March 26, 2023

Economix Blog: The Most Important Problem Facing Small Businesses



Dollars to doughnuts.

For years industry groups have complained that government regulations and taxes were at the root of the weak recovery, but survey data consistently showed that demand was actually far and away the biggest problem. Until recently.

As I note in my article about the gulf in economic optimism between small businesses and large ones, the National Federation of Independent Business surveys its members each month about the “most important problem” facing their business. They have 10 possible answers: taxes, inflation, poor sales, financial and interest rates, costs of labor, government requirements and red tape, competition from large businesses, quality of labor, cost/availability of insurance, and “other.”

Source: National Federation of Independent Business, via Haver Analytics. Shown are selected answers to the question, Source: National Federation of Independent Business, via Haver Analytics. Shown are selected answers to the question, “What is the single most important problem facing your business today?”

Starting in September 2008 (the month Lehman Brothers imploded), “poor sales” claimed the plurality of answers every month for more than three years. But the shares answering “taxes” and “government requirements and red tape” crept up, and since early 2012 have been more or less tied with the “poor sales” group. In fact, the share complaining about government requirements has not been this high since the mid-1990s.

It’s not clear why this is the case. The rise in tax complaints predates the recent marginal income tax and payroll tax hikes. (Maybe state and local taxes are a big concern?)

And red tape is always a pain, but there does not seem to have been a huge burst of new regulations, at least not yet. Some of the main parts of the Affordable Care Act that affect businesses — including the penalty that employers with more than 50 full-timers will pay if they don’t offer health insurance — start in 2014. There’s a lot of confusion about these regulations, though, and many employers who will probably not even be directly affected are still freaking out.

It’s also worth noting, of course, that “poor sales” and almost any other answer are two sides of the same coin: sufficiently strong sales can outweigh just about any burden from taxes, regulations, wage increases or most other costs of doing business.

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You’re the Boss Blog: Higher Taxes? They Make This Owner Want to Hire More Employees

Jed Horovitz, left, with employees: Laura Pedrick for The New York Times Jed Horovitz, left, with employees: “If you’re making money and paying taxes, it’s a good thing.”

The Agenda

How small-business issues are shaping politics and policy.

Beginning in November, just after the election — and a thorough debate over how higher taxes might affect small businesses — we started inviting readers to share the intimate details of their businesses’ financial conditions. We are particularly interested in exploring the relationship between income taxes and investment.

Now, with a “fiscal cliff” deal in place that preserves tax rates for most Americans but raises them for the very wealthy, we present the first of what we hope will be a series of small-business tax profiles — posts that look at how tax policies affect specific businesses. Our first owner, Jed Horovitz, believes — contrary to the claim advanced by many small-business owners — that higher taxes encourage more investment. He made this point in a comment to our October examination of claims Mitt Romney made at the first presidential debate. (We have sought owners with differing view points through such organizations as the National Federation of Independent Business and the S Corporation Association, both of which strongly opposed any income tax increase.)

THE OWNER AND HIS COMPANY Mr. Horovitz, 62, is president and chief executive of Internet Video Archive, which supplies streaming film trailers to the Web sites of 85 clients (including, as it happens, The New York Times). The company employs 19 people and is based in Haddon Heights, N.J., near Philadelphia.

THE FINANCIALS Mr. Horovitz estimates that the company will have $2 million in revenue in 2012. Its biggest expense — or investment — is employee salaries: about $1.1 million, he said, which does not include Mr. Horovitz’s pay. (He said he took his own payment as a draw of profits from the company, which is organized as a limited liability corporation.) To do much of its work, the company uses cloud computing. Storing videos and delivering them to clients in 2012 cost about $200,000. Leased software and other Internet services costs came to $100,000. Given this reliance on Internet-based services, capital expenditures on hardware and owned software was just $50,000. Sales and marketing expenses were $150,000. Rent and other office expenses amounted to $100,000. Insurance and legal costs were $50,000.

Those expenses totaled about $1.75 million in 2012, leaving Internet Video Archive with a taxable income of about $250,000. However, Mr. Horovitz owns the company’s building, so the rent it pays goes to him. And his wife draws a salary as the company’s director of marketing and communications. All told, Mr. Horovitz expects his taxable income will reach $450,000 to $500,000.

THE TAX BITE For the past few years, Mr. Horovitz’s household income has landed him in the top two tax brackets. “My effective rate has been 25 percent,” he said. Using the Tax Policy Center‘s ever-useful Tax Calculator, we can estimate how much federal tax he would pay in 2013, assuming his (and his company’s) financials do not change a lot. If the Horovitzes take a standard deduction off income of $450,000, then according to the Tax Policy Center calculator, they will pay $121,576 under the newly enacted American Taxpayer Relief Act, a few hundred dollars more than if the Bush tax cuts had remained in place. (Even though the tax rates remain the same for the Horovitzes, the new law phases out the personal exemptions for married couples making more than $267,200, which adds nearly $3,000 to the couple’s regular income tax liability. However, with the Bush tax cuts still in place, they would also be subject to the alternative minimum tax, which nearly evens things out.)

