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guest commentary by David Potts

I was reading Michelle Stockman’s article, “The burden of small businesses,” in The City Wire about how government regulations hinder small business success and I asked myself, “With all the regulations that small business owners have to comply with, why would anybody want to start or operate their own small business in today’s world?”

Then it hit me. Heck, people want to eat. They want to feed their kids. They want to provide for their family. For some, it’s a matter of survival. Or at least that was the reason I started my business back in 1984. I needed a job.

I wondered if there were any surveys or research reports that documented why people choose to start a business. I sat down in front of my computer and googled “Why do people start a business?” After a click here and a click there I found the Kauffman Index of Entrepreneurial Activity. What luck. It supported my hunch.

The Kauffman Foundation is a well-known and credible foundation whose mission is to promote entrepreneurship. It has just released its annual Kauffman Index of Entrepreneurial Activity covering the 15 years from 1996 through 2010. The index captures the number of new business owners in their first month of significant business activity and doesn’t include casual business activity.

Here are some excerpts from the report explaining the Index.
• “The 2010 entrepreneurial activity rate is the same as the 2009 rate, but represents an increase from 2007, and represents the highest level over the past decade and a half.”

• And, “The recent upward trend in entrepreneurship rates contrasts with recent downward trend in employer business creation.” [I.e., the businesses being started are largely sole proprietorships without employees.] These opposing trends may be due to the Great Recession and its high unemployment rates pushing many individuals into business ownership. These individuals probably were more likely to start sole proprietorships and other non-employer firms instead of starting more costly employer firms.”

Who started these new businesses?

“Over the past decade and a half, Latinos, Asians, immigrants, and the oldest age group (ages fifty-five to sixty-four) experienced rising shares of all new entrepreneurs, partly because of rising rates of entrepreneurship, but also because of increasing populations.”

Or, Potts paraphrased, a large portion of people who start a business do so because they need a job, not because they are college kids with spare time to diddle with technology and accidentally become billionaires. And not because they are greedy and takers and never give anything back to the community. They are just people like you and me who need to eat, bathe, and sleep inside.

So why would people start a business in the face of overwhelming regulations on all levels of government: city, county, state, and federal?

I bet for most of these new entrepreneurs it is because they are proud and believe in personal responsibility. Rather than wait for our government to “provide” for them, they take matters into their own hands and “make” themselves a job. And throughout America’s history it has been this group of individuals who make the United States the most prosperous and free place to live on our earth.

If you do happen to find yourself out of work and can’t find yourself a decent job,” make” yourself a job by starting a business.

For some people, buying an existing business is a possibility. Hundreds of thousands of individuals have chosen this entrepreneurial path. I did 27 years ago and for me the benefits outweighed the costs. I bet it will for you too.

About Potts
David Potts is a certified public accountant also accredited in business valuation. Owner of Potts & Company, Certified Public Accountants for more than 25 years, his practice focuses on small and medium size businesses and their owners in the areas of taxation, accounting and bookkeeping, business valuation and business advisory services. He is a Fort Smith native and a graduate of the University of Arkansas. You can follow more of his thoughts at ThePottsReport.com. Although every effort is made to provide you accurate and timely tax information, it is general in nature and not specific to your facts and circumstances. Consult a qualified tax professional to discuss your particular case.

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