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ceengland(at)bellsouth.ne
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 Posted: Fri Feb 02, 2007 6:08 pm Post subject: Price Increase Rant |
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Chuck Jensen wrote:
| Quote: |
--> <retasker(at)optonline.net>
Uuum, not that I disagree with the gist of what you are saying, but what
makes you think that a small business must make more than 10% to stay in
business??? Profit is what is left after all expenses - including
salaries for the owners, etc. As long as a business breaks even after
all expenses it can stay in business as long as the owners want it to.
A not unusual method of operating a small business is to make sure there
are no profits at all. Distribute any potential profits to the owners
and employees as salary and/or bonus and the profit disappears. No
profits and the business pays no taxes!
WARNING: Your delete key is just to the right of your return key.
Dick,
The reason a 10% profit is an absolute minimum for a business (20%-30%
is actually needed) is, at that rate of profit, you will never be able
to pay back the investment, be it to yourself or an outside investor.
You can get 5.5% on a CD with NO risk. If you put $250,000 into starting
a business, you deserve 10%-15% return on your money for taking on such
a high risk investment. Since 7 of 10 startup businesses fail in the
first three years, where are the 7 people who lost $250K each going to
recover their investment. The only avenue of recovery is the 3 that are
successful must make enough profit to pay back the money lost by the
other 7 (even if it goes to themselves and not the other seven losers).
Even then, if all the 3 did was make back the total investment of the
10, then that's a breakeven situation--which is not justification for
the investments ever being made in the first place. A business must be
able to pay back their investors (even if its yourself), organically
generate excess cash for expansion and build a cushion for the
inevitable business setback, and so forth. 10% ain't even close to
doing the job.
Of course, if the owners/managers/employees drain the company of its
profit by paying themselves inordinately high wages, then all they are
doing is fooling the owners or themselves. Part of the problem in this
discussion is the definition of "profit". First of all, there are
several definitions of profit including those for tax accounting and
those for GAAP accounting, and even those are subject to a level of
manipulation beyond belief. There are scads of companies, small and
large, that were profitable every year of their existence...and they
went bankrupt. That's why Don Trump said "Cash is King" as he was
headed toward bankruptcy (and didn't have any). For start up to mid
sized companies, survival depends on cash flow, not profits. On the
other hand, there are scads of big companies that are unprofitable every
year and yet they stay in business (think USAir, Delta, GM, Ford, et
al).
In closing, I would say that your definition of a business is not really
a business at all....that's just self-employment. If you have a small
investment, there is very low risk of failure, you pay yourself a
going-wage and you 10% leftover, that's great, but what you describe is
not an ongoing enterprise or business if all you are doing is paying
yourself.
Anyone that thinks starting a company or running a small to mid sized
company is a get rich quick scheme--has obviously never done it.
Chuck
I say again:
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Percentage of revenue is a meaningless measurement. Many high volume
businesses make huge profit percentages with only 1% to 2% margin.
Percentage of *investment* (weighted by risk factor) is the number that
matters.
If there's $300Billion of investment, I've got no problem with their
profit. If there's say, $75Billion in investment (and I'm not talking
about stock price but actual investment in assets), I might have a real
problem with $37Billion in profits on a commodity that really isn't
optional in our society.
Charlie
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cjensen(at)dts9000.com
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| Posted: Sat Feb 03, 2007 4:39 am Post subject: Price Increase Rant |
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Charlie,
In reading your message, I can say with certainty that I agree with
you...or you agree with me, whichever, but we are in agreement. The
size of the investment and degree of risk is what determines a 'fair
return on investment', not the amount or velocity cash that flows
through one's books.
The idea that Exxon is a $377B company is ludicrous, as is their profit.
Buying a barrel of crude for $55 and selling it 15 seconds later for $56
is just a transaction, not real business. It does not add $56 in
enterprise value and entitle you to a $5.60 profit (10%).
Before everyone got hung up on 'free markets' being sacrosynct, they
used to call it gouging or marketeering, or monopolistic pricing,
collusion and miscellaneous other perjorative terms applied to the
behavior common among oil companies. Even though there are several oil
companies, anyone that doesn't think there isn't collusion going
on---even if they don't meet in a room on Thursday night to plan things,
the fact is they are all equally motivated to cut the legs off of the
public, not each other.
