Why Hasn’t the Number of Incorporated Self Employed Gone Up?

Earlier this week I saw an interesting post by Scott Shane over at Small Business Trends. In it, he pointed out an interesting trend based on data from the Bureau of Labor Statistics. According to the data, the number of incorporated self-employed individuals was 4 percent lower in September of this year than it was in June 2009.

Why Hasn't the Number of Incorporated Self Employed Gone Up?

While the actual number of incorporated self-employed (ie those who work for themselves in corporate entities) represents a relatively small percentage of entrepreneurial activity and an even smaller part of the American workforce (unincorporated self employed make up about 6 percent of the labor force versus incorporated self employed at only 3.5 percent), the stagnant growth seems puzzling.

After all, several economic indicators and respected reports, such as the Small Business Economic Trends report conducted by the NFIB, all point to an improving, expanding economy. Given that the incorporated self employed tend to earn twice as much as the unincorporated, why aren’t more aspiring entrepreneurs being encouraged by the rising sales at existing businesses to start their own ventures?

I think there are several possible explanations:

  • There is less financing available to get these start up businesses up and running. Let’s not forget that small businesses and start ups are still dealing with an extreme credit crunch. For most aspiring entrepreneurs, there are only two main options: rely on personal assets (which have also taken a hit due to the crash in the housing market, rock bottom interest rates, and stagnant wages), or turn to more expensive (and thus more risky) alternative lenders.
  • Fewer personal assets or access to outside financing means that starting up a business these days is a lot more risky than it was prior to the Recession when cash was flowing more freely. Since incorporated self-employed tend to be older and have a family, many may postpone starting a business or avoid working on it in a full time capacity because a business failure could affect their financial stability.
  • Even for all the rosy indicators and reports, the truth is that the economic recovery has been very uneven. Consumer demand is still very weak in important areas such as retail, and that’s likely due to the fact that wages and employment have not recovered anywhere close to their pre-recession levels even as taxes for small business owners and the middle class have gone up.

So, what do you think? Have you or people you know been considering starting your own business, but have held back due to the reasons mentioned above?

Image Credit: Small Business Trends

The NFIB Will “Certify” Candidates As Small Business-Friendly this Election

NFIBThe National Federation of Independent Business (NFIB), has been quite publicly announcing that it will play an active role in the upcoming congressional elections, and this will likely be a warm up for the 2016 presidential vote. According to the NFIB on it’s new website Vote for Main Street, “The 2014 elections are set to serve as a critical referendum on Washington’s ability to restore trust with Main Street businesses and workers.”

In order to determine which candidates really fit the bill as small business advocates, the NFIB has developed a “test” based on the candidates support of the following five key issues:

  1. Requiring Congress to pass a balanced federal budget each fiscal year
  2. Repealing the annual fee on health insurance providers enacted by the Patient Protection and Affordable Care Act (ACA)
  3. Returning to the original definition of a full-time work week to 40 hours, instead of the recently recognized 30 hour work week in the Save American Workers Act
  4. Requiring the federal government to certify that the ACA is not having a negative economic impact on the nation’s small businesses
  5. Enacting “reasonable” limits on the Environmental Protection Agency’s ability to regulate utility plant emissions

Though all of these measures have been introduced in Congress, none of them have made it into law. The NFIB believes that voting these five bills into law will create a significant positive impact on U.S. small businesses and result in the creation of millions of jobs. The organization has stated that it will begin listing a roster of “Small Business Certified” candidates on it’s website as the elections draw closer.

The NFIB has further promised to put some political muscle behind the candidates who pass the test. According to Kent Hoover, Washington Bureau Chief, at The Business Journals, “NFIB will be putting money and manpower behind candidates who pass this test, and telling voters about candidates who fail it. The organization plans to spend more than $1 million on political ads in its “Vote for Main Street” campaign, and some staff and NFIB members will directly work on campaigns as volunteers…”

What do you think? Do you consider the five issues above to be the most pressing for small business owners heading into the 2014 congressional elections?

Senate Rejects Minimum Wage Increase: A Good Move or Political Posturing?

Last week, a bill that would have raised the federal minimum wage from $7.25 to $10.10 failed to pass in the Senate. While many small business groups were quick to applaud the move, the question remains: does this really help the economy or are we once again witnesses to the greatest political show on earth?

