The Reason Small Businesses Are Disappearing, As Explained By A Small Business Owner

No matter what business you start, you seem to be dependent on businesses farther up to provide your staples. The money filters up to the top. Now, if you are making furniture out of rustic wood, you can deal with small businesses to supply your need but you still need businesses that are larger to supply the tools you use and to market your products if you want to get bigger. You also need insurance most times. If it is a hobby income, insurance is not needed. But if someone gets hurt on your product, you could lose everything without product liability insurance. It doesn't really cost that much anyway. The insurance hardly ever pays out, they just hire lawyers so you don't have to go bankrupt with legal costs.

I can relate. Although I'm not technically a business owner right now, I am self-employed as a freelance musician on the side (formerly professional until I opted for the dayjob a few years back).

I recently considered joining a local cover band in my town that's pretty popular, they play about 80 dates per year and pull in some decent money. I estimate I would make about 20k per year with the band. I turned it down.

It's because the way the tax code is structured. Between federal and state income tax, plus paying the full 15.3% self employment tax, I would end up paying 50% of my income in taxes. Then figure in about three thousand more per year in travel and business expenses (gas, replacement strings, stage clothing, gear repair, etc.). it brings my net down to around 7k per year.

Earning 7k on 80 gigs per year is $87.50 per gig. For a 3 hour gig, + 3 hours of setup, tear down, and travel time, I'm barely making $14.50/hour. And I lose my weekend nights with my wife and kids. No thanks.

It's a real shame that things are set up to PUNISH small businesses, entrepreneurs, and self-employed folks. It has actually caused me to get out of the self-employment business and start working for someone else, it's just not realistic to try to make a normal living anymore on your own. The government has set it up in such a way that even those who don't want to rely on someone else pretty much have to anyway. It's just not economically feasible anymore to be your own business.

They pass these regulations and laws on the premise that they are making you safe and ensuring that you get a quality product, but what is really happening is that they are steadily making sure that the only ones who can really make it are the very largest of businesses.

These are mostly anti-competition, and it is by design. Businesses don't want to have to compete for your money.

The insurance companies got a biggie when you allowed the government to force you be their customers. Now there is NO cost control incentive because you can't refuse. And the regulations are such that only the largest companies can hope to survive making it anti-competition. It's fascism at its finest.

People get angry when we suggest de-regulation, but this is the result of predatory regulation - less small business, less competition.

originally posted by: tavi45
I ran a small business for a while. I love in a high density, high wealth area. The rent alone cost as much as our revenue at half capacity. It might be different in rural or poor areas but property owners have an insane amount of power. Demand is so high and supply so low that they can charge whatever they want, demand whatever they want, and offer as little in services as they want.

It happens everywhere. The irst thing that every business owner learned was to own your own property. You could try borrowing money from a bank, but they would want your home to guarantee the loan. You could try renting space in an " startup incubator" run by the local university, but they jacked up the rates as soon as any company gained a research grant. Lease property from a commercial landlord and they jack up the rates the minute you get some publicity in the local papers.

Small business owner here. Thriving, but my model is simple. No employees, low overhead. The Economy is good. It just depends on what you do, your competition, your business plan and your business model. If my business really picks up I can change later on. I can add an employee or market more. But with ramping up like that, you get more complications, more expenses. Simplicity and good planning are the key.

I want to throw my 2 pennies in here, I'm in the UK and run an online SEO / Web design business - because having an office or shop is just too expensive.

I blame a large part of this on 2 things:

1) the real estate price boom, which encouraged "investors" to borrow lots of money to buy lots of commercial property at inflated prices, and they need to cover their loan payments, which equals insanely high rents;
2) The local authorities who see businesses as a cow that is there to be milked with excessive taxes and charges;

So, about 6 years or so ago we decided to look into opening a shop selling clothing.

It was going to be in a relatively small town where the shopping center is fairly quiet, the center has 3 rungs - the top rung is busiest, the middle rung is quieter, the 3rd rung is deathly quiet - most people only venture there because the toilets are situated there.

The rent being asked for a VERY small shop unit was £3500 per month, this was in a contract signed to a 5 year lease with a break point after 3 years.

In other words you are signing up to take the shop unit for 5 years at £3500 per month (£210,000) - if the business goes bust - tough - give us the money. It doesn't inspire anyone to even want to take the risk.

At the break point you can TRY to negotiate new/better terms - good luck there, a bakers that had a unit for well over 25 years at contract renewal were hit with the bombshell that if they wanted to stay there the rent was DOUBLE.

Anyway, just do some simple maths:

To make the £3500 rent per month, at a gross margin of 50% (i.e. doubling the cost price of the product, or the margin = 50%) then to make £3500 profit would require £7000 of sales.

