Cash Flow Management

Business Startups: A New Wave?

According to the Census Bureau, projected business formations (within four quarters) for December 2022, adjusted for seasonal variation, were 30,292.That is, the Census Bureau is projecting that 30,292 new business startups with payroll tax liabilities will form within four quarters of application from all the business applications filed during December. What does this mean for the economy and for your business?

This number is a 0.8% decrease, meaning there will be 0.8% fewer businesses projected to form within four quarters of application than were projected for November 2022. However, this one-month dip may obscure the long-term picture, which may be very rosy.

For example, Insider, a business news website, writes, “The pandemic may have forever supercharged America’s entrepreneurial spirit.” Taking a multi-month view, Insider says that Americans filed 5.1 million new business applications in 2022. This number, it notes, was well above the 3.5 million filed in 2019. Of these, 1.7 million were applications for businesses that are likely to employ workers, according to an analysis by Economic Innovation Group, a bipartisan research organization.

Looking At The Signs
Indeed, EIG also seems excited by the data, saying that it, “offers optimism that the pandemic may have delivered a lasting, positive shock to American entrepreneurship.” Of course, even the most optimistic experts realize there’s a big difference between a business application and the launch of a successful company. To that end, EIG has dug deeper to see whether it can extrapolate. EIG found that “In the two years prior to the pandemic, the total number of business establishments in the country increased by 4.8%. In the two years since (2020 Q2 to 2022 Q2), the number has risen by 10.7%, or more than twice as quickly.”

Additional EIG data analysis shows that, “historically, business applications are strongly predictive of changes in total U.S. payroll employment 11 months down the road — providing earlier insight into where the economy is headed than nearly any other principal economic indicator the federal government produces.”

Of course, nothing is guaranteed, and so this doesn’t necessarily mean that anyone should quit a job to launch a company or pour resources into investing in one. Indeed, as the renowned John Maynard Keynes said, “Markets can remain irrational longer than you can remain solvent.” But in the long term, be prepared for a major, and long-lasting, change in the business outlook.

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