Had a great conversation with a new friend last night. It is a relatively common conversation in my world. I know about XYZ and want to start a business, but don’t know anything about business. So what do I do?
I love these conversations because it is always at this beginning stage that all the best ideas, passion and creativity happen. It is so much FUN to be invited to be a small part of the process.
They always come with varying levels of being overwhelmed. They may have read about the difference between corporations and LLCs. They know someone who has done payroll and talked with that guy about how to do that. They know they don’t want to get screwed on taxes, but don’t know what they might owe or when or how.
This is my other favorite part of this stage. Because I get to take all that worry off of them. Not because I do it all for them (which I can do), but because 9 times out of 10, I tell them:
“Have you started making any money yet?”
“Then don’t worry about”
We way too often let the tax tail wag the dog. At this stage of a business, focus on refining your offering. Focus on getting that offering in front of people and getting them to buy. Focus on refining the offering as you gather intelligence on what people like and don’t like.
Because here is a secret: If you don’t make any money, taxes wont be a problem.
So many people get so focused on not paying any taxes, they make dumb decisions. I constantly have to remind people: Tax rates are marginal. This means that, even at a 45% tax rate, in many cases you can end up with more money if you just pay the taxes and keep what is left. Never spend money to avoid taxes. Because spending isn’t marginal. You loose 100% of the dollars you spend. You will likely only lose 30% to 40% on taxes.
So, don’t let the tax tail wag the dog!