When Advice to Small-Business Ain't So Great
SMALL-BUSINESS OWNERS NEED TO BE CAREFUL OF BAD ADVICE...
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?"
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...
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 email@example.com 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:
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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.
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