Now, I am not anti-free markets, but I am anti-free for all. Government
should govern with the absolute lightest touch possible, but to be
totally hands off is to allow the worst tendencies of individuals and
companies to prevail. I guess you would call me a quasi, free market
advocate....whatever the heck that is.
Thanks,
Chuck Jensen
Diversified Technologies
2680 Westcott Blvd
Knoxville, TN 37931
Phn: 865-539-9000 x25
Cell: 865-406-9001
Fax: 865-539-9001
cjensen(at)dts9000.com
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Terry Watson
Joined: 09 Jan 2006
Posts: 290
Location: Seattle, WA USA
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| Posted: Sat Feb 03, 2007 9:22 am Post subject: Price Increase Rant |
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Chuck,
I certainly would not call you a free market advocate. You would let the
rest of us be free in our dealings with each other, as long as the results
were what you wanted -- the products you want at a price you consider
"fair", whatever that means, and most likely a minimum wage that would
support a family of four at a comfortable level (just guessing there.)
A free market is one that allows individuals, groups and corporations to
make whatever agreements and arrangements they find mutually to their
benefit, without force or fraud. Some industries require huge investments.
Have you priced a double-hulled supertanker, an oil refinery, an off-shore
oil rig, or a pipeline lately?
OPEC is an oil cartel that has been trying to establish a minimum price for
crude oil for decades, and they can't make it stick. Some country is always
undercutting their price.
By definition, when a government attempts to regulate or even influence a
market, it distorts it and forces someone to pay more for a product than a
free market would, and favors someone else. California wants to prohibit
incandescent lights to save energy. That will be a real windfall for
electricians who will be replacing maybe 99% of all the dimmer switches in
the state because they won't work with fluorescent bulbs, the current
favorite technology.
My condolences to all of you who missed the program on PBS last night about
the life and ideas of the late Milton Freidman, a man who may have done more
to improve the lives of people on the planet than anyone else who has ever
had an idea. One crude summary of his work would be "free minds and free
markets."
Sorry guys, but one rant begets another rant.
Terry
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jpl(at)showpage.org
Guest
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| Posted: Sat Feb 03, 2007 10:26 am Post subject: Price Increase Rant |
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I believe in free markets. I also believe it was criminal for the
Republicans to give Big Oil a tax handout a couple of years ago.
I also believe it's a crime when our energy policies are written by
Big Oil, or when Big Oil takes steps to hold back alternative forms
of energy.
They can have their profit. I don't care. Just don't give them
handouts and don't let them tell us we can't pursue alternative energy.
-J
Do not archive
On Feb 3, 2007, at 11:21 AM, Terry Watson wrote:
[quote]
Chuck,
I certainly would not call you a free market advocate. You would
let the
rest of us be free in our dealings with each other, as long as the
results
were what you wanted -- the products you want at a price you consider
"fair", whatever that means, and most likely a minimum wage that would
support a family of four at a comfortable level (just guessing there.)
A free market is one that allows individuals, groups and
corporations to
make whatever agreements and arrangements they find mutually to their
benefit, without force or fraud. Some industries require huge
investments.
Have you priced a double-hulled supertanker, an oil refinery, an
off-shore
oil rig, or a pipeline lately?
OPEC is an oil cartel that has been trying to establish a minimum
price for
crude oil for decades, and they can't make it stick. Some country
is always
undercutting their price.
By definition, when a government attempts to regulate or even
influence a
market, it distorts it and forces someone to pay more for a product
than a
free market would, and favors someone else. California wants to
prohibit
incandescent lights to save energy. That will be a real windfall for
electricians who will be replacing maybe 99% of all the dimmer
switches in
the state because they won't work with fluorescent bulbs, the current
favorite technology.
My condolences to all of you who missed the program on PBS last
night about
the life and ideas of the late Milton Freidman, a man who may have
done more
to improve the lives of people on the planet than anyone else who
has ever
had an idea. One crude summary of his work would be "free minds and
free
markets."
Sorry guys, but one rant begets another rant.
