quick idea – a tax policy that supports high-growth small business

one of the biggest things i’ve learned over the last 2.5 years growing kettle & fire 300%+ per year is the importance of cashflow… and how growth can actually kill you when you’re dealing with a physical product.

in our case, we were bootstrapped for the first 15 months of the company’s history, and were growing like crazy. every month we had record sales growth, we’d also have less money in the bank than at any point in history.

this problem is not unusual in fast-growing companies with physical products, and is made worse by moving into retail, having long lead times… all things K&F certainly has. grow like crazy -> re-invest into larger and larger production runs -> have less cash on hand than before crazy growth started.

this problem is made worse by the fiscal year ending. under current US tax policy, we can invest $1mm to build up inventory in advance of a big sales month in January. that’s cash out the door.

yet, we can’t recognize ANY of that $1mm as an expense until we actually sell the product, which happens in January. and to make things worse, we’ll end the year (and be assessed taxes) at a time when we have 1mm tied up in inventory that we can’t count as an expense.

in essence, we’re paying taxes on annual profits at a time when – if growth is strong – we will have less money in the bank than pretty much ever before.

i’d love to see a tax policy that reflects that. rather than paying taxes on profits (regardless of cash considerations) at the end of the year, there’d be a carve-out where companies that met certain criteria – say, less than 100mm in revenue growing 50%+ per year – can pay 105% of their assessed tax liability a year after they are supposed to pay taxes.

this effectively allows small, high-growth businesses to finance part of their growth at 5% interest rate using their own cashflow, which allows them to grow faster and (eventually) pay more in taxes.

just a thought, but one that could be meaningful for quite a few companies out there.

One response

  1. Another angle, more true to the spirit of US capitalism, would be a bank or investor that will loan you tax money at a reasonable interest rate if you can prove those qualifications!

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