Have you ever heard someone say, “I made more money than I expected this year.”
Your first reaction is probably to punch them in the face because they seem to be crying about making too much money. If I could draw a problem out of a hat, “making too much money” is the one I hope I got.
The Problem
What they are really complaining about, especially from the perspective we see at Incite Tax is that they are scared to death they will end up paying all of it and more in taxes. I’ve even had clients take this concept to an even more extreme when they asked me, “at what point should I stop making money?”
So for a bonus point I’ll tell you the simple answer to the real concern they are expressing; Until the tax rate is 100%, you will always end up better off making more money. We also point out that because they have an awesome CPA firm they are paying the least amount in taxes possible.
But that was a bonus. The main point I want to discuss is the thing you are probably thinking that these complainers are totally overlooking. How does one make more money than they were expecting? I can understand if you have sporadic income the concept of making more money than you expect. Maybe you get a couple listings that close much faster than your average. Or maybe you are in an industry that pays really high commissions so just one additional sale can be way more money than you anticipated that year.
But let’s be honest….that is still a stretch. When I hear someone say, “I made more money than I expected this year,” what they are really saying is, “I didn’t manage my cash very well and now I don’t know how I’m going to pay for my taxes.”
One of the most common mistakes a business owner makes when their income increases is that they spend it at the same increased rate. And if they spent it all on business expenses the tax problem wouldn’t be there. The increase in spending is usually at the personal lifestyle level. Which is totally fine. We think that a successful business owner should have a comfortable life for all the value they are creating in the world. The problem is that come April 15 they feel like “all of a sudden” they owe a ton of taxes and they don’t have the cash for it.
The Solution
The solution is simple. It’s called Profit First which is a cash flow management system. It’s based on the book called “Profit First” by Mike Michalowicz.
The system makes it so that you focus on the health of the business which is both the income AND expenses and not just the income.
It has you focus on paying yourself first, making sure you get a return on your investment as the owner, and setting aside the proper amount for your tax burden throughout the year.
When followed, it’s literally impossible to “be caught off guard with making more money this year.” (aka not managing your cash properly).
“Working with Incite Tax on my Profit First system has put me in a much better position. The profit first assessment Incite did for me gave me the bad news that my business was quite unhealthy. But that was what I needed to hear.
It helped steer me toward the areas of my business that needed the most fixing. In one of our meetings, we focused just on slicing expenses. We found $29,585 of annual expenses to get rid of. I’m also able to stay on top of pesky things like sales tax payments which has been a challenge for me in the past. I’m loving profit first in my business!” Eric McHenry, Owner of Viking Automotive
If that seems intriguing, we can give you the 5 core chapters from Profit First for free. Let’s start celebrating making more money instead of it feeling like a problem.
GET MY FREE CORE CHAPTERS!
