Do Small Business Owners Make Too Much?

Out Of Debt

Out Of Debt (Photo credit: Garrettc)

 

Chris is a small business owner with a question – Should I be able to take home $400,000?  If I have a $400k profit reported as income, is that unfair?

A short history of Chris’ business over the last 4 years

  • 2008 – Lost 3 of my top 5 largest customers.  Reported major losses in earnings
  • 2009 – I had to do layoffs for the first time ever as the losses continued to pile up.  I took no paycheck, no income.
  • 2010 – We pretty much finished at break even.  Even so, I took no paycheck and had to dip into 401K to cover expenses because we exhausted our line of credit and banks wouldn’t lend.  The bank’s position was that despite over 10 years of operations, we had depleted all our assets, meaning our cash, and had shown losses for 2 years.  Even though orders were coming in, we weren’t a “safe bet” in their minds
  • 2011 – We are making money again, and will make a nice profit, but are in such a hole from a cash flow standpoint that we were starving for cash due to some of the large orders. I depleted the rest of my 401K to keep afloat and purchase materials.

If Chris’ company shows $400,000 in earning 2011 does that make Chris one of those greedy owners who should “share a little more”?

Given that Chris went 2 years without a paycheck, and depleted his retirement savings, I can’t imagine anyone would have an issue with him taking those earnings, right?

Ok then, what if in 2012 the opportunity arises to make $400,000 again?

Chris’ argument is that there needs to be enough “working capital”, especially with business coming back and growing, to cover operating expenses.  The explanation is that the company lays out money for the materials and the costs of wages to make the goods 2 or 3 months before payment is actually received for the products.  And, especially after the lessons of 2008-2010, companies should make sure they keep a solid “rainy day fund” to cover things like economic slowdowns, plus there is equipment that needs replaced or upgraded.

President Obama and his administration and followers feel that companies like Chris’ should have to “share a little more”.  How much more?  Well, some have gone so far as to say profits should be banned!  In that case, I suppose, owners like Chris should just get a paycheck like any other employee of the business, even though they will be expected to front the money for startups, put in the hours and oversee the business as it grows.   But the current administration doesn’t see any issue with that.

“From each according to their abilities, to each according to their needs.”

Click on “Leave a comment” and let us all know your thoughts.

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Here’s Really the Biggest Problem in the American Economy – What nobody wants to say Part #1

Redistribution of Wealth

Redistribution of Wealth (Photo credit: nodigio)

Here’s The Biggest Problem In The American Economy

•Globalization
• Technology
• Stagnant wages
• Business Profits
• Tax laws

“These and other factors have contributed to the most radical redistribution of wealth that the United States has ever seen. Since the late 1970s, the country’s assets and income have moved steadily from “average” Americans to the richest Americans”

-Henry Blodget, Business Insider

Wow. That is a heck of a claim. Redistribution. Let’s take a look at what redistribution actually is. The term literally means distributing again – so in effect, taking something that has already been distributed, and distributing it differently a second time. Or more clearly stated, taking something from one group or individual and giving it to another group of individuals. I can’t fathom that anyone really wants to claim the wealthy have raided the accrued earnings and personal assets of the “average” Americans and given it to owners and senior management. It is one thing to say that the income gap between the wealthiest Americans and the average, median, or mean income of working Americans has increased since the 1970’s. That would be a claim that could possibly be substantiated or refuted through data. But that is not at all what he alleges. His claim is much more sinister – one group of individuals is intentional taking from another, without justification, and arbitrarily giving to another. A claim that is purely argumentative.

He then comes right out with it. In the next paragraph, carefully avoiding using terms like “redistribution”, he proposes spending our way to a more vibrant economy. If only the businesses of America would give up some of the wealth, everything would be fine. Unfortunately, these businesses are shortsighted by not just distributing this money to other people, like Henry Blodget no doubt, who would better know how to spend it. Spend, don’t cut costs, he opines. Ironically, much later in his post, he makes a recommendation (which I agree with, by the way) that American consumers need to save more and spend less! He never reconciles these two conflicting view points.

“The benefits of our free-market capitalist system … are accruing disproportionately to owners, managers and customers, at the expense of everyone else.”

Disproportionate according to what? Are we back to the “I just think you should share more” argument? And who will decide how much to share and who should get it? I suppose the government, unless Mr. Blodgett will be so bold as to offer up his services to fairly split that pie up. Notice also customers are also lumped into that mix of individuals that are taking advantage.

“It’s everyone else who is getting hosed”

So, the “average” American is not also a customer? Who then, are these “customers”, and how will we make sure they aren’t getting unfair benefits from the free market capitalist system? Will we perhaps charge them more, maybe in the form of a tax, because remember, we don’t want the owners to make too much profit. Then we could take the tax and give it to the consumers so they can buy more stuff, which is critical to the robust economy as Mr. Blodgett envisions. But then, if prices were higher, wouldn’t the “average” American need even more money to be able to afford to make purchases? And again, who will make this decision?
Do you agree with the notion that somehow companies and owners are unfairly taking income and assets away from the “average” American? Or is it an unfortunate, pandering, political claim that demonizes those that are successful and reinforces a victim mentality on the “average” American?
In the coming days I hope to cover:
• Globalization
• Technology
• Stagnant wages
• Business Profits
Let me know your thoughts.

