The High Costs of Regulation and How to Reduce Them

money-73341_640The results are in: Two-thirds of US small business owners believe their government’s policies are unfavorable to small business.

Trinet, a company that provides cloud-based HR services to businesses, engaged Harris Poll to conduct the survey. Here are more highlights:

  • 32 percent rate US policies as very unfavorable.
  • 53 percent of small business owners believe that legislation hampering small businesses as well as the overall economic health of the United States (53 percent) will get worse in 2014.
  • 76 percent of small business owners strongly agree that the amount of federal government regulations regarding employee benefits is restrictive to the growth of small business.
  • 75 percent believe state government regulations also restrict the growth of small business.
  • 35 percent think that the impact of the Affordable Care Act has been worse than they anticipated.

The Heritage Foundation has taken a look at government regulations and found that the cost of federal regulations to businesses rose by $70 billion between 2009-2013. Further, at the end of 2012 the number of federal regulations affecting small companies was 13 percent higher than at the end of 2008.

Small businesses hurt the most

Government regulations deliver a bigger wallop to small businesses than they do to larger businesses. Because they are generally fixed costs, smaller companies register a higher cost-per-employee than do larger firms. Nicole and Mark Crain of Lafayette University say the price tag for complying to federal regulations is $10,585 for companies with under 20 employees while the figure is $7,755 for firms with 500 or more employees.

These kinds of numbers are of interest to companies such as TriNet, because small businesses can often reduce their direct need to keep up with changing regulations when they outsource some overhead functions. In fact, moving the regulatory burden to others is one of the best ways to minimize the impact of regulations on your small business.

An actionable plan

Business strategist Sandy Graham suggests that businesses develop a long-term plan to deal with regulatory costs that has three goals:

  • Reduce or mitigate the impacts of government regulations,
  • Limit the impact of regulations on operations as a cost factor, and
  • Develop a growth plan.

His approach is to deal with the problems directly, assess them as variable cost factors and then encourage growth so the burden of regulations is reduced overall. Specifically, look at strategies such as:

  • Sharing space with other businesses,
  • Using infrastructure companies, such as UPS logistics, PitneyBowes, cloud-based services, payroll providers, etc., and
  • Contracting out manufacturing, warehousing and fulfillment.

Attack the job of reducing the costs of regulation just as you would any other cost of doing business. Don’t just accept it as a “given.” And when you do a cost benefit analysis of signing on with service providers, don’t forget to factor in the savings to you in a reduced regulatory burden.

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Image: Public Domain CC0.