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Wednesday, November 18, 2009

Creating Unemployment: Squeezing America's Economic Engine

I don't think our company, Stratis Financial, is much different than many companies in America. A few guys were dissatisfied with their existing employer, had no stake in the company or its future, a few issues came to a head soon everyone was looking to go somewhere else. Meeting to talk about our woes, one person says, "I'm looking into just renting a small space and going it alone." Pretty soon we were engaged in what would be needed to start a company where we all had a stake. A few months later we opened with leases for space and furniture. We financed computers, and took out equity loans on our homes to capitalize. We made personal guarantees on our financial agreements and also with our vendors. We were personally risking our personal savings, equity and credit because we believed in our vision and each other.

Finally ready and opening our doors in two locations we had four people on payroll that had to be paid on the 15th and 31st of every month. We went four months before any of us took any commissions for ourselves, continually returning our earnings from our sales back into the company. Our wives supported our vision and made sacrifices at home. We struggled but we slowly continued to grow.

We had a boom period that we used to pay debt down and off, update and upgrade equipment and technology, invest in our company. This was followed by a slow leak and then a complete bust. But we knew the drill, we tightened our belts, re-arranged some schedules and worked hard to ensure minimal impact on our staff and their families. We again used equity lines to capitalize the company and ensure operating funds. We struggled, but we kept our doors open and our staff kept their jobs. With the slow business we would have been justified in restructuring, laying people off, closing an office, consolidating. But we love the people we work with, the have pictures or our children mixed with pictures of their own. We are a family, we look out for each other. We struggle, we try to minimize their struggle.

Now we are growing again, because we struggled and stayed open we are attracting people who want to work with us instead of their current companies--if they are still open. But we are not rushing into growth. We are slow and steady and making sure everyone fits. Our over riding motto in bringing people into our company is "would you have them over to Sunday dinner?" It's not just about how many sales you can do, how fast you can do the work, it is about how well you do your sales and how well you do your work. Does the client come first and right on top of that quality? We are open because we adhere to our core values and principals. Better someone not get a loan they cannot afford than we get a closed deal and a commission. We are still open because it works.

We are using the growth of this year to reinvest in our company, retain earnings so we can be prepared for the challenges that continue to hit our business and industry and be prepared for 2010 and beyond. We are a small business, we need to be ready for what is coming next that could slow down our sales volume through regulations, policies and politics. We need to ensure that our business model allows our people to still have jobs and we are still able to help our clients attain and retain homeownership.

We are a small business but not unlike millions of other small businesses throughout the United States. The statistics vary but companies that employ less than 100 people account for approximately 35-40% of the jobs in this country. In the current economy the number of small businesses and self-employed individuals starting companies is actually growing. Out of work and tired of using their creative talents and skills for someone else the inner-entrepreneur and American spirit of adventure leads them to give it a go. They are risking their personal finances and credit to provide jobs for others so they can achieve their visions. They are bringing sack lunches to work and hurting other small businesses--restaurants--by cutting back on their nights outs so they can ensure they can make payroll in five days. Most of them are family run and employees are like family. Benefits like insurance and retirement are provided and shared contributions are made. Labor laws are followed and concessions made because of the personal nature between ownership and labor. Sometimes it is a struggle, but everyone works together to ensure doors stay open, customers are taken care of and everyone can pay their bills. In times of crisis personal loans are made.

They are the backbone and the economic engine for America and its economy.

Under the Pelosi health care plan recently passed by a bare minimum of votes most of these small American businesses are now categorized at "big business" with the definition being total payroll. If a business has a payroll of $500,000 or more it is considered "big business" and under the legislation fully responsible for health care insurance for their employees. It doesn't take much for a company to reach $500,000 in payroll, look at the family owned restaurant with an executive chef, a couple of dishwashers and busboys, some wait staff, personell upfront, perhaps employing fifteen to twenty people; simple math puts the average salary at just over $2000 per month. Consider the small manufacturer specializing in auto upholstery with fifteen employees and specialists in pattern making, sales people, shop manager, how hard is it to get to $500,000 in total payroll? Add 10-15% to the costs of the employer and what has to happen? maybe now we have 14 employees, or 13.

Under the constant push to pay for programs President Obama and Democrats seem to have set the income limit for "America's wealthiest" at $250,000 per year, frequently the verbage is $250,000 for a married couple. Consider the small business owners who have their ups and downs, on the up years they pay down and pay off debt incurred in the down years to keep their business open, continue payrolls, sacrificing to ensure those dependent on them are safe. In the up years profits are plowed into the debt and savings to repay and reload. While our family has not experienced this sort of income, it would be nice to be able to and know that our sacrifice and hard work to get to this income level is not instantly penalized so that we can support wasteful spending in Washington. Support another TARP or stimulus package. Many people see that income level and think of CEOs and attorneys and doctors and other "rich people." In reality a couple that has an upper level government employee and a tenured teacher with several years and creditials reach that mark as well. But it is the small business person who pays the taxes at the expense of their business.