The Day After – The media really just doesn’t get it

That’s right, it isn’t only the Democratic Party that is completely out of touch with the moderate voters. If you spent any time what so ever looking at commentary after the first Presidential Debate, you will have noticed the desperate tone of much of the mainstream media trying to salvage something out of the debate for the Democrats. But it just wasn’t there. That behavior isn’t so unusual, so why am I saying the media doesn’t get it?

https://i1.wp.com/www.geeveeapps.com/clueless512x512.jpg

The general lamentation is that the President would have done so much better had he only mentioned:

• Caiman Islands and Tax Breaks
• Bain Capital
• The 47 percent

• Tea Party

Really? Look, I really don’t think folks in the middle have any beef with folks who comply with the tax law. As I have written in my previous blog post Would you pay more?, we have all had the opportunity to see Governor Romney’s taxes. He complied with the law. Would you pay more? Right, so lets just move on.

Bain Capital? So the man was successful in business. Now is that supposed to be a liability? Governor Romney has been just as successful in business as he has been in politics. Lets not pretend that success and experience is a turn off for the moderate voters. They want to see someone in the Oval Office with a track record of success and inspires confidence in the ability to actually make things happen.

The 47 percent. Yes, this resonates with the liberal voters. What the media is overlooking is that the liberal voters are going to vote for Obama anyway. There are people in the so-called 47% that are planning to vote for Governor Romney. Why? They might be in 47% due to business bankruptcy or for other reasons, but they understand what he was saying. And they still believe in a meritocracy, true freedom of speech, and want their children to have a shot at the American dream because they worked hard and earned their way to success – they don’t believe in an entitlement society. The 47% wins points only with people that have already made up their mind. And that was Governor Romney’s point.

Tea Party? Huh? I feel like I am watching Monty Python and “Knights Who Say ‘Nie’” scene! If you say Tea Party three times fast, are all conservatives supposed to quail in fear or something? What does the tea party have to do with anything that Governor Romney has been saying?

Joshua Green of BloombergBusinessWeek posted the following:

“The effect was mainly impressionistic—he did it without offering any new details. And he did it by emphasizing his “beliefs” (“great schools, great teachers”), which don’t necessarily align with his policies.”

What? Joshua did you do any research? Governor Romney has strong views on education and has taken steps as a governor to boost the education levels within the state of Massachusetts. I would expect better from a business periodical.

The fear that we will make a move away from the path of trickle down government control, and toward a more open society that includes a thriving business sector and a free, democratic process and has the possibility of strengthening the ties that bind us together, instead of the differences the democrats have emphasized in their attempt to divide us, has the left and much of the media in a panic.

A difference of opinion – collaborate on bipartisan solutions or “fight”

a house divided...

a house divided… (Photo credit: tray)

During the debate last night we saw so very clearly the two dramatically differing philosophies on how to make things happen in our government.  The difference between the experience of Governor Romney who successfully navigated a democratic legislature contrasted with the lack of results posted by the current President of the United States.

Perhaps the most powerful indicator of the President’s philosophy was demonstrated after Governor Romney described how he worked cooperatively with a Massachusetts legislature dominated by the Democratic Party to produce many successful results.  President Obama’s follow-up discussion was laced prominently with the term “fight”, describing how he had his fights with the legislature; fights President Obama said needed to happen.  The President views these exchanges as fights to be won rather than solutions to be developed together.  For President Obama, “open to reason and debate” means “I will explain my position so you can agree with me.”  Even within the President’s own party he has very few allies.  Eleanor Clift’s recent post in the Daily Beast contained the following statements :

“… Obama doesn’t have many friends on Capitol Hill in either party. He has allies for sure but hasn’t worked to develop personal relationships. Some think this is a fatal flaw…”

“One adviser who did not want to be quoted recalls gently suggesting Obama might want to invest more personal time in courting members of Congress. “He looked at me like I was telling him to do 10 root canals.”

Nancy Pelosi has even muted the President during meetings while he was speaking to the room!  Russell Berman of “The Hill” posted:

“In one scene during negotiations over the 2009 economic stimulus package, Woodward reports that when Obama called then-Speaker Nancy Pelosi (D-Calif.) to discuss the bill, she put the president on speakerphone so that the group of Democratic lawmakers in her office could hear him, according to a report in The Washington Post.

But when Obama began making an “uplifting speech” over the phone, Pelosi pressed the mute button.

Why has the President failed to develop relationships and why has he alienated so many democrats and republicans alike?  Simply, because he doesn’t think it is important and he hasn’t been willing to sacrifice his work-life balance to forge these relationships and help move our country forward.  Work-life balance is commendable, but every President should know going into the job how demanding it will be.  That is part of the sacrifice expected from our President as part of his service to us, the voters.