If, on the other hand, his household income is $500,000 in 2013, he will pay $140,815, according to the calculator, almost $4,500 more than if the Bush tax cuts had remained in effect. “The marginal difference is not very much, especially as a percent of our expenses or income,” Mr. Horovitz said. “Since my particular bracket is right on the edge of this divide, it isn’t that big a push to make me spend or save. If a business is deeply impacted by a tax rate of a few percent, it has other, more pressing problems!” (In fact, the Horovitzes itemize their deductions, which further reduces their taxable income and would presumably result in lower taxes under either situation produced by the tax calculator.)

As far as tax breaks go, Mr. Horovitz said, “I take what’s available.” But, he added, “I don’t devote too much time to it, in terms of planning ahead. My accountant once said to me, ‘If you’re making money and paying taxes, it’s a good thing.’ You don’t want to waste your life figuring out how not to pay more taxes. Spend your time trying to make more money.”

AND THE IMPACT ON INVESTMENT In Mr. Horovitz’s view, small-business owners are being disingenuous when they claim that higher taxes would discourage further investment in their companies. “It’s true if you wait until the end of the year, and you’re talking about the money that’s been taxed, then of course you have less after taxes. But if you spend it before it’s taxed, it reduces the taxes you pay.

“They’re not really thinking long term, and they’re not thinking sustainably,” he continued. “That’s not a very aggressive way of running a business. It’s a timid way of running a business. And I don’t think it’s what they really do — they’re not timid.”

Mr. Horovitz said that he is eager to expand Internet Video Archive because the company is finally able to take advantage of economies of scale. “We’ve just gotten to a tipping point in the last couple years,” he said. “Because our expenses have really been the same, but our revenues were $1.5 million, or one-and-a-quarter million.” Before 2012, when he drew up a budget, he estimated his pretax income would come to about $300,000. “We grew more than I expected,” he said. “I wish that I had come up with more ways to invest in my company over the year. And as I’m doing the budget for next year, I’m planning on spending more.”

In 2013, Mr. Horovitz plans to spend an additional $100,000 to $200,000. “We’re spending more on marketing travel, to reach out and find new customers,” he said. He plans to hire two additional people — “people who aren’t necessary to service the business I’ve got, but to grow the business.” And, he added, “I’ve given people raises because we grew more than expected and I think part of that is their productivity went up.”

Mr. Horovitz said: “People say higher taxes are a disincentive to investment — yes, if this is your last year in business. But if it’s not your last year in business, it’s an incentive to investment.”

If you’re a business owner and an employer, and you’re willing to talk openly about your finances, your taxes, and your investment plans, we’d like to hear from you. Please e-mail The Agenda and let us know you’re interested.

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155,000 Jobs Added in December; Jobless Rate Is Steady at 7.8%

The job growth, almost exactly equal to the average monthly growth in the last two years, was enough to keep the unemployment rate steady at 7.8 percent, the Labor Department reported on Friday. But it was not enough to put a dent in the backlog of 12.2 million jobless workers, underscoring the challenge facing Washington politicians as they continue to wrestle over how to address the budget deficit.

“Job creation might firm a little bit, but it’s still looking nothing like the typical recovery year we’ve had in deep recessions in the past,” said John Ryding, chief economist at RDQ Economics. “There’s nothing in the deal to do that,” he said, referring to Congress’s Jan. 1 compromise on taxes, “and nothing in this latest jobs report to suggest that. We’re a long way short of the 300,000 job growth that we need.”

If anything, the most visible debt-related options that policy makers are discussing could slow down economic and job growth, which, at its existing pace, would take seven years to reduce the unemployment rate to its prerecession level. The $110 billion in across-the-board federal spending cuts scheduled for March 1, for example, might provoke layoffs by local governments, military contractors and other companies that depend on federal funds.

A showdown over the debt ceiling expected in late February could also damage business confidence, as it did the last time Congress nearly allowed a default on the nation’s debts in August 2011.

“We may be seeing the calm before the storm right now,” said Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors, noting that a recent survey from the National Federation of Independent Business found that alarmingly few small companies planned to hire in the coming months. “Small businesses are wringing their hands in horror at what’s going on in Washington.”

A best case for the economy, many analysts say, would involve a swift and civil Congressional agreement that raised the debt ceiling immediately. It would also address the country’s long-term debt challenges, like Medicare costs, without sudden or draconian fiscal tightening this year.

Given the uncertainty over what Congress will do, estimates of the unemployment rate’s path this year vary wildly. The more optimistic forecasts for the end of 2013 predict that unemployment will fall to just above 7 percent, which would be considerably below its most recent peak of 10 percent in October 2009, but still higher than its prerecession level of 5 percent.

The job gains in December were driven by hiring in health care, food services, construction and manufacturing. The last two industries were probably helped by rebuilding after Hurricane Sandy.