SenateMany small business leaders were vocal about their disapproval of the proposed wage increase. In an official statement published shortly before the vote, NFIB Manager of Legislative Affairs Ashley Fingarson claimed that “…lawmakers are targeting the nation’s economic engine – small business owners – with an anti-employer agenda. With increases to health care costs, higher taxes, more costly regulations, and now a dramatic minimum wage increase, small business owners simply can’t afford another excessive government mandate.”

Shortly after the bill was defeated in the Senate, International Franchise Association President and CEO, Steve Caldeira, had this to say:

“We commend the Senate’s decision to reject legislation to drastically raise the minimum wage, and thank the Senators who took a stand to protect our nation’s small business franchise owners. Congress’ own economists at the Congressional Budget Office have said that an increase in the minimum wage would reduce employment, and thankfully enough Senators heeded this dire warning in a sluggish and still fragile economy.”

They make it sound like a catastrophe was averted. But, the reality is that the minimum wage has failed to keep up with inflation for the last four decades. Instead of completely shutting the initiative down, why not make a counter proposal for a more digestible increase to the minimum wage? The Democrats’ proposal may have just been too large in too short a period of time. On the other hand, the Democrats gained massive brownie points by showing Republicans as greedy and out of touch with the people. So, maybe real change wasn’t the goal here. At the end of the day, we’re left with nothing but a few good headlines.

Small Businesses Being Caught in A War of Attrition?

A few days ago, the National Federation of Independent Business (NFIB) released their monthly Small Business Optimism Survey, and it ain’t pretty. Not only has optimism among small business owners taken a nose dive, but growth-building activities such as hiring, making capital outlays, and increasing inventory have seemingly slowed down across the board.

For the past few months the NFIB has reported a modest increase in optimism and with it a slow, but positive increase in growth-building activities. So the obvious question over here is: why is this happening, and perhaps more importantly, why now?

It is interesting to note that looking back at the results of the NFIB survey a year ago, some of the key statistics seem to have hardly changed. Namely, the most important business problem cited by survey respondents in June 2011 was poor sales (24%), followed by taxes (20%). This year, the numbers are 23% and 21% respectively. The only significant change was in the third option: government requirements and red tape, which jumped from 15% a year ago to 19%.

Given that most legislative changes on a federal and state level were initiated at the beginning of the year, again the question remains, why the sudden turn about now?

Aside from all the legislative talk that is going on (and has been going on for some time now) regarding health care, taxes, and credit card reform, perhaps this negative attitude can simply be pinned to the fact that many small business owners find themselves battle weary and stuck in a rut. Right now we are in the height of the summer season. It’s a time when the majority of businesses should either experience a typical, seasonal slowdown in sales, or, if they are a seasonal business, they are in the middle of their peak revenue days. We’re also holding in the middle of the year, the furthest point from New Years, when people tend to have a more hopeful and positive outlook.

If sales have not been good and now sales are even slower for seasonal reasons, or if the potentially lucrative summer season is fizzling (all of which are possible given that unemployment has remained stubbornly high while job creation continues to lag), the concerns weighing on a small business owner’s mind can easily become magnified. Taxes and government regulations become more of a problem when there is less money and resources to tax and regulate. Moreover, attitude can significantly dictate the actions being taken.

So, are the NFIB’s survey results really a cry from recession weary small business owners, or are they reacting to other factors? Only time will tell.

The Biggest Business Mistake?… Borrowing Money!

The other week over at Small Business Trends, I saw an interesting poll. The sole question: “What’s your biggest business mistake?” Though there are various options to choose from, such as “Failing to market my business,” and “Selling myself short,” the overwhelming favorite response (at the time of writing it is holding at 86% of almost 2,000 respondents) is “Borrowing money.”


While this may come as a shock to those who still believe that the banks should be handing out more credit to businesses in order to jump start the economy, several well-regarded reports, such as this recent one by the NFIB, have pointed to the fact that many small business owners these days are not looking for credit, and a significant amount of businesses are actually focused on dumping the balances they’ve already racked up.

But this brings up a dilemma of sorts: part of a healthy cash flow strategy when running a business is having options to borrow, both in the short and long term, and without investment (usually of the borrowed kind), growth will typically be impossible.

