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Tuesday, August 24, 2010 2:51 PM


Another Atlas Shrugs - Small Business Owners Chime In


In response to Small Businesses are Not Hiring - Should They? I received a couple emails worth sharing. The CEO of a healthcare consulting company writes ....

Hello Mish

You ran a series of articles on small businesses, hiring and expansions. I thought I would add to it.

I run a small firm, with about 45 employees and 40 contractors. We have been growing pretty well, close to 80% topline numbers for the past 3 years. Our average salary is over $100,000. We have some innovative software we sell to the industry. We also offer operational improvement strategies and IT consulting.

We provide great healthcare insurance coverage to our employees. It is necessary in order to attract talent and I am in the talent business. Our healthcare costs went up 90% this year – and that is on a 6-figure number to begin with. We found only one insurer willing to provide us coverage, United Healthcare.

Every other provider pulled out of our segment of the small business market. Cigna, our prior carrier, refused to renew at the last minute on a technicality despite being our carrier for the past 3 years.

Our management team’s focus for two weeks was seriously diverted as we dealt with the consequences of this. Had we lost coverage altogether, we would have been out of business as our employees would go elsewhere.

Our staff is young and healthy, by and large. Average age is early 30s, in the healthcare consulting, software and technology industry. Only in a severely government distorted marketplace can a firm with a young and healthy staff that has had coverage for years face insurers pulling out or demanding a 90% hike.

We had plans to add one person to our R&D staff, a low 6-figure salary. That was shelved because of healthcare costs. Our software development cycle is slowed as a result.

How has the healthcare bill helped the economy? In this case, not one bit. And everyone of my employees has been hurt, because we switched mid-year, those who were part way into their deductible have to start all over again. That is a few 1000s for a number of employees. Because of a bill that passed that cost us money, and most of our employees money. No one is happy with this.

I have additional areas I would like to invest in. Areas that involve productivity gains, not just taking share from someone else, and not just for us. Many of the things I would like to do would reduce costs for my customers and build efficiencies in the healthcare industry as well.

One of our software products reduces the cost of clinical trials, and has saved millions of dollars in better planning. Another model we have developed reduces the cost of carrying inventory for bio/agritech firms. I believe it is the best in the world, developed by a Ph.D. out of Carnegie Mellon. It saves millions a year for large companies (Monsanto, Bayer Crop Science, etc. type of companies).

Productivity is the wealth of a nation.

However, thanks to Obama administration policies, we are pissing our edge away on dumb stuff which makes us hesitate to invest more. Thanks a lot, Congress.

The state government, California, (surprise, surprise, surprise) has intimated our customers. Several large companies are withholding taxes from our payments in case we need to pay sales tax on our services. We don’t. It is our responsibility to pay sales taxes under our contract anyway.

What can I do? Sue my customer?

How in the heck in this environment can a business owner feel good, create jobs, and expand?

It's no wonder small businesses are in a sour mood. I have so many other stories from other small business owners that I know. The theme is the same. We are all up against overseas competition, against taxes, against the government, against societal acrimony.

Many of my business executive associates are looking to cash out if they could find a buyer at a decent price. As my friend, a former mid-size credit union COO and small business owner, says whenever one of the “good guys” – people who understand how to start businesses that are productive - throws in the towel and cashes in … “Another Atlas shrugs.”

The business climate is freaking insane. I don’t blame the insurers too much. It takes a government to make a market this screwed up.

Thanks to you and others, I pay more attention to Washington, D.C. and state legislatures. I also call to protest and give money to fiscal conservative candidates.

Unfortunately this takes time away from my business. But do I have a choice?

Unions get to pay people full-time to lobby on their behalf. Me? I work long weeks. I feel bad for my family if I don’t spend more time with them, but I cheat my son if I don’t fight for a better world for him.

As always, your coverage of all topics, including public sector unions, is wonderful, a great service, and greatly appreciated. You have an impact on us who don’t have time to do this on our own, but care about our society and want to contribute. I have given to so many individual campaigns and efforts around the country this year, more than the rest of my years combined. You are making a difference, thanks.

"Healthcare CEO"
Nursery Wholesaler Chimes In

David, a nursery wholesaler in Oregon writes ...
Hello Mish

We are not hiring either, why should we?

My wife and I own a small wholesale nursery in Oregon. Nurseries were shining star of agriculture in Oregon and elsewhere for the last @ 20+ years.

The contraction is causing sales to drop industry wide. A few nurseries have gone bankrupt in the last year. One bankruptcy auction netted the owner $.07 on the dollar. The bank may now need to take the land to pay the debt. You want to talk about striking fear into the nursery industry? Well $.07 cents on the dollar will certainly do it!

Others who are still hanging on have watched their sales drop up to 80% from the peak. Yes 80%! No new houses = no new yard and street landscaping, plain and simple.

Competition is fierce as everybody is trying to unload plants before they are too big and must be thrown out or must be planted into a larger container (more expense). Why put more money into something that may not sell anyway?

Our sales are down about 30% from last year. We are selling some plants that would have sold 2 years ago prior to the debt crunch. Overcapacity is everywhere in our industry, prices are dropping to move material instead of dumping it out which is a total loss.

Here is the first rule in small business: Everyone else gets paid first and you get what is left over. I'm not surprised the State of Oregon is having increasing budget problems, I think we will see another downward revision in the state budget in next couple of months.

Sincerely,

David
For more of the problems facing Oregon and other highly unionized states, please see Dysfunctional Oregon

Thanks for sharing David, "Healthcare Consultant CEO".

Addendum:

Frustrated in Phoenix, owner of a design firm writes ...
Hi Mish,

I started a mechanical design firm 25 years ago. I worked out of my house at first. Then I rented office space as work came in. I hired employees. I paid them decent wages and gave them reasonable benefits.

Now, I don't have employees anymore. I contract out everything. I have no choice. I make more money per job now than ever.

Health care insurance broke the bank. The health care 'reform' that has been enacted is an insult to business owners and hard working, non-union employees.

Whether you are on the left or the right of this issue, you have been sold out to the insurance industry. Add up social security withholding, medicare, unemployment insurance, state and federal income taxes, and the result is 35 to 40 percent of payroll goes for taxes. Add to that the cost of health insurance and we're talking about 50% of payroll going out the door, not invested in R&D, equipment, advertising, employee training, new software, etc, etc. Out the door....gone.

I'm doing much better thank you now that I work from home. I don't have a payroll, and I don't have insurance.

Frustrated in Phoenix
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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