we make $150,000.00, that means that $45,000 to $60,000 of the company’s profits that could be invested in the company or used to hire a new employee are not available. My company is growing. Profits that go to pay for taxes and all this other stuff are lost forever. I would put the money back in the business. That is the big drawback to high tax rates on the profits of growing small companies. The owners know this simple fact just as they know all the costs of their businesses. I don’t want to borrow from the bank to make up for the tax payments because they will want liens on my home and all other personal assets. I don’t want my family to risk losing our home.

TF: How do all these factors affect your decision to hire new employees?

SBO: One of the biggest encumbrances on growing small companies and their ability to hire new employees is the financial drain caused by increased costs for taxes, fees, social security, Medicare, numerous legal exposures, unemployment insurance, workmen’s compensation and retirement plan costs. I cannot emphasize this enough. Talk to other business owners. Growing small businesses need relief from these government decreed burdens to thrive. That relief has not been forthcoming from either the federal government or many state and local governments in the United States. That is simply why small business is not generating jobs. We need them to back off. It costs too much to add employees and there is too much risk.

TF: Thank you.

SBO: You’re welcome.

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