The trouble with a small business bailout is deeply rooted in practical logistics. Small business is as diverse and wide spread as the country is. There are something like 25 million small businesses, and 20 million of them have no employees. How does the government help them?
It's time to look at some facts: correct me if I'm wrong, but I've been starting and running businesses for 30 years now, the following feel like simple hard cold facts to me:
What can the government really do?
So when the spokespeople for business groups talk about tax breaks, consider what that really means. First, somebody is going to call that "tax breaks for the rich." Second, it encourages profits rather than reinvestment in growth. Third, if you try to cut taxes on employment, that's tempting, there must be waste there, but start trying to manage that when nobody ever agrees on what's a small business, and 20 million of the 25 million small businesses in this country don't even have employees. See facts #3 and #8 above.
And if the government tries to increase available investment money, that translates to another "tax break for the rich" too. Because the people who invest in small businesses are either the owners themselves, or wealthy people. Personally, I'm a lifelong business owner and entrepreneur, I tend to vote towards liberal, but I think this is one "tax break for the rich" that's going to help create jobs. Make it an incentive to invest, though, not an incentive to make higher profits. See facts #2, #3, #4, #5, #6, and #7. Freeing up credit is a good idea. By the way, we did a survey on the credit crunch here too, and -- no surprise -- it's really hurting small business.
What else can the government do?
I was pretty much thinking that was it, settling down for a long exhale and getting back to work, when I caught John Jantsch -- the Duct Tape Marketing expert -- suggestions on the American Express Open Forum. He calls it What Small Business Needs from the Economic Stimulus Package.
John makes four specific suggestions.
1) Really fund the SBDCs and SCORE and every other group providing education, support and training for small business.
I second that one. I've worked with SBDCs for 15 years now, helping people plan business and start new businesses. They're the best bargain in small business know-how and consulting. And funded by the SBA, state governments, and higher education.
2) Fix the Uncle Louie problem along with the banks - Yes, we need credit and we need banks to survive and start making loans but, Uncle Louie, who's sitting on $500,000 and believes in supporting his niece's crazy big business idea needs a tax credit to make that loan (while we're at it we need bigger credits for investing in our own business)
The rest of us might call that "friends and family" financing. And I agree, that addresses the investment issue that comes up in facts #2, #3, #4, #5, #6, and #7. But it might also end up getting chewed up and spit out by the opposition as a "tax break for the rich." Uncle Louie has half a million stashed away, so he's doing okay. And the other thing we'd have to be careful with is easing up the regulation that keeps the Uncle Louies from getting swindled on bogus investment deals (no offense to his niece).
3) Want to create jobs? - Don't make hiring an employee the most expensive, regulatory nightmare a small business has to go through. Depending upon whom you ask the economic stimulus act is slated to create jobs through spending that will cost between $70,000 and $200,000 per job created. Here's my advice: give ½ of that to a qualified small business and let them create real, fulfilling, and permanent jobs. Any small business owner worth their salt knows how to take a buck and turn it into a buck fifty.
Sounds good to me, but how do we do it? Before the job is created, or after? As a tax break? But taxes are on profits, and the real growth in employment tends to decrease profits. We sacrifice now for later, and invest in growth.
4) Fix health care - I know this is a biggie, and it impacts more than small business, but millions of Americans are trapped in unfulfilling cubicles by the fact that pre-existing health conditions make it impossible for them to escape. Fix this and the surge of entrepreneurial investment and innovation would take on tsunami like characteristics.
Right on, John, I totally agree. Health insurance is normally something the business owner pays, all or part, for employees. It's expensive, and it doesn't work. As an employer, I don't want to not pay for health insurance for my employees ... I just want to have what I pay work to give the employees decent health care. And if it costs my company a bit less, that's not bad either.
And, finally, what do real small businesses think about this?
God only knows. That's a totally diverse group. The best thing I've seen on this is from Dawn Rivers Baker, an expert on microbusiness, when she said:
I find all of this political theatre entertaining, but most microbusinesses don't want all of these details. They want to know specifically what's going to impact their businesses. I find that microbusiness owners care about policy, but they don't want to hear about the politics.
I agree. We're out here in the front lines, watching our spending, watching our sales, trying to stay healthy, trying to grow.
