November 9, 2004

Numbers point to Indiana as a good place to start a business

WEST LAFAYETTE, Ind. – 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 were positive for 2003," said Maria Marshall, Purdue Extension agricultural economist. "An increase in business owner income and self-employment point toward an improving state economy."

Farm owner and non-farm business owner income in Indiana rose above the national average.

"Proprietor income in Indiana rose 11.5 percent from 2002 to 2003. This increase ranked Indiana eighth in the nation," Marshall said.

Nationally non-farm proprietor income rose 5.6 percent and farm proprietor income rose 36.4 percent.

Self-employment increased by 6.2 percent in Indiana, while it rose 3.7 percent nationally.

"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," Marshall said.

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 with Marshall and the indexes. The Small Business Optimism Index, a national survey of small and independent business owners, was at an all-time high in December 2003.

"The index was at 104.5 in September 2004," she said. "This continues an 18-month trend of readings above 100."

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 less than 20 employees; forty-four percent of firms have one to four employees.

"In Indiana, 97.5 percent of businesses are characterized as small businesses," Marshall said. "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," Marshall said. "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."

Marshall said the state also needs to work on "business turnover," which refers to the number of businesses starting compared with those closing.

"The number of firms closing outnumber the amount that are forming," she said.

Writer: Kay Hagen, (765) 494-6682, kjh@purdue.edu

Source: Maria Marshall, (765) 494-4268, mimarsha@purdue.edu

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