Adventures with lyrical - buying a business

Shonuff · Sep 26, 2012

I"m considering throwing up another billboard. There is a place in town where all of the corporate vendors and Execs drive to. It is super expensive ($3,500 a month, but 1,200 if I go up on a rotating basis). My strategy of targeting wealthy customers is working. We just got a 5k job from someone today. I want to target the people that 5-15k is nothing to. A lot of the commercial jobs right now are so cutthroat in pricing that we"ve started focusing more on residential. I"m just not going to do 10-20k job to make 1k in profits, when I can make 5k on 20k in residential work. We are booked until almost November right now, so we are at max capacity. I don"t know what"s up, but all of my large commercial jobs (construction companies and cities) are demanding rates that I don"t want to work for.

I also sent a mailer to our customer list of almost 3,000. The phone has been ringing off the hook. I"d really like to get to the point where I have to start hiring. Our backlog right now is 45k, if it gets into the 60"s, I"ll have no choice. At some point in time, I"m going to start sending mailers to high demographic neighborhoods.

Izuldan_foh · Sep 26, 2012

Lyrical said:
I try to lower my taxes, but if I owe, I owe. I"m not going to go drop 70k in a year on stuff I don"t need just to say I didn"t pay taxes.

I honestly don"t know why you and OneonOne keep getting the idea that I advocate buying stuff just to lower your tax burden. I"ve never said or supported that. If anything, I keep saying do so only if it makes sense to expand your business. Maybe I should do it in all caps:

TRY TO LOWER YOUR TAXABLE INCOME BY LOOKING FOR WAYS THAT WILL INCREASE THE PROFITABILITY OF YOUR BUSINESS. DON"T SPEND MONEY JUST TO SPEND IT TO LOWER YOUR TAXES.

It"s something I"ve said at least 2 or 3 times already, but people keep misinterpreting it.

Also, it"s not like I"m saying to my CPA firm that I want to pay zero taxes, so tell me how much I need to spend to get there. They are looking at a lot of factors, not just my P&L, but also we coordinate growth based on industry tracking. When the market projections look good, I get the green light for more expansion. When it"s shaky, we hold on to more money (and pay more taxes).

I think an additional difference is, correct me if I"m wrong, you have a single construction company. So all your re-investments go back into that business. I think you would view things differently if you were running more than one company, because then you can look to increase your tax breaks through inter-company synergies. Currently I have four businesses, two which are integrated. When I had the money to re-invest, I actually created a separate business to handle the supply side. I am trying for vertical integration of my entire product line, so if I can get enough revenue, I will be creating another business to handle distribution. As you know, a new business has pretty significant write-downs. So another avenue if you are doing well enough is to just create a whole separate company, whether it"s in your field or not. Again, I understand it"s higher risk and not everyone would be comfortable doing so.....and I am NOT saying it"s for everyone, starting the second company in 2008 almost led to bankruptcy for me. For me, however, to have the separate businesses as a chain rather than a single entity helps with tax savings as well, not only because of the initial start-up costs and savings but also because of the distribution of income across several entities.

Brutul Tarew Marr_foh · Sep 26, 2012

Cooking the books to make it look like you lost money or making capital investments at the end of the year is not intentionally losing money to reduce taxes. Obviously people try to minimize their tax burden as much as they can within the law, or in some cases outside the law, but that is not the same thing as intentionally losing money to avoid taxes. You hear people say stupid things like "that"s just a write-off for them" talking about businesses losing money or people donating to charity. No one does this nor would there be any benefit to doing it but I hear people say things like this all the time.

Shonuff · Sep 26, 2012

Izuldan said:
Like I said, my CPA says I should spend "X" dollars on my business, I find ways to spend "X" dollars.

It"s quotes like this that are making us not understand what you are talking about.

