It is probably no surprise that many small business owners are not sure or don’t even know about the myriad of regulations affecting their business. A new small business study from the National Small Business Association (NSBA) reported that 12% of small business owners say they don’t even know if the relevant regulations affecting their business are local, state or federal.
What do we mean by regulations here? We are speaking of the Affordable Care Act, federal tax codes as well as industry-specific regulations. According to the results of the NSBA study, nearly half of all small businesses said that regulations related to taxation and health care/health insurance are very “burdensome.”
The NSBA writes that the study “…provides quantitative support for the need to greatly reduce regulatory complexity, streamline the web of federal, state and local regulations, and adhere to plain language statutes.”
One of the main issues is that time-challenged small business owners must wear a number of hats, including regulatory experts. Increasingly, regulatory expertise needs a law or accounting degree and most owners and entrepreneurs do not have immediate or affordable access to this level of expertise and consequently, “wing it” on issues of significant importance. However, NSBA says the small-business owner is the “…number one regulatory expert … and handles the bulk of federal regulatory compliance.”
The study concluded that small business owners spend an average of $12,000 to comply with various industry regulations and more than half of small businesses report spending more than $1,000 in DIRECT costs and another $1,000 in INDIRECT costs relating to state and local regulations — the cost of federal regulations is estimated to be 5x higher. Many small business owners are seeking working capital to address these increasing regulatory requirements.
In terms of the time and labor spent on compliance with regulations, 44% reported spending more than 40 hours a year, while approximately one-in-three spend more than 80 hours each year.
Not surprisingly, the respondents described the process of navigating regulations as anxiety-inducing. NSBA notes that this fear of bureaucratic regulations and the headache (not to mention time and money required to deal with regulatory issues) could represent a hurdle in terms of the number of entrepreneurs starting their own business. According to the NSBA, more than half of small businesses say “…they really started worrying about regulations within the first year.”
The NSBA cited that these worries, coupled with significant regulatory costs associated with a business’ first year, totals $83,019— resulting in lagging start-up rates in recent years.
On February 24, President Trump signed an Executive Order directing “each agency to establish a regulatory reform task force, which will ensure that every agency has a team of dedicated — and a real team of dedicated people to research all regulations that are unnecessary, burdensome and harmful to the economy, and therefore harmful to the creation of jobs and business.”