The Great Takeaway
As a business owner that spent the last seven years mortgaging my future to build a viable business, I’m very concerned about the rhetoric coming from Obama and his team with regards to the ‘rich’. By his definition, I’m beyond wealthy at this point and a prime target for his redistribution strategy. What politicians don’t understand (most have never run a business in their life) is what it takes to run and fund a small business…even when it is extremely profitable on paper. I’ll give you a simple example right now, and will be back with a future post to lay out the sacrifice that it has taken to get to this point. As an LLC or Limited Liability Company (this is how most small businesses are organized today) the entire cash profit of the business ‘flows’ out to the owner(s). What that means is the individual business owner could show $1,000,000 in income on their personal tax return as a result of this level of profit in their business. What this doesn’t take into account is the day to day cash flow needs of the business itself. For example, a business that operates on a 10% net margin would need $10,000,000 in sales to generate a million in net profits, before taxes. That means the business would have overhead of $9,000,000 or $750,000 per month. Now let’s take a look at what that $1,000,000 dollar ‘income actually nets down to for the business owner. After state, local, city, payroll and federal income taxes…about half. So in theory, the business owner is ‘rich’ as they’ve made $500,000+ after taxes? Not so fast. There’s that little issue of $750,000 per month in overhead that needs to be paid each and every month…and this net after tax amount, even in a good year, equates to basically the first 20 days of the following year. Factor in slow paying clients and the issue of something known as ‘cash flow’, and many of these business owners could see their lines of credit balloon as they get ‘rich’. How long does it take someone to build a ten million dollar revenue business that nets a million a year in profit? How many loss years do they suffer through? What’s the percentage of success? Entrepreneurs that take on the kind of risk to build successful businesses need to be rewarded at the highest levels. They employ more than half of all workers and are the job creation engines of this country. The ignorant fools in Washington need to wake up to this fact.
