NSBA ADVOCATE by Greg Smith

Published by the National Small Business Association

January/February 2009

Volume 23, Issue 1

.COM

All of the same great information as the print version of the NSBA ADVOCATE, but in a digital and more travel friendly design. Presenting nsbaadvocate.com for Americaâ&#x20AC;&#x2122;s smallbusiness owner on the go.

ADVOCATE

2009 SPRING ISSUE

CONTENTS Chair Keith Ashmus First Vice Chair Scott Hauge Secretary Pedro Alfonso

05 From the Hill

U.S. Representative Wally Herger (R-Calif.) talks to NSBA about Equity for our Nation’s Self-Employed Act.

Vice Chair, Communications Jeffrey VanWinkle Vice Chair, Advocacy Chris Holman Vice Chair, Membership David Ickert President Todd McCracken Editor Molly Brogan Layout & Design Greg Smith Staff Writers Molly Brogan Jere Glover Daniel R. Jones Kyle W. Kempf Jody Milanese Jim Morrison Greg Smith

06 Inside the beltway In this issue we take a look at NSBA President Todd McCrackens Congressional testimony on Perspectives from Main Street on Small Business Lending.

Treasurer Larry Nannis Immediate Past Chair Marilyn Landis

hC ealt

orm

ef re R

FROM OUR AFFILIATES If you thought mandatory paid sick leave was a problem for just a handful of states you could be wrong. Find out how COSE fought back and won a major battle for Ohio’s small businesses.

20 Resources

Can your business survive this economic inferno? A financial consultant offers up some tips on how to keep your cool as the tight economic pressures continue to rise.

23 By the numbers

Numbers don’t lie. Take a look at the latest statistics about the small business community and how small-business owners are coping with the economic downturn.

10 Feature article

The National Small Business Association asked small-business owners: What are the top ten priority issues for small businesses across the country. Find out exactly how small-business owners responded and voted on the priority issues, which drives NSBA’s advocacy agenda.

How To Reach Us

National Small Business Association 1156 15th Street NW Suite 1100 Washington, DC 20005 Phone: (202) 293-8830 Fax: (202) 872-8543 Web: www. nsba.biz Notification of address changes should be sent to the address listed above.

Mission Statement

NSBA is a volunteer-led association. Our primary mission is to advocate federal policies that are beneficial to small business and promote the growth of free enterprise 2009 SPRING ISSUE

22 ADVOCATE

NSBA Leadership Corner

Taking Stock:

Today’s Challenges and Tomorrow’s Opportunities By Keith Ashmus

Reinventing Ourselves

NSBA has always been a nonpartisan organization that works with elected and appointed officials on both sides of the aisle. Ensuring that all levels of government are working together to deliver services and policies that are pro-small business is critical to our nation’s future prosperity. In February, NSBAprovided a forum for smallbusiness owners and leaders to work together to draft and determine the important policy issues facing America’s small businesses. The biennial event, known as the Small Business Congress, is just one of the many ways that NSBA is constantly reinventing itself and repositioning the organization to better serve its members as well as the small-business community at large.

Doing More With Less

s the recession grinds its way through the economy, many small-business owners are already shaking off the gloom that pervades the news every day and taking stock. Better yet, they are realizing that the economic downturn is as much an opportunity as it is a threat. Not all that surprising, since smallbusiness owners, in many ways, are always in a perpetual state of reinvention. Now is the time to take stock of NSBA’s offerings and ask yourself, “Are you really taking advantage of all the organization has to offer?” Do you take advantage of our on-line resources, our Technology Council (SBTC) and our Exporting Council (SBEA)? As you plan for the recovery that is already appearing on the horizon, think about how you can get the most from your membership. In fact, NSBA is no different. As America’s oldest advocate for small businesses, we realize that as an organization we must reinvent ourselves, take advantage of every existing resource we have, do more with less, and represent all small businesses. 4

No company or organization is immune to the current economic recession. You may have noticed that you didn’t receive your March/April edition of the NSBA ADVOCATE magazine. That is because the NSBA ADVOCATE has been scaled back from a bimonthly to a quarterly publication. However, in an effort to provide you with more timely and useful resources, NSBA has launched a companion web site to the magazine – www.nsbaadvocate.com. Here you will find useful articles and resources on Health Care, Taxes, Environmental Issues, and even Marketing and Sales! It’s just another way that NSBA is doing more with less while providing even greater value to our members. NSBA has developed a number of targeted Web sites and micro-sites to deal with issues of critical importance to small businesses and our elected officials. Whether it’s PreventIRSAbuse.Org, a site providing vital information on the tax gap; HealthReformToday.Org, an informationrich site providing compelling testimonials and facts on the current health care crisis; or Think Big. Start Small, a site devoted to educating both Congress and the Obama Administration on the most critical smallADVOCATE

business issues. NSBA is always on the forefront of doing more with less while striving to provide accessible resources that create a noticeable impact for both small business owners and elected officials.

Representing All Small Businesses

For more than 150,000 small business owners across the U.S., NSBA is the inspired, national community that multiplies their potential by accelerating personal and professional growth. Building an inspired and resourceful smallbusiness community is the vision of NSBA. Our mission is to help our members be their best by building human connections to knowledge, ideas, relationships, and marketplaces. NSBA offers valuable benefits and resources for all members. No matter which facet of the small-business community you represent, NSBA members benefit greatly from the Association’s vigorous lobbying efforts on Capitol Hill. NSBA also conducts various surveys of the small-business community to provide long-term trending data as well as snapshots of where small business stands on current issues. NSBA members also benefit from the association’s vast expertise in spearheading vital industry initiatives in areas such as procurement, small business technology funding, “green” business practices that can save money as well as energy and the environment, access to capital, and protecting the interests of America’s small business importers and exporters. NSBA strives to represent all members of the small-business community, which is why I am asking you to encourage your fellow small-business owners to join NSBA. We already have a strong and powerful voice that cannot be ignored, but with your colleagues as part of our team, we will be even stronger and more persuasive in advancing our cause—and yours: the success of America’s small businesses. 2009 SPRING ISSUE

FROM THE HILL

Leveling the Playing Field : Why Providing Health Tax Equity for our Nation’s Self-Employed Makes Sense. By U.S. Representative Wally Herger

e are in the midst of serious economic difficulties, and American workers and small businesses are bearing the brunt of the recession. To hasten a recovery, we need to make it easier to run a small business and do away with unnecessary and unfair burdens created by government policies. We have already seen too many businesses close up shop or cut back on employees and expenses. We need to level the playing field to give all businesses the best chance to compete.

illions of Americans are selfemployed entrepreneurs who have decided to take a risk and pursue their dreams. But unfortunately, due to an unfair clause in our tax code, the self-employed are excluded from benefits larger businesses enjoy. To level this playing field, I have joined with Representatives Kind (D-WI), Reichert (R-WA), and Kosmas (DFL) to introduce the Equity for our Nation’s Self-Employed Act.

of all employers, this tax inequity forces the self-employed to pay an extra $1,940 annually. Coming from a small-business background myself, I am well aware that these types of costs can it difficult to operate a business. They can also make the difference in whether or not business owners are able to obtain coverage for themselves and their families.

