For Business Owners, It’s One Battle After Another

Introduction:

It’s already been quite a decade for owners: a pandemic, inflation, tariffs, and now, suddenly, war with Iran—bringing with it the biggest spike in oil prices ever. And looming over everything is the still-uncertain impact of artificial intelligence. This week, David C. Barnett, Jay Goltz, and Ted Wolf talk about how all that uncertainty is shaping the decisions owners are making right now—from whether it’s wise to invest in new equipment to how some lenders are demanding that would-be borrowers articulate their AI strategy before obtaining a loan.

The implications of all of this vary by industry, but Dave says some sectors suddenly look a lot riskier than they did a year ago. “I don’t know if I’d want to get a 90-percent loan to buy a marketing agency today,” he says. At the same time, the economics of AI could push owners to move faster than they might otherwise. As Dave notes, if a $10,000 or $20,000 investment in AI can quickly replace two positions, that’s the kind of return many owners will find hard to ignore when expenses are rising. Along the way, the three discuss why periods like this can also create unexpected opportunities. Keep your eyes open, Dave advises. “A lot of those opportunities may come from a competitor stumbling.”

Plus: what happens when business owners suddenly realize they should have been collecting sales tax all along. Do you pay the back taxes yourself? Start collecting now and hope for the best? Or is there a smarter way to fix the problem?

— Loren Feldman

Guests:

Jay Goltz is CEO of The Goltz Group.

Ted Wolf is CEO of Guidewise.

David C. Barnett helps people buy and sell businesses.

Producer:

Jess Thoubboron is founder of Blank Word.

Full Episode Transcript:

Loren Feldman:
Welcome Dave, Jay, and Ted. It’s great to have all of you here. I want to start today by talking about a few issues that have been in the news of late. The first is one that I feel has been kind of flying under the radar, even though it involves artificial intelligence, which is everywhere, of course.

As I highlighted in the Morning Report recently, Forbes published a story that suggested that banks are starting to ask businesses about their AI strategies before dispensing loans. They consider AI disruption an obvious risk factor for businesses in pretty much every industry, the story reported, and they want to know if you have a plan before they loan you money. They want to know if you’re going to be around to pay it back. This struck me as a pretty big deal. Ted, your business is helping businesses adopt AI. Is this something you were aware of? And what do you think?

Ted Wolf:
I think it’s inevitable that organizations are going to have to have an AI strategy if they’re going to get any type of financing, simply because of what the article reflected, and that is: Can you survive—I’m going to say—a work environment of constant change? And I’m talking about dramatic change. So, I think it’s inevitable. I think it’s going to make organizations better. If I can just look back on the 1980s, the American car industry got absolutely sabotaged, I think, by foreign quality-oriented automobile companies. And all of a sudden, total quality management came into play, and it made every organization better. I think AI is going to do the exact same thing.

Loren Feldman:
Jay, I think we’ve established here that you’re not an early adopter, when it comes to AI—

Jay Goltz:
Listen, I’ve come to understand that things like—I’ve got several websites. Clearly, I have to relook at that, because the old days of, you know, putting in the search engine optimization, that’s all changed. And I could be wrong, but I have a hard time believing that all the banks are—I just find that hard to believe. But maybe it’s true. I don’t know

Loren Feldman:
It makes sense, doesn’t it, Jay?

Jay Goltz:
To some degree. I just don’t know, and maybe I’m just—listen, I can still vividly remember talking about the pandemic starting out west, and I thought, “Oh, that can’t happen.” I’m like, “Ooh, that surprised me. Okay, maybe it’s the same thing. Maybe this is an AI pandemic coming.” I got it. Maybe.

Loren Feldman:
Well, I would understand if your sense is, “I’m in an industry that is not exactly a growth industry.”

Jay Goltz:
Well, it’s also hands-on. They’re framing pictures. I mean, they’re taking pictures and putting them in frames. It’s not like I’m doing marketing or something.

Loren Feldman:
So I think it’s fair for you to think you’re not on the front lines of AI disruption.

Jay Goltz:
Clearly, I’m not going to be affected as much as some people, but it would be ignorant to say I won’t be affected to some degree. So I’ve come to terms with, I need to pay attention to it, because I do have websites, if nothing else. So that makes a difference.

Loren Feldman:
Ted, what do you think of that? Are there industries that don’t have to worry about this?

Ted Wolf:
I think some industries are going to be affected more radically and more immediately than others. But Jay, you do framing. That’s a hands-on skill set that an individual needs to develop. It’s not going to be long before AI can do that. You know, here’s all my materials. It’s fed into some processing system, and AI does a lot of the measuring, fits the mold, whatever it would be that is involved in that.

