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Forum Post: ANy businessman out there? I have a question.

Posted 12 years ago on Jan. 8, 2012, 8:16 a.m. EST by bensdad (8977)
This content is user submitted and not an official statement

I don't understand why business is saying, "we can't hire because we are uncertain of the future".
Lets say I have a accounting company and I have 10 employees and I net $15,000 per year per person.
My people are busy but I have new customers who want my company to provide workers for them. Exactly why would I not hire, say, two extra accountants to satisfy the additional demand? WHERE DOES UNCERTANTY MAKE ME RELUCTANT TO HIRE TWO MORE MEN AND EARN AN EXTRA $30,000?

Lets say a new law that comes on line that requires me to add a pension benefit that costs me more than I can afford - I can always fire these extra workers.
I think the "uncertanty" argument is BS that came to the fore when it became well known that American companies are sitting on $2,.000,000,000,000 and don't want to hire.
My belief is that they dont hire because thery dont have DEMAND.
And demand means spending
And spending means putting more money in the hands of the 99%.

Please explain - with specific numbers-



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[-] 3 points by freewriterguy (882) 12 years ago

im a business man and im still trying to figure out how im going to pay both the state and federal taxes I owe in penalties cause I hired an american to help me with my many jobs, even when I didnt even make a profit those years.

[-] 1 points by francismjenkins (3713) 12 years ago

You shouldn't have to pay taxes when you were operating at a loss, and you should be able to roll the last three years of losses into your current tax filing (in other words, if you lost money in 2009, 2008, and 2007, but made money in 2010, your losses from those three prior years can be used to offset your 2010 profits for tax purposes).

If you haven't filed a tax return for several years, there will be penalties and interest (even if you're eligible for an offset). BTW hiring an American worker should allow a tax deduction for wages paid (whereas you wouldn't be eligible for a deduction if you employed an illegal immigrant).

However, you are responsible for FICA (social security) and Medicare taxes (the employers share), whether you made money or not (and on the state level, probably taxes associated with workers compensation and perhaps unemployment).

[-] 1 points by freewriterguy (882) 12 years ago

ya the bottom line is i learned my lesson, dont hire anyone, cause the government will penalize you with so many fees, you cant afford to hire someone, unless, its for like $5 an hour! LOL meanwhile my phone is ringing off the hook, but ill continue to resist ever hiring an american again!

[-] 2 points by flip (7101) 12 years ago

you are on the money here - all that nonsense about uncertainty is just that - nonsense. we just started a small business - i don't care too much what the taxes are (ok, within reason!) if we make money it will all work out. i have a friend with a fast food chicken business - his business is down 30% from the peak so he has a smaller staff. as it picks up he will hire - very simple. if you have an investment adviser they will tell you that you should never worry about the tax when thinking about selling a stock - make the money and pay the tax. all of this is right wing shit to confuse people! if you listen to the business channels you will hear many people who say the same thing.

[-] 2 points by Rico (3027) 12 years ago

I think JoeTheFarmer gave a good answer for small business below at http://occupywallst.org/forum/any-businessman-out-there-i-have-a-question/#comment-573758 . The comment below that post by economicallydiscardedcitizen alludes to another factor. I'll elaborate here from the perspective of hiring lead in a multi-nation mega-corp.

The time span from when raw materials are purchased until a product is sold in retail is very long (most big companies "front" their products to the big retailers, and don't get paid until they sell). As a result, we have a lot of capital wrapped up with inventory and Work In Process (WIP). before 2008, we like most big companies, used to borrow all that operating capital on the money markets so our inventory and WIP were actually leveraged not owned. Immediately after the crash of 2008, many banks stopped lending due to poor liquidity and that those that did charged high rates. Many large American businesses nearly collapsed as a result. Most don't know that the Fed actually stepped in to help both with cash and pressure ob the banks at that time or that their current injection of cash into the world financial system is partially motivated by a desire to prevent the same from happening in Europe where companies are having the same problem (we don't want them to crash and then crash us again).

The smaller companies like JoeTheFarmer describes are generally relaxing a bit and starting ti operate again because the domestic banks are recovering nicely. The big multi-national mega-corps like mine, however, are still very worried by the the EuroZone problem. They thus maintain their own operating capital, and it is substantial. They won't release that money until there darned sure they're not going to run out of cash like they did in 2008. In essence, they are now saving for a rainy day as should we all. They're still scared, and rightfully so.

