Joe the Plumber

Joe the Plumber should stop his purchase of his future plumbing business.  Whether Joe the Plumber owes money to someone else is irrelevant.  That is his business and no one else needs to know about it nor invest their time as a concern of theirs. 

But as a general business principle I would advise Joe the Plumber to stop the purchase of the business until a more stable tax knowledge time has be seen.  If Joe the Plumber buys a business and taxes increase that would be the same as him being required to pay a higher price for the business but much worse.  If you buy a business for $2MM and the government comes along and raises taxes say 20% due to an increase in general income taxes and other health care and social security taxes you have just increased you cost of business.  If the profit on $2MM is $250,000 and the additional taxes are 10% of gross revenue for wages, etc. then this would be an additional $200,000.  This would leave $50,000 in income.  Then the extra 10% in income taxes.  Well now in essence your interest payings on investment debt wipe out any profit potential.  But at a 10% interest rate on $2Mm you would of had $50,000 per year in net profit but now you are in the hole.  

Others might say well his income is lower.  No.  That is not the way it might work.  Just because you have a gross revenue of $2MM you may be forced to pay the extra amounts in payroll taxes anyways.  Do you really think the extra taxes are going to be born by the one man show.  No way.  So after your purchase you might have to downscale your operations and you are the only one working.  The new law may not be in affect for employees under 20 but the purchase of the company has 25 employees.  Now if you downsize to 20 employees you can just barely afford an income for yourself of $30,000.  The interest expense is eating you alive.  Government changed the rules and you were caught in the middle. 

Good luck Joe the Plumber but my advise is to wait until the November 4, 2008 elections are over and then sign the contract or let the contract go and work for yourself. 

One rule of thumb is in the construction trades you will be making more money if you are working for yourself and have no employees until somewhere after you have over five employees.  And having five employees or more only guarantees headaches and in no way does it ever guarantee a profit. 

Beware if the final word.  If you think employees are expensive wait until the government shows you their bill.  They also want to get paid before or at the same time you will be paying your employees.  Beware.


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