In 2013, small business owners will contend with many of the same issues that made it hard to run their companies over the last 12 months.
They’re also heading into the new year with a lot of uncertainty. It’s unlikely that negotiations in Congress will resolve all of lawmakers’ disagreements over tax and budget issues that affect small businesses. And there are still many questions about the implications of the health-care law for small companies.
That points to continued caution — and perhaps slow hiring — among the nation’s small companies.
“Uncertainty is the bane of every small business,” says Scott Shane, a professor of entrepreneurship at Case Western Reserve University’s Weatherhead School of Management in Cleveland. “Their only rational response is to pull in their horns and slow down.”
Small businesses aren’t likely to get much encouragement from the economy. It’s expected to grow by no more than 3 percent in 2013, according to the Federal Reserve. That’s a moderate pace, better than the 1.7 percent that the economy grew during the first three quarters of 2012. But it’s also far from robust.
Here’s a look at some of the issues facing small businesses in the coming year:
TAXES
Lawmakers are still haggling over what’s called the fiscal cliff, the combination of billions of dollars in tax increases and budget cuts. Even if Congress reaches an agreement, small business owners won’t have the certainty they need, according to Todd McCracken, president of the National Small Business Association, a group that lobbies on behalf of small companies.
“It almost surely won’t be comprehensive enough that we won’t be revisiting it next year,” McCracken says. He’s concerned that there’ll be another fiscal cliff in six months — which would mean more negotiations and more uncertainty.
Many small business owners are worried about their personal tax rates. Sole proprietors, partners and owners of what are called S corporations all report the income from their businesses on their individual Form 1040 returns. That means their companies are in effect taxed at personal rates, which can be higher than corporate rates.
One of the most important tax provisions for small businesses, what’s known as the Section 179 deduction, will shrink to $25,000 next year from $125,000 in 2012. The deduction, which applies to equipment purchases, was $500,000 in 2011.
HEALTH CARE
This has been a source of uncertainty. The new year will bring some, but probably not all, of the answers to questions about how the new health-care law will affect them. Many small businesses will have to devote some time to understanding the law — or hire someone to help them do it.
“They’ll have to get their arms around the law, look at their options, learn more about the exchanges,” says John Arensmeyer, CEO of Small Business Majority, a lobbying group.
Companies with 50 or more employees will be required to provide affordable health-care insurance for their employees starting Jan. 1, 2014. During 2013, federal and state health insurance exchanges will be set up, and owners will be able to see how much it will cost to buy insurance. However, many small business owners don’t know whether their states will be creating exchanges, or whether they’ll have to go into the national system — and they don’t know what that will mean for their costs.
For some owners, that information will help them decide whether they will buy insurance, or whether they’ll decide it’s cheaper to not provide coverage and just pay the government a $2,000-per-employee fine. For those who have close to 50 workers, they may decide to not hire more workers in order to remain outside the law’s jurisdiction.
LENDING
Don’t look for the small business lending climate to get easier. Owners aren’t expected to significantly increase their borrowing, especially as many have been paying down debt since the 2007-09 recession. But even those who are ready to borrow are expected to find it’s still hard to get a loan. Bankers are unlikely to be more liberal in their lending policies.
Depressed lending levels may be with us well beyond 2013, says James Schrager, a professor of entrepreneurship at the University of Chicago Booth School of Business.
ONSHORING
A trend that’s expected to gain speed is what’s calling onshoring. That’s the term for manufacturing that had been done overseas, and is now taking place back in U.S. factories. Apple earlier this month said it would move production of some of its Mac computers to the U.S. from China next year — but many small businesses have already been making the switch.
There are several reasons behind the trend. As China becomes more of a middle-class country, wages for its workers are rising, and that is lessening some of the appeal of manufacturing there for U.S. companies, says Steven Kaplan, a professor of entrepreneurship and finance at Chicago’s Booth School.
SKILLED WORKER SHORTAGE
While companies’ caution has weighed on the job market, many company owners who actually want to hire say it’s hard to find workers to fill some positions.
It’s becoming more difficult to find people who have the skills they need, these owners say. Many new manufacturing jobs require high-tech skills. They include positions at factories where computers are used to create products such as airplane parts and machinery.