How To Help Small Businesses

Want to see how unfriendly the current environment is for small businesses?  For a microcosm you have to look no further than this article mentioned in the Business Insider, which originally was in the left coast newspaper The Oregonian. A 7-year old wanted to create a lemonade stand at a local art fair.  It’s very similar to my lemonade stand story.  In her case she got the idea by watching the children’s show “Olivia“.   In my opinion, starting a lemonade stand is a great way for a child to learn about entrepreneurship.  Well the child got a real world experience, and got much more than she bargained for.  Her operation was forced to shutdown because she did not pay for a $120 temporary restaurant license.  Unknown to the mother and child they were committing a crime against the food police, even if it was done in front of her house!

I assume nothing else with her lemonade stand was done “legally”.  Let’s determine the costs involved to setup her lemonade stand if she were to do it legitimately for the event:

• Incorporation Documents and Seal – $139 (from LegalZoom)
• Oregon Incorporation Fee – $50 (paid annually)
• Temporary Restaurant License – $120
• Kool-Aid Drink Mix, Sugar Sweetened Lemonade, 20-Ounce Containers (Pack of 6) – $23.14
• 5 Bags of Ice – $20 (I’ve seen higher)

I’m sure I’m missing other permits and legal fees, but you get the idea.  Lets not forget she’s technically underage and also subject to child labor laws (for this exercise I’ll assume she’s of legal age).  So for a one day event (that was only open from 6p till 10p) at maximum would have to outlay $352.14, or assuming she’s already in business $283.14. The price set per drink (according to the photo) was set to $0.50 per drink.  To break even with the up-front costs, she would have to sell at least 566 drinks.  Worst case she would need to sell 704 drinks.  With those numbers, it’s highly unlikely she would sell that many in such a short time frame.  She probably would be lucky to sell $50 worth of lemonade.  It could be said the complex rules, fees and regulations makes the stand unprofitable.  With any entrepreneur one of three things would occur; either the price would need to increase, find a way to increase sales, or not pursue the business at all.  So is the license of $120 appropriate for selling lemonade? When was the last news report of someone getting sick from a lemonade stand (fake lemonade no less)?

Now you know why it costs $5.00 for a drink at a state fair.  The raw materials to make the drinks cost nowhere near the fees to be in legal compliance.  Of course the larger the business the less these costs become relevant.  For a child, or an adult for that matter, who is trying to make a few extra dollars this can make or break the deal.

The inspector of course stated, “Our role is to protect the public”. Their argument is it’s important to regulate and monitor the quality and cleanliness of the businesses selling food to the public.  Are they really protecting the public in this case?  In most cases, it’s common sense when picking a food vendor.  After all, you don’t have a food inspector reviewing your home kitchen.  Julie’s mom said it best in the article “It’s gotten to the point where they need to be in all of our decisions. They don’t trust us to make good choices on our own.”  I’m obviously not stating a completely free “for-all” market.  Some regulation is needed but inhibiting commerce, especially things the general public can make a reasonable decision on, should be left alone.

Of course more fees, rules and regulations don’t affect large multi-national businesses as much as small businesses.  They are already established and have a large infrastructure to support the weight of these issues. They have a staff of lawyers, accountants and assistants to help manage the legal red tape. Things like the new IRS 1099 requirement in the Obamacare law will do nothing to help small business.

Here are five simple bullet points that the Obama administration could do to help small businesses:

• Make it easy to create a business.  The process should be quick easy and low cost.
• Simplify taxes.  Create a flat tax for businesses.
• Don’t constantly change rules and regulations.  Businesses hate changes because this causes unknowns in their profits.  This causes delays in new business ventures.
• Stop vilifying “Joe the Plumbers”, and how they must give their “fair share” to others.  After all, they must take all of the risk, should they not get rewarded? Taxing the “rich” in most cases is taxing small business owners. Most rich today are first generation wealthy.  They did not inherit their wealth from a trust fund.
• Offer to assist in job creation.  This can include tax cuts, but can be other incentives and deregulation.

Instead, at least from my vantage point, our government is doing the exact opposite of all of these items. Hurting small business growth and creation, does nothing to help with unemployment.  So I’m not seeing unemployment lowering anytime soon unless things change.  Until then, expect slow, low or no growth in our economy.

Update: Oregon County Apologizes to the 7-Year-Old girl. It appears this issue is not that uncommon because a week ago a similar event similar was reported in San Francisco.