Latest / Financial Survival Network / Successful Small Business Tax Planning Saves A Fortune - Grant Bledsoe #5782

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Successful Small Business Tax Planning Saves A Fortune - Grant Bledsoe #5782 · Financial Survival Network

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  You're listening to Carrie Letts's Financial Survival Network where you get valuable information you just
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  can't find anywhere else to thrive in today's trying times. You need the Financial
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  Survival Network now more than ever. Go to Financial Survival Network dot com and
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  get your free newsletter in gift Financial Survival Network now more than ever, and
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  welcome. This is Financial Survival Network. I'm your host, Carrie Lutts.
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  Well, we got a recession. If it's not here already, it'll be
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  here very shortly. And basically, what do you do to prepare for it?
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  If you are a business owner, how do you get ready for what's
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  about to hit? And Grant Let's says with us the grant, you're a
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  financial planner and you work with the small businesses in money management, in retirement
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  planning, in cash flow management, etc. So let me ask you a
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  question. Is the recession coming? You know it? Probably you know you
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  as you as you put it. You know we might be there already if
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  you look at all the numbers. We're not quite there, but things seem
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  to be slowing down a little bit. What we're doing with our clients at
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  this point and just to provide our listeners a little bit of context. I
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  run a financial planning firm. We work with business owners to help them optimize
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  cash flow, reduce taxes, and invest prudently. And so for that demographic,
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  a lot of small businesses really struggle with how to handle their cash,
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  both in good times and bad. And I think a framework that really works
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  well for business owners in any economic environment is probably applicable now. And regardless
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  of whether we're headed into a recession or not, or whether we're already in
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  one or not. I think everybody needs a good framework for handling cash,
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  and I can describe what that is if that's helpful, but from my perspective,
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  the how people handle that is kind of irrelevant. You need an operating
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  model that's going to work when the economy is working in your favor and when
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  it's not, because that's simply something that's not in our day to day control.
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  So a lot of this comes down to how your business is organized.
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  If you have a pass through entity, either a sole proprietorship or an LLC
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  or an S corporation, it doesn't matter from a tax perspective whether cash in
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  your company's bank account stays in the bank account at the end of the year,
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  or whether you take it out and pay yourself. And one thing that
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  I think a lot of small businesses struggle with is when do I take cash
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  out, how much do I pay myself? How much do I leave in
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  the business account for operating purposes? And I think of it kind of as
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  an emergency fund. The financial planning one on one for your personal finances,
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  you need to start with a little bit of cash in his savings account available
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  to you for a rainy day, so that you're not compelled to dip into
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  your retirement accounts or your investments at an inconvenient time when the market is down.
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  The same goes for your business, and I think most businesses should probably
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  shoot for somewhere between three and six months worth of operating cash. So,
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  if you pull your profit and law statement from QuickBooks or your bookkeeper, and
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  you look at your ordinary monthly operating expenses, how much does the business need
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  to survive? Multiply that by somewhere between three and six based on your comfort
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  level, that's the amount of cash you ought to have in the business.
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  And so the kind of long winded way to get back to your question carry
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  is is I think i'd start with how much cash do you need for your
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  business the emergency fund, and if we're expressing it as a function of your
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  monthly operating expenses, if you're concerned about the fact that we might be headed
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  into a recession, if your ordinary emergency fund is three months worth of operating
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  expenses, well then you might let that swell to four or five or six
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  in preparation of revenues drying up a little bit. Obviously, the other things
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  you can look at are reducing those operating expenses or maybe changing your contracts with
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  vendors to allow for you to pull back on those expenses a little bit if
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  times could really get tough. But really, I think the core framework ought
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  to revolve around how much cash do you have in the bank. If you
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  have more than that amount of three, four or five six months worth of
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  cash, that's when you think about pulling it out into your personal bank account
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  and doing something else with it. Right, And when it comes to like
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  receivable management, you know recessions coming, you know there's potentially going to be
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  a cash shortage, and it's going to be harder for your clients to pay
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  you. So maybe it's a good idea to put in incentives to get paid
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  up front, to limit your extension of credit to all only those who are
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  the most credit worthy, and that can help you get through it as well.
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  Right, A great point. Yeah, this varies a lot by industry.
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  You know, receivable management is more important in some industries than others.
