When governments impose regulations on small businesses that drive up the cost of doing business, it’s like imposing a tax. Google’s dictionary defines tax as “A compulsory contribution to state revenue, levied by the government on workers’ income and business profits or added to the cost of some goods, services, and transactions.”
And when those regulations hit small businesses hardest, it’s like imposing a tax on small businesses. That’s why whenever small businesses are polled, such as by Gallup, business owners regularly put regulatory burdens at or near the top of concerns. And it’s not just business owners’ perception. As Professor Scott Shane has pointed out in the past here on Small Business Trends, researchers and even World Bank studies have shown that regulations adversely impact small businesses, in four ways:
- Regulatory compliance puts a disproportionately large burden on small companies because they don’t have as much revenue to spread the costs over, as do large firms.
- Regulations make small businesses less competitive against foreign competition.
- Regulations add uncertainty, which keeps small businesses from investing in capital purchases, services and hiring.
- New regulations add complexity and often have unintended consequences.
The following new infographic from the Chamber of Commerce website illustrates just how regulations impact small businesses:
Click for larger image of Small Business Tax Infographic
Notice that the cost per employee of complying with regulations is $10,585 for small businesses with fewer than 20 employees, but only $7,755 for larger companies. Almost 90% of businesses in the United States have under 20 employees, so that means the vast majority of businesses are affected adversely — with small businesses paying over 36% more per employee.
According to Tyler Shears, an executive with ChamberofCommerce.com: “We created this infographic to raise awareness of an issue important to us and millions of other small businesses. We are a small business ourselves and we serve small businesses. The business owners we hear from who are in the trenches competing, devote their life savings to developing innovative products and services, hiring more staff, and growing a business for the benefit of family, employees and community. So we were concerned to see how regulations and compliance hit small firms harder.”
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Great infographic and great point. Too few of our elected officials truly understand the situation of a small business owner (and don’t try because small businesses don’t write huge re-election donation checks). The government needs to get out of the way of small businesses more than they need to create new agencies and more programs to help them.
Robert, I agree. Unfortunately, our lawmakers try to justify their existence by passing new laws, which in turn beget new and bigger government agencies, which in turn beget more regulations and compliance burdens.
I wish there were an index to rate legislators and government agencies based on how few new laws they passed …. 🙂
I think starting and running a small business should be required of anyone running for public office. We have too many lifetime politicians who have never worked in the private sector.
Anita, following on from your point about lawmakers try to justify their existence by passing new laws etc I think this is indicative of a strong action bias within government; where change for the sake of change and unfocused (often frenetic) activity is an easier path to take than critically evaluating the effectiveness of current regulations. The government’s focus needs to be on improving the effectivenss of the existing regulation and removing unnecessary regulation.
I wish there were an index to rate legislators and government agencies based on how few new laws they passed ….