American businesses pass on to the American people $1.1 trillion in costs of complying with federal regulations. This is more cost per U.S. household than the cost of health insurance.
Smaller businesses bear the heaviest load of the cost of business regulations. They spend four and a half times as much per employee to comply with environmental regulations, and 67 percent more per employee on tax compliance than big businesses do.
This is data recently released by the Office of Advocacy of the Small Business Administration. The Office of Advocacy has been trying for decades to get many of these regulations modified for small businesses—all to no avail to date.
Yet, small businesses—with fewer than 500 employees—are truly the backbone of U.S. Industry. Here are some little known facts about the importance of small businesses in America:
- Represent 99.7 percent of all employer firms.
- Employ half of all private sector employees.
- Pay nearly 45 percent of total U.S. private payroll.
- Have generated 60 to 80 percent of net new jobs annually over the past decade.
- Made up 97 percent of all identified exporters.
- Hire 40 percent of high tech workers (scientists, engineers, and computer workers).
- Produce 13 times more patents per employee than large patenting firms, and these patents are twice as likely as large firm patents to be among the one percent most cited.
(The Office of Advocacy of the Small Business Administration also recently published this information.)
So, in spite of all the challenges thrown at small businesses…by government agencies and private institutions alike…small businesses have remained the backbone of America’s Free Enterprise system.
Now, with the economy in the tank, our small businesses are in even greater jeopardy. Let us not allow the politicians to build the barriers any higher.
Of the 21 million non-farm small businesses in the U.S., 53 percent of them are home based. Unfortunately, these small businesses fall under most of the same tax requirements and regulations as the large corporations. That is why taking tax deductions for having your office in your home is so complex. Many of us do not even bother with this deduction any longer. The Office of Advocacy of the Small Business Administration states that, tax compliance is 67 percent more burdensome for the smallest businesses compared to their larger competitors.
Now, Senator Olympia Snowe (R-ME) has introduced a bill in the Senate to simplify home office deductions: “Home Office Deduction Simplification and Improvement Act of 2008” (S.3371), and Representative Charles Gonzalez (D-TX) has introduced companion legislation (H.R. 7074) in the House.
The issue of onerous tax regulations on small businesses has been debated for many years. I attended my first conference on this issue over 20 years ago, and little has been done—by either political party— since then.
If you have a small home-based business, I would highly recommend that you look at S.3371 and H.R. 7074. If you think they would benefit your tax situation, drop an email to your respective Senators and Representative encouraging passage.
There has been quite a bit of chatter on the Internet lately about Michael Gerber’s book, The E-Myth Revisited. In his book, Gerber proclaims that unless you have employees, you are NOT an entrepreneur. Without hiring employees, you are merely a “technician” doing what you always did. He goes on to say, “The purpose of going into business is to get free of a job so you can create jobs for other people.” This should come as shocking news to the 21.1 million non-employee businesses (70% of the total) in the U.S. (not to mention the world).
No, I do not believe Gerber’s premise for a second. Dozens of blogs and web sites offer definitions of what an entrepreneur is. There are also multiple dictionaries with definitions of the title, entrepreneur. They all say pretty much the same thing. Here is a compilation of those definitions:
An entrepreneur is a person who organizes and operates a business, usually with considerable initiative, while taking on greater than normal financial risks in order to do so.
Michael offers a very good approach for growing a business by hiring employees, but I think he does a real disservice to the majority of small business owners who do not want to take on employees, or do not intend to grow beyond a certain point. These are the same businesses that pump a trillion dollars a year into the United States GDP. I can’t imagine what the world contribution is.
Being an entrepreneur is hard work and takes a lot of time, passion, money, and intestinal fortitude to become a successful businessperson. I believe every shop owner; every market vendor, every home-based business owner, and every non-employee business owner in the world fulfills the above definition and deserves to be called “Entrepreneur.”