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You’re the Boss Blog: Higher Taxes? They Make This Owner Want to Hire More Employees

January 9, 2013 by Leave a Comment

Jed Horovitz, left, with employees: Laura Pedrick for The New York Times Jed Horovitz, left, with employees: “If you’re making money and paying taxes, it’s a good thing.”

The Agenda

How small-business issues are shaping politics and policy.

Beginning in November, just after the election — and a thorough debate over how higher taxes might affect small businesses — we started inviting readers to share the intimate details of their businesses’ financial conditions. We are particularly interested in exploring the relationship between income taxes and investment.

Now, with a “fiscal cliff” deal in place that preserves tax rates for most Americans but raises them for the very wealthy, we present the first of what we hope will be a series of small-business tax profiles — posts that look at how tax policies affect specific businesses. Our first owner, Jed Horovitz, believes — contrary to the claim advanced by many small-business owners — that higher taxes encourage more investment. He made this point in a comment to our October examination of claims Mitt Romney made at the first presidential debate. (We have sought owners with differing view points through such organizations as the National Federation of Independent Business and the S Corporation Association, both of which strongly opposed any income tax increase.)

THE OWNER AND HIS COMPANY Mr. Horovitz, 62, is president and chief executive of Internet Video Archive, which supplies streaming film trailers to the Web sites of 85 clients (including, as it happens, The New York Times). The company employs 19 people and is based in Haddon Heights, N.J., near Philadelphia.

THE FINANCIALS Mr. Horovitz estimates that the company will have $2 million in revenue in 2012. Its biggest expense — or investment — is employee salaries: about $1.1 million, he said, which does not include Mr. Horovitz’s pay. (He said he took his own payment as a draw of profits from the company, which is organized as a limited liability corporation.) To do much of its work, the company uses cloud computing. Storing videos and delivering them to clients in 2012 cost about $200,000. Leased software and other Internet services costs came to $100,000. Given this reliance on Internet-based services, capital expenditures on hardware and owned software was just $50,000. Sales and marketing expenses were $150,000. Rent and other office expenses amounted to $100,000. Insurance and legal costs were $50,000.

Those expenses totaled about $1.75 million in 2012, leaving Internet Video Archive with a taxable income of about $250,000. However, Mr. Horovitz owns the company’s building, so the rent it pays goes to him. And his wife draws a salary as the company’s director of marketing and communications. All told, Mr. Horovitz expects his taxable income will reach $450,000 to $500,000.

THE TAX BITE For the past few years, Mr. Horovitz’s household income has landed him in the top two tax brackets. “My effective rate has been 25 percent,” he said. Using the Tax Policy Center‘s ever-useful Tax Calculator, we can estimate how much federal tax he would pay in 2013, assuming his (and his company’s) financials do not change a lot. If the Horovitzes take a standard deduction off income of $450,000, then according to the Tax Policy Center calculator, they will pay $121,576 under the newly enacted American Taxpayer Relief Act, a few hundred dollars more than if the Bush tax cuts had remained in place. (Even though the tax rates remain the same for the Horovitzes, the new law phases out the personal exemptions for married couples making more than $267,200, which adds nearly $3,000 to the couple’s regular income tax liability. However, with the Bush tax cuts still in place, they would also be subject to the alternative minimum tax, which nearly evens things out.)

If, on the other hand, his household income is $500,000 in 2013, he will pay $140,815, according to the calculator, almost $4,500 more than if the Bush tax cuts had remained in effect. “The marginal difference is not very much, especially as a percent of our expenses or income,” Mr. Horovitz said. “Since my particular bracket is right on the edge of this divide, it isn’t that big a push to make me spend or save. If a business is deeply impacted by a tax rate of a few percent, it has other, more pressing problems!” (In fact, the Horovitzes itemize their deductions, which further reduces their taxable income and would presumably result in lower taxes under either situation produced by the tax calculator.)

As far as tax breaks go, Mr. Horovitz said, “I take what’s available.” But, he added, “I don’t devote too much time to it, in terms of planning ahead. My accountant once said to me, ‘If you’re making money and paying taxes, it’s a good thing.’ You don’t want to waste your life figuring out how not to pay more taxes. Spend your time trying to make more money.”

AND THE IMPACT ON INVESTMENT In Mr. Horovitz’s view, small-business owners are being disingenuous when they claim that higher taxes would discourage further investment in their companies. “It’s true if you wait until the end of the year, and you’re talking about the money that’s been taxed, then of course you have less after taxes. But if you spend it before it’s taxed, it reduces the taxes you pay.

“They’re not really thinking long term, and they’re not thinking sustainably,” he continued. “That’s not a very aggressive way of running a business. It’s a timid way of running a business. And I don’t think it’s what they really do — they’re not timid.”

Mr. Horovitz said that he is eager to expand Internet Video Archive because the company is finally able to take advantage of economies of scale. “We’ve just gotten to a tipping point in the last couple years,” he said. “Because our expenses have really been the same, but our revenues were $1.5 million, or one-and-a-quarter million.” Before 2012, when he drew up a budget, he estimated his pretax income would come to about $300,000. “We grew more than I expected,” he said. “I wish that I had come up with more ways to invest in my company over the year. And as I’m doing the budget for next year, I’m planning on spending more.”

In 2013, Mr. Horovitz plans to spend an additional $100,000 to $200,000. “We’re spending more on marketing travel, to reach out and find new customers,” he said. He plans to hire two additional people — “people who aren’t necessary to service the business I’ve got, but to grow the business.” And, he added, “I’ve given people raises because we grew more than expected and I think part of that is their productivity went up.”

