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Icon Tax Group: How Do Small Businesses Survive

by Michael Lodge

A client asked me to write about small business. In her message she said, “You own a small business, we own a small business, no one is calling. The economy has slowed to a stand still, wish you would do a blog about small business, the backbone that drives the economy“. So in this article I will try to dwell on her concerns, which is my concern also as a small business. So let’s go over some facts about small business in America.

I was amazed to see that the U.S. Census Bureau reports that 400,000 new businesses start every year in the United States – but 470,000 are dying. Which means that more businesses are dying than businesses are starting. Another issue is that there has been no growth for small business, cash flows are very tight where they may have just a few days of cash to just keep the business going. Operating expenses have gone up but revenues have remained stagnant. They are cash poor from a very stagnant economic recovery. Small business creates jobs for many communities, but it is tough cash flows that have small businesses living just on the edge of closing down or surviving one more day.

If you are in California you have a very anti business environment where business is looked on as an evil by the State Governments. From 2008 to now over 9,000 companies have moved away from California to states where there is a more friendly attitude towards business. Arizona, Texas and Florida leading the states where it is better to do business. I know for my firm to remain in California it is going to have to either increase our client base or move to a state where it is more business friendly and we don’t have to work so hard to stay in business. Sad thing to say but it is the truth.

Ed Leefeldt of Moneywatch wrote the following article that pretty much sums up the story on small business in America.

Many small-business owners and academics aren’t buying into President Obama’s claim that the 5.2 percent rise in household income last year translates into an economic rebound. Truth be told, it could be the opposite.

Jack Bick called it “an aberration.” Bick, founder of S. Charatan Realty in New York City, said he has seen a slide in apartment and commercial real estate values in the Big Apple.

In Central New Jersey, the story is the same. “We haven’t seen more in salaries in the audits we perform,” said Bill King, co-owner of the Manalapan accounting firm Vinci & King. He handles many business accounts and said their revenue during the last year was basically level with what they made in 2014.

On the other side of the country, David DuPell, owner of an appliance store and shopping complex in Grass Valley, California, said after many years of recession, “sales are now sluggish at best.”

And the owner of an Orange County, California, web-hosting and computer repair business echoed that sentiment. “The small businesses we deal with are not thriving,” he said. “They’re surviving by downsizing locations and automation in the workforce. Cutting costs is more the norm for small business than a rise in income.”

This gloomy view from the trenches was also reflected in a report from the Small Business and Entrepreneurship (SBE) Council, which said Americans now have less disposable income, not more. In fact, its latest analysis showed a “striking shortfall” for the average American’s actual take-home pay.

On Sept. 13, the U.S. Census Bureau reported that median household income jumped $2,800 — slightly more than 5 percent in 2015. While speaking at a rally in Philadelphia for Democratic presidential candidate Hillary Clinton, President Obama called it a “big deal … the single biggest one-year increase on record.”

But many Americans see it as a case of “been down so long it looks like up to me.” While household income may have gone up in 2015, “over the last decade there not only has been no growth … it actually decreased slightly,” said the SBE. This compares unfavorably with the average 1.4 percent annual rise over the last 60 years.

And the 2015 bump still put the level below the pre-recession years of 2006 and 2007, said SBE Chief Economist Raymond Keating.

If real personal income had grown at its historic rate since 2009 — when Obama took office — it would actually be $2,000 higher for an individual and $8,000 higher for a family, the SBE said.

Everyone agrees that some good news is better than none. But as Aristotle said, one swallow does not a summer make, and those earning more money in 2015 may be holding onto it until they’re more confident that the economic upturn is real. “The uncertainty about the upcoming election seems to be impacting spending,” said businessman DuPell.

Some sectors of the economy may even be moving backward after years of phenomenal growth. “Land values in Manhattan are down 25 percent, and buildings are empty in Long Island City,” said realtor Bick. “When you see the building cranes disappearing, you’ll know we’re in trouble.”

One reason more people don’t feel wealthier is that the current gain has been “muted by sector-oriented inflation and taxes,” said Craig Lemoine, a professor of financial planning at the American College of Financial Services. “Families are now required to carry health insurance,” he pointed out, “and those premiums have been increasing.”

And then there are those who haven’t benefited at all. The census data shows that 43 million Americans remain in poverty.

“The economic tide may be rising, but it’s still far too low to lift all the boats,” said David Brodwin, a founder of the American Sustainable Business Council. “That’s why most American businesses have yet to see the demand that comes from rising household income.”