Why Small Business Could be the Economy’s Big Indicator for Growth

Unemployment numbers are high, and will likely climb for months if not years to come. If this happens to be news to you, consider your ignorant bliss shattered. For the rest of us who encounter this grim reality head on, the question we face as a nation is how America can continue to have record setting unemployment figures, but be coming out of the worst recession in decades. Shouldn’t the two be showing the same signs of improvement? Or is unemployment simply the case study for a bigger, more powerful issue that often flies below the radar? It’s time to take off the rose-colored glasses and unearth a hidden economic reference point on everything from taxes to tightening credit to tort reform. I like to think of it as the “guinea pig” of the recession: Entrepreneurship and the small business.

Imagine for a moment that you own a small business. Also imagine that it is a profitable business, a rarity in this economy, and that you are considering your future options. Your big picture view is that the economy is still bad, in spite of national figures and talk from the Chairman of the Fed and the President saying that the recession is over. While that may be true for some (represented in fractions of a percent), on a local level it most definitely is not the case. With the definitions of talking heads, economists and political parties aside, bad is still bad and because no one is lining up to bail you out, you are placed squarely in the impact zone of an ever-changing economic landscape.

The reality is, your sales are still down over past performance and you have had to make lay-offs and numerous other cuts just to stay profitable. On the heels of findings from several leading economists, the US is grappling with the fact that the jobless market may be forever scarred, as certain jobs have all but disappeared from the market. Coupled with the idea that if there are fewer jobs to be had, there will be less spending by consumers, and in turn, a drastic decline in consumer confidence will be the contributing factor in a decline in new industry growth. Of course, this is all cyclical, so zero industry growth will lead to a similar figure for new jobs and so on. Now, in an attempt to build your business despite the facts, you are trying to make a reasonable forecast so that your decisions are based on facts and are sound moving forward.

Now, the good news about being an entrepreneur is that you can make decisions absent the long process of corporate committees and consensus. Your choices, whether calculated or carless, actually precipitate the weekly reports about the economy and where it’s headed. The bad part is, the buck stops at your desk and the affect of your decisions, good or bad, is also pretty immediate when it come to the profitability of your own weekly reports. So with this in mind, you begin taking a look around and you see indicators of the recession directly affecting how you do business. Right now bank credit is difficult, if not impossible to obtain. Further, since business is down, you wouldn’t really want to borrow more money and create the obligation to begin with. On the other hand you have to begin considering adding staff, if the predictions of economists are indeed true and business begins to pick up. In this case, you will need to get your operations up to speed in anticipation.

As a glaring backdrop to all of this are your taxes. Whatever the timeline or outcome of the economy, they look as if they are going up, both at the federal and state level as government struggles to keep up the spending it committed to in the good years, plus the new spending that is labeled as “stimulus”. As a small business owner you really don’t understand how taking money from people in the form of taxes, passing it through the government’s hands and therefore losing more than 30% of it to administrative costs before sending back to the very people you took it from could serve as a stimulus. Add to that, your gross income is over the $200,000 mark, or what the President refers to as “rich”, so your income is going to be reduced further by the impending tax increases.

In the end you decide not to rehire employees because things are just too uncertain, your income is going to be reduced by taxes, and debt is neither available nor desirable. And this is why unemployment continues to worsen in spite of rosy predictions by the Fed. The reality is just too grim from the standpoint of many employers and small business owners and unfortunately, the greatest indicators of the recession (you and your business) don’t get rewarded by making bets on hope.