Want Small Business to Start Hiring Again? Here's How.

Small business has traditionally been the driver of employment growth for more than thirty years. When small business people hire, the economy grows. Large business also hires, but spends significant sums on equipment and downsizing the workforce at every opportunity. Large businesses have also outsourced large portions of thier workforce to other countries.

In the United States we are suffering the slowest employment growth out of a recession since the 1982 recession. The expected driver of job growth, small business, is absent so far in the anemic recovery. Several imoediments discourage small business from hiring, preventing a real economic recovery from taking hold.

As I work with small business owners daily, I see recurrent facts that hold them back from hiring. I also reflect on my own businesses and what keeps me from hiring additional staff. In this post I want to share my finding what needs to happen for business owners to commit to the large expense of additional employees. If we are all lucky, someone in government will read this and take the "real" steps needed to spark hiring, and hence, economic growth. By understanding how the business owner thinks, it will better position you to get a job if you are looking for one.

Costs: Hiring additional employees is expensive and employers are reluctant to commit to the heavy burden if they are uncertain about the future. In my office it costs around $75,000 in wages and benefits to hire one full-time employee. Throw in another $5,000 to $10,000 in expense to find a qualified employee, train them, run background checks, and get them registered with the IRS before they can file one tax return. This does not include the expense of sifting through all the applications, resumes, and interviews.

Once an employee is hired more expenses follow fast and furious. Employers pay Worker's Comp insurance, unemployment insurance federal and state, FICA taxes, and benefits. Unless you are in the accounting field you have a larger bill at the accountant for the additional payroll processing.

Costs are a major concern of employers, but not an overriding factor. If the employer thinks their investment in training a new employee will be profitable for an extended period of time they hire.  When the horizon is clouded, employers hold back, sometimes even turning down new accounts to avoid the added overhead of more employees. The cloudy horizon is the main reason small businesses are holding off on hiring more staff. As I will discuss later, rugulation and gavernment manipulation cloud the horizon, forcing potential employers to wait and see before hiring.

In my small tax office my business clients have hired more people over the last three years. However, these business would have hired more if things were more clear. A common conversation with business clients is on how business is going. Without exception, every business client I have has seen an increase in business activity. Most of these employers are delaying as long as possible any additional employment. Uncertainties in taxation, regulation, and givernment manipulation make the decision to hire a difficult one. Laying off a new employee just finishing training is a massive waste of resources.

Taxation: Taxes play a large roll in business decisions. The continued threat of taxing S corporations and large tax law changes around Christmas each year make tax planning more a guessing game than planning. Taxing S corporations would double taxes for most small businesses. Even a micro business could see their taxes increase $5,000 or more if this change is enacted. Most employers can not afford that kind of tax increase and additional employees. Until Congress and The White House make it clear this will not happen jobs will grow slow in the small business sector. This one tax law change could lead to 10% or more of all small businesses closing. Probably more. Most businesses do not have the ability to survive that kind of bady blow financially.

Small business needs a plan. When Congress waits until the last second to pass a tax law each year, business is forced to make decisions based on guessing what the tax code will read come January 1. When Congress waits to clarrify the tax environment, employers wait to hire. Small tweeks are one thing, but massive changes to the Code each year are getting old. When I know what I owe the IRS, I'll decide if I can afford another employee. Until then, regardless of need, no new hires. And most other businesses feel the same whether they say it in so many words or not. They feel the stress and will take steps are self-preservation. What else would you expect.

The tax code has also become overwhelming and burdensome. Taxes touch every part of the employers life. You can get a credit for hiring people, but few know about it. Employers also know that once the credit is gone the expenses still remain, so we need clarity before we commit, regardless of the candy Congress dangles in front of us.

I joke in my office that 29 years ago I started a tax business. Then I became the welfare office with all the new credits from child tax credit to the earned income credit. Now I will also become the Social Services building with the new health care bill working its way into the economy. The government saves money by pushing the work on the tax preparers without any compensation to the people doing the work. Soon, tax preparers will need to ask even more questions about your health insurance. How can accountants charge for work that will only cost the client without any benefit?

Once upon a time if your income was low, you didn't file a tax return. Now, you show up at the tax preparers office and get thousands in credits (a refund) without paying a penny in tax. Nearly half of Americans pay no income tax. Half of Americans have no vested interest in the success of the nation. Half give nothing to the common good, only take. I agree taxes need to be very low for folks with low income. But a negative tax rate? Really?