You know, a lot of people say skills like carpentry and HVAC and those types of places aren’t going to be affected, but I beg to differ. I think it’s going to be affected. And it may not be immediate, like another year or two. But I think down the road, they’re all going to be affected in some way by AI: service levels, product offerings, tying into your internet. That’s already happening now, the Internet of Things.

This is all just moving to a point where, more and more, as it gets refined, agentic agents are going to come in. We’re going to have a dual workforce, whether we like it or not, the human workforce and the agent. And I think even in your newsletter of today, if I’m not mistaken, you talked about Silicon Valley. Coders aren’t coders anymore. They’re now managers of agents who do the coding for them. I think that’s going to flow through every business very quickly.

Loren Feldman:
Dave, you help people buy businesses. I assume your clients sometimes need to obtain a loan to buy a business. Is this something you’ve been aware of? Any thoughts on what it means?

David Barnett:
Yeah, well, I think the neatest thing here is about how it kind of sheds a light on how lenders and entrepreneurs see risk differently. You know, most entrepreneurs, obviously, are hearing conversations like the ones we’ve been having on this podcast. They know that AI is a thing. It’s going to lead to changes. But a lot of entrepreneurs are optimistic that they’re going to be able to navigate and deal with these different changes as they come along.

Lenders look at the bigger, longer-term, macro environment. And the first time I came across this kind of thinking was about 15 years ago when the first of the Baby Boomers were really starting to retire. And I was working with a gentleman who was trying to finance a special care home, so he was going to be helping older people in the last years of their lives. And so, with the Baby Boomer retirement coming, it seemed like a very good business opportunity. And of course, he was going to build a building, so he was looking at a long-term, amortizing loan. I can’t remember if it was 25 or 30 years.

And the bank actually came back and said, “You need to have a plan for what we can do with this building after the Baby Boomers have moved on.” And it was interesting, because their thinking was along the timelines of the loan amortization. And so he actually worked with his architect who came back with a slightly new drawing to show how they’d be able to convert every two of the suites into maybe like a one-bedroom apartment. So he said, “Here’s a Plan B for this building. When there’s no longer enough residents, we can then turn it into a different kind of building.” And so that met their criteria. He was able to get the mortgage.

But I think entrepreneurs are very optimistic, and they think that they can dodge and parry all the different challenges that come at them. Bankers see things a little bit differently. They see these systemic or macro risks. And when it comes to buying a business, I’m always pointing out to people that the moment you borrow the money is the moment you’re at the highest leverage and the greatest risk.

So I would have a shorter-term view, actually. I wouldn’t be as concerned about what’s going to happen six or seven years from now. I think that if somebody is reasonably certain they can put a plan together to survive the next two or three years, then they will be buying themselves the time to make adjustments and navigate things as things change. That being said, we just heard—someone mentioned marketing agency—I don’t know if I’d want to get a 90 percent loan to buy a marketing agency today. It seems like the changes in that industry could be a lot bigger, within that timeframe I mentioned, over the next couple of years.

Jay Goltz:
If I was selling services about AI and about change, I would make the argument to anybody, including me: “Jay, let me ask you something. When the internet came out, do you wish, in hindsight, you would have done something different 30 years ago?” Yeah, absolutely. Who could have envisioned that?

You know, I have three kids. Every time I go to one of their houses, there’s boxes on the front stoop that I bring into them. Who would have seen: “Oh, yeah, 30 years from now, half the stuff you buy is going to be coming on a truck dropped at your front door”? So I understand that this might be hard to get one’s head around, but there’s a good example of, I didn’t see that coming, either. So I’m, yeah, I’m not a visionary, is the point. I deal with it at the time, but I probably need to—not probably—I need to look ahead on this.

Loren Feldman:
Ted, is this the kind of lever that could spur much faster, wider adoption of the tools of AI? It seems like something that could really get the attention of a lot of business owners.

Ted Wolf:
Yeah, I think the loan requirements for having an AI strategy—not just what you’re going to do, but what you are doing with your agents—is real. It’s not going away. It’s only going to grow over time.

Jay, if I were you, I’d be looking at the young people who are in the framing business, working out of their “parents’ garage”—air quotes there—who are already devising: Hey, I got a saw. I got this. I got it all tied together. All I need to do is put my frame in here. It can cut it, paste it, boom, it’s done. I don’t touch it. I just reduced my labor costs.

Loren Feldman:
Are you sure there are young people in the framing business?

Jay Goltz:
No, that was me 50 years ago. No, they don’t exist. And frankly, to suggest that framing is going to be done—maybe you’ve never seen a frame done. Yeah, the molding’s going to come out of the computer like magic and then come out like—I mean, they’ve got to take a frame. They’ve got to cut it and join it, clean glass. I don’t see that AI is going to be doing custom picture framing. I don’t know how that’s possible.

