H.R.1, aka the Tax Cuts and Jobs Act, passed, and it means some sweeping changes for businesses.

Now I’m not going to comment on the other aspects of the bill, like Health Care, bracket changes for individuals, how much it means to a family of four, and similar. You can find strong opinions on that everywhere online, with the requisite arguing back and forth in the comments.

What I will comment on are two fairly important aspects that will help businesses, plus one of my favorite pieces of the tax code got a nice lift (take a guess what I’m talking about…).

First up is the Corporate Tax Rate, which was cut an astonishing 14%, representing the largest one time cut in history. The new corporate tax rate is 21%, and it’s going to make a big difference to a lot of companies, especially larger companies who employ hundreds and thousands of people. I know it’s popular to rail against corporations, but you won’t find me doing that – they are massive employers, they buy and sell countless goods and services, and if they suffer, the economy as a whole will suffer.

Second is the nod to small and medium businesses. The bill allows owners of “pass-through” companies (which comprises roughly 95% of American businesses – S corporations, LLCs, partnerships and sole proprietorships) to deduct 20% of their pass-through income. This begins to phase out at $315,000 for married couples and $157,500 for individuals. There are also some provisions limiting service based businesses like investment and law firms.

A little commentary, if I may. Again, it’s popular to bash the above as lining the pockets of the wealthy. But if working with small and medium sized businesses has taught me one thing, it’s this: if you allow a typical business owner to keep more of the money the business earned, invariably it will be reinvested in the business. Some do this by buying equipment (and I see a ton of that), others will update their website or their store, still others will move to a better location, and maybe some others will take on a talented employee they could not previously afford.

Contrary to the hype, what business owners by and large do not do is hoard money. They spend it instead.

Oh, and my favorite part of the tax code, Section 179, gets a nice boost, going from $500,000 to a cool $1 million! And the “total equipment purchased” cap is increased from $2 Million to $2.5 Million. Sweet!

Whether the tax bill is good for everyone over the long term is open to debate, but the positive implications for business are undeniable.

Twas a night in December
In an office on a hill
Where the executives all gathered
With their accountant named Bill

“Your taxes are too high”
Said Bill with a frown
We have nothing to claim
To bring the number down

“But what can we do?”
The executive VP did vent
Our profits were strong
And into the bank they went

We were told to curb expenses
So the old equipment we did use
Yes, it needed some duct tape
(that’s how Jim got that bruise)

“I have an idea”
said a voice from the right
The executives turned around
To see an intern bathed in light

We can replace the old equipment now
And here’s the part that’s divine
We can write the entire cost off
Thanks to Section 179

The executives all smiled
So wide they almost burst
But intern continued
“You need to act by December 31st“

The executives took action
A plan they did sketch
All because they listened
To an intern named Fletch

And that’s how I got my start. Ok, maybe the “bathed in light” part is a bit much. But it was a good poem, right? Have a great holiday, everyone. And remember, get those Section 179 equipment purchases in (and operational) by the deadline, which is midnight, 12/31.

See you in 2015!

Thankfully, that doesn’t happen very often, but I have seen times when a company finances an item, receives it, starts using it, and then they find out what they bought isn’t the quality they expected.

This can be a pretty ugly situation for everyone involved, especially if the equipment manufacturer / seller isn’t very responsive. Because here’s exactly what happens:

Let’s assume company A is the buyer, company B the seller, and company C the equipment financing company.

1)      Company A buys an item from company B. They use company C for financing

2)      Company A, after using the item for a while, discovers it’s not what they expected, or it breaks, or whatnot. They call company B.

3)      Let’s pretend for this exercise that company B is not exactly a bastion of customer service. They basically tell company A “tough – it had a 30 day warrantee – we’ll come out and fix it for a fee.”

4)      Company A yells and screams about this. Then they realized they are still making payments on the item. They retort with “fine, then we’re not paying for it”. But they don’t owe money to company B – they owe it to company C.

5)      Company B, having already been paid in full by company C, is unfazed by company A’s threats.

6)      Company C, who is out the money and is now not getting paid by company A, must clean this mess up. And, if they are anything like my company, they have airtight language in the finance deal for this very situation.

Here’s the end result – company A will certainly have their credit rating damaged, will lose the equipment, and may even get sued in collection court (a lawsuit they will almost certainly lose). Company B’s reputation is damaged. And company C (or any other finance company) will never deal with either one again.

Nobody wins. In fact, company A loses hard. When you borrow money from an equipment financing company (or the bank, for that matter), you have to pay it back, even if the equipment isn’t what you expected. The legality of this is clear.

So when you are looking to finance or lease equipment, make sure what you are buying is of sound quality, and the company you are buying it from is one that stands behind what they sell.

More on this next post.

Mel was a guy I knew at one of my old jobs way back when. In fact, Mel was the head of accounting. I was in purchasing or something like that (I didn’t have a defined department or anything – I was more or less an assistant to an assistant, which meant I got shuffled around a lot.)

Anyway, Mel was a mean guy. And he HATED anything that would make his job more complicated. So whenever someone made a deal or bought something that would require some accounting work, they sent me to tell Mel. And Mel always yelled when I came in with news that we purchased something that required up-front payments or a bank loan (yes, there was a rhyme to the effect of “send Fletch to tell so we can hear Mel yell”… ha ha guys, hilarious).

Anyway, my point here is, Mel, like all accountants, doesn’t like it when cash gets drained. He also didn’t like it when we financed stuff on revolving terms (like banks want). And he disliked re-qualifying for a loan every year (as banks want). But most of all, he hated it when the entire loan balance was reported as a current liability (like a revolving bank loan needs to be) as opposed to a long-term debt on the balance sheet.

Too bad I can’t go back in time, because Mel would have LOVED working with an equipment financing company. Fixed terms, no re-qualifying, and most important, only the current portion of the long term debt shows as a current liability on the balance sheet. Instead of yelling, Mel would have probably given me a cookie. And I like cookies. Heck, I would have volunteered to go tell Mel we bought something through an equipment financing company.

Do yourself a favor. Make your “Mel” happy by using an equipment financing company. Maybe you’ll get a cookie too.