Thursday, April 01, 2004
Best and worst states to run a small business
Called the Small Business Survival Index, and available as a PDF file on the SBSC's Web site, the latest ranking identifies 21 different ways in which government imposes costs on business and then measures the performance of the 50 states and the District of Columbia in each area.
Nine areas of analysis
The factors being analyzed include:
Health-care costs. Ask small-business operators to name their most pressing concern, and providing health-care coverage to employees consistently is at the head of the list. Health-care costs vary significantly from state to state, and the SBSC index accounts for those differences
Taxes. Fully 13 of the 21 criteria involve taxes of one sort or another. In addition to taxes on personal income, capital gains, sales, property and estates, the index also weighs taxes on Internet access and gasoline, unemployment and health-insurance tax rates and whether states require super-majority votes in order to impose or increase taxes. Individual and corporate alternative minimum taxes also are considered.
Electricity costs. Every business uses electricity, and how it is regulated or taxed by a state can have a significant impact on a business' bottom line.
Workers' compensation costs. The higher a state's workers' comp rates, the less friendly it is to labor-intensive business. Premiums have reached crisis levels in California, and lowering them is a top priority of Gov. Arnold Schwarzenegger.
Total crime rate. Businesses have a powerful disincentive to establish themselves or expand in states that cannot adequately protect life and property.
Right to work. Right-to-work laws generally mean freedom from interference by labor unions.
Number of bureaucrats. Most people agree that more bureaucrats mean more burdensome regulations.
State minimum wage. The minimum wage set by some states actually is higher than the federal minimum.
Legal and liability costs. The costs of litigation, whether frivolous or not, have become an increasing burden on U.S. businesses of all sizes.
The best and the worst
Each state is assigned a numerical score in each category, and then an aggregate score. The lower a state's total score, the friendlier it is to small business.
The 10 friendliest in 2003:
1. South Dakota
2. Nevada
3. Wyoming
4. New Hampshire
5. Florida
6. Texas
7. Tennessee
8. Washington
9. Michigan
10. Mississippi
And, at the opposite end of the scale, the 10 least friendly:
51. District of Columbia
50. Hawaii
49. Minnesota
48. Maine
47. Rhode Island
46. California
45. New York
44. Vermont
43. New Mexico
42. Oregon
Gains and losses by individual states
While there generally are not dramatic shifts in the rankings from year to year, the adoption of policies that are more or less friendly to business definitely have an impact.
In 2003, for example, New York, Connecticut and Oregon all lost ground in terms of their desirability to small business — six spots in the rankings in Oregon's case — because they raised a variety of taxes. On the other hand, though Nevada raised imposed a payroll tax, it performed so strongly in the other categories that its overall ranking essentially was unaffected.
Happily, improvement by states is not unheard of.
The single most pro-growth policy change for 2003 occurred in New Mexico, where newly elected Gov. Bill Richardson pushed for and won a multi-year cut in the state's top personal income and top capital gains tax rates.
By 2007, New Mexico's top personal income tax rate will have fallen from 8.2% to 4.9%, and the comparable capital gains rate from 8.2% to 2.45%. Unless the other states make comparable reductions, New Mexico will go from one of the worst states to one of the best in both categories.
The initial tax cuts New Mexico made were sufficient to improve its overall ranking from 47 in 2002 to 43 in 2003.
Other factors to consider
So if you're stuck in a state with a bad regulatory environment, should you pull up stakes and relocate to a friendlier locale? If that's your sole criterion, probably not.
But if you're about to start a business and haven't yet decided where you want to base it, the SBSC rankings are definitely something you should consider. Ditto if you're already in business but considering expansion outside your home state.
Of course, there are a host of other factors to consider. Schools, cultural amenities, recreational opportunities and climate are more or less important depending on the individual.
No factor is more important than the cost of housing. If you can't afford to live in a state, it doesn't matter how pro-business its business climate is.
Anyone considering a relocation can get a quick read of housing markets across the country by using the National Association of Home Builders' Home Opportunity Index, which ranks metro areas according to the percentage of homes that are affordable for families at the median income.
At 50%, housing costs and income are in balance. If more than 50% are affordable for median income people, then housing in the market can be had at a relative discount. Below 50% and a premium must be paid.
