A lot of the business owners I work with have had the same situation happen. They went from making let’s say $150k to making $1mil+ over 1-2 years. This is the type of business growth that all business owners hope for.
In the beginning years of running your business, it’s all about survival.
You use your business like a piggy bank and spend all your time thinking about bringing in revenue.
But… once you start bringing in real money, this needs to change.
Let me walk you through what to do now:
How you run your business changes drastically based on what you plan to do in the future.
Are you going to stay a small one man shop or are you going to scale, add employees, etc.?
Do you need to put a lot of money into marketing or can you save this extra money and use it elsewhere?
The answers to these questions let you know whether you can pay yourself more, whether you need to keep it in the business, etc.
It is hard to know what to do without knowing where you are going.
Your proof of concept has succeeded, but what is next?
Now, you need to actually take some time and think about your business.
What is the entity structure?
Should you be a:
This is the time to start nailing this down. You may be paying a ton of extra taxes today all because you have never thought of this.
S corps often make sense for businesses that:
This is obviously not very simple, and you need a team helping you make this important decision.
So many business owners early on just take everything out they can.
At this point, that is definitely not the right way to do it.
Based on your entity structure, you need to determine how to best pay yourself.
For most high income businesses, you need to fine tune your salary and distributions to maximize the QBID . If you don't, then you are leaving deductions on the table.
But remember, you need to have a reasonable salary in the first place.
Oftentimes, I see business owners just randomly take out money here and there with no structure.
You want to make your pay regular like any other established business.
Set up a set salary, and then quarterly, semi annually, or yearly, take bonuses based on what is still in the business.
Create regularity.
It will make your personal financial planning that much easier.
So many business owners just wait until taxes are due and hope they have enough funds to cover their liability.
This creates 2 problems:
Both lead to you wasting a lot of money.
Tax planning has two main components:
Some of the tax planning moves you want to consider are:
Early on, using every dollar to grow the business makes sense.
But as the business grows, investing in the business while also diversifying and investing elsewhere starts to make sense.
Here’s how I think of where to put those dollars:
Do not just build wealth in your business.
Who knows what could happen that could make it not sellable down the line.
Build wealth both in and out of the business.
The more your business grows, the busier you are and the more your time is worth.
Spend your time in your business growing it. And build a team around the business to help ensure you are doing everything right.
This would include:
This group will help you take your business even further and insure you are doing all the best planning you can.
Invest in your team and stick with them for a long time. You will avoid so many mistakes by doing this.
At the end of the day, you are in an awesome spot if this is your situation as a business owner.
But make sure you don’t let this opportunity go to waste.
Plan well!
Financial Advisor