Ted Wolf:
I think it’ll be directing machines to do it. That’s just my own take on it, Jay. I think they won’t be doing it, but they’ll be driving the machine that does it, or the machines that do it—the workflow.

David Barnett:
Ted, you’re talking about some kind of computer-aided manufacturing set-up. Like I’ve seen machines like this in machine shops and woodworking facilities and stuff like that. You know, robotically controlled cutting. But for the bank to say, “We need you to have an AI strategy,” what they’re trying to do is, they’re trying to get people to think about it. And going onto ChatGPT and having it whip up a strategy document that you can add to your loan application is very different from actually creating and executing an AI plan.

Let’s get this straight, right? A few years ago, I remember some people who were getting into their 50s, if they went to look for a loan from a bank, were being asked what their exit strategy was, because the bank would start to say, “Hey, wait a minute. We’re going to lend this guy money over a 10-year period, and he’s getting kind of old. We should know what his plan is.” And so that sparked people to have to actually sit down and think about it. Now, were those boxes on the applications filled in? Yeah, they were filled with something. Did those plans actually get executed? Who knows? And that’s the thing. These requirements are just going to instigate conversation and thought and planning.

Loren Feldman:
Which is a good thing?

David Barnett:
Well, I think it is a good thing. But, you know, I’ve learned over the course of time, a lot of people fill in business plans and loan applications, not with a view to actually trying to make their business or life better, but just to get the money. So it’s going to be worth as much effort as someone wants to put into it.

Jay Goltz:
At the end of the day—and I see this talked about all the time, about taking your business plan to the bank, blah, blah, blah—seldom do I actually hear this talked about. At the end of the day, the bank wants to know: Where’s the collateral? Because they’re not venture capitalists. You come up with the greatest business plan. They work on next to no margin. They can’t afford to be taking a lot of risk. So, it’s still about collateral with banks to a large degree.

Certainly, it makes perfect sense they’re going to worry about somebody who’s getting older, or the thing you talked about with the building. That makes perfect sense with a long-term mortgage. But at the end of the day, it’s not just about a business plan. And like I said, they want to know what the collateral is. And I don’t hear that talked about enough, because it’s not that easy to go walk into a bank and get a loan with a great business plan.

David Barnett:
Well, they either want collateral or they want a guarantee they can count on, like an SBA loan guarantee, right?

Jay Goltz:
Sure, if you can get that.

David Barnett:
So the SBA doesn’t guarantee the entire amount of the loan, and so this is where someone can get a loan for a more service-oriented business that doesn’t have a lot of collateral. But the bank is still extending a little bit of risk on those, because it’s not entirely covered by the guarantee. So, there is some degree of underwriting. They are interested. But of course, those loans come at a higher price. There’s application fees, you pay a higher interest rate, etc. There’s definitely a risk premium involved in that system.

Jay Goltz:
I would like to say, as far as borrowing money to start a business, maybe you shouldn’t be borrowing money to start a business.

Loren Feldman:
There’s no reason we should be just talking about people who are starting a business. I mean, this could apply to a very mature business as well.

Jay Goltz:
Okay, whatever. The point is, some people should not be borrowing money for their business because it would be a better bet to have enough profits to fund their own growth. There’s too many people thinking that you have to borrow money to grow a business, and that is simply not true. Sometimes you do, but that is simply not the case. Sometimes you can grow and fund your own growth, and people should be thinking about that.

Loren Feldman:
But there is also the situation, I mean, you’re imagining a case where somebody goes to a bank and the bank is okay making the loan because the house is on the line. But you could be talking about a more mature business where the owner has gotten out from under those personal guarantees and maybe has to deal with a question like, “What is your AI strategy?”

Jay Goltz:
I’m not an expert in the banking thing, but I will tell you, I question—I’m sure some people get out of the personal guarantees, but my guess is many—many could be anywhere from 20 to 80—many of those people are still signing personally. I think they want the personal guarantee, obviously, if they can get it. Am I wrong?

David Barnett:
No, you’re not wrong. Very, very, very few business owners ever get away from having to sign on the dotted line.

Jay Goltz:
Thank you. That’s what I wanted to hear.

David Barnett:
I used to work for American Express in their corporate card division many years ago, and we were one of the few sort of non-personal guaranteed credit that a business owner could get. And we needed to see a business that had millions and millions of dollars in revenues and was quite large, and it was all just to give them like a $50,000 line. We weren’t taking a whole lot of risk.

Jay Goltz:
Yeah, you can’t. I mean, the ones you know you’re a problem with are when they say, “Oh, we don’t look at your credit score. We look at your cash flow.” And the reason they can do that is because their interest rate is between 70 and 300 percent.