United States Small Business Administration
Insurance... tax credits... incentives... how about just giving a break, in some shape or form, to those who were humming along fine until the last year or so... who are stagnant now because their credit is now very poor. How about offering them credit based on their credit rating then, so they can move forward with investing in their their businesses... buying a new car, purchasing inventory, starting a new business, continuing education... all very stimulative stuff!
So the 4 things to do?
1: Use Social Security for Social Security. I pay double share. Every penny my employee pays I pay too. That's okay. But use it to fund health insurance, unemployment, disability, workman's comp. And lift the cap. Every wage, even those above 100K.
2. Directly fund SBA loans. I've gone through SBA guarantees. What they mean is banks won't loan without the guarantee, and the paperwork's horrific. I'm not Enron. If I default, the taxpayers will get it back. You know where I live.
3. Make the SBA and SCORE useful. File my returns, and stand behind them. They've got time to study tax code; I don't. Tell me what next year's tax code advises me to do, I'll do it or not, but when the IRS wants to talk to somebody, they talk to them, not me.
4. Define small. It must be a single business, whose principals derive the vast bulk of their income from that one business. There are plenty of opportunities to expand as S or C corporations, and good luck and God bless you if you do, but you're no longer a small business.
True small business is the Great American escape valve. It is the engine, it is the innovator, it is the first refuge of the brilliant and the last refuge of the hopeless. It is locked out of equity markets, bond sales, government rescues and group rates. And it doesn't care. It's free.
"fend for their own in this Reagan-inpsired "Social Darwinist", "Hungry-Hungry-Hippos" world of Corporate Socialism"
Hmmm. There's a point here. But what it fails to recognize is that truly "small" business is the foil of Corporate Socialism. It wasn't government anti-trust or Rand Corporation that stopped IBM from monopolizing the personal computers, it was upstart Microsoft.
Software is easier. A good idea, a carton of Skittles and plentiful supplies of Jolt Cola is most of the capital one needs. Manufacturing and retailing is different. You need equipment, inventories, buildings - real things that cost real money.
I'm cautiously hopeful this crash, if left to work its course, might enable that to happen. Small businesses have been locked out for more than three decades - a good return for an honest business is 3-5%, if you pay your bills and honor your contracts. In an economy dominated by the dogma that you can "easily" average 9% just by investing in the stock market, nobody could be bothered to invest in real value. Banks dominated by loan salesmen paid on commission, who then bundled and resold loans, couldn't give a whit about a small business that was frugal, borrowed only what it needed, and paid it back.
It is the small business people who have turned their back on Corporate Socialism. They risk literally everything so they don't have to live in that world. The cure to Enron, to AIG, is allowing truly small business to prosper.
To our company, health care is the big one when we need to hire. I would surely like to see some kind of reform, especially evening out the field for the little guy. To recruit good people, we have to compete with large companies and especially the public sector, both able to furnish more health benefits and retirements for less money. Maybe tax some of the high public/private benefits and that will speed up reform.
We need property and income tax breaks to try and survive this thing. If the businesses that are still open now aren't SAVED, getting new ones to open and take their place will really be tough. And don't even think about card check, unless there is a small business exemption, say 500,,,,,,,,that would be the ultimate private sector job and business killer.
Of the 20 countries attending the G20 next month, 19 are in recession. The one that is not (yet) - Brazil. Brazil did not escape our melt-down - Lehman Bros was a giant in Brazil's economy.
Brazil's 7+% annual growth over the last 6 years has a remarkable foundation. Like most emerging economies Brazil has invested heavily in micro-credit business start-ups. But, over 60% have went on to become small businesses (10+ full-time year-round employees). That is a phenomenal rate of conversion. Consider, if only 10% of our 20 million micro-businesses could add just one employee, half of the jobs lost in this recession would be picked up!
A major key to that high conversion rate has been that during this growth cycle the businesses are virtually exempt from the taxes and regulations that larger companies deal with. The idea is to help those one person companies grow so they can compete with the larger companies. That's a two-fer, it not only creates new employment it keeps larger companies anxiously looking over their shoulder.
Bill Gates commented, "The more money you have, the easier it is to make more money. It should be the other way around".
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Degrees edit Stanford , MBA 1981
Business
University of Oregon, MA 1974
Journalism
University of Notre Dame, BA 1970
Literature
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Tim Berry edit Founder and president of Palo Alto Software, founder of bplans.com, co-founder of Borland International.
