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Regulatory Costs Crunching Small Businesses

November 1st, 2010 :: Rieva_L

By Rieva Lesonsky

This probably isn’t news to you as a small business owner, but the SBA’s Office of Advocacy has published a study showing that the costs of government regulation are disproportionately affecting entrepreneurs. The Impact of Regulatory Costs on Small Firms looked at five economic sectors (manufacturing, wholesale and retail trade, services, health care and “other”) and the federal regulations that affect them.

The results? Small companies spend $2,830 more each year per employee to comply with government regulations than big companies do. “That is a 36 percent difference, and that is an unfair burden to place on American small business,” said Winslow Sargeant, Chief Counsel for Advocacy.

Per employee, the average cost of compliance for businesses of all sizes was $8,086 per year. For companies with fewer than 20 employees, it was $10,585; for those with 20-499 employees, it was $7,454; and for those with 500 or more employees, it was $7,755.

Here are some areas where the burden was especially disproportionate on small firms:

  • Manufacturing: Per-employee costs of compliance were more than twice as much for small manufacturing companies than for midsized and large firms.
  • Environmental regulations: Compliance with environmental standards costs small businesses almost four times as much in as big ones.
  • Taxes: Tax compliance costs small companies more than double what it costs large ones.

The oversized burden small companies shoulder isn’t new—it’s continuing a trend. The Office of Advocacy’s prior studies in 1995, 2001 and 2005 also showed small businesses paying more than their share of regulatory costs.

I believe government regulations can be a good thing—but it’s only fair to spread the cost of this type of regulation proportionately over different sizes of businesses so that small companies can stay competitive. You can find out more about your industry and details of the report at the Office of Advocacy website.

Image by Flickr user (Creative Commons)

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Posted in Compliance | View Comments

View Comments to “Regulatory Costs Crunching Small Businesses”

  1. Jackie Fontes says:

    If this doesn’t prove that both parties are in the pocket of Big Business, I don’t know what it will take.

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