French Small Business Booms with Auto-Entrepreneur Plan

French Small Business Booms with Auto-Entrepreneur Plan

“The problem with the French,” former U.S. President George W. Bush purportedly once said in a snarl of disgust, “is they have no word for entrepreneur.” That quote is probably apocryphal — which is a rather good thing for W. on more than just the linguistic score. French government officials this week reported that the number of new private businesses launched in June set an all-time record. By the end of 2009, they estimate, France will be about half a million new firms better off. In 2008, just 328,000 new firms were created; in 2007, 321,000.

Surging French private enterprise in the middle of the world’s worst economic crisis in 50 years Something’s up, right Indeed there is. The motor driving France’s bustling start-up action is an innovation known as the auto-entrepreneur — a government scheme introduced in January to facilitate the formidable process of founding a small business in France. The scheme cuts through the jungle of administrative red tape usually required to launch a company and dramatically lightens the heavy taxes and social charges other companies pay. While regular outfits face set charges whether business is booming or bust, auto-entrepreneurs are taxed only on revenue made.

Not surprisingly, the scheme has accounted for more than half of all new companies founded thus far this year. “The auto-entrepreneur plan has been an impressive success, beyond what we’d been counting on,” says HervĂ© Novelli, secretary of state for small- and medium-size businesses.

But there are some caveats to the scheme’s success. First, it’s primarily aimed at individuals who already have jobs or unemployed or retired people who yearn to try their hand at a service they think might find a market. Because of that, new companies created by auto-entrepreneurs start out as single-person operations and usually as part-time or moonlighting ventures. If business starts booming, neophyte owners seeking to expand by taking on employees have to register under the normal labor regime, which means assuming the taxes and salary-linked social charges that prove so dissuasive to many would-be entrepreneurs in the first place.

That means the program may not have a big impact on the 3.3 million people currently out of work in France. And even if most of the projected 500,000 new companies launched this year wind up prospering, their tiny size isn’t going to mitigate the country’s economic decline of 3% this year. Perhaps the movement’s biggest impact will be to reverse long-held negative attitudes in France about starting a small business. “There are a lot more people out there in France who would love to try their hand at running a business and selling a service they can provide but haven’t even tried because the process and costs of doing that have been so deterring,” says Aurore Longuet, a spokeswoman for the Economy Ministry’s small- and medium-size business secretariat. “What we’re saying to them now is, ‘Give it a try — it’s easy now, and you’re not facing the same costs. You have nothing to lose.’ ”

Who’s answering that call For now, two-thirds of auto-entrepreneurs are men, who, on average, are age 40. About 33% are salaried employees starting up a sideline business, 25% are unemployed and 6% are retirees. Later this year, the program will take private enterprise to the public sector by opening auto-entrepreneur to civil servants. If it continues at its current pace, the scheme will prove that France not only has a word for entrepreneur, but also a growing army of people it fits. Read “Much Greater Paris.”