Small Businesses Struggle with Regulations – and it’s Costing them $83K

January 25, 2017
By

small business regulations

It’s no secret that starting a business is hard – and like a new marriage, the first year tends to be the hardest. But, did you know that regulatory issues are a huge reason why small businesses struggle so much?

In fact, small business owners pay an average of over $83,000 in regulatory costs during their first year in business, according to the 2017 Small Business Regulations Survey released by the National Small Business Association (NSBA). And the woes don’t go away after the first year. For all other years, the average small business owner spends at least $12,000 on regulations.

[Need help keeping your business compliant? Click to learn how Zenefits can help.]

The Problem with Small Business Regulations

The startling regulatory expenses offer a telling reality of the high cost and burden of compliance issues. But what exactly is the root of the problem? Unfortunately, it’s not just one thing.

The chart below breaks down the leading causes of regulatory issues for small business owners:

The complexity of rules 23%
The cost of compliance with their rules 23%
Difficulty of interpreting and understanding rules 21%
The volume of existing rules 15%
The volume of new rules 9%
Rules contradict one another within the agency’s purview 4%
This agency’s rules contradict other agencies’ rules 4%
Source: 2017 NSBA SMALL BUSINESS REGULATIONS SURVEY

As indicated by the survey results, regulatory issues are overwhelming, both in volume and complexity.

“The fact that ‘complexity of rules’ and ‘difficulty interpreting and understanding rules’ combined to comprise nearly half of all regulatory difficulties is clear indication of the need for eased complexity, overall streamlining, and adherence to plain language statutes,” notes the NSBA within the report.

Sadly, even identifying the source of a regulation is confusing, with 12 percent of small business owners reporting that they aren’t even aware of whether laws are local, state, or federal.

What’s more, when small business owners attempt to learn more about the regulations affecting them, many find it difficult to decipher what applies to them and what doesn’t.

In fact, nearly 75% of small businesses say they have read through proposed regulations, but 63 percent say that they only have to comply with half or less of the laws they read about.

[Need help keeping your business compliant? Click to learn how Zenefits can help.]

Biggest Burden for Small Businesses

When asked to rank nine regulatory areas for level of difficulty, the Federal Tax Code and the Affordable Care Act were the the top offenders. This doesn’t come as a huge surprise since both industries are extremely convoluted.

The specifics:

  • 75% of small businesses say that Federal Tax Code regulations are “very or somewhat burdensome”
  • 65% say that the Affordable Care Act regulations are “very or somewhat burdensome”

Surprisingly, not all regulations are headache-inducing. Compliance issues around Carbon Emissions, for example, were noted as “very or somewhat burdensome” for only 16 percent of small business employers.

[Need help keeping your business compliant? Click to learn how Zenefits can help.]

Other Key Survey Findings

  • 44% percent report spending 40 hours or more each year dealing with new and existing federal regulations, and nearly 33% spend more than 80 hours each year  
  • 14 percent report they spend more than 20 hours per month on federal regulations
  • 39% have held off on business investments due to uncertainty on a pending regulations, and 42 percent have held off due to uncertainty on the meaning or interpretation of an existing regulation

The Takeaway

Regulations have proven to be a hindrance to small business owners. Keeping up with regulations, regardless of whether they’re federal, state, or local, is costly.

What’s more, small business owners are spending too much time trying to decipher what laws mean, how they affect their business, and how to comply. In order to help small businesses grow their business and succeed, we need to offer solutions to help make laws easy to understand, and make compliance achievable.

[Need help keeping your business compliant? Click to learn how Zenefits can help.]

About

Raised by small business owners in Long Beach, California, Sarah loves creating meaningful content that truly helps people run their businesses successfully and efficiently. In addition to being a Content Marketing Manager at Zenefits, Sarah is a coffee addict, baked-good lover, and a LA Clippers fan.

Category: Compliance, Entrepreneurship


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