Rustler’s Quickbooks Tips

Income is what the business makes, pretty obvious huh? Don’t get that confused with profit. Profit is what is left after you pay all the different costs of operating your business, including buying inventory, insurance, advertising, rents, etc., and of course paying uncle sam and nephew (the state) his taxes.

Now I don’t begrudge paying taxes, and no matter what you feel about how high they are, I can tell you from having lived all over the world that we pay some of the lowest taxes there is.  But just because I don’t begrudge paying taxes doesn’t mean I want to pay more than I have to.

And that is the reason I have  a partnership with no employees.  By not having employees the business doesn’t have to pay the various state and federal unemployment taxes, the business does not have to match social security contributions, and best of all the business doesn’t have to pay for a payroll service just to keep up with the changing taxes withheld.

What I am hoping to do (and please realize this is not a recommendation, just my opinion) is to take on help when that day comes as a limited partner.  Limited in that they do not get a vote as to operation or fiscal planning decisions.  The new partner will get a guaranteed draw and have to file estimated taxes, but I have a spread sheet that does that calculation easily and each partner can have a copy.  That means that the guaranteed draw has to be higher than a straight salary since the partner is paying the tax, but, and the key word is but, if I can show the business growing, the new partner will also share in profit.  That lure of a “bonus or profit sharing” check will, I hope, mitigate the lower guaranteed draw.

And let’s face it, if an “employee” has a stake in the business, gets a profit share, they hopefully will be more concerned with the business relationship with vendors and customers.

Want to see what difference it makes?  Take last years P&L, add up the cost for your payroll service and the total costs of unemployment taxes, the business contribution to social security and any other taxes and fees you pay because you have employees - then add that figure to net profit. (And if you use QB payroll include the cost of “upgrading” to a new version of QB every three years, since they sunset the payroll service.)

Less taxes (and associated costs)  paid equals higher net profit - pretty simple.