Your Payroll and the Shop Local Conundrum

September 20, 2014

Your-Payroll-The-Shop Local-large

A month or so ago I blogged about the role small businesses play in our economy and our everyday lives. As you would expect, it evoked some compelling responses and many were tied to the whole concept of “Shopping Local”.  Of course, everyone agrees with this concept. In fact, many of the comments we received were passionate on the subject and rightly so.  I can see your head nodding right now.

To not agree that “Shopping Local” is the right thing to do is like saying that puppies aren’t universally cute and most babies are ugly. The funny thing is, some puppies aren’t cute and there are certainly ugly babies.  And when it comes to “Shopping Local”, why are some its largest proponents, those whose entire revenue base is derived from local patronage, not actually doing so themselves?

Let’s examine for a minute why “Shopping Local” is a good thing to do (thanks to Sustainable Connections for some of the items from this list-there are many but we will focus on three for today):

  • Buy Local- Support Yourself:  using independent and locally-owned businesses means that more of the money you spend will be reinvested in the local economy including businesses like yours.
  • Support Community Groups: non-profit organizations receive an average of 250% more support from small business owners than from large businesses.
  • Create More Good Jobs: small local businesses are the largest employer nationally and in our community, provide the most jobs to residents

So let’s stop there for a moment. These three points are huge to consider.

First, if you shop local, chances are that what you buy, and the profit derived from it, will directly or indirectly be returned to you.

To follow the dollar, let’s say you spend $60 on groceries at a local produce market. Assuming that the market makes $20 on those groceries (the other $40 going to local farmers, and food manufacturers for their products at wholesale, and local employees getting paid) and that market hires a lawyer, which is partially paid for by your $20.

Your child, home from college, has a paid internship with that attorney’s firm, so some of your $20 is being returned to your child and the money stays local, to be reinvested again by the law firm and your child. Get it? The whole thought is pretty exciting if you think about it and really kind of a “no-brainer”.

So what happens when the chain is broken?  Amazingly enough, many of those very owners who are relying on local patronage choose to not do business locally?  Let’s look at the same example:

Following the dollar again, let’s say you spend $60 on groceries at the local produce market. First, because it’s cheaper, the produce market spends $35 on wholesale produce and other manufactured food, which was cheaper because it was purchased from a produce exchange whose goods came from out of state, and so goes the $35 into that other state’s economy.

But the owner of the produce market is better off, right?  He’s made $5 more in profit (for a total of $25 profit instead of $20) that he can now invest locally.  But he makes the decision to spend that $25 on an out of town law firm where his college buddy is a partner.  As a result that $25 is not returned to the local economy and the chain has completely broken down.

The by product is huge!  The local farmer has to sell his goods to the local exchange, whose terms are not as favorable and as a result, he has less to invest in his business.  And the local law firm, whose client base is diminished due to “college buddys”, doesn’t exist for lack of clients and as a result, your child isn’t working a summer internship, but the counter at McDonalds.

I know, it’s pretty dramatic and the example oversimplified.  But the result is realistic.

Now to the second point:

By their very nature, small and local businesses are more accessible.  You may know the owner, can get to the owner by entering the business premises, or know someone who knows the owner.  So when it comes time for the PTO fundraiser, the sponsorship of the local little league team, or the donation to the local cancer walk, the local businesses are the first to be approached and asked to “give”.  And most are happy to do it and that discussion can only take place because the businesses and their ownership are accessible.

There aren’t many publically traded companies, or big box stores making it easy for the local PTO to petition for a flat screen TV for the upcoming fundraising auction.  It’s the small business owners who are making this happen.  Yet many of the same folks who unabashedly approach local businesses for their support are not lending their own by keeping their business local.

And to the last point:

When you shop local, you help create jobs.  When you contribute to the local economy (as a consumer and as a business doing business locally) you create jobs.  This is a very good thing, as jobs continue the chain.

In creating jobs, you create another series of opportunities to do business locally and perpetuate local spending. 

What does this have to do with your payroll?  Lots.  Having employees means having a payroll and the obligations required to have employees such as paying payroll taxes, providing benefits and hiring local companies who provide these types of service.  Keeping things local does not simply apply to retail stores but to service businesses as well.  And what business isn’t all about jobs than your local payroll company.

So why is it that many business owners still insist on patronizing the national payroll companies?  Is the customer service rep you deal with patronizing your business?  Does their CEO eat in your restaurant?  Do your fees pay for a donation to the local little league field improvements?  It’s a small example (but close to our heart) of a larger problem that exists.

And that is the “Shop Local” conundrum.

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