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By Rob Fowler, President and CEO
Small Business Association of Michigan

Michigan small business owners closed 2010 on a positive note, but look forward to 2011 with somewhat less optimism. That’s an unusual attitude for usually optimistic entrepreneurs. It underscores the challenges weighing on their minds as we enter the new year.

The Year That Was

Our October 2010 “Barometer” survey of 400 small business owners across the state asked them to assess the performance of their business operations over the previous six months. The responses showed improvements in business performance compared to the last time we asked the questions in January of 2010.

Some examples:

• 34 percent of small business owners reported in October 2010 that sales increased over the previous six months. Only 23 percent reported in January 2010 that they had sales increases.
• 10 percent said they increased the number of employees; only 5 percent said in January that they had hired workers.
• 10 percent said they boosted wages; only 8 percent said in January that they had given out wage hikes.
• 20 percent said profits had increased; 15 percent said in January that profits had gone up.
• 12 percent said their major investments in plants and equipment had increased; 9 percent said in January that they had boosted investments.

The Year to Come

After asking small business owners how their business had performed over the previous six months, we asked them to peer into the crystal ball and project how they were going to do in the next six months. By and large, they were less optimistic compared to when we asked them the same questions in January 2010.

• 32 percent of small business owners said they expect sales to increase in the next six months through April 2011. But 42 percent in January 2010 said they expected sales to increase in the next six months.
• 32 percent said they expect profits to increase; 30 percent in January said profits would rise.

Contributing to their gloom is a perception that Michigan continues to be a tough place in which to do business. 60 percent of small business owners in the October survey gave a negative rating to Michigan as a market for their goods and services. And 53 percent gave an “unfair” rating to the way Michigan’s tax system affects their business.

Our assessment of these survey results is that despite some slight, moderate improvement in economic conditions, small business owners are worried about a number of potentials problems coming down the road in 2011—challenges that could have a major impact on their ability to sell their products and services, afford to provide employee benefits and make a profit.

Challenges and Problems

Michigan’s state budget situation: Michigan’s government needs to be reformed and reinvented if we are to successfully address the structural budget deficit. Gov. Snyder is required by law to propose a balanced budget, quite a challenge considering that there are no more one-time fixes and no more federal stimulus money available. We stand ready to help work on cost-saving structural reforms for 2011 and into the future. One possibility is making government employees pay more of their own health insurance costs, as well as other pay and benefit concessions from public employees.

Tax reform: Gov. Snyder has suggested a 6-percent corporate income tax in exchange for eliminating the MBT. As the details are unveiled, we and other groups will be examining its potential impact from the perspective of small business. We don’t know exactly what it will look like (the devil is, as always, in the details), but there will be a new business tax structure in the state.

Regulatory reform: We can predict the governor and legislature will take a close look at removing or reforming the regulations that inhibit business creation and job growth in Michigan. Their goal will be to create a more business and job-friendly environment.

On the national scene, the biggest unknown is how healthcare reform continues to develop. The GOP has proposed a strategy of “repeal and replace.” Politics makes it doubtful that full repeal will be successful. Will Republicans be able to put pressure on the president to at least reevaluate some portions of healthcare reform, especially the onerous 1099 requirement? We think Congress really missed the mark on cost savings in the healthcare system. This might be an area where they can build a reform alliance with Democrats.

It’s worth noting that the dramatic election of 2010 elevated several Michigan congressional representatives to new positions of significant responsibility. Congressman Dave Camp will become chair of the House Ways and Means Committee, Congressman Fred Upton will likely chair the House Energy and Commerce Committee, and Sen. Debbie Stabenow will serve as chair of the Senate Agriculture Committee. We hope they will have opportunities in these important posts to advance policies that grow Michigan’s small business economy.

A Reason for Optimism

Despite all the challenges, there is one big reason look forward to 2011: a significant, positive culture change is underway. At our annual meeting last summer, SBAM Chair Cynthia Kay of Grand Rapids shared her dream of “a future society where a young person gets a job at a big company and everyone asks them: ‘What’s wrong with you? Why haven’t you started your small business yet?’” We’re not quite there yet. We haven’t gotten to the point where we can brag that in Michigan entrepreneurs are celebrated as folk heroes, as they are in some other parts of the nation.

But the Small Business Association of Michigan’s “economic gardening” campaign is making headway. It’s beginning to change the conversation, change the image of small business and change the expectations of economic success. We are beginning to propel a new economic direction for Michigan—a long-term project that we’re confident will make considerable progress in 2011.