2013 MID-YEAR ECONOMIC REPORT

Transcription

1 2013 MID-YEAR ECONOMIC REPORT 2013 MID-YEAR ECONOMIC REPORT 1 NATIONAL SMALL BUSINESS ASSOCIATION

2 FOREWORD The National Small Business Association (NSBA) is the nation s first small-business advocacy group celebrating more than 75 years representing small business in Washington, D.C. Focused on federal advocacy and operating on a staunchly nonpartisan basis, NSBA is a recognized leader of America s small-business community. In addition to our wide array of advocacy efforts, NSBA provides critical data on the small-business community. Throughout the year, we conduct a series of surveys and quick polls, chief among them are our two Economic Reports: the NSBA Mid-Year Economic Report and the NSBA Year-End Economic Report. These reports use NSBA survey data to provide a snapshot of how small businesses are dealing with the current economic situation and provide long-term trending data. This 2013 Mid-Year Report shows businesses are feeling more confident in the overall economy than they have in some time. In fact, when asking to compare today s economy with five years ago, 40 percent said it is better off the highest it s been in five years. Furthermore, those small firms predicting a flat or recessionary economy in the coming 12 months is at its lowest point in five years. Unfortunately, while there was growth in small-business owners confidence about the future of their own business, it wasn t as great as the growth in confidence in the overall economy. Underscoring the difference in small-business owners broad economic outlook vs. their outlook of their own business: there was very little change in small-businesses revenue and profits over the last 12 months and similarly stagnant growth in projections for both indicators in the coming 12 months. A likely cause for this discrepancy is the fact that media reports signaling massive economic failures, such as the debt ceiling and sequestration, have been fewer in recent months, and despite Congress continuing inability to get much done the focus of their failures has not necessarily been economic in nature. Despite the lower prevalence of negative economic news, the fact remains that times are still very difficult for small businesses and there is growing hesitation by small businesses, even those who have a better economic outlook than six months ago, to take on the risk of growth or hiring. Small business plays a huge role in economic growth, specifically when it comes to hiring. Unfortunately, just 18 percent report increasing their employee size, while 26 percent report decreases in employee size, resulting in negative net employee growth. When it comes to financing the lifeblood of any small business 65 percent of small businesses report they are able to obtain adequate financing, down from 73 percent just six months ago. This capital shortage continues to hamper other growth. Since 1993, when NSBA began asking these questions, there has been a direct correlation to a small-business owner s ability to hire and his/her ability to get financing. Economic uncertainty continues to top the list of challenges facing small-business owners, followed by decline in customer spending and cost of health insurance. The number one issue and a new answer option provided for the first time in this survey small businesses want policymakers to address is to end the partisan gridlock and work together. That was followed closely by reduce the national deficit, simplify and reduce the tax burden, reduce regulatory burdens and rein-in costs of health care reform. The 2013 Mid-Year Economic Report was conducted on-line June 25 through July 17, 2013 among more than 1,100 smallbusiness owners both members and nonmembers of NSBA representing every industry in every state in the nation. A larger sample set was surveyed for this report, resulting in a slightly smaller average firm size, however all other demographics remained consistent. Please contact NSBA s media office for inquiries at press@nsba.biz. David Ickert NSBA Chair Air Tractor, Inc. Todd McCracken NSBA President and CEO 2013 MID-YEAR ECONOMIC REPORT 2 NATIONAL SMALL BUSINESS ASSOCIATION

