Business Research On Start-Ups
The most important cost that is incurred by an entrepreneur in start-ups is business research cost. The first requirement of initiating is start-up business is searching for a business idea. Generally, the business idea behind a start-up is different from current business concepts in market or such are present in inferior quality. If an entrepreneur already has a business idea then he does not need to incur research cost. But when an entrepreneur is looking for a business idea then he has to conduct a large amount of deterring the trend and taste of customer is the market. For example, if an entrepreneur wants to start a food truck then he would conduct a research on kind of food that is preferred by the people around the prospective location. The cost incurred in this stage depends upon the scope of research conducted by the entrepreneur. The larger the scope the accurate will be the determination of taste and preference of the customers (Storey, 2016). Hence it could be said that cost of doing business in business start-ups starts with research and analysis cost. In my opinion, also the cost of research and analysis is directly related to the performance of start-ups. If an entrepreneur selects an unpopular business idea then the chances of failure of such business will be high as compared to the popular business idea.
It is true that in recent times there is a boost in a number of start-ups in the country. But it is also the fact that the success rate of these start-ups is not very impressive. Many start-ups fail to convert their business into a success. There are various factors which contribute to such failure such as lack of further finance, change in customer preference, excessive variable cost etc. Here we will discuss the role impact of cost in business on business start-ups. One of the major factors that result in failure of a start-up business is that management of Start-up Company is not able to control the variable cost incurred. Hence we can say that there is a direct relationship between the cost of doing business and business start-ups. These costs should be controlled at every level possible by the management of the company. Financers of the company generally put on providing further finances to such start-up companies. This clause states that further finances will be provided if the company is showing signs of financial development and growth. Hence at the initial level, the company should control the cost incurred by them on non-productive factors. For example, renting a large space where we can manage our work in more small and affordable space is waste of resources and money. The excessive cost incurred on this space could have been used by the company in more productive manner (Lechner and Gudmundsson, 2014). I agree with this point of view as it is very difficult to acquire initial finance for a start-up company and cost saved at initial level can be used as an internal source of finance for growth and development of a business.
As the business grows there is an increase in indirect and variable costs for an organization. For example, a small paper company can afford to deliver the paper to their customers at the initial level. But as the business will grow and a number of orders increase, they have to hire a delivery man and purchase a delivery vehicle. I similar manner there are various costs that are essential for business start-up companies. Hence a start-up company should keep track of all the expenses and categorize them between essential and non-essential expense. The entrepreneur should not compromise on essential expenses as they are significant and any cut back in this expense can harm the company in long run. Company should implement resources management to form a strategy on the cut back on non-essential expense (Blackburn et.al, 2013).
Control on the cost of business is not only important for enhancing the financial performance of the company but it can also be used as a tool to gain a competitive advantage over other companies in the industry. All business organizations have limited resources according to nature and size of their business. One factor that can give a competitive advantage to a company is through cost management. For example, the customer will prefer project at a lower price if the quality of such project is same even if one vendor is more popular than others. Hence we can say that cost of doing business has a direct and significant impact on business start-ups.
Relationship between company tax rates and business start-ups
Generally, the tax rates applicable to the company are higher as compared to individuals and business partnerships. This is because the main source of income for any government is through corporate taxes. It is normal for large-scale organizations to pay off taxes at a higher rate as the income of these organizations is very high as compared to small scale companies. For any country, small-scale organizations are the main source of generation of employment and bringing innovation in the business market (Bloch & Bhattacharya, 2016). On one hand, small business organizations are finding the scope for growth and development and on another hand, they have to pay 30 percent of the profit to the government in for of taxes. This corporate taxation on small-scale companies such as start-up companies can be a hindrance to their growth and development. I agree with this point as it is very harsh to tax small scale organization and large-scale organization. There should be separate tax rates or tax brackets as per the revenue generated by such companies. Especially in the first-year operation, there should be a relaxation on taxes as the burden of tax can slow down the growth rate of development of start-up companies. Hence from this evaluation, we can say that there is the negative impact of corporate taxes on growth and development of business start-ups (Dixon and Nassios, 2016).
On 1 September 2016, a proposal was put to decrease the rate of corporate taxation from 30 to 25 percent for the small business organization. 5 percent cut back on taxation will provide a relief to the start-up companies in Australia. This proposed amendment to the bill was passed in 19th May 2017. It is expected that in future this rate would further decrease below 27.5 percent. As per this amendment, this reformed rate will be applicable to entities with revenue of less than $10 million. Various experts have presented their views on this reform to cut down corporate taxes for small organizations (Australian Government, 2017).
