Compensation vs. Equipment Investment
Some businesses are still flush with cash from the last few years of sales. Are you carrying extra cash in your business? If you are trying to decide between taking compensation and investing in equipment for a good tax deduction. If you’re trying to figure out what’s best for you, Ask SCORE online by posting your question to a finance expert.
There is accelerated depreciation available this year 2008 on vehicle and equipment purchases. You may be able to depreciate up to 50% of the value in the first year on your depreciation schedule. Please consult with your CPA on this issue. IRS link on accelerated depreciation rules.
Personal & Business Cash flow Needs
1. Do I have a sufficient personal cash reserve about six months living expenses? If no, you may want to take compensation to build your personal cash reserve.
2. Do I have a sufficient cash flow buffer in my business to see the company through uneven sales over the next six-nine months? Make a careful analysis of your sales history and look at projections based on sales +5%, level, -5%, -10%–this gives you a range to clearly see how much cash you need to keep in the business.
3. What is your tax burden? If you aren’t already working with a CPA, get one. Even if you meet just twice a year for planning and have the CPA prepare your taxes–you are taking a proactive approach to proper accouting and tax planning, which can save you money and headaches in the long run.
In the early 1980′s, serial entrepreneurand his wife Barbara faced difficult times when his bank called loans that Fontaine had personally guaranteed.
“I never dreamed (or chose not to acknowledge) that I was putting our entire net worth at risk. I learned the hard way that personal guarantees put the guarantor at real risk. Of course, I also didn’t foresee a 21% prime rate.”
After the bank called his business loans, Dick brought the family together for a conference. His teen-age daughter was less worried about dinner next month than her fashion image, saying “This won’t affect my clothing budget, will it, Dad?” more…