“Many solo business owners are so busy working in their business that they’re happy to simply make ends meet. “Someday” they will take a crash course in QuickBooks and figure out what their P&L’s are saying, but right now it’s sink or swim. Sound familiar?”
Inc. magazine has a great article explaining why small business owners should focus more on their numbers– and real life examples that explain the why in a way that also points in the direction of what to look for.
Numbers are important! They tell you how much you’ve sold, and also how much it cost you to sell. As one of my early mentors told me, “The purpose of the business is to support the household– not the other way around.” The numbers tell you whether you’re accomplishing that goal.
“[I]f Mark Hurd can grab $35 million before making his emergency exit from Hewlett-Packard, I’ve got no problem with JetBlue flight attendant Steven Slater grabbing a cold brewski before popping the disaster slide on Flight 1052 and kissing his airline career goodbye.” –Mike Cassidy, Mercury News editorial
Steven Slater, a JetBlue flight attendant, reportedly was smacked in the face by a passenger’s bag. One news report describes the incident thus:
Mr Slater told passengers to remain seated upon landing. But when a passenger started collecting his belongings from the overhead bin, disregarding the instructions, Mr Slater tried to stop him but was hit in the head by the baggage and became irate. When Mr Slater “asked for an apology”, the passenger “instead cursed at him.”
Slater then got on the PA, told off the passenger, thanked those passengers who had behaved politely over his 20-year career, said “I’m outta here,” grabbed a beer, pulled the emergency slide, and exited the aircraft.
The dramatic exit got him charged with reckless endangerment. It has also made him a folk hero. He has done what David Allen Coe wrote about, and Johnny Paycheck made famous: “Take this job and shove it.”
Brett Michael Dykes notes that some consider Slater “a man who lost control in a job where losing control is absolutely forbidden.”
Folk hero or psychopath? That depends on your perspective. Photos of Slater taken shortly after the incident show blood running from a cut on his head from the bag hitting him. That, at the very least, suggests extenuating circumstances: having been injured by the actions of a passenger in the act of violating airline instructions (a crime, by the way), who subsequently cursed at him.
Such dramatic exits are not usually the result of a single incident, especially in the case of someone who has been on the job for years. Rather, it is the result of a long buildup of stress. I know this from personal experience: on July 5, 1990, I threw my phone on the floor and walked of my corporate job of ten years. For this, I became a folk hero for a while. People spoke proudly of “pulling a D.J.”
I can’t say that I was (or am) particularly proud of my actions. But I can say that I was at the time working in an office whose staff had been cut in half with no reduction in work, and the incident occurred on a particularly high stress day, culminating with a conversation with a government inspector who was not only unhelpful, but rude. The result: I lost it, throwing a ten-year career out the window. Or, if you prefer, embarking on a career of self-employment that, after a couple of tough years, has served me well.
Judging by the popular response to Slater’s actions, there’s a lot of frustration and anger among employees of the corporate world. I’m not surprised. Employment is down, wages are down, and efficiency is up. That means fewer people are doing more work. There is no job security anymore– even IBM will lay you off the moment they don’t need you. And people wonder, “Why should I be loyal to them if they’re not loyal to me?”
It’s a valid question. Many corporations these days treat employees as a commodity. They know it would be a hardship for an employee to leave. And there are more applicants than positions, so workers are nothing but numbers to them.
Employees, too, know it would be a hardship to leave. There are few jobs available. We’re not trained in how to run our own businesses. So they won’t take that step until they absolutely can’t stand it anymore. Meanwhile, they dream of making a dramatic exit.
What happens when the dramatic exit finally comes? Slater will probably get a movie deal. Others turn violent and don;t have to worry about future employment. For myself, I had to learn how to make it on my own. Because with freedom comes responsibility. No one is going to bring in the business but me.
I won’t tell you it was easy– it wasn’t. But I will tell you it was rewarding, and for 20 years I haven’t had to go back to punching the clock. I keep my own hours. I choose my clients. I work from home.
The future of the economy is local. We need more small businesses. If you’re frustrated with your corporate job, start thinking about what you’d rather do. Then plan for it, learn about it, and put the pieces in place.
I stayed on the job until I smashed the phone for one simple reason: I felt trapped. I couldn’t find another job, and I didn’t believe I could run my own business. In hindsight, I was only trapped because I thought I was.
So what are you waiting for? Choose a business and start to plan for it. That way, you don’t have to stay on the job until you can’t stand it anymore. There are better ways to quit than making the six o’clock news.
Last month, I posted about proposed changes to the treatment of S Corporations that would be devastating to small businesses like mine. I was shocked at the lack of response– even from other small business owners. Today I spoke to one, who said she doesn’t even have time to pay her bills, how can she find time to write her legislators? Perhaps Congress feels safe in raising small business taxes because we’re too busy to complain, and not rich enough to hire full-time lobbyists.
However, some folks have noticed the proposed tax increases. A colleague forwarded me the AICPA’s open letter on the subject: They oppose these changes. While that might be expected, considering CPAs are one of the occupations that will suffer, they offer some excellent reasons for their opposition.
First, quoting from the letter,
The AICPA, first and foremost, believes that the Internal Revenue Service currently has the appropriate enforcement tools it needs to re-characterize the distributions of S corporations as salary subject to employment taxes under FICA. We also believe that the IRS can and should expand such enforcement tools by providing taxpayers with stronger guidance on determining a reasonable fair market value of compensation. Doing so would reduce litigation, increase compliance and allow employment taxes to continue to be levied only on the performance of personal services as intended.
