Understanding the Process of Business Creation

business creation

Starting a new business can be incredibly rewarding. It can also be quite challenging. Whether you have an idea for a startup or already own and operate one, it’s important to understand how the process of business creation works in order to ensure your company’s success.

According to INSEE, business creation is the implementation of a new combination of production factors, or in simpler terms: a new business is established to pursue an activity. The establishment of a business has several advantages, including increasing the exchange of money between a country and other countries, improving national productivity, creating jobs and developing economic sectors.

However, a new business requires significant capital investment to start. This means that it is possible to lose a lot of money, particularly since only about two-fifths of nascent ventures reach profitability. As a result, policy makers often have a dilemma when it comes to business creation: efforts to increase the number of new firms can increase the social costs, while a lack of new ventures may result in reduced economic growth and job creation.

Historically, the rate of business creation (measured by the Kauffman Foundation’s CPS indicator) does tend to rise during downturns: competition might be weaker, and inputs such as labor or raw materials might be cheap. This could explain why the number of new employer businesses has risen since the pandemic started. However, it’s also possible that this surge in business applications is just a blip, and it will return to pre-pandemic levels once the economy recovers.