I’m involved with a whole movement in Illinois to get to become a law that they have to show APRs. Business loans don’t have to show an APR. There’s like a loophole that whoever’s behind it all left open that business owners regularly borrow money. They have no idea what the interest rate is, and all they know is, “Oh, they were really nice. I got the money the next day.” And they don’t understand that—I’m not exaggerating when I say 200-percent interest. No, all day long, there’s companies all over the place doing that stuff.

David Barnett:
You’re talking about the merchant cash advance lenders?

Jay Goltz:
I get these emails every single day: “Oh, we can lend you money for”—and when you do the math, if you know how to do the math, literally the cheapest one I’ve seen is like 70 percent interest, and it goes all the way up to 300. And this is the interesting part: I went to the reviews, and one review after the other said, “Oh, they were so nice. I got the money right away.” And one guy was complaining about the fact that they were going to give him $25,000 and they cut it back to $15,000, but he actually put the terms in the thing about how much he borrowed and how much he had to pay back. And I did the math: It was like 200 percent interest, but nobody was complaining about it because they don’t know.

David Barnett:
I did a video on my YouTube channel showing people the math, just like you say. And yeah, the example I used was an MCA company that was using a 25 percent payback, and it worked out to like 170 percent APR, if you annualized it, etc. But you know, the reason that those companies are willing to do those loans is because they need to be tapped right into your bank, and they take the money daily or weekly. So they don’t care if you’re failing. As long as you’re making sales and money is moving, they’re going to take their money first, even ahead of your employees and everybody else, and they build in a failure factor in their business model.

Jay Goltz:
Absolutely, when you have 100 and some percent interest. And the key is they’re always six months. Why? Because they know you’re going to slow your payables down, and that’s when you’re going to start getting cut off from your suppliers. They’re gone by the time the six months are done. But the typical thing is, you do the math and you think, “Oh, it looks like 22 percent interest.” No, it was only for six months. You have to double it. Now it’s 44. No, you’re paying it down the whole way. You’re going to double it again. So that’s how it goes from what looks like 20 percent interest to 80 percent interest, and they’re all over the place.

Loren Feldman:
Okay, next news item: I don’t have to tell you guys, business owners have been through a lot in recent years, the pandemic, inflation, tariffs. And now, of course, there’s war in the Middle East with soaring energy prices. As we’ve discussed here many times, I think it makes sense for business owners to focus on the things they actually can control, and this ain’t one of them. But some events are big enough that they kind of demand a response. I’m wondering what you guys are thinking. Do you see this as a big deal for business owners, or just, you know, one more in a long line of battles that have had to be fought? Anybody?

Ted Wolf:
I think it’s one more in a long line of battles, and I think those battles are going to continue. They’re going to get more complex, and they’re going to be more often. We have the war in Iran going on. Okay, all of a sudden, energy went up to $100, down to $85 the next day, down to $70 the next day. The following day, I think yesterday, maybe today, $125. They’re sitting back, and they’re saying: My first-quarter profits just could potentially get blown if I’m a heavy energy-reliant company in some way.

So they’ve got to figure out, what am I going to do? It’s going to affect my line of credit, potentially. I’ve got to go in and tap it. What about raises I have to give people? We know insurance is going to go up, because that’s the first thing that goes up in times of uncertainty. So I think all this roller coaster-type effect really is going to take a toll on individuals. And they’re going to sit back and say: I’ve got to figure out how to kind of get a smoother sine curve, if you will, within the organization of ups and downs. Because it’s affecting people. It’s affecting clients, everybody. And I think, actually, I think it’s going to push them, again, closer to AI. I really do.

Loren Feldman:
How so?

Ted Wolf:
Generally speaking, materials and people are your highest costs in companies. So they’ve got to sit back, and they’ve got to be able to say: I’ve got to keep producing, and I can’t rely just on my workforce for everything. Turnover is high. Some positions have, I’m going to say, difficulty in finding the talent and keeping the talent, a lot of turnover. So I think that they’ve got to sit back and be able to say: How can I continue to get my work done and reduce my cost in some way?

And that may not be by replacing people, but AI can certainly help prevent hiring new people, and can do things very effectively, very effectively, even though it’s in its beginning stages, in many respects, reducing and keeping and containing costs in many ways. I think that’s going to force organizations more and more to take a look at it and even reflect back on loan guarantees and things like that. All of this is, I think, coming into that—I’m going to call it the kettle, if you will—of all this change. They’ve got to figure a way through this that’s going to help manage costs in a much more proactive manner.

Jay Goltz:
I don’t think this is just one—I think it is profoundly worse, way worse. The combination of tariffs, which are just so destructive, and the interest rates that went from 3 percent—I’m in the home furnishing industry, so it probably might be unique to that, but the fact that people are sitting on their 3 percent mortgages, and they’re not going to move now, and the statistics show: That’s brutal.