This rate cut back is done by the government to increase the overall revenue of the country. There are cases where an Australian small company tends to transfer their profits to the countries where tax rates are lower. This decision is not taken to promote and enable small business organizations to grow and develop in a business environment. It is also seen that this small cut in the tax rate would not have major overall impact small-scale companies as evident from the history of other counties. Various other countries have taken this initiative and it has not shown major impact on the economy.
According to another expert, the small business organization would have preferred a cut back in policies and procedures rather than a decrease in tax rates. To avail this reformed tax rate, small business owner have to comply with a lot of procedures. This would result in a waste of a lot of time and effort. Majority of start-ups have 4 o 5 employees. If these employees are also are indulged in complying these policies and procedures than there can be a loss of revenue for the business. One positive that can be listed out in this policy of the government is that the scope of small business has been increased. The revenue limit was small business was set at $1 million in 2001 and it was continued till 2016. Now with this reforms business organization earning total revenue of up to $10 million will fall into this category. In my opinion still, this reform will affect only a small segment of business start-ups. This is still unjust for some small business owners. For example, an organization earing 15 million dollars per year would have to pay tax at the same rate as an organization earing $500 million. As per my view, the taxing of companies should be according to income generated by the company. Different tax rates should be applied to companies earning different revenues in an incremental manner (Mahar et.al, 2016).
Moreover, corporate taxes play an important role in determining the quality of a business and the chances of establishing businesses. Start ups are thoroughly affected by corporate taxes and this is quite natural as a part of the business procedure. The cost of business is an important aspect when it comes to setting up start ups as finance and capital does matter the most in such respects. In the article, “The Effect of Corporate Taxes on Investment and Entrepreneurship,” Djankov et al. (2010) have pointed out how corporate taxes directly impact on start ups and other forms of businesses. The authors have suggested that effect of corporate taxes on business investment and entrepreneurship is one of the most important factors when it comes to setting up a business. It has often been seen that a entrepreneur despite having ample capital for setting up a business, eventually fails in the long run due to problems related to corporate taxation. Djankov et al. (2010) have suggested that “corporate income taxes might differentially affect investment in different sectors, as well as influence the allocation of resources between the formal and the informal sectors.” This is a truth that has been revealed on many occasions. The impact of taxation on start ups is not a new phenomenon and it has been an age long aspect of importance that entrepreneurs cannot overlook or undermine. It has been seen that there are several potential determinant of investment and entrepreneurship (in terms of star ups). Tax rates, including additional taxes imposed on the firm and also the VAT and the personal income tax, the measures of the cost of tax compliance, estimation of tax evasion, property rights’ security, economic development, tax regulation, trade openness, inflation, etc are some of the factors that are directly related to the success or failure of a start up to a large extent. Djankov et al. (2010) have noted that “Some of these factors affect some measures of investment and entrepreneurship, but they do not eliminate the large adverse effect of corporate taxes.” Moreover, there are certain process and problems of business start ups. In this respect, in the article, “The Process and Problems of Business Start-Ups,” Evers (2003) has suggested that entrepreneurship itself is a complex process and the processes like taxation make the process more complex both in the short- and long-run. There is usually not general agreement on the prospect of defining the concepts and variables for explaining the effect of entrepreneurship efforts on start ups. There is little agreement on a stable theoretical perspective in terms of judging the relationship between entrepreneurship and the endeavour of setting up start ups. As Deakins and Whittam have suggested (as cited in Evers, 2003), “the founding of a new organisation is not instantaneous and the process is a largely complex one. It evolves over time, as one must seek resources and compete in the marketplace. In much of the literature, this process of establishing the entrepreneurial start-up is characterized by both uncertainty, in terms of outcomes, success, failure, survival, lack of knowledge and understanding.” It must also be noted that the relationship between corporate taxation and success of a start up is thoroughly integral and intricate. In the article, “The Corporate Income Tax and the Competitiveness of U.S. Industries,” Knoll (2010) has suggested that lower corporate tax rates have been the target of myriads of start ups in the United States. Lower corporate tax triggers business enhancement and this has always been a case in almost every nation where there are ample resources for start ups to flourish. Knoll (2010) has also pointed out that higher corporate tax rates have always been responsible for the reduction in the degree of competitiveness of U.S. corporations. This is a truth when it comes to other start ups in other countries. It