3 DEMOGRAPHICS How many total full-time personnel are currently employed by your business? Which of the following best describes the structure of your business? 0 1 to 5 6 to 19 7% 26% 40% CORPORATION PARTNERSHIP LLC SOLE PROPRIETORSHIP 41% 25% S-CORP 20 to to 499 4% 22% 12% 2% 20% In what region is your business located? New England 6% Mid-Atlantic 22% Great Lakes 14% Farm Belt 5% South 29% Mountain 11% Pacific 13% What was your total payroll for the most recent fiscal year? Less than $100,000 $100,000 - $500,000 $500,000 - $1 Million $1 - $5 Million $5 - $25 Million $25 - $75 Million $75 - $150 Million More than $150 Million What were your gross sales or revenues for your most recent fiscal year? Less than $100,000 $100,000 - $250,000 $250,000 - $500,000 $500,000 - $1 Million $1 - $5 Million $5 - $25 Million $25 - $75 Million $75 - $150 Million More than $150 Million 5% 1% 1% 2% 3% 1% 2% 14% 19% 16% 11% 9% 13% 16% 27% 31% 28% Which of the following best describes the industry or sector in which your business operates? Manufacturing 17% Professional 13% Construction 12% Other Services (except Public Administration) 10% Scientific and Technical Services 9% Retail Trade 7% Information (IT) 6% Wholesale Trade 6% Health Care and Social Assistance 4% Transportation and Warehousing 3% Educational Services 2% Agriculture, Forestry, Fishing and Hunting 2% Real Estate, Rental and Leasing 2% Administrative and Support 1% Arts, Entertainment, and Recreation 1% Insurance 1% Waste Management and Remediation Services 1% Accommodation and Food Services 1% Finance 1% Management of Companies and Enterprises 1% Public Administration 1% Mining 0% Utilities 0% While the industry groupings are consistent with past surveys, the categories were changed to match up with NAICS codes to provide better uniformity amongst other national surveys MID-YEAR ECONOMIC REPORT 3 NATIONAL SMALL BUSINESS ASSOCIATION

4 SMALL BUSINESS CONFIDENCE NSBA s Economic Reports have been cyclical in nature over the past several years: there typically is a depression in confidence and economic outlook during summer months and increases in both indicators at the beginning of a new year. However, the 2013 Mid- Year Report shows businesses are feeling more confident in the overall economy than they have in some time. In fact, when asked to compare today s economy with five years ago, 40 percent said it is better off the highest it s been in five years. Those who say the economy is worse off than five years ago also is at its lowest point just 45 percent. When compared with six months ago, would you say today s national economy is: 11 29% 24% 16% 19% BETTER OFF 31% 44% 42% 31% WORSE OFF 46% 40% 39% 18% ABOUT THE SAME When compared with one year ago, would you say today s national economy is: Underscoring the more positive outlook on the economy is the fact that those predicting a flat or recessionary economy in the coming 12 months is at its lowest point in five years. Unfortunately, while there was growth in small-business owners confidence about the future of their own business, it doesn t match the growth in confidence in the overall economy. 35% 24% 21% 23% BETTER OFF 48% 47% 44% 34% WORSE OFF 31% 31% 30% 32% ABOUT THE SAME The improved economic outlook, coupled with changes in the most significant challenges faced by small business, appear to correspond with the timing of major breakdowns in Congress. Economic outlook has typically been lower during and after times when there was significant brinksmanship on economic issues, such as the summer 2011 debt ceiling debacle or last fall s failure to avoid sequestration. The fact that there hasn t been that level of breakdown or corresponding press coverage is a likely factor in why small businesses are feeling better today than they have in the last few years. Compared to five years ago... Would you say the national economy is: Better Off Worse Off About The Same 80% 60% 40% 20% 0% Dec. 10 July 11 Dec. 11 July 12 Dec. 12 July MID-YEAR ECONOMIC REPORT 4 NATIONAL SMALL BUSINESS ASSOCIATION

5 SMALL BUSINESS CONFIDENCE What are the three most significant challenges to the future growth and survival of your business? 13 DEC Economic uncertainty 60% 69% 68% Decline in customer spending 40% 37% 42% Cost of health insurance benefits 36% 38% 33% Regulatory burdens 30% 39% 38% Federal taxes 22% 34% 26% Lack of available capital 20% 17% 23% Growing national debt 18% 27% 27% Lack of qualified workers 12% 12% 10% State and local taxes 12% 13% 10% Cost of employee salaries 9% 5% 8% Cost of employee benefits 7% 3% 5% Cost of technology 7% 3% 4% Foreign competition 4% 5% 6% Cost of training workers 3% 2% 3% No major challenges 3% 1% 1% From a financial perspective, how do you feel right now about the future for your business? Confident Not Confident 80% 60% 40% 20% 0% Aug. 08 Dec. 08 July 09 Dec. 09 July 10 Dec. 10 July 11 Dec. 11 July 12 Dec. 12 July MID-YEAR ECONOMIC REPORT 5 NATIONAL SMALL BUSINESS ASSOCIATION

