Who Was Really Celebrating National Small Business Week?

Every year since 1963, the President of the United States has proclaimed National Small Business Week to recognize the contributions of small businesses to the economic well-being of America. This year President Barack Obama proclaimed National Small Business Week and in doing so hailed small business owners as the backbone of the nation's economy. Events were held last week in Washington D.C., recognizing and honoring outstanding small businesses from across the country. But notwithstanding the grand festivities, very few small business owners felt like participating in the soiree. Why? Because many don't feel there's much to celebrate.

So what is the general mood and outlook of small business owners? Generally speaking, not good--but it is somewhat of a mixed bag. For the second month in a row, the National Federation of Independent Businesses's small business optimism index dropped. This decline does very little to encourage confidence for a strong economic recovery, which of course we are all hoping will happen.

There are, however, a couple of bright points a Citibank survey found that small businesses are ready to grow their businesses--69% say their business is better or about the same as a year ago, while only 31% said it was worse. And a recent report from Constant Contact found 80 % of small businesses expect to grow their revenues in 2011.

One of the most critical issues small businesses face is the skyrocketing health care costs. Huge increases have forced some small firms to simply cut health care coverage altogether. Only about 59% of small businesses offer health care plans, which is down from 68% in 2000. In fact, 63% of uninsured workers are either self-employed or work for a small company.

The inability to provide health care coverage for employees limits small businesses ability to attract and retain employees. Also, if they do provide coverage it increases the cost of adding additional employees to the payroll. (And by the way, this has been the number one concern for small business for about 20 years now.)

Rising energy costs have really moved up on the list of concerns for small businesses. High energy costs hit small businesses in a variety of ways. First, it increases their costs of operations, and because energy costs are rising quickly, they can't increase their costs fast enough, thereby harming profitability. And second, consumer spending goes down when fuel costs go up.

Taxes are another biggie. Of course, that is an issue for almost everyone. But high tax rates diminish the amount of money the small business owner has to reinvest in his business. So they don't have money to expand, purchase new equipment, develop new products, hire more employees, etc.

Small businesses also bear a disproportionate share of the federal regulatory burden. The cost per employee for firms with fewer than 20 employees is $7,647. That's about 45% higher than larger companies. Environmental and tax compliance regulations appear to be the main culprit for this disparity. Compliance with environmental regulations costs 364% more for small firms vis-à-vis large firms, and the cost of tax compliance is 67% higher in small firms than in large firms.

And yes, access to capital is still a serious concern for small businesses. But there are some indicators that credit sources seem to be opening up. In fact, a lot of lenders say they aren't receiving loan applications. One of the reasons is because many businesses owners simply don't see this as a good time to go into debt. So they are operating within their means--not wanting to take on debt in order to be better prepared to weather another economic downtown should one occur.

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So there you have it: the state of small business. I hope everyone had a good time in Washington DC last week, but as a reality check--the rest of us in the real world are still struggling.