Surprise! Your Startup Owes $45,000

I had a new accountant take over my tax prep this year and he told me a mistake last year meant I owed $45,000 in taxes… and it was due in 3 days.

I thought “no way, this has to be a mistake” (with a few other choice words in there too).

But unfortunately he was correct.

So an unexpected $45K bill is a bit hit.

A year ago when revenue less than half of what it is now this might’ve sunk us.

But I spent the last few months prepping for something like this.

Surprise! Your Startup Owes $45,000 In 3 Days

“Everybody has a plan until they get punched in the face.”

That’s a quote from the philosopher Mike Tyson.

It also pretty accurately describes how it feels to be told your bootstrapped company unexpectedly owes $45,000 in 3 days.

I’ve historically run my companies at pretty tight net margins, regardless of the gross.

This is risky because it makes it harder to keep steady with unexpected expenses or, worse, business-model-killing changes that are out of your control. Hampton’s co-founder, Joe Speiser, says he once lost $100 million due to a change like this, they happen.

When you work on high-growth opportunities though, keeping net margins low leaves you with more working capital to invest in growth and product improvements.

It’s a tradeoff.

Last summer I even said on a podcast I did that I hoped to keep my margins as close to 0% for as long as possible.

If that would’ve still been true today a sudden $45K expense would’ve meant a very frantic reallocation of strategy and resources. Probably even reducing the size of my team.

Instead, as we diversified revenue away from just the newsletter to also include Megaphone, I was able to build up our savings for the first time over the last few months.

Now a $45K expense might slow us down for a few weeks (lower spend on paid ads, cutting out some subscriptions, etc.) it isn’t an existential risk.

The lesson? Have those reserves, tax issues are pretty predictable as far as “unpredictable expenses” go.

But I Raised Venture Capital… $45K Is No Big Deal…

Sure, but there was a time at my venture-backed startup where we had to unexpectedly spend over $100,000 in a week (and $250,000 unexpectedly that month in total).

Even for a company that’s raised money, that type of cash will impact your runway and probably require a convo with your lead investor.

My point is that these types of crises and expenses can’t be planned.

Also, tax issues scale with your revenue. So if you’re putting that VC money to good use and generating revenue at a favorable burn multiple, then your bill could’ve easily been 10x what mine was.