Why Your Business Needs to Look Financially Strong

In our previous post, we broke down why it's important not to go wild with your tax write-offs in order to make your company stronger.

So what does stronger mean, exactly?

I always think about how I can make my company look stronger to the bank or potential buyers.

I also want my company to look strong as an asset in my portfolio for eventual retirement. This means showing strong income and steady overall growth in income. When your company looks stronger in the bank's eyes, you'll also have more freedom to secure financing for business expenses as well as your personal life.

If you hope to sell your business one day, it's also important to look strong. You want potential buyers to be able to look at your profits and losses and see that the company is truly worth buying.

Looking strong as a company doesn't just apply to selling your business, however. For many business owners, selling is the furthest thing from their minds. You might also want to transition your business to a family member or beneficiary one day. I encourage these owners to think of their company like an insurance policy.

If something happened to you and you had to sell your business for your family, what would they get out of it? What would be left for them? This is a difficult but important big-picture question to consider as a business owner. You own an asset that you're putting your life into!

Whether you're looking to sell, trying to grow or even pass the business on one day, the key is the same: Being able to show on paper that your business is strong.

One of my favorite examples is a client of mine who bought a small cleaning company and steadily grew the business. He invested his own time and dollars and even bought out other clients to build his cleaning company over five years. After five years, he sold the company for three times what he paid for it.

How did he pull this off? He treated his company like a stock: buying low and selling high. He could do that because he took all the right steps over those five years to know his company's value and show its strength.

Finally, remember that being able to show your company's strength makes it much easier to take pride in what you do. Closely watching your company's growth goes a long way in validating your decisions as an owner. When you can see the effort you put into your company every day on paper, it's like the best bonus you can get.

How to evaluate strength varies from company to company. If you'd like talk to about how you can evaluate your own business and learn how to keep making it stronger, I'd love to meet with you.

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Business Tax Write-Offs: How Much Is Too Much?

Welcome to the new Money Smarts Inc. video blog!

We've decided to start this blog to bring a higher level of tax accounting services and value to our clients and business owners. If you know someone who could benefit from our tips, expertise and advice, we'd love for you to share! In the spirit of tax season, I want to kick off our new blog by discussing tax write-offs for your business. More specifically, I wanted to cover why it's important to think about the big picture when writing things off. In many cases, the short-term gain of excessive write-offs can actually be harmful to you in the long run.

As a small business accountant, it's my job not just to find write-offs you may have missed, but also to tell you when to tone it back. For example, if your spouse runs occasional errands for the business, you might be tempted to write off their mileage, or even a whole company car. Is it really worth it for these kinds of expenses?

The biggest issue to consider is that writing off too much of your income will make it difficult to get financing for loans. This includes business and personal financing, simply because banks like it when you can show income. The most common issue I see business owners run into is struggling to buy a home because they can't show a strong income due to excessive write-offs.

This can also have a long-term impact on the value of your business. If you plan to retire one day like me, you'll want to know what your business is worth should you choose to sell it or transition it to another person. We business owners put our blood, sweat, tears and money into our business, so it's important to look at this business like an asset in our portfolio.

So how do you know when you're writing off too much?

Every business is different and every tax accounting situation is unique. The best thing you can do is have a relationship with your tax accountant. They'll help you strategize the best tax write-offs and think about things you probably shouldn't write off. That relationship shouldn't be limited to having your taxes done once a year, either.

Having a relationship with your tax accountant helps us get a feel for your long-term plans. Going crazy with write-offs isn't always a good idea, but some years it is good to get a tax return. For example, if a contractor buys a large piece of equipment or a new truck, it would be absolutely beneficial that year to write it off and not have to pay any taxes.

It all depends on your unique situation and your plans for your business.

If you have questions about tax write-offs this year, don't hesitate to give us a call.

If you know someone who could benefit from this information or our services, leave us a referral in the form below and we'll send you a gift card!