*transcript formatted from original video (watch video for full version)

Let’s talk about taxes.

They have a big impact on cashflow.

But before that, let’s talk a little bit about something that impacts your taxes and keeps you compliant.  And that’s this:

Keep your personal stuff out of your business.

Don’t try to put your boat in the business and expect that to count as an office expense because every once in a while you take a customer for a ride.  Don’t use your business to finance your $80,000 sports car because you feel like that’s something everybody else is doing. Does the 80 or $90,000 sports car make sense to your business? Does it have an impact on your customer’s experience with your business?

Probably not.

Keep it separate.

If you are running personal expenses through your business it does impact your tax return.

If you’re audited, that’s one of the first things  they look for.

Most small businesses, are either an S-corp or a partnership entity.  The entity itself doesn’t pay taxes.  That income flows through to you personally, but there is certainly a tax impact of the profits on the profitability – your business.

The important point is to plan ahead for your tax payments.

Make that part of your cashflow plan. Covering the tax liability on your personal return can come, and should come, from the business if you’re an S corporation or have shareholder distributions.

If you’re a partnership, there should be an annual partner draw to help each partner cover their tax liability from the profitability of the business- this needs to be built into your projections.

That’s part of your balance sheet forecast- projecting out in the equity section those distributions that are draws to cover income tax.

Work with your CPA. 

Figure out the best way for you to take money out of the business that is compliant within the tax law.  And make sure you’re working with your CPA to estimate what your tax liability is on an ongoing basis. That should be something that’s reviewed either quarterly or even monthly, so that you’re budgeting for and forecasting out the cashflow impact of covering your taxes.

If you want to know more about this or more just in general about cashflow planning and  cashflow management, here’s our Ultimate Guide to cashflow management and improvement.