To elaborate on JoeTheFarmer's comment, we can define the probability of hiring as a function of confidence in demand growth over the time period required to pay for the cost of hiring. The more it costs to hire, the more reluctant we are to hire based on short-term "up-ticks" in the economy. We typically need at least a year or two to recover our investment in a new hire.

To illustrate the cost of hiring at a mega-corp, let me describe the process.

When I need a new employee, I have to first defend my desire by showing that I have been paying a lot of over-time for a sustained period and that I have enough work in the pipeline to sustain additional manpower for at least a year. It usually takes about 8 hours to prepare the material and get all the requisit signatures from two levels of management. If approved, I then have to prepare a description of the job and qualifications and get that signed off, and that usually takes another 8 hours of negotiation.

Personnel then posts the job on an internal site and gives the personnel departments at each site in the company about a week to respond whether they have some excess employees who would meet the need and are about to be laid off. During a downturn, they typically do, so we pay the travel cost (if any) and labor costs for those people to come out and interview. We put each of them through an entire day of interviews with different people and then rank them. My immediate supervisor then interviews the top two and adjusts our priorities if he sees fit. Personnel then offers the job and we pay relocation costs if any.

When were not in a downturn and employment is stable, we get no responses from the other sites in our company, so we post the job for external applicants. Personnel then has us review all the resumes and rank them, submit them to our manager, etc. They then call in the top 4 for interviews which proceed as described for internal candidates. Personnel next performs background checks and confirms both the references and salary history of the top four candidates. When done, they call the top candidate in for salary negotiations. If he does not accept, they work down the list of candidates until they find one that will. Each of these salary negotiations is conducted in person, so each has an associated travel cost.

Once a candidate accepts, personnel has to put him into the payroll system, start up withholding, register his benefits, etc. Finance has to put him on the books and adjust our payments to state unemployment insurance, etc. The employee's first two days are spent in orientation where they are briefed on policies and filling out their benefit elections.

I typically see my new employee about 4 weeks after my formal request. Unfortunately, he's not yet productive; he has to be trained in how to do the work the way we do it. A new employee is usually only partially useful for his first 3 months, so it's a total of about 4 months before my needs are fully met.

You can imagine the cost associated with my company's hiring process. To make matters worse, we can't even say what that cost is because of pending legislation like Obamacare (as Joe noted). We don't incur that cost unless we're darned sure we need someone, so we do not start hiring until we're sure we'll need the new guy for at least a year, preferably two. A smaller company such as the one JoeTheFarmer described probably incurs less cost and may therefore be willing to hire at a lower confidence level. My mega-corp has to almost positive before they hire.

Uncertainty in access to capital and the high cost of hiring does keep us from growing our business. To grow, we need to see stability in the financial markets and a prolonged increase in demand.

The situation would be a bit better if we didn't have a president so vocally hostile to business (remember his "jack boot on their neck" comment ?) and advocated so much additional regulation early on. He's gotten better in recent years once he realized he needs business's help to turn the economy around, but there remains a lot of resentment, suspicion, and uncertainty about his policies.

[-] 1 points by jomojo (562) 12 years ago

Well explained Rico. May I add .....Then, because of your process of qualifying, and salary concessions, the candidate is understood by other companies, to be worth more than you pay them. The new hire gets a better job and leaves before your company makes up their losses.

The small companies have the same problem.

The mega corp's budget for Personnel, Finance, Payroll and Benefit, are a fraction, (percentage wise), of the Mom and Pop businesses, who lose their employees to Mega corps with better benefits.

"Joe the Dreamer", winds up as "Employee of the Month", and more likely to become unemployed, than being seen in his hometown paper as, "Joe the Businessman of the Month". Thanks Rico.

[-] 1 points by Rico (3027) 12 years ago

Yes, but I will tell you that I have lost many of my people to small companies when they get tired of all the bureaucratic crap they have to endure in mine. The ones I lose are almost always the eager young bright ones. Unfortunately, it's really hard for us to fire folks for anything short of theft, so we end up having a good number of low-performers. It's really hard to sustain an excellent team in a large corporation like mine.