The best moves reflect business, family and personal concerns.
Source:http://www.bcentral.com
Called the Small Business Survival Index, and available as a PDF file on the SBSC's Web site, the latest ranking identifies 21 different ways in which government imposes costs on business and then measures the performance of the 50 states and the District of Columbia in each area.
Nine areas of analysis
The factors being analyzed include:
Health-care costs. Ask small-business operators to name their most pressing concern, and providing health-care coverage to employees consistently is at the head of the list. Health-care costs vary significantly from state to state, and the SBSC index accounts for those differences
Taxes. Fully 13 of the 21 criteria involve taxes of one sort or another. In addition to taxes on personal income, capital gains, sales, property and estates, the index also weighs taxes on Internet access and gasoline, unemployment and health-insurance tax rates and whether states require super-majority votes in order to impose or increase taxes. Individual and corporate alternative minimum taxes also are considered.
Electricity costs. Every business uses electricity, and how it is regulated or taxed by a state can have a significant impact on a business' bottom line.
Workers' compensation costs. The higher a state's workers' comp rates, the less friendly it is to labor-intensive business. Premiums have reached crisis levels in California, and lowering them is a top priority of Gov. Arnold Schwarzenegger.
Total crime rate. Businesses have a powerful disincentive to establish themselves or expand in states that cannot adequately protect life and property.
Right to work. Right-to-work laws generally mean freedom from interference by labor unions.
Number of bureaucrats. Most people agree that more bureaucrats mean more burdensome regulations.
State minimum wage. The minimum wage set by some states actually is higher than the federal minimum.
Legal and liability costs. The costs of litigation, whether frivolous or not, have become an increasing burden on U.S. businesses of all sizes.
The best and the worst
Each state is assigned a numerical score in each category, and then an aggregate score. The lower a state's total score, the friendlier it is to small business.
The 10 friendliest in 2003:
1. South Dakota
2. Nevada
3. Wyoming
4. New Hampshire
5. Florida
6. Texas
7. Tennessee
8. Washington
9. Michigan
10. Mississippi
And, at the opposite end of the scale, the 10 least friendly:
51. District of Columbia
50. Hawaii
49. Minnesota
48. Maine
47. Rhode Island
46. California
45. New York
44. Vermont
43. New Mexico
42. Oregon
Gains and losses by individual states
While there generally are not dramatic shifts in the rankings from year to year, the adoption of policies that are more or less friendly to business definitely have an impact.
In 2003, for example, New York, Connecticut and Oregon all lost ground in terms of their desirability to small business — six spots in the rankings in Oregon's case — because they raised a variety of taxes. On the other hand, though Nevada raised imposed a payroll tax, it performed so strongly in the other categories that its overall ranking essentially was unaffected.
Happily, improvement by states is not unheard of.
The single most pro-growth policy change for 2003 occurred in New Mexico, where newly elected Gov. Bill Richardson pushed for and won a multi-year cut in the state's top personal income and top capital gains tax rates.
By 2007, New Mexico's top personal income tax rate will have fallen from 8.2% to 4.9%, and the comparable capital gains rate from 8.2% to 2.45%. Unless the other states make comparable reductions, New Mexico will go from one of the worst states to one of the best in both categories.
The initial tax cuts New Mexico made were sufficient to improve its overall ranking from 47 in 2002 to 43 in 2003.
Other factors to consider
So if you're stuck in a state with a bad regulatory environment, should you pull up stakes and relocate to a friendlier locale? If that's your sole criterion, probably not.
But if you're about to start a business and haven't yet decided where you want to base it, the SBSC rankings are definitely something you should consider. Ditto if you're already in business but considering expansion outside your home state.
Of course, there are a host of other factors to consider. Schools, cultural amenities, recreational opportunities and climate are more or less important depending on the individual.
No factor is more important than the cost of housing. If you can't afford to live in a state, it doesn't matter how pro-business its business climate is.
Anyone considering a relocation can get a quick read of housing markets across the country by using the National Association of Home Builders' Home Opportunity Index, which ranks metro areas according to the percentage of homes that are affordable for families at the median income.
