Pricing Strategies and LLC Tax Advantages

Business Brain, the Show for entrepreneurs episode 422 for Wednesday, February 8, 2023. Greetings folks and welcome back to Business Brain. Or welcome to Business Brain if this happens to be your entrance into our world. We are the show where we take our business brains and apply them to every aspect of our lives, business, personal life, whatever. Because there's so much to be learned from our business brains and how we all apply them and we can each learn from each other and that's what we love to do. Here we. Yeah, here we are back here in Durham, New Hampshire. Did I ever leave? I don't know.

I'm Dave Hamilton in Lafayette, California. I'm Shannon Jean. We do love to Business Brain out here and we do learn a lot from everybody, from each other and from our guests. We have a great guest coming up in a few weeks in the restaurant business and we've got some great feedback on the bite sized episodes. We've been releasing a couple a week which has been, I would say, pretty successful. Started as an experiment.

Yeah, I don't disagree. I think it's been, it's been going great. We have, we have a great piece of feedback from listener David about pricing products, which is something we mentioned in a recent episode. He says, I've always been a cost plus kind of person. That could be because that's how my dad started this business that he now runs. He says, but to me it makes sense. If something cost me $50 to make, then I probably want to sell it for 75 or 100 or something more than 50. But if the market will only pay $40 for it, then I know that's not something I want to sell. Some might say I'm leaving money on the table if the market was willing to pay 200 for it. But I'd rather be fair instead of gouging someone just because they'd pay for it. This is interesting, especially the first part of it about looking at. And I know this is super simple when we, when he puts it this way, but this idea of look, if it costs you 50 bucks to make it, to produce it, to generate the product, whatever it is, and the market's only going to pay $40 for it. Don't sell it, don't make it, don't sell it, you know that like we.

Involved in that area.

Yeah. Get, get out of that line of business or don't enter that line of business. And I know that this is super obvious when we say it this way, but I also know that it's really easy to get stuck in the minutia of, you know, creating a product and you get emotionally attached to it maybe, and then you're like, oh, we'll find a way to make money from it. And I've, because I've done this, I've been in that world where it's like, well, but if you, you know, I often think I need to be. I either need to hire a consultant for my business or I need to be my own consultant for my business. Looking at it objectively and saying, you're losing money on this. Stop doing it. You know. Yeah, it's that idea of sunk time, sunk costs. You know, we spent all the time develop this, but it's really a bad idea for us to sell it because the market won't pay what we need them to. Don't do it. Move on.

Yeah, I, I have. Yeah. And I, and I, I love the simplification of it. Being able to think like that is important.

That's the business brain part of this, right? Yes.

Because you want to be able to look at your. Especially if you're in whatever business you are. You know, I just had a guy come to my house and quote out refinishing tile floors and he knew exactly what it cost him per square foot, didn't matter what any other variable. He go, the cost is $4 and this and that, you know, and he knew exactly what was going on. Similar to what brilliant what Dave's doing. I have a little different take on it. If your business is varied with lots of different pieces and parts and services, I think there's going to be some of those parts services, whatever that you're not going to make money on. I think it's just the nature of the beast. But you have to balance out things that you are going to hit home runs with that you're going to really do really well on with some things, hopefully not as many that you're going to. I mean, it's that loss leader.

I was just going to say you're, you're describing the concept of a loss leader, the thing that brings people in the door. And certainly if that is the reason to offer it, then there is a reason to consider it. But simply having put in the time to figure out how to do it is not enough. There needs to be a business justification. You got it for, for putting it out there. And if it's a loss leader and you can prove to yourself with metrics that, yes, we're offering this, we're either, you know, either cash flow neutral or cash Flow negative on it. But we can see that, you know, of. Of the. Every 10 customers that I bring in the door with this, three of them will go on to buy within the next three months. Will go on to buy something that we make triple our. Our normal net on. And so, yeah, even when the sale happens. Yes. Yeah.

You may sell like, for example, with one of my previous companies that, you know, eventually phones were just driving the repair business.

Right, sure.

And it was so competitive in the beginning. You could make great money. But it was during this weird time when phones were subs. So people are like, well, the phone's only worth, you know, 100 bucks. You're like, well, actually the phone's like worth 500 bucks. Or now it's a thousand.

