Originally published in the Canberra Times.

By Bruce Billson.

I was shocked, but sadly not surprised, to read recently that one in five small businesses have zero cash reserves.

About 18 per cent have less than a month's worth of cash to fulfil their obligations and 21 per cent have reserves to cover only one to two months.

This research commissioned by Prospa, showing the modest to zero reserves held by 60 per cent of small businesses, is frightening and a message we can't ignore.

And about one in three have dipped into personal funds to pay business expenses as rising costs persist and the business cupboard is bare.

Cash flow is the oxygen of enterprise.

Requests for help to my agency from distressed small and family business owners seeking assistance with insolvency or the risk that a business they are dealing with is in trouble, have increased by over 50 per cent this year.

Business creation and new entrepreneurship are essential to driving economic growth, generating jobs, and boosting innovation. We particularly need more younger people to take up the opportunity of owning and running a small business; yet the risk reward balance is off-putting. The drain on resources during the establishment phase can be too much.

The early years for a new business can be the valley of death for cash flow. Having every available dollar to re-invest in the business will help more to survive and build the foundations for success.

In Singapore, a tax discount scheme is available in the early years of a new enterprise in recognition of the need to counter this cash flow valley of death.

There is merit in Australia exploring the feasibility of introducing a similar early-stage incentive in the form of a tax discount or offset scheme to support businesses retaining more of the early-stage earnings for reinvestment in the business when it is needed most.

This incentive would encourage business formation and reward risk-taking to energise enterprise.

Singapore's start-up tax exemption scheme is specifically designed to recognise that new "home-grown" enterprises are an important component of a vibrant economy.

It provides eligible new companies the exemption for the first three years, reducing their taxable income by 75 per cent for the first $100,000 of income and by 50 per cent for the next $100,000 of income.

Under that model a business with a taxable income of $200,000 would pay no tax on $125,000 for each year of assessment (with the remaining $75,000 taxed at the prevailing company tax rate).

Any Australian scheme should have the characteristics and settings that would be most appropriate for our business environment and complement existing incentives. For example, alternative models could see the rate of the tax discount or offset taper over the first three years and be adapted for equivalent benefit for differing entity structures.

It should also have safeguards drawing on existing initiatives to tackle illegal business "phoenixing", including DirectorID, to prevent businesses from rebirthing or restructuring in order to misuse the incentive.

What is important is to send a clear message supported by practical help, that small business is crucial for our economy and our communities.

Small business is rightly celebrated for generating 33 per cent of our nation's gross domestic product and providing jobs for 5.36 million people - 42 per cent of the private workforce.

But in 2006, small business contributed 40 per cent of GDP and employed 53 per cent of those with a private sector job.

I fear we are sleepwalking into a "big corporate economy with this worrying trajectory. We need to energise enterprise and providing a boost to inspire new small businesses will help lift our country's rate of economic growth.

In the US and UK election campaigns, candidates offered support for new small businesses to get started and recognition for the self-employed.

Getting the incentives right is important because we need to find the next generation of small business owners.

The average age of a small business owner right now is 50 and climbing.

In the 1970s, 17 per cent of business owners were under the age of 30, but that's down to 8 per cent.

CPA Australia's Asia-Pacific Small Business Survey found of the 11 regions and thousands of businesses surveyed, Australia had the highest percentage of small business owners aged 50 and over. And Australia ranked third lowest for business owners under 40.

The survey also found business owners aged 30 to 50 were the most likely to innovate, to use technology, to grow new value, to drive economic opportunity, which further reinforces the need to provide incentives.

The ASBFEO Pulse, a world-leading health check of objective vital signs for small business, showed a sustained decline in small business conditions over the last 2 years that is now levelling out, and fewer people considering starting a business over the same period.

Is the next generation increasingly not seeing self-employment or their own enterprise as a pathway for the future? At a time when young people, particularly, look for purpose as well as profit in their lives, to choose their own path and shape their own story, isn't self-employment or running your own businesses a seemingly natural fit?

No one starts a small business because they are excited about the paperwork involved; yet the cumulative compliance burden and fear and consequences of doing something wrong is having a chilling effect on entrepreneurship.

We need to create a more supportive ecosystem to inspire Australians to turn an idea into investment, build a business, adopt the risk and responsibility of creating a new enterprise and employ that extra person.

We need to give enterprising people the best chance to be successful and a cash flow boost in the early years can help them to thrive and benefit our community and our economy.