At 50%, housing costs and income are in balance. If more than 50% are affordable for median income people, then housing in the market can be had at a relative discount. Below 50% and a premium must be paid.
The best moves reflect business, family and personal concerns.
Source:http://www.bcentral.com
Leasing Space For Your Business
Signing a lease for your business can be a nerve-wracking undertaking. Size, location, image, landlord, cost, length of lease are some considerations that require your careful attention and planning—before you sign the lease.
Size: Many business owners walk into a prospective space, make an intuitive “guesstimate” and sign on the dotted line. It is much more prudent to do a floor plan for your projected business before you go out looking. Rather than leasing what’s available, figure out first just what your needs are.
If you are opening a restaurant, start with the number of tables you need to have in order to generate the income you’ve projected in your business plan. If you are establishing a store, you’ll need aisles to display your wares. If you are performing accounting services for clients, you’ll need desk space and related office services space. If you are selling through mail order, you’ll need to provide for a packing and shipping area. Even the so-called virtual corporation requires files and a place for the owner to work.
If you’re running a home-based business, you should consider drawing up a lease for the space your business will be using. In this specialized case, you’ll be both landlord and tenant. Check out beforehand the tax implications of this arrangement—you can bet they will impact on your decisions.
All businesses require space of some sort. Get at the space requirements for your business by translating business activities into a floor plan. Once you’ve accounted for all these activities, then go looking for the size you need.
Some relevant questions here need answers. Can you expand here? What are the “carrying costs” to your business of leasing more space than you need—even though you plan to expand to fill it? How firm are your plans?
Location: Be honest with yourself as to location. Do you really pull in passing traffic? Or will your customers find you no matter where you locate?
Consider locating your new sporting goods store in a country barn. A used car lot might benefit from being located on a busy thoroughfare, but a gallery can thrive in a low-rent area. A bakery business might boom in town where office workers drop in, but a manufactured product can save a great deal of money by being located in some out-of-the-way place.
How about the future? Check out the current zoning. And check out any plans or trends that are underway in the neighborhood. Landlords might not mention plans—already on file with the city or town—that could change the face of the neighborhood.
Image: Some establishments are enhanced by location, particularly those where customers visit. Who would go to a dentist, for example, who shared space with a brake repair shop?
On the other hand, a hair salon located on the grounds of a thriving greenhouse might benefit from such a creative juxtapositioning. Conversely, a health food store sharing the building with a bar or tavern might work against the best interests of both.
Such “image spillovers” change with time. Fads and fashions come and go. Be sensitive to the image of your location because it can either contribute to or detract from your success. It might not matter, but you only know that after thinking through it.
Landlord: You will sleep more soundly at night if you check out your landlord before signing the lease. Before considering you as a tenant, the landlord certainly will check your background. For your part, you deserve answers that your landlord is solvent and reasonably easy to deal with.
Ask for references. Seek out and speak with other tenants. Remember that the landlord is in business also—go to the local hall of records or courthouse and look at the public records. (Are there multiple liens on file against the landlord that could overwhelm the economic viability of the property? Do other tenants give the landlord good marks?)
Cost: The first time you lease a space, you can negotiate from a position of some strength. But years later, when you go back to renew your lease, you will be negotiating from weakness.
Try to get your best deal upfront. To get the lowest price, this might mean negotiating for a lease covering five or more years. This can be frightening to someone just going into business, but you deserve to think through it.
Always check out rents being charged for comparable space in the same general area. Many landlords have oversold themselves on the value of their location—always be wary of the space sales pitch that overly emphasizes the value of the location.
Length of lease: Always make your lease coincide with your good business planning—not the landlord’s. Never sign a lease for space until you have your business plan firmly in mind.
If the space is adequate for the time being, but not for the long-term, you might be setting yourself up for a costly move later on. If there is adjacent space that you might want to expand into later on, you might consider negotiating your length of lease to coincide with the date the other space becomes available.
If the space that the landlord wants to lease is larger than you presently need, but you think you can use all of it in, say, 2 years, try to negotiate a “partial” with an “expansion” clause.
Summary: Carefully consider size, location, image, landlord, cost, and length of lease before you sign any lease for business space. Take the measure of each of these elements against your business plan, and make sure the final lease is in agreement with your plan.
