Reason #2: Why Everyone Should Be in Business
It would change politics.
Some people think a business can just raise its prices to cover its costs. They believe that increasing the costs of doing business will not affect the bottom line - profit. Increasing minimum wage is an example. Increasing the costs of building supplies for housing is another example.
They seldom think about the buying patterns of people. Given two choices perceived as the same, most people will buy the cheaper alternative. In fact, in home sales, comparative sales will be used as a negotiation tactic. If a new house cost more to build than the similar house built a couple of years ago, few people will opt pay more for the new house.
Insulation is a great example. Building codes have changed dramatically over the years. Few home buyers appreciate the difference between an old home with 2 x 4 studs and a new home with 2 x 6 studs. The 2 x 6 studs will hold much more insulation. Yet, the older home will often sell for nearly the same price as the newer one.
Think about your buying habits or the habits of people you know. Aren’t you looking for deals? Don’t you tell others about the bargains you’ve gotten? If not, you’re an exception.
I’ve known people to go to a furniture store and sit on a couch. The salespeople tell them all about it. Then they buy the couch online to save money. Think about it. How can a business provide customer service when customers refuse to pay for it?
Everybody should be in business and face that reality. Imagine buying a business. A business appraiser once told me that the average business would sell for about 6 times annual profit. Imagine you paid $600,000 for a business making $100,000 per year. That would be over 16% return on your investment.
You want to be a great boss, so you raise everybody’s wages. Your costs go up. You pay more in social security. You pay more in Medicare. You may pay more in workers compensation and unemployment too. How much your costs to deliver your product increase will vary depending on the business. In service businesses, the costs may be a large part of the total price. Will your customers pay the higher price? Will they go elsewhere? Will they refuse to purchase? Will they purchase less?
Imagine that everyone tells you how happy they are that you are paying your employees more, but they actually purchase less. Imagine that your expenses go up and your sales go down. Imagine that after a year your business is only making a profit of $90,000 per year. Now you are getting a smaller return on your investment (15%). That’s still not bad you think. In addition, your business is worth $60,000 less.
My point is that being in business isn’t easy. It isn’t just the lucky who succeed. The business owner that can adapt is the one who succeeds. Politicians can make it impossible to adapt. Nobody knows it like the business owner who feels it in the personal wallet. That’s why everybody should be in business.