- Government can provide services at no one's expense.
- Businesses can pay higher taxes at no significant impact to business owners, employees, and consumers.
- The government printing more money is devoid of a negative impact on the economy.
In the following video, economist Milton Friedman dispels the following myths:
I came across a thought-provoking blog post written by Josh Kaufman titled:
The Billionaire Formula
Kaufman does a nice job of showing a formula to isolate the variables that lead to earning a billion dollars by looking at after-tax profits generated by customers, the number of customers served and a person's share of ownership in a company. However, his formula significantly over-states what would be required to become a billionaire because he only takes into consideration a business' earnings, not the value generated by those earnings. In fairness to Kaufman he does describe, in an oblique way, how the stock market may value those earnings.
I know the purpose of his formula isn't to figure out how quickly someone could become a billionaire, but rather the level of profitability of customers over time and the number of customers served, to determine what would be required to earn a billion dollars. However, under his formula, if you were earning, on average, $50 million a year it would take you 20 years to earn a billion dollars. While this is all theoretical because no business starts out earning $50 million a year, if a business would sell for 15x earnings then $50 million in earnings would represent a business value of $750 million. So, rather than it taking 20 years of $50 million in earnings, it would really only require 5 years of earnings plus the value of those earnings to total $1 billion.
OK, now that we've cleared that up all you need to do is figure out how to generate $50 million a year in earnings and in five years you can be yachting in the Mediterranean.
How is the Affordable Care Act impacting your business? Is it a net positive or negative for your business and employees? Are you changing any business practices or decisions as a result of the law?
Did you see the article in the Wall Street Journal that profiled two business owners and how the ACA is impacting them. Here's the link:
Small Businesses Find Benefits, Costs as They Navigate Affordable Care Act
Regardless of whether you perceive it to be a positive or a negative, from a business selling perspective it has the unfortunate impact of creating uncertainty due to the complexity of the law. Complexity increases perceptions of risk which lowers perceptions of value and negatively impacts marketability. I'm sure that as people figure out the ins and outs of the law and compliance that this uncertainty will significantly decline, but for now it's not a positive when it comes to selling a business particularly for companies with more than 50 employees or who are close to having 50 employees.
Will you or your kids be enjoying Cadbury eggs this Easter weekend? If so, have you ever wondered how they are made? Here's a peak inside the Cadbury factory where 47 million of these delicious treats are manufactured for only a couple of months a year. I'm always fascinated by the level of automation in modern factories - and this one doesn't disappoint.
Here we are once again - it's April 15th - tax day. The day when the lines at the post office extend out the door, and those who have done well financially have a bit of a grimace.
It's past time that the tax code be simplified. According to an article in The Washington Post this week, the average small business owner devotes over 40 hours of time to compiling and dealing with tax return filing, and 25% of them spend at least three full weeks on this chore. Yet, this isn't because most business owners are trying to do their own taxes - no, the reality is that only 12% of employers filed taxes on their own without the help of a preparer or CPA. The tax code is simply too complex for most prudent business owners to take on the risk on non-compliance. Half of business owners spend more than $5,000 for expert help, and 25% spend more than $10,000.
So, assume that a small business owner had earnings of $250,000. At that size of a business there isn't likely an accounting staff and the owner would be the person responsible for devoting a week of their time to preparing tax information for their CPA. If you divide $250,000 by 51 weeks in a year (since the 52nd week is consumed by this compliance activity), that equates to a rough estimate of cost for the owner's time of $4,900. If you then throw in a CPA's bill of $5,000, this, in effect, is an additional hidden tax of nearly $10,000, or nearly another half a percent.
Then when you look at the high level of government administration required for such a complex tax system, it's no surprise that there are nearly 100,000 people working for the IRS, with an annual budget of about $12 billion.
There are many interesting tax reform proposals out there from a simple flat tax to a national sales tax. Please consider contacting your elected officials and insisting that they devote serious attention to tax reform and simplification.
Are you passionate about what you do as an entrepreneur? If not, Steve Jobs suggests that your business may not survive long term. If you've lost your passion, perhaps it's time to call a business broker or investment banker and explore a sale.
In recent years many people have lamented the decline of manufacturing in the USA. However, it's not really accurate that manufacturing output has declined in our country, rather it has been manufacturing jobs that have diminished. While many pundits have asserted that jobs are being sent overseas to countries with lower labor costs, this ignores the significant role that automation, technology, and process improvement are playing in manufacturing.
The following video tour of the Tesla automobile factory is breathtaking in its efficiency and level of robotics and automation. I had the opportunity to tour the Mercedes Benz factory in Sindelfingen, Germany in 2001 and while it also had an impressive level of robotics, the Tesla factory seems to have taken it to the next level.
When looking for business acquisitions, buyers often look for sets of systems that work together to produce products and services in an efficient, consistent, repeatable manner. If you want to build a more marketable and valuable business, think about the ways you could use technology and better processes to make your business more efficient, while lowering defects and waste.
The story of Whole Foods and its founder, John Mackey, is the quintessential entrepreneurship story. According to Wikipedia, John Mackey and Rene Lawson borrowed $45,000 from family and friends in 1978 to open a small natural foods store called SaferWay in Austin, Texas. When the couple were evicted from their apartment for storing food products in it, they decided to live at the store. Because it was zoned for commercial use, there was no shower stall, so they bathed using a water hose attached to their dishwasher. Two years later they brought on partners who owned another grocery store and formed Whole Foods Markets.
As of early 2014 they: employ 80,000 people; provide products to raving fans from 373 stores operated in the US, Canada, and UK; have a $19 billion market capitalization; and in the prior year had sales of nearly $13 billion, profits of over $550 million, and paid taxes of $343 million. Following is a video from Reason TV of John Mackey in which he makes a moral case for capitalism.
Capitalism and free markets seem to get bad press in recent years, as reporters focus on the rare, but more sensational stories of business corruption, greed, and exploitation. Yet, these same negative qualities also exist in government, non-profits, and education, as well as in totalitarian and socialist states. Matt Ridley's entertaining book "The Rational Optimist" makes a strong case that free markets, trade, and capitalism have dramatically improved life for the common person, and are forces of good, not evil. The video below provides a preview of the book.
Google has captured the essence of being an entrepreneur in this video . . .
Buy and Sell Well
Codiligent Business Brokers' blog on entrepreneurship, capitalism, and successfully buying and selling businesses.
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