Owning a small business means collecting, managing and paying taxes. These include but are not limited to payroll tax, sales tax and corporate tax (or more depending if your business is operating outside of Canada). Sometimes business owners try to “save” on taxes by getting paid in cash. But are you actually helping your business and personal profit in the long run?
Note: This article is based on Canadian taxes as Systems Business Coach’s head office is in British Columbia, Canada. Always double-check with your government to see what other taxes and cash regulations are in place for your business type.
Avoiding corporate taxes
Having to pay corporate tax is a good problem to have; it means that you are making money. Trying to get out of paying taxes by spending money on personal items or things you don’t really need just to reduce your profit is not a great strategy. That extra toilet paper paid for by the company and used at home will cost you WAY more than the few dollars in tax you might save. Consider the small business owner who for years “writes everything off” or “puts it through the company,” only to learn when they go to sell that no one wants to buy a business that on paper is not profitable.
What you save on corporate taxes today will cost you many times more in the future when you go to sell your business. Plan to earn a profit and have a system in place to save the cash to pay your taxes.
Getting paid in cash
Accepting cash to save your customers “the tax” can hurt you even worse. It’s not worth it! This practice can put your sales and expenses out of balance, triggering an audit. Also, chances are YOU paid the tax on that item. By accepting cash, the government has not been ripped off, you have!
Cash sales slipped into your pocket, while fun at the moment, messes up your bookkeeping. It can also cause serious cash flow problems and, once again, it reduces the value of your company.