The Small Business Act of 1953 established the Small Business Administration (SBA) which came into existence on the grounds that small businesses are essential to a free enterprise system. It was the intent of establishing the SBA to “deter the formation of monopolies and the market failures monopolies cause by eliminating competition in the marketplace,” according to the Congressional Research Service. Today there are over 5.6 million employer firms who employ 113 million people with a total payroll of $5.16 trillion. Sixty two percent of these employers have four or fewer employees, 89.8% have fewer than 20 and 98.3% have fewer than one-hundred. The SBA has 1,047 different classifications of businesses. The current definition of small business is companies with not more than $15 million in tangible net worth and not more than $5 million in average net income after federal taxes. Overall, the SBA classifies 97% of all employers as small business. These same small firms represent 30% of our receipts in our economy, which means big business is still 70% of our economy. Back in 1953 when the SBA was established, the split was 34% of all dollar value of all sales was small business and 66% was big business. Not much has really changed over the last 60 years despite all the rules, regulations and the formation of the SBA.
Our country has always been a country of small businesses. In colonial America, 20% of the crops raised and handicraft products made were exported by these small businesses. At the time of our revolution, because of domestic economic growth and exports, Americans had a standard of living higher than most Europeans. Increasing an individual’s standard of living has been the driving factor to open a small business throughout American history. But Gallup just reported that the total number of new business startups and business closures per year, known as “the birth and death rates of American companies,” just crossed for the first time since this measurement began. Annually, 400,000 new businesses are now being born nationwide, while 470,000 are dying each year across the country. This is a trend we must reverse and we need our government’s help to do this.
Sure we can blame it on the recession we have been battling for the last several years, but it is much deeper than that. In addition to new regulations for small businesses in health care reform, an increase in regulatory activity in several industries, and the uncertainty about taxes, several other causes come into play making it hard to open a business today. One reason is there continues to be a shortage of financing alternatives to open a new business. Before the recession entrepreneurs could use the equity in their homes, but in today’s world, how many of us have significant equity in our homes? Another reason is technology, which we think is helping to streamline work and create Internet related businesses, but is also responsible for displacing independent businesses across several verticals. Look at the travel agents who have lost their businesses or the video store, the record store and the bookstore. A third reason is the well-financed big businesses are killing the little guy. Home Depot is pounding the hardware stores, the same thing Best Buy is doing to the electronic stores. Walmart controls close to 50% of some lines of the grocery and general merchandise business, where a generation ago thousands of families made their living selling these goods.
On April 5, 2012 President Obama signed into law the JOBS (Jumpstart Our Business Startups) Act. He said at the time “for start-ups and small businesses, this is a potential game changer. For the first time, ordinary Americans can invest in entrepreneurs they believe in.” This law relaxed regulation for businesses that are emerging growth companies, created a “crowd funding” exemption to allow private companies to raise up to $1M and raised the limit of small offerings from $5M to $50M. It is two years later and nothing in this law is implemented. Anyone close to this new law, such as legislators, practitioners and potential small business owners, have voiced their frustrations with continuing delays in adopting final rules, but to no avail. And we ask ourselves how our government has led us to the tipping point where more businesses close than open.
If the US government, who has good intentions but poor follow through, cannot help small businesses, then who can? The Kauffman Foundation and the Case Foundation created Startup America Partnership, which helps entrepreneurs get their companies off the ground by delivering free or low cost services and connecting them with larger corporations for mentoring. Score is a nonprofit association that helps small businesses succeed by using volunteer mentors who share their knowledge in an effort to give back to their community. At DollarDays, on our Facebook page in April, we are giving away $5,000 worth of products to help small businesses launch or expand, so please nominate a small business in your community that deserves our help.
Every big company started small. Look at Wal-Mart, where even today over 50% of the company is still owned by the Walton family. Or Bill Gates who is still the largest shareholder in Microsoft. We as a country can’t afford more businesses dying than are being born. The government has let us down with sequestration, shutting itself down when we need it the most, battles over healthcare and battles over the debt ceiling and budgets. When they finally pass a law that makes sense like the JOBS Act, they still can’t implement it after two years. All of us need to reach out to our representatives and tell them to get their “act” together. Here is the link to contact Congress. And if they do not react, we need to vote them all out and start again.