Yeah.

And ultimately it became, you know what, the only thing we make money on now is the screen protector we sell you for 20 bucks after we repair the phone. Amazing time to get out of that business. Because it's too much work and too much liability working on an expensive piece of equipment. And the only thing you're making money on is a piece of plastic or glass that you're putting on top of it.

Yeah, yeah.

So, so. But David's right. And being able to monitor it and to your point, Dave, measure it. You have to be able to look at the metrics because, you know, that individual product may really stand out as, oh, we're losing money every single time. But if you can link it to another revenue event where you're making up for it, it may make sense.

Oh, then it makes sense. Yeah, yeah, yeah. And so, David, that enters you into the drawing. For the 2023 drawing for a MacBook Air, he sent his email into feedbackusbrain show. That's where you can send your email in. He. He had another thing I wanted to talk about here, he says, regarding ChatGPT and your recent conversation about how much it's worth, he says, I haven't had the chance to try it yet, but I've certainly heard about it. It would seem to me that some of what it could do would be comparable to a degree to what a virtual assistant could do. I could say to a va, write me up a sales email to send to all of our customers and they could do that in a couple of hours. Or I could ask ChatGPT to do the same thing. How would the results compare? Which would be better? Not having used either. He says, I can't say, but I. If I had enough appropriate work that Chat GPT could do, and it did an adequate job that does raise its value. Says I don't think it would replace a VA yet, but if it could reduce the number of hours that I spent per month on va, if I had one, it might seem like a real bargain at even 50 or $100 a month. I thought that was an interesting perspective, David, especially from someone he's only heard about. You know, how it's, how it can be used. I in reading this though, I had one of these aha moments and I think perhaps we squandered a term, Shannon. Not you and me, but us as a society. This idea of a virtual assistant. You've heard me ramble on the show about how I hate using the term virtual to discuss a real human. We're talking about remote assistance with this chatgpt and it's ilk. Google released, well, did a private beta of their Bard thing which is based on their Lambda technology. And just so all of us have the history, Chat GPT was created by OpenAI after reading Google's white paper that described Google's Lambda engine. So this is not Google's response to Chat GPT, at least not in a fundamental way. This is very Chat GPT is a response to Google's Lambda. But it seems to me that these types of engines might be the thing that we should have called virtual assistants because they are actually virtual. They aren't. Right. You know, I just, I don't know. I have this issue calling little humans.

No, I get it and it makes, it makes sense. And David, I would encourage you to go try it out, use it, sign up for an account. They did land on this 20 per month pro account, which I think is just a bargain.

Oh, I agree.

We've been using it to post. If you go up to BusinessBrain show or even in the show Notes on your podcast app, you'll see an article that's related to the topic that we discussed that time and we're just trying it out and we. The thing I like the way we're doing it is we are tagging it as an AI created article related to this certain topic. And I think that's essential. We're just playing around with it, experimenting it. I want to make it part of my workflow and see if it saves me time. And so far I think it has.