Aside from the wild card of what happens in Washington, some encouraging trends in the economy — including the housing recovery, looser credit for small businesses, a rebound in China and pent-up demand for new automobiles — suggest that businesses have good reason to speed up hiring.

Congress’s last-minute deal to raise taxes this week will offset some of these sources of growth, since higher taxes trim how much money consumers have available each month.

President Obama’s proposals to spend more money on infrastructure projects and other measures intended to spur hiring are fiercely opposed by Republican deficit hawks. The fiscal compromise reached this week did include one modest form of stimulus, though: a one-year renewal of the federal government’s emergency unemployment benefits program. That program allows workers to continue receiving benefits for up to 73 weeks, depending on the unemployment rate in the state where they live, and stimulates economic activity because unemployment benefits are spent almost immediately.

The extension was a tremendous relief to the two million workers who would otherwise have lost their benefits this week.

“We woke up on Wednesday morning and saw the news and just said, ‘Thank God, thank God, thank God,’ and then went out and went food shopping because we knew we had money coming in,” said Gina Shadis, 56, of Newton, N.J.

Both she and her husband, Stephen, were laid off within the last 14 months from jobs they had held for more than a decade: she from a quality assurance manager position at an environmental testing lab, and he as foreman and senior master technician at an auto dealership. They are each receiving $548 a week in federal jobless benefits, or about a quarter of their pay at their most recent jobs.

“It has just been such a traumatic time,” Ms. Shadis said. “You wake up in the morning with shoulders tense and head aching because you didn’t sleep the night before from worrying.”

More than six million workers have exhausted their unemployment benefits since the recession began in December 2007, according to the National Employment Law Project, a labor advocacy group.

Millions of workers are sitting on the sidelines and so are not counted in the tally of unemployed. Some are merely waiting for the job market to improve, and others are trying to invest in new skills to appeal to employers who are already hiring.

“I have a few prospects who say they want me to work for them when I graduate,” said Jordan Douglas, a 24-year-old single mother in Pampa, Tex., who is enrolled in a special program that allows her to receive jobless benefits while attending school full time to become a registered nurse. She receives $792 in benefits every two weeks, a little less than half of what she earned in an administrative position at the nursing home that laid her off last year.

Ms. Douglas calculates that her federal jobless benefits will run out the very last week of nursing school.

“This had to have been a sign from God that I had to do this, since it all worked out so well,” she said.

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You’re the Boss Blog: This Week in Small Business: Free iPads


A weekly roundup of small-business developments.

Your Fiscal Cliff Update: It’s a Snooze

Howard Kurtz thinks the debt talks are a snooze: “For the moment, both sides are merely going through the motions.” Sage’s most recent snapshot shows a strong majority of small-business owners are worried. Two Gallup polls find small businesses pulling back on hiring and capital spending. A campaign to fix the debt enlists 2,500 small-business leaders. The Obama tax plan would be no small deal to small businesses. A cartoon in the New Yorker offers an interesting perspective on the “fiscal cliff.” Mike Shedlock suggests  an “incredibly easy” way to balance the budget without repealing the Affordable Care Act and without raising taxes.

Recession Strategy: Just in Case

Alan Tonelson says we’re not even halfway back from the Great Recession. Jeff Cornwall offers advice for navigating a recession. This article explains how an event-management service, Eventbrite, survived the recession. Grant Cardone says there are five ways for employees to succeed in a bad economy, including, “Assume the economy will not improve”: “You need to make yourself so valuable to your employer that there is no way the company could consider firing you.”

Health Care Update: Progress?

Even as Pennsylvania joins 21 other states in opting out of providing a health insurance exchange, the secretary of health and human services says progress continues. Kim Kardashian’s cat dies.

Apocalypse Watch: Four Days to Go

A newly discovered asteroid almost hit the Earth. And here’s why you shouldn’t be worrying about the fiscal cliff.

The Economy: Did Something Bad Happen Last Month?

The National Federation of Independent Business reports that its small-business confidence index registered one of its lowest readings ever. But David Beckworth thinks that confidence could be restored with the appropriate monetary policy — an explicit, rule-based nominal gross domestic product target. The Federal Reserve plans more bond purchases and sets thresholds on unemployment and inflation. Peter Boockvar has a question for the chairman of the Fed. But here’s my question: How can we be worried about a recession if people are paying $50 for a cup of coffee made from these coffee beans?

The Data: Housing Is Up and Profits Soar, but …

The housing recovery continues, and the apartment and condominium markets remain strong. Retail sales rebound. The American chemical industry is crediting shale gas for a rosy outlook. The National Restaurant Association is predicting a record year ahead — with the possible exception of those restaurants that call their customers “fat” — and the food truck industry is projected to continue its rapid growth. The trade gap widened, however, while wholesalers’ revenues were down (pdf) and inventories up. Jared Bernstein warns that just because profits are soaring, that doesn’t mean everything is fine. And Loren Steffy does not want you to become too excited about gas priced under $3 a gallon. Apple’s “big manufacturing boom” in the United States will bring 200 jobs. This was the scariest chart at last week’s DealBook conference.