Regulation: No matter what your field of business, you are in the financial planning, medical, and insurance business. If you are a roofer, good for you. You also better be good at financial planning since you provide retirement services to employees. You better be good at medicine and medicine insurance, too, since you provide health insurance to employees or will be required to shortly. When you should be spending time improving your business so you can hire more employees, you are tucked away in the side office trying to figure out what all the terminology in investments and medicine mean. Many employers don't hire more people because they don't need more work in insurance and financial planning.

Imagine, Monday morning you arrive at work and your boss tells you where you can bank. You can bank elsewhere if you like, but will face a penalty for doing so. How would you feel? Would you give your employer a piece of your mind? Maybe quit your job? I argue banking is less important than your families health or your entire retirement. And your employer tells you which doctors you can see, which hospitals you can get care from, and which investments you can choose from for your retirement plan. Your boss might be a plumber, but he makes a large part of your retirement/financial planning and medical decisions for you. He is an expert on these issues. Right? It is beyond me why unions don't strike demanding employers give their members the cash to buy their own benefits rather than the one-size-fits-all plan they now get.

Employers don't want to be in the medical business unless thay are a hospital. Why hire more people when it includes all these distractions. All the electrical contractor wants to do is electrical work. He prefers insurance, medical, and fiancial experts handle their work on their own without his involvement.

Government Manipulation: Government manipulation comes in two forms: taxations and regulation. Both forms of manipulation force employers big and small to wait for clarity before adding employees.

A short time ago the tax code provided an $8,000 tax credit for certain home buyers. The government manipulation of the real estate markets had two negative effects. First, home prices were about $8,000 higher as people paid more for a home due to the credit. When the credit disappeared, home prices fell by an amount near the credits value. Second, people now will wait to buy a home. You never know when the government will offer another incentive. This one simple tax credit I believe has extended the demise of the real estate market longer than real estate sales and prices would have suffered without the manipulation.

Employers are forced to wait on hiring more people (or put in a new machine instead) due to government manipulation. Why, as an employer, should you take on the risks of more employment when the government can change the rules at a whim, leaving you holding the bag? The government needs to stop paying tax dollars for big business to turn food (corn) into gas (ethenol). Due to this manipulation we now have energy and food inflation. We can all drive less, but how much less do you want to eat? Farmers know corn prices could drop in an instant if government manipulation ends. Why take the plunge when the risks are so high and an all-or-none proposition?

Some regulation is needed. Many of the new tax incentives and regulation has business owners sitting on thier hands. Without clarity, investment decisions are on hold. And employees are an investment decision. A long-term one.

Here is How You Can Get Hired: What can a potential employee do to get a job in a tough job market? As an employer myself I can honestly say most job applicants elliminate themselves from contention. Resumes with serious spelling and grammer errors hurt. Wanting a job with no experience, no training, and no effort by the applicant to understand the job applied for ends any chance of employment.

Formal training is required for some prospective jobs. Many jobs require reseach for a real shot at getting hired. If you are applying for a specialty job that requires licenses or degrees, have those degrees or licenses. Research the company you are applying for. The shotgun approach never works. I deny all applicants that performed no research on my company. Know what services we offer. Don't tell me you would like to give accounting a shot and would like $20 an hour while you test the field. I'll save myself the headaches and hassles by not hiring you.

Act professional. Dress appropriately for the job applying for. Be persistent. A true story will illistrate this best. A business client of mine was not hiring back in the early 1990s due to a soft economy. A young man with a dream of working for that particular company filled out a job application and submitted his resume. The job interview went well but was told the company was not hiring, but they would keep his application on file. The young man did his reseach and knew details on what the company did and how they performed. That is how he got a job interview in the first place. Turned down after the job interview, the young man arrived at the business early every morning a greeted the boss with a million dollar smile.He asked politely if anything opened up since their last meeting. He did this for about a week when the boss invited the young man in and gave him a job. Why? The employer, my client, told me he always has room for more quality employees. Learn this lesson and you will have a job in no time. All risks aside, employers can always use more quality employees that want a job and not just a paycheck. Some will even hire new employees when they officially are not hiring.

