Good Plan, Bad Plan

You can plan, or not. What can happen? It's not the end of the world, but it may cost you money. There is a way to structure a business and its operations to optimize your financial benefits. This makes the finances of the business work for you. It's not difficult, it just requires a plan. 

Without a plan, you may wind up paying an extra $800,000 in taxes like my friend the pediatrician did. The good doctor's CPA instructed the doctor to have his medical practice and office building in one corporation. When I did a valuation on the corporation, this structure netted a combined value of $675,000. When I separated the business into two corporations, a real estate holding company and an operating company for the medical practice, the value of the two corporations was $1.3 million. In the original structure, the sole proprietorship business structure was paying an additional $40,000 per year in combined self employment and income taxes. Over 20 years in business, this cost the good doctor an extra $800,000. Bad plan. 

My med-spa client had a different experience. By reviewing her balance sheet with her every quarter, we scrutinize what is happening with line items like assets, depreciation, liabilities, and equity. This allows us to plan our needs so we can control interest expense and profitability. We observed that our assets were getting older and that we were running out of depreciation. Many CPAs will advise their clients to buy assets at year end so this doesn’t happen. This is why equipment vendors usually experience their strongest sales during the fourth quarter. By planning the purchase of our laser during the second quarter of the year, a traditionally slower period for equipment sales, we were able to keep our depreciation expense and purchase our new equipment at a substantial discount. Good plan. 

Plans don't have to be complicated or force you to use a language you don't understand. They are common sense tools that allow you to plan your profit, control your cash, and enable you to minimize your taxes. Learning to use these tools does not require years of schooling or dependence on overpaid consultants. 

Plans start with clearly defining your intention. What are you trying to accomplish? Are you trying to increase your profitability, seek additional funding, improve your equity, maximize your value, or ease the transition when you decide to sell? All of these are clearly stated intentions of a financial plan. 

Follow your passion, ask some questions, learn some basics, and make some money. 

As always, the first call is free. I hope to hear from you.

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