Employees: Free iPads

Michigan becomes the 24th right-to-work state. Employees say they love working for these tech companies, and a study finds that employers generally hire people they like. Most participants in another survey said they felt overworked but many find their work-life balance satisfactory. This guy needs to work on his free throws. A company in the Midwest surprises its employees with iPads. Laura Spencer warns freelancers to avoid health hazards like vitamin D deficiency. An $822,000 worker highlights California’s pay issues.

Cash Flow: A Bad Week for Bankers

Rana Foroohar reports on the particularly bad week experienced by the banking industry. But Robert Hof says not to worry, because venture capitalists are doing just fine. Pamela Ryckman reports on a win for small businesses in a bank fraud case. Equipment financing is projected to surpass $740 billion in 2013. Rhonda Abrams suggests buying a business car or van right now. Maya Pillai wants you to invest in paper clips. ADP offers year-end payroll tips. Here are 10 noteworthy Kickstarter projects from 2012.

Management: Stop Whining

Heather Allard shares five ways to set yourself up for success in 2013, and Beth Goodbaum explains how small businesses can reinvent themselves for 2013. These are five leadership lessons you can learn from watching “The Walking Dead.” Paul Morin says stop whining and put your big boy pants on. Lisa Swan says the early bird does not always get the worm. A Web-based small-business connection network introduces a recommendation engine that promises to revolutionize the way small businesses work together. Hillary Reinsberg admits that 2012 wasn’t that great for women in business. Trent Reznor will introduce a music-streaming service.

Marketing: Free Wine!

Here are eight great location-based mobile campaigns from 2012. Christopher Null has some excellent advice about determining whether your small business needs a mobile app. Consider these six steps to improve your Web site’s search engine optimization or this more technical discussion on how to build a faster site. James Chartrand has a special gift for you: free wine! Among Daniel Kehrer’s 20 digital trends that marketers need to know is: “Consumers are hyper-informed. Nearly 90 percent of U.S. Internet users go online to search for information about products and services, and about one in three will post a product review or comment online, and social media plays a critical and growing role.”

Social Media: Best LinkedIn Pages

Etsy sellers can now e-mail their customers. Here are 10 users you should follow on Pinterest. Twenty-three percent of the nation’s top brands have a dedicated customer service handle on Twitter. LinkedIn announces the 12 best LinkedIn company pages of 2012. Justin Fishaw wants you to pay attention to three up-and-coming social media sites.

Around the Country: Colbert for Senate

Twenty percent of North Carolina voters want Stephen Colbert to replace their current senator. New York City introduces an ad campaign to help businesses recovering from Hurricane Sandy while Planet Soho reaches a million customers and forges new partnerships. Chicago’s West Side entrepreneurs get help. Dell’s new Center for Entrepreneurs gives small-business owners access to technology, capital, expertise and resources. A producer and online retailer of ready-to-assemble sofas, chairs and sectionals has been named a top small-business innovator. A January 2013 event in Miami will offer ways for small businesses to grow by using the cloud. A 10-week professional business course for aspiring entrepreneurs who either have an idea for a science business or have already started a business and need a plan to grow is enrolling students in New York. The Small Business Administration introduces new online services to help small businesses grow. Vermont is the healthiest state (again). And imagine seeing this as you’re driving on the Interstate.

Around the World: We Are (Not) No. 1

China is now the world’s top manufacturer and its bank lending rises. But Gordon Chang says “move over Michigan — China is the world’s next rust belt.” Japan’s economy continues to shrink. France’s credit rating is affirmed. German investor confidence jumps to a seven-month high. Russia builds a $4 billion city for entrepreneurs. Iran introduces its own YouTube. A Saudi child uncannily imitates a siren. London’s black cabs will soon be getting free high-speed Wi-Fi hot spots. Android overtakes Apple in Australia. Andrew Whitehead and Thomas Viegas say that Iceland is coming in from the cold. Google avoids $2 billion in global taxes in Bermuda.

Technology: No More Cassettes?

Gmail, Facebook and Tumblr suffer failures. Yahoo revamps its e-mail. Microsoft’s Surface tablet goes retail. Sony discontinues the cassette recorder. I.B.M. announces an optical communication technology for future computing systems that uses light instead of electrical signals to transfer information, allowing large volumes of data to move quickly between computer chips in servers, large data centers and supercomputers. Here are three ways small businesses can leverage big data. Om Malik shares three tech breakthroughs that will help boost our digital and online future. Ron Schenone explains why you should never trust laptop and tablet reviews. Here are the advantages of virtualization. Oh, and by the way: Apple Maps can make you really lost, but Google saves the day for iPhone users.

Tweet of the Week


Facebook was down almost 20 minutes. For some, these were the most productive 20 minutes of the year.

The Week’s Bests

Thursday Bram says there’s a side benefit to hiring an accountant who knows how to sell online: “In addition to getting help from someone who understands how your business functions and may have some ideas for growing it, an accountant who is up to date on technology will be a lot easier to work with. There are accountants out there who still require their clients to burn CDs of their bookkeeping data or, shudder, print out reports on actual paper.”

