Government Could Point Way for SBOs

Historically, small business owners (SBO) have proven to be a fairly resilient bunch. However, this perseverance has been severely tested in recent years by the Great Recession and subsequent tepid economic recovery. Against this backdrop, President Obama and Congressional leaders engaged in a highly publicized and partisan debt ceiling debate that based on the stock market’s initial reaction did little to improve the economic situation. The impact of the market’s wild gyrations on consumers’ confidence continues to cause indecision, even though larger corporations hold record levels of cash. The University of Michigan’s Consumer Sentiment Index preliminary report for August 2011 was 54.9, a decline from July 2011’s final number of 63.7. Clearly consumers remain very uncertain about the country’s short-term prospects.

SBOs are typically the catalyst for growth, but they cannot do it alone. Rather than political posturing, SBOs are looking to the government for help on two fronts to address their concerns. First, help small businesses by driving demand for their products and services, either by providing consumers with incentives or by government spending. Second, SBOs need help to get access to capital to operate their businesses. Ideally, help will come in the form of a more permanent solution rather than a one-time fix. In the past, temporary solutions such as tax holidays or a one-time check have not been nearly as effective as permanent tax cuts.

The results from the August SurePayroll Small Business Scorecard reaffirms the SBO mindset in term of what they would like to see in terms of government direction, as the following suggestions generated the most support:   

• Find ways to open access to capital for their businesses: Without access to capital, SBOs’ hands are tied in terms of investing in their operations, whether it is in the form of product development, infrastructure improvements or hiring additional staff.
• Cut taxes for businesses: If profitable operations are allowed to keep more of their profits, it will provide them an easily accessible source of capital. It is worth noting that having profits is not synonymous with positive cash flow. Without some form of tax relief, SBOs may be forced to pull cash out of their business at a time when they can least afford it, just to pay taxes.
• Cut taxes to individuals: If consumers have more cash in hand, they are more likely to spend it which would ultimately generate more demand for SBOs’ products and services. Also, a sizable percentage of SBOs are set up as S Corps, which means they are also taxed on their individual returns. Ideally, lowering personal tax rates would work in similar fashion as the business tax cut.

Until some of these issues are addressed, SBOs may remain cautious with their spending. I have no doubt that the economy will eventually improve, but no one can say for certain when that will be. At times like these, survival is the number one priority. The good news is SBOs that make it through this challenging time will be well-positioned to leverage the lessons learned to return to growth mode once the inevitable economic recovery is in full swing.

Do you agree with our SurePayroll customers’ suggestions?  Please comment on what you think our government should be doing to get the economy growing again?  

Economy in Reverse

For the last several months I’ve talked about our economy being in neutral and teetering on the brink of improvement or downturn. With results in for the July SurePayroll Small Business Scorecard in hand, I feel comfortable (but certainly not good) now declaring that we are out of neutral and sliding into reverse.

National Data

Small business hiring decreased 10 basis points from last month – the tenth month in a row of declining or flat hiring. That brings us to a year-to-date decrease in hiring of 2.4%. Average wages paid by small businesses also slipped, declining 20 basis points from last month. We’re now at a year-to-date decrease of 0.3%.

Metropolitan Statistical Area Data

Last month, SurePayroll began publishing data at the metropolitan level for the 35 largest metropolitan statistical areas (MSAs). Our intention is to allow small business owners who fail and succeed according to a more local economy to get a better idea of how their market is faring.

There are certainly positive stories in these numbers. For example, Orlando, Greensboro and St. Louis show strong year-to-date growth in hiring and pay, and continue on a positive growth trend in July. But overall the trend isn’t good. Month over month, more states had hiring and pay fall versus had them rise.

Small Business Owner Sentiment

However, none of the data slid deeper than Small Business Optimism, which has plummeted from 67% of business owners saying they feel optimistic about the economy in June to 47% in July.

That kind of sentiment is no surprise considering the roller coaster of a ride we’ve all taken this month as we’ve waited for the government to get on the same page – or at least sign the same page – regarding the debt ceiling. By this point, most people have seen the devastating effects that uncertainty takes on the economy.  I don’t think anyone was more uncertain over the past few years as they have been over the past week.

But now that gridlock seems to be ending and we’re pretty sure we’ll have an answer about which direction we’re taking as it relates to our debt, maybe the economy’s back-pedaling will be slowed. In the meantime, I advise small business owners to plan for an economy driving in reverse, most likely longer than we’d all like. Hire only when absolutely necessary. Invest cautiously. And curtail spending…at least until the indicators point you act otherwise. While this perpetuates a cycle of a slow-to-recover economy, surviving this economy with healthy revenues is your number one goal.