Over 50% of small business owners said they were likely to close or sell their business in the next five years, citing high costs across their businesses as a driving factor, a recent study from UMass Donahue Institute showed.
Out of the 584 small business owners surveyed, 76% claimed costs were rising faster than sales since 2019. Likewise, 44% of businesses said profitability had decreased since 2019. Only 24% said profitability went up.
When asked what the Massachusetts state government could do to help small businesses increase their sales, the study found respondents suggested a reduction of taxes and regulations would help increase profit.
“Public policy leaders in Massachusetts have to do a better job at understanding the dilemma of small Main Street businesses,” said Jon Hurst, president at the Retailers Association of Massachusetts. And he believes the Legislature is not doing enough to help small businesses stay afloat.
“I think one of the challenges with a question like this, and one of the reasons why there can be a disconnect sometimes between policymakers and the reality on the ground, is there’s a lot of different costs that come from different places,” said Doug Howgate, president at the Massachusetts Taxpayers Foundation.
Health care costs, paid leave, energy and workforce policy have increased in the past eight years due to legislative initiatives, Howgate said.
If legislators do not keep track of how different costs are piled onto each other they can “lose the forest for the trees” when it comes to aggregated impact and end up generating more problems for employers, Howgate believes.
Hurst believes the biggest impact on small businesses today is health insurance costs.
Massachusetts ranks 36th in the country for average employer contributions to health insurance, the 2024 Massachusetts Competitiveness Index Report by the Massachusetts Taxpayer Foundation stated.
This puts Massachusetts in the bottom half of states for employer health insurance cost.
The reality is leading small businesses to try alternatives they believe will reduce costs while being effective.
“My last renewal … was a 29% increase, and at that point, we decided we have to try something new,” said Jeanne Bell, financial controller at Westside Finishing, a family-owned business from Holyoke, specializing in powder coating and metal finishing services with a staff of 50 workers.
“Rather than the normal Blue Cross insurance … we’re using a partially self-funded plan, and hoping that’s going to reduce our cost.”
Bell’s sentiment is echoed by other small businesses around Massachusetts.
“We’re an unusual small business in that we pay a very large percentage of almost 50 people’s health insurance, and those health insurance costs are rising exponentially,” said Lisa Gozashti, co-owner of Brookline Booksmith. “That’s epic in terms of costs and things that affect our bottom line.”
Gozashti said the store was being conservative when hiring new staff and feared incoming additional costs related to tariffs could lead the business to be reduced to a core team and the business to run as a “shoestring operation.”
Electric Time Company, a Medfield company specializing in large-scale, custom-made clocks, is hesitant to hire more because of rising health care costs despite having grown from a small team of around seven to 30 in the past 20 years.
“Family plans can cost the company up to $20,000 or $30,000 a year. That is a huge obstacle to hiring people in the state,” said company president Thomas Erb.
Two bills are looking to provide aid to small businesses when it comes to the healthcare system.
Sen. Adam Gomez, D-Springfield, filed a bill that looks to add small business representation to the decision-making process behind health care costs. It aims to introduce three new seats onto the Massachusetts Development Finance Agency Board of Directors. Two of these would go to microbusiness and small business owners respectively.
MassDevelopment provides loans, grants and bonds to small businesses.
Sen. Michael O. Moore, D- Millbury, filed a measure looking to create incentives for small businesses to buy insurance as groups, as well as offering rewards to businesses based on their size.
The bills are in the Legislature’s Committee on Community Development and Small Businesses and the Committee on Financial Services respectively.
When the National Federation of Independent Business attended a Committee on Labor and Workforce Development hearing in April to bring to legislators’ attention the need to change regulation surrounding small businesses, the chairs mentioned actions would be taken to help employers.
Another cost small businesses are looking to see changed is unemployment insurance.
“It’s been a problem that’s compounding … with very little action from the Legislature,” said Christopher Carlozzi, state director at NFIB. “Massachusetts really ranks towards the bottom, if not dead last.”
Average UI taxes in Massachusetts are a competitive disadvantage nationally and among competitor states, the Massachusetts Taxpayers Foundation report found. It is seven times the tax of Florida and 60% higher than California, the report stated.
“The high level of UI taxes speaks to a theme of MA’s competitive position: a major outlier for costs that disincentivize location and investment in the state,” the report said.