Loren Feldman:
Jay, you’ve been affected by the tariffs, right?

Jay Goltz:
Absolutely.

Loren Feldman:
Both furniture and framing?

Jay Goltz:
Right. Here’s one of the fallacies: You know, people think, “Oh, well, the tariff is 15 percent. I’ll only add 8 percent to the sales price, which is a much bigger number, so it covers it.” The problem is, if you don’t figure in price elasticity, meaning you’re going to lose some customers, you might think you’ve got a little margin there. And it might disappear, because your sales just dropped by five or 10 percent, between interest rates and the tariffs and just the anxiety out there. And I’ve been in business for 48—okay, it’s not as bad as it was in ‘08. That was brutal. But it’s getting there. It’s not easy out there.

Loren Feldman:
And do you see the war having a direct impact on your businesses in some—

Jay Goltz:
You know, it’s hard to tell. I would think people are depressed. I mean, you turn the TV on. People I talk to say, “I can’t watch the news anymore.” How does that not affect business? So, yeah, I think it’s worse. And I’m perplexed as to why anyone thinks the tariffs are a good thing. It just raised the cost of everything. So, yeah, not a fun time to be in business.

Loren Feldman:
Dave, any thoughts?

David Barnett:
Yeah, you know, to move us all forward, to make things better, to make things more efficient, how it works in capitalism is you take capital and you invest it so that things become more efficient in some way. And if you’re going to take a bunch of capital and make an investment, you need to know that you’re going to have a payback that is going to be reasonable to get a return on that investment so that you can operate more cheaply, more efficiently. And that you’re going to gain from it. And that usually means making a decision that is going to need to be paid back over several years. We’re talking about capital investments.

And with the tariffs whipsawing all over the place, anyone dealing with trade is afraid to make an investment. Now you’ve got anyone who uses a lot of energy is afraid to make an investment. Would a trucking company want to buy three new rigs right now if they didn’t know what the effect of increased freight rates was going to mean for their customers?

All through the line, all through the economy, to Jay’s point, we’re adding more and more and more reasons for people not to invest in their businesses. And the only investment that I could see someone making is one with a very immediate and quick payback. So to Ted’s point, if somebody sees, “Hey, I can make this $10,000, $15,000, $20,000 investment in AI that will allow me to cut two positions,” I could definitely see someone making that, because it’s such a quick rate of return, a quick payback on their investment. That doesn’t bode well for the economy, does it?

Jay Goltz:
There’s other issues, like freight. UPS and FedEx prices have gone up dramatically. Why? Because Amazon’s doing their own deliveries now, and they lost that business. You’re going to see businesses that were relying on cheap UPS—I mean, I buy stuff once in a while on the internet from Amazon, and it’s laughable. They’re losing money. It was $12. You know, whatever I bought was $12 for free freight. There’s no way they’re not losing money on that. And so the freight cost, the insurance costs, have all gone up dramatically. And that’s difficult to counteract.

Loren Feldman:
Do any of you see the war having a direct impact on your businesses?

Jay Goltz:
Hard to tell.

Ted Wolf:
For me, who’s working in AI, I see an increase in the inflow of people, just as David said. They’re looking at it and saying: This is nickel and dimes. I got to be able to get some money in and take it out of the business. I got to somehow get better control. And AI is one way to do it.

MasterCard, I believe, is bringing out their own CFO agent. When you go for a loan in the future, you think banks aren’t going to have their own CFO agents that they want to attach to that loan? They want to be able to look at how you’re using cash flow on a week-to-week basis. They want to see how you’re getting close to your covenants. They don’t want to be the last to know anymore.

And I don’t think AI is, by any means, the paradise that some people do. I think there’s extreme things we’ve got to look at. And it’s going to take people, but AI is going to be here, and that’s how you’re going to see it increase more and more over the next two years.

David Barnett:
This AI conversation relates to something Jay just mentioned. I mean, he talked about getting an Amazon package, and he said, “They couldn’t have made money delivering that thing.” And the reason why a company like Amazon can do that, they can go out there and do something in a way that loses money, is because their stock is so valuable they can print it up and sell new shares, right? So, investor money finances the losses in these organizations with the dream that market share is going to allow them to be dominant and profitable one day.

The same dynamic is at play with these AI companies. I mean, all the big LLM companies are losing tremendous amounts of money. It’s all being financed by investors. And one of the things I’m increasingly thinking about is: We’re all using these AI tools. We’re paying $20 a month, or $200 a month, or whatever it is. We’re not covering anywhere close to the real cost of this technology. And what is going to happen when the investor money dries up?

If you’re going to employ AI, you’ve got to employ it in a way that is really going to add value. It can’t be drawing pictures or rewriting paragraphs of text. It’s got to be something that delivers real value, because there’s a day coming where your ChatGPT subscription is going to go from $20 to $2,000 a month. When they have to make money.

