Yup, I said celebrate. Business ownership comes with some sweet tax advantages. And, that’s all I am willing to admit to in this public post, but I’m pretty sure you know exactly what I’m talking about. It’s not uncommon for business owners to show very little profit and thus pay very low tax bills when they do their annual returns.
Sounds like a solid strategy right? Maybe not. Several decades ago, when I had just started out in business, a wise client (who is still our client) gave me some sage advice: “Donna, get over it!! Paying taxes means you made money, get used to it and celebrate!” That is NOT what I wanted to hear when I was not prepared for that tax bill. I was using profit to pay down my initial debt, so cash flow wasn’t flowing as it would later on.
But he was right. You should celebrate (and prepare for) that tax bill and here’s a few reasons why:
1. HELLO – you’re profitable!
2. You are more credit worthy. Should you seek financing to expand your growing business it won’t be laughter you hear from your local banker. This also applies to personal financing as well. As a self-employed person your financial credit worthiness is based on your business performance (i.e. tax returns).
3. Your business has more quantifiable value if you are thinking of selling (and you should always be thinking of what your exit plan will be). Don’t kid yourself, service businesses have very little value. However, service businesses that can document consistent profit have a much higher value.
So, what’s a business owner to do? Keep up the good work and PLAN ahead. Work with your bookkeeper or accountant throughout the year so that tax time is not a surprise. Create the appropriate tax reserves and/or quarterly estimated payments. Focus on driving your business forward.
And, did I mention CELEBRATE?!!
Stay tuned …
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