Entrepreneurs

Trump calls regulation a $2 trillion problem hurting small business. Here’s what small business owners say

President-elect Donald Trump was elected on a pro-business populist platform, and he has pledged that he will get rid of the red tape that he says is strangling small businesses.

In a speech at the New York Economic Club earlier this fall, Trump said over-regulation costs our economy $2 trillion a year and reduces household wealth by $15,000 dollars. A study released in 2010 from the SBA Office of Advocacy came to similar conclusions.

The entrepreneurs and small business owners CNBC spoke to across the country generally agree that U.S. regulations can be costly and cumbersome. Some gripe that staying in compliance with the many layers of local, state and federal regulations is a task that requires constant attention. But others shrug off regulation as the cost of doing business. They call it a minimal annoyance, one that's not overly intrusive. They respect the government's need to protect consumers.

What are regulations, exactly? What purpose do they serve? How do actual small business owners feel about them? Here's what CNBC found.

REGULATION: WHAT IS IT?

Regulations, broadly speaking, are rules and requirements issued by agencies like the Environmental Protection Administration, the Department of Transportation, the Occupational Safety and Health Administration, as well as similar state-level agencies and city-level agencies.

They are intended to protect businesses themselves and/or the health and safety of consumers. In practice, they can be frustrating to comply with. They can also limit productivity.

Although politicians and lobbyists often refer to taxes and regulations together as onerous burdens, taxes are a separate issue. Complying with health-care regulation is an extremely common complaint of small-business owners, too, and one CNBC will cover on its own.

WHY IS REGULATION A BIG DEAL?

"Regulation to me usually means that government is micromanaging my business, my life," says Debbie Vidotto, owner of The Good Life Barber Shop in Austin, TX.

Currently, Vidotto is trying to add on to her business and she is "having fits" navigating the approvals from local regulatory agencies authorizing construction. "Permitting is like spelunking: Deep hole with a light on my head that shines just in front of me but not enough to see the whole picture," she says.

Different kinds and levels of regulations can be hard to navigate, especially when you're as busy as small business owners tend to be. Entrepreneur Ian Sephton is the co-founder of the early stage investment company Hangar202 and the hospitality management and advisory services company The Brandstetter Group, and the CEO of the mobility software company Syncromatics. For him, keeping track of all of the varying rules, including "building regulations, food safety, workers' regulations" and others, is the real trick.

Even if you want "to follow the letter of the law," he says, "you may miss something. Ignorance, while not an excuse, can be a reality if you are also trying to actually run, and, more importantly, grow a business."

The regulatory burden in the U.S. has increased, according to the 2016 Index of Economic Freedom put together annually by the conservative Heritage Foundation and The Wall Street Journal. Since 2009, 180 new federal regulations have been imposed, and they have cost businesses $80 billion, the report finds.

When going up against other companies from other, more permissive countries, "it can feel like you are competing in a boxing match with one arm tied behind your back," says Sephton. "So while some regulations are needed and oversight of corporate America has to be in place, if you have too much all you do is hurt your ability to compete in a global arena."

"It can feel like you are competing in a boxing match with one arm tied behind your back." -Ian Sephton, serial entrepreneur

EVERY INDUSTRY HAS ITS OWN SPECIFIC REGULATIONS

Certain start-ups have extra hurdles to clear. Alcohol start-ups, for example, have to contend with the fine print of the post-Prohibition constitutional amendment that granted businesses the right to sell liquor.

"We have to be licensed in virtually every state in the union independently of the others," says Daric Schlesselman, the Craft Distiller of Van Brunt Stillhouse, a Brooklyn-based artisanal distillery in Brooklyn producing rum whiskey and grappa. "It is the biggest barrier for a small distilling company like ours. We can't reasonably sell to a liquor store in Greenwich, Connecticut, or Hoboken, N.J., much less ship a bottle to a consumer in Denver."

Daric Schlesselman is the craft distiller of Van Brunt Stillhouse.
Photo by David Lincoln
Daric Schlesselman is the craft distiller of Van Brunt Stillhouse.

And health-care-related industries can be particularly complex. New York attorney and registered dietitian Jackie Arnett Elnahar launched a video conference and telephone-based nutrition consulting business TelaDietitian to give patients a more affordable and convenient way to get advice. Elnahar herself and her teams spend between 10 and 20 hours per week complying with the likes of HIPAA regulations.

KEEPING UP WITH CHANGING REGULATIONS IS LIKE PLAYING WHACK-A-MOLE

The only constant in the regulatory landscape is change. Business owners must devote time to keeping up with shifting rules.

Tal Frank is the president and co-owner of PhysicianLoans, a boutique financial services company in Columbus, Ohio, that helps doctors buy homes. The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in 2010 by President Obama, changed the requirements for a financial disclosure document used in mortgage lending called the Good Faith Estimate (GFE).

"With the new Dodd-Frank requirements, the simple one page GFE was 'improved' in order to make it easier for the consumer to understand their numbers and to comparison shop. At the time, as a 17-year veteran of the business, I needed extensive training to understand [it]," says Frank.

Tal Frank, President and co-owner of PhysicianLoans.
Photo courtesy PhysicianLoans
Tal Frank, President and co-owner of PhysicianLoans.

"How was the consumer going to understand it? Of course this now meant our loan officers had to spend more time explaining a form that did not make much sense to a home-buyer."

Many business owners only learn about a new regulation when they receive a fine for having violated it.

Frank once had to pay a $17,000 fine for using an incorrect disclosure form.

That was despite the fact that "it did not impact the borrower, no fraud or deception was intended or occurred and it was basically a technicality, because the same issue showed up on multiple files," he says. "We argued our case and were told that the only way to appeal was to have legal counsel represent us at a hearing in VA. We decided to pay even though we knew the examiner was wrong."

Vidotto made a similar mistake and paid a steep penalty for it. "Once I forgot to renew my barber shop license," he says. "Because I had changed email addresses and forgot the board had the old address, I didn't get the notice. One of my clients noticed that the date on my license was expired. I had to pay a fine and the license fee."

Not all small business owners complain about regulation, though. A surprising number, like self-made millionaire Marcus Lemonis, even appreciate it. "We look at regulation as our friend," says Jeff Dachis, the CEO and Founder of One Drop, a mobile platform for managing diabetes. It helps him earn the trust of his customers, he explains.

Small business owners do agree on one thing, though: They're anxiously awaiting 2017 to see what regulations will look like under President Trump.