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Are You Ready to Stop Living Check to Check?

By August 9, 2016May 7th, 2018Blog

Are you operating a profitable business?

I had a client meeting yesterday and I thought what she and I discussed was relevant to all of you.  In fact, if you are a small business owner, you may find that her story resonates with you.

This particular client is a doctor.  She spends most of her days helping loved ones of her paying clients.  She has a couple clinics.

Last year she owed around $10,000.00 in taxes.

This year is going about the same as last year, so our expectation would be she will owe around 10k in taxes again.  Here’s the deal though. Last year she had to borrow money to pay her taxes and she hasn’t been able to pay that loan off yet.  So we should anticipate that she is going to have to borrow money again this year to cover the tax burden.

This post isn’t about the great tax strategies we put in place for her.

It isn’t about the fact that she is better off than her competitors because other business owners in her position pay 20k in taxes

This is about the question she posed to me in our meeting.

“How does a profitable business borrow money to pay taxes?”

So that is the question I ask you too.  How could a business that is profitable find itself in a situation where it has to borrow money to cover the taxes?

This actually happens all the time.

It’s not because the owners aren’t working hard.  They certainly put in the time to drive the top line and bring in more revenue.  So how is it?  Before I answer that question, let me give you a little bit more of the story.

Here we are in August of 2016.  We haven’t even filed this clients 2015 tax return yet.  Why is that? Because the books for 2015 are not done yet.  Which also means that the books for 2016 up through July are not done yet either.  This is definitely one of the problems that is hidden in that question that she asked me.

You need to have your books updated at least once a month.

I can’t be more serious and passionate about this concept.  How the hell can you run a business without knowing what just happened financially?  And to get the books updated at least once a month is such a minimal cost for the benefit the owner gets out of it.  So if you aren’t getting your books done that frequently, step up your game and find out how to make that happen.

She also has other entities that have money flowing in and out of them.  The word co mingle comes into play here.  She isn’t doing anything illegal or abnormal for that matter.

Lots of business owners make this mistake.

They think “my money is my money so I’m going to put it wherever I need it and pay for expenses however I can”.   They need to be thinking about their money in the structure of the businesses they have.  So we did that.  She has one entity that is a cash cow for her.  It is a crazy return on her time put into it.  But what she is doing is using that cash cow to fund another clinic that is the opposite of a cash cow.  It’s an un-cash cow.

So how did I respond to her question?

I was gentle but direct and asked her another question.  “Why would you have to borrow money if your business was profitable?”  My experience is that when a business owner has to borrow money to cover taxes, their business is NOT profitable.  And I pointed out she couldn’t even know if her business was profitable or not because she doesn’t have financials to verify that or not.

So I then did some mini Profit First concepts with her.  I first told her that her 1st homework assignment was to get Profit First by Mike Michalowicz and read it (or listen to it on audible).

You see, Profit First focuses on the health of the business and not just the size of the business.  Growing top line is great, but only if that makes your bottom line grow as well.

One of the first things you do in profit first is really explore and dissect all your expenses.  So we spent a few minutes talking about what is probably one of her largest expenses.

Labor Costs. 

We talked about a doctor she has that is causing problems with patients and employees all while not bringing in very much income compared to what she is making.  This has been going on for years.  She could see how this is not only killing her profit but killing her team’s morale.  She left committed to letting this dear friend go.

It’s a hard decision to make.  I get it.  We’ve all been there and have had to fire someone.  Most of us dread that conversation.  I know I certainly do.  But it is what needs to happen and is just one small thing that she can do.  We will identify a lot more things to help her business actually be profitable.

Anyway, I just wanted to share this with you because you may find that you or someone you know is in this common situation.

The great news is that there are solutions to turn it around.   Feel free to take the same recommendation I gave her.  Read Profit First by Mike Michalowicz.  We are certified Profit First professionals and are happy to answer any questions you may have about this method. We can also find out if your business is healthy or we can help you get it healthy

Call us!

801-999-8295

P.S.

If you are excited and want to talk with us about your situation, mention that you read this post and we will give you a $250.00 certificate for a FREE profit maximizer session.

Call now, this offer ends by Friday the 12th.

801-999-8295

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