nder current law, corporations are able to deduct the cost of health insurance premiums as a business expense and forgo payroll (FICA) taxes on these costs. But self-employed workers are barred from doing the same, costing them an additional 15.3 percent on their health insurance premiums. While health insurance costs are a major concern 2009 SPRING ISSUE

ith United States on the verge of a health care crisis and millions of people are already without insurance because of rising health care costs, we need to rise above partisanship to overcome these obstacles. The Equity for Our Nation’s Self-Employed Act would correct part of the problem by helping to level the playing field for small businesses. It’s ADVOCATE

patently unfair that sole proprietors, a vital engine of job creation and our economy, are penalized with additional taxes because they are not granted the write-offs that larger businesses receive. Our legislation would correct this inequity and help make health insurance more affordable for millions of Americans.

e ought to champion fairness in our tax code and pass this legislation. Economic growth and a level playing field should not be partisan issues, and I am looking forward to working with my fellow Members to correct this unfair provision. In doing so, we will strengthen both our economy and the bold innovators and entrepreneurs who drive its progress. 5

inside the beltway

Credit Card Reform: Where Small Business Stands By Molly Brogan

The May passage of credit-card reform legislation marks an important first step toward addressing some of the most egregious practices by an industry that holds the keys to the largest—and growing—source of capital for small-business owners. Unfortunately, an amendment critical to ensuring small-business owners are protected failed to make the final cut.

What the New Law Does

As signed by President Barack Obama, and approved by large majorities in both the House and Senate, the NSBA-supported Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 (H.R. 627/S. 414) would codify and strengthen most of the provisions of the “Unfair and Deceptive Acts or Practices” (UDAP) rule adopted in December by the U.S Federal Reserve Board, the Office of Thrift Supervision at the U.S. Department of the Treasury, and the National Credit Union Administration (NCUA). Specifically, the bill precludes credit-card issuers (with minor exceptions) from retroactively raising interest rates on existing balances—unless the cardholder is more than 60 days late. It also mandates that any retroactive interest rate hikes be lowered if the cardholder makes six months of on-time payments. While the bill does not prohibit issuers from raising the interest rate on any future transactions because of factors related to another card, it does forbid them from doing so on any existing balances. The bill also requires issuers to apply payments above the minimum to the balance with the highest interest rate. It also prohibits the practice of “double-cycle” billing or the imposition of any interest charges on any part of a balance paid by the due date. Finally, the legislation stipulates that any penalty fees be reasonable and proportional to the late or over-the-limit violation and requires cardholders to affirmatively allow over-limit transactions.

Ranking Member Olympia Snowe (R-Maine). The amendment was cosponsored by Sens. Benjamin Cardin (D-Md.), Jeanne Shaheen (D-N.H.), Sherrod Brown (D-Ohio), Maria Cantwell (D-Wash.), Daniel Inouye (D-Hawaii), Susan Collins (R-Maine), and Amy Klobuchar (D-Minn.). NSBA pushed for the amendment out of concern that the cards small-business owners use exclusively or even primarily for business purposes conceivably could be considered exempt from the legislation’s vital protections. This is due to the fact that the underlying bill amends the Truth in Lending Act (TILA), which for the most part applies only to “consumer” and not business transactions. Eighty-six percent of respondents to the NSBA 2009 Small Business Credit Card Survey reported using their consumer or business credit-cards primarily or exclusively for business purposes. Dodd’s original legislation passed the Banking Committee in March in a 12 to 11 vote, with all Republicans and one Democrat—Johnson—opposing the measure. In the wake of this underwhelming passage, Dodd and Sen. Richard Shelby (R-Ala.), the committee’s ranking member, entered into a period of prolonged negotiations. The delicate compromise Dodd and Shelby reached did not include any explicit small-business provisions, however, and when their support for the amendment could not be attained, the amendment died. The failure to include the Landrieu-Snowe amendment was particularly noteworthy, given that it was endorsed by a vast and wideranging assortment of consumer groups, unions, and small-business organizations led by NSBA. A similar amendment was offered in the House by Reps. Nita Lowey (D-N.Y.) and Neil Abercrombie (D-Hawaii), but was voted down in Rules Committee. Dodd and Shelby did agree to include two small-business provisions in the final legislation, however. The first requires the U.S Federal Reserve Board (Fed) to conduct a review of the use of credit cards by small-business owners with fewer than 50 employees and report to Congress within 12 months their findings and recommendations. The other provision, urged by Snowe, establishes a Small Business Information Security Task Force to address the information technology security needs of small firms.

Small-Business Protections

In an unfortunately familiar turn of events, the Credit CARD Act does not contain a small-business amendment, however. An amendment that would have expanded the definition of “consumer” under the Truth in Lending Act (TILA) to include businesses with fewer than 50 employees was introduced at NSBA’s urging by U.S. Committee on Small Business and Entrepreneurship Chair Mary Landrieu (D-La.) and 6

ADVOCATE

Outlook

NSBA will continue working with Congress and the Obama Administration to ensure that all of the credit cards small-business owners use for their firms are covered by these welcome and overdue protections.

2009 SPRING ISSUE

From our affiliates

Popular Isn’t Always Practical The Fight Over Paid Sick Leave : An Ohio Case Study By Steve Millard, President & Executive Director COSE

opulism. It seems to be the mechanism du jour for labor these days. Ohio’s business community was faced with an aggressive populist campaign in 2008 at the ballot that was focused on creating a mandate requiring seven days of mandatory paid sick leave for Ohio employers with more than 25 employees. An almost identical measure is facing the entire country in the Healthy Families Act. The Council of Smaller Enterprises (COSE) a 17,000+ small business membership organization based in Cleveland, Ohio servicing the businesses of Northeast Ohio was out early against this issue in late 2007. In addition to requiring seven days of paid sick leave, the ballot issue further allowed sick time to be taken with no notice and in the smallest increment of time an employer’s payroll system tracked. For many employers that was a ten minute increment, and an hour was the highest increment allowed under

2009 SPRING ISSUE

the proposed law.

state, we could beat Issue 4.

There were a myriad of other issues with this flawed legislation. One of the most significant was a prohibition in the law of the use of sick leave as a factor in any wage action, performance review or termination process. This clause essentially opened employers to lawsuits over any perceived slight that could be linked to an employees’ use of paid sick time.

Over eight months, COSE worked with a statewide coalition of business concerns that mobilized grassroots educational efforts with employers and employees. From an employer resource kit to academic research (http://delicious.com/ COSESmallBiz), to videos featuring employees as well as radio and television ads, the business community worked hard to educate voters on the negative economic consequences for our state.

The proponents of this issue were both well funded and had the benefit of a populist appeal—featuring ads of sick children headlined by phrases like “Paid Sick Leave: We’ve earned them. Our families need them.” Even though 88.5% of small business employees already had some type of paid leave available, the issue came out of the gates polling with 70%+ support and over the course of the campaign dropped no lower than the low 60’s. However, polling data indicated that if we could help voters understand the negative impact on small business in Ohio and could educate them about the resulting loss of jobs in our

Just a day or so before the filing deadline for the November ballot, the Governor of Ohio—a popular Democrat—under enormous pressure from business interests, was successful in his request to the Service Employees International Union (SEIU), the main proponent behind this issue, to pull the issue from the ballot. In

ADVOCATE

an election year with a nominee for President who was in full support of the measure, Governor Strickland understood that though popular, this initiative would hurt Ohio’s competitiveness nationally and disadvantage our state. His rationale, with Democratic Senator Sherrod Brown at his side, was that he and the Senator would fight for passage at the national level where a national “level playing field” could be created. So – Ohio and its small business community dodged a bullet. But, the fight will continue on the national stage with the Healthy Families Act. We’ll see you there!

