Starters Buying Businesses, Tipping is Tiring, and What is the Best State to Open a Business?

[Gene Marks, host]

Hey everybody, it's Gene Marks and welcome to another episode of the Paychex THRIVE Week in Review podcast. Thank you so much for joining me. Glad that you are here. This is the podcast where we take three items from the news over this past week, talk about it a little bit, see how it affects you and your business, me and my business, as well.

And, by the way, before we get started, if you haven't already, sign up for our Paychex THRIVE newsletter. If you go to paychex.com/thrive, you can get all the latest advice, tips, and help for running your business – and some links to our prior THRIVE podcasts. All right, so let's get to the news, shall we?

The first bit of news comes from BizBuySell.com. BizBuySell is a research site that helps buyers and sellers of businesses buy and sell their business. They put out a quarterly report, it's called the BizBuySell Insight Report, and this quarter the information, I think, is of real interest for people running businesses.

Small business acquisitions grew 10%, they reported, over the previous year and 3% over the previous quarter. This is according to, again, BizBuySell’s insight data. Just some details about this, what's interesting is that for new borrowers, they appear to be adapting to the higher and longer interest rate environment. A guy named Max Friar, who is a Managing Director of Calder Capital, commented in the report.

“The memory of low rates is fading, and the reality of higher rates well into the future is helping everyone get present to reality,” he says. “The largely sensible changes he sees that the SBA has made regarding partial ownership and loosening the rules around seller financing are solid attempts to widen the wider market for buying and selling businesses.”

One interesting thing to note about this is that business transactions are still down 5% than they were in 2019 before COVID. However, deal making is becoming more prudent as buyers and sellers carefully consider price and terms to better align with the market. Today, 27% of sellers are open to including some portion of seller financing compared to 22% a year ago.

This is good news for buyers, according to BizBuySell, where 85% say they consider this kind of thing, seller financing, to be important.

I think this is great news for both buyers and sellers. We are seeing a big uptake in the business transactions, people buying and selling businesses. I think we're gonna be seeing a lot more of this in the years to come as our aging demographic – remember the average age of the U.S. business owner is 55 years old. So, business owners themselves are, they're getting older and you're gonna be seeing more transactions like this in the years to come.

If you're looking to start a business for yourself, rather than doing everything from scratch and no need to recreate the wheel, my advice to young entrepreneurs that want to start a business, particularly if they've got experience, seven, 10, 12 years in business, buy an existing business. Obviously, the rates are a little bit higher now, but at the same time, it will get you off to a much better start than building something completely from scratch.

And I think as the numbers are showing by BizBuySell, we're seeing more people take buyers up on those offers. Again, we're gonna be seeing more of those transactions as the days to come, even in this rate of higher interest rates. So, I think that is good news.

What's not good news, I think, for both employees and business is a new report that just came out in American City Business Journals, particularly the Philadelphia Business Journal. This is The Playbook written by Andy Medici, and he's reporting on a few surveys about tipping. “The tipping debate rages,” is what he says, “as America barrels towards a new normal.”

And let me give you some data about this. A recent survey by a company called Coupon Birds found that 76% of Americans say tipping culture has gone too far, with 47% saying they're being asked to tip even at automated or self-service kiosks, which is kind of a bummer, right?

Other surveys also echo this same sentiment: 66% in Coupon Birds’ survey said they tip purely to avoid awkwardness – sometimes that's me – and 63% do it to avoid confrontation, while 84% of Americans believe the minimum wage should be increased for servers.

But an internal survey of customers that was done by Homebase, they are, that's the scheduling and payroll platform company, they found that 48% of its customers said tips went down in the past year. Rushi Patel, who is the CEO of, er, Chief Revenue Officer of Homebase, said that there's a new normal going on with respect to tipping.

“If the volume of tips are coming down, it likely echoes the frustration that the customer is facing when they are dining out and also the concept of tip fatigue.”

Like I said at the beginning, I don't think this is really great news for business owners and for employees as well. The more that people tip employees, my opinion, the more pressure it takes off of business owners to have to compensate them out of their own cash flow. But I get it. I think tipping has gone pretty far. We were tipping a lot during COVID when frontline workers were out there doing dangerous work, but now we're seeing like anything else, the pendulum is starting to swing back.

My thoughts if you're running a business in the restaurant or service industry where tipping is part of the culture; you know, you want to train your employees, motivate your employees to really do a fantastic job where, you know, customers like myself, we want to tip and we don't feel guilty about tipping. We want to provide that extra form of dollars and cents into that employee's pocket. The more that you train your employees, the better work culture you have, the better motivation you give them, I think the more tips they will receive, and in the end, that will not only benefit them, but you as well as the business owner, because you won't have to make up for it in your own compensation. So, tipping culture, again, the pendulum's swinging back.

The last bit of news this week comes from the Columbus Dispatch. And you know what they're saying? They are saying, based on a survey, that Ohio is the number one state to start a business, Ohio. This is a new survey that came out from a company called FinFair, and they cite the lower business cost of operating in Ohio.

Did you know if you operate in Ohio, the state corporate tax rate is 0%. Now, there are other states that also have a 0% corporate tax rate, but that is certainly an attractive thing. Did you know that if you run a small business in Ohio and you make less than $385,000 a year, it's okay to pay your employees the federal minimum wage. Anything above that, you have to pay the state minimum wage of $10.45 an hour, which is still quite much lower than what some other states are mandating. That low wage base has allowed Ohio business owners to cut down on what they pay in state unemployment taxes.

Also the survey cites that there's lower commercial electric bills in Ohio and less cost to startup companies like limited liability companies. The survey also says that during the first year, the survival rate of Ohio's small businesses is a whopping 78.5% – and get this, after five years the survival rate is 53%, which is pretty high compared to a lot of other states.

By the way, let me give you the other nine states that are in the top 10 best states to start a business, okay? We've got, besides Ohio, we've got Nevada, Indiana, Arkansas, North Carolina, California, Oklahoma, Kentucky, Pennsylvania, and Mississippi, according to FinFair.

The three worst states to start a business, District of Columbia, Alaska, and New Jersey. There's seven others, but I won't embarrass them on this report. So, what do we think about this? Is Ohio the best state to start a small business? Let me temper this a little bit, okay?

I cover small business and I get surveys sent to me, and I come across surveys all the time that purport to come up with an analysis to the best states to start a business or to operate a business on. And I could actually point to a few other surveys that have different results than what the FinFair survey is. A lot of it is subjective. A lot of it is done with research that, I don't know, it's not exactly like an academic study that you would see being done at a Wharton or at MIT. So, it's interesting stuff, but take it with a grain of salt is my advice to you.

My opinion, the best state to start or operate a business is the state that you like to be in because your family is there, your livelihood is there, your balance of life is there. It's not all about just the business. Even if you're paying a few dollars more to operate a business in a beautiful part of the country because it's providing you with happiness outside of your business and also comes with a better than normal talent pool, for example, and just an overall quality of life. To me, like that's the best state to start a business. It's very, very subjective to tell, but kind of interesting.

You've been watching and listening this week's episode of the Paychex THRIVE Week in Review podcast. My name is Gene Marks. Thank you so much for joining us again. If you'd like any tips or help or advice in running your business, please visit us at paychex.com/thrive and sign up for our newsletter. We'll see you again next week with more news that impacts you and your business. Take care.

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