Bryan Janeczko shares his 2013 start-up trends, including domestic manufacturing: “With the advent of 3-D printing (on-demand manufacturing of basic household plastics and items from buttons to toasters), highly skilled labor, lower production costs, manufacturing in this country is superappealing. Businesses can customize more quickly and can provide superior customer experiences.”

This Week’s Question: Who do you think offers the best insights into small business?

Gene Marks owns the Marks Group, a Bala Cynwyd, Pa., consulting firm that helps clients with customer relationship management. You can follow him on Twitter.

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You’re the Boss Blog: A Business Owner Expects the Worst From Health Insurance Overhaul

The Agenda

How small-business issues are shaping politics and policy.

Kurt Summers: It's about fear.Courtesy of Austin Generator Services Kurt Summers: It’s about fear.

The Supreme Court decision upholding most of the Affordable Care Act came as a blow to Kurt Summers, a small-business owner in Austin, Tex. Soon after the decision was announced, he warned his fellow citizens, through the auspices of The Washington Post, that unless “we elect officials to both Congress and the White House who understand the importance of small business and who will return some sanity to Washington” — and repeal the health law — he will most likely have to postpone his considerable ambitions for his company.

In the short-term, today’s ruling will force me to pause and rethink my immediate hiring, acquisition and expansion plans. In order to plan ahead, I need to know what future costs and regulations I will be facing. With the law intact, I expect the cost of doing business to increase and new regulations to be delivered by a federal government that doesn’t appreciate the daily challenges of running a business.

Like many small companies, our business is largely dependent on the prosperity of larger business; if the economy begins to fail, and if our business customers suffer as a result of this law, the ripple effect will force us to hunker down and perhaps even to let people go.

In our first two profiles of business owners struggling with health care decisions, those owners did not have such strong feelings about the Affordable Care Act — they had hoped they would benefit from it, but they didn’t know much about it. Mr. Summers, our third profile, is obviously in a different situation, and we wanted to understand why.

Mr. Summers is a board member for the National Federation of Independent Business, which brought the lawsuit that the Supreme Court decided. He said he originally wrote his article at the behest of the group, which placed it at The Washington Post. Because the N.F.I.B. wanted to distribute its views the moment the Supreme Court spoke, Mr. Summers also prepared reactions to be published in the even of a split verdict or a decision to strike down the whole law.

As it happens, Mr. Summers owns two businesses. Austin Generator Service, a business that his father started in 1978, sells and maintains back-up generators to institutions like hospitals, government offices and high-rise residential buildings. Several years ago, Mr. Summers opened a side business that rents equipment for testing generators and other power equipment. It is called Loadbanks of America, and it has since become his engine of growth. Together the two companies employ 24 people, he said, up from 14 or 15 in 2008. So far this year, he has hired six new people, with plans to hire at least five more next year.

Mr. Summers offers his employees two insurance plans. Most of them subscribe to a major medical policy with a $3,000 deductible. “When you make the deductible, it’s a hundred percent paid up to — I guess there’s no limit on it now under the new health care law,” he said, alluding to a provision, frequently mentioned by Democrats, that eliminates lifetime caps on benefits. (Annual limits on benefits are banned beginning 2014.) There are, however, co-payments for prescription drugs and doctor visits. The insurance is through United Healthcare, and Mr. Summers said he was satisfied with the choice of doctors. This year, Mr. Summers added a similar plan, but with a $4,000 deductible and a health savings account. He does not offer family coverage.

Whatever its limitations, the insurance Mr. Summers provides has gotten more expensive every year. The company currently pays about 90 percent of the premium cost, and “we’ve increased that contribution every year to cover most of the cost increases that we’ve seen over the last three years,” he said. This year the company is paying about $3,360 per employee. Still, that would make this a relatively inexpensive plan, to judge by the most recent Kaiser Family Foundation survey of employer-sponsored health care, which reports that the average high-deductible plan in the South cost $4,862 in 2012.

But at one point Mr. Summers and his father actually dropped health insurance, because “the premiums exceeded our profits.” Five or six years ago, about the time he got into the load bank business, Mr. Summers concluded that he needed to cover himself and his employees, not only to protect the company should he need medical care but also to lure the talent needed to expand.

And he has big plans for the load bank business. His two companies have already outgrown a 5,000-square-foot storage building bought in 2010; in three years, he’d like to build a 20,000-square-foot facility. He would also like to establish branch offices and supply depots in four to six major cities around the country and hire people to staff them. “Assuming the economy doesn’t tank, and we don’t put the brakes on, we do anticipate being in the 50- to 100-employee range in the next three to five years,” he said. The total investment over five years, in land, people, and inventory could range from $5 million to $10 million.