Resources

No More SECRET BALLOTS? CHECK. SMAL PREPARING YOUR SMALL BUSINESS FOR Card Check. Employers must prepare themselves for the possibility that the Employee Free Choice Act (EFCA), also known as Card Check, or some version of it, will become a reality. This legislation, already approved by the U.S. House of Representatives in the last Congress and likely to come up for a Senate vote later in 2009, would amend the federal National Labor Relations Act.

compromising their personal views or actually giving in to a request to sign cards or petitions.

Employers face stiffer penalties

Under the EFCA, employers would face stiffer penalties for unfair labor practices, including what are essentially triple damages for conduct determined to be unlawful during the bargaining process for the first labor If passed and signed into law, it would dramatically agreement. change the way unions organize workers and how unions and employers negotiate initial collective bargaining A few things that you can do to protect your small business agreements. So what steps should your small business include: take to prepare for EFCA? • Clearly communicate your company’s stance regarding unions in handbooks and policies to No more secret ballots counter the potential union argument that the The EFCA would eliminate the current secret-ballot process by which ... correspond with your employees and employees choose to be represented by a union. In its place would be regarding the meaning and importance of what’s known as a card-check system. Employees who sign cards cards, including identification of mis would not have a right to vote if the used by organizers to get signatures. union got a majority of employees to sign up. Now, unions can use cards to get elections, and employees can hear all sides of the issue and then vote in secret. If employer does not care or would welcome EFCA passes, elections will become things of the past. a union. Employers will find themselves with a union before they • Take steps to ensure that existing rules are even know a union is approaching their employees. adequate to manage the workplace; make necessary changes in the rules if they are One step you can take is to correspond with your not. Make those changes before a union employees and their spouses regarding the meaning and appears on the scene. importance of authorization cards, including identification • Carefully enforce rules even-handedly, of misleading tricks used by organizers to get signatures. and do not let problem employees evade appropriate discipline. Additionally, meet with your employees regarding • Handle workforce changes thoughtfully, authorization cards, and identify techniques they can whether increasing or decreasing numbers. use to deal with aggressive union organizers without • Follow established procedures regarding 8

ADVOCATE

2009 SPRING ISSUE

Resources

ALL BUSINESS? CHECK..DISASTER??CHECK.

resetting wages and benefits generally and consider A few measures you can take to make sure your small changing your system if it no longer suits your business is prepared to handle a union strike or corporate workplace. cam ssaign include: • Exercise great vigilance regarding union Surviving a union strike or activity in your workplace or in the local area or corporate campaign in your industry, or with particular customers, While it’s impossible to predict whether or when or suppliers or competitors. This is an indication in what exact form the EFCA will be enacted, it is that you may already be a target. smart for employers to get ready now in case it does. • Review contracts and work arrangements so If the EFCA becomes law, there may be little time as to be sure the company is structured to to train your managers and supervisors on how to withstand a union strike or corporate campaign, communicate properly with employees, or to have a including discussions with customers and backup plan in place if your business faces a strike. In suppliers about their view of the potential fact, in many areas of the country, unions are already for strikes and other disruptions. If your best getting cards signed and are “stockpiling” them in customer will stand by you if you suffer a case EFCA passes. strike, that’s important to know; likewise, you (and your employees) need to know if that nd their spouses customer will permanently pull all its work on the first day of a strike. of authorization • Consider establishing alternative means of producing or providing the company’s products misleading tricks and services and communicate the general existence of such alternatives to employees. There are many other steps you might take, depending upon your individual, unique circumstances and the advice of your employment counsel. Now—before your employees make a decision that has dire consequences for their work lives and your business — is the time to educate yourself and your employees on the realities of working in a unionized environment. Keith Ashmus is a co-founding partner of Frantz Ward LLP, an entrepreneurial law firm formed in 2000 and recently named one of Ohio’s top 50 law firms. Frantz Ward is one of Ohio’s top-tier employment firms as rated by Chambers USA.

2009 SPRING ISSUE

ADVOCATE

Feature Article

The

Issues Decided Sm Busi Small business is big business. In the U.S., approximately 70 million people–one quarter of the entire U.S. population—work for or run a small business. Yet, given all the economic growth and jobs created, small business continually is an afterthought in the realm of public policy.

It is clear that America is at a crossroads and leaders in Washington must seriously consider new and innovative policies that promote a better, more confident, prosperous, and secure America in the 21st century. The only question is how do elected officials accomplish such a broad reaching mission?

lt a e H

The answer is simple: provide small business with favorable policies that allow them to worry less about politicking and more about doing what they are good at – running their businesses, creating jobs and fueling the economy. 10

ADVOCATE

or f e eR r a C

2009 SPRING ISSUE

Feature Article

s ed mall iness as

So where should Washingtonâ&#x20AC;&#x2122;s leadership start in crafting a prosmall business agenda? In February small-business leaders gathered from across the nation to attend the Small Business Congress hosted by the National Small Business

small-business issues, and drafted and voted on the top ten issues facing small business that require immediate attention of lawmakers and the administration. The issues are as follows:

Es Retate for Ta m x

Association (NSBA). During their time together, small-business owners talked with one another, received briefings on crucial 2009 SPRING ISSUE

to ess

t api

ADVOCATE

Feature Article

Broad Health Care Reform

The small-business community needs substantial relief from escalating health insurance premiums. This level of relief can only be achieved through a broad reform of the health care system with a goal of universal coverage, focus on individual responsibility and empowerment, the creation of the right market-based incentives, and a relentless focus on improving quality while driving out unnecessary, wasteful and harmful care. NSBA’s plan to accomplish universal coverage can be simply summarized: 1) require everyone to have a basic level of coverage; 2) reform the insurance system so no one can be denied coverage and so costs are fairly spread; and 3) institute a system of subsidies, based upon family income, so

on a guaranteed-issue basis and would be allowed to give limited discounts or benefit enhancements for wellness programs. Tax incentives would be capped at the premium level for the required package, and additional coverage could be purchased using aftertax dollars. This will curtail over-insurance and ease demand for health benefits inlieu of other compensation. These reforms would help return a greater share of health insurance to its role as a financial backstop, rather than a reimbursement mechanism for all expenses, and provide a greater focus on individual responsibility and empowerment to drive more robust consumer behavior. NSBA also believes more must be done to improve quality and keep costs in check. Delivery system reforms that shift reimbursement from a volume-based purchasing model to a value-based purchasing model would appropriately reimburse providers on actual health outcomes and standards, rather than procedures. Health care infrastructure investment will provide the framework for the implementation of electronic records and procedures including digital prescription writing, individual electronic medical records, and universal physician IDs. Greater transparency of medical procedure costs and outcomes would incite competition and motivate consumerism. Greater access to primary care through medical homes and other alternatives to

health care and health insurance systems is called for.