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I came from the OTHER economy: My parents were poor, then died and orphaned me. I reinvented from loser-dom, retrained and re-educated at the highest educational level/institution I could afford then my job was sent to India and I can't afford marketing - much less healthcare for my kids but I am a skilled independent consultant barely making it. There are plenty more out there far worse off than me, I know this, I see this and I'm thankful to have what I have but the doors are closing in every direction.
What business advice do you have for people in our economy?
And I appreciate you noting my achievements. That's very nice of you. But If you want to make me and my background prove your case, I don't think that works very well.
I got married as an undergrad, paid the last semester of Notre Dame myself -- well, my wife worked. Then I got the MA myself -- no, my wife worked again, but we didn't have kids. Then worked for $115 a week starting pay at UPI and worked my way up and waved money, and when I got that MBA at Stanford my wife and I had 3 kids so my wife wasn't working outside the home, and so I worked full time and studied full time both to both support my family -- without any help from anybody except my wife -- and pay tuition. I'm very glad I did. And proud.
So my background doesn't prove your point about education being inaccessible.
What advice do I have for small business? Thanks for asking. You can click my name above to see my posts here, or go to http://blog.timberry.com for more.
Forget the SBA, SCORE, etc. I took an SBA course early on, and it was filled with wrong information and a total waste of time.
In case you haven't been paying attention for the past 30 years, - most small businesses went under as a result of perverted Trade rules and U.S. representatives selling our industrial capabilities to countries who mass produce via slave labor and currency manipulation.
This is common knowledge and the analysis is shared by not only 5/6 of the country but also the most respected economists.
Tax cuts, healthcare - blah-blah-blah - All important but you're asking for a sponge in a capsized boat.
If you're interested in actual information, instead of made up stuff called common knowledge, try http://sba.gov.
Stick with your WSJ propaganda and I'll stick with my "Made up stuff"
And let's be honest, both of us, having built up our respective businesses without the government. All business depends on a healthy economy, infrastructure, a minimum set of rules on fraud and theft, taxation, monetary policy, trade policy, and all the rest of it. We owe it to ourselves and our heirs and future generations to have a voice.
THAT'S WHAT THE GOVERNMENT IS SUPPOSED TO DO! I don't know precisely how to change this. Maybe a Value Added Tax. Maybe a direct tax on all wages. But the fact is that after 30 years of providing employment, I will never have an employee again. I've gotten hit with huge liens because Social Security transposed numbers on a W-3 from a dozen years ago. I've got the Ogden office of the IRS trying to give me a refund on W-2s the Cincinnati office is trying to fine me for never having filed. And now people I would otherwise respect want to mandate I pay half as much as total wages to some private bloodsucking health insurance company?
(Indulge me) ENOUGH! I'll repeat. I'm no dittohead. But for God's sake, stop making me my brother's keeper. I'm running a business, not a church.
In any case, if you hire someone you are responsible for them. You have to take care of their well being at work, if nothing else. You are also responsible for correctly filing your documents. I believe it says so on the forms you have to fill out when you start a business. It's not even fine print.
And no, I don't want anybody to work "for free" but that's not the same thing as without health insurance. Without health insurance is how I work, because small businesses are not qualified for any kind of group rate. And it's by no means 150 years late, the idea of employer-based health insurance only emerged in the Second World War when there were wage caps, and it was a way for employers to offer more "money" without violating the caps. Nor is it by any means slavery. People accept employment or not. There is no coercion involved.
But the attitude here is what infuriates me. I am NOT, repeat NOT responsible for the lives of anybody I hire. I am responsible to pay the wage contracted for work performed. Period. If you want a further "contract" then would you require employees to be equally responsible to me? To promise never to quit, never miss a shift, work without pay if there's no profit that month? Of course not.
You are right about one thing: they're going to decide to take the risk of a new business or not because they believe in the new business; not because of the tax break. What does happen, though, on the aggregate, is that when taxes encourage investment, that's not make or break for any individual new business, but it changes the balance overall and sends more investment money into new business and less into stocks and bonds and such. Which is presumably a good thing, because new business means more jobs.
The truly "self made" small businessmen I know have either been forced out of business or they are being crushed by an carelfully orchestrated, government assisted monopolies looking to place their tax-deferred, foreign-owned empire franchises on every corner.
Because of obsessive greed, elitist cliques and power lust, we can't have a truly Free Market in this country - we're forced into either Socialism or Corpo-Fascism.
if you really want to help small businesses, then do it. or resign and let someone into office who will.