

Reid Hoffman: Let Our Start-Ups Bail Us Out - rogercosseboom
http://www.washingtonpost.com/wp-dyn/content/article/2009/03/02/AR2009030201947.html

======
9oliYQjP
I have been putting together my thoughts on this very same topic with the
intention of publishing this on a blog that I have access to that is read by
influential government, finance, and business folks in my neck of the woods.

The analogy I used was of balancing preservation of forests with reforestation
efforts. The stimulus plan has largely been about preserving forests that have
a lot of very big old trees. It's an admirable effort in that an entire
ecosystem revolves around a forest and for it to suddenly disappear would
result in acute turmoil. But at some point, despite efforts to the contrary,
that forest is just going to burn, resulting in the acute turmoil that past
"avoidance" efforts have simply deferred. In fact, the longer you try to
preserve the forest, the likelier that it is to be devastated by fire.

We really do need to make economic reforestation a priority. As this author
points out, encouraging small business loans is definitely a part of the
process. But before small businesses are even credit worthy enough to apply
for a loan, they have a few hurdles that need to be overcome. These hurdles
don't seem to be very big until you're a one- or two-person startup without
much revenue coming in.

1\. The founders need to cover their own health insurance costs or go without.
Living in Canada, I don't have to worry about monthly premiums. That's money I
can use for other things. It's true, that I eventually have to worry about
paying this cost via taxes. But taxes aren't usually initially high (or at
least weren't for me) when starting a very small business. I'm not sure how
this works in the U.S., but I imagine most startup founders simply go without
and take a gamble. This is probably a good bet for younger founders but is
discouraging to older ones and those with families.

2\. Simply setting up the proper structure for a business, its accounting
books, and taking care of any legalities can be a tremendous burden for a
startup. I bootstrapped my company and I remember my frustration one day when
I realized I would probably need to spend a few thousand dollars and several
days of my time to get all of this stuff sorted out by professionals. That was
money that I desperately needed for rent and food, and time I needed to do
actual work. It does not seem like much if you live on a salary, because it
isn't, unless you're a startup trying to bootstrap yourself.

Governments should offer cookie-cutter small business tax and accounting
structures that offer founders the ability to clearly understand the
repercussions to their bottom line. This will help founders better project
cash flow a year out when taxes are due. You shouldn't need to hire a
professional in order to get the benefit of not paying taxes that you don't
really owe in the first place. I'd have gladly exchanged my 100%
professionally optimized solution for a cookie cutter solution that was 80% of
what I needed but took me 20% of the time to take care of than dealing with
all those professionals. Of course, these professionals have a vested interest
in ensuring the process as complicated as possible, and probably lobby
governments to keep them that way...

3\. Up here, the government just created tax free savings accounts for
individuals (<http://www.budget.gc.ca/2008/pdf/pamphlet-depliant4-eng.pdf>). I
think a similar account should exist for startups for their initial few years
of existence and the limit should be $20K per year. Again, it does not sound
like a lot of money, until you're a bootstrapped startup delicately balancing
your cash flow. One of my stresses, to this day, is ensuring I have enough
money in the bank to pay the government and creditors. The amount I owe the
latter is always easily known and so it might be large, but it isn't
surprising. The amount I owe the former is always a big damn question mark
until I enlist the help of a professional. Tax season often feels like
awaiting a tsunami. This means my spending on other things (equipment,
contract workers/employees) is temporarily depressed until I figure out I have
enough money to get through that stage.

~~~
9oliYQjP
Oh, and one thing I forgot to add. If you're a Canadian in a salaried position
but think you will jump ship and start your own business one day, by all means
maximize your TFSA contributions. This is money that you can use in your small
business initially and does not have the tax repercussions of withdrawing
funds from your RRSP.