Fair Labor Practices in the Workplace

One of the biggest threats to small business is potential changes to labor practices in the workplace. The top priority for organized labor in the 111th Congress is legislation that would change long-standing labor laws that have been on the books for over 60 years to allow for increased union membership. Organized labor’s agenda includes legislation that could have significant impact on the employer-employee relationships in small businesses, including the deceptively named Employee Free Choice Act and the RESPECT Act. Employee Free Choice Act or ‘Card check’ The Employee Free Choice Act would take away a worker’s right to a federally supervised private ballot when deciding whether or not to join a union. Instead, the proposed bill would require the National Labor Relations Board (NLRB) to certify a union that brings in signed authorization cards from a majority of employees in the company bargaining unit. The card check system makes it easier and less expensive for unions to target and organize small businesses of any size, using any means available—false or misleading promises, threats or coercion. Employees who sign just to get persistent organizers out of their

It has become clear to NSBA that, to bring meaningful affordability, access, and equity in health care to small businesses and their employees, a broad reform of the health care and health insurance systems is called for. that everyone can afford coverage. NSBA’s plan calls for a basic benefit package that includes only truly necessary benefits and recognizes the need for higher deductibles for those able to afford them. The basic benefit package would be subject to federally-established rating rules based on modified community rating, adjusted for geography, with defined rate bands within which all federally-defined packages must be priced. Insurers would operate 12

traditional doctor’s offices should provide near-term relief. In addition to limits on medical malpractice awards, NSBA supports the implementation of Health Courts to handle medical injury disputes. These reforms can reduce unnecessary procedures, increase efficiency, and improve the quality of health care. It has become clear to NSBA that, to bring meaningful affordability, access, and equity in health care to small businesses and their employees, a broad reform of the ADVOCATE

living rooms will now be stuck with the union in their workplaces indefinitely. As if this weren’t bad enough, the Act could then impose a contract on the employer, based on what a government-selected arbitrator decides. Even if a wage increase can’t get passed along, or a union pension plan is underfunded, the arbitrator could force it on an unwilling small business. Furthermore, NLRB jurisdictional standards used to identify organizing-eligible 2009 SPRING ISSUE

Feature Article businesses are outdated and not indexed for inflation. Some of these jurisdictional standards are shockingly low, including any non-retail company with more than $50,000 annually in direct or indirect inflow or outflow of goods or services across state lines. To be considered a small business for nearly every government program according to the U.S. Small Business Administration’s Size Standards, however, the range in total annual sales starts at $750,000 and goes up to $34 million—far above NLRB’s threshold. RESPECT Act Under current federal law, unions cannot organize supervisors. However, a top priority of organized labor is to dramatically limit which workers the National Labor Relations Act (NLRA) classifies as “supervisors.” The NLRA, the nation’s primary law determining the rights of employees to join unions and bargain collectively, excludes supervisors from the definition of employee. Currently, a supervisor is defined by the NLRA as an employee with the authority to “hire, transfer, suspend, lay-off, recall, promote, discharge, assign, reward, or discipline other employees or to responsibly direct them, or to adjust their grievances, or to effectively recommend such action” so long as this authority requires the use of “independent judgment.” The Re-Empowerment of Skilled and Professional Employees and Construction Tradeworkers (RESPECT) Act would remove from the definition of “supervisor” the duties of assigning and responsibly directing other employees. The legislation also specifies that supervisors must “hire, transfer, suspend, lay-off, recall, promote, discharge, reward, or discipline other employees” for a MAJORITY of their work time. This proposes a significant change in the NLRA resulting in a disproportionate impact on small businesses where almost no supervisor spends their time conducting any activity a majority of the time. The RESPECT Act would make virtually all employees nonsupervisors for NLRA purposes.

SBIR Reauthorization, Expansion, and Strengthening

By using the proven innovative power 2009 SPRING ISSUE

of small, technology-based companies to meet America’s technology needs, the Small Business Innovation Research (SBIR) program is a key means of access to capital for small R&D companies and the nation’s largest source of early-stage research and development (R&D) funding. SBIR has delivered thousands of innovations in its 25-year history through a competitive and transparent contracting process. It has provided more than 60,000 patents and now generates new patents at the astonishing pace of seven per day, on average—far more than all U.S. universities combined, at less than one-twelfth their level of federal R&D funding. Despite the remarkable achievements of

“Today, small R&D companies employ 38 percent of all scientists and engineers in America. This is more than all U.S. universities and more than all large businesses.” SBIR, federal R&D funding is still skewed against small businesses. Today, small R&D companies employ 38 percent of all scientists and engineers in America. This is more than all U.S. universities and more than all large businesses. Furthermore, these small companies produce 20-25 percent of the nation’s most important technological innovations and five times as many patents per dollar as large companies and 20 times as many as universities. Yet small companies receive only 4.3 percent of the federal government’s R&D dollars. The SBIR program provides more than half of this amount. SBIR has been successful because it is based on a rigorous three-phase process that allocates contracts according to promise. Phase I funds the critical early development stages of technological innovations that have scored the most highly in responding to public “requests for proposals” by federal agencies. Phase II contracts, limited to the most effective Phase ADVOCATE

I awardees, bring innovations to the full prototype or market-ready stage.And Phase III (which utilizes non-SBIR funding, generally from the private sector) commercializes the technology. NSBA believes that SBIR Phase III should be further strengthened by Congress, utilizing best practices from the most successful SBIR commercialization efforts in the past. To participate in the SBIR program, a small business must employ the principal researcher and not more than 500 employees in total. It also must be American-owned, independently operated, and for-profit. Despite calls from some quarters for a relaxation of these criteria, NSBA remains a staunch advocate of their continued application—believing that SBIR was intended as a means to advance the R&D efforts of actual small businesses and not larger or nonprofit entities, which already have access to far greater sources of federal R&D funds. SBIR is a fully competitive program, imitated by countries around the world and praised by every independent third-party evaluation it has received—including the U.S. Government Accountability Office, the National Academy of Engineering, and the National Academy of Sciences. NSBA urges Congress to build upon the tremendous success of the SBIR program by reauthorizing and strengthening the program.

Mandatory Employee Leave

NSBA urges Congress to oppose any move that would hinder an entrepreneur’s ability to create jobs—something an expansion of the Family Medical Leave Act (FMLA) of 1993 surely would do. A number of proposals to add to leave, both paid and unpaid, have surfaced i n

the 13

Feature Article 111th Congress. All of these would slow or stop job-creation and growth of small businesses at precisely the time when we need it the most. Currently, FMLA requires employers to provide employees with up to 12 weeks of unpaid leave in a 12-month period. FMLA leave provides employees extended time off for the birth or adoption of a child; care for a spouse, parent or child with a serious health condition; or when the employee is unable to work due to a serious health condition. FMLA applies to employers who have at least 50 employees. Senate Health, Education, Labor and Pensions Committee Chair Edward Kennedy (D-Mass.) and Rep. Rosa DeLauro (D-Conn.) introduced legislation, the Healthy Families Act, in the 110th Congress which would require employers with 15 or more employees to provide seven paid sick days to all employees working 20 hours or more per week. An employee’s sick time would be accrued as of the date of hire, and awarded on a pro-rated basis just three months after the date of hire. Under the Healthy Families Act, 28 percent of business owners fear that productivity would decrease. Furthermore, 25 percent of respondents expect the peremployee cost of complying with the Healthy Families Act to exceed $1,000— for a business with just 15 employees, that would mean at least $15,000, not counting lost productivity. That is at least one full time job that can’t be added. Rep. Pete Stark (D-Calif.) has introduced legislation, the Family Leave Insurance Act (H.R. 1723), which would expand the FMLA threshold to 20 or more employee, and provide up to 12 weeks of paid leave. The legislation establishes an FMLA fund financed by employers and employees through a new fee/tax equivalent to 0.2 percent of each

expense to employers and employees at absolutely the wrong time. Paperwork and legal requirements have overwhelmed small-business owners, who, prior to FMLA, often allowed employees time off without the government telling them how to do it. Perhaps the most troublesome outcome of FMLA expansion is stifling job growth, or the potential that small-business owners would hesitate to grow, especially if it means having to give paid leave to all employees.

