calling all finance pros: you have a duty to foster economic democracy.
by rick telberg
at large
the seventh annual global entrepreneurship monitor report has pulled together research from 35 countries and come up with data that could prove a useful to entrepreneurs from timbuktu to kalamazoo.
one finding could go without saying: the entrepreneur in north america is more likely to succeed than the budding business person in a nation with a struggling economy. the reasons are several, and the solutions apply to entrepreneurs everywhere. cpas who advise entrepreneurs would be wise to look at the factors that support or suppress new businesses.
financial support was seen as a very significant factor in success the report said. in high-income and middle-income countries, entrepreneurs with ample income were more likely to start their own business. it’s safe to say that someone setting out in a new venture would be wise to hang on to independent income until the business is firmly on its feet. the report also found that in low-income countries, micro-financing proved remarkably effective. it said that “micro-financing is the new banking,” and it regarded access to credit as a human right. it cited a bank in a village in bangladesh that micro-financed small business projects. though it relied on personal trust instead of collateral, its loan recovery rate was near 99 percent.
how does that apply to the big idea being hatched in a garage on the outskirts of kokomo? maybe a well-targeted loan will mean the difference between success and failure. maybe the bank has to judge not just the enterprise but the entrepreneur and the idea. and maybe a cpa’s opinion can help.
the gem report also found most entrepreneurs were still backed by the four fs of informal investment: founders, family, friends and foolhardy strangers. has your new entrepreneur tapped all these to the max? for every venture funded with classic venture capital, there are more than 10,000 financed by entrepreneurs themselves. on average, entrepreneurs can expect to provide two-thirds of what they need. informal financial reports by a cpa might help them raise those funds.
the gem concluded that governments and policies also play a strong role in helping enterprises thrive. as respected and trusted business experts, cpas, in my opinion, can help entrepreneurs by advocating more effective and efficient government services, fiscal responsibility at all levels of government, the education needed to provide skilled labor and wealthy markets, and other elements of the economic environment. in other words, sometimes cpa support doesn’t directly involve the client at all.
though the research behind the report didn’t involve enterprises in low-income countries, the gem concluded that one of the biggest obstacles to success in struggling economies was the lack of “fundamental institutional conditions” ? rule of law, labor market flexibility, infrastructure, financial market efficiency and management skills.
what applies in low-income countries probably applies in low-income counties. is crime ? from shoplifting to fraud ? challenging your client’s business? are roads, sewers, courts, water supplies or government offices doing their jobs? does the labor pool offer enough trained personnel?
some of these institutional conditions may seem beyond your control, but you, as a cpa, have a respected voice in your community, and your clients, who may be small today, may be far bigger someday if they grow under better governmental, social, and economic conditions.
they need more than accounting advice and tax prep. they need someone with a little leverage in the outside world. and that, believe it or not, like it or not, is you.
[first published by the aicpa]