Phil Friedman en Entrepreneurs, Business Coaches & Consultants, Business Writer/Editor | Marketer | Ghost Writer | Marine Industry and Small-Business Consultant • Port Royal Group 11/11/2017 · 2 min de lectura · 1,3K

When Advice to Small-Business Ain't So Great

When Advice to Small-Business Ain't So Great


In fact, all owners and operators of businesses, large and small, need to be careful of following weak or outrightly bad advice. It's just that small-business usually can't tolerate mistakes as well as big business.

"Pay for growth, not more taxes ... Why not use funds you’d normally give to the IRS for 2017 to start off 2018 with some great lead generation and marketing strategies?"

Advice seen recently on Social Media

I recently read an article on Social Media that implied if not said outright that you could pay for expanded marketing efforts in 2018 with dollars you'd otherwise just pay in taxes for 2017.

Well, that is, at best, a half-baked claim.

I don't pretend to be a tax accountant or to give tax advice. However, common business sense tells you that just isn't so.

Not that marketing expenses aren't legitimate business tax deductions. They are.

But a tax deduction saves you tax outlay on the money spent only in the percentage of your effective tax rate.

In other words, if your effective income tax rate is 25%, then every dollar you spend on marketing actually costs you only $0.75 with the Feds absorbing the remaining $0.25 in cost.

However, there truly is no free lunch. Even if an additional $10,000 spent on marketing actually costs you only $7,500, that is $7,500 less Net Profit you will bring to the bottom line.

And you have to ask yourself whether you can absorb that bottom-line reduction and whether that expenditure will generate more profit than the amount you want to spend on additional marketing.

Additional sales volume unaccompanied by increased Net Profit is useless...

Phil Friedman in Small-Business Primer

I've heard it said and read it written that often there is no point in making more money because it will just be eaten up by additional taxes. But unless your effective tax rate is 100%, there is always a monetary benefit to making more profit. Which is why I've always considered that to be just about the dumbest claim around.

Now that I've found the claim you can pay for additional marketing with tax dollars you'd otherwise give to the IRS, I have to admit it is only the second dumbest claim.

Phil Friedman

Postscript: This is an excerpt from my upcoming eBook, Small-Business Primer: Real -World  Tips for Starting and Running Your Own Small Business. For information on securing a copy, email and put "small-business book" in the subject line.

Author's notes:   If you found this article of value, you  might also want to look at some of my other writing about small business operations, management, and marketing:

"Common Myths About Starting Your Own Small-Business"

"Tips for Successful Consulting"

"Net Profit vs Cash Flow"

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About me, Phil Friedman With 30 some years background in small business and the marine industry, I've worn numerous hats — as a yacht designer, boat builder, marine operations and business manager, marine industry consultant, marine marketing and communications specialist, yachting magazine writer and editor, yacht surveyor, and marine industry educator. I am also trained and experienced in interest-based negotiation and mediation. In a previous life, I taught logic and philosophy at university.


Phil Friedman 12/11/2017 · #8

Thank you, @Franci🐝Eugenia Hoffman, beBee Brand Ambassador, for sharing this piece. Best. Phil

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Phil Friedman 11/11/2017 · #7

#6 True, @Gert Scholtz. I think my core point is that there is no way to spend the governments tax dollars without matching them two or three to one with your own money — even if marketing or any other expense involved is, in fact, a legitimate tax dedeuction. Cheers!

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Gert Scholtz 11/11/2017 · #6

@Phil Friedman Your analysis is spot-on, Phil. Spending to save tax is only effective to the extent of the applicable tax rate, and to the extent the expenditure is tax deductible (in this case 25%). The remaining 75% hits the bottom line - at least initially as the extra marketing outlay may have benefits that increase profits. But this would be difficult to correlate with exactitude if the marketing spend is eg, advertising or promotional gifts (not that these don’t have value). I would think that if one applies the extra marketing expenditure in the form of cash benefits/future discounts/coupons as incentive for actual purchases (provided such benefits per product is less than the mark-up per product), then the correlation between additional marketing spend and additional profit would be direct and measurable.

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Phil Friedman 11/11/2017 · #5

#3 The short answer, Charlene, is yes, I am going to talk about that in my upcoming eBook on starting and operating a small business. In the meantime, here is a preview.

Always keep in mind that advice is rarely if ever worth more than you pay for it. Often it is not worth what you pay for it, but almost never the other way around. I know that opinion runs counter to the Social Media ethos that touts a faith in open sharing and mutual help. Well, my experience is that Social Media is a land of virtual (mostly made up) reality, where users constantly create BS personas, backgrounds, qualifications, and purported skills. Not everyone, to be sure. Still, too many not to start out with a healthy dose of skepticism when you are seeking and/or hiring help and counsel. So, what to do?

Do not accept self-acriptions at face value. Instead, look for letters of recommendation (not endorsements in the LInkedIn sense, which are almost all pure BS) from industry professionals and former clients who are demonstrably real and reachable for confirmation. As well, Google the person involved. If he or she has been in business for any significant period of time, there should be entries returned on a net search that confirm this. And insist on a Skype or other tele-conference, in which you can see and assess someone's facial and body language and see how they respond and explain things extemporaneously. There are never any guarantees, but these steps will eliminate all but the most adept con men. And never, ever pay more than a month or two retainer out front. Sure you can lose that, but at least in such case your damages are contained.

Come to think of it, this is good advice for all contracting situations. Cheers!

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Charlene Norman 11/11/2017 · #3

@Phil Friedman thanks for the heads up. I cheerfully passed along your great advice to my peeps. The bigger issue that struck me last night when I read this, and I still don't have an answer this morning is 'advice on the social media' . This is NOT about digital marketers. This is about free speech parading about as real truth. And I am frankly dumbfounded as to how to combat lies and misinformation without getting into a rant, without being seen as irrational, without being viewed as obscure. In the old days, one never bashed the competition because it was unseemly or ungentlemanly. However, I am finding it difficult lately to enter any discourse and keep it neutral and on track with real honest to god factoids. I fear I have to keep pulling out my phone or call people out on their data to prove to me they are right. And in the process am developing a reputation as a pain in the ass for not letting stupid opinions stand. Serious question. Any plans on addressing the "be careful where you get your information from' in your upcoming ebook?

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Jim Murray 11/11/2017 · #2

Digital marketers are mostly ill-informed and full of shit, They have been that way for so long they don't even know it anymore.

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Jerry Fletcher 11/11/2017 · #1

Phil, couldn't agree more. One of my clients is, I believe, the top management consultant and coach in the Pacific Northwest. In his book on Succession he said, " Do not manage your business to minimize taxes. Manage it to optimize profits. Buyers want businesses with a record of growth. That way they believe they are getting a going concern and you will get a higher multiple."

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