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  But yeah, I think we probably have to lower our expectations of how much
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  of those receivables you'll be able to collect, and the more cash upfront that
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  you can get, the better. And if the effect comes from some kind
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  of an incentive program, maybe you reduced your prices a little bit for people
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  who are willing to pay all up front, or your only extending credit to
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  the most credit worthy the organizations. That that's another great avenue to consider,
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  right all right, So where do you think most business owners go wrong?
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  to throw now more than member. A lot of it has to do with
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  the cash management, a lot of it has to do with tax planning in
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  their own personal financial planning. So the biggest, the biggest mistake or the
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  big misconception I see is proprietor or entrepreneur goes out and starts this business and
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  they assume that if I pour everything into the business and can make it a
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  success, by definition, I will be financially successful myself. That definitely helps,
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  right. Entrepreneurship is a wonderful lever of wealth building for a lot of
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  people. It's a great way to become financially successful, but it is not
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  an inevitability. You still have to do the work and put some money away
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  on your own diversify out of the business in order to be financially successful yourself.
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  So that's over and over and over again. That's where I see people
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  go wrong, is they put their own personal financial planning for themselves and their
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  families on the back burner because they think that if I just focus everything on
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  business success, throwing cash into the business, and if I can just make
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  that part work, then I will inevitably, inevitably be financially successful. And
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  that's just not a guarantee. And I've made that very same mistake myself,
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  grant and so. But it's hard to convince people you're on a mission.
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  You're going to build your company and once it succeeds, then you're going to
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  benefit from all the trappings of success. But you need to plan for success,
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  don't you Exactly you speak from experience. Carry's I'm not saying that people
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  should not focus all their attention on building the business and making it successful,
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  because that will be a wonderful lever of your future success, but just keep
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  it in the back of your mind that that's not the only thing that has
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  to happen. And at some point, when you get some momentum and make
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  that start to make that thing profitable, you're gonna have to put some more
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  mechanisms in place and pay attention to your own personal objectives to make sure that
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  you're on inadequate trajectory. And oftentimes, some really great mechanisms for that are
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  a qualified retirement plan in the business. You can set up your own four
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  oh one K. It's a great benefit for employees, it's a great retention
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  tool, it's a great way to put money away, a tax deferred basis.
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  Other benefits that you can put in place in the business that will benefit
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  yourself that an ordinary W two employee you may not have access to. You
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  There are a lot of avenues, there are a lot of arrows that you
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  have in your quiver. And I think that's exactly right. You know,
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  you do need to focus all your attention on making this thing successful first.
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  Just remember that there's other stuff you have to do at some point along the
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  way, all right, so you have the plan for success. I mean,
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  I think that really is key, and that means different things to different
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  people. In your travels. Here, what's the biggest mistake so one of
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  your clients make. I've seen people make six figure tax mistakes in the past
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  with regard to you know, specific retirement plan rollovers, putting the wrong amount
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  of money in the wrong account. There are a lot of technical things that
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  will tend to screw up that cost them a lot of money. I've also
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  seen people not put cash into the company four one K plan when they were
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  compelled to by the way it was set up, and so they have to
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  pay a bunch of back penalties and taxes, and that's a huge cash flow
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  suck. If you've if you head down a wrong path. Let me put
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  it this way, if you make a commitment in the business to establish something
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  like a four oh one K or a simple IRA, you're making a commitment
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  to putting in a little bit of money on behalf of your employees. And
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  if you forget to do that or get headed down or wrong the bad path
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  where you don't have the cash to do so, that can compound and really
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  run you into trouble. And I've seen a number of those cases over the
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  years, and it's cost people multiple six figures. If you do it wrong.
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  Yeah, that can be costly. All right, great, well,
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  we really appreciate your coming on. Can you just tell us your website how
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  we connect with you on the web and find out more. Sure, Yeah,
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  we're all over the place. You can check out three Oakswealth dot com.
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  That's spelled out. It's our financial planning firm. I have a blog
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  I write on it's called Above the Canopy Above the Canopy diet Us. And
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  we've I've got a podcast where we talk about this stuff as well, called
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  Grow Money Business. So google any of that stuff and we'll pop up.
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  Excellent. And if you've got a question for a Grant, shoot me an
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  email k l at carry Lutz dot com. Make sure you go over to
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  the site to the show notes. You can click the link and you'll get
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  right to Grant's site to three Oaks and Grant. Appreciate you coming on.
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  We'll talk to you again soon. Thanks for having me, Carrie. That's
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  great, Thanks for listening to Carrie Lutz's Financial Survival Network, your solution to
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  today's trying times. For the latest, go to Financial Survival Network dot com.
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  Financial Survival Network now more than ever