Mr. Horovitz said: “People say higher taxes are a disincentive to investment — yes, if this is your last year in business. But if it’s not your last year in business, it’s an incentive to investment.”

If you’re a business owner and an employer, and you’re willing to talk openly about your finances, your taxes, and your investment plans, we’d like to hear from you. Please e-mail The Agenda and let us know you’re interested.

Article source: http://boss.blogs.nytimes.com/2013/01/09/higher-taxes-they-make-this-owner-want-to-hire-more-employees/?partner=rss&emc=rss

Filed Under: Small Business Tagged With: , ,

You’re the Boss: What I’ve Learned From Blogging

June 9, 2011 by Leave a Comment

Paul Downs: “I’m feeling excited about coming to work again.”Laura Pedrick for The New York Times Paul Downs: Getting advice is easy. Executing is hard.
Staying Alive

It’s been 13 months since I started writing about my business, and I’ve posted 60 times since then. I’ve been asked by many people how I got involved with “You’re the Boss.” The short answer: good timing and luck.

I had been a regular reader of the blog since it was introduced. In December 2009, with my company weeks from running out of money, I started searching the Internet for blogs dealing with business failure — and found nothing useful or compelling. All of the business journalism I came across had the same focus: stories about success, often after struggle but usually describing it as the inevitable reward for hard work and good ideas. There was nothing that described the experience of business failure in depth and at length, especially involving regular Main Street businesses.

After a particularly bad day, I sent an e-mail to the editor of this blog, asking if the Times would be interested in a failing business — and offering to document what I expected would be our company’s imminent demise. I heard nothing for two months, during which I laid off many of my people, continued to struggle with my partner and came very close to running out of money.

But in February 2010, I got an e-mail back from the Times, with an apology for the tardy reply. The e-mail said the idea was of interest and asked what exactly I intended to write about. The difficulty of keeping a business alive, I replied — and I offered a list of subjects that had bedeviled me, including cash flow, employee problems, partner problems, the crumby economy, and plenty more. By chance, I had to be in New York the following week, so I arranged a meeting with the editor.

I told him my story, and he thought it had potential. He had been thinking about adding a struggling business to the lineup, and we discussed how it might work. I offered to write the posts anonymously, because I wanted to be free to write candidly about my experiences. I also wanted to demonstrate that I wasn’t trying to get publicity for my business. (I believed then — and continue to believe — that there is almost no intersection between this blog’s readers and my clientele.) The Times wasn’t interested in anonymous posts, but the editor did ask me to write some sample posts.

I went home and in seven days wrote 10 posts that wound up forming the basis of my blogging: the first group about the history of my company, followed by a series of posts on one harrowing week: My Week In Cash Flow. And then, in March and April last year, my business started to turn around, and my focus turned from the demise of my company to the many difficult issues I confront in running it.

I haven’t found the writing to be difficult. Much of my day at work is spent composing, mostly e-mails to clients or my staff. I write the blog posts at home, generally after a stiff drink, usually starting about 9:30 at night. Some weeks the words flow without much effort, and other weeks it’s like pulling teeth. The average post takes me two to three hours to write. They usually get a good reception from the editor.

Blogging has been useful for me. Describing my problems in writing, in a widely read forum, has forced me to identify the primary issues in each situation and to prioritize which are most important. Almost everything I write about is more complicated than a 1,000-word post can cover, so I first write down everything I can think of on a given subject, and then I whittle, whittle, and whittle some more. Problems and the factors that affect them fall into several categories, only some of which can be discussed publicly:

1. Things that are common to all businesses (accounting, taxes, health insurance).

2. Things that are different for different kinds of businesses (production, marketing, corporate structure, employees).

3. Things that are very risky to write about (problems that might affect a potential client’s perception of the business).

4. Things which should not be made public (the particulars of individual employees personalities and actions).

My strategy has been to use the particulars of running a small factory to try to illustrate how I deal with problems common to all businesses. This is somewhat limiting, but in the wonderful new world of Internet journalism, the commenters can offer different perspectives on how these issues play out in different situations.

Surprisingly, writing the blog has had little effect on my life, other than adding an interesting line to my résumé. There are no groupies, no speeches, no book deals and no income stream comparable to my regular salary. Most of the people I know read the blog occasionally or not at all. My new part-time gig did give me a boost in self-confidence at a rocky moment — at the end of 2009, I was seriously contemplating what my life would be like if I had no job nor workplace to go to. At least I can write, I figured. But I’m glad I still have my day job.

From a business perspective, blogging has been an incredible education. I have exchanged e-mails with more than 100 readers, which has been interesting. And then there are the commenters, who have provided an enormous amount of useful, and sometimes distressing, feedback. Thank you all for taking the time to chime in. In a nutshell, here’s what I’ve learned from commenters:

o Ask questions, and you will get answers. So if you are in a tight situation, the first thing to do is find a way to ask for help. Anyone with Internet access can find advice, fast, on almost any kind of issue. Industry-specific forums are extremely useful, but the important thing is to seek advice actively, as opposed to simply digesting what’s already out there. As I said before, the act of writing a problem down will help you clarify it in your mind.

o A question’s format affects the relevance of the answers. Ask general questions, and you get general advice. Ask specific questions, get specific answers.

o I can tell which commenters have been bosses, and which haven’t. People who have never run a business are often ignorant of the type of problems that owners encounter.

o Getting advice is easy, executing it is hard. Particularly when you’re stretched thin, it can be tough to implement change in a struggling organization.

Next: The Best Comment.

Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside of Philadelphia.

Article source: http://feeds.nytimes.com/click.phdo?i=ebcd9a568002d8fea83a27c9fe642035

Filed Under: Small Business Tagged With: , ,