My Side of the Desk: With everything said above, I have not hired a new employee in three years. Business was down three years ago, but up the last two years. This year I will hire one new full-time or two part-time employees. The additional work coupled with the cutback in hours by a current employee (she is retirement age) is forcing my hand, however reluctant. I dread the process. Sifting through stacks of applications, most from unqualified appliacants that never even took the time to read the full discription of the job offered, gives me a head ache already. Most will not want a job, only a paycheck. I have enough bills. As an employer, I want to make money off your work. You gets paid and I get a little for my efforts. Otherwise, what incentive do I have to hire anyone at all?

The future is cloudy, but necessity requires I hire at least one part-time person. From the employers perspective, I pray nonstop it works out.

If you stop by my office say "hello" to Karen at the front desk. I turned her down for a job when I wasn't hiring. too. She kept returning with a gut full of enthusiasm, outlining her skills that are a direct fit and benefit to my business. She had the skills I needed in an employee. I relented and hired Karen. Must be ten years now. Good thing she didn't park outside my front door. I would have had to hire her two weeks sooner. Now I'm scared she will leave someday. Then what will I do?

Raising Cain and Obama

My job requires review of potential tax changes and how they will affect my clients. One of the most radical proposals to change the tax code is Herman Cain's 9-9-9 plan. Much has been said in the news about the plan, but nowhere is it mentioned which class of taxpayer will be affected.

Herman Cain's tax plan is almost the complete opposite of President Obama's plan. Obama proposed a tax increase on all taxpayers making more than $250,000 per year. The American people and Congress gave a loud, resounding NO to this idea.

Cain's plan will give a tax cut to the people Obama wanted to tax more. Under Cain, people under $250,000 per year will pay more. A lot more. Half of all households pay no federal income tax. Cain's plan will introduce a 9% national sales tax that everyone will pay regardless of income. The second 9 is for the personal income tax rate. Since over half of all taxpayers pay less than 9%, most taxpayers will get a tax increase. Corporations will do well, however. Most regular corporations that pay at a 35% tax rate will now only pay 9%, the last of the three 9s. The idea is that the tax savings by businesses will get reinvested into the business to create jobs. That is why people start a business. To create jobs. Right?

Maybe we should be careful what we wish for.

I wonder what "Joe the Plumber" thinks about Cain's plan? He did say he would pay more taxes under Obama's plan. He should love the tax cut.

Things Are Looking Up

I see more jobs than any time in my career. Fully half of all my business clients are hiring or have hired in the last few months. Tax Prep & Accounting Services hired three bookkeepers this summer, more tax preparers for tax season, and one or two more will be added this week to handle the phones and front desk duties. Either the national statistics are wrong, will soon reflect the growing economy, or my clients are the only ones experiencing economic expansion.

The only real explanation is the economy is finally gaining traction. Once the wheels start turning, the rust can get ground off, and America can be back in the saddle again.

It has been a long economic pullback. Even though the government says we are in a mild expansion for a few years now, it never felt like it was. Certain statistics tell me we are due for better days ahead. The average car on the road in nearly 10 years old, the oldest fleet on record. Households have reduced debt for several years. With lower debt and an old auto fleet, vehicle sales should continue to grow with all the jobs it requires. As old, worn out things need updating, either repair or remodeling is required or a new purchase.

I feel good for my clients. I feel good for their new employees. As people get jobs they can update old cars, furniture, or buy a home. The economy always works best when people feel good about themselves. We took a serious body blow in 2007 and 2008. When sentiment is crushed that hard it takes time to get back up and running again.

I hope we are all running again real soon.

World's Best Investment

A common question in the office surrounds investment choices and returns. Where the client wants to discuss stocks, bonds, mutual funds, and gold, I want to encourage clients to make the best investment on the planet: an investment in themselves. All investments have risks, except the investment in one's self. Even government bonds can lose value to inflation and opportunity cost, even if the bonds are held to maturity.

There are several ways to invest in yourself. Night classes at the local tech school and the numerous seminars on every subject imaginable are a good start. Employers need educated employees and demand it in the current economy. A large number of office jobs require proficiency in Microsoft Word and Excel, plus QuickBooks. The investment to learn these programs well is low; the payoff is huge. A small amount of time and money can lead to a long-term job with good wages and benefits.

You can also pay off debt and build a retirement account. But leads back to stocks, bonds...

A story for another day.