“Fight” and ram through legislation only when you have a majority?  Or work together to craft lasting, bilateral solutions.  It seems like an easy choice to me.  I will take the person who is willing to work with an individual regardless of his or her political inclination and respects the opinions of all.  America deserves it.

No Middle Ground?

The partisan nature of our recent political history raises a question as to whether there is any middle ground remaining? Left and a right, Republican and Democrat – only one can win, right?

There is no doubting the fact that one party, one candidate must win and one must lose. The middle ground isn’t necessarily the parties or party lines, but rather the voters. I do not believe the voting public is so clearly polarized as the political party extremes. People are complex. Their needs, thoughts, questions, desires and life experiences vary, often dramatically. It is entirely possible to have someone who believes strongly in abortion, is against drilling in national parks and is open to raising taxes; but is a hawk on military matters, is a fiscal conservative, believes that entitlement programs must be trimmed and the government needs to get out of people’s private lives, and wants to see greater controls on immigration. Truly. So do you exclude these people from your party?

I don’t believe this to be a rhetorical question. I think there is a group of people in that middle ground who believe in a meritocracy, true freedom of speech, and want their children to have a shot at the American dream because they worked hard and earned their way to success – they don’t believe in an entitlement society. How many families have a registered Democrat and a registered Republican? I am sure there in some middle ground happening there.

So here is the opportunity. Some of the folks I mentioned above probably voted for the current President last time around. Without a doubt the positions the Democratic Platform conveyed at their recent convention alienated some of those voters. They missed out on the key issues, and instead drove home conversations about special interests, class warfare and dependency. The current administration’s policies have left some of the voters I mentioned above feeling mislead, disillusioned. Alienated. The Democrats have built a party line that is totally dependent on fear, division and anger. They are close minded and exclusive.

This is an opportunity for the conservatives to capture that middle. I have written previously that every election comes down to choices. We have a choice between a party led by President Obama that wants to keep moving forward on the same path, is delusional about whether we as a country are better off and wants to consolidate and centralize their power and build dependency. The other choice is a party led by Mitt Romney who believes that our country needs a drastic change in direction including fiscal reform, a robust private economy and a democratic process.

democracy's chorus

democracy’s chorus (Photo credit: howard.hall)

So in reality, “the middle ground” is the battleground. That middle ground is full of the people who can and will make a difference in this election. Believing there is no middle ground is a slippery slope. Once you believe that, there is no reason to “reach across the aisle”. There is then no reason to have constructive conversations and plant the seeds of hope and change. Instead, people tend to get lost in the focus on “winning the argument” or getting in the best insult; something we see all too often in the partisan environment today. Every “smackdown” of an undecided voter is a small battle lost. There is plenty of middle ground out there and it is ours to take.

Does the Law Really Matter?

United States Capitol

United States Capitol (Photo credit: Phil Roeder)

This question has come up more frequently with this President than any other President that I can recall. Why? Well, for starters, remember this is a President who talked extensively about “transparency”. But, on an even more basic level, the real reason may be because we have rarely, if ever, had a President so divisive and polarizing. I also doubt we have ever seen a president more willing to utilize the government’s assets and his position for his own gain. Wait! Why do I say this? This President has been accused of:

Violating the War Powers Act
Hatch Act Violations
Unconstitutional Recess Appointments

In addition, the President is using United States assets, your tax dollars, to buy votes through a variety of entitlement programs

Cell Phone Program
Promoting usage of Food Stamps

Questions abound regarding the President’s view of the U.S. Constitution and the application of United States Law to President Obama. Do the laws of the United States apply to President Obama? Can he unilaterally decide to rewrite federal law?

Now we have the current administration encouraging employers to ignore the WARN Act. In case you are not intimate with the WARN Act, here is a quick overview. The WARN act (Worker Adjustment and Retraining Notification Act) requires employers to give notice to employees and others within 60 days of a foreseeable mass layoff. The government’s position is that the roughly $500 billion cuts in defense spending that will kick in due to the automatic budget cuts if congress is unable to come to agreement on a new Budget is not a “given”. Meaning any job cuts can’t be “foreseeable”. Given that the President has not been able to pass a budget or work collaboratively with anyone, in or out of his own party, why would we think that suddenly we will be able to constructively avoid these cuts? The only way I can see a bi-partisan, functional budget being enacted is if there is a new President in the White House.

But this gets even better. The administration not only asked companies to violate federal law, it also offered to use federal funds, your tax dollars, to cover the legal fees to defend against subsequent legal challenges? So we are going to use federal funds to help defend people who violated the federal law?

Do you think that maybe the administration doesn’t want the public to understand the frightening impact of Sequestration Transparency Act? How far is President Obama willing to bend, or break, the laws to ensure he is re-elected? How far are you willing to let him go?