American Small Business Way

Discussion in 'Money & Finances' started by Frank Sanoica, Feb 6, 2017.

  1. Frank Sanoica

    Frank Sanoica Veteran Member

    Feb 21, 2016
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    My young wife and I took over a going business in Cicero, IL, in 1968, against the advice of those close to us with whom I had commiserrated. One, an old family friend of my Folks, who had operated successful "Mom & Pop" produce stores, strongly advised against it. "Beauty Shop"? No, no, big mistake. My wife was only 21, had been licensed as a Cosmetologist in Germany since 15, and had emigrated here at 16. The German license was considered so strong, that she was immediately licensed here. I learned from her that Germany was far ahead of us in skilled-trades training for careers.

    We bought the business, from two young women who had started it five years earlier. They had obviously made money, but being young and frivolous, had reached a no-win circumstance of staying. I believe we paid $5,000 for the going business, which had 10 stations, and 3 employees other than the owners, who also worked the trade. I knew beyond doubt my new wife of 2 years had abilities above and beyond those of most hair stylists. Soon, she was cutting the hair of GUYS! It was then yet unheard-of! Upper-crust moneyed women visiting relatives having come from back East, booked her services 3-6 months in advance. Sue was not really a "people-person", hesitatingly engaging lengthy conversation, having never spoken a word of English 5 years earlier. But, they loved her work, and loved how she coached her employees to achieve similar results.

    We took over in early Nov., 1968, eager to catch the Thanksgiving rush. The place was in a storefront along the old established Cermak Road business district. Our neighboring stores were Dressel's Cakes, and Miles Pancer's Stationery. I had little hand in the day to day affairs, other than keeping the furnace working, the A/C operating in hot weather, and "keeping the books". Therein lies this thread.

    I was 26, gainfully employed full-time, Sue established her own hours, 6 days a week, closed Sun. and Mon. I studied up on the wherewithall of running a self-employed, self-owned business. A few co-workers coached me. My own boss, cagey as hell, and devious, offered to "go in with us". We needed a Federal Employer's ID number. We had to pay Unemployment Taxes based on total revenue income to BOTH the state of Illinois, and the Feds. We had to withhold Federal Income Taxes from the wages paid our employees, State Income Taxes, as well as both of those from TIP INCOME. Then came FUTA, "Federal Unemployment Tax Act" taxes imposed upon US as employers of workers, Illinois State Unemployment Tax imposed upon Illinois Employers in our state, and of course, collected Illinois State sales taxes based on retail sales; she sold various cosmetics and such, but the big one there was WIGS! She styled those damned wigs on styrofoam heads, and they appealed very strongly to those old biddies! Ooops, sorry, but that's how a young man felt!

    Our costs and deductions to run the place: Rent, electricity, advertising, taxes, more taxes, transportation in company-owned vehicle to and from work (what bullshit! Our own car, but legally deductible), maintenance of facilities, DEPRECIATION. All the equipment contained was depreciated annually, including her car. Then came the time to tally-up for the FEDS! And this is what the OP is about!

    We bought a small amount of operating supplies, whatever-all a Beauty Salon uses, plus wigs, used SOME of those supplies on folks' heads, and sold some of them to the customers. NO POSSIBLE WAY of establishing a ratio of "used while providing services" VS. sold to customer. Thus, virtually ALL of such supplies, excluding things like wigs, were a part of used supplies, thus incurring no sales taxes, or other encumbrance. Illegal or immoral? You tell me.

    The "charges for services". "Streaking" $40. Tinting, $30. Hair cut, shaping, "high-styling" extra charges (big back then), these income factors were nebulous. Point is, and I grasped early-on, the immediate value, that ABSOLUTELY NO ONE other than we know anything monetarily pertinent about our "cash-flow". NOBODY knew the dollar amounts acquired for services rendered. The "perfect tax shelter", I thought. Service revenue had a whole new meaning for me.

    IRS regs required keeping permanent records of daily proceeds. We had a manually operated cash register acquired with the business, which printed on paper tape, the record of each daily transaction. Every day, upon Sue closing up shop, I arrived to clean up. The place and the dough. She was perfectly happy to have pocketed her tips, being a hard-working owner, and I counted out the register proceeds, noted any expenses, where receipts had been placed in the drawer for items purchased during the day, carefully reviewed the numbers mentally, then proceeded to ring up a second, fictitious register tape, reflecting obviously less revenue than was obtained.

    What a G.D.'nd scoundrel, eh? But not exactly hating myself, I wondered how such activity was being carried on in large scale. We were small beans. Consider service-oriented Big Business. What degree of honesty existed?

    Bottom line: Clever? Work hard? Capable of providing a service involving NO PRODUCT? Still the best option, IMO, but given today's computer watchdogs, beware! Thanks for taking your time to read through this. It may be of value to some of the young, though we have few, I think. Frank

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