One of the biggest mind set shifts that a business owner must make is to look at where the money goes.
It’s not just a case of making sure your gross profit margin is staying in line (sales minus cost of goods/services sold), although that is important. It’s not just a case of making sure your indirect or General & Administrative (G & A) expenses aren’t going crazy, although out of control G & A expenses is the business killer.
In this case, I’m talking about taking the “normal” expenses and turning them into investments.
Let me give you an example, using what has happened with the new Tax Cuts and Jobs Act that is now in force.
If you are an individual tax payer who is an employee, maybe with a few investments, you may have tried unsuccessfully to write off your tax preparation costs. Tax prep costs are an itemized deduction, with only the amount deductible that is over 2% of your adjusted gross income. If you have a lot of other miscellaneous itemized deductions that are in the same category (unreimbursed job costs, some legal expenses), you may have had a small deduction.
On the other hand, a business owner gets to take a full deduction for his or her tax prep costs. Even better, if the program with the business’s CPA includes learning how to read financial statements, learn about tax strategies and how to increase cash flow and wealth with a business, the IRS will give you a deduction that can make you rich!
That’s the business owner mindset. It’s more than just asking, “How can I deduct this?” It also includes “How can I use this knowledge to put more money in my pocket?”
The new Tax Act makes it abundantly clear. Employees lose more. Business owners win more. Are you on the right side of that equation?