Tag: Self-employed

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A couple married for 50 years was asked the secret to their happy marriage. The husband volunteered to answer and said that from the beginning, they agreed that he would make the big decisions and his wife would make the small decisions. For example, she decided where they would live, how many children they would have, what each of them would study, and where they would work. They asked the husband, "What are the small decisions?" So, what are the big decisions that you make? The husband answered proudly, "I decide who will coach Maccabi Tel Aviv, who will be in the starting lineup, what the Minister of Defense will do against Hamas, and so on."

I don't want to sound like "that husband," but after much thought (I'm currently in charge of dog walking and spending this time reflecting), I'd like to share some thoughts with you on what I believe the Israeli government should do regarding business support.

Should freelancers and companies even be supported?

There are many self-employed individuals in the country who feel discriminated against in one way or another by the state. I am not one of them. A self-employed person does not pay more taxes than an employee.. Perfectly independent Feels The tax payment more than an employee. An employee receives a salary of, say, 15,000 shekels (gross), and from that, 10,000 shekels net enter their bank account, which they manage throughout the month. From their perspective, the 5,000 shekels that went to income tax and national insurance are invisible, and they hardly notice them. A self-employed person, on the other hand, will receive monthly An income of 15,000 shekels each month, and at the end of those two months, he will join To write a check in his own name 5000 * 2 = 10,000 shekels for income tax and national insurance. When a person needs to take money out of their pocket that was already there This is much more painful Just not accept the money in the first place.

In my opinion, this is the main problematic feeling for the self-employed. I have put aside the VAT issue because I have already discussed it here:

Another point is that self-employed individuals are not eligible for sick leave and unemployment benefits. It should be noted that while the insurance a self-employed person receives from National Insurance is inferior, they also pay less. In the example below, we compare the National Insurance amount a self-employed person would pay versus an employee, assuming both have a gross income of 15,000 shekels:

It can be seen that for the same income, the self-employed individual will pay 49 shekels less each month. In my opinion, because it is technically almost impossible to pay self-employed individuals for sick days or unemployment without creating an irresistible temptation for the public to intentionally manufacture illness or unemployment, for example, when there is a business or just a couple of days with low income. Think about a mortgage consultant who had no clients for three days. This is too great a temptation to leave to their discretion if they could get a doctor's note and receive payment for those days. Therefore, it seems reasonable to me to charge less money from the same self-employed individual. A self-employed person who sets aside these 50 shekels will essentially be able to fund a day and a half of full paid sick leave each year. Is that enough? I don't know. On the other hand, the whole essence of Independence She Responsibility. From the outset, when you choose to be, for example, a private mortgage consultant instead of a bank mortgage banker, or an independent air conditioner installer instead of an installer for an air conditioning contractor, you should have considered all the advantages and disadvantages of each employment method and chosen the alternative that best suits you.

To get the information, choose, and then complain about the disadvantages of alternative X while ignoring its advantages - and there are of course many advantages - is, in my opinion, the wrong way to live life.

And yet? Should the self-employed be helped?

After all this introduction, it’s important to remember that the small business sector (including the self-employed and micro-enterprises) employs approximately 60% of the country’s workforce. If we were to tell small businesses, “You should have thought of this on your own; now you’ll have to figure it out yourselves,” then many employees would also be left without jobs. The same government that refused to support small businesses will then have to pay their employees unemployment benefits. Unemployment, of course, also carries very heavy costs beyond the financial ones; in other words, aside from direct payments to the unemployed, we will later have to address the rise in depression rates, alcoholism, domestic violence, and other social ills.

More than that, a small business owner took into account various risks and acted accordingly. He saved money for days when there would be less business, he saved money for days he would be sick, and so on. I think if you had asked most citizens of the country and its decision-makers just four months ago, what is the likelihood that the Israel Police would issue tickets to people leaving their homes, they would have looked at you like you were crazy. In fact, even a business owner who told himself, 'I'm opening my restaurant despite the fear of this or that disease," would not be able to do so because of orders issued by the state. In cases where the state issued orders prohibiting business activity, or even because such activity could not be carried out, for example, in the Gaza envelope due to life-threatening risks, assistance is provided to businesses and not just to employees, and there is, as mentioned, a lot of logic in this.

So? Should the state reach into its pocket?