In his commentary, Mr. Summers wrote that he expected “the cost of doing business to increase,” but in conversation he was reluctant to be pinned down on the new costs he’d face. He said his insurance agent had told him that the consumer protections in the law — such as removing those caps on reimbursed medical expenses — were at least partly responsible for his higher insurance premiums. (“You cannot provide free services and not pay for it,” he said.) But he also acknowledged that it was difficult to gauge the law’s direct effects on his business two years before its main provisions would take effect.

Mr. Summers was more comfortable discussing the health care law’s implications for the broader economy than the direct effect on his own business. We talked at length about why he fears his customers could retrench in the wake of the law’s execution — and how his suppliers might pass on their increased costs to him, raising his costs as his revenue is squeezed. But it turns out that in a long conversation, Mr. Summers’s thinking about the law and its effects is a bit more nuanced. He deployed many ifs and coulds. When pressed to explain why he presumed business — that of his customers and his suppliers — would react so negatively to the health care law, he tempered his pessimism.

“I hope I’m not saying that I’m presuming that is going to happen,” he said. “I think it could happen, and by nature of that possibility, I simply have to be cautious.” Mr. Summers also said that he would be closely monitoring the economy and customer demand irrespective of the health care law’s fate, and he would adjust his plans as circumstances warranted.

The Agenda suggested that his customers and suppliers were unlikely to be any better than he at predicting how the law might affect their companies. He conceded this, and a few minutes later offered an explanation for what seems to be a pervasive sense of gloom in the small-business economy.

“When you talk about an economy that’s sluggish,” he said, “you’re really talking about people keeping their money, people not spending their dollars. And it’s been proven over and over again that the reason people don’t spend their dollars is an emotional decision — it’s fear.

“We could look at this very practically and with statistics and facts, but even if we could prove that the impact of the law was minimal, the emotion of the impact is still there. And what’s fueling that emotion? Well, maybe it’s misinformation, but maybe it’s also just plain and simple uncertainty. Maybe it’s the reality that I’m sitting at my desk with payroll and expenses wondering, ‘What are my customers thinking?’”

The elements of the law intended to help small businesses did not impress Mr. Summers. The wages he pays are too high to qualify for the small-business health tax credit. His firm did receive a small rebate on its insurance premiums made possible by the law, but Mr. Summers dismissed the check as “something stupid” — less than $200.

“It just created another administrative task for my people,” he said. “It was ridiculous.”

As always, we’d like to hear from you. If you have an interesting story to tell about how you provide health care for your employees, please drop us a line.

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Applications for Jobless Claims Fall 11%

“Businesses have increased hiring to meet the underlying pick-up in demand,” said Neil Dutta, an economist at Bank of America Merrill Lynch.

Weekly applications for unemployment benefits dropped to a seasonally adjusted 372,000 last week, the Labor Department said Thursday. That was 11 percent lower than the same time last year.

Much of the decline occurred this fall. Applications had fluctuated sharply over the first nine months of 2011, falling as low as 375,000 and rising as high as 478,000. By early September, they were at 432,000 — only 5,000 below where they began the year.

Since then, applications have declined steadily. That has pushed the four-week average, which smoothes fluctuations, to 373,250 — the lowest level since June 2008.

When applications drop below 375,000 — consistently — they generally signal that hiring was strong enough to reduce the unemployment rate.

ADP, which processes payroll data, said private employers added 325,000 jobs last month.

Service firms, which employ roughly 90 percent of the work force, grew a little faster in December, according to the Institute for Supply Management.

The trade group of purchasing managers said its index of nonmanufacturing activity rose to 52.6. That’s slightly above November’s reading of 52 — the lowest in nearly two years — but well below last year’s high of 59.7 recorded in February. Any reading above 50 indicates expansion.

An increase in new orders and stronger imports drove last month’s modest expansion. But a gauge of hiring showed many service firms were hesitant to add workers.

Small businesses remain encouraged about their plans to hire over the next three months. The National Federation of Independent Business said the proportion of those firms that expect to add workers was slightly off from the three-year high hit last month.

Economists are predicting that overall hiring increased in December and will strengthen this year.

John Ryding, an economist at RDQ Economics, forecasts that employers added 180,000 jobs last month, a big jump from November’s 120,000 net jobs.

Economists surveyed by The Associated Press project that the economy will generate an average of 175,000 jobs a month this year. That would be a step up from average monthly gains of 130,000 last year and 78,000 in 2010.

In November, the unemployment rate fell to 8.6 percent from 9 percent. Still, about half that decline occurred because many of the unemployed gave up looking for work. When people stop looking for a job, they’re no longer counted as unemployed.

The pickup in hiring reflected some modest improvement in the economy. Growth will probably top 3 percent at an annual rate in the final three months of last year, economists expect. That would be a sharp improvement over the 1.8 percent growth in the July-September quarter.

Even so, many economists forecast that growth may slow to roughly 2 percent this year. Europe could fall into recession because of its financial troubles. And without more jobs and higher incomes, consumers may have to cut back on spending. That could drag on growth in 2012.

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Economix Blog: Small Businesses Plan to Increase Hiring



Dollars to doughnuts.