Ted Wolf:
I agree with that totally, David. And I think it’s going to be a situation where it comes sooner than later. People are going to have to come to terms with that. But I think that it’s going to be another thing where more and more, you’re going to have to get that agentic workforce working within your organization in some manner.

Jay Goltz:
What you just described in the furniture business is: Wayfair’s out there. They have major market share now, like not 3 percent. They’re doing billions of dollars a year, and they do nothing but lose money. And even though my furniture is different than theirs, I’m sure there’s some overlap there.

But I just read they think 32 percent of furniture stores are going to close this year. Yeah, we’re in the middle of some shake up. And it’s all about the public money thing. How long can they go losing money? Who knows? Who knows? Do I think they’ll be in business in 10 years? I don’t know. I mean, shipping furniture is extremely expensive and a pain in the ass. It’s not as simple as shipping a box of shoes or something. So I don’t know that that business is viable long term, but in the meanwhile, they’ve taken major market share and it’s hurting all the other furniture stores.

Loren Feldman:
Next item: I saw a post on the small business subreddit that I want to ask you guys about. It’s about collecting sales tax. Let me read you the post:

“Hypothetically, if someone forgot to collect sales tax for 18 months, and their state sent them a letter. What’s the move? Hypothetically speaking, and this is purely a thought experiment for educational purposes only, let’s say a person started a candle business from a garage. This person set everything up themselves because they didn’t want to pay an accountant.

“Hypothetically, this person did not know sales tax was a thing they needed to collect. They found this out when their state sent them a very real looking letter that used the word delinquent several times. Hypothetically, this person now owes 18 months of uncollected sales tax out of their own pocket because they can’t go back to 4,000 hypothetical customers and ask for 7.5 percent more on a candle they bought in 2024. This person called an accountant who said, ‘Oh boy,’ which is not reassuring at $200 an hour. Google is hypothetically telling this person things ranging from ‘just pay it’ to ‘jail.’ So this person would love some hypothetical advice here.”

Jay Goltz:
There is so much wrong with that whole thing. I don’t know where to start, but I will start. First of all, they got a letter saying they’re delinquent? How can you be delinquent for something if there was no bill? When you pay sales tax, you have to have a resale number, and you file the reports every month. If they weren’t doing that, I’d like to know, how did the state find them in the first place? That’s a good question.

And then the next question is, if they’re making candles, they’re buying wax, they’re buying wicks, they’re buying boxes. The companies they bought from, did they pay sales tax to those companies? Because they don’t have a resale number, apparently. And did they not tell them you have to have a resale number? And no one’s going to jail. The whole thing doesn’t make a lot of sense, so I don’t know. I doubt it’s hypothetical. But how did they find out the guy was selling candles and not paying sales tax? And that’s where I would start.

Loren Feldman:
That’s a good question, but my sense is that this is a fairly common problem among people who are just starting a side hustle in their garage. Wouldn’t you think?

Jay Goltz:
Sure.

David Barnett:
You know, in most jurisdictions that have sales tax, there’s usually some kind of cutoff. Like, they’ll usually let you experiment with a small business. Until you get to a certain price threshold, you aren’t even legally required to register for the sales tax.

Jay Goltz:
Yeah, I think that’s true.

David Barnett:
You know, usually there’s an incentive too, to what Jay just pointed out. You know, if you get yourself a tax number, then you can get credit for the tax you pay your suppliers, or you don’t have to pay them, depending on how the sales tax is set up where you are.

But to me, when I heard this story, I thought: Okay, here’s somebody who grew a little business. It got a little bit bigger. Someone told them, “Hey, you should be including this revenue on your tax return.” And they filled in the statement of business activity as a sole proprietorship, and they filed the tax return. Like, that’s the only way I could ever imagine that a state would ever know that this money was owed. Or a competing candle vendor at the farmers market ratted them out.

Jay Goltz:
Or their brother in law that hates them.

David Barnett:
Sure.

Ted Wolf:
Well, I think it comes down to compliance. And you say: What do I need to know as a business that I need to comply with, as far as government regulations and things like that? And that means you’ve got to get your attorneys, you’ve got to get your accountants, and everybody else you know plugged in. I hate to be the AI guy, but you know, in the future, you’ll plug into someone like MasterCard’s CFO agent that you can rent for a day or an hour or a week, and they’re going to tell you exactly what you’ve got to do and lay everything out for you.

Jay Goltz:
I’d like to know where he found a $200-an-hour accountant. [Laughter]

Ted Wolf:
Entry level.

Jay Goltz:
Yeah, right.

