How Do Federal Regulations Impact Middle Market Business?

The government's Small Business Administration (SBA) calculates the cost of federal regulations on business every five years. In its 2010 report, it estimated that the regulatory compliance cost to businesses with 20 to 499 employees was $7,454 per employee per year. For companies with 500 or more employees, it was $7,755. The total cost for all businesses was $1.75 trillion.

For comparison, the 2005 SBA report estimated the regulatory cost for businesses with 20 to 499 employees was $5,411, and for companies with 500 or more employees was $5,282. Thus, the regulatory costs increased by around 40 percent in five years.

And then there are state and local government regulations. Several states have decided to embrace a "light-touch" regulatory approach to persuade businesses to relocate. And it's working. Chief Executive magazine conducts an annual CEO survey of the best and worst states for doing business. The editor told me there are two survey constants: Texas always comes in first and California last. Companies weighing their options are increasingly taking state regulations into consideration.

When you look globally, the World Economic Forum's most recent Global Competitive Index survey placed the US regulatory burden in the middle of the 34 Organization of Economic Co-operation and Development (OECD) countries.

It's important to know which regulatory bodies cover your industry and your business. Even more important is to know about any proposed regulations that may impact your competitiveness. In these instances, middle market CEOs must know how to approach regulatory challenges. There are two distinct strategies.

1. The collaborative model. Some companies choose to work with regulators, especially when a government agency is just becoming involved. For example, when the Food and Drug Administration began considering new regulations for healthcare apps on mobile phones and iPads - some apps functioned like medical devices and others didn't - some companies sat down with the regulators to walk them through the issues.

For example, Maryland-based middle market health tech company WellDoc, Inc., attended a couple of Hill briefings in an effort to work with the FDA. When the FDA released its proposed regulatory approach for comment, several of the companies thought the agency hit the right balance.

Similarly, when health savings account legislation passed Congress in 2003, Treasury Department regulators were eager to hear from companies that had been involved with a similar product for years. The final rules were well written, and they helped the HSA market explode.

2. The combative model. Sometimes companies decide to fight the regulators. If companies determine the regulatory threat is big enough, they may recruit their trade association(s) or hire lobbyists or PR firms. They also might try to work with elected officials.

These campaigns can be very costly and strain middle market companies' more limited budgets. One potential ally is state legislatures. States have increasingly pushed back against federal regulations in areas where the states perceive the feds are infringing on their regulatory authority. Getting state elected officials involved, and especially the governor or attorney general, can take some of the load off the companies.

Both models can work, but it's better to start with the collaborative model.

Merrill Matthews is an NCMM contributor and a resident scholar at the Institute for Policy Innovation in Dallas, Texas. Follow him on Twitter.