Business Principles, explained #

A running rubric of small stories and claims about how business actually works — the mechanics behind decisions that look obvious once you’ve seen the math, and mysterious before. I add to it as I learn.

1. Why get a German holding? #

A holding is a company that you own and that, in turn, holds the shares to the actual operational company you run. Holdings cost money — around €1.2k/year for small transactions. They also take roughly 8 weeks to set up and require slight continuous management effort.

Here’s why they’re worth it. Suppose you sell the operational company.

Without a holding — you hold the shares personally. Assume you get €2M for the company and you own 50%, so you’re entitled to €1M. The German tax system applies the Teileinkünfteverfahren: 40% is tax-free, and 60% is taxed at your personal rate. Because you’re realizing a large one-off gain, that rate most likely jumps to the top bracket of 47% for the year. Your effective tax on the sale is therefore 47% × 0.6 = 28.2%. For simplicity, call it ~30% without a holding.

With a holding — the shares are owned by the holding. The second the shares get sold, the money lands in the holding, and the holding pays its full corporate tax load — Körperschaftsteuer, Gewerbesteuer and Solidaritätszuschlag — because its balance sheet just rose by €1M. In Berlin, the effective tax on a company’s earnings is:

(15% × 1.055)  +  4.1 × 3.5%   =  30.175%
Körperschaftsteuer + Soli        Gewerbesteuer

But: German tax makes 95% of a business-share sale tax-free (instead of the 40% you got personally). So your effective tax on the sale is 30.175% × 5% = 1.49% ≈ 1.5%.

Careful now — the money does not yet belong to you privately. To get it out of the holding, you pull it via dividends and pay 25% Kapitalertragsteuer. Stacked on top of the 1.5% already paid, the effective rate is ~26.5% by the time it lands in your pocket. So the difference once the cash is fully in your private hands is only about 2%.

That 2% is not the point. Here’s the point:

A holding lets you invest the pre-dividend money — in stocks, in other companies, even cross-loaning to buy houses — before ever paying that 25%. Because the holding is 100% owned by you, it becomes a very powerful vehicle: you get to put ~25% more of the initial sale to work, and extract cash to your private account only over time, as you need it for living, while the rest of the capital keeps compounding.

That’s the 1:1 comparison between selling a company with and without a holding.

2. Why SaaS is a viable business #

At its core, the SaaS business model is this:

• Company A has a problem it would cost 10 units to solve in-house.
• Company V builds that software once. Because it has to generalize across many customers, it costs V 15 units to build.
• V sells the software to 10 companies like A for 2 units each.

Tally it up: every company like A saved 8 units (paid 2 instead of 10). V made 10 × 2 − 15 = 5 units profit.

The asymmetry of scale and price is the best reason software makes so much sense. The marginal cost of serving one more customer is near zero, but the initial investment is high (the 15 units to build). Everyone in the chain comes out ahead. That’s how specialization works — one high fixed cost, spread across many, each paying far less than they’d spend alone.