Stealth Tax Increases

Just like 2008, the Republicans are getting everything they want, and asset values (stock market and housing) are dropping fast. The Democrats do not have clean hands either. Neither party focused on jobs and as a result, we have no job growth. Go figure.

But this blog post is not about jobs or spending; it is about taxes: should they go up, down, or stay the same. Republicans in Congress say raising taxes kills jobs. Ahhh, dummies... so does cutting spending. Less demand, no matter where it comes from, will not create jobs.

The GOP has worked very hard to raise your tax burden and you never knew they were in your pocket. When the policies of Congress destroy the value of your 401(k), IRA, and home value, this is a real and hidden tax. The brinkmanship with the debt ceiling was a colossal waste of time and created no jobs. Zero. Yet, the stock market dropped 15% in two weeks and housing prices look like they may start down again as economic activity stalls because there is no demand (government cutbacks) and hence, no jobs.

I don't know about you, but I would take a higher tax rate if I didn't have to watch my saving earn .1% in the bank, my retirement funds shrivel in the stock market (the Dow closed on December 31, 1999 at 11497.69), my home drop 40% in value, and felt secure in my job. Maybe I am nuts, but all this adds to a real tax increase. The only difference is who gets the money. If the government taxed a small amount more at least it would help lower the deficit. Instead, we just get to bleed more with no doctor in sight.

Can someone please lead? Real leadership. Please.

Create Your Own Job

As the economy grows at a slow pace and jobs are scarce, a certain group of people have discovered the secret of previous recessions when applying for a job. These job opportunities are offered to anyone that applies. Unlike the past, fewer people are taking advantage of these jobs. These "create your own job" offers are called "starting your own business."

I have been in the tax business since the early 1980s and see business creation accelerate as a recession ends every time, until now. For some reason (maybe government interference and lack of a clear policy) people are creating jobs at a slower pace this time. When current employers refuse to hire, smart people find an unfilled demand and fill it.

Several of my clients have started a new business. Business ownership has its risks, but the rewards are really good, too. Starting a business as the economy leaves a recession has fewer risks as demand is increasing and there are ample opportunities to fill space vacated by businesses that closed during the recession.

Owning a business is not for everyone and has unique issues related to it. Still, nothing beats business ownership. Yes, the hours are long and risks abound. But losing one client does not break the company where losing the one and only job you have is a severe body blow.

The people that started businesses over the last year in my office have done well. It seems to me there is significant unfilled demand waiting to be filled. Some of these businesses may fail in the future, but for now things look all roses.

You can beat the odds when starting a business by following a few simple rules:

1. Use little or no debt.
2. Hire professionals to help you start and run the business (accountant, attorney).
3. Start small, if possible, and build from there.
4. Plan each step of the way. Have a business plan.

No debt and professional help go a long way in assuring the success of the business. The challenges of business can be overcome with hard work, perseverance, and planning. It is a great pleasure to see clients starting and growing their own business. It is good for my business, good for the economy, and good for the community.

Will Higher Taxes Cost Jobs?

The debate about taxes in Washington is always the same: raising taxes will cost jobs. But what does history say about the subject? Will higher taxes cost jobs? Is there empirical evidence to support the claim?

Before we dig in too far I must point out I am not supporting one political party over the other, nor am I advocating for higher taxes. I merely point out historical facts on how tax increases affect job growth. No nasty emails, please. Respectful comments can be added below.

Income taxes in the United States began with the Civil War and were declared unconstitutional shortly after the war. World War I brought heavy financial demands on the Treasury, so an amendment was added to the Constitution allowing income taxes as we know them today. Income taxes started in 1913 and have continued unabated to today.

The first real opportunity to reduce income taxes significantly was after WWI. Major tax cuts to the top marginal tax rates in the mid 1920's lead to rapid growth in the economy. In a few years the over-heated, over-producing nation suffered a hangover called The Great Depression. The lesson learned is that lower top marginal tax rates provide a short-term boost to the economy followed by significant economic pain caused by the encouraged ramp-up in production. The lower rates encouraged current demand and sucked up future demand until a long recession was needed to work through the excesses.

Closer to home, President Kennedy reduced the top tax bracket from 90% to 70%. The 1960's were mostly good economic times. The economic issues of the 1970's were more related to demographics, expansion of the money supply during the Vietnam War, and oil shocks. Lowering marginal tax brackets that are very high seem to work long and short term.