And remember, a lease is a legal document. Get advice from an attorney or
other qualified professional before you sign. The fine print can contain surprises.
Signing a lease for your business can be a nerve-wracking undertaking. Size, location, image, landlord, cost, length of lease are some considerations that require your careful attention and planning—before you sign the lease.
Size: Many business owners walk into a prospective space, make an intuitive “guesstimate” and sign on the dotted line. It is much more prudent to do a floor plan for your projected business before you go out looking. Rather than leasing what’s available, figure out first just what your needs are.
If you are opening a restaurant, start with the number of tables you need to have in order to generate the income you’ve projected in your business plan. If you are establishing a store, you’ll need aisles to display your wares. If you are performing accounting services for clients, you’ll need desk space and related office services space. If you are selling through mail order, you’ll need to provide for a packing and shipping area. Even the so-called virtual corporation requires files and a place for the owner to work.
If you’re running a home-based business, you should consider drawing up a lease for the space your business will be using. In this specialized case, you’ll be both landlord and tenant. Check out beforehand the tax implications of this arrangement—you can bet they will impact on your decisions.
All businesses require space of some sort. Get at the space requirements for your business by translating business activities into a floor plan. Once you’ve accounted for all these activities, then go looking for the size you need.
Some relevant questions here need answers. Can you expand here? What are the “carrying costs” to your business of leasing more space than you need—even though you plan to expand to fill it? How firm are your plans?
Location: Be honest with yourself as to location. Do you really pull in passing traffic? Or will your customers find you no matter where you locate?
Consider locating your new sporting goods store in a country barn. A used car lot might benefit from being located on a busy thoroughfare, but a gallery can thrive in a low-rent area. A bakery business might boom in town where office workers drop in, but a manufactured product can save a great deal of money by being located in some out-of-the-way place.
How about the future? Check out the current zoning. And check out any plans or trends that are underway in the neighborhood. Landlords might not mention plans—already on file with the city or town—that could change the face of the neighborhood.
Image: Some establishments are enhanced by location, particularly those where customers visit. Who would go to a dentist, for example, who shared space with a brake repair shop?
On the other hand, a hair salon located on the grounds of a thriving greenhouse might benefit from such a creative juxtapositioning. Conversely, a health food store sharing the building with a bar or tavern might work against the best interests of both.
Such “image spillovers” change with time. Fads and fashions come and go. Be sensitive to the image of your location because it can either contribute to or detract from your success. It might not matter, but you only know that after thinking through it.
Landlord: You will sleep more soundly at night if you check out your landlord before signing the lease. Before considering you as a tenant, the landlord certainly will check your background. For your part, you deserve answers that your landlord is solvent and reasonably easy to deal with.
Ask for references. Seek out and speak with other tenants. Remember that the landlord is in business also—go to the local hall of records or courthouse and look at the public records. (Are there multiple liens on file against the landlord that could overwhelm the economic viability of the property? Do other tenants give the landlord good marks?)
Cost: The first time you lease a space, you can negotiate from a position of some strength. But years later, when you go back to renew your lease, you will be negotiating from weakness.
Try to get your best deal upfront. To get the lowest price, this might mean negotiating for a lease covering five or more years. This can be frightening to someone just going into business, but you deserve to think through it.
Always check out rents being charged for comparable space in the same general area. Many landlords have oversold themselves on the value of their location—always be wary of the space sales pitch that overly emphasizes the value of the location.
Length of lease: Always make your lease coincide with your good business planning—not the landlord’s. Never sign a lease for space until you have your business plan firmly in mind.
If the space is adequate for the time being, but not for the long-term, you might be setting yourself up for a costly move later on. If there is adjacent space that you might want to expand into later on, you might consider negotiating your length of lease to coincide with the date the other space becomes available.
If the space that the landlord wants to lease is larger than you presently need, but you think you can use all of it in, say, 2 years, try to negotiate a “partial” with an “expansion” clause.
Summary: Carefully consider size, location, image, landlord, cost, and length of lease before you sign any lease for business space. Take the measure of each of these elements against your business plan, and make sure the final lease is in agreement with your plan.
And remember, a lease is a legal document. Get advice from an attorney or
other qualified professional before you sign. The fine print can contain surprises.