David Barnett:
It’s not even as complex as trying to use an AI. I’m sure every state, province, country in the world has a document online somewhere that says: Here’s what you need to start a business here. Because they all want businesses to exist to create employment and everything. And so, it’s really, if somebody was this ignorant of the fact, I mean, they live in the state, they pay the sales tax every time they buy something. It never clued into them that they needed to investigate this? Even with a question in Google, it’s hard to have sympathy for a person who puts this kind of thing up.

Jay Goltz:
Well, you know what? 10, 15, 20 years ago, there was a point where you thought you could ship out of state without collecting sales tax. And the fact is, the states didn’t catch up to it. Well now they have. Now when you buy out of state, there’s always tax on it.

For instance, that gigantic camera store in New York was shipping all over the country and not collecting sales tax. They had a great run for a few years, probably, because a very expensive item, small UPS package. Why would you buy your $2,000 camera in Chicago when you can get it from them and not pay the sales tax? But that’s caught up to all of them. They’re all paying sales tax now and collecting it. So this story would have made more sense 20 years ago.

Ted Wolf:
Well, here’s a situation that I know: an individual loved cooking, made his own seasonings, bottled them up, gave them out to friends. They liked the seasoning. They asked for more. They ended up giving it to friends. Almost started a little business, we’ll say. He found out he got in trouble because one of the seasoning ingredients he was using was recalled.

All of a sudden, he had a bigger problem on his hands: “Oh my God, I never even thought about this. I don’t even know who it’s been given to.” And he wasn’t even charging for it, at that point. But it started turning into a nice little business, and he thought, “I’m going to take it. I’m going to go out, and I’m going to start charging.” And then all of a sudden, one of the ingredients got recalled. You’ve got to be able to plug in and ask a lot of questions. But the problem is, you don’t know what questions to ask when you’re starting a small business, usually.

David Barnett:
And for someone like that, a manufacturer selling those kinds of things, you’ve got to have some kind of batch control numbers so that you can say, “This batch number is being recalled for whatever reason.”

Jay Goltz:
What an uplifting podcast [episode] this is this week! [Laughter]

Loren Feldman:
Jay, I think you were getting at a slightly more complicated version of this, which is the whole issue of nexus, where a business can go along for a certain amount of time and not be required to collect sales tax from certain states, and then one day realize: You know what, we have nexus here now, for whatever reason—it’s complicated. But you do, and then you’re faced with a decision: All right, what do I do now? Do I pay those back sales taxes for the years I should have been paying it? Do I just start paying now? Do I just hope nobody ever notices and don’t do anything?

Jay Goltz:
Yeah, I guess you start paying taxes. You get a resale number, and you start filling out the form, and you start collecting sales taxes.

Loren Feldman:
Do you pay all those back taxes that you should have been paying?

David Barnett:
You have to, because the government makes the rules, Loren, and people have to follow the rules the government makes. Like, I sell products online. I’ve got a couple of online courses and stuff, and some people in Australia signed up for them back in 2020, ‘21, ‘22, ‘23 and then the provider I use online that hosts these programs sends me an email saying, “Hey, we just received a notice from the government in Australia that you owe sales tax for all the sales you’ve made there since 2020.” And so, I had to pay for the Australian sales over a three-year period, I think. What would my choice be? I guess the choice was, simply, they would block my account from doing sales there anymore.

Jay Goltz:
I mean, do you think they had the actual sales number of what you sold to Australia?

David Barnett:
Well, yes, because Australia was muscling on the online provider. Because the online provider is purveying these products for hundreds or thousands of creators and merchants. So they don’t want to be cut off from Australia, sSo they made a deal with the Australians, and they came to me and said, “Okay, here’s your portion.” And basically it was like, check the box, and we’re going to deduct it from you. So I paid.

Jay Goltz:
I have to tell you, I have lots of designers as customers. Some of them have resale numbers. Some of them don’t. And I got audited, I don’t know, 30 years ago. They want to see all of the resale certificates. And they want to see that they’re all current. And if there’s some missing, they take it and multiply it by some factor, and that’s what they bill you. So, like, we’re very diligent on it.

The point is, had I not gotten audited on that—you know, I wasn’t paying enough attention to it. And now we do. But now, maybe with AI, to your point—listen, this goes back to computers were barely around back, when I’m talking about. Now, I’d like to think you could go online and find out what you need to do, but there’s no instruction manual that I know of for starting a business. Maybe that’s why we do this podcast.

David Barnett:
Well, they exist, Jay. They do, because I’ve seen many of them. Like, if you just go and Google “how to start a business in New Jersey,” you will come up with some website put up by the state, and there’ll be some guide that will tell you all the different things you need to consider for all the different kinds of businesses there are. But people just don’t do the research. What they do is they go out for a beer and ask their friends, “What do I need to do to start a business?” And their buddy says, you know, “Go for it!” You know? They don’t stop to do their homework.

