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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 | How To Stay Can Dividends Affect Cash Flow In Business

When entrepreneurs are making the decision about how they are going to take money out of their corporation, they may not realize that it is more crucial decision than they realize says part-time CFO. The reason why itís so crucial is because rather than being an issue about how much money the business owner makes, itís actually tax strategy that can significantly impact not only a business owner, but their corporation as well. Efficient tax strategies can save business owners thousands of dollars, and inefficient tax strategies can cost the business far more than money. Since half of all entrepreneurs end up failing within five years, 29% of those failed entrepreneurs say that the reason why they failed was because they ran out of money in their business. Efficient tax strategies can help business owners succeed are so many went able to.

One of the first things that business owners need to understand when it comes to paying themselves, is that there is a difference between taking salary and taking dividends. While an efficient tax strategy usually has a combination of both, but that combination is depends on several factors. Salary is the amount of money that is deductible from the income of the corporation, and personal taxes are paid on. Dividends are the income the business owner takes from the business that is not deductible from the income statement of the business, because it is a direct withdrawal of the prophets of the business. It will show up on the income statement of the business, and corporate taxes are paid on it.

Many accountants believe that salary, dividend and corporate tax rates are integrated, but thatís far too simplistic view of it says part-time CFO. The theory is that since dividends are nondeductible, an entrepreneur pays both personal and corporate taxes on it, if they had put together it should equal the amount on the business owners salary. Business owners should be wary of anyone that has a very simplistic you of how they should pay themselves, because if itís too simple, is probably not taking into consideration all of the different variables of the business ownerís and their corporations circumstances

One warning sign that a business owner should look for if they are utilizing efficient tax strategies, is if they look at their financial statement and discovered that they are getting paid either hundred percent in dividends or salary. The most efficient tax strategies have a combination of being paid in both dividends and salaries, based on the individual circumstances of the entrepreneur.

Part-time CFO says that in order to make the right decision, they need to go to school for four years, and article for three more years and then have more experience under their belts in order to completely understand the issue, and be able to ask the business owner all of the right questions in order to come up with the right makes for them that can help them save thousands of dollars in taxes and therefore increase their businesses chance of success..