Hey, if you're looking to get money for your business, we've got a show for you. Make sure you tune in to the Business Credit and Financing show hosted by funding expert Ty Crandall. Ty has helped over 50,000 entrepreneurs get capital and during each episode of the show, he interviews industry experts and gurus about how to easily get the capital you need to grow your business and the strategies you can deploy to grow your company faster. Ty covers topics like how to get business credit with no personal guarantee or credit check, how to get money to start a business, and how to get approved for the most money and the best terms. So if you want to tap into business credit and financing to grow faster, visit creditsuite.com and click Resources and then select the podcast. Then choose your preferred platform to subscribe and listen in on previous episodes. Head there now and tell them we sent you to get your free Step by Step Business Credit building blueprint. And our thanks to Ty for for doing this Swap with us. All right, we got another email into feedbackusinessbrain show from listener Jeff who says thanks for the recent episode about LLCs versus sole proprietorships. I have been talking to my accountant who seems to have an aversion to LLCs. In any case, I just wanted to mention that it's common in conversations that I have with folks that they often think there is a tax advantage to having an llc, but there is not. Just might be worth mentioning as that seems to be a common misconception. You know, when I got this, when I first saw this email, Shannon, I thought, well wait, no, no, no, of course there's a. Yeah. And then I paused and I was like, oh no, it's a pass through entity. Yes, it files its own tax return, but it doesn't pay any taxes. It passes through any profits or losses to the members based on their percentage of ownership and then you inherit those through a Schedule K1. Usually if it's organized as a partnership, if it's got multiple members, and then you file that on your tax return, if you have a single member llc, it actually is treated just like a sole proprietorship in most cases. And again, all of what we're saying here comes with the asterisk. Please check with your accountant. Because we are not CPAs and so we therefore cannot give you actual advice, but we can share what we know and what we've experienced. I don't think he's wrong. Like I went looking for all the tax benefits of an LLC and, and there aren't any. I know that there are liability benefits to an llc, which is great. Like, you know, if I, if we, if, let's put it this way, we have an LLC for this podcast. If we give you terrible advice in such a way that you can blame us for it. And you can assign damages to it. You can't. Unless, unless it can be proven that we acted with malice and intention to mislead you, which I can tell you over the years, we certainly have not. We might be idiots, but we're not bad idiots. Well then, then you can, you can't touch our houses. You can just touch the assets of, of the business, which show happens to be called Deals on the Web. Llc. Which.

Long story.

Long story. Yeah, exactly.

Yeah, yeah, it's a good story. We've talked about it here on the show before, but. Yeah, yeah, yeah.

So I. Do you disagree? Because I think he's right. I think.

No, I, I, yeah, I don't, I don't disagree. We were just talking about Chat GPT a minute ago, so I ran it up. The FLAG poll or the Chat GPT poll just to see, you know, first I ask, hey, are there tax advantages to LLC? Well, OpenAI and ChatGPT says yes, there are tax advantages.

And does it give you any specifics?

Well then it says, you know, LLCs are considered a pass through entity, meaning that the company itself does not pay taxes on its income. Instead the profits and loss are passed through to the individual owners who report the income on their personal tax returns, as we've discussed. Then they said this can offer potential tax savings as the owner may be able to take advantage of deductions and lower tax rates. However, it's important to note that the specific tax benefits of an LLC will vary depending on a number of factors, including the number of owners, their respective ownership percentages and the type of business being conducted. And even.

Chad, that's a non answer.

It is a word salad non answer.

That is word salad.

And then of course they tell you consult with a tax professional because ChatGPT doesn't want to give you bad advice either. So I asked, it will expand on this sentence. This can offer potential tax savings, yada yada yada. And again, it kind of gave me this word salad thing. They can take advantage of various tax deductions such as those business expenses that can. Those four business expenses that can reduce your taxable income. But I'm not sure you can't do that as a sole prop. And then ChatGPT falls back to comparing it to a C Corp, which you know, can be taxed twice, once at corporate level and again on the individual level. So I, I would have to agree that it'd be hard pressed to list a few specific tax benefits out of there. Yeah. From that entity. So yeah, I would agree.

Yeah. Yeah. So thank you for that, Jeff. Of course, that also enters you in to the drawing here. So see how easy it is, folks? Feedback at BusinessBrain Show. That's. That's all you got to do. That's all you gotta do.

Love your questions because we get to learn about it. We get to talk, find out what we are right about and, and what.

We were wrong about and especially what we're wrong about. Yeah, yeah, yeah, yeah. Thanks for hanging out with us, folks. Make sure, like we've said many times in this episode. Feedbackrisonsprain Show. Shannon, you. You had an idea about a topic for a future show. You want to tell people what that is? Maybe they can send in some of our stuff.

Next week we're going to talk about this concept of a conversational enterprise working on communicating amongst remote locations. And I have a bunch of questions and I have some things I want to share with you. So I'm looking forward to talking about it next week. If you have comments or questions about communicating remotely with employees, things like that, please let us know. Feedback. BusinessBrain Show.

That's all it is. FeedbackUsBrain Show. We'll say it one last time. Feedback at BusinessBrain Show. Thanks so much for listening, everybody. Stay safe out there and keep living that charm life, eh? See you next time.