President Reagan lowered top marginal tax brackets, too. Heavy emphasis was placed on encouraging supply by allowing fast expensing of assets for businesses. The economy boomed as employment increased and inflation dropped. The federal government ran large budget deficits during the entire period. If Social Security had the lower surpluses of today, President Reagan's deficit spending would have exceeded the rate of today's as a percent of GDP. The stock market crashed in 1987 by 22% in one day, the largest percentage drop on record. The economy only slowed without a recession and accelerated into the end of the decade before giving way to a real recession.

Like today, the 1990's saw a Democratic president and a Republican Congress from President Clinton's first midterm elections. Deficit spending that was acceptable to the Republicans under Reagan and Bush were untenable under Clinton. A tax increase coupled with spending cuts set the federal government up for the largest budget surpluses ever. But higher taxes did not kill the economy. Rather, the economy boomed with job growth, corporate profits, and the stock market walking hand in hand. Tax increases did not kill jobs in the 1990's because the top marginal tax rate was increased to 39.6%, a historically low top marginal tax rate.

Once Clinton left office, the newest Bush presidency set out to lower taxes by a massive amount. Deficit spending was back in place. More tax cuts over the first six years of George W. Bush created only a modest number of new jobs while expanding debt, public and private. By the end of the first decade of the Twenty-First Century the economy was in shambles, government receipts declining, job losses exceeding those created over the previous six years, and  nothing seemed to shake the sluggishness that set in.

Lower taxes did not help create jobs in the 2000's; slightly higher taxes gave us a job creating juggernaut in the 1990's. The tax code today has so many moving parts no one person understand the entire beast. Deductions and credits exist for every possible activity. Raising taxes by reducing deductions and credits should reduce the cost of complying with the tax code for individuals and businesses.

So the question remains: If we raise taxes will it cost jobs? It seems to me that a modest tax increase or a reduction in certain tax credits could actually encourage job growth. Any real effort to reduce Washington's red ink will require spending cuts and revenue increases.

Simplification of the tax code would provide real encouragement for businesses to hire. Businesses and individuals spend too much unproductive time gaming the tax system. A simpler tax code with fewer deductions and credits would allow certain tax rates to decline, especially for the middle class.

Remember, raising taxes are the thing to do as long as it is not my taxes being raised.

It's the Jobs, Stupid

I could have titled this post Wasted Opportunity, but elected for the more in your face approach. For two and a half months (or longer) Washington has focused all its attention toward the spending limit on their credit card when the real issue is jobs. Balancing the budget on spending cuts or tax increases will only slow an already comatose economy.

If anyone is serious about bringing the national debt under control it will require tremendous effort on the jobs front. More jobs also means a better economy. In a recent article I argued that government regulation and interference is holding back job creation. The other half of the story is what the government can do to jump start the economy via job creation.

Governments around the country are cutting jobs while the private sector is adding a small number of jobs. I agree with selective downsizing of government payroll. The government should not create jobs by hiring more people. Washington can create jobs by providing focused funding. A large part of our electric grid was built in the 1930's and is in need of an upgrade; out road look like a page out of a developing country and our bridges collapse from time to time; our transportation system is outdated and more efficient, high-speed alternatives, need investment. Honing spending to targeted areas of infrastructure is the fastest way to create jobs without installing another permanent level of government spending/bureaucracy.

All the debate on the spending limit, spending cuts, and/or tax increases has created no jobs and never will. When unemployment is over 9%, why are we talking about anything other than jobs?

If we had jobs and a better economy the budget problems would largely vanish. One third of the deficit is from lower tax revenues directly related to the slow economy. Unemployed people pay few taxes, payroll or otherwise. Another third of the deficit comes from increased spending on food stamps, unemployment, and other social programs to help the people harmed by the economic conditions. The remaining third of the budget shortfall will require attention in the future when jobs are on the upswing.

Every politician in Washington that is debating the budget when jobs are the real issue should be fired. Both political parties are at fault. The only time jobs are considered is when it is used as an argument to further a political agenda.

Stop talking about the debt limit. It creates no jobs. Raising taxes or reduced spending creates no jobs. If we spent the last three months talking jobs the way we talk credit limits our economy would be humming. Our trade deficit was over $50 billion in May. There is work to do. Now we need to get out of our way and start hiring.