Shonuff · Sep 26, 2012

Izuldan said:
Also, it"s not like I"m saying to my CPA firm that I want to pay zero taxes, so tell me how much I need to spend to get there. They are looking at a lot of factors, not just my P&L, but also we coordinate growth based on industry tracking. When the market projections look good, I get the green light for more expansion. When it"s shaky, we hold on to more money (and pay more taxes).

One thing I"m learning is that it is best to ignore industry projections, and just expand for future work. You can never have too many clients. External factors be damned, there is more room to grow in our core business. I believe we have the best equipment and staff, so it"s all our market. I get guys trying to sell me their business all the time. I"ve had three competitors try to sell to me. Why buy it when I"m kicking your ass? There are too many technical guys that are more worried about finishing the job they are on, rather than growing their business. They have no work, and we are backlogged until November. If they had a brain in between their heads (and used it), I"d be nervous. Brainpower and planning wins the day, I have a great staff right now that handles the technical stuff.

At some point in time when we get maxed, I"ll consider other product lines.

Shonuff · Sep 26, 2012

Brutul Tarew Marr said:
Cooking the books to make it look like you lost money or making capital investments at the end of the year is not intentionally losing money to reduce taxes. Obviously people try to minimize their tax burden as much as they can within the law, or in some cases outside the law, but that is not the same thing as intentionally losing money to avoid taxes. You hear people say stupid things like "that"s just a write-off for them" talking about businesses losing money or people donating to charity. No one does this nor would there be any benefit to doing it but I hear people say things like this all the time.

But some people do buy a business just for the write-offs. If you can run your cars, cell phone, gas, take part of your house as a deduction, take 50% of meals and entertainment and work in vacations as travel expenses, it adds up. And in high cash businesses, they all pull cash out. I know a guy who shows he breaks-even to the IRS, yet he always has 4-5k in cash in his wallet at all times. He"d just go to the cash register and pull it out. Although I never understood how you take a vacation and deduct it (I"ve seen guys do it though). As the old saying goes, "You can make money in a business even when it is losing money."

Izuldan_foh · Sep 26, 2012

Lyrical said:
It"s quotes like this that are making us not understand what you are talking about.

Yes, I know. OneonOne quoted theEXACT same thing, and I answered him and I clarified what I meant, but then you go and quote the same thing again? It"s like you didn"t even bother reading my response to him. Sorry to sound frustrated, but it"s feels like beating my head against the wall where I keep saying one thing, but you guys are ignoring it and instead keep going back to the same thing over and over again.

Lyrical said:
One thing I"m learning is that it is best to ignore industry projections, and just expand for future work. You can never have too many clients. External factors be damned, there is more room to grow in our core business. I believe we have the best equipment and staff, so it"s all our market.

You sound like me in 2008 The reason I"m more conservative now and follow projections more closely is because I almost lost it all being too confident. In 2006 and 2007 I was making so much money I thought I would increase my business even more by controlling the production of my own product. I was literally increasing revenue over 100% year-to-year. Before, I had a third-party company producing my goods, but I thought I could have even better quality control, and make more money, if I manufactured it myself. So in late 2007 I opened my own manufacturing plant. In 2008 when the recession hit my revenue went down 60-70%. For the fiscal year of 2008 I lost $300,000. Not the company. Me personally. That means even a homeless person making zero dollars did better than me. I barely survived 2009. I think I was about 3-4 months away from declaring bankruptcy.

So fast forward to today, and I"m doing fairly well now, this year we are going to make more than I did in my best previous year (2007). The difference now is I"m more conservative about expansion, and I follow industry projections more closely. If I was my 2007 self, I would have already started my distribution company. My 2012 self though is a little more gun-shy, and I want to see how this "fiscal cliff" plays out, also wait until after the presidential election to see how Congress proceeds with out budget. This obviously all ties into my industry projections, because we are slated for 4-5% growth within our industry, which of course is piss poor, even though my own growth is much higher (20-30%). I have very serious concerns about inflation. I think I"m turning into an old man ;p

Izuldan_foh · Sep 26, 2012

Oh and Brutal, what Lyrical said is spot on as far as having a company taking losses. It"s part of the "synergy" I was talking about, and his gives examples.