If you also want to pay yourself, say an average wage of £2500 per month, that's another £5000 of sales needed.

If you want some time off and need to employ a part time worker on say £1000 per month, that's another £2000 of sales required.

Then you have taxes, charges, costs, and other incidentals - lets say another £1000 (conservative) requiring yet another £2000 of sales.

That means that to run the business and earn a salary you could get in a regular job, you need to have a turnover per month of at least £16,000, plus you're signing yourself up to 5 years of worry, and you've got to lay out money in stock etc, and you have all of the headaches, accounting, etc, etc, etc to contend with.

In a small town there is no chance.

I actually went along the row and asked other shop owners what the footfall was like and whether they would recommend opening a shop and they all said "NO - don't do it", so I took their advice and didn't.

The costs are way too high compared to the returns.

That's why the town in question now has a massive number of empty and/or boarded up shops.

I actually have a nickname for my theory of small business decline: Redwood Economics. Simply put, the crushing anti-competition influence of the magacorporations. It's like a redwood forest, to any who have actually have been able to visit these natural wonders. One interesting thing about redwood forests is how easy it is to walk amongst the trees,mostly, because of the almost complete absence of undergrowth and scrub. What little undergrowth exists tends to be limited to tough ferns, fungus, hardy shade lovers. This is do to the fact that not only are the biggest redwoods completely crowding out the sun, but their extensive shallow root system also keeps the soil extremely drained and unfriendly for other plants. As a result, the diversity of animal life in a redwood forest tends to be very low at the ground level. There is little to support anything but the redwoods. Not even new redwoods can grow. The old ones keep getting older, bigger, fatter.

Now when a storm or natural wildfire hits, it knocks down a number of the older giants and creates clearings from which a diversity of life rises from the corpses of these trees, including new redwoods. The soil is replenished, the sun can finally reach the ground, all sorts of things start growing, which attracts critters from bugs to deer grazing on the leaves to the cougars that hunt the deer. The collapse of giants is not necessarily a bad thing, especially when the collapsed or destroyed redwood was old, decaying, weak, diseased, and rotting.

But what would happen if say, a bunch of hippies against change went into the forests, and stomped out natural fires, and brought in steel bands, scaffolds, concrete, and support to keep all these old, weaker trees from naturally collapsing and creating clearings for new life? You end up with oversized behemoths past their prime still sucking nutrients out of the forest floor, still hogging the sunlight, but becoming less and less capable of supporting what limited life lives amongst it. Needles turning brown, bark rotting with parasites that spread to other trees, ect. Not good for the forest and overall ecosystem.

The same principle applies to the war against small business. The government, lobbyists, private interests are ironically like the hippies bolstering and artificially extending old, decaying trees, with their bailouts, subsidies towards larger businesses, and special interests keep bolstering decaying, outdated institutions and entities, depriving the seedlings (small businesses, independent innovators, new ideas, changes, ect) the sunlight and nutrients they need to grow. Thus, in the shadow of redwoods, the forest floor is pretty dead (not to mentioned the dead decaying needles that fall from the branches suffocate and inhibit plant life).

Moral of the story: there is no such thing as "Too Big to Fail." In fact, some should be labeled as "Too Big so Let That Sucker Fall". The current way of doing things is designed so that big corporations can continue quasi-monopolies, and the regulations set up by government agencies and lawmakers are designed to inhibit small business ability to function, let alone compete. It chokes out all competition from the bottom tier, reduces economic mobility, and stagnates innovation. I think one of the biggest reasons for the decline of the solid middle and working classes in America is the decline in small businesses, because many average people in the past built solid and comfortable lives either starting or working for a smaller business/company.

Other not oft mention reason for the decline in small business is the ridiculous amount of petty and ridiculous lawsuits awarding ridiculous sums for ridiculous reasons. A large corporation can shrug off lawsuits like cattle brush off flies, but one lawsuit can destroy a smaller business and ruin the owners financially. We really need to address this and take a hard look at our legal system, which itself has become a huge money making racket and tool for destroying small business.

This is not only the US. Myself and 2 cousins ran a small engineering factory in UK in the nineties and went to a seminar to try to get some financial help to expand. This was at a time when the EU were offering regeneration funding for our deprived area. After sitting through the presentations from government agents and bank personnel we found out the criteria for a small business is between 40 and 80 people employed(not a 3 man firm like ours) the real kicker was the minimum you could "borrow" was £20,000 and you had to match that amount else they would not lend you the money. Just lets say ALL these helps, whether from government or private investors, are no help at all but just to tie you in to a bigger entity.

a reply to: Skadi_the_Evil_Elf

I like that analogy.


Hopefully I can be the hardy fungus and weeds on the floor ready to soring up when a red wood goes down :p