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The Problems Most Frequently Encountered by Small Businesses Small business is defined as a kind of business, with a relatively small staff. The definition of the word small, related to legal sphere is various in different countries, it also depends upon branch of industry and country or region, but the general number of employers doesnt exceed 100 employers. Small business enterprises usually include partnerships, proprietorships and corporations that are privately owed. (Small Business Marketing and Opening) Small business enterprises are common in various states, and their number depends upon economy of the country. The most widespread examples of small business enterprises are lawyers, guest houses, photographer's studios, shops, manufacturing enterprises of a small scale, hairdressing salons etc. Business enterprises of the smallest size, often situated in private houses are micro businesses. Among the problems that are most frequently faced by the enterprises of small business there are 10, considered to be most challenging.
These problems, as they are defined by the commentators, are as following: : Cost of Health Insurance, Cost and Availability of Liability Insurance, Workers Compensation, Cost of Natural Gas, Propane, Gasoline, Diesel, Fuel Oil, Federal Taxes on Business Income, Property Taxes (real, personal, or inventory), Cash Flow, State Taxes on Business Income, Unreasonable Government Regulations, and Electricity Costs (rates). (Phillips, p. 13). These data were collected in a survey, which is held every four years since 1982. According to its results, the costs of health insurance were recognized as the most critical point for more than 65 % of respondents, and speaking about this problem it is necessary to note that this figure is the highest compared to previous years experience. The survey also represented information concerning the problems of least importance, also reported by the representatives of small business enterprises: Exporting My Products/Services, Competition from Government or Non-Profit Organizations, Competition from Internet Businesses, Increased National Security Procedures (a new problem in the 2004 survey), Competition from Imported Products, Obtaining Short-Term (Less Than 12 Months or Revolving) Business Loans, Winning Contracts from Federal/State/Local Governments, Obtaining Long-Term (Five Years or More) Business Loans, Protecting Intellectual Property, and Cost-Effective Mail Service. (Phillips, p. 14) Before starting observation of the most important problems it is necessary to compare these problems with those that were reported by the entrepreneurs in previous years. The major differences can be seen while comparing the problems reported in 2004 with the problems reported in 2000.
For instance, Interest Rates shifted from the 29 th place to 58 th in the 2004 year. The other changes reported by the specialists are as follows: also falling notably over the period was Physical Facilities Costs, such as Rent/Mortgage/Maintenance (15 ranks), though rewording of the problem for the 2004 survey may have been responsible. Change in the tax law influenced the 13 place decline in Death (Estate) Taxes. Meanwhile, Applications for Licenses, Permits, Etc.
and Poor Sales were 17 ranks more severe in 2004 than in 2000. The former is likely associated with state / local revenue raising activity and the latter the business cycle. The Cost and Availability of Liability Insurance grew more difficult by 11 places. (Phillips, p. 15) Business entrepreneurs often do not have the same opinion concerning degree of the problems even if they agree on the problems themselves. Opinion varies depending upon the branches of industry, staff size, geographical location of the country, legal form of the enterprise, the term of being involved into business etc.
For instance, entrepreneurs working in sphere of forestry, fishery or agriculture place Environmental Regulations on the tenth position among other problems, but manufacturers gave it the 33 rd place, and the 58 th place was given to it by retailers. At the same time, the companies with staff more than 50 employers placed False Insurance Claims, such as for Workers Comp and UC on the 10 th position, while companies with small number of employers referred it to the 72 nd place. (Phillips) There were about 75 problems that comprised the list of problems named by the representatives of small business enterprises. The problems of costs rates occupied the places that were previously referred to the problems of taxes rate, and now 5 of the most important problems are cost problems. However, taxes problems also remain relevant for the enterprises of a small business.
One more rate of the problems that is also important is related to the problems with the staff. As it has been mentioned above, the most concerning problem in the sphere of small business is the problem of health insurance. The owners of the enterprises of a small business faced with increasing of the costs of health insurance twice as much in recent years, so this problem is relevant for all kinds of small business companies, no matter in what branch of industry they work in. The number of entrepreneurs that consider this problem to be critical increased from 47 % to 66 % for the last four years, and this problem remains to be among most relevant even in those enterprises that do not place it on the 1 st place. (Marine) Due to the constant increase of health insurance costs that have been going on during last five years small business companies with a little number of employers were forced to hold up fulfilling their employer health programs. Five years ago more than 55 % of small business enterprises offered their employers health programs, and now this number reduced to less than 55 %. Other entrepreneurs were forced to increase the copayments of the employers, exclude a number of issues included into health program, and the costs of drugs prescriptions grew as well. (Marine) In 2003 a new law related to modernization of medical system was passed in the USA.