One of the most infuriating things to me in the discussion about aid to businesses is the statement that the state Put your hand in your pocket. This is a sentence that usually indicates a lack of understanding of reality, even though it is common in the economic press. The country has no general pocket. The State of Israel has debt (one of the smallest in the West, but debt nonetheless). It does not have money it can use to provide support. The state does not reach into any pocket other than those of companies and citizens. The state takes money from there through its taxes and redistributes it according to its priorities. If the government decides to support businesses, it will increase the debt and the interest payments on this debt, and accordingly, it will have to collect more taxes from those who received the aid. In essence, a distribution of, for example, one hundred billion shekels as aid to businesses and citizens is equivalent to a new loan that will fall upon every citizen (for simplicity, one hundred billion divided by 8 million residents - 12,500 shekels) which they and their children will have to pay in the future by increasing tax payments. In other words, it's not clever to say For the state to reach into its pocket. Everyone needs to ask themselves if they are prepared for such a move if their income tax increases by, say, 100 shekels (this is just an example number). Everyone wants help, but there's no benefit without a cost (this law isn't just true in economics but also in physics, for example). The Second Law of Thermodynamics. In my opinion, there is no choice but to carry out such a move despite its cost. Simply put, the damage of not carrying it out will be greater than the cost of carrying it out, as mentioned. There is always a cost that the citizens pay, not the state.

How should business assistance be provided?

The press has reported on various aid frameworks, such as a tax exemption for X months. The traditional government approach is to roll the problem onto someone else and then negotiate for additional compensation. For example, a tax exemption would be granted by the municipalities, which would then have to negotiate with the government for compensation for themselves. A tax exemption is a poor form of assistance in my opinion. Property taxes are paid according to the size of the property. The damage from Corona is not related at all to the size of the business owner's property. There may be a large property that is losing money. Such a business was barely affected by Corona, but it will receive a much higher payment than, for example, a singer or a lecturer whose entire business activity has stopped completely, but they will not receive any assistance under this framework because they operate from a room in their home.

Another traditional government method is requiring the filling out and submission of various complicated forms, waiting for approvals, and receiving assistance. This method generally causes the wealthy to hire accountants, lawyers, and so on, and ultimately receive the full assistance they are entitled to (if not more), while businesses that were truly most in need of assistance will not hold out until they receive it at all.

Member of Knesset Nir Barkat's proposal To the best of my knowledge, this has never been done before in a program providing assistance to businesses. The beauty of the proposal lies first and foremost in its simplicity. According to Bareket, the government already knows how much each business earns each month through the VAT report that the business submits once every one to two months. The Treasury will take the revenue from January-February and compare it to the revenue from March. For a business that experienced a decline of more than 50% in revenue, the taxpayer (a better way to refer to it than "the government") will receive a percentage of the revenue decline, as determined by the government. No forms, no bureaucracy. It’s that simple. I hope this proposal is accepted and, along the way, will also encourage businesses in the future to truly report their revenue accurately.

This is the method I would choose tomorrow morning if I were the next Minister of Finance of the State of Israel.

Leave the country, what do I need to do?

After so much talk about what the state should do, the responsibility for our lives and well-being ultimately lies not with the state but within ourselves. I want to invite you to a webinar with two other business owners:

Entrepreneur, owner of a law firm, attorney Guy Mendelson

Keren-Or Erezi – the only contractor I know. Owner of a construction, architecture, and architect guidance business.

In my opinion, it will be very interesting even for those who don't (yet) have a business. Ultimately, managing a business and managing one's family finances are quite similar things: if you don't know marketing and sales, your child won't get into the shower; if you don't treat your job as an employee as if it were your own business, you're likely to progress slowly, if at all, etc.

Questions? It's best to post them in the comments below so everyone can benefit from the answer. You can also email me at rimon@effm.co.il or call 054-5232-799. Rimon

As part of questions from various forums that I think might interest you. Below is a question from a Facebook group where I sometimes post on the topic of financial management and in general.

The mortgage consulting field also includes questions about Funding And financial management. A mortgage is never just a mortgage; it takes into account the borrowers' financial and personal circumstances.

The question interests me because it demonstrates a behavior from which I think we can learn. Bottom line, I don't know what field the business in question will operate in, but I think regardless of the field, the chances of this business surviving beyond the next year or two are slim.

This business owner is making almost every possible mistake before even starting operations:

Lack of responsibility

"Economics isn't taught in school." News flash: Even with a bachelor's degree in economics and a master's degree in business administration, you don't learn how to run a business. So what?

You want to be a business owner, it is your responsibility to invest time and money to acquire the skills necessary to manage a business. It doesn't matter if you are a brilliant lawyer, surgeon, or plumber. If you don't know how to manage a business, you won't succeed in owning one.