6 SMALL BUSINESS CONFIDENCE Thinking about the next 12 months, do you anticipate: Economic expansion A flat economy A recession 80% 70% 60% 50% 40% 30% 20% 10% 0% Aug. 08 Dec. 08 July 09 Dec. 09 July 10 Dec. 10 July 11 Dec. 11 July 12 Dec. 12 July 13 Businesses are feeling more confident in the overall economy than they have in some time. In fact, when asked to compare today s economy with five years ago, 40 percent said it is better off the highest it s been in five years. Those who say the economy is worse off than five years ago also is at its lowest point just 45 percent MID-YEAR ECONOMIC REPORT 6 NATIONAL SMALL BUSINESS ASSOCIATION

7 BUSINESS GROWTH Today, almost two-thirds (59 percent) of small-business owners either expect growth in the coming year or already are growing, a notable jump from 50 percent just six months ago. Interestingly, despite positive growth in economic outlook, there was very little change in small-businesses revenue and profits over the last 12 months and similarly stagnant growth in projections for both revenue and profits in the coming 12 months. There also was relatively little change in growth strategies planned for small business in the next year. Do you believe there will be growth opportunities for your business in the coming year? % 41% 14% Which of the following growth strategies will you use in the next 12 months? 2013 New advertising and marketing strategies 46% Internet / Expand E-commerce 33% Strategic alliance 32% No growth strategies will be used in the next 12 months 21% YES NO ALREADY GROWING 38% 50% 12% 41% 45% 14% % 37% 17% Hire new employees 18% Investments in R&D 10% Joint Venture 15% Other 8% Expand operations to new facilities/add additional stores 9% Outsourcing 8% Acquisition 6% Merger 5% 2013 MID-YEAR ECONOMIC REPORT 7 NATIONAL SMALL BUSINESS ASSOCIATION

8 BUSINESS GROWTH How much did your gross sales/revenues change over the last 12 months? How much do you expect gross sales/revenues to change over the next 12 months? % 37% 27% 47% 21% 32% INCREASE DECREASE NO CHANGE INCREASE DECREASE NO CHANGE 36% 38% 26% 39% 40% 22% % 31% 24% 47% 23% 30% 45% 24% 31% % 14% 29% How much did net profits change over the last 12 months? How much do you expect net profits to change over the next 12 months? % 42% 27% 42% 27% 32% INCREASE DECREASE NO CHANGE INCREASE DECREASE NO CHANGE 32% 45% 23% 31% 48% 21% % 38% 25% 39% 29% 33% 37% 31% 31% % 18% 32% 2013 MID-YEAR ECONOMIC REPORT 8 NATIONAL SMALL BUSINESS ASSOCIATION

9 JOB GROWTH Small businesses reported virtually no change in employment numbers from six months ago. Today, just 18 percent report increasing their employee size, while 26 percent report decreases in employee size, resulting in negative net employee growth. Looking ahead, the number of small-business owners who project increases in employee size in the coming 12 months remained level at 26 percent. On a slightly positive note, those who anticipate decreasing their workforce dropped modestly from 16 percent six months ago to 14 percent today. Employee compensation remains relatively stagnant, with 41 percent reporting increases in the past 12 months (unchanged from six months ago) and 40 percent projecting increases in the coming 12 months (down two percentage points from six months ago). How much did the number of employees change over the last 12 months? How much do you expect THE number of employees to change over the next 12 months? INCREASE DECREASE 2013 NO CHANGE 18% 26% 57% 19% 26% 52% 19% 25% 55% % 23% 55% INCREASE DECREASE NO CHANGE % 14% 60% 19% 26% 55% 25% 12% 63% % 8% 62% ` How much did EMPLOYEE COMPENSATION change over the last 12 months? How much do you expect EMPLOYEE COMPENSATION to change over the next 12 months? Increase 41% 41% 43% 48% Increase 40% 42% 43% 50% Decrease 14% 12% 16% 12% Decrease 10% 9% 13% 5% No Change 45% 47% 41% 41% No Change 50% 49% 44% 46% 2013 MID-YEAR ECONOMIC REPORT 9 NATIONAL SMALL BUSINESS ASSOCIATION

