I'm sure as many business owners and CEOs can tell you, starting and growing a business is extremely difficult. It can be so overwhelming that business owners often turn to consultants or venture capitalists to assist in fund raising and operational expertise. Obviously a lot of planning has to go into business strategy, corporate culture, budgeting, competition, marketing, intellectual property, target costumers, law, costs, and location. I would like to focus on the last two.
Something that business development pros and venture capitalists may overlook from time to time is the impact of government regulatory costs on small businesses. It is something that owners should pay attention to. In September 2005, the U.S. Small Business Administration's Office of Advocacy reported that "research shows that small business continue to bear a disproportionate share of the federal regulatory burden ... the cost per employee for firms fewer than 20 employees is $7,647." Companies with 20 to 499 employees had a per employee cost of $5,411 while companies with 500 or more employees had a per employee cost of $5,282.
The study measured economic, workplace, environmental, and tax compliance regulations. "Environmental and tax compliance regulations appear to be the main cost drivers in determining the severity of the disproportionate impact on small firms. Compliance with environmental regulations costs 363% more in small firms than in large firms. The cost of tax compliance is 67% higher in small firms than the cost in large firms," the study points out. It went on to report that economic regulation impacted large firms more than small- to mid-sized firms. The authors conclude that regulation of international trade, which falls into the economic regulation category, contributed to the higher cost for large firms by virtue of their potential international reach.
The way things are going in Washington these days those costs will only rise. Small business owners should lobby their Congressional representatives to mitigate the cost impact of these laws.
Location, location, location. Another important aspect of growing one's business is location selection. Business 2.0 researched 10 major urban locations that have just about hit rock bottom because of the housing crisis, which may offer opportunities for investors. Dallas; Indianapolis; New Orleans*; Atlanta; Montgomery, AL; Mobile, AL; Memphis, TENN; Austin, TX; Houston; and St. Louis made the list. While the story focused on residential real estate deals business owners should take into consideration the low real estate prices and the pool of educated, skilled workers these locations offer.
Business owners along with their consultants and VCs should also consider the tax climate before expanding into certain locations. According to the Tax Foundation, Wyoming, South Dakota, Alaska, Nevada, Florida, Texas, New Hampshire, Montana, Delaware, and Oregon have the top 10 business tax environments, in that order. The 10 least competitive tax jurisdictions, beginning with the worst, are Rhode Island, Ohio, New Jersey, New York, Vermont, California, Nebraska, Iowa, Maine, and Minnesota.