The AICPA believes that the change in the law proposed by the House represents a major change in policy that should have been the subject of public hearings. This proposal not only threatens to result in a significant increase in taxes and complexity for S corporations and their shareholders, and for certain limited partners, but it continues the definitional blurring between capital and labor begun in the general partnership arena by further expanding laws that were clearly established to tax only labor.
They note that the bill, as proposed, will have the following detrimental effects:
It will reduce social security benefits for certain retirees bu including S Corporation income as “earned income.”
It will impose FICA taxes on returns on owner investments, discouraging such investments.
It will impose FICA tax on profits generated from the hiring of employees, discouraging hiring by small businesses.
The AICPA also (rightly) notes that any abuse in question could be prevented if the IRS would issue guidance on what is and is not an appropriate level of compensation versus return of capital for an S Corp owner/employee. IRS has failed to issue such guidance, and has instead approached perceived abuse on a case-by-case basis. If there is no rule, how can a taxpayer follow the rule?
If your train’s on time, You can get to work by nine
And start your slaving job to get your pay
If you ever get annoyed, Look at me I’m self-employed
I love to work at nothing all day… (Bachman Turner Overdrive, performed here by the Guess Who)
“An upcoming wave of new workers in our society will never work for an established company if they can help it. To them, having a traditional job is one of the biggest career failures they can imagine.”
So wrote Michael S. Malone for The Wall Street Journal two years ago. And he had stunning statistics to back it up:
“Half of all new college graduates now believe that self-employment is more secure than a full-time job. Today, 80% of the colleges and universities in the U.S. now offer courses on entrepreneurship; 60% of Gen Y business owners consider themselves to be serial entrepreneurs, according to Inc. magazine. Tellingly, 18 to 24-year-olds are starting companies at a faster rate than 35 to 44-year-olds. And 70% of today’s high schoolers intend to start their own companies…”
And that’s a good thing, right? Entrepreneurship is the backbone of the American economy. According to Census data, more than 90% of all U.S. businesses have 4 or fewer employees, compared with 0.4% that have 100 employees or more.
The SBA categorizes a small business as having fewer than 500 employees– which kind of tells you where our government’s head is at. Still, SBA says that small businesses account for more than half of all U.S. employees at 60.2 million, paid 44% of U.S. payroll, and 64% of new job creation. That’s not including some 23 million non-employee business owners who make their living in small business.
So if small business makes such a great contribution to the economy, why does our government seem to hate small business so much? It has some very practical reasons.
First, consider the political challenges faced by elected officials and those aspiring to public office. In order to garner votes, they must raise cash quickly and efficiently. Some, like Howard Dean, have done so using the internet to reach out to individuals. But a far more efficient means is to appeal to a few small, wealthy businesses. Consider: the same census data cited above shows that those small businesses that make up 90% of American business, bring in less than 1% of the gross receipts. But businesses having 100 employees or more brings in 70% of the gross receipts. The divergence gets even more striking: 50% of gross receipts are earned by companies with 2,500 employees or more, a mere 3,500 of America’s more than 25 million businesses. As a politician, would you rather approach 3,500 wealthy businesses for a contribution, or try to chase down 25 million small business owners?
Now consider the all-important function of taxation and revenue. Half the gross receipts are earned by businesses with fewer than 2,500 employees (25 million), and half are earned by those businesses with 2,500 employees or more (3,500). When the IRS sends auditors into the field to ensure that everyone is paying their fair share, their budgeters are concerned about how much return they’ll get for their efforts. They know that many small businesses cheat on their taxes– but they don’t have enough auditors to check up on everyone, and when they do, the returns aren’t worth the effort. There’s a much bigger bang for the buck auditing large firms. Says Kiplinger’s Tax Letter, “Audits of Schedule C filers yielded 43% less revenue per hour than exams conducted on other types of entities.” Wage earners, too, are far simpler than small businesses– in fact the new IRS tax preparer regulation program will require preparers to pass a specific test to qualify to prepare small business returns.
I’ve seen this focus on return on investment in action at the IRS. During a heated discussion with an audit subject, the auditor acknowledged that the IRS intended to make an example of the client in order to discourage other similar businesses. Said the auditor, “We don’t think businesses like this should exist. You’re too small.” (I’m betting he wasn’t supposed to say that.)
There’s one more reason our government prefers you to work for a large corporation rather than be self-employed: it keeps you off the streets. Consider this quote from a report from on a recent tea party event in the Boston area:
“Most of the people at the Tea Party rally said they were either unemployed or self-employed, and so were able to come to Boston in the middle of the day on a Wednesday.”
Corporate employees who are punching the clock are a lot less likely to skip work for a march or protest. And when everyone, left and right, is angry at the government, you don’t want them out on the streets.
Put it all together, and it’s no wonder our government would prefer to stem the tide of entrepreneurship. Life would be so much easier for them if we all clocked in every day.
An asymptote is a curve that approaches a line but never gets there. In the same way, life is a journey in which continual
progress is possible, but never perfection: in spirituality, environmentalism, and the quest for peace. These are reflections on the journey, as well as comments and photos from my home in rural
Southern Utah. Guest posts appear occasionally.
Constructive commentary is welcome. Comments may be moderated by the author.
All photos by the author unless otherwise indicated by caption or link.
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