Small businesses in Arizona, those with 500 or fewer employees, are not so small when it comes to economic output, according to a new report commissioned by the Arizona Small Business Association (ASBA). 

In fact, before the pandemic, they employed more than half the state’s workforce and produced $191.4 billion in annual economic activity, almost half the annual state GDP, the report shows. 

“I’ve been studying the economy in Arizona for two, two-and-a-half decades at this point, and I didn’t really appreciate the extent of small businesses’ impact on the economy until we got into these numbers. It was very impressive,” said economist Jim Rounds, president of Rounds Consulting Group, Inc., which conducted the analysis for ASBA. 

Report illustrates how important small companies are to state

ASBA commissioned the report to illustrate how important small companies and sole-proprietor businesses are to Arizona and how important it is to help them survive the final throes of the pandemic.

Among the findings:

• Small companies account for 99.4 percent of all businesses in the state. Of the 595,764 businesses, 592,485 are small companies 
• Approximately 486,000 of these small companies are self-employed operators 
• Small companies employ about 1.6 million of Arizona’s 2.9 million workers 
• Small businesses create $71.3 billion in annual wages and income   
• Small companies generate $10 billion in tax revenues for state and local governments annually

Rounds, who analyzed U.S. Census Bureau business data from 2017 for the study, said the figures illustrate the important role small businesses play in the state’s overall business ecosystem, including supporting large business attraction and expansion. 

New ‘Arizona Speaks’ to advocate for business recovery policies  

ASBA released the report at the kickoff of its new effort, Arizona Speaks: The State of Small Business, to find ways to advocate for and help struggling companies make it through the next several months as COVID-19 vaccines are rolled out worldwide. 

The effort is supported by Arizona Gov. Doug Ducey’s Office, and ASBA will continue to work with Rounds Consulting Group to quantify the full impact that small businesses have on the economy and recommend policies that will be beneficial to Arizona’s small business recovery into a state of small business report.  

More than 70 percent of state’s small businesses hurt 

Former Gilbert mayor Jenn Daniels, who moderated the event where the report was released, said state policy decisions made now can have a significant impact on the ability of Arizona small businesses to recover from the COVID-19 pandemic and again lead the state’s economic well-being.

According to the study, a majority of Arizona small businesses reported being negatively affected by COVID-19. U.S. Census survey data identified that nearly 42 percent of small businesses believe it will take more than six months to return to the previous year’s business level. 

Some of the issues short- and long-term that need to be addressed are workforce training, affordable housing, increasing the average wage amount, and assistance for small businesses hurt by the new Proposition 208 income tax hike, Rounds said. Rural areas also have a much higher percentage of small businesses than urban, posing challenges for lawmakers representing these areas.

Next decade could be Arizona’s best 

With hard work on everyone’s part, Rounds predicts a bright future moving forward. 

“If we can identity and work with groups like ASBA and their connections with other organizations as well, I think we’ll be able to identify good public policy moving forward to not only deal with COVID-19 recovery, which we will be out of soon, but also over the next decade so we can we make this one of the biggest expansions in the state history.” 

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As CEO of the nonprofit Arizona Small Business Association, Jess Roman is a passionate advocate for small companies and sole proprietors statewide. 

He also is a strong proponent for adequate funding for teachers and schools. Yet, he is calling on voters to reject Proposition 208, the ballot measure known as Invest in Ed. 

His opposition lies in the fact that the measure would have a negative impact on the “vast majority” of the organization’s 1,000 members in Arizona, Roman said. 

While the measure is intended to raise money for education by taxing high income earners, voters should not be misled into thinking it will not affect small companies as well, Roman said. 

Roman has a unique understanding of what it takes to grow a business and keep it operating. 

He spent 25 years in commercial banking in Arizona including as the president of BNC National Bank’s �鶹��ýӳ��arket. He also held business development positions with Heritage Bank, Desert Hills Bank and First Community Financial.

Roman spoke to �鶹��ýӳ�� about why Prop. 208 is the wrong path for funding education in Arizona.  

As someone who has spent his career helping entrepreneurs grow their businesses, what are some of the daily challenges small companies face?

Businesses can go through different cycles depending on the year. There are so many issues that small businesses face: vendor relationships, challenges with employees, taxes, insurance, liability, human resources, sales, revenues, managing costs and profitability.

In addition to that, politics adds to that weariness. Who’s going to be elected president? What happens with taxes overall, let alone at the state level? That’s what they have to deal with on a daily basis.

Now, you throw in the cloud of this initiative. It’s just one more thing that then becomes out of their control. You work hard to make a profit and now the hands of this initiative are out for more dollars that is singly focused when it should be broader. There should be more shoulders lent to this instead of just a narrow segment of our economy.

You have stated that this is the worst time for an added tax on small businesses because of COVID-19. What are some of the stories you are hearing from your members affected by the pandemic? 

Restaurants and tourism in particular have been severely impacted. And with the holidays coming up, people may be reluctant to go to a restaurant, so that intangible emotion becomes a tangible for restaurant owners. They are being held hostage by the health challenges, which they understand. But it’s been really tough for them. It takes an emotional toll on everybody. 

Regardless of the industry, most businesses want to model responsible behavior. They’re buying cleaning supplies and protective equipment. I went to my dentist recently and when I walked in, there were no magazines, the chairs were spread out, there was a brand new wall. Plastics were everywhere in between. They completely redid their office to make patients feel comfortable. This can’t be inexpensive.

So here small businesses are fighting everyday to survive in this very difficult downturn and now you’ve got this initiative, one more thing out there on the horizon they may have to deal with. It’s wholly unfair.

Why would the initiative impact the vast majority of your members?

The vast majority of small businesses are not C corporations. They are limited liability companies and sole proprietors who file their taxes on the individual portion of the tax code so they could be subject to the tax increase. 

And you can’t just flip to a C corporation. It’s hugely expensive and it just doesn’t make any sense for an LLC to do that in order to manage their taxes. So what we would be doing is taking away from their future growth with this tax. 

What is ASBA’s stance on education funding? 

The Arizona Small Business Association recognizes the importance of education, and it supported the Red of Ed movement and the 20 percent pay raise by 2020 initiative from Governor Ducey. However, the Invest in Ed initiative puts all the burden squarely on the backs of individuals and small businesses while giving a free pass to corporations. 

Because small businesses file taxes on the individual portion of the tax code, Proposition 208 will increase taxes by nearly 80 percent and create a huge burden for small businesses who are already struggling in the wake of the COVID-19 pandemic. 

If Proposition 208 passes, it will be the nail in the coffin for many of us. No more hiring, no expansion, no recovery, and less tax dollars for Arizona’s teachers.

About the Arizona Small Business Association 

The Arizona Small Business Association (ASBA) is the voice for small business in Arizona, dedicated to promoting success for entrepreneurs, the business community and economic growth in the state. ASBA provides resources for businesses of all sizes with fewer than 500 employees, including education and mentoring opportunities, professional connections, and support resources through strategic partners. 

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