Small Business Creation is Exploding

Michael Coronado

The world changed in many ways last year. One of them is the face of employment, or rather, self-employment.
The pattern first appeared in the third quarter of 2020, when there were a record number of business formations, as I wrote in an article. The Internal Revenue Service received nearly 1.6 million applications for new employer identification numbers (EINs).

A great many, probably most, are likely from individuals starting a business. The assumption was that people were scrambling after the first half of the year, with plummeting GDP and soaring unemployment.

Far and away, people are starting businesses that will largely be self-employment. That may be independent contractors to corporations or individuals providing services or goods to consumers.

This also is unlikely to be a sudden rush to the gig economy. People who casually pick up work in rideshare driving, deliveries, odd jobs, dog walking, or other platform-centered activity don’t seem likely to be the ones anticipating an actual business structure.

The business formations may be an emergency choice—if a business someone worked for has folded or there’s the possibility that it might. Or this could largely be so-called side hustles, with someone trying to start a new venture on the side.

But it’s clear from these figures that a lot of people are actively pursuing self-employment. It shows an entrepreneurial spirit, but there are many issues that will get in the way and discourage those who want to create businesses, which will expand the economy and open more jobs for those who need them:

  • That’s only the start of what government needs to do. I still remember how long it took for self-employed people to gain the right to deduct their own healthcare insurance from their income, the way corporations had been able to. There needs to be an examination of all the privileges that bigger companies get and a consideration for whether there should be a small/solo business equivalent.
  • Few people have the existing skills to run a business effectively. If we want a vibrant self-employment and expanding small business culture—which would help undercut the grasp that corporations have on so much in this country—those who want to try need opportunities to learn the basic skills. In my own area of media creation and consulting, I cannot count the number of people I’ve seen jump in, only to think of themselves as unworthy and unwanted employees. They need to learn marketing themselves, sales, planning, and more.
    Having enough capital is a regular problem for people starting out, particularly if they’re not from an economically advantaged background. Cut unnecessary subsidies to large industries (so many, who can count?) and direct the cash into a fund for loans at low interest rates.

If the world of business and economics is changing, whether anyone asked it to or not, it makes sense to understand what is happening, why, and develop policies and programs to address the new reality.

About the Author

Michael Coronado is the Vice President of Pronto Income Tax. When he’s not serving clients, he geeks out on current events and planning his next travel adventure