Access to Capital

The U.S. finds itself in the midst of the worst financial crisis since the Great Depression and America’s entrepreneurs—existent and aspiring—are suffering through a crippling credit crunch. Given that accessing capital is one of the largest and most persistent obstacles facing America’s small-business owners, this is especially worrisome. According to a nationwide NSBA survey of small- and mid- sized business owners, 55 percent of small- and mid- sized business owners had difficulty securing credit in the previous six months—and this finding was consistent across firm size and revenue. One of the biggest barriers to smallbusiness financing is the requirement that debt be secured by equity in fixed assets. Many small and startup businesses lack the kind of equity necessary for traditional bank loans. This gap in debt-equity financing especially hinders startup and growing businesses, as these entrepreneurs typically do not have the assets necessary to acquire sizeable loans. Another barrier to capital for small

Although it is typically thought of as a tax on individuals, the Alternative Minimum Tax (AMT) strikes harder at small-business owners than at wage earners. employee’s earnings, tiered progressively according to income level. That fund would then pay for individuals’ paid FMLA leave. This legislation could prove to be an added 14

businesses is that banks too often shy away from the small-business community. Smaller loans generally are less-profitable for banks and typically have higher default ADVOCATE

rates. Additionally, the proper valuation and credit worthiness of small businesses are notoriously difficult to determine. Ongoing bank consolidation has lead to fewer community banks and fewer character-based loans as well. Aggravating this state of affairs is the recent tightening of lending standards by banks. The Federal Reserve recently reported that the number of banks reporting having tightened their lending policies in the past three months remained “very elevated.” Nearly 70 percent of domestic banks reported that they had tightened their standards for commercial and industrial loans to small businesses. It should not be surprising then that the number of small-business owners who reported using traditional bank loans, was at a 15-year low in NSBA’s 2008 annual survey. In addition to tightening their lending standards, hundreds of banks have dropped out of the lending programs offered by the U.S. Small Business Administration (SBA) or have simply stopped making—or drastically reduced the number of—SBA loans. Between 2001 and 2007, there was a 47-percent decrease in the number of banks making at least one 7(a) loan. Meanwhile, there has been a massive decline in the amount of SBA lending. There were 57 percent fewer 7(a) loans in the first quarter of 2009 than during the same period in 2008. Additionally, total dollars loaned fell by 40 percent, to almost $2 billion. The number of loans made through the 504 program was down 46 percent from 2008. It is vital that Congress and the administration recognize the economic benefits of fully-funded SBA programs. 2009 SPRING ISSUE

Feature Article For every $33,000 lent through the 7(a) program, one job is created or retained. In 2002, 7(a) loans created or retained 370,000 jobs.

Alternative Minimum Tax

Although it is typically thought of as a tax on individuals, the Alternative Minimum Tax (AMT) strikes harder at small-business owners than at wage earners. Why? For starters, successful entrepreneurs tend to earn more, and 90 percent of small businesses have their profits taxed as personal income, regardless of whether the firm is organized as an S Corp., LLC, or unincorporated business. In addition, when an entrepreneur’s income carries him or her into AMT land, some business deductions are not allowed. The AMT, which was created 40 years ago to ensure that high-income taxpayers would pay at least some tax, has failed at its original mission and now snags growing millions of middle- and upper-middle-income Americans. The income threshold that qualifies one as wealthy was never pegged to inflation, so today taxpayers earning as little as $75,000 can run afoul of the AMT. Congress has approved patches, but has yet to tackle a long-term solution. NSBA supports full repeal of the AMT, or alternatively, supports changes to lessen the impact on middle-income taxpayers. Because many small businesses are passthrough entities, their business income is reported as personal income, subjecting increasing numbers of small-business owners to this complex tax.

Credit-Card Reform

According to a recent NSBA member survey, 59 percent of smallbusiness owners identified credit cards as a source of financing they had used in the previous 12 months—up from 49 percent just four months earlier. Smallbusiness owners use credit cards to finance their business more than any other source, including business earnings. In 1993, this number was only 16 percent. NSBA data also shows that nearly three-quarters (71 2009 SPRING ISSUE

percent) of the small-business owners who use credit cards as a source of funding are carrying a balance month-to-month. Twelve percent of small-business owners are carrying a balance of more than $25,000, and 38 percent are carrying a balance of more than $10,000. Although they are increasingly turning to credit cards to finance their business ventures, 79 percent of small businesses surveyed report that the terms of their cards are worsening. America’s small-business owners are not in the habit of advocating the passage of increased federal regulations, preferring free enterprise and market solutions, but the current practices of the credit-card industry defy the principles of a free market. One of the basic tenets of free-market capitalism is the sanctity and insolubility of contracts, but somehow the credit-card industry has managed to insulate itself from adherence to this principle, retaining the right to unilaterally change the conditions of their contracts at any time. A free-market system also relies on actual competition, but there is no longer real competition in the credit-card industry. In 2004, the top 10 issuers controlled 88.1 percent of the market (understood as their proportion of outstanding credit-card debt). Free market competition also is based on informed consumers, but the business practices of the credit-card industry appear geared more toward obfuscation than illumination. Although improved disclosure—which must not be construed as simply more disclosure—is of paramount importance to the small-business community, it is not enough. NSBA supports the following creditcard reforms: 1. Prohibit the practice of universal default, 2. Prohibit the practice of double-cycle billing, 3. Prohibit the retroactive application of interest rate hikes—interest rate increases only should be applied to future card usage, 4. Limit the interest rate percentage increases that card issuers can impose on holders, 5. Require card issuers to apply a customer’s payments to the card balance ADVOCATE

with the highest interest rate first, 6. Prohibit extra interest charges on card debt that the cardholder already paid in full, 7. Prohibit interest charges on transaction fees, 8. Prohibit late fees if an issuer’s action caused a delay in crediting a payment, and 9. Establish an industry-wide practice regarding the time on which a payment must be received or sent to be considered on time. Despite NSBA’s best efforts, language to specifically include small businesses in credit-card reform legislation debated early in the 111th Congress failed to make its way into the final legislation. NSBA will continue working with lawmakers to ensure that the protections extended to credit-card consumers also protect America’s small businesses. Small businesses are not opposed to the credit-card industry. In fact, they are increasing reliant on it. Small business simply asks it play by the same rules.