Some good news in the job market: Small businesses plan to increase hiring, according to the latest report from the National Federation of Independent Business.

The organization — an industry group for small and medium-size businesses — conducts a survey each month on subjects like optimism, credit conditions and jobs. November’s survey showed that the net share of companies that were planning to hire workers was at its highest in 38 months. The share is well below where it has been in previous recoveries, but is an improvement nonetheless.

DESCRIPTIONSource: National Federation of Independent Business, via Haver Analytics

What’s more, the net percentage of companies that say they have already increased their employment in the last three months — that is, the percent saying they increased their staff minus the percent saying they decreased it — was positive for the first time in nearly four years.

DESCRIPTIONSource: National Federation of Independent Business, via Haver Analytics

For a while, small businesses seemed to be lagging big companies. Perhaps even the country’s smaller employers are finally starting to enjoy the feeble recovery.

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You’re the Boss: This Week in Small Business: How to Sell Out


What’s affecting me, my clients and other small-business owners this week.

CONFIDENCE FALLS, EXCEPT ON WALL STREET Confidence among small businesses falls to an eight-month low in May, dampened by a deteriorating outlook for sales and hiring, according to a National Federation of Independent Business survey. Gallup also says economic confidence plunged. Builder confidence declines, too. An economist says there’s a 99 percent chance of recession in the United States by next year. The director of the Congressional Budget Office says there’s a great deal of pain ahead, but he’s “heartened by the fact that households have de-leveraged, businesses are sitting on cash, and anything that increases individual and business confidence could prompt new spending.” Seventy-seven percent of venture capital executives are optimistic about their industry. Calculated Risk says the slowdown may be temporary. One analyst says a stock market rally is about to happen. Jeff Reeves, an investor, offers 11 reasons stocks will surge soon.

WORKER INCOME COLLAPSES Jobless claims and housing starts are better than expected. Retail sales fall in May, but Scott Grannis says they remain strong. Industrial production edges up. (Just checking: are you really paying attention?) The Southern California housing market continues to disappoint. Consumer and producer prices rise slightly. Cargo traffic in Los Angeles is up. Residential remodeling increases. But our workers’ share of national income is collapsing. The Philadelphia Fed’s index of manufacturing activity is down.

GLOBAL TRENDS TO WATCH Ernst Young reports six global trends are shaping business strategy. A few well known academics explain why American management rules the world. A desire for United States passports is the trend in China. The Dalai Lama isn’t laughing. Greece teeters. A new survey lists five countries women should avoid.

TO STIMULATE OR NOT Ben S. Bernanke warns that we must raise the debt ceiling, but the parties are still a trillion dollars apart on a budget deal. A Seeking Alpha blogger explains where are all the QE2 money went. President Obama courts executives on jobs and proposes a high-tech training plan. Morgan Stanley offers proof that the United States is already solving its debt crisis. Jared Bernstein, a fellow at the Center on Budget and Policy Priorities, offers our leaders some dos and don’ts. For example: “As federal stimulus fades and states continue to face budget constraints, we mustn’t allow policies that are boosting demand to fade too soon.” John Mason reports that business lending appears to be getting stronger, but Scott Shane says small businesses are still finding it hard to get loans.

TIME FOR THAT DIET? writes about Ididwork, a free tool for remote employees to track their time. A new study from the Guardian Life Small Business Research Institute reports those born after 1982 are 100 percent more likely to sell their businesses than older entrepreneurs. I like this info graphic explaining how games can help your enterprise. A study finds that skinny women and overweight men earn the most. Daniel Radcliffe shows us how to succeed in business. A few academics teach us a few tricks to tell if someone’s lying. Wisconsin’s Supreme Court backs the governor’s collective bargaining position. American students don’t know much American history.

RED TAPE Susan Dickenson asks retailers if they were able to claim the new small-business health care tax credit for 2010. Four senators urge the Federal Reserve to crack down on the marketing of business credit cards, but overwhelmed regulators give the financial industry a reprieve. Congressman Sam Graves wants the government to stop withholding small-business payments: “Imagine you own a business that puts a new roof on the local high school. After you do the work, the school pays only 97 percent of what it owes you. Why? On the off-chance you may not pay your federal taxes.” Obama’s top regulator cozies up to business. The Postal Service is trying to cut back to five days. The Democratic National Committee’s chairwoman says Mr. Obama has signed bills with 17 small-business tax cuts (and a fact-checker agrees).

PRIORITIES, PRIORITIES The city of Dallas is busy inspecting small-business signs while two crazy dudes run wild through its airport!

TOP TEN LISTS suggests 10 videos every entrepreneur should watch. Betty White shares her top 10 tips for living a happy life. Jason Del Rey shares 29 things he thinks he learned at one of those small-business summits. DailyCandy’s 2011 Start Small, Go Big Contest is accepting entries. Sunsweet is daring us to eat prunes.

