Saving tax is great, right? In this episode I’ve got different idea for you. Full transcript below…
Welcome to the Business Numbers podcast. I’m your host, Ben McAdam. I’m a profits coach, virtual CFO, and entrepreneur, and I’ve created this podcast to help you grow your business profits and understand your business numbers without judgment, and without burying you in a whole bunch of jargon that you don’t need. Just actionable tips and case studies to help you grow your business. For show notes, go to the website businessnumberspodcast.com.
Now some business owners try to keep their profits as low as possible in order to save tax. However, there’s two problems with this. First, it leads to penny- wise, pound- foolish decisions, like spending money that you don’t need to. For example, spending a thousand dollars on something you don’t need where you’re doing it just to save tax. In that example, you might save $200 to $300 on tax, depending on where in the world you are, but you’ve lost seven or $800 that you could have spent on something with a better return, like a well-performing marketing campaign, or building your wealth outside your business or growing your team. So that’s the first problem with trying to keep your profits ow in order to save tax.
The second problem is that you can’t get a clear picture of how your business is performing. Many years ago, I had a client who was very pleased at how little tax he paid, but when we actually looked at his numbers, his business was doing very badly, and within six months he’d have to declare insolvency and shut the business down. He just thought that he was cleverly keeping his profit low in order to save tax and assumed, that’s the important word, he assumed that his business was doing okay because they had money coming in the door.
Let me add in a bonus problem. If you have this thought in your head that paying tax is bad, if that’s a real subconscious, deep embedded thing in your mindset, that’s going to slow down your growth plans. That’s going to stop you from investing in the right things that are going to grow your business, because in your head you will assume growth and more profits equals more tax and tax is bad. So be very careful what thoughts are limiting your growth. Would you like to have a $3 million tax bill? What about a $10 million tax bill? For a lot of people, the first reaction is “Hell no, no, what are you doing to me, Ben?’’. But think about this: if your tax bill is $3 million, then the profit that you get to keep off to tax is somewhere between 3 million and 10 million, depending on where you are in the world and how low tax rates are. So if the amount you get to keep after tax is somewhere between 3,000,000 and 10,000,000- would you like to have a $3 million tax bill?
All jokes aside- you can’t say ‘no’ to the tax bill and say ‘yes’ to earning a lot at the same time. Sure you can legally minimize your taxes and explore offshore options around all that, but you get the point that a focus on saving taxes is less useful than focusing on growing your profits. Right? If you want some help to get an enormous tax bill, I mean, take a lot of profits, you know where to find me.
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