New Study Details Impact of Compliance Challenges on Small Business Growth

June 17, 2016
By

Category: Compliance

Whenever small businesses are asked about their biggest challenges, taxes, accessing capital, and hiring are always at the top of the list. Regulation, too, is typically cited as a big concern, and a new study last week shed additional light on the regulatory headache that continues to cause small businesses and entrepreneurs pain. The study from Babson College also identified some other challenges that are very fixable with the right leadership.

Babson polled 10,000 small firms, with help from Goldman Sachs, and found that the regulatory environment creates a three-headed monster for business.

  1. One is the impact of the regulations themselves – the costs. For example, higher taxes or an increase in the minimum wage. The latest available government data puts the total economy-wide cost of regulations at $1.75 trillion, which if spread out evenly would be cost each one of the nation’s 28 million small businesses $60,000.   
  2. The second issue is how small businesses learn about new regulations – which by some estimates have swelled 40 percent in the past 20 years – so they can prepare. Two-thirds of firms reported that their primary source of information on regulatory changes is a professional adviser or consultant, and half said they rely on their trade association. Both of those come with not insignificant costs to the business, taking away money that could be invested in the firm’s growth.
  3. Third, a solid majority of small firms said they had difficulty understanding regulatory requirements and ensuring compliance with them. Nearly 60 percent of those surveyed said simply keeping up with government requirements was slowing them down. They also spelled out how much time that takes away from running their business. On average, the small businesses said they are spending 200 hours per year to comply with regulations at all levels. That is four hours per week on average. Some firms said they spend four times that much time on compliance, losing 16 or more hours every week to comply with government rules.

We understand completely that compliance creates serious drag, and that it especially hurts smaller small businesses. The government affiliated nonprofit SCORE says companies with fewer than 20 employees have 60 percent higher compliance costs.

Given the small business sector accounts for 63 percent of all net new jobs created, and “job losses from start-up closures are also significant and reduce the overall net employment gain,” as the study notes, there has to be greater focus by both the private and public sectors to help small businesses succeed. That’s why we’ve made it our mission to make entrepreneurship easier. Yes, it helps us when startups grow. But helping a greater percentage of the 28 million small businesses scale their operations is essential for the entire economy.   

Zenefits helps thousands of firms automate compliance, HR and benefits administrative with our free platform, and we are working in partnership with the U.S. Small Business Administration (SBA) and others to help deliver solutions that help small businesses grow and scale. For example, the Babson study also found that small businesses suffer from not knowing what affordable technologies are in the marketplace, and that they are in need of training for their staff on various fronts. We are excited to be addressing both of these challenges through the Small Business Technology Coalition and other small business resources across the country.

There is much to do and we look forward to finding new, impactful ways to help small businesses grow. If you have ideas, please share them with us!

About

After working in the field of psychology research for years, Bella loves sharing what she's learned in a more directly impactful context. She's interested in the intersection of people and business, and wants to promote conversations about HR. She's an amateur ceramicist, pro dog walker, and produces podcasts on the side.

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