The Death of Small Business
Something I think about quite a bit that gives me frequent indigestion: ‘What is happening to small business across the United States?” The U.S. small business startup rate has been declining for decades. The Kauffman Foundation, referring to its own research and drawing on U.S. Registration (State) information, concluded that the number of small businesses less than a year old had declined (as a percentage of all organizations) by over 40 percent from 1978 to 2012. In other words, small businesses are not the majority they used to be across the U.S. This is something that the academic community is in denial about and there is also disagreement as to what this will ultimately mean to the U.S. economy when this trend continues. What is the tipping point where our business climate has completely shifted from a diversified, fragmented small business economy to a large entity monolithic business climate?
The effect of this will be seismic. “When small and medium-sized businesses are dying faster than they’re being born, so is free enterprise,” writes Jim Clifton, Chairman and CEO of Gallup. “And when free enterprise dies, America dies with it.” For ten years, the number of small businesses closing has exceeded the number of businesses starting. The number of business deaths exceeded births in 2008 for the first time in US history and has gotten worse in the ensuing years. Since 2010, the rate of small business closures has increased.
To contrast, in the 1980s, the number of new businesses exceeded those closing by more than 100,000 every year. Today, 100,000 more businesses die than are started each year. This somber fact goes a long way to explaining the current weak job market. I am afraid the old adage “Two-thirds of all new jobs are created by small businesses” has gone the way of the dinosaur.
The U.S. has indeed become an unfriendly place for small business. Another way to look at this is simple: Large Government is more aligned with large business. After all it is much easier to govern an economy with thousands of large enterprises than it is to govern millions of small businesses. In a dynamic economy, there is ample opportunity to start and have success with a new venture. Try and find an entrepreneur today that will tell you it is easy and fun to start your own business. You may be looking for a while!
What’s behind this decline?
Many so called experts will tell you will that our population is aging, and thus small businesses are just a symptom. Another one I hear all the time is that our country’s “population growth” is declining.
Really, this is your theory?
No, the problem is much simpler to understand. The United States is not a friendly small business environment. The smallest businesses are often held to the same regulation as Exxon Mobil. Yes, that is right, Exxon Mobil! Payroll taxes, Income taxes, Sales taxes, Unemployment taxes, Franchises taxes, etc. Many small businesses are simply ill equipped to deal with such overwhelming regulation. They ultimately get shut down by the IRS or even State taxing authorities due to non-compliance.
Many of the regulations are at the state or local level of government, so you cannot just point your finger at the Federal Government. However, the Federal Government sets the tone and leads the pack. Other government entities follow and that is where we are today. Not all states are the same and are driven by different factors. One thing is constant and that is the view by all government agencies that small businesses should be taxed just the same as the largest corporate enterprise and that is the real problem.
Mr. Cox is Managing Principal with Pendleton Capital Group, Inc. – a factoring and trade financing company headquartered in Houston, TX. PCG provides professional “best practices” Factoring and Trade Financing and other small business services. His office is in Houston, TX, and he can be reached for additional information or consultation at firstname.lastname@example.org or 713-808-9746. The company’s website can be accessed at www.pendletoncapitalgroup.com