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Why is all this Tax Stuff so Important for Businesses?

Any business is only as valuable as the cash it generates. It’s a concept as old as time, and it’s true no matter what “new” economy we happen to be in. Someone might say, “No way, Amazon is worth billions and it operates at a loss.” Yes, but it is worth billions because people can look into the future and see that eventually it will generate piles and piles of profit. “But some businesses are valued on clicks.” Yes, because savvy business people can figure out how to turn clicks into cash, even if it’s not readily apparent at this very moment.

If a business is as valuable as the cash it generates (or will generate, of course), then a business is more valuable if it generates more cash, right? Right.

Now imagine you have a business, and you have a partner. Your partner is silent, meaning they don’t do anything or even offer any useful advice. You can’t buy this partner out, and they don’t offer any investment in your company. In fact, sometimes it seems like all they really do is tell you what you can’t do, and sometimes it seems like it takes forever to get them to give you permission to do anything. We think you will agree this doesn’t sound like the most desirable partner, but there is a big saving grace: Your partner is the one who makes the rules about how much you have to pay them. How is that a saving grace, you ask? Well, if they makes the rules, you don’t have to feel bad about using those rules to pay them as little as possible.

We’re sure you easily figured out that the partner in the above scenario is the government. Before anyone gets annoyed with us, yes, we agree the government does many wonderful things, and we love the roads, the police, the schools, the firefighters, and the other things the government provides, it’s just that it’s not always a great business partner. We believe that there’s nothing immoral about using the government’s laws to pay what is owed, and no more.

There is another, more tangible reason to minimize taxes: Remember when we said that a business is valued based on how much cash it generates? Well, cash that doesn’t go to taxes increases the value of the business. Saving taxes means you have a business that pays you and your employees more. It means you can re-invest and grow your business more easily. And it’s possible that certain businesses that aren’t profitable might be, if we can just figure out how to make their tax liability work. In other words, saving taxes can keep your business running even in tough times, and it can change your operating metrics in such a way that you can make your idea a money maker instead of a money loser.

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