This provided for the owners of small business enterprises with the possibility to purchase HRAs (Health Reimbursement Accounts) for their staff. Under such circumstances the staff pays a thousand dollars or even more before the insurance becomes valid. It is customary to think that the costs will decrease because both the entrepreneurs and the staff will do shopping and be more attentive to the costs. Besides, more employers will purchase the insurance, because paying copayments is too hard for them, and a significant part of the employers rejects paying the health insurance even in case it is suggested by a owner of small business enterprise. (Marine) The problem that occupied the second place among the most important problems reported by the representatives of small business enterprises is Cost and Availability of Liability Insurance. This problem wasnt of so much important before, and its relevance grew during last five years. One third of the small business owners suppose it to be a critical point.
This may be caused by persistent increase of lawsuits costs. It also means that the owners of small business enterprises are afraid of being involved into the lawsuits as the respondents, even in case the suit wouldnt be filed. According to the data of opinion polls, carried out by Research Foundation National Small Business Poll, more than a half of small business entrepreneurs were concerned with the risk of being sued. There are examples of how small business enterprises may be brought to ruin by unjustified lawsuits, so the concerns expressed be the representatives of small business enterprises may be evoked by this fear. Increasing costs of the insurance may be a reason as well. (Rickman) Some commentators state that educating both the business owners and the staff about the strategies to be used while dealing with lawsuits will be helpful, but this demands time and money, and the employers will be detracted from their main purpose of selling the products or services. Despite the fact that a comparatively small number of enterprises were sued in the period of last five years, this process is fully unpredictable, so the relevance of the problem remains high at present. (Rickman) The problem of the workers compensation was placed on the third place in the list of the most relevant problems in the sphere of small business enterprises.
The costs of medical treatment for the work injures increased, so the costs of workers compensation increased as well, and these processes also influenced the concerns of the representatives of small business enterprises. The number of the small business owners that consider this problem to be critical increased half as much within recent five years. (Barrow) Due to the fact that a growing number of employers work outside of the sphere of manufacturing, determining whether the case of injury is related to the work or not is difficult. It leads to the growing number of lawsuits related to the cases where it is difficult to find out the truth, and this also leads to further increase of workers compensation. As the commentators describe the situation, the fear of a claim may reflect other problems such as increased inspections by OSHA, or a similar state safety agency. As with health insurance, the failure to place damage caps on WC lawsuits has probably fueled increased employer anxiety over the cost of WC, the worry about a worker with a WC case, and the possibility of increased safety inspections. (Marine, p. 49) The next problem to be observed is Energy Costs Except Electricity.
This problem also turned out to be relevant in the period of last five years, and the number of small business owners that consider it to be pressing, grew. As the specialists state, increased importance of this problem reflects some important political events that influenced all spheres of business all over the world: the war in Iraq, conflicts in the Middle East, and rise in prices of petroleum and oil products. But there can be also undefined factors that defined high importance of this problem in the sphere of small business. It is hard to foresee the prices of the energy products in a year or more, so the owners of small business enterprises are concerned with this issue, and possible effects that it may have on their business. (Barrow) The next problem in the list is Federal Taxes on Business Income, and the importance of this problem decreased during the period of last few years. Profits tax is the issue of concern for about 25 % of entrepreneurs, and it is also necessary to mention that more than a half of business owners use independent experts to help in preparing tax accounts.
According to the information provided by NFIB National Small Business Poll, it costs about $ 75 per hour, and business owners are not satisfied with it. In spite of the fact that they appreciated recent degression, they made no efforts to make the Internal Revenue Code simpler. So the experts are inclined to refer this problem to constant discontent with complicated tax code, but not the amount of taxes to be paid. The amount of the tax hasnt increased, but the costs of tax compliance have. The amount of federal taxes paid by the individuals was reduced, but there were no changes in increase of payroll tax, for instance. The other example is telecommunication taxes or some other kinds of excises increased as well.
As the experts note, there is a growing discontent with the paperwork costs of tax compliance, and with the collection of payroll taxes, as well as the large 15 percent payroll tax on the self-employed. (Philips, p. 18) Some time ago taxes were the problem of the greatest concern among the representatives of a small business. They have been replaced with insurance problems, but they still remain a subject for growing discontent at many levels. The next problem is also connected to the problems of taxation and it is property taxes problem. For about 25 % of small business owners reported this problem to be a critical issue for them.