has been observed that wherever the rate of corporate tax has been high the competitiveness of the start ups has been low. Moreover, talking about the impact of tax rates on start ups, in the article, “Do tax rates really matter to start-ups?,” Harrison (2012) has stated that the cost to business is thoroughly impacted by taxation and tax rates. What Harrison (2012) has pointed out is that, “Tax rates are a moderate concern – both parties seem to grasp the impact that tax burdens have on small businesses and have collaborated across the aisle to enact entrepreneur-friendly tax laws in the past few years. It remains a key issue, however, because taxes are one of the biggest costs for most businesses, and can be a breaking point for struggling business.” Harrison (2012) has also pointed out an important fact that any tax incentives having potential of reducing tax burdens for startups as well as investors will help in fostering of new start ups (considering the lower cost of business that would be the outcome and result of such strategy. Giving the start up a boost through the process minimizing the tax rate can pave the way for the start ups to grow faster and this would lessen the cost to business. Moreover, it must be said that the cost of business, as it is related to the cost of corporate taxation, has to be balanced in order to help the start ups survive in a competitive market. In a market where the taxation rates are higher than usual, it often becomes tough for entrepreneurs to invest in start ups and this makes the economic situation a vulnerable one. It can be interesting to learn that “Certain changes to the tax code to diminish tax rates for investments made into startup companies (in addition to further lowering capital gains rates compared to earned income tax rates) would probably result in more startups being funded and quickly growing. However, until SarBox (Sarbanes-Oxley) is reigned in some for smaller firms wanting to go public, the IPO marketplace will not be as active as it could be and this exit strategy (liquidity event) is a major consideration for most sophisticated start-up investors” (Harrison, 2012).
The primary question in our research project is “What is the relationship between the cost of doing business, company tax rates, and business start-ups?”
Doses cost structure of a company can affect the financial performance of the company?
What will be a trend of costs as the business move toward growth and development?
Will recent cuts in corporate taxes affect the small companies such as business start-ups?
Is it just to charge large-scale companies and start-ups at sale corporate tax rates?
What is the impact of corporate taxation at the initial level of business operations?
Recommend some strategies to implement a tax on start-ups for reducing their burden?
How does taxation rate impact on the cost of business?
How are cost to business and establishment of start ups intricately related?
What is the relationship between company tax rate and establishment of start ups?
Research design and methodology
Sampling technique- we will use systematic sampling to gather relevant and accurate information only. The sample will be selected from the newly establishes start-ups registered in Australia.
Ascertaining the research questions: For conducting the qualitative research, the research question has to be determined first. Focused questions should be used because focus questions are at the core of the actionable qualitative research study. The participants should be asked various questions like why do they think that there is an intricate relationship between cost of business and taxation? How much closely are start ups’ successes related to business cost? Why do they think that lowering the rate of taxation would be helpful for establishing start ups in a more frequent manner?
The here main objective is to collect more data for research. Therefore we would collect information through online surveys and questionnaires.
Sampling will be done through random sampling to save time and give equal chance of selection for each sample of the population.
The required information will be collected from 100 start-up companies.
Formulating hypothesis and variables: Varying levels of abstraction should be measured in a proper manner and the variables would be manipulated and then controlled in the course of the research study. It must be noted that the statements about multiple variables should be formulated.
Selection of research design: The research study would be based on descriptive quantitative research design. The status of the variable and the phenomenon would be described accurately and hypothesis would be developed after collection of data from the research participants. The data collection process would be observational in nature.
Statistics would be used in the data analysis process. The data would be subdivided into discrete and continuous measurements. Variables would be measured and statistical figures would be applied.
Research limitation is the factors in a research which can have opposite impact on the final analysis of the research results. As the sample size would be smaller, it would be difficult to generalize the finding. As qualitative method would also be applied along with the quantitative method; the findings would be difficult to be universalized. Every research has some limitation and in this part of the report, we will list our research limitations. Here are our research limitations-
- Time allotted to complete this research is limited.
- Human resource requirement to conduct data collection process is very high whereas we have limited manpower.
- This research is restricted to start-up companies registered in Australia.
- Expert opinion is not taken in the research (Silverman, 2016).
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