You’ve been putting in the hours, slogging away.
Doing the things to up your cash flow game, and suddenly…
Success occurs. The rainbow-farting unicorn moment when you’re suddenly able to cover all of your expenses without that sinking puckering feeling, and you’ve got cash on the books.
Your cash is even increasing from last month to this one on your Statement of Cash Flows.
Don’t know what that is? You really need to!
After your Profit & Loss and your Balance Sheet I would say without hesitation it’s the third-most important statement in your metrics.
This will give you a level of understanding of your overall performance that the first two statements alone don’t quite touch, because it’s the story of cash in and cash out in three major categories.
Operating, Investing, and Financing.
If cash is up after paying your credit cards and the principal on your loans as well as the personal draws you take out of your business, you’re heading in a direction that should make you smile.
An exciting time.
So, What’s the Problem?
There really doesn’t seem to be a problem here at all, does there?
Except for one thing.
Taxes.
People don’t like to pay them.
They really don’t even like to think about them.
I would be able to dine out like a king if I had a dollar for every time somebody said some version of, “I have no idea, my accountant handles that” to me!
But then they see cash on their books in at least two of their most important statements, and the first though they have is, “How much is this going to cost me?”
Ladies and gentlemen of the jury, let me enlighten you as to my most humble opinion regarding this mindset.
Ready?
You’re in business to make money.
To feed, house, clothe, and entertain the family.
And more importantly, to put away discretionary income for the day when you’re not able to anymore.
My opinion is that when you have money come into your life as a result of your hard efforts toward that very outcome, your very next step should be a prayer/affirmation/mantra/utterance of gratitude.
God/Vishnu/Allah/Zoroaster/The Universe is good.
We lead lives of simple abundance, in my humble opinion, if we are open to what is ours to have and to hold.
I would add here, because I’m ornery like that, the idea that if you wake up grateful in the morning you stand a 100% better of chance of keeping the abundance gravy train chugging down the track.
But, if you got it goin’ on right now, get on down with your bad self!
Commonsense Action Steps
Don’t increase discretionary business spending to drive down net income (read: taxable income), unless you absolutely need what you’re buying anyway, and can use it before January 1st.
Reason? You’re not reducing your tax by the cost of the expense. Only a small percentage of the cost equal to the effective tax rate you (and your spouse, if you have one) are paying.
Do consider purchasing a vehicle by December 31st if you’ll use it at least 50% for business, and you do need one.
Reason? Bonus depreciation of vehicles under 6,000 pounds is down to 80% this year, but it’s dropping 20% every year for the next 3 years. That’s 60% in 2024, of course.
Don’t look for dubious or otherwise questionable ways to spend business funds on personal necessities or expenses without a clear business purpose.
Reason? The IRS’s definition of “ordinary and necessary.” Audits are rare, and your chances are good of not having one, BUT!
If it does happen, and you claimed things you shouldn’t have, you’ll pay the difference in tax plus interest and penalties, and that’s if you’re lucky and they don’t determine you were willfully fraudulent.
Tax fraud is a felony, and you’ll do more time than Martha Stewart for that one.
Do sit down, right now, and estimate your tax for the remainder of the year if you missed last Friday’s deadline. Right now!
If you’ll owe more than $1,000 more than you’ll pay in, make a payment. You can still make a 1040-ES estimated tax payment a week or two late, and you’ll thank me later.
Don’t keep taking the same lower officer salary you’ve been taking all year if you’re an S Corp officer-employee.
You’d better be taking a minimum of the lesser of about half of your total anticipated income OR the amount it would take to replace yourself.
If you’re making $150K a year and taking $30K a year in salary? Huge red flag.
If you feel like it stinks, it does.
Monitor your income-to-wage salary quarterly at a minimum. We do it monthly for our clients.
Do know your shareholder or partner basis well. If you’ve taken light distributions so far this year, and your basis is in good shape, take a draw and live a little.
In the case of an S Corp, you already paid the tax on it when you earned it. So it’s literally tax-free to you because of that simple logic.
One more “Do” for your list: if you find yourself cash-rich, and are certain you will keep a certain balance of it for at least 6 months, consider a higher-yield investment under the name of the business.
High-interest savings are hovering around 5% these days, but another option is a diversified index fund portfolio.
They aren’t guaranteed, but over the course of years they average about a 9% ROI. That will generate even more cash without actual effort, over time.
Profit is Oxygen
Profit is the oxygen of your business.
You need it to keep the burners stoked.
If you have profit, and a sudden infusion of cash, and your first reaction is to worry about your taxes?
You either need an accountant, or if you already have one perhaps a more positive life-affirming one.
Folks, accounting isn’t just a nerd science best practiced by a skinny weirdo with thick glasses who wears pocket protectors.
Your accountant should, first of all, become aware of your new largesse in the same time frame as you are.
And then they should be raising the roof with you!
Congratulations, you’re making things happen!
I hope to spread a positive and abundant mindset of the new era of accounting by sharing this today. I would be grateful for that, too.
With the Fourth Quarter nearly upon us, would you like to learn more about how a client accounting services advisor can ensure your money needs are met, be they good, bad, or indifferent?
Reach out now through the social media you may be reading this on, or just click here and book a Work With Me conversation now.
If you have any questions about anything profit, cash flow, or tax-related, now’s the time to find out more.
We empower property investors with an accounting-on-steroids approach.
We will begin accepting up to two new clients at this level for October during the upcoming last week of September.
Let’s talk about more profit, more cash, and lower tax.
And…I do mean all three!