An Entrepreneur’s Experience
Posted by Jeff Id on March 27, 2015
So I was invited to talk to a bunch of college students about my experiences in being an entrepreneur. I’ve not really worked for anyone for almost a couple of decades although I did accept a VP position as a shareholder once for a few years. I’m quite lucky to hang around with a bunch of smart people, kind of like this blog, functional minds tend to gather I think. Five separate times in two different companies and in very different situations, our group has been recognized as the top growing private companies in the US, so we must be doing something right. We have been around the block as they say, plenty of mistakes, plenty of good advice and plenty of wins. We make the single most efficient LED lighting products in the world in several categories — have for years. How cool is that! Climate skeptics all too. We’ve saved more energy than the RC geniuses ever will, but we do it for cost rather than lies about saving the planet.
I had fun talking to the students about our experiences. Some questions were interesting although others, not so much. You would have been proud of me for not venting too strongly, although I did happen to say -we’re probably the brownest green company on the planet! That didn’t go over terribly well in a left-wing university, but you have to have a little fun. I believe the kids need to understand that business is about money, nothing else, and the reason we are ‘green’ is to save our customers money. You save fuel, you save money and there is nothing whatsoever wrong with that.
There were four presenters in the panel, one group of them had just stared a small business 4 months ago and consisted of exactly two employees. The guys were well spoken and seemed to have all of the answers. Someone asked the question of how to motivate employees and they answered for quite a long time quoting things about the 8 ways to motivate and such. I found it interesting and informative because despite having not read the same book, the answers were not far off from my own and unlike them, we actually have employees. I wonder if I should have gone to school for management, then I remember that I went to school to design planes, not lights.
I am doomed to learn everything the hard way I think.
One of my favorites on the panel was a lady who started her own bakery business in her basement. From Ireland, she trained with top notch people from around the world. She had no money and no bank to loan her money, so she put a used oven downstairs (which her husband installed) and started cooking. Awesome I say! Tough, hard work and no nonsense results. She delivered product and avoided taking on big debts. She felt overwhelmed by the other stories around her but she shouldn’t have. Smart business decisions and no nonsense action.
One of my favorite sayings came from a business partner, “A bank is someone who will loan you an umbrella as long as it is not raining.” He follows it up with, “And they will want it back if it starts raining.”
So when people asked about why we moved to Michigan, the others gave a bunch of fluffy happy answers about the quality of people and businesses and such. As by far the largest company represented on the panel, I answered — taxes. Illinois extremist left-wing governor increased their taxes by 60% in a single year, although I left the adjectives to myself. Of course the large companies in Chicago protested and made public proclamations of leaving the state. This led to a series of negotiations, likely political contributions, and the decision by the governor to give those particular companies a pass on the tax hike. Of course we were a little company with only 24 people back then so nobody cared about us. Michigan’s conservative governor simultaneously lowered the Michigan rates and cleaned up the code so we took our business there. Illinois had no care or idea we did it but the state numbers showed that we were not alone.
What I didn’t get into was taxes, and it is probably better that way because those kids don’t want to know what it really means to own a successful business.
Nobody really understands tax law and that is the way the government wants it. Obama campaigned on raising taxes on the wealthy, voters accepted him and the hike finally became reality this year. A five percent increase on the top earners. What people don’t know is that the majority of the top earners are businesses. S type corporations in the US report their percentage of the company income on their personal returns. The company does NOT pay income taxes. So this increase was primarily an increase in business tax
The other thing Americans don’t know is that in manufacturing in particular, when you become moderately successful, nothing is a (non-taxable) expense. I mean nothing significant can be expensed even though you are writing checks for it. Taxation hits so much harder in growing manufacturing companies than service type companies, the difference is truly shocking. When a manufacturing company grows, inventory increases, tooling increases, equipment increases, accounts receivable increases, and payroll increases. When a service company grows, you have payroll, accounts receivable and minor equipment costs. In a growing service company, payroll is a non tax expense, however equipment and AR are not an expense.
The result of these pressures is that the US is full of marketing, banking and software ‘service’ firms, yet produces less and less product every year.
The net result of the US taxation system on a company like ours is a taxation rate in the 80% range in comparison to the cash which hits our pockets – because our company is growing and EVERYTHING is NOT an expense. By everything, I mean even state taxes paid are still considered federally taxable income. Home interest, child care, tooling and equipment costs need to be depreciated over years, inventory increases, accounts receivable -all taxable. Every dollar we spend requires us to pay the federal and state governments nearly 45% tax for the privilege. AND I’m just talking about INCOME tax. Not import tax, VAT tax, fuel tax, export tax, real estate property tax, sales tax, personal property tax …..on and on and on.
People don’t know jack about taxes in this country. They think they are paying, but in reality, the companies are paying huge portions of the taxes and their own incomes suffer for it. They simply don’t see what is going on on their own checks. How would anyone expect people to know that corporations are paying the majority of income taxes when articles continually come out explaining that individuals are actually the ones paying the most?
Tax law is more convoluted than that, and those who hate capitalism are motivated deniers of that simple fact. There is a reason for the complexity of US tax law.
So while I am curious what your thoughts are on taxes, kids and entrepreneurship, please don’t assume that we don’t know what we are doing. You don’t build a successful company multiple times on accident. People often assume there is some trick which is going to save you from taxation, or it is all about loopholes. Here’s news folks — real loopholes do NOT exist, although some leftist communists call certain minimally tax limiting rules loopholes. If you still think we don’t know taxes, please tell us which of our four accountants, CFO or business tax lawyer we should replace and I will personally send you 50% of the savings.
Why the vent — because it is needed. We compete with foreign companies which have far less difficulty complying with their own communist governments. Hanging a lead weight around our neck is an apt description of government help.
So at the end of the meeting, the professor, who did a truly excellent job, mentioned that kids these days aren’t jumping in to their own businesses at the rate they used to. I went away with a good feeling about how smart they were, and a bad feeling that they were probably smarter than me.