Loren Feldman:
I want to go back to the sales tax thing. One little twist: Dave, in the example you gave with Australia, you said you had no choice. You had to pay. But you’d been called on it. Somebody had noticed. And so it seems to me, you really did have no choice.

I’m imagining a different situation, and maybe it’s not realistic—but I think it is—where a business figures out, “Oh, we’ve had nexus here for a while. We should have been paying.” But they haven’t been called on it yet, and they face this dilemma: Do we own up to it and pay all this money? It could be a lot of money. Or do they hope nobody notices? Or do they just pay going forward? Is that a realistic scenario?

David Barnett:
Well, I think it depends on whether or not you want to be known by the government as somebody who steps forward and tries to fix their mistakes and is trying to be honest and trying to play by the rules. Or if you know you have a problem, and you’re just allowing it to get bigger and worse. Like, if you hear scurrying through your ceiling, you can ignore it, or you can call an exterminator, right? And if you just ignore it, you know that the problem is probably going to get worse and worse.

Jay Goltz:
Well, to your point, they had you cold because you were going through a company. So there was nothing to think about. But I will tell you, if you were doing shipping through the internet, and then all of a sudden, a state sends you a thing saying, “Oh, we see that you’ve”—I think it’s what Loren just said. It’s both. Some people are going to go back and pay all of it, and some people go, “Yeah, this was two sales.”

So it depends on where that information came from. But I’m confident the answer is both of those things. Some people pay up all of it, and some people go ahead and just start paying going forward. I’m sure it’s both. And frankly, the state’s probably happy to get the money going forward. So I’m not sure they have the staff to go hunting down people: “Wait, you sold $73 so you owe me—” you know?

David Barnett:
Yeah, I think if you step forward and say, “Hey, I need to register for sales tax, because we believe that we need to do this now,” it’s probably a way to buy yourself out of some kind of problem going forward.

Jay Goltz:
Yes, that’s my point. I think they’re happy that you came forward.

Ted Wolf:
When it comes to the taxes and tax codes. I would never violate a tax code if I am aware of it. I would say, “Okay, I need to work something out”—just as you two suggested—”right now.” I would not delay it. I would not ignore it. I would be upfront and know this is done, because there is no reprieve when it comes to taxes and the government.

David Barnett:
And especially sales tax. And here’s the way governments think about sales tax: If you are a business and you’re collecting sales tax, and you don’t remit it—or you’re supposed to be collecting sales tax and you don’t remit it—the way they look at it is that you have received their money and you’ve stolen it.

Jay Goltz:
No question.

David Barnett:
Because you didn’t pass it on. Which is different than how they look at if you made an error in calculating an expense and your income taxes are off by a few hundred dollars. They’ll come back to you and say, “Oh, you made an error.” But when it comes to sales tax, their attitude is, “You took our money.” And it’s a very different attitude.

Jay Goltz:
I will tell you, back in the olden days, there were people 30, 40 years ago, who—whether they owned a clothing store or whatever—people would pay in cash, and they weren’t claiming it as income. Not only did they pocket the income tax, they pocketed the sales tax. And I know people who became literally rich from doing that for 40 years.

And I always tell people: Those days are over. Pay the taxes, because what you could get away with in 1963 is not what you can—it’s a new day. But there are lots of people who made their livings off of—like, if I didn’t pay income tax, oh my God, I’d have a zillion dollars. But I paid it from day one because I didn’t want to run a business like that.

Loren Feldman:
Okay, so as I think Jay pointed out, we’ve talked about a lot of bleak things here today. Can we end on a happier note? Even in dark times, there are always opportunities. Anybody have a sense of where the opportunities lie right now?

David Barnett:
You know, we started off here talking about all of the problems. We talked about tariffs, we talked about energy costs relating to the new conflict in the Middle East, greater and greater uncertainty. And what that means is that there are going to be challenges for a lot of businesses out there. And I would say the opportunity that’s available to business owners is: Keep an eye on your resources. Make sure you don’t end up in a cash-poor situation. And have your eyes open for the opportunities that are going to surface right in front of you.

And unfortunately, a lot of those opportunities may come from a competitor stumbling because of leverage, debt, costs, whatever’s going askew for them. You could end up in a position where you could acquire some assets cheaply or maybe get some new customers that are not being served well because of the strain on that competitor. In these kinds of times, if one of your competitors has a problem, they can make half the sale for you, just through problems that they’re having.

Jay Goltz:
I think that’s very smart and true.

Ted Wolf:
I agree.

Loren Feldman:
And a great note to end on. My thanks to David Barnett, Jay Goltz, and Ted Wolf. I really appreciate you taking the time, guys. Thanks for sharing.