There have been significant changes to the tax law when it comes to meals and entertainment for 2018. Make sure your painting business is taking advantage of the proper strategies to maximize tax deductions and staying tax compliant.
How can you provide an employee benefit that benefits you as a business owner?
Take Command Health (QSEHRA):
Quick summary: Employees pay for health expenses, you reimburse them tax-free
The mechanics of a QSEHRA are surprisingly simple. At a high-level, employees pay for their own health expenses and you reimburse them. Here’s how it works:
Employers design their plan and set reimbursement allowances
Employees pay for their own health insurance and medical bills
Employees provide proof of their expenses
Employers reimburse the employee up to the set limit
How can you pay ZERO income tax with the 2018 tax law changes?
Find out if your painting business is underperforming compared to other painting businesses your size.
Understanding how your painting business compares to other painting businesses from a financial perspective can give you insights on to how to improve the profitability of your own business.
To get a copy of some benchmark data for painting businesses, click the link below.
Are your finances on track to provide for yourself and your family?
For the first episode, I will cover a wealth building strategy you can implement to ensure you are on track to financial freedom.
According to Bankrate, 65% of Americans are not savings enough. As a business owner, you have the opportunity to take charge of your finances in a way that employees are not able to. Do not get caught in the 65% of Americans who do not save enough for the future. But how much should you be saving? Where do you save your money? What investing strategies should you use? In this article, I’m going to lay out a 4 step wealth building strategy to ensure you are on track to become financially free.
Before we go into the wealth building strategy that gets you on track to becoming financially free, let’s quickly define what being financially free means. Financial free means that you can maintain your lifestyle without earned income (whether from a job or actively working in your business). So in order to be financially free, you will need a substantial amount saved and invested to live off the passive income or interest from that invested money. A quick rule of thumb way to determine how much you need saved is to take the amount you need per year to live off of and multiply it by 25. For example, if you need $30,000 a year to live off of, you would need to save $750,000 to be financially free.
Now that we’ve defined financial freedom, let’s look at the wealth building strategy to get there. In ‘The Business Owner’s Guide to Financial Freedom', Mark Kohler lays out a four-step strategy for business owners to take control of their financial future. Kohler recommends finishing each step completely before moving to the next step in the strategy to prevent inefficiency to occur while striving toward your goal. His strategy is similar to guidance provided by Certified Financial Planners and financial gurus like Dave Ramsey. This difference is that Kohler focuses on the small business owner. The four step wealth building strategy is 1. Optimizing your business, 2. Paying off bad debt, 3. Saving 12 months cash reserve, 4. Investing for the long-term.
The first step in building wealth is optimizing your business. Optimizing your business involves setting up systems in your business and ensuring there is at least a reasonable amount of profit in your business. The first component, setting up systems, involves documenting your procedures to allow you to delegate work. The second component, profitability, is ensuring your bottom line is comparable to the average painting business of a similar size. Once you have ensured your business has these two components, you can move to the next step. Most painting businesses can complete this first step in the first year of operation. Of course, you might always be updating your systems and improving your profitability, but you need to at least get to a baseline before moving to the next step.
The second step is paying off bad debt. Bad debt is considered to be unsecured (or badly secured) personal debt like credit card debt, car loans, student loans, or personal loans. This type of debt is usually very expensive. Meaning the interest is usually high.
The third step is to save up 12 months of cash reserves; 9 months saved on the personal side and 3 months saved on the business side. This is more than what is traditionally recommended by Certified Financial Planners who typically recommend 3 to 6 months of cash reserves. However, painting business owners are exposed to a substantial amount of risk. Most painting businesses deal with the seasonality of demand for their services. Plus, the painting business is exposed to the risk of a downturn in the economy. For example in 2008, the demand for house painting went down substantially and many painting businesses failed because they did not have the cash reserves.
The last step to building wealth is to save for the long-term. This could mean putting money in index funds or real estate. It’s important to emphasize that you should not start on step 4 until you have completed the previous 3 steps. For example, you would not want to start putting money in index funds that usually get an 8% return, when you have credit card debt charging you 20% interest.
In conclusion, this overarching strategy can be a general guide for you when you decide on what tactics to employ in your finances on your path to financial freedom.