Not All Businesses Are in Recovery Mode

Alden Wicker
Posted

small businessesIf you’ve been anywhere near Wall Street in the past couple of weeks, you might have heard the exuberant “ding ding ding ding!” of the stock market pushing past previous records. Large businesses are recovering nicely, it seems.

But on Main Street, all you might hear are doors shutting. According to Forbes, small businesses are still struggling through their own recession, even while big business profits soar. Just consider some of these sobering statistics:

  • The number of startup jobs per 1,000 Americans is 30% lower than during the Bush and Clinton eras.
  • The number of startups in 2011 was lower than in 1994, when the economy, workforce and population were all smaller.
  • Fewer than 8% of U.S. companies are less than six years old. In the early 1980s, after another recession, young businesses made up 12% and 13% of the U.S. economy.

And many small business aren’t optimistic about improvement. Gallup polls show one in five small firms expects to drop their employee count, one in three expect to decrease capital spending and nearly one in three project they’ll be struggling more with cash flow by the end of the year.

Why This Is Worrying

While it’s good that large businesses are recovering—and hence improving the economy—small businesses have traditionally filled the role of job creator. According to McKinsey, if after the recession the rate of startup formation had gone back up to 2007 levels (in other words, recovered the way many corporations have), we would have 2.5 million additional jobs.

Why Are Small Businesses Struggling?

Forbes attributes the lag in small business recovery to several factors. First, Obamacare and rising premium prices have deeply scared and shaken small businesses, who are less able to weather price increases. With tiny businesses often doing their taxes through the individual owner, higher income taxes in California, New York, Massachusetts, Minnesota and Illinois are hitting sole proprietorships hard. Community banks, which typically focus on local businesses, have declined or been sucked up into national banks. Finally, consumer spending is still low.

Forbes also claims that the administration’s weak tax reform, handouts for renewable energy and general closeness with business leaders have largely benefited corporations instead of small, sole proprietorships.

Tell us: Are you a small business owner? What has your experience been?