Small Business Startups: Are You a Desperate Entrepreneur?

In today’s economy, entrepreneurial opportunities abound. New, start-up companies account for much of the net increase in work force productivity. By offering better or newer products, entrepreneurs innovate. They seek greater market share by reducing prices, increasing productivity, or both. Entrepreneurship is also one of the major contributing factors in improved profitability and overall income growth, especially among start-ups.

But although entrepreneurial activity is extremely prevalent, entrepreneurial activity is often not exploited by politicians and elected officials. Many politicians claim to favor small business owners, but few politicians practice what they preach. Consequently, politicians inadvertently promote business abundance instead of economic prosperity. By encouraging economic growth, government regulation fosters entrepreneurial activity.

One method of promoting entrepreneurship is through the legal system. Laws exist to protect investors, entrepreneurs, and employees from harm. These laws, in addition to corporate and individual securities laws, provide protection against discrimination. They also provide protection for the economy as a whole, by preventing certain forms of corporate welfare. As a result, a greater number of start-ups choose to conduct business out of their homes rather than establishing physical ventures in the community. As a result of these legal protections, homeowners, particularly home-based entrepreneurs, are less likely to engage in economic activities that might harm the economy.

Home-based entrepreneurs face many obstacles in raising capital. Entrepreneurs must establish personal credit, obtain business contracts, obtain mortgage financing, and obtain consumer credit before they can confidently pursue venture capital. There are relatively few start-ups that can generate significant amounts of venture capital. As a result, many state government agencies, including cities, counties, and sometimes state supreme courts, unintentionally create barriers to home-business activity. Some cities and counties inappropriately deny or fail to grant permits for certain business activities.

The lack of venture capital availability hinders new ventures from being successful. Without venture capital, most new businesses cannot survive long enough to pay off their loans, maintain payroll, repay executive compensation, and reinvest in additional building and operations. By restricting opportunities for home-based entrepreneurs, states are indirectly denying economic incentives to new business ventures. This denies workers, such as home-based workers and unemployed individuals, access to capital that can significantly increase productivity, increase profit levels, and reduce the size of government inefficiency. Such losses, in turn, deprive other workers of necessary jobs and exacerbate unemployment rates. Thus, state restrictions on business activities limit overall economic activity and lead to under-utilization of productive resources.

In contrast, entrepreneurship provides a set of unique advantages that are not found in any other sector. Entrepreneurship is an activity that requires minimal start-up costs, high levels of motivation, creativity, and perseverance. Because it is directed at achieving particular goals, entrepreneurs possess and exercise the knowledge and skills required to overcome any obstacle that might be in their way. In addition, businesses are rarely established based on “love” or “pathy.” Rather, they are usually established because an entrepreneur either believes deeply in his or her product, idea, or business model or knows that it will solve a significant need and fill a significant gap in the market.

Governmental officials, wary of entrepreneurs’ entrepreneurial attitude, are now attempting to encourage that attitude among the general public by granting tax breaks to certain businesses. Tax breaks are available under two main categories: active and passive policies. Under active policies, a company is granted tax breaks if it develops certain specific innovations or uses patented technology. Examples of innovative ideas that would fit into this category include electric vehicles and medical transcription equipment. Examples of inventions that would fall into the passive category include energy-efficient appliances and business software. The tax break granted to these inventions is dependent upon their revenue potential over the course of a five-year annual period.

Another way to help spur entrepreneurship and help new businesses become successful is to make it easier for them to get off the ground. Several local and state governments offer programs that are designed to help startups obtain financing. For example, California’s Department of Technology offers the California SBIX program, which provides start-up companies with seed money through five different programs. Similarly, the Small Business Administration in Washington, D.C., makes it easier for new ventures to raise venture capital.

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