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Comment by lukas099 | Hacker News Reader

> The median small business has average daily cash outflows of $374 and average daily cash inflows of $381

Someone help me understand. Does this mean that small businesses make $7/day or $2555/year on average?

Yes, after paying salaries, owner distributions, etc. There isn’t much incentive for small businesses in the US to keep excess cash in the company.

Also there is the liability disincentive. If you have cash in the company, then it's an asset of the company that can be taken via lawsuit. If that cash is paid out to shareholders via dividends, then there is no company cash to be seized via lawsuits.

Silly question but I think a valid one. Do small businesses include contractors? In the UK contractors are required to form a Ltd, thus all incoming is also outgoing (tax, VAT, salary, dividend, expenses)

If that is the case, the $7 make sense. I only leave a small capital in my company £5-7k for expenses/surprises by HMRC (aka IRS).

>In the UK contractors are required to form a Ltd, thus all incoming is also outgoing (tax, VAT, salary, dividend, expenses)

I don't think they're required to do this.. certainly it's possible to work via a brolly. Public sector clients have started asking some contractors to do this post-IR35.

Whilst I know agencies have their own policies on this, do you know of any legal reason why companies wouldn't be able to work with contractors who are self-employed for tax purposes (/instead/ of operating via a Ltd company)?

Obviously in most circumstances it's a really dumb idea to operate as self-employed instead of via a Ltd company.

I've been contracting in the UK for "a while". The last couple of years the gov was pushing the IR35 agenda to increase HMRC revenue, making contractors "super expensive employees without benefits". This year majority of the calls I got were within IR35 (no more Ltd) or Umbrella.

Up until 2019 vast majority of calls/contracts offered to me (in the IT Audit/Risk/Security, GRC areas) were Ltd. I guess large Financial Services companies enjoy the 2mil liability insurance. Because if little-me messes up, their will get jack-shit :) It was also making the "contracting for a project and not an employee" scenario.

Which is one result of near-zero interest rates.

Even in a world of non-zero interest rates, there's little reason to store money in corporate accounts instead of shareholder's.

These are small businesses, though. Presumably nearly all of them have no shareholders (at least not the same way large corporations do).

Uh, no. If the business is a corporation then it has stockholders, and if it's a small business (meaning probably not interested in being a high-growth company) then it's likely letting all of its earnings pass through to the owner(s) as salary and distributions.

All the more reason not to keep cash there. The way US corporate taxes work, if you keep cash year-to-year in the business itself, you get taxed on it - And then you get taxed again when you disburse it to yourself.

Remember this the next time you hear a talking head complaining that corporations pay zero taxes.

Laughs in bankruptcy

Taken as a unit or class of businesses that's true. But the individual picture... I think JPM has taken the median of outflows, and the median of inflows - not the median of margins.

I can't say from the report, but I wonder if business margins are partitioned into (a.) positive and above $7/day, and (b.) negative margins (for those businesses heading into the 9-12% of business exits per year).

On the other hand, the report also says that inflows and outflows are highly correlated, so the variance in margins away from $7/day must not be too high.

This is their increase in cash, not what they make. A mature business usually has a cash reserve, and all profit is paid out to the owner.

Example: Let's say you own a bakery. Rent is $3000 per month. You pay someone $3000 in salary, $3000 in utilities, and $3000 a month in ingredients. Your total sales are $24000 a month.

The reserves of the business are $20,000 which you consider to be sufficient. As the reserves are sufficient, you pay out all profits (12,000$ a month) to yourself.

Even though this business is very healthy and profitable, and can easily handle an economic downturn, cash inflow is equal to cash outflow.

Included are payroll, so yes, the majority of outflow is employing people.

I read it as the money left over after everyone, including the owner(s), has been paid. $7/day is the net new wealth generated by the business, so to speak.

If true, doesn't this obviously indicate widespread cheating on reported revenues? Maybe the problem here though is using the median as if it were meaningful.

Another explanation is that a large percentage of business lose money and they drag the median down.

Or it may just be that outflow here include salary or dividends to the owner. In which case there's nothing surprising about it.

Nope, remember a Microsoft counts as exactly one company the same as someones 2k/year side hustle. Further, both are to far from the median to have meaningful impact. So, it’s really just talking the long tail of companies not some sort of meaningful average.

The thing about the median businesses is it’s either a single specific business or the average of 2 very similar companies. In that context a single company making 140k/year and paying out 138k a year in expenses likely mostly as salary for it’s owner/operator is uninteresting.

The median, not the average. But it does seem to be saying 50% of small businesses make less than $7/day. Maybe this is after paying the owner a salary?

Outflows include owner distributions, which may be in addition to salary.

That median is also about 140k revenue based on the inflow, so take it for what it is

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