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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 | Using Tax Strategies Can Positively Impact Cash Flow

Many entrepreneurs are not aware that the decision on how theyíre going to take money out of their business is actually a tax strategy says part-time CFO. When entrepreneurs take money out of their corporation, they need to do it one of two ways, either by salary, or by dividends, or a mixture of the two. The reason is because each of them is taxed at a different rate, so business owners are able to utilize an efficient tax strategy in taking money out of their corporation, can often save themselves thousands of dollars a year in taxes. This saved money can go a long way in helping entrepreneurs increase the cash flow in their business. The reason why thatís important, is because half of all businesses close their business within five years, and 29% of them say the reason why they close their business is because they ran out of money.

Part time CFO says that this is the single most common question business owners asked them. The reason it is so often asked, is because it is a question that is extremely complicated to answer. Anyone who answers this question simply for entrepreneurs arenít understanding the subject matter deeply enough. There are many variables that go into determining the answer to this question. Without being a deep dive first in order to understand the circumstances of the business as well as the owner and their family, is not possible to answer this question.

Some people claim that salary, dividend and corporate tax rates are integrated, and while that may work in theory, part-time CFO says that there are so many variables that this doesnít actually work out in real life that way. The theory is that since dividends are nondeductible, a business owner pays corporate and personal tax if they add the corporate and personal tax rates together, it should equal the amount of the salary. This is a great example of how many people think that they can create a formula that can easily answer the question, but business owners just need to work with someone is willing to get all of the answers to all the questions and figure out all of the variables for them.

Some of the variables that business owners needs to tell their part time CFO about include any other income they have, their spouse, and with their spouse has other income, childcare expenses, moving expenses, divorce and separation agreements. These are just some of the few variables on the personal side that are going to affect this decision. In variables on the corporate end of things include how future or past losses can affect how business owners pay themselves. Suppliers and customers contracts can also affect entrepreneurs decision on how to pay themselves. This is such a complex issue, that needs to be distilled down by the best part-time CFO that they are able to find.

Entrepreneurs can have an efficient tax strategy created for them on how they can take money out of their business, they can save thousands of dollars in their business which end up helping them increase the cash flow in their business.

Many business owners donít understand the significance of the decision on how they should pay themselves says part-time CFO. Though business owners think itís nice to be able to take money out of their business is tax free, thatís not the reality of the situation. Business owners either how to take money out of their business through salary, or dividends or mixture of the two. How they end up doing the mixture of the two, can help them save money in taxes. By utilizing the right tax strategy when they figure out how to pay themselves, business owners can save thousands of dollars a year in tax savings. This tax savings can significantly and positively impact business owners cash flow in their corporation so itís extremely important that business owners come up with the best tax strategy possible.

There so many complex variables that need to be considered when entrepreneurs are making the decision on how they can pay themselves from their corporation. Anyone who is able to answer the question for them quickly without understanding their circumstances or the circumstances of their business, are not going to great fit for the business. If a business owner wants to find out if they are currently utilizing the most efficient tax strategy for themselves, they can take a look at their tax return, or look at their financial statements to see if they are getting paid either hundred percent in dividends are hundred percent and salary. If they are getting paid either completely one way or completely the other, this could be a warning sign that not enough but has gone into this decision. Typically, the most efficient tax strategies end up utilizing a combination of salary and dividends says part-time CFO.

Entrepreneurs should be cautioned against trying to save money when theyíre making their accounting decisions says part-time CFO. The reason for this, is because most budget friendly accountant, may also be the least skilled, which can end up with a business owner with an inefficient tax strategy, that can impact the business owner and their family by having to pay thousands dollars more in taxes than they would otherwise. Business owners should resist trying to save money this way, and should have peace of mind knowing that if they hire a great accountant, they will be able to save more in taxes than they would spend on their accountant.

When business owners are making the decision on which part -time CFO to use, they should ensure that theyíre using one who has enough knowledge on tax strategies, and can help them come up with the best mix of how to take money out of their business to help them save taxes, and increase their taxes low positively in their business.