More taxes for small business means less reinvestment in their business. Higher fees and costs means less money available for raises or bonuses. Higher costs imposed on small businesses means someone is probably losing a job. Small business owners have it all on the line, personal guarantees on leases, their monthly income directly tied to company profitability, payroll that at times comes out of their own pockets. Like a mom who feeds her child first and herself second, America's small business owners pay their dedicated and loyal employees first and themselves second. At some point however if it is between their child's education account or a receptionist, we are going to have to answer the phone ourselves.

Sadly I do not find it ironic but rather normal that in front of the cameras Congressional leadership and the White House are talking about jobs, jobs, jobs and trying to spin and rationalize the abomination of waste that is becoming evident from the stimulus package. Telling America they are working to create and save jobs while unemployment rises and they push more and more debt onto the balance sheet. Inside away from the microphones they are voting for more taxes on the very people that create and save jobs. Inside conference rooms they plan how to increase taxes on those who write payroll checks and decide to lay off or hire depending on their business revenue and cash flow.

History has proven time and again and in economies across the world that lower taxes on business leads to higher employment. Ronald Reagan's tax cuts from Jimmy Carter's oppressive marginal tax rates led to a massive economic recovery and slashing of unemployment. George W. Bush's tax cuts led to record tax revenue for the Treasury and over 95% of Americans being employed. Give American business, especially small business, more cash flow and they will reinvest it in their companies and more people will be employed. Take away cash flow, take more of the revenue and people will lose jobs.

With one year left until the 2010 midterm elections watch how the incumbents and party in the majority spin the discussion on jobs. They will rail against the "rich" and how we need more for the "common worker" and defend taxing employers to help workers. In the end increasing taxes on small employers that sign the paychecks for 40% of Americans means fewer paychecks.

Somewhere today a few guys will get together to talk about opening their own company. They will commit to leases and pulling together funds to put together some operating capital. They will hire some workers. They will make a huge leap and take a risk to start a small business. Let's hope they succeed....despite the intentions of their elected leaders.

For a look at small businesses cropping up in Long Beach, particularly Bixby Knolls check out the article Leslie had in this week's Uptown Gazette "Women Dominate Uptown Business Scene"


Bob Schilling said...

I have my own small business, and my own story of struggle and sacrifice. In that respect, we're alike. Here's where we differ.

I'd love to have an income of $250,000 on which to pay additional taxes. If you do, bless you, and I don't blame you for complaining.

I'd love it if our payroll totalled $500,000 or more. How cool that would be.

Part of our story of small business struggle and sacrifice is that we DO provide health care for our partners. For us, any incentives would make things better, not worse.

What happens if one of your people gets sick and can't afford treatment? With a small business, if you're like us you really feel it if you lose someone for any length of time.

Perhaps you pay people enough that they can afford their own health care -- a good thing. But if that's so, why not reach an agreement to lower their net salaries and provide health benefits. If the net cost remains about the same, the tax savings to the employee could be significant.

I don't know if the plans being debated in the Congress are the best plans. I'm pretty sure they have flaws that will have to be fixed. I do know that millions of Americans don't have access to health care, and some of them are dying because of it. I believe those that say our current system is economically unsustainable. I think the matter is urgent. All of that leaves me ready to give the current plan a chance to work.

And think of the benefits. If health care passes, we can get on to fighting over environmental legislation and our policy in Afghanistan. What fun THAT will be...

poolman said...

if you think you cant afford to provide your employees with health insurance now wait until reform goes through. even with all of the accounting smoke and mirrors that the politicians have put in place to make it appear that this will reduce the deficit the analysis concludes that this will make health insurance more expensive, the exact opposite of what reform is supposed to accomplish. so when businesses are forced to provide insurance and insurance is more expensive the only path many businesses will have is to lay people off. let's focus on fixing the economy getting it solidly growing again, getting a handle on our deficits and then we can afford to do the things that many of us want to do such as health care reform,with tort reform and without rationing (we got a sneak preview of rationing this week with the new mammogram and pap smear recommendations, maybe there are death panels after all). this bill is madness and it is taking literal 100 million dollar payoffs to buy senate votes (see mary landrieu). sometimes doing nothing is better than botching something as significant as this.