Source: A trend has been sweeping across the American landscape – the disappearance of small, family owned, individually owned and operated “Main Street Businesses.” Small business is the economic driver of the economy, the known provider for the majority of local jobs and the main consumer of wholesale goods. Here, we will take a look at major factors influencing this trend and some steps which we can adopt to assist in reversing it.
America faces a number of serious issues as it looks to turn around its economy, job growth and infrastructure, while simultaneously tackling a number of social and moral concerns. One of the country’s most valuable assets to economic recovery, local and regional job growth, and the creation of new innovation is the family owned small business. However, in today’s hostile geo-political climate, it is getting far too difficult for a small business to survive. Why is this happening and who’s to blame? It is we who decide with our consumer dollars the fate of the economic health of our local communities. Ultimately we are to blame for this issue that now plagues our community. The responsibility falls on each of us to change our consumer habits and ideals in order to reverse this trend. We vote with our dollars on how our Main Streets will be shaped, and the view today is dismal.
Small businesses face a number of challenges right from inception, which makes one think twice about wanting to own their own business. The amount of local and state regulations that a small business must follow, chews at the working capital and the amount of profit a business will be afforded, even before the business rings the cash register. Instead of embracing small business as a well worthy community asset, civil agencies with police powers have honed in their focus on penalizing businesses for the slightest infractions as a way to increase revenue for local and state government. This occurs where such agencies and governing bodies have lost tax revenue as populations have relocated for lower cost and greener pastures. Our nation needs every small business it gets, yet some penalties in controlled industries could potentially be so severe that a business would never recover the loss and be forced to shutter its doors.
Fees incurred to register a business will take a huge bite out of any initial investment. Obtaining building permits for construction and the cost of numerous inspections which often include high-salaried professionals are needed to maneuver through the complicated rules of local and state planning and zoning laws. Oftentimes, these necessary evils are overlooked when creating a new business investment budget by folks planning to start a brick and mortar business location. Overruns in legal fees can jump to tens of thousands of dollars if a business chooses to locate in a town that desires to not foster a business community. Yearly inspections, updates to state statutes and local ordinances, and ever changing regulations force small businesses to retain legal counsel on a regular basis.
Employee-employer relations are one of the largest risks with liability for a small business. The local store owner must spend valuable time in training staff – usually training the new hire themselves. They must hire folks at a pay scale that will be advantageous to the business’s economic health and within the allowance of that business’s available cash flow. Local businesses are limited to the initial talent they can hire based on the available dollars within that business dedicated to payroll. Small businesses also struggle to retain talent when long term staff looks to earn more money or desire more perks beyond the paycheck.
One of the costliest benefits for a small business to provide is health care. Most small businesses only hire part time employees because they cannot afford to offer additional benefits to full time staffers. In the profession of business consulting, I have observed a number of clients; ones who owned small businesses. They lost key employees to competitors because they could not afford to offer more financial compensation and/or benefits to their employees.
Small businesses also face an unfair disadvantage of limited economic buying power. Most small businesses are limited on the amount of cash they can dedicate toward inventory. Those that are dependent on product based cash flow, such as a local variety store or hardware store, only have so many dollars available to spend on purchasing inventory. These businesses are limited in where they can store said inventory. Small businesses are not purchasing large volumes of goods to resell relative to say a chain store that may be able to purchase a specific product for a number of stores. The result is that they do not get the same volume breaks as a big box retailer. This factor will have an effect on the overall price a small business can retail a product for to its customers.
Small business owners face a very burdensome and complicated tax code which impacts the business’s ability to expand and grow. Many of America’s small family owned Main Street businesses are either sole proprietorship, limited liability company (LLC) or an S-Corporation. All of these business structures are pass-through companies, meaning that the profits and or losses of the business, as well as all taxes due (including payroll and sales tax) are ultimately the responsibility of the business owner. In the event the owner’s business does very well, the additional net profits are then reflected on the personal taxes of the business owner. In a household where the business owner’s spouse might also work and is successful financially in their career, it automatically pushes both earners into a higher tax bracket. Thus, the business owner must pay more taxes; money the business owner may have set aside toward either hiring more help or expanding the business’s product or service offerings. Most small business owners do not have the resources to hire a team of professionals to help limit tax liabilities; nor do they have the buying power of a major corporation with which to negotiate such things as payroll taxes and/or property tax incentives.
Local family owned businesses individually do not have the lobbying power to influence local legislation. Many are required to pay for memberships to trade organizations and/or business advocacy groups that will fight on their behalf on issues that affect the business’s ability to operate. Most large corporations have consultants standing by which are employed to lobby full time for legislation that benefits the corporation’s business model while also placing additional restrictions or regulatory burdens on small business.
As consumers, we have not made it easier for a small business to thrive. Much of their survival and success are dependent on the relationships created within the local community it calls home. A small business will usually support local causes and events important to the local demographic/geographic area in hopes to maintain positive relationships with potential customers. Because small businesses don’t have the buying power of a big box retailer, the prices for goods or services will be slightly higher than the larger chain retailer.
Understandably, consumers have put aside the importance of having a healthy relationship with the local store owner in order to save a few bucks on products or services needed. Getting the most for our money on groceries seems like a responsible act. Yet as consumers we fail to realize the long term effect these decisions have on those seeking to earn an income in our own neighborhood. We have come to expect the bigger, better deal for less, without thinking about the consequences our buying decisions may have when we choose not to purchase our needs locally. This frame of mind for the consumer will ultimately create an economic ripple that will reach right back into their own homes.
In making a decision to purchase products “locally” I do mean from an independently owned family owned and operated business. A big box retailer located minutes from your home is not considered buying local. When we purchase goods and services from a local family owned business, that business usually will keep its revenue within the community, instead of sending profits to some large corporate entity located elsewhere.
The local small business generally provides a balance of choice in products and brands for consumers. Regional product brands get their start by offering new innovation via the local merchant. You will find in many locally owned groceries, is that they will feature local brands and products manufactured locally; brands and products you may not find at large chain retailers. By supporting locally owned businesses, we are also choosing to support local suppliers. Even the quality of the goods that a small business offers is oftentimes much better than the quality of products found at chain discount stores.
Our choice to pay a few cents more for something at a local retailer makes all the difference in how we shape our local Main Street business community. We have to make a vote with our wallets to support local businesses before they all disappear, leaving us with chain store retailers. Many of these local businesses may be operated by a neighbor, friend, or family member. As Main Streets become a ghostly sight across America, know that your spending habits were the vote that decided if your local business would exist or become one of the extinct species that helped build the America we now live in.
Samuel K. Burlum is an investigative reporter who authors articles related to economic development, innovation, green technology, business strategy, and public policy concerns. Burlum is also a career entrepreneur who lends his expertise as a consultant to start-up companies, small businesses, and mid-size enterprises, providing advisement in several areas including strategic business planning, business development, supply chain management, and systems integration. He is also author of The Race to Protect Our Most Important Natural Resource-Water, Main Street Survival Guide for Small Businesses, and Life in the Green Lane-in Pursuit of the American Dream.