Small Business “Glimmers of Hope”?

In a couple weeks, we will release the next edition of our quarterly indicators for small business.  Much of that document will hinge on what we learn from the release of the first quarter 2009 real gross domestic product (GDP) figures, which will be released on April 29.  Given the severity of the recession, I would not expect for these numbers to be good.  The National Association of Business Economists (NABE) earlier this week released an industry survey showing that 93 percent of economists felt that real GDP would decline for the year as a whole.  With that said, the survey also suggests that declines in the economy are “abating.”  According to Sara Johnson of IHS Global Insight, “Key indicators — industry demand, employment, capital spending, and profitability — are still declining, but the breadth of the decline is narrowing.”

What does that mean for small businesses?  Over the past few weeks, we have seen some mixed surveys on the topic.   The April survey of small business owners from the National Federation of Independent Businesses continues to show a high degree of pessimism.  Its monthly optimism index is not far from its all-time low, set in 1980, and this has translated into anxiousness on the part of these owners to expand their business or (re)hire new workers.  In fact, their hiring intentions have become increasingly more negative since November, mirroring the decline in employment nationally.  We have lost 5.1 million jobs in the U.S. over the past fifteen months, and we can assume that a sizable portion of that was from small firms. 

Nonetheless, there are a couple surveys out which suggest that there might be some “glimmers of hope” over the course of this year.  Last month, the University of Maryland’s business school and Network Solutions introduced the Small Business Success Index.  According to its respondents, 67 percent were planning to invest in their businesses this year, bucking the recession; moreover, the small business owners in this survey tended to be more optimistic relative to the NFIB survey with nearly half suggesting that the economy will remain unchanged or improve in 2009.  This finding can also be found in the American Express Open Small Business Monitor, which finds that four out of ten entrepreneurs are both optimistic about the economy this year and feel that the economy provides opportunities for their businesses.  That is not to suggest that there have not been hardships.  Sizable portions of its respondents have had to take drastic steps such as instituting pay and hiring freezes and other ways of cutting costs. 

Nonetheless, despite the cautiousness in the down economy, there is also cautious optimism.  I was personally struck by this finding in the American Express survey.  There were 37 percent who said that the economy had presented them with opportunities.  Moreover, nearly “all of these glass-half-full entrepreneurs (92%) say that managing through the recession has made them a better business owner, compared to 77% overall.”  That is a pretty impressive finding, and one that suggests that even in tough times, entrepreneurs are able to adjust to make the current environment work for them.  That should give us all a “glimmer of hope” for our future.

Note: Only NABE members will be able to read the PDF version of its industry survey.

Happy 5th Anniversary, Laura!

Today would have been Laura and my fifth anniversary.  We were married in St. Thomas on Easter Monday, April 12, 2004.

Laura, we are thinking of you today.  (I look so young in this picture.)

National Race for the Cure

On June 6, I will once again walk in the Susan G. Komen National Race for the Cure as part of Team Endurance, which is again organized by my friend Darlene Duffett.  Click here to visit my personal page.  It is a great time, for a great cause. 

Darlene named the group Team Endurance based on my late wife Laura’s spirit during her battle with cancer; her favorite Bible passage (and the one which is on her tombstone) was: “I have fought the good fight, I have finished the race, I have kept the faith” (2 Timothy 4:7).  Hopefully, you will be able to join us.

Update: I have been told that this race is now called the Global Race for the Cure, starting this year.  Sorry for the error.

Global Innovation Forum

Earlier today, I participated in a forum at Howard University called “Securing America’s Future: Innovation Jobs for the Middle Class.”  This event was organized by the Global Innovation Forum and the Institute for Entrepreneurship, Leadership, and Innovation (ELI Institute) at Howard’s College of Business.  The keynote speaker was the new U.S. Trade Representative Ron Kirk, who spoke about the importance of trade to our national economy.  I was particularly pleased to hear him discuss an appreciation of free trade and of the role that small businesses play in exporting.  (See my chapter on small businesses and trade in the most recent Small Business Economy.)

The goal of this forum, though, was to discuss policy solutions that will drive more innovation, entreprneurship, and trade in our economy.  The end goal, of course, is to make our economy stronger, producing more jobs for Americans.  Overall, it was a good (first) meeting, where many people presented some good ideas.  It will be interesting to see how the organizers frame these comments into workable proposals for the government to act on, and we will undoubtedly be asked to follow-up.

Regular followers of this blog have noticed a trend.  I have written several times over the past few months about innovation and entrepreneurship.  That is no accident.  A wide range of “thinkers” have all come to the (correct) conclusion that in order to remain competitive globally and to grow our economy in any recovery, we will need to be innovative and entrepreneurial, and we will need to be proactive in exploring new overseas markets.

Effective Tax Rates Paid by Small Businesses

Today, the Office of Advocacy released a study on estimated effective federal tax rates paid by small businesses by Quantria Strategies.  This report simulates these rates using primarily public Statistics of Income data from the Internal Revenue Service.  Its timing, of course, makes it helpful to the overall debate going on in the Congress regarding the FY 2010 fiscal budget.  Indeed, several Congressional staffers saw embargoed copies of this report – on both sides of the political spectrum – and found it helpful.

In general, the authors find that the average effective tax rate for small businesses is 19.8 percent.   By legal forms of organization, the breakdown is:

• Small nonfarm sole proprietors: 13.3 percent.
• Small partnerships: 23.6 percent.
• Small S corporations: 26.9 percent.

While the study does give an effective tax rate for C corporations, it is not comparable to the other figures due to limitations in the analysis.  One thing to note is that, as averages, these figures include every business making positive income; this somewhat skews the sole proprietor average.  In general, the effective tax rates show a high degree of progressivity in the tax code, with businesses earning more paying a higher effective tax rate.   For instance, sole proprietors earning less than $10,000 have an effective tax rate of 8.1 pecent versus those firms making $200,000 or more, which pay 23.9 percent in taxes.  The study also does a good job of breaking these figures down by major industry classification and by size of assets.

Hopefully, you will enjoy this study.  (If you want to see a shorter version, see the Research Summary.)  I suppose that it will be quoted often in the coming weeks and months in policy debates.