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?