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 P R O F E S S I O N A L . . . C O N T R O L L E R S

 

    A Brief Economics Lesson    © 1999

by Adrian W. Hollander, C.P.A., CISA, CIA, CBA, CFSA,
President of COMPLUS Inc. – Professional Controllers

 

Business is color oriented -- GREEN (not black or white).  We are making buying decisions more and more on the “quality” of the product rather than simply personal relationships.  The “old-boy network” is disintegrating (and rightly so) -- partly because of investigative journalism.  Relationships do count, though.  Tie scores do go to my friends, but it has to be at least a tie.

 

Providers of whatever a business buys: material, labor, plant, equipment, operating supplies, professional services, etc., expect to be paid.  Business needs capital to operate.  There are 3 categories and each has a cost:

  • Revenue           -           The cost is performance.
  • Debt                 -           The cost is repayment plus a rental fee (interest).
  • Equity               -           The cost is CONTROL.

If you’re an entrepreneur, which would you prefer?

 

Government is an expense.  We should not depend (long-term) on government as a revenue source.  One of the hallmarks of the US culture is self-reliance.  We are proud of being able to make our own decisions.  From the point of view of business, sales to government might be a “bootstrap,” but they should not become “the boot.”  From the point of view of customers, for government to tax away so much of what we earn is an insult.  That means that government does not trust us to make good buying decisions by ourselves.  “Dependence” on government is a bad idea.

 

As the costs of transactions declines, the average size (number of employees) of business units shrinks.  Big business revenues may be increasing, but their employee head-counts are decreasing.  New technologies are changing the nature of jobs, and who employs the people, now several times in one lifetime.  Performance of tasks that formerly required several employees can now be bought from a service vendor at a fraction of the old cost.  According to the Chicagoland Chamber of Commerce, about a year ago, there were almost 300,000 businesses in the Chicago metropolitan area.  Approximately 275,000 had less than $1 million of revenues/each.  The 10,000 largest companies (with $20 million to several billions of revenues/each) accounted for only about 1/2 of total employment.  Selling to small business is big business (and getting bigger).

 

Applying a little reverse psychology, here’s a recipe for economic depression. 

  • Buy from strangers.
  • Sell to our friends.
  • Pay 40% of revenues in taxes to government.

My goodness, isn’t that what most of us are doing?

 

 

 send e-mail to: AHollan700@aol.com

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