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Indiana Is a Good Place to Start a Business

Photo by Tom Campbell

Purdue Extension agricultural economist Maria Marshall says the climate for starting a new business in Indiana is good statewide, not just around the school's West Lafayette campus.

Economic indicators say Indiana is a good place to start a small business, according to a Purdue University expert.

"The economic indicators for small businesses in Indiana are positive," said Maria Marshall, Purdue Extension agricultural economist. "An increase in business owner income and self-employment points toward an improving state economy."

Good Numbers

Farm and nonfarm business owner income in Indiana rose above the national average.

"Proprietor income in Indiana rose 11.5 percent in 2003," the year with the most recent data. "This increase ranked Indiana eighth in the nation," said Marshall.

Self-employment increased by 6.2 percent in Indiana, while it rose 3.7 percent nationally. There's a debate about what drives self-employment.

"It's unclear whether self-employment is pushed or pulled by unemployment, but I think people are hesitant to take the risk of starting a new business if they recently lost their job," said Marshall.

Several indexes agree with Marshall's interpretation of the small business climate.

Indiana ranked 10th in the Small Business and Entrepreneurship Council's Small Business Survival Index for 2004. The index ranks states according to how their policies might affect small businesses.

The state also ranked well in the Tax Foundation's 2004 Index. Indiana has some of the lowest personal income and capital gains tax rates in the nation. The foundation found Indiana's tax policies 12th friendliest for business development.

Small business owners also concur. The Small Business Optimism Index, a national survey of small and independent business owners, was at a 30-year high in November 2004.

"The index was at 107.7 in November and was only slightly lower at 106.1 in December," said Marshall. "This continued a 21-month trend of readings above 100."

Business Plan Protection

A carefully thought-out business plan can lessen the chance that a new business will fail. A good business plan provides:

  • A reality check for a new entrepreneur.
  • A means of making sure a new entrepreneur has done sufficient research before committing to a business idea or investing money.
  • A way to think about potential problems before they occur and avoid cash crunches.
  • An aid in securing financing from lenders and investors.

Major Role

Indiana's rankings and attitude toward small businesses aren't much ado about nothing. Small businesses are a major part of the Indiana economy. Eighty-five percent of Indiana firms have fewer than 20 employees; 44 percent of firms have one to four employees.

"In Indiana, 97.5 percent of businesses are characterized as small businesses," said Marshall. "They are integral to job creation. Understanding how small businesses are doing is a way for us to determine how the economy is moving."

While Indiana's small business indicators are good overall, there's still work to be done. Even though the state fosters small business development, there is still a struggle to maintain those businesses.

"The number of business bankruptcies decreased by 3.2 percent in 2003," said Marshall. "However, Indiana was still ranked 18th in the nation for business bankruptcies. Even so, the 2003 bankruptcy numbers are an improvement over 2001, when Indiana was ranked first."

And more firms are closing than are forming. That means the state also needs to work on "business turnover," the number of businesses starting compared with those closing, said Marshall.