10 SMALL BUSINESS FINANCING Using NSBA data from as far back as 1993, there is a clear correlation to a small-business owner s ability to hire and his/her ability to get financing. While the last four years have seen a small-business community struggling to stay afloat, we also have seen their ability to get capital diminish. Today, just 65 percent of small businesses report they are able to obtain adequate financing, down from 73 percent just six months ago. This could be driven somewhat by the fact that the average business size surveyed in the 2013 Mid-Year Economic Report was slightly smaller than in previous reports, and the smallest businesses are those which struggle most to secure financing. This drop in capital availability is inline with slow employment growth both in the last 12 months as well as low projections for the coming 12 months. Has your business been impacted by the credit-crunch? YES NO 69% 31% 68% 32% 75% 25% 68% 32% 2013 Have you experienced any of the following changes on any of your lines of credit or on your credit cards in the last six months? % 15% 74% The number of small businesses relying on loans from large banks and earnings of the business was down from previous surveys. This, too, could be impacted slightly by a slightly smaller average business size of survey respondents, which typically are seen as more risky by larger banks. This drop also is likely driven by the still-stagnant projections of growth in a number of key indicators, including revenue, profits and employees a fairly clear disincentive to most business owners to take on additional debt. Furthermore, there was a slight increase in the number of small businesses reporting the terms to their bank loans have become less favorable to their business. Small businesses relying on community bank loans, credit union loans and credit cards remained virtually unchanged. Just over a year ago, in June, NSBA released its Small-Business Access to Capital Survey, which provides a detailed look at smallbusiness credit markets. Please click here to view that survey. INCREASE DECREASE NO CHANGE 11% 13% 76% 11% 16% 73% % 17% 71% Today, just 65 percent of small businesses report they are able to obtain adequate financing, down from 73 percent six months ago MID-YEAR ECONOMIC REPORT 10 NATIONAL SMALL BUSINESS ASSOCIATION

11 SMALL BUSINESS FINANCING Is your business able to obtain adequate financing? What types of financing has your company used within the past 12 months to meet your capital needs? YES NO Earnings of the business 35% 43% 43% 46% 35% 65% Bank Loan (total of 3 options below) 33% 45% 46% 47% -- Large Bank Loan 13% 23% Community Bank Loan 18% 19% % 73% -- Credit Union Loan 2% 3% Credit cards 31% 31% 34% 33% Used no financing 30% 24% 23% 21% Private loan (friends or family) 17% 17% 19% 14% Vendor credit 16% 18% 18% 23% Leasing 5% 7% 6% 11% Other 5% 5% 3% 6% Selling/pledging accounts receivable 2% 3% 2% 3% Small Business Administration (SBA) loan 5% 3% 6% 4% Private placement of debt 2% 1% 3% 2% State/Regional Loan and Incentive Programs 1% 1% 1% 1% Private placement of stock 1% 0% 2% 1% 34% Public issuance of stock 0% 0% 0% 1% 66% For bank loans that are currently outstanding, which of the following has occurred in the last 12 Months? Terms have become less favorable to your business. 14% 11% 13% 17% 30% Terms have stayed the same. 33% 43% 41% 40% 70% Terms have become more favorable to your business. 6% 8% 9% 6% Do not have outstanding loans. 46% 39% 37% 36% 2013 MID-YEAR ECONOMIC REPORT 11 NATIONAL SMALL BUSINESS ASSOCIATION

12 SMALL BUSINESS FINANCING Percentage of Small Businesses Carrying Any Debt 88% 79% 73% 78% 2013 ` Average debt among those that do have debt $835, The fact that there are more businesses reporting they carry some kind of business-related debt increased but that the average debt size decreased is likely due to a smaller average size of business among the respondents than in previous years MID-YEAR ECONOMIC REPORT 12 NATIONAL SMALL BUSINESS ASSOCIATION

