Wednesday, September 15, 2010

The Biggest Problem For Small Businesses

Low demand is the number one problem facing small businesses today according to data by the Federation of Independent Business. While taxes have been the number one problem for around 20 percent of small businesses over the past decade, poor sales has surged ahead. See the following post from Economist's View.

If you actually ask small businesses what they are worried about instead of asserting what's politically convenient, and do so consistently over time so you can detect where big swings occur, it's clear that small business believe that lack of demand is the biggest problem they face right now:

What’s Holding Back Small Businesses?, by Catherine Rampell, Economix: The biggest single problem facing America’s small businesses isn’t taxes or overregulation. It’s low demand, according to a new report released by the National Federation of Independent Business.

Thirty-one percent of small businesses surveyed by the N.F.I.B. said that “poor sales” are their company’s “single most important problem.” The other options included were competition from large businesses, insurance costs and availability, financing and interest rates, government requirements and red tape, inflation, quality of labor, cost of labor and “other.”

Here’s a chart breaking down what percent of small businesses cited each of these problems as their biggest challenge, going back to 1986:



National Federation of Independent Business, via Haver

...[A]s you can see, the portion of small businesses citing taxes as their superlative problem has remained about the same — mostly in the 17-22 percent range, say — for about a decade. Additionally,... financial and interest rate concerns are a comparably negligible concern.

By contrast, the share of companies saying the poor sales is their main challenge has about doubled since the downturn began....
There's also a big change in the "insurance cost/availability" category in 2008 when these worries ease relative to the earlier 2000s (the bulge in this category seems to accord fairly well with the Bush years). That, like the rest of the evidence in the chart -- there's a very small increase in the answer on government requirements and that's about it -- is inconsistent with the charge that this administration is holding back the recovery by creating business uncertainty. It's the decline in demand that has small businesses the most concerned.

This post has been republished from Mark Thoma's blog, Economist's View.
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