As long as many countries are forced to found out new sources of revenue this kind of taxation is rather frequent at present. It frequently occurs that the owners of small business enterprises possess a private residence. The committees that work over the state budgets are trying to keep the state budget balanced, so they made to carry out a revaluation of a property at the real estate markets, together with increasing real-estate taxes. (Barrow) This is a great problem for the owners of small business enterprises who recently purchased a property for business, no matter it is a large residence, shop or condominium. Increasing taxation on the private property increased also because the majority of legislatures are against increases of personal profits tax, the specialists state. Thus, increase in real-estate tax was a way out of the situation that satisfied everybody except for small business owners. (Barrow) The next important problem reported by the entrepreneurs is cash flow problem, and the importance of this problem grew within several few years.
Economical decline must have forced many entrepreneurs face difficulties with payments in the recent years. Slow payment processing and invoicing in duplicate were the reasons for the problem to occur. Besides, the small business enterprises were prevented from raising the prices and it also negatively influences the cash flow. (Small Business Marketing and Opening. ) The eighth place in the list of problems is occupied with State Taxes on Business Income problem, and the next problem is Unreasonable Government Regulations. These problems were reported as critical by one third of all the entrepreneurs. A strategy of balancing the budget via increase in license costs or various kinds of fees is used in many states. The amount of such payments depends upon the size of business or industry.
As the commentators report, Some states have increased taxes on subchapter-S corporations. Others have increased taxes on stock transactions and papers dealing with a change in the legal form of organization of a business. (Rickman, p. 50) In some states there was an increase of taxation on definite types of companies to supplement the state budget, in some states the small business owners faced with increase in sales taxes. Unpredictable changes in this sphere together with existing increase in taxation complicate successful development of a small business in various countries. (Rickman) The problem of unreasonable government regulations is a reflection of general discontent with duplication and volume of the regulations, created by the state. For instance, when combined, confusing, duplicative regulations cost business owners with fewer than 20 employees about 60 percent more per employee in compliance costs than experienced by larger firms. (Philips, p. 20) This problem was listed among the most concerning issues due to more than a hundred new regulations that appear each year and significantly increase the costs of small business enterprises. A large part of these regulations is related to legislation, touching upon employment and ecological conditions. The specialists speak about Real Estate Practices Settlement Act as the factor that will force many businessmen leave the business.
Constant disagreements in the state Congress do not positively influence small business enterprises, despite some recent progress in making the regulations simpler. Some other regulations, for instance, Americans With Disabilities Act often make problems for the owners of a small business in their development, and their entrepreneurs are constantly concerned with the possibility of being involved into a lawsuit after doing something that violate some regulations that have been just passed. One possible way to settle down the problem is inviting independent experts, but it costs much and hardly any enterprise may afford it. Increasing threat of terrorism caused enacting various new rules that demand carefully checking all the employers and reporting all suspicious information to the special committees. (Rickman) The last problem is growing costs for electricity. Its importance significantly grew within last years. In some states increasing costs of electricity became a heavy burden for the entrepreneurs.
Here the branch of industry plays a great role, as manufactures and agricultural companies demand much energy. Electric power is necessary for the enterprises producing other important energy types that cannot be ignored, and the supply of electricity must be constant to provide for effective functioning of the industry. (Small Business Marketing and Opening) Having observed the problems that are relevant for the owners of small business enterprises, the main conclusion that could be made is as follows: resolving each problem in particular and all problems in general depend mainly upon tolerant policy of the state. It is evident that the small business enterprises, regardless of the branch of the industry, their size or their legal form, are important for state economy, and economical progress is impossible without successful functioning of such enterprises, and globalization processes also do not affect it. It is necessary that the state provide for a legal base for promoting small business enterprises, improve the system of taxation, reconsider the questions of medical insurance costs etc. It is necessary that support of small business enterprises should be provided in the state plans of economic development, as these enterprises occupy a strong position at the market, and a huge number of employers are involved into this business.
Works Cited Barrow, Colin. Starting a Business for Dummies. John Wiley and Sons Ltd. 2004 Marine, Alan Le. Start and Run Your Own Business: The Complete Guide to Setting Up and Managing a Small Business. How To Books. 2004 Phillips, Bruce D.
Small Business Problems & Priorities. 2004. Available at web Rickman, Cheryl D. The Small Business Start-up Workbook: A Step-by-step Guide to Starting the Business You " ve Dreamed of. How To Books. 2005 Small Business Marketing and Opening.
Available at web
Free research essays on topics related to: workers compensation, five years, cash flow, small business owners, payroll tax
Research essay sample on Small Business Owners Workers Compensation