Academic journal article Journal of Accountancy

Liability Costs Hurt Small Business, Says PCPS Survey

Academic journal article Journal of Accountancy

Liability Costs Hurt Small Business, Says PCPS Survey

Article excerpt

Small businesses face increased liability costs, are raising the prices of their products and services and strongly support liability reform. These are the primary conclusions of the fourth annual survey of 2,000 owners of businesses with revenues between $500,000 and $25 moon conducted by the American Institute of CPAs division for CPA firms private companies practice section (PCPS). An overwhelming majority of respondents (95.4%) believed the number of frivolous lawsuits was increasing. Moreover, 85% said there should be a federal limit on punitive damages.

Over half (57%) the small business owners said their own exposure to legal liability had increased in the past five years, and 55.7% expected it to increase again in the next five years. When asked to name the source of their greatest exposure to legal liability claims, 28.3% said contractual matters, 22.6% cited personal injury claims and 21.2% reported product liability.

Seventy percent of the respondents said their legal liability costs had increased in the past five years. However, the small business owners were split over whether the litigious environment had hurt their businesses, with 41.2% saying it had and 40.3% saying it hadn't. Many respondents whose businesses had been hurt said their customers or employees were affected: Of these respondents, a bare majority (50.8%) raised prices, 23.8% dropped product or service lines and 19% terminated employees.

Jerrell A. Atkinson, managing partner of Atkinson & Co., Ltd., Albuquerque, New Mexico, and chairman of the private companies practice executive committee, was not surprised at the high level of concern expressed by small business owners over liability costs. "Small business has an even bigger problem with liability costs then the accounting profession," he said. "Small business will speak out more and more on liability issues."

Apart from liability concerns, the PCPS poll covered a number of areas important to owners and managers of small businesses. Here are some of the findings:

* Economic recovery. In general, for the small business owners responding to the survey, business was good in 1992 and should be even better in 1993. Of those polled, 61.7% reported higher revenues in 1992, significantly more than the 50.2% who had reported 1991 revenue gains. For 1993, 65.2% of the small business owners expected an increase in revenues. …

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