Where I’ve Been
It’s been a bit tough lately to stay on top of my blog here. The main culprit? Taxes. Just as this market slowed, I had to come up with hundreds of thousands of dollars to pay taxes for 2008 as well as estimated taxes for the first quarter of 2009. Let’s just say I was distracted as I went into more debt to pay my taxes in my profitable small business- an interesting concept or some might say an oxymoron.
Now some will say, hey, you’re making money so don’t complain about paying your “fair share”. The reality is that my share equates to 50% of everything my business earns on a marginal basis. 40% of this country doesn’t pay any federal income taxes.
What most don’t understand is the issue of actually running a business, tax burdens and “cash flow”. Indeed, three months worth of business overhead equates to a full year of those profits that make me “rich”. In a down economy, when customers pull back and spend less, and in turn take longer to pay a small business, cash flow gets squeezed. Put another way, if it takes 45 days longer to get paid, the business (that’s me), has to come up with that cash to make payroll etc. In dollars and cents, a business that has 600,000 per month in overhead would have to “find” an additional $900,000 to cover this gap. The average business with $600,000 in overhead each month would earn, at a 15% profit margin, approximately $1,300,000 per year (before taxes, depreciation, etc). Strip out taxes (and don’t take into account the owner taking a salary) and you have less money than necessary to cover that little “gap” of $900,000 I mentioned.
This scenario is reality, not some theory being touted by the media or politicians. It means looking at potential new hires and taking a pass. It means pulling back from additional investment. It means eliminating positions that otherwise would stay. It means fewer people working and less tax revenue to the government as those jobs don’t get created and we focus on cutting expenses vs. growing revenue.