Energy Policy

The time has come to actively address America’s oil dependence and the shortcomings of its national energy policy. As small businesses produce more than half of the private sector output and consume nearly half of all of the electricity and natural gas used for commercial and industrial purposes in the U.S., it is imperative that America’s small businesses be comprehensively involved in this effort. This national endeavor must not only protect small businesses, it must make full use of them. At the forefront of the effort to provide energy solutions, drive economic growth, create jobs, and protect the environment are innovative, entrepreneurial, and growing small businesses known as “green gazelles”. NSBA supports increased federal incentives and funding to advance the research and development efforts of these small-business innovators. NSBA urges Congress and the administration to increase domestic energy production, construct a predictable and long-term framework of rules and incentives for the development and use of renewable and alternative energy—with a focus on technological innovation—and implement a 15

Feature Article national program to drastically enhance the nation’s energy efficiency, especially as it relates to the transportation sector. Expand Domestic Production Although expanding U.S. domestic oil production will do little to reduce the long-term strategic vulnerability caused by its oil dependence, it is an important, short-term action that may help stabilize volatile energy costs and assist American consumers and small businesses with their immediate energy needs. Diversify Domestic Production It is imperative that the U.S. establish clear, long-term goals for small businesses and consumers to use alternative and renewable energy. It is equally if not more important that the federal government fund research and create incentives, such as investment tax credits, for renewable and alternative energy innovation—including the cutting-edge work of the nation’s Green Gazelles. Revolutionize U.S. Transportation and Automotive Industries Transportation is the crux of America’s oil dependence: 97 percent of the oil used in the U.S. is consumed for transportation. NSBA supports incentives for the use of more fuel-efficient vehicles and the continued exploration of alternative-fuel vehicles. NSBA views hybrid vehicle technology, especially the plug-in hybrid variety, as exceptionally promising, and believes that this potential merits further exploration. Improve Energy Efficiency Improving America’s energy efficiency must be a central component of any national effort to confront its energy dependence. NSBA also supports efforts to expand current On-Bill Financing regulations—a proven method of providing improved capital access to small firms seeking improved energy efficiency—and other access-to-capital innovations. NSBA also supports the enactment of measures to increase the reach and visibility of the ENERGY STAR Small Business program, including the reallocation of existing EPA and DOE agency funds to increase its budget.

Estate Tax Reform

One-third of small-business owners today will have to sell or liquidate part of their business to pay estate taxes, and half of those who liquidate to pay estate taxes will have to eliminate 30 or more jobs. A study by Greenberg Quinlan Rosner finds that a broad majority of Americans support reforming the estate tax to protect small business owners and family farms. While the much-maligned estate tax rate has gradually decreased since 2002 and the exemption level has increased—giving small and family-owned businesses some temporary relief—more needs to be done to protect small business. Although Congress recently extended the current estate tax levels for 2009, unless futher action is taken, the estate tax is set to increase significantly, back to its 2001 levels, stripping from small businesses any sense of confidence in their ability to hand-down the family business. While NSBA continues to support full repeal of the estate tax, NSBA members have agreed to a five-point compromise plan that 16

would permanently repeal the estate tax on small and family-owned businesses—including farms. It would exempt estates of $7.5 million with a tax rate set at 15 percent tied to the capital gains tax rate to ensure a more fair method of passing-down a business—regardless of what event triggered the transfer. The estate tax exemption would be fully indexed for inflation and calculation of estate tax owed would include a step-up in basis, allowing heirs to use the higher basis to figure their gain when the property is ultimately sold. This compromise is necessary to make sure that small businesses can invest in the future and not in estate planning.

#10

Self-Employment Tax on Health Care

NSBA supports measures to allow the self-employed to fully deduct their health insurance premiums on their income tax and their self-employment tax (FICA tax). Under current law, corporations are able to deduct the cost of health insurance premiums as a business expense and forego payroll (FICA) taxes on these costs. The self-employed, however, are unable to take the same deduction. As a result, they pay an additional 15.3 percent tax on their health insurance premiums. This is a heavy burden for this group of small businesses, who already pay on average over $12,680 annually on health insurance premiums for family coverage. Eliminating this tax would reduce the average cost of health care for the self-employed by more than $1,940 annually. This is why, Representatives Ron Kind (D-Wis.) and Wally Herger (R-Calif.) along with Reps. Suzanne Kosmas (D-Fl.) and Dave Reichert (R-Was.) have introduced the Equity for Our Nation’s Self-Employed Act (H.R. 1470) a measure that would allow the selfemployed to fully deduct their health insurance premiums for the purposes of their income tax and self-employment tax (FICA tax). Senators Jeff Bingaman (D-N.M.) and Orrin Hatch (R-Utah) have introduced companion bill S. 725. NSBA is actively working toward passage of this legislation in order to remove a significant inequity within the tax code that penalizes self-employed Americans and makes it increasingly difficult for them to afford quality health care coverage.

More on the Issues While these are the top priorities, as identified by smallbusiness owners, it is crucial that the 111th Congress and the Obama Administration begin to take a 360-degree view of everything that impacts small businesses in addition to these issues. As a staunchly nonpartisan organization, and America’s oldest advocacy organization for small business, NSBA looks forward to the opportunity to work with lawmakers to help craft a more friendly small-business agenda. For a comprehensive view of NSBA’s Priority issues please visit www.nsba.biz/issues.shtml.

ADVOCATE

2009 SPRING ISSUE

RESOURCES

Non-stop Action

NSBA’s Action Alert Center Brings All the Action to Your Computer By Greg Smith

The Action Alert Center is NSBA’s communications tool that makes reaching lawmakers on bills and regulations of interest to the smallbusiness community easy. The best part is that getting involved through Action Alerts is effortless! Benefits of NSBA Action Alert Center: • Free and available to anyone within the small-business community! • A central database of legislative activity and advocacy successes. • Keeps a record of communications to legislators when action alerts are issued. • Makes communicating with area newspapers a snap! • Makes taking action simple by providing an online action alert template. Taking Action NSBA has made taking action simple. Follow these six steps to take action and tell your elected officials exactly what you think with the click of your 1. Log-on. Log on to the NSBA Action Alert site, http:// capwiz.com/nsbaonline/home/. Here you will see the latest action alerts that require the attention and support of smallbusiness owners, employees, friends, and family. To see a complete listing of all of the Action Alerts available choose “Issues and Legislation” and then “Legislative Alerts and Updates.” you will then see all of the Action Alerts. 2. Select an alert. NSBA’s Action Center is filled with multiple issue areas that require the attention and support of small business to help win the battle on the Hill. Choose an alert that affects your specific industry or small–business operations.

4. Customize the letter. In most instances, an e-mail address is available for the person that will receive the message. In these cases, you have the option to e-mail or print the letter. NSBA recommends that an e-mail message be sent. The “Subject” line is the subject line of the e-mail that the person receiving the e-mail sees when it shows up in their inbox. The subject line will be populated when the message is created but can be edited by the sender. In some instances the composition of the message will be populated with language drafted by NSBA or suggested talking points which can be edited by the sender. NSBA encourages personal stories be incorporated whenever possible. 5. Ready to Send. When the letter is ready to be sent, the Action Alert will ask if the sender wants to be remembered. By checking this box, you will not have to input your personal information again if you want to send another Action Alert. The Action E-List allows NSBA to maintain a file of e-mails of Action Alert users for future alerts. Finally, the site will ask you to authenticate your e-mail by typing in the code presented on the page. This is done so that only “real” e-mails are sent and not spam. 6. Preview your message. Previewing the letter is important to ensure that there are no glaring mistakes. In some cases, the letter will be sent to multiple individuals and two letters will be available for preview. If there are no changes, your message is ready to be sent. Once the message has been sent to the intended recipient, the NSBA Government Affairs Department will be notified. Doing so will provide staff with a record of action taken on the Alert. NSBA uses these notifications to follow up with the legislator(s) to make sure they received the member’s e-mail. Linking to Capwiz Action Alerts Members can download the Capwiz Web sticker to place on their constituent Web site. By doing so, visitors to your web site can click on the icon and be taken to all of the Action Alerts currently on the NSBAAdvocacy Web page. To download the sticker, use the following address— http://capwiz.com/ nsbaonline/remotecontent/

3. Input your contact information. Since legislators have spam filters, if your contact information is not included, an e-mail cannot be sent.

