Running A Small Business On A Bitcoin Standard

Watching MicroStrategy and, to a lesser extent, MetaPlanet adopt a Bitcoin standard, putting the asset on their balance sheet and raising capital in the public markets with the sole aim of stuffing their coffers with sats has been quite the trade.

Their allocations to Bitcoin have never been higher, along with their stock prices and market cap. It’s been a strategic move that has paid off, and as these front runners continue to benefit from Bitcoin treasury, eventually, others will follow.

Now, that’s all fine and dandy for companies that have grown to a scale where they can be listed and publicly traded and access preferential financing through corporate bond offerings, but what about the little guy?

The pleb business owner who doesn’t have the luxury of tapping up these vast pools of capital? What if all you have is your business cash flow and your will to keep the doors open?

Can you adopt a Bitcoin standard? The short answer is Yes!

As a small business owner, one of the most frustrating paradoxes I’ve encountered is how financial prudence can sometimes feel like a punishment.

While large corporations are celebrated for their cash reserves, where they can choose to buy back their stock, acquire competitors or sit on T-bills and net millions, if not billions, each quarter, small businesses face unique challenges when trying to build and maintain their savings.

While 4% on a few Billion Dollars is a pretty sizable cash flow, this is not the reality for the small business; 4% isn’t going to do much but cover your bank charges and maybe some taxes, so you’ll need something a little stronger.

So, what can you do with your party’s retained earnings after a year of satisfying market demand in your niche?

Let me give you my first-hand account of adopting Bitcoin in your business, why this matters, and how inflation makes it even more complicated.

What does it mean for a business to adopt a Bitcoin standard?

For a business to adopt a Bitcoin standard, it must choose to use Bitcoin as a primary currency and store of value. This can involve accepting Bitcoin payments, storing Bitcoin as a reserve asset, and potentially using it for internal and external transactions.

Adopting a Bitcoin standard can be a strategic move for businesses that want to future-proof their operations and gain a competitive edge over the long term as you stake your company’s future on the expansion of the asset class.

1. Accept Bitcoin as Payment: The business would allow customers to pay for goods or services using Bitcoin.  
2. Hold Bitcoin as a Reserve Asset: The business would store a portion of its assets in Bitcoin instead of traditional currencies like USD or EUR.
3. Use Bitcoin for Internal Transactions: The business could use Bitcoin to pay employees, suppliers, or other businesses.  
4. Global Reach: Bitcoin can be used to transact with anyone, anywhere in the world so that you can open up your services to a wider audience.

The Delicate Balance of Cash Management

When you start a business, you spend the majority of the first few years in survival mode; you’re just trying to generate cash flow and stay afloat, and if you’re lucky, you’re able to build up enough of a client base where you spend less in operational costs to ensure you have something left over.

But what do you do with that leftover capital?

Every month, I face the same decision: How much of our earnings should we reinvest, how much should we keep as a safety net, and how much should we distribute?

It’s a balancing act that never got easier.

Unlike employees who receive their salary and can immediately start planning their personal finances, business owners must ensure their company’s financial health before considering their compensation. If you can’t manage your business books, there will be nothing to book in your capacity either, so you should start at the top of the funnel.

So, what do most small businesses do with their retained earnings?

Probably some kind of business savings account or money market account.

Why?

Because it’s easy to do an inter-account transfer, you net some income each month, giving you time to think about what you want to do. Are you going to expand? Or do you see rainy days ahead, that sort of thing?

But is it giving you time back? My hunch was no!

The Prudence Penalty

Here’s where things get interesting – and frustrating. When you manage to build up your business savings through careful planning and delayed gratification, inflation starts eating away at your purchasing power.

Let’s say you’ve managed to save $100,000 for future expansion or emergencies.

With inflation running at 3-4% annually, your purchasing power decreases by $3,000-4,000 every year.

That’s the cost of being prudent.

How is that helping me plan to grow my business or keep me out of the poor house if you still want to nail me with inflation after I paid all my direct taxes?

It’s almost as if the government hates small businesses!

But that can’t be right. The political talking heads always say that small businesses are the backbone of the economy.

If that were true, you’re blowing your back out in a major way, governments!

The Real Impact of Inflation on Business Savings

This isn’t just about numbers on a spreadsheet. That erosion of purchasing power has real consequences:

1. Equipment that cost $50,000 last year might cost $52,000 this year
2. The emergency fund that could have covered six months of expenses now only covers five
3. The expansion you planned and saved for becomes increasingly expensive while you wait for the right moment

When your retained earnings aren’t tech monopoly-sized, these small margins make a big difference, and you can quickly run into a shortfall.

This shortfall leaves you with two options: cost-cutting measures or loading up on debt, hoping you’ll grow to a point where you can service the debt costs and keep the business going.

A gamble that doesn’t always pay off.

The Tax Dimension

Perhaps the most painful aspect is that we’re effectively taxed twice on our savings.

First, we pay taxes on our earnings when we make them. Then, inflation taxes what remains by reducing its value year after year.

Meanwhile, the very act of holding onto cash rather than immediately reinvesting it into the business can make us appear less efficient on paper, potentially affecting everything from credit ratings to investment opportunities.

Strategies for Survival

Despite these challenges, there are ways to navigate this complex landscape:

First, consider maintaining only what you need in liquid cash reserves. For many businesses, this means keeping enough to cover 3-6 months of operating expenses plus any planned significant purchases or investments.

Second, look for ways to put excess cash in your business that provide natural inflation protection – investing in inventory (if it doesn’t risk becoming obsolete), purchasing essential equipment ahead of expected price increases, or investing in training and development for your team.

