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.

“Two Different Paths For America”

Even the President agrees that the choice in the election is more than just political parties and candidates. He stated in his acceptance speech at the democratic convention that it will be a choice between two different paths for America. It is interesting that he followed that pronouncement by claiming that, “Ours is a fight to restore the values that built the largest middle class and the strongest economy the world has ever known”. Wow. Great rhetoric. I can only assume he is talking about the values of the WWI and WWII generations – one of which has famously been labeled “the Greatest Generation”. So here is the part that is challenging. I am pretty certain that generation doesn’t share any of the same “values” that the current administration and the Democratic party are touting.

Now, the President, as well as some of the earlier speakers went on to talk about sharing in pride and success, hard work and responsibility that gets rewarded – actually for a brief moment I thought the President was going to confess he had become a Republican, or at least a conservative. Heck, I thought, next he will start invoking God or the creator. Of course, we all know to our astonishment, he actually did. However, just saying something and believing, or acting on it are two different things. Ultimately, it was about the same old rhetoric, the same empty words, and the same tired arguments as always. In fact, if you take the time to look at this speech, it really is the same – the same as his other speeches in past elections, with the few added phrases noted above sprinkled in at a weak attempt to manage the poll results without totally abandoning the message of “from each according to their ability and to each according to their needs.”

Every election comes down to choices. And in this one, perhaps more than any other election I have experienced, the direction between candidates could hardly be more different. The Convention made it very clear that this election is a choice between a party led by President Obama that wants to keep on the same path, is delusional about whether we as a country are better off and wants to consolidate and centralize power and build dependency, and 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.

Mitt Romney has a track record of success in the private sector, as a governor and his work with the Salt Lake City Olympics. Ironically, this seems to be one of the biggest issues that the democratic party has with him – success. I am not sure about you, but since one of the largest issues confronting us is the economy and jobs, I would very much prefer to see someone in a leadership position with both some experience and success in how business works. Say what you want, but Mr. Romney helped start a very successful business, and Bain Capital has a pretty darn good track record of success with the businesses that they have been involved with. This is a guy that fixes things. And I don’t believe that Mitt Romney is the kind of person who is running for office because he needs a career in Politics – he has a successful career. I believe Mitt Romney is running for President because he wants to make a difference and be a public servant. I think it also says a lot about the man to note that he didn’t take a salary from the state of Massachusetts while he was governor.

Contrast that with President Obama. The President has a record of success in …. well…. I guess he has been successful at getting elected and spending other people’s money. This is a man who has lived out the rock star life as President, making sure he has plenty of time for golf and work-life balance, while the first lady pays an entourage of planners almost $1.6 million of tax payers money. That is million in case you missed it the first time. Honestly, ask yourself, how concerned can this man be? $1.6 Million for people to arrange the first lady’s schedule? And he is screaming about income disparity and perks of the wealthy? I wonder how much we are paying for gardeners to maintain the first garden and brewers for the “home brew” the President is so proud to note is being brewed in the White House basement? This is a person that prior to his roles as President has never in his career been in a position where he was in charge of anything important, and certainly not where he has the all critical, “final word” – and unfortunately, he acts like he still isn’t. This President has spent the better part of his career spending and living off of other people’s money. A life that is worlds away from the lives of the job creators and business people of the country. No wonder the Republican Party has taken him to task over his position on small business and his ability to create job growth. No wonder almost any small business person you talk to believes the President places no real value in what they do, nor places any value in the business sector except as a source of income to be redistributed. Especially after his public position regarding who actually built the successful small businesses in this country.

President Obama is trying desperately to recover from his gaffe – “you didn’t build that” – and position himself as a friend of small businesses I have watched the “you didn’t build that” speech a number of times. The democrats claim it was a line taken out of context. Look, every small business owner out there worth his or her salt understands that you need raw materials and roads, and a population to sell to. To try and state that the road is what built the business is ridiculous at best. Every business owner out there also knows that you really need a product or service that is valued by customers, you need a plan on how to get that product or service into the hands of customers, you need the expertise to create an organization and the processes to support that product, and an almost unlimited drive for success and then most importantly; funds. You need financing to work the dream. I can not think of a single business owner I know who started off rich. The story is usually the same – an idea, long hours, borrowed money and low wages. And while the business is growing and paying suppliers and employees, the owner is working tirelessly and for next to nothing. When you watch the President work himself up before his infamous line is delivered, you see a man driving home a point he wanted to make – “you didn’t build that.” I have seen enough public speakers in my day to know this was not a line taken out of context, this was the President making a point. A point, that I do truly believe he would like to retract – not because he doesn’t believe it; on the contrary, because he does deeply believe it and has given us a glimpse at “the man behind the curtain” and what he holds in esteem.

Some other key points from the President’s address I want to touch on:
• The President indicates his budget proposal will reduce the deficit by $4 trillion. According to who? The Congressional Budget Office claims the President’s budget will add trillions to the deficit. Which is probably why it was voted down unanimously by both parties
• Europe’s Crisis must be contained – by spending beyond our means? Walter E. Williams noted on Townhall.com that the debt to GDP ratio of Greece is 160, Italy’s is 120 and Ireland is 104. The United State’s? 106. Higher than Ireland. That’s a little uncomfortable, isn’t it?
• Saving the auto industry – First it is a global industry in a global economy. He certainly didn’t save the entire auto industry. He let GM and Chrysler go bankrupt and then gave them a boat load of money. So they are still afloat and undoubtedly in a better position financially than before bankruptcy. And now the US citizens own $27 billion of GM stock that is worth roughly $10 million. So he allowed GM to restructure their debt, gave them tax payer dollars to work with and in return we own stock at a loss. Sorry, I am not very impressed.
• Romney isn’t ready for diplomacy because he insulted “our closest ally” by expressing some concerns over reports of readiness for the London Olympics. I am not sure that is all that insulting, first of all, especially from someone who happens to have some experience at pulling off the Olympics. An insult is to speak with contemptuous rudeness or insolence, or to affront. Once again, I am sorry, I am not seeing that.

But perhaps the most telling information that came out of the democratic convention was the now infamous vote to put God back in the democratic party platform. Not for the reasons most of you are thinking. This particular vote at the convention was an unvarnished look what democracy looks like to the President and the democratic party . They asked for a vote three times, and when the vote was clearly short of the 2/3 majority required, the party just went ahead and did whatever they wanted anyway…despite the expressed will of their own party.

The President was right about one thing last week – it will be a choice between two different paths for America. I know which one I will choose. It won’t be for the party that chose the old communist and Marxist slogan “Forward” for their own.