Carlozzi argued eligibility for UI is too lax. He also argued legislation that dictates the length of time workers are covered is outdated, dating back to 2003.
In late April, state unemployment coverage went up to 30 weeks from the previous 26 when the Springfield area hit an unemployment rate of 5.2%.
“We have an earnings test, but we don’t have a time worked test,” Carlozzi said. “Those are all things we should have in place to make it a little more stringent, to make the system a little more difficult to qualify for, a little more manageable.”
The unemployment insurance trust fund will be insolvent by 2028, going $51 million in debt by the end of the year, the Massachusetts Office Executive Office of Labor & Workforce Development said in their April UITF quarterly outlook.
Changing UI is a politically complicated issue due to how reducing costs for one side negatively affects the benefits workers receive, Howgate said.
Howgate believes a conversation must happen to make the system sustainable for both businesses and residents, however. Massachusetts is an outlier nationwide when it comes to benefits, he said.
In February, Gov. Maura Healey tasked Administration and Finance Secretary Matt Gorzkowicz and Labor and Workforce Development Secretary Lauren Jones with leading a comprehensive review of the state’s UI system.
“What everybody has to understand is we are not opposed to expanding unemployment benefits at all,” said Vladimir Zarkhin, president of Right at Home Boston Metro West. “What’s problematic in this case is that our state government places the financial burden on the shoulders of small businesses, just like mine.”
Another factor driving up costs for small businesses is energy.
Massachusetts has the third worst price in cents per kilowatt hour in the country. It has gone up to $.021, increasing 19% in the past five years, the Massachusetts Taxpayers Foundation 2024 report stated.
Some small businesses, like Electric Time Company, use automated machinery to reduce labor costs, making them competitive. With rising energy costs, the company is looking at the Legislature for solutions.
“Paying attention to energy costs would be the best thing [the Legislature could do]”, Erb said. “Our [energy] generation is very expensive, and the distribution is really expensive, too.”
Erb said other business owners already left Massachusetts because of the rising energy costs.
“I remember talking to somebody who did powdered metal products, where energy was a big part of their business,” said Erb. “They were moving out because the energy costs were just so high.”
To offset rising costs, Erb started using solar energy, installing LED lighting and reducing heat in furnaces when not in use. However, he worries costs may continue to rise.
Other businesses, like Westside Finishing find it impossible to move to other states due to the uncertainty it carries. Bell said there is no guarantee other states will have the necessary pipelines to provide the gas needed for their operations.
Carlozzi believes part of the problem with rising costs is related to green energy mandates by the state.
“This is something that was approved and advanced by the legislatures each session. And, for our members, once again, it just makes it harder to operate and keep their business running,” Carlozzi said.
For Howgate, the costs are putting Massachusetts’ long term energy goals in peril.
“If people can’t afford to meet their energy costs in the near term, you’re not going to have the political will necessarily meet those long-term goals either,” Howgate said.
Healey announced plans to file an energy affordability and independence bill during a press event on March 10.
Currently, over 200 bills look to change regulations that would impact small businesses one way or another in Massachusetts.
While some look to reduce costs by lowering certification fees, others look modify business excises, propose relief on property tax and a credit against their tax liabilities, among other solutions.
Carlozzi believes tax packages do not have enough effect on small businesses, however.
“They talked about a $1 billion tax reform package last year. How much of it actually impacted small businesses? Not very much,” Carlozzi said. “For small businesses, we need grand, sweeping gestures to help provide some relief.”
Hurst, on the other hand, believes cutting taxes for consumers would help increase sales for small businesses.
“One thing that government could do to help these small businesses is to first help out the consumers by cutting their taxes,” Hurst said. “That would help the disposable income of the consumers, they would have more money to go out and spend with these small businesses.”
Hurst also believes the state needs to take on an educational role, teaching consumers about the importance of buying local.
Carlozzi also believes the Legislature could help out employers by not implementing reforms they are currently considering.
Increasing the minimum wage to $20, as has been suggested, would only increase labor costs, leading to small businesses reducing jobs, hours and increasing prices for consumers, Carlozzi said.
Carlozzi said the NFIB is currently in talks with the Healey administration to find solutions to the pain points currently afflicting small businesses.
Gabriel O’Hara Salini writes for the Greenfield Recorder from the Boston University Statehouse Program.