Finally, consider alternative ways to protect your business’s purchasing power, such as establishing lines of credit that can serve as emergency funds without the inflation penalty of holding cash.

Okay, cool, but that’s only going to get you so far, with future-proofing your business through stock and equipment and keeping runway available for short and medium-term expenses.

What do I do with the rest? I need a way to protect it somehow but keep it in a place that is easily accessible and liquid 24/7.

Where does one find such a capital asset?

Retained earnings are a highly underrated asset

One of the most annoying pieces of conventional business advice is adding needless consumption onto your business to use that capital more effectively.

I get the incentive. Since you know you’re being diluted, you want to get the most out of the purchasing power today, but the solution is dumb.

Adding a bunch of additional expenses to improve your lifestyle never made any sense to me; it just seemed like spending for spending’s sake, wasteful consumption, and corporate dumping, and it never sat well with me.

I would rather lose to inflation than lose to pointless consumption.

I don’t want any of those things.

I want retained earnings that I can deploy later when something interesting comes along, and that’s where Bitcoin came in to make my decision, oh so easy.

Today, my mental model is as follows:

1. Is there something I can buy to make my business better? No
2. Is there a competitor I can buy to absorb their cash flow? No
3. Is there a way to grow my business faster than Bitcoin’s CAGR? No

Then buy Bitcoin, and repeat this thought experiment whenever cash starts to idle in the account.

Bitcoin and geo-arbitrage

This doesn’t apply to every business, but due to globalisation, a portion of small companies trade across borders, be that selling raw materials or finished goods to other markets or services online.

As my business provides a digital service, I can tap into a global market as a supplier. Remote working companies like my own significantly benefit from geo-arbitrage by leveraging lower operational costs in developing countries (in my case, South Africa) while targeting clients in developed markets.

The cost advantage of geo-arbitraging markets allows me to offer competitive pricing to clients in developed markets and drive cash flow, but it doesn’t solve the problem of what to do once you’ve invoiced.

So when I bring in USD, GBP or AUD into the country, I’m forced to make a decision: do I

1. Keep it on forex and accept the inflation rate of another nation
2. Do I convert it into local rands and get beat over the head by a higher inflation rate
3. Do I convert it into Bitcoin and not only reduce the rate of inflation I experience but outperform it

I think you know which option I chose.

Passing on deflationary gains

As a knowledge worker who sells his skills and time to companies, I often speak with other professionals in my niche to gauge how much they charge for their local and international clients.

Comp-shopping is important for every market to try and give you a lay of the land, to understand if you’re lowballing yourself or if you’re pricing yourself out of work, and effectively, you’re looking for that sweet spot.

The longer you’re on a Bitcoin standard, the less pressure you feel to raise prices; why should you? Is your company’s balance sheet looking healthier than ever?

You can afford to give up some margin to retain business and continue to drive cash flow. Keeping prices low can significantly boost a business’s competitive edge. Lower prices usually attract more customers, especially in price-sensitive markets, increasing sales volume.

This increased demand can lead to economies of scale, reducing production costs further and potentially allowing for even lower prices. Additionally, lower prices can create a perception of value, making the business more appealing to customers who prioritise affordability.

This can help draw customers away from competitors, establish a strong market position, and, unfortunately, run your competition out of business, but that’s capitalism.

All you’re doing is passing on your superior capital management savings to your customers, and sadly for your competitors, they won’t be able to match you.

But there is a limit to how far you can push it.

Don’t price yourself as “too good to be true”, or you might turn away clients; balancing low prices with maintaining quality and perceived quality is crucial for driving profitability.

Steps to go on a Bitcoin standard

Is Bitcoin a silver bullet for your business? No!

If you have a crappy business, a small market, the political or macro climate isn’t in your favour, no amount of Bitcoin on your balance sheet is going to save you, it might keep you in operation longer than you otherwise would, but you’d only be delaying the knock on death’s door.

Is a Bitcoin standard going to be easy? No!

First, customers won’t want to pay you in Bitcoin; despite enticing discounts, you can promote it to your audience. However, conversion rates will be low, and you need to accept that.

Second, running your own Bitcoin accounting is an absolute nightmare; if you’re doing it manually, I advise you to get some software to help you out. I use Invoice Ninja with my BTCPayServer, but tools like Zaprite can also do the trick.

Third and finally, banks don’t value Bitcoin as a capital asset; you can use it as collateral as they should; it may improve in developed markets, but try going into a South African bank and getting an evaluation of your business and mention Bitcoin.

You’ll get all sorts of dirty looks. The hilarious part is you can borrow against a bunch of depreciating assets like equipment or cash reserves, but try borrowing against an appreciating asset with a bit of volatility, and everyone loses their minds.

Financing on Bitcoin is tough, so be ready to liquidate your Bitcoin if you need additional cash flow.

The Bigger Picture

Conducting business was never the easier path to take; there’s a reason why the failure rate of SMEs is so high and why you need to front-load your business with plenty of unpaid hours in the beginning, even to give it the hope of surviving.

Yet that sacrifice can be in vain, a reality that highlights a broader issue in our economic system. The game is harder than ever, but the key is finding the right balance between prudence and growth, between saving for tomorrow and investing for today.

While I applaud and reward risk-taking and leverage at the institutional level with Bitcoin, the small businesses game is different.

The solution isn’t to abandon prudence – that would be far more dangerous than our challenges. Instead, we need to recognise these pressures and plan accordingly while perhaps also advocating for policies that better support small businesses’ financial stability is an option; relying on the government to come to the party is a non-starter for me, especially in Africa; we know we’re on our own, we’ve accepted this;

My final message is, save yourself first; save in Bitcoin and your business!