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Business owners often run into cash flow problems in their business says part-time CFO. Sometimes those cash flow problems can be disastrous for business owners. 50% of all entrepreneurs end up failing business before their fifth year, and 29% of those failed entrepreneurs say the reason why their business failed was because they ran out of money. Business owners who are at risk of running out of money in their business should be very concerned, and be very vigilant in their business to always be looking for ways to increase their business, so they can avoid that reason why many businesses in Canada fail.
A great tax strategy that business owners can utilize in their business, is how to take money out of their business. Ultimately, a businesses tax strategy and business plan boils down to this question says part-time CFO. Although it seems like a simple question, how business owner should take money out of their business either through salary or dividends, but itís a very simple question with a very complicated answer. In order to figure that answer out, business owners need to hire the best accountant that they can, in order to create the best tax strategy that they can.
Businesses who have hired the most inexpensive accountant that they couldnít says part-time CFO, often discover that they are paying much higher taxes than they should be, meaning they could significantly save taxes than they could save on accounting fees. Since this can be one of the most impactful decisions that a business makes, business owners should be very mindful of being able to hire the best accountant they can for the job.
In order to understand this question, business owners should understand the difference between salary and dividends. Ultimately, in order to take money out of their business, business owners need to specify if itís salary or dividends. Dividends are not deductible from the corporationís income, because they are a direct withdrawal of the prophets of the business. Business owners that take dividends out of their business wonít have that amount show up on the income statements. On the other hand, salary is deductible from income statements of the business, and businesses that take salary will see the results on their balance sheets.
Both seller and dividends get taxed at different rates, and itís not necessarily a matter of which one has the least amount of taxes to get paid. Business owners need to take into consideration a bunch of variables including if they have income from other sources, if they have a spouse that earns an income and how they take that income as well, if their spouse is going to take dividends or salary out of the business. If the entrepreneurs are going to clean childcare expenses, moving expenses or if theyíre going through divorce or separation is all going to factor into this decision.
Itís very important that business owners hire professional that can help them plan the most efficient tax strategies they can, in order to save taxes so that they can increase the cash flow in their business.
Very significant problem that many businesses face in Canada says part-time CFO, is running out of money in their business. Half of all entrepreneurs fail in business within five years, and 29% of those failed businesses say that the reason why their business failed was because they ran out of money. Business owners can use tax planning in order to avoid running out of money in their business.
The way this works says part-time CFO, is by choosing how to take money out of their corporation, business owners can minimize the taxes that they pay as long as they have a great accountant helping them out with that. Itís a multifaceted issue, then needs an expert to help figure out with the business owner. If business owners can create the most efficient tax strategy possible, they can save several thousand dollars a year, that they can then use in their business to help them avoid running out of money.
The best professional they can find is someone with a lot of experience says part-time CFO. For years to get there chartered professional accounting degree, through years of articling plus years of experience working in the field can mean the right accountant can be costly. Many entrepreneurs believe that they can save money in their business by hiring a less expensive accountant, and then the end up paying far more in taxes than they would have in accounting fees.
Some warning signs that business owners can look for that show if they have an inefficient strategy, is if they look at their financial statement or their previous tax returns and see that they are g taking money out of their business either in 100% dividends or hundred percent salary. Part-time CFO says the most efficient tax strategies usually contain a combination of dividends and salary. Itís rarely just one or the other.
Any accountant to think that they can answer the question simply, easily, or without completely understanding the business or the owner, is not likely to understand the situation enough to be able to answer that question well. There are several things that business owners need to share with their accountant in order to come up with the best tax strategy. How their corporation is organized, the contracts they have, the independent contractors the higher, if they are predicting less this year or at a loss in the previous year, And even if a business is moving are all business situations that the accountant needs to take into consideration before they can answer that question says part-time CFO.
By working with a great accountant, business owners can create an exceptional tax strategy that can help them save thousands of dollars every year, they can then use to help increase the cash flow in their business.
