Fiscal Cliff 2013: Why We Should Simplify the Tax Code to Boast the Ecomony
The current economic climate has taken its toll on start-up development. Though experts argue that the success of small businesses is essential for ending the recession and significantly lowering unemployment rates, new companies must contend with costly regulations and a cut-throat corporate environment that often rewards veterans over new entrepreneurs. Today, many successful business owners are weighing in and offering valuable advice to start-up founders.
In order to foster growth and encourage job creation, the federal government needs to simply the tax code and make starting a business easier. Currently, the tax code is hundreds of pages long and many current regulations drain new business bank accounts. These early losses jeopardize the health of those businesses and many will not survive it.
As Jay S. Fishman of Bloomberg Views wrote in June, most new companies face financial obstacles from the outset. They must buy permits, pay regulatory fees and incur other expenses mandated by federal, state and local governments. These policies make very few allowances for young businesses.
The strict regulations also hurt start-ups that hope to enter the global market because many international competitors operate under much looser standards. And as Fishman states, less regulation and lower taxes have proven to yield positive economic results. He points to states like Texas, South Dakota, and Wyoming that impose fewer expenses on entrepreneurs, and notes that their unemployment rates are below the national average.
Nevertheless, regulations are in place and start-up founders are advised to abide by them or risk committing a crime. A Forbes article from August 2012, authored by the Young Entrepreneur Council, notes that entrepreneurs often sabotage their own efforts by poor handling of tax-related issues. Some founders simply do not understand the tax obligations of their company, or the legal entity chosen for the company.
For this reason, entrepreneurs should seek out a professional tax adviser during the early stages of business development. Other company owners making the mistake of combining personal funds with business accounts. If finances are low, YEC urges founders to focus instead on viable business deductions to free up additional revenue. Finally, YEC advises start-up owners to remain vigilant about paying quarterly taxes once the company is incorporated. “Even if you aren’t legally required to pay quarterly taxes, it’s still advisable so as to avoid an end-of-the-year tax bill that leaves you reeling,” the article states.
Anita Campbell of Small Business Trends interviewed several successful entrepreneurs, all of whom urge start-up owners to carefully analyze finances in the early stages of development. Evan Williams, a founder of Blogger and Twitter, urges entrepreneurs to “be picky” by turning down partnerships that are unlikely to be financially rewarding. Williamsargues that many companies waste money and time by pursuing too many options at the outset.
Michael Arrington of Techcrunch encourages entrepreneurs to conserve “every penny” by performing little tasks themselvesand investing in some effective account management software. Finally, Mark Cuban told Campbell that startups should begin selling products and generating revenue as soon as possible. While many entrepreneurs attend trade shows and launch extensive marketing campaigns, Cuban noted that time spent on raw sales often yields more lucrative results.
In June, Tia Jackson of Brandmaker News gave "Eight Financial Tips to Reduce Start Up Risks." Jackson quotes two economic experts who said that many startups fail simply because the founders do not have enough funding. Mark Zaifman of Spiritus Financial Planning, Inc. urges entrepreneurs to launch their company only after they have saved at least one year’s worth of expenses.
Every new enterprise will inevitably deviate from the original business plan, and the surplus will act as a “shock absorber when things don’t go according to plan.” Mike Welch, of the franchise adviser company, FranNet of Minnesota agrees, stating that most business fail because they do not start with enough capital. Entrepreneurs should understand the necessary expenses — living and business-related — they will incur in the first year of operations.
Despite the harsh environment for startup firms, many entrepreneurs are able to mitigate economic risks through creative problem-solving and diligence onfinancial matters. These innovative strategies stand to greatly improve the economic climate and boost the employment rate, in lieu of relaxed regulations toward new businesses.
Julianna Davies is a freelance writer and researcher at MBA Online