Terry
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Terry Watson
Joined: 09 Jan 2006
Posts: 290
Location: Seattle, WA USA
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| Posted: Sat Feb 03, 2007 1:01 pm Post subject: Price Increase Rant |
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I'm not sure if "criminal" is the right word, but I would certainly agree
that subsidies distort a free market in ways that are virtually always bad
for us in the long run and usually in the short run. You dilute the strength
of your argument significantly by blaming it on the republicans. The way I
see the problem is that we have allowed government to become powerful enough
to take from the many to give to the few when it meets the personal needs of
an individual or group who has at least for the moment the power to reward
friends and punish political enemies. From my perspective the republicans
used to have a better record than the democrats of keeping their hands off
my life, but after they had their moment in the sun it's a lot harder to
distinguish between the two. We have such a tangle of oil subsidies, farm
subsidies, ethanol subsidies, nuclear subsidies, sugar price supports,
school lunch programs, school breakfast programs, and import restrictions to
name a few, plus the various other groups clamoring and muscling their way
into our pockets that it's absolutely amazing that market forces still find
a way to keep us fed, housed, and relatively free and happy. When we look to
the government for everything that we are not able or willing to pay for, we
end up competing in our skill at begging rather than our skill at producing.
We pay AOPA and maybe the EAA to defend us against others' wants and then to
plead, threaten or beg for ours. Charlie talks about advocating for cancer
research which certainly seems to me a worthy cause, but is it a better
cause than any or all the other causes that compete for the same dollars?
Would more lives be saved if it were spent some other way? Look at the
millions of lives lost to malaria because of the pressure of the
environmental community to ban DDT.
As for alternative energy, I am unaware of any way "Big Oil" is or even
could hold it back. Alternative resources or technologies are the limit on
monopoly power. There is a price at which any commodity becomes less
attractive than an alternative, even if that alternative is doing without as
in the case of purely luxury goods.
When a market is free, WE individually choose where our money goes. To the
extent that it is not free, we have less to say about what we get for our
efforts.
Terry
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etekberg(at)gmail.com
Guest
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| Posted: Mon Feb 12, 2007 8:16 am Post subject: Price Increase Rant |
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Wow, nicely summed up. I couldn't have said it better myself. For some reason, most people have a hard time understanding this. I'm surprised at the number of people who "get it" on this list. I guess it says a lot for the intelligence of people who build their own plane.
-Eric
do not archive
On 2/3/07, Terry Watson <terry(at)tcwatson.com (terry(at)tcwatson.com)> wrote: [quote]--> RV-List message posted by: "Terry Watson" <terry(at)tcwatson.com (terry(at)tcwatson.com)>
I'm not sure if "criminal" is the right word, but I would certainly agree
that subsidies distort a free market in ways that are virtually always bad
for us in the long run and usually in the short run. You dilute the strength
of your argument significantly by blaming it on the republicans. The way I
see the problem is that we have allowed government to become powerful enough
to take from the many to give to the few when it meets the personal needs of
an individual or group who has at least for the moment the power to reward
friends and punish political enemies. From my perspective the republicans
used to have a better record than the democrats of keeping their hands off
my life, but after they had their moment in the sun it's a lot harder to
distinguish between the two. We have such a tangle of oil subsidies, farm
subsidies, ethanol subsidies, nuclear subsidies, sugar price supports,
school lunch programs, school breakfast programs, and import restrictions to
name a few, plus the various other groups clamoring and muscling their way
into our pockets that it's absolutely amazing that market forces still find
a way to keep us fed, housed, and relatively free and happy. When we look to
the government for everything that we are not able or willing to pay for, we
end up competing in our skill at begging rather than our skill at producing.
We pay AOPA and maybe the EAA to defend us against others' wants and then to
plead, threaten or beg for ours. Charlie talks about advocating for cancer
research which certainly seems to me a worthy cause, but is it a better
cause than any or all the other causes that compete for the same dollars?
Would more lives be saved if it were spent some other way? Look at the
millions of lives lost to malaria because of the pressure of the
environmental community to ban DDT.
As for alternative energy, I am unaware of any way "Big Oil" is or even
could hold it back. Alternative resources or technologies are the limit on
monopoly power. There is a price at which any commodity becomes less
attractive than an alternative, even if that alternative is doing without as
in the case of purely luxury goods.
When a market is free, WE individually choose where our money goes. To the
extent that it is not free, we have less to say about what we get for our
efforts.
Terry
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