Quick…think of the last 5-6 businesses with which you have had a transaction. Perhaps you stopped somewhere for gas, got some help filling out your taxes, picked up a few home essentials, took the kids out for pizza or brought the car in for a repair over the weekend. Odds are, if you live in Louisiana, several of those stops were to a small business.
Louisiana small businesses are the backbone of our economy. In fact, according to a new state report released by the U.S. Small Business Administration (SBA), they employ more than 917,000 people or 53 percent of our workforce. The top five Louisiana small business industry sectors are health care, food services, retail, construction and professional services. These industries alone employ more than half of all small business employees in the state.
Louisiana’s numbers correlate well with figures found in other states. According to the SBA report, more than half of all Americans work in a small business. Two out of every three new jobs in the country are created by an entrepreneur, and most are in a small business. Roughly half of those small start-ups will survive at least five years. Those that do make it that long have a strong chance of prospering, though other challenges obviously await.
While the SBA defines a small business as any business with fewer than 500 employees and less than $7 million in annual sales, the average small business in the country is much smaller than that. In fact, the national average for a small business is less than 20 employees and less than $2 million in sales.
Profit margins are often extremely tight in a small business. Some of the lowest average profit margins (around two percent) are found in grocery stores, automobile dealerships, lawn/garden stores and beverage manufacturers, while some of the higher average profit margins (ranging from 13 – 18 percent) can be found in businesses such as dental, auto leasing, real estate and accounting. Either way, these margins can change quickly and are dependent on moving targets such as workforce, taxation, regulations, customer behavior and financing.
This vulnerability is why it is so important that policymakers keep the impacts on small business in mind as they promote legislation to address governmental challenges AND that all of us as consumers support small businesses any way we can.
For instance, we have seen the Legislature and Governor champion efforts over the last few years to raise taxes on critical items like income, inventory, utilities, manufacturing equipment, inputs, operating losses, insurance, and other business services. Any of those tax increases can potentially wipe out a one to two percent profit margin for a small business trying to survive, and any mix of them could shut their doors for good. These types of tax proposals have very real consequences for the types of small businesses and jobs we should most strive to protect.
Other policy decisions can also have a huge impact on the viability of small businesses.
Our legal climate continues to be one of the most damaging in the country, and Louisiana’s vehicle insurance rates are some of the highest in the nation. In fact, we rank 51st this year on the Judicial Hellhole list released by the US Chamber of Commerce. Despite the obvious link between excessive lawsuits and high insurance costs, lawmakers killed common-sense legislation this year that would have allowed seat belt testimony to be heard in court to help lower insurance costs.
Legislation pertaining to ridesharing has passed the House of Representatives and is currently pending in a Senate Committee. This bill would establish a statewide framework to make it easier for providers like Uber and Lyft to offer services in more communities. This framework would help keep our streets safer by taking drunk drivers off the road and assist small businesses by making it easier for customers to enter their establishment. This bill is a win/win and needs to become law.
Louisiana small businesses are some of the most regulated and licensed in the country, expensive and time-intensive barriers to entry for entrepreneurs to enter the workforce. These bureaucratic obstacles target those trying to start a small business more than most. The legislation is pending in the Senate to remove some of these needless licensing requirements, and the Legislature should not adjourn until they get this done.
A resolution calling for a Constitutional Convention is being considered this session. There is no doubt Louisiana has a broken budget process and an antiquated, top-heavy government model that is showing its age. It is time to call for an open and transparent convention that rewrites our constitution and finally prioritizes free enterprise and local control over the power and patronage of state government.
Any of these things can make a huge difference for a small business.
Raising taxes on the items most important to small business success and looking the other way when lawsuits and excessive licensing requirements threaten their existence will not help these critical employers succeed. Providing safe and reliable transportation options for their customers and reforming our constitution to help lessen the drain a growing state government has on shrinking small business profit margins can help.
Politicians love to speak of their commitment to small businesses but watch closely to make sure their actions match the rhetoric. The same goes for all of us consumers. Next time you head out to make a purchase, keep your local small business in mind. Trust me, they need you just as much as you need them.
Stephen Waguespack is president of the Louisiana Association of Business and Industry