Perspective from a Small Business Owner

It occurred to me, listening to President Obama speak today about our country’s debt problem and the horribly scary coming-crisis, tagged “The Fiscal Cliff” that most people probably have no idea how a small business operates, financially. His plan calls for taking care of the middle class – a great idea – while socking it to the rich. Those making over $200,000 or couples making $250,000 combined. That doesn’t make sense. Why not make it double for a couple, to $400,000? But that’s not the point of my post.

We owned and operated a small business for 17 years in the Denver area. I did the bookkeeping. I watched government regulations come in and take over many areas of our business. Do you realize that as an employer, we could not give ourselves a benefit out of the business that was not offered to our employees? Remember, I’m talking about a small business. Perhaps 20-30 employees. For several years, starting in 1970, we paid all of our employees’ medical expenses: insurance, deductible and out of pocket, for their entire families. In 1978, the government first enacted the 125 Cafeteria Plan for employees. We started seeing big changes in our insurance. Costs went up. Preexisting conditions meant we had to pay for more expensive insurance for everyone. We could no longer pay the medical for our employees because it was considered taxable compensation for them. The government required businesses to institute the Cafeteria Plan system for employees. We were below the bottom number of employees, but it was our only option, so we began offering the government’s Cafeteria Plan. Such a great deal for employees. (Some people seem to think so.) They got to choose how much they thought they would spend for the following year. It was deducted from their pay before taxes. At the end of the year, if they didn’t guess right, and there was money left over, they lost it. Frankly, it increased my bookkeeping, and we didn’t want what was left-over, so we gave it back to the employees, in the form of a bonus, which was taxed. The government may not “raise” taxes, but they manage to collect more by approaching from a different direction. Over the years, insurance costs continued to rise, meaning more and more cuts to benefits, just to keep the business solvent.

We instituted a 401K plan with the company matching up to a certain level for all employees, but as employers, we were penalized in that we could not put into our 401K more than a percentage of what our employees contributed to theirs. One year we went over and had to pay a penalty.

About a small business’s big profits. That profit is after expenses. However, there are a lot of business expenses that are not considered expenses. Capital expenses. We had a fleet of service vehicles. They had to be replaced every 5-10 years. We had tools and machinery. None of those things can be expensed. They are purchased as assets with after-tax dollars. We had to have enough profit to pay our taxes and to keep our fleet on the road and any other capital expenses needed, including paying off debt. There are a lot of capital expenses that must be counted as assets and therefore, are not deductible as expenses. A company’s bottom line is truly not its bottom line. We purchased inventory to have merchandise to sell. We paid property taxes on that inventory.

A company that grosses one or ten or twenty million dollars is really a small business. The idea that businesses, and corporations – most small businesses have to be incorporated because of taxes and liability and insurance – are a bunch of greedy rich people just isn’t so. They are ordinary people, employers of ordinary people, trying to make a living for their own family and all the families that depend upon them. And the bottom line is a simple fact. They cannot grow under President Obama’s economic plan or health care plan. Government programs and regulations may sound good, but they are insidious. They creep in, and once in place, they are practically impossible to get rid of. All these programs and regulations and taxes strangle small businesses.

You’re welcome to disagree with me, but please don’t just throw stones. Be sure you can dispute my experiences because you have owned and operated a small business with employees, and had different experiences.