[-] 1 points by jomojo (562) 12 years ago

The eager young bright ones don't get caught stealing. It's easy if they know the company is looking to eliminate the older low-performers. Bureaucracy is at the heart of this bad economy. The old world apprentice system worked at keeping trades viable, but Henry Ford solved that.

[-] 1 points by Rico (3027) 12 years ago

Yep, I agree. I ran my own apprenticeship program by seeking out masters and volunteering to do their crap work in exchange for them answering questions and explaining things to me. I have worked for five masters over the years, and am now a "master" myself. In addition to helping me learn my trade, each one of them also became an advocate on my behalf. Now I'm in the top 1% of engineers in a large fortune 100 multi-national, make in the mid six figures, and have a couple of highly technical patents, yet I dropped out of high school and never got a college degree. The apprentice approach is vastly superior to the current system in my opinion.

[-] 1 points by jomojo (562) 12 years ago

Change tax laws, healthcare, while repairing the economy. Self employ. Posted Oct. 25, 2011, 12:35

The payroll deduction system has not worked, except for the IRS, congress and corporations.

By changing to the below five point system, there would be thousands more small business start ups, creating more non corporate jobs. Full employment would increase wages and lower each person's taxes, while increasing tax revenues, which would fund social services.

One of the leading causes of new business closures is that the management must manage not only their own but also employees tax and benefits. Default of rules and payment of Income, SS, MC, sales taxes, permits and fees are reasons the IRS, state and local tax enforcements close many. Even without employees, the self-employed are threatened by the present system being a tax and healthcare minefield.

The production of products or services is what the entreprenuer should be spending their work time on. Business accounting would replace tax planning.

The new plan would:

1.Require that full earnings be deposited at a bank.

2.Eliminate sales tax collection by retailers.

3.Have federal, state, and local governments deduct their tax revenue from earnings when they are deposited.

4.Offer benefits desired by the worker/owner as an optional cafeteria plan. Insurance, retirement plan, education savings, charities, christmas club, etc, with payments deducted and fowarded from earnings.

5.Require that earnings and salaries from business be deposited/taxed the same as a wage earner. (larger deposits, larger tax %). Reinvestment in business would be therefore pretaxed.

This plan greatly enhances the freedom to quit a job, start a business, hire employees, with everyone having equal benefit availability. All employees would have to be lured with better pay and a more desirable job.

[-] 1 points by Rico (3027) 12 years ago

I see what you're trying to do with your 5 points, but I don't think it will do much for the situation I described at my mega-corp employer; many of our costs are self imposed. I suppose they would help the small retail businesses, and they employ a lot of people. Have you asked JoeTheFarmer to weigh in on your ideas ?

[-] 1 points by jomojo (562) 12 years ago

I don't think he'd be against it. I figured you'd understand. It's easy for ideas to be overlooked as half baked. It is. When I worked as "just another dumb employee", my opinions were unwanted, unless my bosses could take credit for them. Cobra $ucks. Especially finding out that even keeping my insurance paid, it does not continue to cover pre-existing conditions, as before my firing. Insurance, like employers prefer the young. The point is that the offices, factories, and job sites are where the world's potential successful employers punch the clock instead. Their benefits keep them there, temporarily.

[-] 1 points by Rico (3027) 12 years ago

They declared conditions that were treatable when you were employed as pre-existing when you transitioned to COBRA ???? That's seems wrong. Are you sure that's legal?

As for punching a clock, I agree. I had my own business for a while. I made good money, but the insecurity kept me on edge all the time, and the benefits were casting me a fortune. I went back to corporate life. I'm now 55, have accumulated a good amount of money in my 401K, and am one of the last lucky people in the country to have a pension. I plan to retire soon and do something interesting.

[-] 1 points by jomojo (562) 12 years ago

The agent explained that when the COBRA period is over, it's like starting over, with a new policy. Once again if I take a job with a health plan, pre-existing conditions could be covered. I don't THINK I'm sick. Insurance is the only investment you ever make and want to lose your money. What a business. I hope they give you a gold watch.

[-] 1 points by Rico (3027) 12 years ago

Forgive me when I say "it's not my problem" to explain why I didn't drive this completely to ground, but I went to the Department of Labor's COBRA page at http://www.dol.gov/dol/topic/health-plans/cobra.htm , read some material, and concluded that the agent may not be telling you the full story. I suggest you read the material there and form your own conclusion.