SMALL-BUSINESS TECH UPDATES Before you move to the cloud, you might want to check out this chart. Google makes a $280 million solar investment. This guy thinks Skype could be Microsoft’s best acquisition ever. And Office 2010 is Microsoft’s fastest-selling version to date. Pandora goes public. Here are eight easy steps for creating a scanned signature for your e-mail. A small-business technology expert shares five essential business apps. Maybe it’s me, but there’s no way a dummy is buying this Dummies book. Beware of a new “mass-meshing” attack on small-business Web sites. The United States Senate’s Web site is hacked.

MIRACLE-GRO LIKES WEED Sub-Saharan Africa is booming. A food storage company and crematorium may be joining forces in Minnesota. Atlanta small-business owners get a new opportunity to offer input on growth and profitability. Miracle-Gro and others see big bucks in marijuana. Chicago is determined not to lose its trade show business.

GETTING STARTED Start-ups make their pitches in Boston, and more cities are scheduled. A freelance writer lists nine free programs that help you build a side business. Des Traynor poses some interesting questions for a would-be start-up, such as “How are you going to delight your users? How are you going to engage them, make them advocates, make them loyal? Are you creating passionate users?” A 15-year-old starts and sells his company. OfficeMax’s founder says entrepreneurs must rule their start-up like a benevolent dictator. An angel investor says patent reform could stifle start-ups.

FACEBOOK DECLINES Facebook reports traffic drops in the United States and Canada, but PCMag says Facebook users are spending more time than ever on the site: “People visiting Facebook are actually visiting 40 percent more pages per visit than they were just three months ago.” Which is yet another dumb thing about being in your twenties.

MCDONALD’S LEARNS A LESSON Writer Kathryn Hawkins offers tips for building a better customer survey. Example: “Provide an incentive. Very few customers will take the time to fill out a survey form without the promise of a reward.” A marketing expert says that branding for small businesses is a luxury: “Many small businesses tend to try to mimic the branding efforts of large corporations, and it’s simply not possible.” McDonald’s racist sign hoax reminds us that the Internet never forgets. A new tool shortens URLs while advertising your business.

THE WEEK AHEAD Summer officially begins Tuesday, which is also when we’ll probably hear how bad existing home sales were in May. On Wednesday Mr. Bernanke speaks to the press. Thursday brings unemployment claims and new home sales. Corporate profits from the first quarter are finalized on Friday.


REASON TO NOT THINK POSITIVE A Blogger explains why positive thinking can be counterproductive: “I’m 45. I’m 5-foot-8. It doesn’t matter how much positive thinking I do, I will NEVER play professional basketball. I can be super positive all year long, and I’ll never get picked. Too old, too small. I can use positive thinking tactics to think that I will write a New York Times bestseller but it will never happen unless I start to do the actual writing. And this is where positive action comes in.”

REASON NOT TO MAKE A PLAN Matt Krautstrunk lists his five worst tips for entrepreneurs, including my favorite: “Anybody who tells you that you need a business plan either doesn’t understand the competitive landscape or is ‘old school.’ Nowadays, business plans are used primarily for attracting investors, and often fail to account for changing external factors.”

ADVICE FOR SELLING OUT James Altucher shares nine important things to remember if you want to sell your start-up. I like: “Prepare a year in advance. The first company that I sold (in 1998) I started meeting with all the ad agencies about a year in advance of selling. I wasn’t ready then (I would’ve sold then but I was too small) so I kept everyone in the loop with monthly updates. And lunches or breakfasts every three months just to update on the business in general. By the time I was finally ready to sell we had four or five instant offers.”

THIS WEEK’S QUESTION Do you have an exit plan for your business?

Gene Marks owns the Marks Group, a Bala Cynwyd, Pa., consulting firm that helps clients with customer relationship management. You can follow him on Twitter.

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Economix: Another Bad Sign for Hiring

Small businesses have ratcheted down their plans for hiring, according to a report from the National Federation of Independent Business.

Each month the federation releases results from a survey of questions about small business optimism. One question asks whether businesses plan to increase or decrease the number of employees working for them in the coming three months. Economy-watchers can then calculate a “net hiring” figure by subtracting the percentage of companies that say they plan to decrease their work forces from the percentage of companies that say they plan to increase their work forces.

In May, there were more companies that planned to decrease their payrolls than those planning to increase them. This was the first time since September that net hiring plans were negative:

DESCRIPTIONSource: National Federation of Independent Business, via Haver Analytics Note: Figures are seasonally adjusted.

This net hiring index was only barely negative — the number of companies planning to hire minus the number planning to reduce their payroll amounted to negative 1 — and so may have been within the margin of error. But even so, this indicator has been trending downward all year.

That’s a bad sign, especially since this measure is by definition forward-looking. Bill Dunkelberg, the chief economist for the N.F.I.B., says that this question has in the past been a reliable predictor of how many jobs companies actually added.

On the bright side, he said that the companies with the strongest hiring plans are the ones that had been holding out on hiring, and so far have had some of the weakest employment gains. The top two industries in net expected hiring were nonprofessional services and construction. The third best was manufacturing, which had been on a hiring roll for a while but then lost workers on net in May.

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