13 SMALL BUSINESS FINANCING Do you believe that the terms of the credit cards you use for business have improved or gotten worse over the last five years? 9% 43% 36% 12% IMPROVED GOTTEN WORSE NOT SURE N/A - I DON T USE CREDIT CARDS Do you believe that the terms of the credit cards you use for business have improved or gotten worse over the last SIX MONTHS? 8% 30% 50% 13% IMPROVED GOTTEN WORSE NOT SURE N/A - I DON T USE CREDIT CARDS If capital availability is a problem for your business, what is the effect on your operations? Not a problem / No effects 50% 57% 54% 53% Unable to grow business or expand operations 36% 29% 33% 34% Unable to finance increased sales 18% 16% 18% 16% Reduced the number of employees 20% 14% 16% 20% Unable to increase inventory to meet demand 10% 8% 11% 10% Reduced benefits to employees 14% 11% 9% 11% Other (please specify) 3% 2% 6% 2% Closed stores or branches 4% 2% 2% 3% There was a notable jump, from 14 percent to 20 percent, in small businesses who said they were forced to reduce their number of employees as a result of an inability to access financing MID-YEAR ECONOMIC REPORT 13 NATIONAL SMALL BUSINESS ASSOCIATION

14 SMALL BUSINESS FINANCING CORRELATION BETWEEN AVAILABILITY OF CAPITAL AND EMPLOYMENT GROWTH ` Able to get financing Increased Employment 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Feb. 08 Aug. 08 Dec. 08 July 09 Dec. 09 July 10 Dec. 10 July 11 Dec. 11 July 12 Dec. 12 July 13 Using NSBA data from as far back as 1993, there is a clear correlation to a small-business owner s ability to hire and his/her ability to get financing MID-YEAR ECONOMIC REPORT 14 NATIONAL SMALL BUSINESS ASSOCIATION

15 PUBLIC POLICY The 2013 Mid-Year Economic Report asked general questions on policy and focused on two current key areas of concern: health care reform and taxation. When asked to rank to top items that Congress and the administration should address, the number one issue and a new answer option provided for the first time in this survey was end the partisan gridlock and work together. That was followed closely by reduce the national deficit, simplify and reduce the tax burden, reduce regulatory burden and rein-in costs of health care reform. The number one way small businesses believe we should address the national deficit is to reform and reduce entitlement spending, followed by significant cuts for certain federal agencies and programs. More than one-in-four support eliminating certain tax credits and deductions even those which impact their business in order to get our financial house in order. Which one of the following issues do you believe Congress and President Obama s administration should address first? End the partisan gridlock and work together 19% Reduce the national deficit 18% Simplify the tax system 15% Reduce the tax burden 12% Reduce the regulatory burden on businesses 8% Rein-in costs of health care reform 6% Other 6% Increase small business access to capital 5% Improve education to provide a qualified domestic workforce 2% Reform Immigration 2% Reform the federal contracting system 2% Tort reform 2% Enact a comprehensive energy policy 1% Credit card reform (that includes Small Business) 1% Which of the following deficit-reducing proposals would you support? Reform and reduce entitlement spending 58% Significant cuts for certain federal agencies and programs 46% Eliminate all tax credits and deductions in conjunction with dramatically lower income tax rates 35% An across-the-board budget cut for federal agencies 33% Greater authority of the administration to reduce Congressionallyapproved spending 32% A tax increase for those making more than $1 million annually 29% Eliminate certain tax credits and deductions even those which may benefit my business 27% A tax increase for those making more than $250,000 annually 13% The number one thing small businesses want policymakers to do is end the partisan gridlock and work together MID-YEAR ECONOMIC REPORT 15 NATIONAL SMALL BUSINESS ASSOCIATION