As for insurance companies, my depression era immigrant grand father once told me, "They don't build those big fancy casinos because people win in Las Vegas, and insurance companies don't build the biggest buildings in the world because you need insurance. Insurance is like gambling except you can't walk away from the table and they get to raise the ante every time you win."

[-] 1 points by SteveKJR (-497) 12 years ago

When you look at it from a "small busines" perspective, which by the way, the vast majority of companies are in this country are, there are several issues at hand.

There are several "variables" that need to be taken into account when owning/running a business.

Product demand. If there is not much demand for the product, then there is not going to be much production and as a result there will not be very many employees..

employee variable - Most small businesses only hire as many employees as are needed for the company to be efficient and productive.

Overhead Costs - Overhead costs are the first to be paid for a company to survive. Those costs include wages, payroll taxes, state income taxes, federal income taxes, sales taxes, liability insurance vehicle expenditures and healthcare insurance if they can afford it. This lists just a few of the things associated with business expenses.

Revenues - Revenues will determine if the doors of a business stays open or the businesses closes. In order for a company to stay afloat, they not only have to be able to pay all their operating expenses but they also need additional revenues.

In addition to paying all the operating expenses revenues are also used to buy more product so that the company can produce more product to sell.

If the demand isn't there for their product then you can be sure the the small business will cut back. If it gets to the point where the operating expenses of the company exceed the revenues that are required to maintain the operation of the small busines, they will "close".

Profit - if a company can't make a profit at the end of the year there is "no incentive" to keep the doors open. Now that is not to say that a small business can continue to operate without making a profit

However, most people who invest vast amounts of money to start a small business for a reason - it's called "profit motivation".

They are not going to put their "capital investment" into a small business just because it's the thing to do.

So, as you can see, it is not as simple as just saying "I guess I will hire more employees because there is more demand. There is more to it then just that.

[-] 1 points by alexrai (851) 12 years ago

Any smart business will hire no more employees than it needs to provide a particular level of service to its customers. If you can hire more workers and make an extra $30,000 profit; then you do it. You can always lay them off later if things slow down.

On the other hand as some posters have said wages are not the whole story, there is overhead like office space and admin staff, as well as government deductions / taxes / insurance, training etc.

I think the problem is that employee costs are usually fixed, and they raise up in steps. So unless you really really really need a new employee, its better to first attempt to maximize productivity of existing employees until you hit the point where you customers are likely to start complaining. In a poor economy its a lot easier to sweat your employees because you know they can't find work anywhere else.

Also you might find that when you first add a new employee you actually see a decrease in profit, notwithstanding a $30,000 increase in revenue... until things pick up more and that employee starts bringing in more sales or clients or whatever.

In a hot economy firms are more willing to hire people assuming that revenue is going to continue to grow, they plan ahead. In a bad economy the decision is a bit more difficult because growth is slower. Firms raking in dollars in a good economy also have more leeway to take risks and sometimes are a little more careless with keeping costs down.

But the basic fundamental question is: Will this person add or reduce my net income (considering revenue, customer expectations, costs, employee morale, etc.). If the answer is "increase," then you hire him.

[-] 1 points by thunk (15) 12 years ago

If a business wants to hire 10,000 more workers, then they can't squeeze them all into the existing factory. They need to build a new factory.

If a recession comes again and they have this new factory. Sure, they could fire the workers but now they are stuck with a factory that they will not use. Now they have to pay taxes on it and loan payments while it brings no additional revenue.

[-] 1 points by beautifulworld (23779) 12 years ago

Demand creates jobs. No matter what, it always comes back to demand.

If you had zero regulation and no demand, you'd have no jobs.

[-] 1 points by jomojo (562) 12 years ago

The expected return on investment must outweigh the alternatives.

The Wall Street gang has lured many employers into "can't lose" investments. The expansion of a company is a lot more work than buying art, gold, etc.

The currently employed are worried about their jobs, and hiring will not enhance their loyalty to the bosses.

Most businesses have some technical advantage to make their expansion feasible and the world is quick at stealing or improving on them.

In your accounting example, they would hire. (high unemployment means lower wages) The owners of that 2 trillion are not hiring, but they are investing in politicians.

One answer of how to raise demand is higher wages and less unemployment. That is available by encouraging smaller businesses, by removing their start up and tax collection regulations.