2009 SPRING ISSUE

ADVOCATE

IN the News

NSBA data is quoted regularly in local, regional and national media outlets. Our members and on various radio shows. Below are just a few of the many recent media mentions of NSBA. For more, CBS Evening News Credit Card Uproar A National Small Business Association survey set to be released Monday shows nearly 60 percent of small businesses are using credit cards with 79 percent saying the terms of their credit cards have gotten worse. “Our survey shows that small businesses often don’t feel like they even have the time to turn a bill around and have it paid on-time,” said NSBA President Todd McCracken.

Crain’s Cleveland Business Small Firms Lobbying for Credit Card Protections Keith Ashmus, chairman of the National Small Business Association and a partner at law firm Frantz Ward LLP in Cleveland, said tighter cash flow issues just make the need for credit card reform — and access — all the more pressing. “It’s more problems at a time when we’ve got plenty of problems already,” Mr. Ashmus said.

The Early Show on CBS White House on Credit Cards “They like things the way they had it, and that’s no longer acceptable,” stated NSBA President Todd McCracken. “But I’m absolutely convinced there will still be plenty of credit cards available to virtually everyone.” CNN Entrepreneurs Pessimistic on Future The National Small Business Association (NSBA) saw similar results in its just-released survey of how business owners have fared over the past year. While 38 percent said their sales had increased, 45 percent reported declining sales. BUSINESSWEEK Is the Recession Suffocating American Innovation? “If banks stop lending in general, lending for small innovative technologies dries up completely,” said Jere Glover, a Washington business attorney who directs the National Small Business Association’s technology council. “Banks are more likely to make loans to a company that has bricks and mortar, land and property.”

ADVOCATE

2009 SPRING ISSUE

IN the News

leadership have been featured in prominent publications and television news programs, and appear regularly please visit www.nsba.biz/news.html American City Business Journals Many Small Firms Investing in Energy Efficiency “Given the extremely difficult economic challenges small businesses have been facing over the last nearly two years, the fact that there are still a significant number investing in energy efficiency is a testament to the important leadership role small businesses can take in any green movement,” said NSBA Chair Keith Ashmus, an attorney with Frantz Ward in Cleveland.

THE WALL STREET JOURNAL Credit Woes Hit Home Meanwhile the National Small Business Association, a trade group, said 69% of 250 surveyed smallbusiness members faced worse terms on their cards, such as higher interest rates, in the second half of last year. Kiplinger More Small Business Loans, Anyone? “There will be some pent up demand because the banks have pulled back some,” says Todd McCracken, president and CEO of the National Small Business Association. “But I don’t expect to see big increases in lending until we see an uptick in the economy.” Fox Business News Overhaul in the Offing at SBA Given the vital support role the SBA plays, Landrieu and other small-business advocates are calling on the Obama administration to restore the cabinet-level status the agency had during the Clinton administration. Doing so “makes a lot of sense,” says Keith Ashmus, chair of the National Small Business Association, because it could ensure small business a larger role in the economic recovery. The Washington Post Tools, Tips and Studies: Health Care Heats Up, Snail Mail Slows Down The National Small Business Association has launched Health Reform Today along with new data on the small business community and its difficult relationship with affording decent health insurance. Group President Todd McCracken said the number of small business owners who are able to provide health insurance to employees dropped from 67 percent in 1995 to 38 percent in 2008.

2009 SPRING ISSUE

ADVOCATE

Entrepreneur APR Hikes Ambush Biz Owners New measures to keep credit card issuers from bullying card holders are due to take hold in 2010, but that’s not soon enough for small business advocates such as Todd McCracken, president of the National Small Business Association.

Resources

Can Your Business Escape the Economic Inferno?

by Pamela Ragon

n mid-2008, market analysts said we were facing the worst economic downturn in 20 years. Today’s economy is being compared to The Great Depression. Too many good companies find themselves struggling to stay afloat. Precipitous drops in sales, loss of a major customer, challenges from overseas competition, and burdensome debt structures bedevil most business owners today. To say this economic downturn isn’t much fun is a gross understatement.

2008 saw a record number of bankruptcies. Iconic companies like Chrysler, Bear Stearns, Circuit City and the Tribune Company have folded. U.S. business bankruptcy filings during the three-months ending September 20, 2008 were up 61 percent over filings for that period in 2007. In 2009 we are well on the way to another record year for bankruptcies. Whether your business is deteriorating slowly or rapidly, measured steps can be taken to avoid becoming another bankruptcy statistic.

Alternative credit sources

The financial crisis has forced banks to tighten their purse strings. Businesses that have good relationships with their lenders are now finding it difficult to secure additional credit for operating capital. If you cannot get access to additional lines of credit despite a good credit history, consider alternative lending sources such as factors for your working capital needs. It might pay to transfer your accounts to a community bank. While some of the largest financial institutions have collapsed, and others still teeter on the brink, community banks have emerged far less battered and bruised, benefitting from a more conservative lending approach, and less exposure to real estate and construction loans.

Now might be the time to sell

redundancies, inefficiencies and underperforming products.. However, the best option may be to position the company for sale to either a strategic or financial buyer. Entrepreneurs are inclined to wait out the cycle and avoid selling until the economy has turned around. Assuming the business will survive is a risky gamble right now. Strategic buyers are looking for ways to improve their own performance, and .acquisitions can help diversify and shore up weak spots.

Getting a second kick at the can

While some big name private equity groups have stumbled recently, many smaller ones still are looking for good investment opportunities. Most usually want the seller to keep from 20 to 40 percent of the business, especially if the seller remains on board. While you will give up controlling ownership, a strong financial partner often helps take the business to a new level. Companies typically are resold after three to five years, letting you cash in a second time with returns as large—or even larger—than those realized in the first sale. The economic inferno affects every company differently. Some simply will not survive. Some will thrive again because the owner takes decisive action to get the business on safer footing. Others still are better positioned for a sale and stand to reap a good payday despite a difficult market. Smart, contrarian business owners are beating the economic downturn by carefully weighing their options and considering those that can work in their favor. Pamela Ragon is a certified public accountant accredited in business valuation providing her with a thorough understanding of what makes companies valuable to prospective buyers. In her 20 years as a financial professional, Pamela has worked with clients in a variety of industries including technology, manufacturing, distribution, financial services and real estate. For more information, refer to the company website at www.allcapcorp.com.