"I understand."

Knowledge is acquired proactively from someone who has done what you are asking to do. I don't know where this person "understood" what they understood, but my gut feeling is that they understood it from someone. Not a business owner.

I can't believe that a person who has a business (apart from the insurance agent who receives a commission for opening Study fundwould recommend taking money that is supposed to be used for business and locking it up for six years even before you know anything about The business's cash flow.

Cash flow

Cash flow is the most important thing For a business throughout its years. A business can collapse even if it has sales and profits due to problematic cash flow.

For example, let's say I spent 5,000 shekels on Facebook advertising and got three clients who each paid me 5,000 shekels. Seemingly, everything is fine. 15,000 in revenue, 5,000 in expenses – I have 10,000 shekels for entertainment.

In practice, the customers requested 5 installments, so this month’s revenue is only 3,000 NIS against 5,000 NIS in expenses. But wait, that 5,000 includes VAT, so we need to add 15,000 * 17.1% = 2,550 shekels to the advertising expenses. On top of that, we need to add income tax prepayments of, say, 15% * 15,000 = 750 shekels. In other words, This month I brought in 3000 shekels and spent 5000 advertising + 2550 VAT + 750 Income tax = Minus 5300 shekels.

A few months like this, and even though the business is constantly profitable, it goes bankrupt the moment the bank says it's not willing to increase the credit line.

Excessive focus on taxes

It's very easy to manipulate us and sell us on certain behaviors by offering us a way to "save on taxes." In this case, a business that apparently didn't earn anything and expects modest profits of only about 100,000 shekels a year (which is why it's a *ossek patur*, a VAT-exempt business) meaning it will pay almost no taxes, is taking an action that someone told it would "save it taxes.". News Flash As long as there are no profits, there are no taxes, so if I were to advise a business owner, I would tell him to use the money to bring in customers, and after there are profits, consider how to plan your tax payments to reduce them.

What should one do with the money?

It's not enough to write what not to do. It's worth writing what to do. So first of all, opening a business is a very significant financial matter. We saw earlier how our working assumptions regarding Income and ability to make a living Capabilities may vary. I would put the money in reserve for now. Beyond that, pay attention. Who do you get advice from?. Many business owners think, for example, that an accountant and a business consultant are the same person. This can be true, but it can also certainly be the case that an accountant cannot advise on business matters. The role of an accountant is to save on tax payments. Business development is a completely different matter.

It's worth getting advice from someone whose own business you're impressed with. Doing things you'd want to do and getting results you'd want to get. If, for example, the consultant you are consulting with is a "mos'er p'tor" (a business owner with a relatively low income), then perhaps their results might not justify learning from them.

Don't be fooled, someone who went from weighing 150 kg to 100 kg can absolutely give dietary advice, even though they are overweight. But you can only get advice if the result they achieved is similar to what you want.

Please note that you have no conflict of interest with the advisor you have chosen. For example, if an insurance agent recommended that you start by opening a study fund, that advice is tainted by a conflict of interest. The insurance agent receives a commission from the insurance company for every fund they open. Advice should always come from someone whose interests you fully understand. And you pay his salary, and only you (No further emphasis is possible).

To grant a loan, a bank must form an opinion regarding the borrower's ability to repay the loan. To this end, the bank inquires about the borrower's income. For an employee, this matter is relatively simple. For a self-employed individual, the matter is a bit more complicated. Different banks employ different methods to assess the income of a self-employed individual. In all banks, the self-employed individual's income is determined by a combination of the last tax assessment (or sometimes two last assessments) along with the accountant's declarations regarding income from the last assessment up to the day of the mortgage application. 

Example of an income tax assessment

The assessment above shows the total income of each spouse, tax payments, and net income. Dividing the annual net income by 12 (the number of months) gives the monthly income for the tax year. 

Since the assessment pertains to a period that has already concluded, self-employed individuals are also required to provide accountant statements for the period from the last assessment until today. To the misfortune of accountants and private mortgage advisors, each bank requests the accountant statement on a different form, even though the content is quite similar. 

Sometimes the blue tax assessment sent by mail to a self-employed person is lost. In such a case, the tax advisor or accountant can issue a tax assessment from the Tax Authority's computer. The tax assessment produced independently will be signed by the accountant or tax advisor with a "certified true copy" approval. Such a tax assessment looks like this:

The accounting forms of the various banks