A person who is unemployed or underemployed needs to be free to engage in trying their skills in local commerce without all the red tape. That alone would grow us out of the present economic problems.

The owners of 2 trillion have no present economic problems. Buy local, create local jobs.

[-] 1 points by JoeTheFarmer (2654) 12 years ago

I do not have specific numbers but I can tell you why I hold off.

There are several reasons why uncertainty prevents me hiring additional people. I would rather work 60-80 hours than bring on additional help because of this uncertainty.

There are two types of uncertainty that I worry about. Will there be a double dip recession and will congress make my life more difficult.

Not being sure that we are truly recovering is probably the biggest concern for businesses, If I hire a bunch of people to meet current demand I may be in trouble in six months. Instead I work longer and ask the same of my current work force.

Uncertainty in our government also contributes. The payroll tax cut was only extended for two months. When that ends the employer side of SSI goes up. They may extend it further, they may not. There is also a fear the fear that payroll taxes will go up further.

The Health Care act requires me to provide extensive health care for each employee. The act is over 2000 pages and portions take effect in 2001, 2012, 1013 and it is unclear what I need to do when and what I can afford.

One of the top growing jobs in America is "Compliance Officer". These are folks that monitor what we do and ensure that it is in compliance with the 81,405 pages of regulations created and modified each year.

This capital that American companies are holding on to is the bigger employers. Most people work for small and medium businesses that do not have this cash lying around. I was able to keep my current work force by refinancing my house a few years ago to make payroll. We are doing better now but uncertainty is holding us back from hiring.

[-] 1 points by Rico (3027) 12 years ago

I made a mega-response for the mega-corps at http://occupywallst.org/forum/any-businessman-out-there-i-have-a-question/#comment-574584 ... didn't realize how long it was until I hit 'save.'

[-] 1 points by economicallydiscardedcitizen (761) 12 years ago

Well said and instinctively business owners are justified in holding back on hiring especially since apx. $6 Trillion in Derivatives are floating about equal in difficulty to defusing as a nuclear bomb.

My guess: the World stands a very high chance of a double dip mega recession unless some agreement on waiving the debt due on these "weapons of economic destruction" as Warren Buffett quipped several months ago.

[-] 0 points by FreeDiscussion1 (109) 12 years ago

No need to answer the question. If you start your own business and take on that responsibility you can answer your own question. Take a leap, start your own company, make the best business decisions for your company. You will then understand.

[-] 0 points by America921 (161) 12 years ago

Well the whole thing is you hire more people only if you absolutely have to to meet demand. Sometimes company's workers can handle more loads instead of hiring more people because they are not sure if the economy is going to tank the next day. It is all about RISK CONTROL which is a huge aspect of business school. Companies want to control has much of the risk in a business as possible, and if that means not hiring more people then they have to keep the company afloat in times of turmoil.

[-] 0 points by smartcapitalist (143) 12 years ago

Think of it in another way. If I could hire 2 extra people and service more clients, and therefore earn more why would I not do it? A firm and all it's employees want to make money, is it not? For every dollar I pay to an accountant I would typically make 7-10 times that salary for the company. Then why should companies be BS? Are they stupid? Do they not want to make more money?

There must be some rationale.

[-] 2 points by bensdad (8977) 12 years ago

Exactly - and if I was a conspiracy theorist I would say they are doing it to hurt the economy to get rid of Obama.
But certainly, no real American would put a political goal before the welfare of America!

just ask mitch mcconnell

[-] 0 points by smartcapitalist (143) 12 years ago

Yes. You are taking the conspiracy bit a little way too far. Do you mean to say that all business owners are republicans? Whoa...

[-] 1 points by JadedCitizen (4277) 12 years ago

Or, alternately, if one was given to muse over the conspiracy theory, one could assume the small amount of growth in the economy accounts for the democratic business owners. (wink_wink)

[-] 0 points by smartcapitalist (143) 12 years ago

I am pretty sure that for any business owner the health of his/her firm matters more than political affiliations. More importantly, you are suggesting that entire companies with thousands of employees, right from the CEO down to the floor manager, is a republican? Wow.

[-] 1 points by JadedCitizen (4277) 12 years ago

I guessed you missed the tongue in cheek - wink wink - at the end. ;-)