Published on February 1st, 2013


Erol Senel: Small Business Thrown Into Regulatory Stress Test

Stress tests have been used in the business world for ages. By subjecting a company’s financial situation and forecasting to a number of hypothetical situations, executives can have a more accurate vantage point as to the relative stability of their enterprise. This then allows them to make more informed and developed financial and personnel decisions.

Small Business owners everywhere are bracing for what will likely be a very unwelcomed stress test. The only difference is that this one will not take place in a controlled environment using hypothetical situations. The landscape that will likely befall Small Business in 2013 is one that is very real and the true ramifications are relatively unknown.

The culprit casting this sense of foreboding is the over-bloated federal government. Over the course of the past half decade, government has steadily been eating into the marketplace, crowding out segments of the private sector, while providing uncertainty and volatility for other segments. The election of 2012 offered an opportunity for America to unite behind its entrepreneurial roots and reign in the ever expanding girth of government; however that opportunity has come and gone and the looming possibility of intrusive government meddling has now become a definite.

The Affordable Care Act (popularly dubbed “Obamacare”) and Dodd-Frank will be the realities that Small Business will have to contend with, both indirectly and directly. They represent limitations put on profits of businesses large and small. This will in turn impact the overall growth of the economy at a time when it quite frankly does not need another headwind.

The impact of these two pieces of legislation, that are scheduled to be phased-in beginning January 1st, is far reaching and highly impactful.

Dodd-Frank will have an impact on Small Business by means of their ability to access capital via loans. The tightening that is taking place by banks in preparation has already begun to fray long standing accords with clients. Due to less efficient ways to remain profitable, banks are becoming leaner and less flexible.

One example of the change in dynamic is in loan ratios. One real world example is when a Small Business experiences a hiccup due to a poor economic environment and impact that has on sales. This drop causes them to fall out of their mandated debt to equity/income ratio, a situation that would normally be addressed through a workable plan to come back into ratio. However, it the Dodd-Frank environment, a bank may be less than forgiving due to the cost or insuring against risk in today’s market and call the loan. This could potentially lead to an increase in bankruptcy filings among small businesses.

Then there is Obamacare. Whereas the impact of Dodd-Frank is proving to be troublesome for small business, the impact of Obamacare is landscape changing. Due to the provision that stipulates small businesses with 50 or more “full time quivalent employees” are mandated to provide health insurance for their employees or pay a fine, or tax according to the Supreme Court’s ruling, you have seen a shift in employer/employee dynamic.

Obamacare makes employers look at their workforce as commodities rather than humans. “Under Obamacare, companies don’t have to insure or pay fines for not insuring employees who work less than 30 hours a week. So it’s no surprise many companies are going to make sure their part-time workers, and some current full-time workers, stay below the 30-hour limit. That will mean less work and less pay for those employees” (York, 2012).

This sounds like an abhorrent way to approach business and human capital management; however the emotion around this decision is hitting small business owners heavily. “We had to make the decision to reduce our employees’ hours with an extremely heavy heart” said Chris Baker, Director of Operations for Twin Coast Enterprises which owns and operates nine Wendy’s locations throughout New Hampshire and Massachusetts. “These are terrific people and we are aware of the impact this is going to have on them; however the choice we had to make was the one necessary to keep the company viable. The impact of the tax or cost of insurance would have been debilitating.”

What the situation at Twin Coast exemplifies is the reality that due to scarce resources, “business owners need to make a very real decision: either insure and close their doors, face the Obamacare penalty tax and close their doors, or reduce employees hours below the set mandate and stay in business” (Senel, 2012).

Beyond the obvious impact involved with the hourly reductions, there is the need to remain in compliance with these mandates. This requires a greater need for accounting and oversight from employers. Will small business owners hire advisers or an additional staffing consultant to help them navigate this new terrain? For many, that additional expenditure is not within their means. Thus, the unintended consequences may be many employers being out of compliance with the mandate without their knowing. The truth remains, that regardless of the direction employers go, spiraling healthcare costs will continue to daunt small business.

With fastidious planning and old fashioned grit, small business will emerge from this real-life stress test stronger and continue to be the driving force of the U.S. economy. Yet the reality remains that circumstances are never simple for small businesses; especially when coupled with the extraordinary measures being taken up through poorly executed government policy. This potentially unnerving new frontier will be a development to watch, especially during the tail end of the year once the full impact of these regulations on the economy is able to be digested.

ReferencesSenel, E (2012, Dec 31). Obamacare: Political Fissures and Ramifications. SenelSlant. Retrieved from

York, B (2012, Dec 20). Get ready for the cost and chaos of Obamacare. Lubbock Avalanche-Journal. Retrieved from


ABOUT THE AUTHOR: Erol Senel started out as a student of history but has been plying his trade in the world of finance and personal investing. Through this real world experience, he has found his true professional passion in economics and financial history. His mission is to provide readers with easy to understand, topical and informative articles with the hope of allowing many to make more informed decisions while partaking in civics and life.

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