The American Dream?

by Anita Christy

Entrepreneurs start businesses feeling optimistic that they will succeed. Beginning in 1971, together and separately, my husband and I have started new businesses, bought and sold businesses, leased a storefront, owned auto repair businesses, and now operate two businesses out of our home. We have invested substantial amounts of our own money, made money, and we’ve lost it too. We have worked hard and gotten back on our feet and invested more of our money to start another business. We enjoy self-employment. It is our sole source of income. We would like to expand and hire employees, but there is too much outside our control to take more financial risk.

Introduce uncertainty, driven by forces over which entrepreneurs have no control, usually government regulations interpreted by bureaucrats, plus an oppressive mix of taxes, and optimism fades. Combine this with an economy still languishing in a recession, and there is very little incentive for someone to invest their entire life savings or take a huge financial risk to start or expand a business.

Let’s say, God forbid, something happens to you, and you can no longer provide for your family. Your wife has an in-home business you have helped grow, and she decides to expand and lease one of the many empty store fronts in Gilbert. She knows that her overhead costs will increase, but you have crunched the numbers and through volume, better pricing on bulk purchases, and a wider variety of products, you both feel optimistic that she can make a profit.

The following presents what might face a small, in-home cottage business owner who decides to open a storefront business in Gilbert. This doesn’t come close to everything you might face, just some of it. Even an experienced small business owner never thinks of everything. Also, this is light manufacturing, and doesn’t consider regulations involved in serving food, or environmental costs associated with disposing of hazardous waste.

1. Your wife visits the Town of Gilbert to see what they require. She wants to know, hypothetically, before she’s signed a lease and made a financial commitment, what’s involved in renting a retail space, with maybe 6 workstations in the back for a light manufacturing business. Does the Town have a checklist of all the licenses, fees, permits, inspections, and everything else they require? What is the amount of time it will take for her to be compliant, so she can open her doors for business? Is there any ambiguity, any doubt? After all, the moment your wife signs that lease, the clock starts ticking and the money starts draining. She is at the mercy of the Town’s timeline for whatever requirements they have.

2. She finds a storefront/retail space with a backroom that allows for 6 workstations for light manufacturing. She obtains a lease, tapping into the family’s savings. The lease by the way is subject to Transaction Privilege Tax (TPT), so when Arizona raised the tax rate, this raised the monthly rent on every commercial lease. Also, lease rents are subject to Gilbert sales tax. Your wife signs a 5-year lease. She is now on the hook for at least $120k. She will also have to pay CAMS (Common Area Maintenance) at maybe $100 per month, so add another $6k. Obviously, she wants to start making money right away, since she is now draining the family’s resources. Is any remodeling of the interior required? Does she need countertops? Shelving? Work tables? Presses? Filing cabinets? Printer? A Point of Sale (POS) computer? Is the building ADA compliant? Are the bathrooms? What else?

3. She gets a fantastic price on the internet for extra equipment that she needs, since she has expanded her operation for the new space. There is currently no Use Tax in Gilbert, so thank goodness that’s one tax she doesn’t have to pay. She buys fabric, thread, needles, bric a brac, and all the materials needed to produce her final, value-added product.

4. She pays all the deposits to get utilities up and running, and starts paying the utility bills. Business rates are higher than residential, by the way.

5. She must find a credit card merchant. It’s wise to shop around, because the fees vary widely. Those are usually 3-year leases, and she pays for "services" whether she charges or not. She will need a computer with internet access, since some merchant charges are done this way. If not, she will need either a wireless credit card unit, or she will need one that plugs into a telephone line. Better have 2 phone lines, because she might need to fax as well. Plus she needs a way to maintain inventory. What about an 800#? Don’t forget internet sales. Will she need someone to design her web page? A webmaster on an ongoing basis?

6. What about advertising? Did she budget for that and find a good print shop? What about signage to let everybody know to come into her shop? Be careful to not violate banner ordinances. Business cards? Sales tax permit? Business license? Don’t forget an accountant or CPA. Did she incorporate, form an LLC? Register with the
Arizona Corporation Commission?

7. She opens her doors, and has a couple of employees working full time. Did she contract with a payroll company to do the proper withholdings and necessary local, state and federal filings? She is now paying salaries, before she makes her first sale. What about workmens comp? What about liability insurance (slip and fall, etc). Did she hire an HR consultant to put together a Policies and Procedures manual, so she can avoid possible lawsuits related to discriminatory hiring and firing practices? Is she set up with eVerify to ensure that she doesn’t hire anyone without a proper social security number?

8. The Fire Marshall pays her a visit. The fire extinguishers are too high off the floor, and must be lowered to accommodate people in wheelchairs. The Fire Marshall notices the employees cutting and sewing, and detects fabric dander kicking up. He also detects fumes. Your wife is told she must install a fully compliant ventilation system.

9. As business gets underway she finds time to land a nice but small corporate contract that she’s been wooing for weeks. She is informed by her main supplier that they have raised prices on fabric by 30%, due to regulations concerning fabric content and code compliance relating to flammability, pesticides used on the cotton, and other contaminants in the dyes. The supplier must also comply with new regulations imposed by Homeland Security relating to counter terrorism measures. Plus, their health insurance costs have started to increase due to mandates that took place beginning 3/23/2010, and again on 9/23/2010, per the new Patient Protection and Affordable Care Act (PPACA). Expect more in the future.

10. She must sew a tag onto each item she produces noting where it was made, its fiber content, and in conformance to other regulations.

11. Due to her own cost increases, she must charge more, in order to make a tiny profit.

12. The last thing she does every night before going home, aside from cashing out the credit card machine and balancing the books, is to clean the bathrooms and sweep and mop the floors.

13. She gets a call at 1:30 am from the Gilbert Police Department. Someone has broken into the shop and set off the alarm. She drives to the shop to meet the police who make a report. She assesses the damage and estimates that the burglar made off with about $2k worth of merchandise. The next morning, she calls a vendor to replace the smashed front door. She replaces the stolen merchandise. Over the next several weeks, she makes more middle of the night trips to her shop to meet the police for false alarms. After each false alarm, she calls the alarm company to complain about the hyper sensitive motion detector system. The police warn they will have to fine her if there is another false alarm.

14. The Town decides they must make improvements to the road that runs in front of your wife’s shop. The construction supervisor pays her a visit explaining that customers still have access and shows her how customers can navigate around the construction and get to her store. Her customers, however, didn’t “get the memo.” They know one thing: Avoid that road. The construction goes on for months. Your wife hangs on by her eye teeth as your family’s finances bleed out, month by month. The construction goes on, and on, and on. Her business doesn’t. Your life savings is gone. You file bankruptcy. Your house is repossessed, and you and your family are forced to move in with your parents.

The above story isn’t unusual. Look at any street corner. There is a story behind every one of those empty storefronts. The problem isn’t a lack of money to get started. The problem isn’t the unavailability of low interest loans. With lower taxes and fewer government-imposed regulations and obstacles, would those storefronts be open for business today? Maybe.