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E-Myth – “Why most small businesses don’t work & what to do about it”

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Part-time CFO | Can And Efficient Tax Strategy Increase Cash Flow

Many entrepreneurs should be aware of the statistic that half of all entrepreneurs end up closing their business within five years, and 29% of those entrepreneurs say that the reason why their business failed was because they ran out of money, says part-time CFO. Running out of money is such a serious circumstance for so many entrepreneurs, that if they are able to increase cash flow in their business, it could help many entrepreneurs who are in danger of closing their business, avoid that fate. One way that entrepreneurs can help increase the cash flow in their business, is through efficient tax strategies.

Many entrepreneurs donít realize that the decision that they make in how to pay themselves from their corporation is less a question about income, and is more a question about tax strategies. Anytime a business owner takes money out of their corporation, it has to be done either through salary, through dividends, or through a combination of both. Anytime they do, they have to pay taxes on the amount that they take out. Since how they take it out either through salary or dividends affects different tax rates differently, this is how it becomes an issue about tax strategy rather than income says part time CFO.

When business owners are searching for the right part-time CFO to work with their business, they should understand that if they try to save money on accounting services, they often end up paying far more on increase taxes than they would in paying accounting fees if they had just hired a great accountant in the first place. Itís extremely important in order for business owners to save taxes, to hire the best professional they can.

The decision on how business owners should pay themselves is actually a very complicated one. In order to come up with the best strategy that can help save the most amount of taxes, entrepreneurs should understand that there part time CFO will be asking them several questions, in order to completely understand not just the business ownerís circumstances, but their familyís circumstances, and the circumstances of the corporation. If anyone gives them a very simplistic answer about how they should pay themselves, they should take that as a warning sign that they donít have a deep enough understanding of the business owners situation to make that decision.

One of the most important determining factors can be with the business ownerís spouse, and their income. Part-time CFO will ask an entrepreneur if they have any other unrelated income that they have, and do they have a spouse? Theyíll ask if that spouse has any other income unrelated to the business, and how that income is paid out to them. They will discuss income splitting opportunities with their spouse and perhaps children. All of these variables are going to factor in greatly to this decision.

Once a business owner gets the right decision on what the correct income split is for them, they can end up saving thousands of dollars every year and saved taxes, both personally and for their corporation. This can help entrepreneurs increase the cash flow in their business which can significantly impact their business positively.

There are several challenges that entrepreneurs face in business today says part-time CFO, and half of all business owners end up closing their business before their fifth year. 29% of those failed businesses give the reason that they ran out of money for why their business failed. If business owners are able to strategize and find ways to increase cash flow in their business, they can avoid this pitfall in business, and become successful in business.

When business owners take money out of their business, whether they to get out and salary, dividends, or a combination, this is not so much a question about income, then it is a question about tax strategies. The reason for that says part time CFO is because however a business owner takes money out of their corporation, they have to end up paying taxes on it. Since salary or dividends have different tax rates, how a business owner ends up taking out money from their corporation becomes important in order to save taxes. Itís not unusual for businesses to have several thousand dollars saved through and efficient tax strategy. If entrepreneurs are able to hire the right part time CFO for their business, and can come up with an extremely good tax strategy, thousands of dollars that their corporation saves, can go towards increasing the cash flow in their business, and avoiding one of the most common reasons why businesses in Canada fail.

This is such an important decision, however business owners should understand that it is a complex one to. Part-time CFOís have to go to school for four years, spent three years articling, and then have many years of experience working in accounting firm in order to fully understand how to answer this question. There are so many variables that need to be considered in making this decision, that itís not a question that can be answered without getting a thorough investigation of the business owners corporation as well as their own circumstances and their family circumstances well.

One of the important determining factors, is if a business owners family members have corporations, especially if those corporations are associated. In order for the business owners to not be at risk for going over the small business tax rate threshold, a business owner who is in associated corporation, may want to claim a salary in order to stay underneath that small business tax rate threshold.

Another aspect that part-time CFO should use in making their decision, is is the business facing any future losses? If they can understand if there are any losses past or current they can utilize, the right tax professional can help an entrepreneur avoid paying corporate taxes and only pay personal tax on their earnings. These are just some of the questions that the right tax professional will need to consider in order to decide what the best split is for that entrepreneur that can help them increase cash flow in their business for years to come.