16 PUBLIC POLICY HEALTHCARE Implementation of the Patient Protection and Affordable Care Act continues to be an increasing worry of small business and something they are spending more and more time dealing with. Today, 20 percent say they have a clear understanding of how the law will impact their business up from 17 percent six months ago, whereas 80 percent still have a limited or no understanding of how the law will impact their business. Costs continue to rise: more than one-third (35 percent) say they faced an 11 percent or higher increase at their last renewal. The influx of new regulations and growing understanding of the complexity of the law is taking its toll on small firms. In the last six months, there was an increase from 19 percent to 26 percent among firms with fewer than 50 employees who said they don t offer health insurance and don t plan to, while those same firms doubled in terms of those who said they will give employees money toward the exchange. Similar confusion exists over the small-business tax credits, where 38 percent are not sure if they qualify and 22 percent say the credit will provide their business any assistance at all. Among employers with 50 employees or more, the majority (73 percent) said they plan to continue offering health insurance and just two percent said they plan to pay the penalty. Among the smaller employers (those with fewer than 50 employees) one-third still are not sure what they ll do to comply with the law. How well would you say you understand how the new health care reform law is going to impact your business? 20% 59% 21% CLEAR UNDERSTANDING 2013 LIMITED UNDERSTANDING NO UNDERSTANDING 17% 66% 17% 23% 63% 14% % 60% 21% In what ways have you coped with rising health care costs? 2013 Less profit available for general business growth 56% Increased deductible 40% Increased employee share of premium 36% Held off on salary increases for employees 36% Reduced employee benefits 31% Held off on hiring a new employee 26% Held off on implementing growth strategy 20% Delayed purchase of new equipment 18% Other 16% Switched insurance carriers 15% Dropped insurance 11% Laid off an employee 9% At your most recent health insurance renewal, which of the following changes occurred to the cost of your health insurance? % 38% 39% 31% 27% 23% 21% 22% 6% 7% 5% 6% 0-10% INCREASE 11-20% INCREASE NO CHANGE 2013 MID-YEAR ECONOMIC REPORT 16 NATIONAL SMALL BUSINESS ASSOCIATION

17 PUBLIC POLICY HEALTHCARE The majority (73 percent) of employers with 50 or more workers said they plan to continue offering health insurance just two percent said they plan to pay the penalty. If you qualify for the small-business health care tax credits, how much will they help your business? Significantly 6% 3% 3% 5% Moderately 6% 4% 6% 6% Just a little 9% 10% 10% 13% Not at all 16% 17% 19% 18% I do not qualify 24% 24% 26% 20% I m not sure if I qualify 38% 42% 36% 38% Among employers with MORE THAN 50 EMPLOYEES, do you plan to offer health insurance under the new health care law? I already offer insurance and plan to continue doing so I will begin offering health insurance to my employees under the new law % 71% 3% 3% I will give my employees funds for an exchange 2% 0% I plan to pay the penalty 2% 3% Not sure 19% 24% Among employers with FEWER THAN 50 EMPLOYEES, what changes do you anticipate to your company s health insurance offerings? I have a health insurance benefit and will continue offering it under the new health care law % 32% I don t offer health insurance and don t plan to 26% 19% I will give employees money toward the exchange 6% 3% Not sure 33% 46% 2013 MID-YEAR ECONOMIC REPORT 17 NATIONAL SMALL BUSINESS ASSOCIATION