As a mental exercise, say your company has net revenues of $100,000 you would pay taxes on. Now say you opened a second company, called it a leasing company, and now your second company buys all the equipment and then "leases" it to your main company. Through some coincidence, the amount you pay your second company for the leases is.....$100,000!. So now your taxable income on your first company is zero. Your second company, which now has revenue of $100,000, writes down the cost for the equipment, maybe salaries for your closest relatives, etc......and now it"s taxable income is much less, maybe even zero. So you were just able to divert $100,000 that you would have been taxed on through a second company and now you end up paying little to no taxes on that amount. It"s what I mentioned earlier - it"s better, for tax purposes, to distribute your income across several separate entities than to have all your income tied to a single company.

OneofOne · Sep 26, 2012

Brutul Tarew Marr said:
You hear people say stupid things like "that"s just a write-off for them" talking about businesses losing money or people donating to charity. No one does this nor would there be any benefit to doing it but I hear people say things like this all the time.

I hear this shit all the time - even here in the Political thread, and it just makes me scream inside. "X rich person donated to charity to save on taxes! What a great idea!" AHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH

Shonuff · Sep 26, 2012

Izuldan said:
You sound like me in 2008 The reason I"m more conservative now and follow projections more closely is because I almost lost it all being too confident.

The reason why we dropped off from doing like 900k in sales in my first year to doing not even half of that the next was because I didn"t reinvest. I kept all of my cash sitting in a bank account. I wasn"t taking serious that there were 40-50 companies that popped up out of nowhere; I didn"t see them as a threat. After all, we are the longest-running business in our industry, spanning almost 50 years. There was a major fallout in what we did. A year later, a lot of my established competitors and those 40-50 companies went under. Had I spent more in advertising to make sure I was correctly positioned in our customers" minds as the gold standard, things would have been different. Now that I have radio and billboards up, and they haven"t followed suit, it definitely helps us on bids vs. the competition.

So what happened is that in year two, I lost 100k in four months, things stabilized, then Winter hit and I lost another 50k. I think I"ve smoothed out demand with all of the advertising initiatives we have, and I can track where our customers are coming from.

I want to get back to the days of close to one million in sales. This being a service business, once I get past the overhead of equipment and loans, I"d make 500,000 net on one million. How I get back there, I don"t know. I may start doing television commercials. There are still more companies than there were, and the less established ones whore out their product to the lowest bidder out of desperation. And all the while, they talk shit about us to the customer. With advertising, and direct mailers to our customers, we have more control over our brand. The competitors try to tell our customers we are overpriced, unsafe, or any other myriad of lies so that they can win the bid. I won"t talk shit about another company, if I can"t win your bid by making you trust me and presenting the benefits of using us, I don"t want it.

Cutlery · Sep 26, 2012

Lyrical said:
This thread is about maximizing cash flow, not politics.

It has nothing to do with politics and everything to do with companies shirking their responsibilities to society. Don"t be like Lyenae, bro. You can"t get to the job without roads.

Shonuff · Sep 26, 2012

TheCutlery said:
It has nothing to do with politics and everything to do with companies shirking their responsibilities to society. Don"t be like Lyenae, bro. You can"t get to the job without roads.

OK Obama. You don"t need to tax me at 50 percent to have nice roads.

General Antony · Sep 26, 2012

Lyrical said:
OK Obama. You don"t need to tax me at 50 percent to have nice roads.

No, it"s fairly obvious that they want your taxes simply to give to others who no longer are productive.

Cutlery · Sep 26, 2012

Lyrical said:
OK Obama. You don"t need to tax me at 50 percent to have nice roads.

What are you making this political for? Don"t troll this forum.

Shonuff · Sep 27, 2012

TheCutlery said:
What are you making this political for? Don"t troll this forum.

