How to Read Company Financials Part Three - Understanding the Cash Flow Statements with Stacey Bennett.
Understanding Cash Flow Statements, Business Profits, Taxation, and Sustainability: Another Great In-depth Conversation with Stacey Bennett.
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Thank you, Stacey Lynn Bennett , for your invaluable contribution to enlightening us about accounting, business profitability, and taxation. Your insights have enriched our understanding of these complex subjects, empowering business owners and professionals. Your dedication to educating and sharing your expertise is commendable and appreciated. Your readiness to engage further in a Q&A session underscores your commitment to your profession. We sincerely thank you and look forward to continued opportunities with you.
Unraveling Misconceptions About Business Taxes
In a recent insightful podcast episode, Greg Sheldon spoke about business profits, taxation, and sustainability with Stacey Bennett, a leading profit advisor, and accountant. The conversation shed light on crucial misconceptions regarding taxes and the overall health of businesses, particularly S corporations.
Profits and Taxes - Clearing the Air
Bennett began by addressing a common query: What gets taxed when money is taken from a business? Bennett clarified that business owners are taxed on profits, not equity changes. Many people, she noted, mistakenly believe that delaying a draw will lower their taxes. However, these draws affect equity changes, not profits, which are what the tax is based on.
Business Tax Liability Versus Personal Tax Liability
This led to a clarification of business tax liability versus personal tax liability. Bennett, working primarily with S corporations - flow-through entities - emphasized that in such cases, there is no corporate tax liability, only personal tax liability. The profits, not the draws, are what create taxability. Even if the profits remain in the business bank account or are withdrawn for personal bills, they are the primary basis for taxation.
The Misconception of Eliminating Profit
A common but misguided business strategy is to eliminate profit, ostensibly to reduce tax liability. However, Bennett, a profit-first coach, explained that businesses should strive for the best tax treatment without compromising their financial health. Consistently spending profits to reduce tax liabilities can result in a company's downfall during an economic downturn, as the company would need more cash flow to weather such a situation.
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Investing in Your Business and Avoiding Debt Traps
Investing in the business can lead to long-term profits, but Bennett cautioned against the mentality of "kicking the can down the road." This approach could ultimately lead to financial issues when it comes time to pay taxes. Borrowing money to stay afloat is another common strategy that can backfire. Banks look for overall profitability and liquid cash when considering whether to approve a loan. Businesses with high debt and low cash assets are often denied additional funding due to their limited ability to repay their debt.
Engaging with Listeners and Providing Support
Concluding the conversation, Bennett encouraged listeners to engage with questions and welcomed further clarification requests. She offered the possibility of a live Q&A session and left her contact information for anyone looking for guidance or support for their business.
Key Highlights:
Conclusion - Prioritizing Long-Term Business Health
Understanding these intricacies is essential for long-term success in the fast-paced and complex business world. As Stacey Bennett has demonstrated, it's not enough to generate profits; businesses must also maintain their financial health for a sustainable future.
Connect with Stacey:
#howtoreadcompanyfinancials #companyfinancials #financials #understandingcashflowstatements #cashflowstatements #cashflow
Realtor Associate @ Next Trend Realty LLC | HAR REALTOR, IRS Tax Preparer
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