September 30, 2022

Unitranche

Supportive Business Potential

Small Business’ Number One Problem

New small business owners face a myriad of challenges getting their business ideas up and running. Marketing, securing products, staffing, and establishing processes are just few challenges new owners might have to navigate. However, there is a whole other set of challenges that are often unexpected, the unwelcomed “partnership” with government, federal, state, and local. Likely aware of the tax law, what probably surprised them was the plethora of regulations, compliance costs, licensing, etc. associated with their new firm and location. Just cutting a curb to provide customer access to your parking lot can be a huge headache. Unfamiliar names like OSHA, EPA, FDA and others suddenly demand your attention and compliance with their rules.

Since 1973, NFIB has asked a random sample of its member firms (about 300,000) to identify their top business problem from a list of ten items. Over 195 calendar quarters (48 years), taxes received more votes than any other problem 62% of the time. In second place, inflation (another type of tax of course) ascended to the top spot 16% of the time. Weak sales ranked third with 11%. Credit received a few wins in the early 1980s (2%) and regulations in the 1970s (2%). While regulations rarely filled the top spot, it was often in second position.

But if you take a step back and look at the big, overall picture, the number one problem for small businesses is GOVERNMENT at all levels. Obviously, taxes, regulatory compliance costs, licenses and permits come from government. However, so does inflation. Prices of some things can rise but be offset by declines on other items – unless the economy can find more money. One source is debt, borrow more, spend more, prices rise on average. This is what the government did when it sent checks out to many consumers. But, unless there is a real increase in supply (production), this produces a cycle of rising prices, inflation.

Credit availability and cost (interest rates) was a top problem in just six quarters, primarily in the early 1980s when the Fed was fighting inflation from the 1970s. That’s government as well. Labor quality was the top vote recipient in 7% of the quarters, just in the past few years. Weak sales received the most votes in 21 of the 195 calendar quarters, mostly around the 2008 recession. Government policies were certainly in the mix then, but we’ll give government a pass on that. So, in over 80% of the quarterly surveys since 1973, “government” won the most votes as the #1 problem facing small businesses.

Looking at the “spaghetti” in Chart 2, moving from the left to the right, the peaks for each of the “problems” can be seen. The first is for “inflation” which had a long run of top votes until “credit” (Volcker) took over first place. Taxes then take over as inflation (a tax) fades, with regulations consistently running in second place. “Weak sales” pops up with the recession starting in 2008 and then ““regulations” surge to run even with “taxes” until “labor quality” takes first place in a growing economy, only to be replaced by “inflation” in 2021-22.

Over the entire period, 1973-2022, “taxes” is the big, unfortunate, winner (landing in the top spot 62% of the quarters from 1973 to 2022). But regulatory compliance ran a close second, the government telling owners how to spend their money to accomplish its political objectives. Much of this comes from actions by the many government agencies established to supervise our activities (OSHA, EPA, DOL, HHS, etc.), all administered by unelected officials. The budgets of several of these agencies are larger than the GDP of many countries. The usefulness and performance of these agencies depends on the choices of our elected officials of individuals to run them. Small business owners clearly suffer the consequences of increased government involvement in their business. Government interference equals added costs and time commitments for small business owners, both in short supply in the small business sector.