Tag Archive: finances


Scenario 1:

Let’s say I have a great idea for a business. I want to give it a whirl, I’ve secured appropriate funding (investors and loans), and I am gonna make this thing happen!! I open my business and things are going GREAT! Things start going downhill, and then I get into trouble, financially. I try to sell the business, but no takers. I am done for. The bank and investors get all their money, but I’ve lost the business, my house, my savings, and my family and I are destitute and homeless.

Scenario 2:

The same scenario, except this time, I incorporate, in other words, I become a corporation. This means that I have some protections when going into business. If things go bad, the bank and investors get everything, except my personal stuff. Imagine things go downhill in this scenario. Several things can happen. I can still try to sell the business to someone who thinks they can make it work. If that doesn’t work, I go under, the bank and investors take ALL the business assets and I have to walk away, jobless, without an income, but my family and I are not homeless on the street. If I had 6 months savings, for just in case I lost my job, the bank and/or government can’t take that money. So, I don’t have to go on welfare or whatever, I can look for a job before my savings run out.

Scenario 2 is better for me, better for my family, and better for the country. If everyone whose business went under had everything taken away from them, there would be a ton more people on the public welfare rolls. This is BAD for everyone. Also, without these legal protections, why would anyone take the risk of starting a business? And, small businesses (having under 50 employees) provide 68% of the jobs in America. If no one started businesses, all those other people would be out of luck. It just makes sense to have legal protections that separate business from personal funds.

So, what are corporations? They are people who have legal protections against being destitute. That’s pretty much it, in a nutshell.

Saying that corporations are not people is like saying that workers are not people because they are a group. “Workers” are make up of people, and so are corporations. This business about corporations being people is only an issue because people don’t know what it means to incorporate. Businesses are run by people And, they aren’t wizards behind curtains, either. All the info you need about a corporation is public information. Take advantage of that, and dispel this idea that corporations are run by faceless, nameless entities. Nope. They’re run by real people, just like you and me.

Profit? Or Profit MARGIN?

(Note: this post was co-authored by my beloved husband, Kristian Carter.)

Here’s the deal…when discussing how much businesses make, there is a HUGE difference between how much profit they make and what their profit margin is.

 

However much a company makes (call it Widgets, Inc.) is called profit. This is just the total amount of money this company makes by selling widgets. Inventive naming, I know. 😉

 

BUT, there is a column next to the “income” column that most businesspeople detest. It’s, in simplified form, “money we have to spend to operate this business.”  This column* contains all of the costs associated with that company: labor, raw materials, rent, utilities, etc. Yep, they have to pay money to make widgets!! You’d think this would be a no-brainer, but most people talk about profits, not profit margins.

 

(*Yes, yes, I know labor is its own column, but I’m trying to keep it simple! Stick with me, here!)

 

Let’s delve into Widgets, Inc. a little more. We find that they have made $3.4 million last year alone! They must be ROLLING IN THE DOUGH, right? Oops, not so fast.

 

They had to pay $4.1 million in costs!! Bummer. Many companies will have some money in reserve or can borrow money to carry them through a period of rough times. However, if business does not improve, the reserves will be depleted, and the company may become too risky for additional loans. Too bad Widgets, Inc. will likely be closing their doors. Their CEO gets no more paycheck (as well he or she shouldn’t…look at those numbers!), people will be fired, and no one gets to buy another widget from them. Sad.

 

If Widgets, Inc. were Apple, people would be ever so slightly ticked, no?

 

So, when discussing how well a business is doing (and for politicians, how much to tax them), think about what happens when the margin is negative. No way to tax a closed company (though, I’m sure they’ve wracked their teeny brains to find a way…).

 

Now, when people discuss the EVIL OIL COMPANIES and their OBSCENE PROFITS!…ask yourself this: what is the profit margin?

 

To get the answer, buy some stock in any company that has anything to do with the oil industry. You will be sad that you will never get rich. They are all almost always on the verge of making no profit margins.

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