Just stop. Any further political discussions can go here, where I don"t have to read them .

Cutlery · Sep 27, 2012

Hey, I"m not talking about politics. I"m talking about tax evasion. You"re the one that brought up politics. I think it"s fairly obvious that what you"re doing is unethical at best, and illegal at worst.

That doesn"t have fuck all to do with politics, but nice try.

And you wonder why there"s such a divide in this country between the workers and the business owners. It"s because you feel you have absolutely no duty to conform to the laws and instead do what you need to do in order to prevent complying with them. And you sit here talking shit about workers who feel they only have to show up when they want to.

Fucking el oh el dude.

Shonuff · Sep 27, 2012

TheCutlery said:
Hey, I"m not talking about politics. I"m talking about tax evasion. You"re the one that brought up politics. I think it"s fairly obvious that what you"re doing is unethical at best, and illegal at worst.

That doesn"t have fuck all to do with politics, but nice try.

And you wonder why there"s such a divide in this country between the workers and the business owners. It"s because you feel you have absolutely no duty to conform to the laws and instead do what you need to do in order to prevent complying with them. And you sit here talking shit about workers who feel they only have to show up when they want to.

Fucking el oh el dude.

Please end your unsuccessful derail of this thread. It"s about entrepeneuralism, not trolling or class warfare. If you paid attention, every example I used was how other people dodged taxes illegally. I don"t do any of the stuff they do.

Cutlery · Sep 27, 2012

Truth fucking hurts, doesn"t it? You"re absolutely no better than any of the guys you hire who feel they don"t need to come in to work except when they want to.

Go ahead and justify it. Try. I fucking dare you.

Shonuff · Sep 27, 2012

TheCutlery said:
Truth fucking hurts, doesn"t it? You"re absolutely no better than any of the guys you hire who feel they don"t need to come in to work except when they want to.

Go ahead and justify it. Try. I fucking dare you.

That or you can go on my ignore list. Bye bye. This thread is for people who are interested in being self-employed, I don"t play forum games. And I don"t enjoy discussions on politics at all.

Eomer · Sep 27, 2012

It"s not even about tax avoidance or evasion, it"s about (apparently) how fucked up the US tax code is for small businesses. At the end of the day, if a small business makes X number of dollars, it shouldn"t be a far higher tax rate for the business owner to get the money out of the company than it would be if it was straight salary.

I"m kind of surprised to read about all these shenanigans that are apparently necessary to not end up getting fucked by the IRS. Up here, regardless of how I structure my operating and holding companies and their income, I"m going to pay around 35% as a marginal tax rate by the time the money ends up in my pocket. The difference in the rate between various paths to get the money out of the operating company in to my pocket only vary by a percent or less.

The other stuff like hiding personal expenses within company expenses or writing down inventory, that"s just straight up evasion. Every business owner does it to some extent, but it"s a matter of doing it for a few hundred or thousand dollars, or doing it for far more. We haven"t been audited in 20+ years, and I"d imagine it"s in large part due to the fact that we pay a shitload of tax and therefore don"t set off any red flags. If the CRA came in and did a quick audit, I doubt they"d find much of anything other than perhaps some stuff related to vehicles and gas (my vehicle was paid for personally, however I use my company CC for gas and don"t keep a log book, but I don"t pay myself mileage for company use, so in my mind it"s pretty much a saw-off), and my golf membership. They might ask about our Visa rewards points, which we use personally and should be reported as a taxable benefit as well. If they did an in depth one, I doubt they"d find anything other than the obvious ones relating to vehicles. They might have issue with us not writing business names on restaurant receipts, and our Oilers season tickets (most of which are given to our workers or clients), and that"s really about it that I can think of.

A lot of what we do that"s not 100% above board comes down to the paperwork and tracking being a pain in the ass, more than anything. The rules around gifts are a pain in the cunt. We"d probably have to report the Oilers tickets we give to our guys as a taxable benefit for example, which would ding them and not us.

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