18 PUBLIC POLICY TAXES NSBA data has shown for the last several years that the administrative burden (complexity) of federal taxes is a larger problem for small business than the actual financial burden. (See here for our annual Taxation Survey) As expected, simplify the tax code outranked reduce the tax burden among the top things small businesses want Congress and the administration to do. Have you been subject to an IRS audit or additional IRS follow-up in the last 10 years? Yes A field audit (in-person) My Business Me Personally Total 16% 6% 22% For the first time, NSBA asked a number of questions about small-business interaction with the IRS and found that close to half of small businesses (43 percent) have been the subject of an IRS audit or follow-up action in the last 10 years. More than a third of small-business owners report they personally (not their business) have been audited or receiving some kind of IRS follow-up action in the last 10 years. Among those small firms that did have additional interaction with the IRS in the last 10 years, a full-fledged audit was the most common response, followed by requests for more information and additional tax payments. Interestingly, among those that did have additional IRS interaction, 35 percent were told it was simply a random audit selection. Yes A letter audit Yes A follow-up request for more information Yes A follow-up request for additional tax payments 8% 7% 15% 11% 12% 24% 9% 10% 18% According to documents submitted to House Small Business Committee Chairman Sam Graves (R-Mo.) by IRS Principal Deputy Commissioner Daniel I. Werfel as part of a July 17 hearing on the IRS treatment of small business: of all audits conducted in FY, 21 percent were small-business audits. In other words, 351,837 of the total 1,657,698 audits conducted in were on small business. The IRS has estimated that for, there was a grand total of million tax returns filed (these include a wide variety of tax forms, including individual, fiduciary, corporation, employment, and so on). Using this figure and the 1,657,698 figure reported by the IRS in terms of total audits, that means that the average audit rate of all tax returns is less than one percent, or 0.56 percent. With regards to the time spent on audits, Mr. Werfel s follow-up letter to Chairman graves cites that, In FY, the average cycle time for small business audits was 264 days, while the average cycle time for all audits was 230 days. Among those who have been subject to an IRS audit or additional IRS follow-up in the last 10 years, what type of audit was it? My Business Me Personally A field audit 36% 17% A letter audit 18% 21% A follow-up request for more information 26% 34% A follow-up request for additional tax payments 20% 28% 2013 MID-YEAR ECONOMIC REPORT 18 NATIONAL SMALL BUSINESS ASSOCIATION

19 PUBLIC POLICY TAXES Among those small firms that have been audited in the last 10 years, in-person or via correspondence, what were the reasons cited by the IRS for the audit? 2013 Random selection for audit 35% Other (please specify) 19% Record keeping discrepancy 15% Self-employment income 12% Discrepancy from previous years 12% Mismatch in income on various IRS forms 12% Changes in reportable income 12% An amended return was filed 12% Issues related to tax preparer 8% Schedule C losses 8% Little or no wages reported for an s-corp 4% Change in business structure 4% Business is seen as a hobby business 4% Large rental losses-realized 4% R&D credits claimed 4% Among those small firms that have been audited or the subject of some other IRS follow-up request in the last 10 years, how did you respond? I provided the information and clarified my position, which the IRS accepted % I complied because it was an error on my part 14% I complied because the cost of fighting it would exceed the amount at issue despite my belief it was an IRS error 14% I fought it because I believed it was an IRS error 10% I complied to avoid further problems with the IRS despite my belief it was an IRS error 7% Other 7% 2013 MID-YEAR ECONOMIC REPORT 19 NATIONAL SMALL BUSINESS ASSOCIATION

20 CONCLUSION METHODOLOGY Small employers comprise 99.7 percent of all employer firms in the U.S. One in two workers in the private workforce run or work for a small business, and one in four individuals in the total U.S. population is part of the small-business community. Firms with fewer than 500 employees accounted for 64 percent of net new jobs between 1993 and the third quarter of 2008 and 32 percent of those gains came from the creation of new, small firms. Small businesses, despite a more positive overall economic outlook, continue to struggle with growth and hiring. Not only are our elected officials not doing enough to improve the U.S. economic situation, oftentimes, they are causing by their inability or unwillingness to deal with serious issues facing the country slow growth and a lack of longterm economic security among small businesses. Small businesses simply need the environment to grow and create jobs: economic stability; predictability, fairness and transparency in taxes and health care costs; common-sense regulations that don t unfairly disadvantage small firms; and lawmakers willing to tackle the major issues facing our country, and to do so together. Please click here for more information on NSBA s priority policies. For past Economic Reports and other issue-specific surveys from NSBA, please visit our Surveys & Reports page on the NSBA website. For questions, interviews or to reprint any or all of this report, please contact the NSBA public affairs department at press@nsba.biz or The 2013 Mid-Year Economic Report was conducted on-line June 25 through July 17, 2013 among more than 1,100 smallbusiness owners both members and nonmembers of NSBA representing every industry in every state in the nation. While the survey was sent to a larger sample set than in previous Economic Reports, the demographics were largely in-line with previous sample sets. It is worth mentioning that the respondents to this survey represented a slightly smaller average size business, yet industry and other demographics remain consistent, resulting in valid trending data MID-YEAR ECONOMIC REPORT 20 NATIONAL SMALL BUSINESS ASSOCIATION

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