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Trade Dollars with other startups. Book it as revenue

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Re: Trade Dollars with other startups. Book it as revenue

#61

Post by adharmad »

atomicnumber3 wrote: post #45
Swizec wrote: post #27

Services in kind is a pretty common business practice. You see this a lot at the SMB level especially outside of the US. Small businesses are cash strapped. So you find someone who needs your services and you need their services. Instead of exchanging cash, you exchange invoices and do the work. You build them, say, a $5000 website, they perform, say, $5000 of landscaping. At big boy levels this is often structured a…

This feels very adjacent to the story about the whole town in debt, and the rich guy leaves a $100 bill on the table, [and so on], in a way that I can't quite put my finger on.

The man who saved Pumplesdrop By W. J. Turner

Re: Trade Dollars with other startups. Book it as revenue

#62

Post by copperx »

throwaway667555 wrote: post #54
atomicnumber3 wrote: post #45

Earlier quoted context omitted.

This feels very adjacent to the story about the whole town in debt, and the rich guy leaves a $100 bill on the table, [and so on], in a way that I can't quite put my finger on.

You can't put your finger on it because money is merely an accumulator and medium of exchange of economic performance. The performance of services in exchange for other services without money is a perfectly valid economic exchange that can and should be booked to revenue of each of the parties, if actually performed. Loans without any economic performance of services generate circular meaningless cash flows yeah, but…

That's a bit jumbled. You can gain clarity one level up the abstraction layer. Money is a note that means a debt is owed.

Re: Trade Dollars with other startups. Book it as revenue

#63

Post by lotsofpulp »

ahtihn wrote: post #58
Aurornis wrote: post #56

Earlier quoted context omitted.

The key realization is that it increases expenses at an equal rate as the revenue increase. You get $5000 of revenue but spent $5000 on services. You also have to pay taxes on that $5000 like other revenue. So many small businesses will try to just exchange the services more directly in some way, or give steep discounts. (Tip: This doesn’t mean it’s entirely correct for tax/legal/accounting purposes, so don’t do big…

> You also have to pay taxes on that $5000 like other revenue. Businesses do not pay taxes on revenue, they pay taxes on profit. Other taxes may be applicable though (such as VAT or sales taxes).

There are jurisdictions in the US where businesses owe tax on revenue.

https://en.wikipedia.org/wiki/Gross_receipts_tax

https://en.wikipedia.org/wiki/Business_and_occupation_tax

Re: Trade Dollars with other startups. Book it as revenue

#64

Post by bombcar »

ahtihn wrote: post #58
Aurornis wrote: post #56

Earlier quoted context omitted.

The key realization is that it increases expenses at an equal rate as the revenue increase. You get $5000 of revenue but spent $5000 on services. You also have to pay taxes on that $5000 like other revenue. So many small businesses will try to just exchange the services more directly in some way, or give steep discounts. (Tip: This doesn’t mean it’s entirely correct for tax/legal/accounting purposes, so don’t do big…

> You also have to pay taxes on that $5000 like other revenue. Businesses do not pay taxes on revenue, they pay taxes on profit. Other taxes may be applicable though (such as VAT or sales taxes).

If I spent $5k as a business to realize $5k in revenue the tax is zero (ignoring as you say sales VAT, etc)

The problem comes when the $5k you “traded” also didn’t cover the actual expense to provide the $5k you “earned” - now you have an actual loss even if cash didn’t flow.

Re: Trade Dollars with other startups. Book it as revenue

#65

Post by bandrami »

skeeter2020 wrote: post #47
whatever1 wrote: post #32

Earlier quoted context omitted.

offsetting in what horizon? I give you 100 in q4 2026 you give me 100 in q1 2027

They're already ahead of you; you have to consistently book revenue (accrual or cash basis) which means they both go at the same time (which would offset) or that real money is being exchanged. You can't accrue the 100 you're (supposedly) giving me now and THEN accrue the 100 I'm giving you next year.