It is wise to reassess every aspect of your business and eliminate 20

ADVOCATE

2009 SPRING ISSUE

RESOURCES

How to be a Real Leader in Tough Times

Finding Ways to Save More Than Just Jobs

By Professor Graham Jones

earning to handle pressure is a key requirement for great leadership, and more important than ever during difficult economic times. Real leaders will make tough decisions, respond quickly to change, and find opportunities despite all the marketplace doom and gloom around them. They will recognize this period as part of the economic cycle, understand that good times will return, and know that retaining top talent is vital to remain competitive. Leaders of small businesses who are able to stay mentally tough despite economic conditions and are willing to steer away from safe leadership tactics and step-up to become real leaders are those who will survive, and even thrive, in the long-term. Below are a few strategies that small-business owners can employ as they aim to keep employees motivated and businesses profitable while navigating the tough economic climate. Identify, develop, and retain your best people Leaders who are performing under pressure will know which employees are their best assets and essential to survival. Business owners must support them to manage stress and maintain self-belief in order to ensure their engagement with the company’s goals. These employees will also be critical to growing a business once the recession is over. Avoid staff lay-offs by focusing on the future when making decisions Real leaders will continue investing in people when times are tough because that’s precisely when competitors can steal a march and gain advantage. Small-business owners will inevitably be very focused on the short-term, but those who keep planning for the future as well will come out of tough times stronger than others. Communicate openly and honestly with your people High performing leaders will disclose something of themselves to their employees. They will be honest about the organization’s challenges and be open to challenge and questions from their teams. A strong and meaningful vision that employees can connect with emotionally will be key to survival strategies. Create a ‘mentally tough’ environment Real leaders develop mental toughness by staying in control under stress, maintaining self-belief, and focusing on the things that really matter. Mentally tough leaders will be resilient to the current challenges and create conditions where their employees can thrive under pressure. Small businesses might feel especially disheartened by the current volatility and anxiety in the business world, as they see their company 2009 SPRING ISSUE

faced with unfamiliar challenges. However, small business owners can turn these economic tough times into a period of sustainability and even growth for their companies if they can build their and their employees’ mental toughness. Use tough times as an opportunity to become better leaders In tough economic environments, too many leaders focus on the constraints on performance rather than the supports and opportunities available. By focusing on the controllables, real leaders will be able to sustain performance and develop resilient teams around them. Overall, small-business owners must continue to walk the balance beam. They must ensure that clients are supported, and employees are motivated so that their businesses can survive the current economic challenges. Graham Jones is Co-founder and Director of Lane4, a performance development consultancy working in the fields of organizational change, leadership development, and executive coaching and a coauthor of “Developing Mental Toughness; Gold Medal Strategies for Transforming Your Business Performance”. Lane4 incorporates sports psychology to challenge staid thinking, while positively influencing business mindset leading to increased performance.

ADVOCATE

Resources

THE VALUE OF COMMUNITY

A LOOK AT WHAT NSBA OFFERS

SBA offers valuable benefits and resources for all of its members. No matter which facet of the small-business community you represent, NSBA members benefit greatly from the Association’s vigorous lobbying efforts and myriad educational resources. NSBA members also benefit from the association’s vast expertise in spearheading vital industry initiatives in areas such as procurement, small business technology funding, and protecting the interests of America’s small-business importers and exporters. As the nations oldest organization representing America’s entrepreneurs, we represent every industry imaginable with a network that reaches over 150,000 small businesses. As you’ll see, our services and offerings speak for themselves. NSBA ADVOCATE NSBA’s quarterly magazine featuring comprehensive coverage of NSBA members, Affiliate Organizations, and the small-business community. NSBAWeb NSBAWeb (www.nsba.biz) provides breaking news, research, career resource information, conference registration, online forums and more to your workplace. The NSBA Weekly Advocate NSBA’s Weekly e-newsletter delivering 22

ADVOCATE

quick-read updates.

association

and

industry

NSBA Surveys NSBA routinely conducts targeted member surveys throughout the year on issues of importance to the small-business community. These surveys provide an in-depth look at how the small-business community feels about a particular issue. NSBA also conducts weekly Quick Polls in which our members are asked their opinions on one or two items of interest to lawmakers and the media. NSBA Store Online bookstore stocked with resources to assist in your professional and personal growth. NSBA Councils NSBA currently has three councils: Small Business Exporters of America, Small Business Technology Council, and Procurement Council. NSBA members can gain access to the valuable information released by the councils for an additional nominal yearly fee. Joining NSBA will be one of the best personal decisions you make about your professional growth and development. You will find a local community of colleagues who have the same entrepreneurial spirit and business goals as you and you will benefit from a wealth of resources unlike any others in the industry.

2009 SPRING ISSUE

By the numbers

NSBA Surveys

NSBA routinely conducts a nationwide survey of 500 smallbusiness owners representative of all U.S. small businesses on a wide array of topics ranging from politics to employee benefits to financing. In addition to the broad survey, NSBA surveys 250 of our member businesses on issues of financing, job growth and economic outlook to provide a snapshot of how small business is faring to provide NSBA’s Mid-Year Economic Report and the Year-End Economic Report.

Economic Slowdown

When asked in early 2007 to compare the economy with five years ago, 43 percent said that the U.S. is worse off. In September 2008, that number jumped to 68 percent, and skyrocketed to 91 percent in December 2008. Despite an overwhelming majority of small-business owners (91 percent) who think the economy is worse off today than five years ago, 62 percent remain confidant about the future of their own business.

NSBA also routinely conducts targeted member surveys throughout the year on issues of importance to the smallbusiness community. These surveys provide an in-depth look at how the small-business community feels about a particular issue. The last piece of NSBA’s data mining is the weekly Quick Poll in which our members are asked their opinions on Nearly two-thirds of Americans (63%) one or two items of interest to lawmakers and the media. said small business and entrepreneurs will lead the U.S. to a better future, About Small Business only 21 percent said the same of large More than one in two people in the U.S. private workforce corporations, according to a 2009 Zogby/ work for or run a small business, according to data from the WeMedia poll U.S. Small Business Administration Office of Advocacy and U.S. Census Bureau Small businesses ranked economic uncertainty (75 percent), the cost of In the last 20 years, small business has created 93.5 percent health insurance (43 percent), inability of all net new jobs, totaling 21.9 million new jobs—or 4,000 to access capital (33 percent) and federal jobs per day. taxes (32 percent) as the most significant challenges they face to the growth and Small business comprises 99.7 of all U.S. private employers, survival of their business. or 26.8 million businesses, and creates more than half of U.S. gross domestic product. Key Issues Health insurance continues to be Of the 26.8 million small businesses in the U.S., 19.5 million voted among the top two priorities for do not have employees. The majority of small employer America’s small businesses. In 2008, firms, 4.7 million of the more than 6 million employer firms, only 38 percent of all small businesses are very small businesses with fewer than 10 employees. were able to provide health insurance to their employees, down from 61 percent Small firms create 13 times more patents per employee than in 1993. large firms, and export an average of $375 billion in goods and services every year. Fifty-eight percent of small businesses who reported health insurance rate 2009 SPRING ISSUE

ADVOCATE

increases were unable to provide employees with salary increases and 39 percent held off on hiring a new employee. Currently, self-employed individuals are unfairly prohibited from deducting the cost of premiums as a business expense, resulting in an additional 15.3 percent tax on their health insurance premiums that no other individual must pay. Fifty-nine percent of small-businesses surveyed in 2008 used credit cards in the past 12 months to finance their business despite the broad majority (79 percent) citing worsening credit-card terms. In 1993, only 16 percent of small businesses used credit cards as a source of financing. Spikes in energy costs greatly impact small business. In February 2008, 77 percent of small-business owners were negatively impacted by rising energy costs. Despite the economic downturn, smallbusiness owners are working to meld their stewardship of the U.S. economy with environmental stewardship. Onethird of NSBA members surveyed said their business is currently offering energy saving products or services, and nearly a quarter actively strive to do business with “green” companies. Sixty-seven percent of NSBA members said they would consider investing in alternative energy sources if provided with increased information, technical assistance, grants and/or rebates.

1156 15th Street NW Washington, DC 20005 nsba.biz