· Apr 27, 2010
Response to "Turning Hustlers into Entrepreneurs"
I understand and support the idea that government regulate business to protect consumers. The problem is that government does not take the size of a business into account in the requirements it imposes on operating legally.
For example, a single guy with a pick-up truck doing local deliveries pays the exact same state license fee as a company with a fleet of semi trucks. The least insurance available to him is a million dollars of coverage with a 1-2 thousand dollar annual premium, even if he never comes close to transporting a million dollars worth of goods. Every city he works in requires its own separate business license. If he needs to hire a subcontractor on occasion, he needs to buy worker's comp insurance at a minimum, and possibly more. Being self-employed, he pays an additional tax (which an employer would otherwise cover). And of course by staying underground, he avoids paying any income tax on his business revenue.
All of this can easily add up to thousands of dollars. That sum may be inconsequential to a corporation with annual sales in the millions of dollars, but to a small independent, going legit would cost me about 20% of my entire net revenue, more than two months income.
The solution to this is not to finance small business to help them pay for theses fees - these fees are annual, and taking loans only increases risk. The solution is to have license fees proportional to net revenue, instead of being fixed amounts, requiring insurance companies to offer a full range of coverage options, including (potentially less profitable) low limit policies, and restructuring tax code so there isn't a penalty to being self-employed. Similarly, laws making it difficult or illegal to run certain types of business from home could be relaxed, (for example, allowing small scale retail in otherwise residential districts), eliminating the need for a dedicated store-front, a major on-going expense.
Reducing the government imposed costs of running an independent business legally would, without the additional risk incurred (for both the investor and the entrepreneur) by accepting loans or the costs incurred by providing grants. It would also increase tax revenue, by encouraging existing underground businesses to come above the radar and join the mainstream economy.