You could but the other guy would have to book 100 of goodwill in the interim, matched by me booking goodwill later, and that brings it's own problems

Re: Trade Dollars with other startups. Book it as revenue

#66

Post by ww520 »

gaiagraphia wrote: post #43
jwr wrote: post #8

I find this amusing: I'm from Poland, where after the VAT tax was introduced in the 1990s, there were famous "VAT carousel" crimes, with people ending up in prison. The basic idea was similar, except you also collected VAT refunds from the state. If you search for "vat carousel" today, it seems this is still a thing.

VAT is a joke of a tax. It's quite incredible why the government concerns itself with chasing people's accounts around. What a waste. If something can't be monitored with minimal effort, it only serves to enrich the legal/accountancy/hr/admin priest caste. The amount of labour wasted on moving numbers around numbers is staggering. edit: Between the government and businesses, VAT costs 5% in admin fees to raise. In a…

VAT is a regressive tax. It hits everyone along the way, rich or poor. It hits the poor especially hard proportionally.

Re: Trade Dollars with other startups. Book it as revenue

#67

Post by lotsofpulp »

cucumber3732842 wrote: post #6
randometc wrote: post #4

Obligatory Michael Lewis quote, from Boomerang (2011): > Yet another hedge fund manager explained Icelandic banking to me this way: you have a dog, and I have a cat. We agree that each is worth a billion dollars. You sell me the dog for a billion, and I sell you the cat for a billion. Now we are no longer pet owners but Icelandic banks, with a billion dollars in new assets.

That's just a variant of this old one: Two economists are walking through a cow pasture. The first economist says to the other “I’ll pay you $100 to eat that pile of shit.” The second economist takes the $100 and eats the pile of shit. They continue walking until they come across a second pile of shit. The second economist turns to the first and says “I’ll pay you $100 to eat that pile of shit.” The first economist t…

That scenario does not work for this discussion because the first economist has no reason to expect the second economist will ask him to eat shit for $100.

Re: Trade Dollars with other startups. Book it as revenue

#68

Post by duzer65657 »

bandrami wrote: post #65
skeeter2020 wrote: post #47

Earlier quoted context omitted.

They're already ahead of you; you have to consistently book revenue (accrual or cash basis) which means they both go at the same time (which would offset) or that real money is being exchanged. You can't accrue the 100 you're (supposedly) giving me now and THEN accrue the 100 I'm giving you next year.

You could but the other guy would have to book 100 of goodwill in the interim, matched by me booking goodwill later, and that brings it's own problems

Goodwill almost always raises concern with authorities and audits, so I'd imagine so sort of quid pro quo version is equivalent to loudly yelling to be audited!

Re: Trade Dollars with other startups. Book it as revenue

#69

Post by bryanlarsen »

Swizec wrote: post #27

Services in kind is a pretty common business practice. You see this a lot at the SMB level especially outside of the US. Small businesses are cash strapped. So you find someone who needs your services and you need their services. Instead of exchanging cash, you exchange invoices and do the work. You build them, say, a $5000 website, they perform, say, $5000 of landscaping. At big boy levels this is often structured a…

> The part that makes it not fraud is that both parties do actually do the work.

It's far more nuanced than that.

If you do the work but undervalue it, it's likely tax fraud.

If you do the work but overvalue it, it's likely investor fraud.

Even if you fairly value the work it still might be investor fraud. The vendor may have been chosen not by merit, but by its willingness to accept an exchange of services. Saying you have $X in revenue implies you won that revenue by merit.

Re: Trade Dollars with other startups. Book it as revenue

#70

Post by emsign »

Swizec wrote: post #27

Services in kind is a pretty common business practice. You see this a lot at the SMB level especially outside of the US. Small businesses are cash strapped. So you find someone who needs your services and you need their services. Instead of exchanging cash, you exchange invoices and do the work. You build them, say, a $5000 website, they perform, say, $5000 of landscaping. At big boy levels this is often structured a…

> The part that makes it not

> fraud is that both parties

> do actually do the work.

Do they though?

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