Regulations Continue to Hurt Small Businesses

One of the lasting impacts of the Great Recession is the number of business startups has decreased.  (  Many explanations are bantered around as to why business formations have not rebounded, including demographics, availability of capital, and the impact of technology advancements.  While all those reasons are certainly contributing factors, I submit the ever increasing regulatory and compliance burdens placed upon businesses are the real reasons there are less startups.  I will focus on financial compliance and not even get into employment or environmental compliance burdens. 

Two aspects of financial compliance really stick out to me as burdensome.  A few years ago, the Supreme Court ruled in the infamous Wayfair decision (,_Inc.) that states can collect sales tax from sellers even if the sellers do not have a physical presence in that particular state.  The prior standard was a business had to have a nexus in a state in order to be subject to sales tax.  That opened up the floodgates.  States, desperate for money, are looking for sales tax revenue everywhere they can.  A vast majority of our customers are not subject to sales tax.  Yet a certain state that is in the news for teetering on insolvency is sending someone to our headquarters to do a sales tax audit.  We have to prepare information for the auditor.   I have to have someone help this auditor for a few days.  All of this busy work costs real money.

Secondly, the Financial Accounting Standards Board (FASB), the brain trust behind Generally Accepted Accounting Principles (GAAP), has changed revenue recognition rules.  If you are a masochist, spend some time reading those thrilling rules.  We have spent significant time and money proving we comply with the new standards that fundamentally change nothing about how our business operates.  The latest request to comply put me over the edge.  We have to produce a letter from our law firm that explains how we will recognize revenue if a customer cancels an order.  Law firms don’t write letters for free.  But a FASB clown thought that would be a good idea to have a legal document on file in case someone ever asks.  (If you want me to go on a tirade, buy me a drink and ask me to expound on why GAAP is a joke.) 

Fortunately, our business has grown enough that we have people internally and externally do this stuff.  I’d go crazy doing this stuff because very little of this work is value add.

People start businesses to solve problems, not do paperwork.  The increasing paperwork burden on businesses creates barriers to entry for startups.  If we want to encourage entrepreneurship, reduce the regulatory burdens.

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