04.06.16

Nothing Can Be Said To Be Certain Except ‘Death and Taxes’

By: Karl R. LaPan, President & CEO, Northeast Indiana Innovation Center

Ben Franklin sure got it right when he made the above statement in 1789. With tax day just around the corner, I thought I might opine about what the United States could do to create a more favorable climate for entrepreneurs.

First, the US could take a lesson from China in creating favorable government policies towards entrepreneurs. China offers qualifying start-up ventures free or reduced cost commercial space, tax abatements, tax amnesties, research (proof of concept) grants, venture capital and other incentives to ensure start-ups get a leg up in competing and winning in the marketplace. Unfortunately, US and state economic development policies still favor the big companies who create jobs and economic impact often at the expense of the real job creators – the companies who are 25 employees or less.

Second, the US has to lessen the burden on start-ups in providing access to cost effective health care for its employees. While ACA was supposed to provide cost effective access, it doesn’t level the playing field for start-ups to win in securing talent for their ventures. Some progressive programs in certain states offer tax credits, deductions or subsidies for health care costs to their start-up ventures to win in the talent war. Talent is more important than financial capital.The lack of the ‘right fit’ talent has the potential to severely limit the pipeline of future start-up ventures. This pervasive problem needs immediate attention.

Third, the pendulum continues to swing on attitudes towards failure in the US. If you are in Palo Alto, Austin, or Cambridge, failure is not a mark of shame but a badge of success or admissions ticket for being an entrepreneur. Research tells us serial entrepreneurs perform better than first time entrepreneurs. Celebrating failure is crucial to creating the next generation breakthrough innovations. There is a reason less than 10% of all innovation is disruptive in nature. If we want to move beyond smart apps and du jour software solutions, we will need to invest heavily in building a culture and ethos for failure. Leaning into failure is the only way to ensure future experimentation and start-up venture success.

Lastly, if you are one of the fortunate entrepreneurs to get a tax refund, consider how best to deploy this cash windfall. Some options might include:

  • Invest in section 179 qualifying equipment and software and accelerate your depreciation expense for 2016.
  • Pay down debt. Lessen your businesses leverage so you can better adapt to changes in your business environment.
  • Build your rainy day fund for unexpected opportunities or challenges in managing your monthly burn rate.
  • Don’t underestimate the need to invest in strategic marketing to discover what your customer’s unmet needs and wants are.
  • Start a qualified retirement plan and invest in a profit sharing plan, SIMPLE IRA or a 401K for your company.

While many view a significant refund as a bright point, what to do with it is a decision best not left up to chance. You might consider working with a tax advisor to develop a strategy so you can keep more of your money during the year. Remember, a refund represents an interest-free loan that you made to Uncle Sam. Smart planning is beneficial to you in the long run. However, I know the psychological benefit of getting a refund versus finding out that you owe Uncle Sam! I prefer the refund.

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