How to create wealth with business profits

Imagine this scenario; you’re sitting down with your accountant and telling them ‘my business has had a really good year, it made $1 million! But, I don’t understand where all that cash has gone’. Sound familiar?

When we talk to business owners, a common story we hear is that they’re making good money, but it all ends up going back into the business - and this is often because they don’t have a solid strategy going into each financial year.

If creating wealth for yourself outside your business is a goal for you - there are a few things we recommend you do:

Understand your numbers

It’s not the most exciting thing, but understanding your cashflow is the first step to see where your profits are going and to see where we can redirect, or maximise them.

Reduce tax

One of the biggest (and sometimes scariest!) things is tax. When you’re earning good money in business, you could be paying anywhere from 30-50% in tax if you don’t have the right strategies in place. There are lots of ways we can reduce the tax you’re paying and set things up in a smarter way - so it’s one of the first things we’ll do before moving on to other strategies.

Decide how to use your profits

The next thing we want to think about is how to use your profts - how much do you need personally? How much do you want to invest? You might decide that $2,000 a week is a comfortable amount to cover your living expenses. Any profits beyond this, you can invest.

Splitting profits into tax, personal and investment buckets allows us to clearly understand how much is going into each and how we can optimise them. If the majority of your profits are going into tax and personal buckets year after year, you’re going to end up frustrated that you’re not building wealth. If we can start to invest some profits (and we can do this in a tax effective way!) it will mean you’ll still have a solid income in future, but you won’t have to work as hard for it.

If you’re interested in getting some help setting up a wealth-building strategy for your business, we’re happy to take you through some strategies to put you in the best position possible. Reach out at www.financialedgegroup.com.au today to set up a chat with us.