So how do you know if it is good for you to be borrowing money for your business? Here are a few questions you can ask yourself to help ensure that your business borrowing doesn’t end up being a business blunder:

1. What are you borrowing the money for? While this may seem like a pretty straight forward question, there are actually certain categories of business borrowing that tend to be more problematic then others. For example, aside from short-term microloans or a revolving line of credit, if you are taking out a significant loan to cover your every day expenses, then it could be a red flag that your borrowing will get you in hot water.

On the other hand, if you are investing the funds in a business upgrade, then can you expect that upgrade to pay for itself in either increased productivity, sales, or market reach?

2. How will you repay the amount borrowed? This all leads to the next question which is how you plan on repaying the loan. Are you currently generating enough income to cover the debt? Do you expect your bottom line to increase as a result of the investment and when? Are you able to secure the loan with some kind of collateral? What would happen if you defaulted on the loan and had to lose that collateral?

3. What is your current debt load? A look at your current debt obligations is also vital to avoiding a business lending mistake. If you are already struggling to repay your business debts, then it could be a signal to avoid taking on an additional financing. If the loan is meant to consolidate your debts, then make sure you get qualified financial advice before jumping in.

4. Are there alternatives? If several red flags are going up, then perhaps you should consider any alternatives, such as cost-reduction strategies, or asset-based financing arrangements, such as accounts receivables financing or business cash advances.

Small Business Owners Still Sporting a Recessionary Mentality

We’re not out of the woods yet… The National Federation of Independent Businesses (NFIB) recently reported that its quarterly Index of Small Business Optimism fell 0.6 points in December to 92.6, closing off the 36th consecutive month of a recessionary reading.


Of the small businesses surveyed, sluggish sales continue to be a primary concern, and the resulting drop in revenue has hampered hiring as well as capital expenditures. Here is a brief rundown of the findings in these three key areas.

On Sales and Inventories:
Though there was a slight uptick in overall consumer spending in the last quarter, most small businesses reported below average sales (36 percent) in the last three months as compared to the previous quarter. Only 18 percent of all owners reported higher sales. In response, many small business owners are liquidating their inventories (23 percent).

On Employment:
With sales leaving much to be desired, job creation has flat lined among those surveyed. Even employment projections for the next three months are paltry: 10 percent plan to increase employment, and 9 percent plan to reduce it, which translates to a seasonally adjusted net 6 percent of owners planning to hire new employees.

On Capital Spending and Outlook:
Like employment, businesses have been holding back on their capital investments. The percentage of those making capital expenditures over the past six months has dropped four points to 47 percent. Of those businesses, 35 percent spent money on new equipment (unchanged), 15 percent purchased vehicles (down four points), 11 percent improved or expanded facilities (down one point), 4 percent acquired new buildings or land for expansion (unchanged) and 8 percent spent money for new fixtures and furniture (down four points).

Even future capital expenditures will be subdued, with only 21 percent of business owners reporting that they plan of making capital outlays over the next few months.

Small Business Owners Still Mired in Recession Mentality

The National Federation of Independent Businesses (NFIB) Index of Small Business Optimism indicates that the recession is still going strong. According to September’s report, small business owners have been pessimistic since January 2008, when the index dropped below 93.

The report examined various factors, including employment, capital spending, sales, earnings, and credit. In most areas, statistics showed minimal upward change. Business owners are clearly suffering because of consumers’ low spending power.

Small business’ employment statistics reflect the current high rate of unemployment. Average employment growth was negative. In addition, 16% of respondents reported plans to reduce their work forces.

In the capital spending arena, the picture is not much rosier. In fact, the frequency of spending on improvements like new equipment and facility expansion is only one point above the 35-year record low. Apparently, business owners don’t feel their businesses are successful enough to justify major investments.

Sales have not fared well either. 34% of small business owners reported reduced sales in the past three months. Many described liquidating inventory, while lacking reason to order new stock.

Inflation has been affecting small businesses, according to the report. There is cost-cutting across the board, creating reduced profits. Profits, vital to expansion, have not been strong. 33% of owners reported that they have increased profits. That number represents a 3 point decrease in business owners reporting profit.

One bright spot in all the gloom is credit. 91% of small business owners are satisfied with the level of credit they receive. While interest rates are low, borrowing is down, because without expansion and capital spending, businesses do not need large influxes of cash.