The words "entity" or "status" of your business may be used in two ways:  (1) to describe the legal entity of your business (sole proprietor, partnership, LLC, S-Corporation, C-Corporation) or, (2) to describe status of your business for tax purposes (pass-through or corporation).  In the following post we will be discussing which legal entity is appropriate for your business for asset protection purposes; here, we are evaluating what status you should be using for tax purposes. 

Generally, either a business is a pass-through tax entity or it is taxed as a corporation.  If a business is pass-through, the profits or losses are passed-through to the tax return of the owners.   The owner owes taxes for any profits, even if those profits are not actually taken home by the owner.

If the business is taxed as a corporation, the corporation files its own tax return and pays taxes on its profits.  Money may be paid to owners as salaries for work performed and the owner will pay taxes on his/her salary, just like any employee.  Other money may be paid to owners as dividends on their stock and the owner will pay taxes on dividends, just like any dividends received on stock.  More on Use the Appropriate Tax Status for Your Business Phase and Entity.

Passive revenue streams not only gradually take you out of needing to work hours-for-dollars, but also provides an asset that can be sold, individually or as part of your business. 

One principal of passive revenue streams is to convert whatever service or expertise you provide into a product.  This information product teaches your system for providing your service.  You may sell this product to the people who would have been your clients as a do-it-yourself system or to other professionals in your industry as a franchise, business-in-a-box, or consulting program.  More on Your Exit Strategy: Creating Passive Revenue Streams in Your Business

Cash Flow Mistake #4 - Missing a System. 

Have you:  Created a beautiful, highly detailed cash flow projection spreadsheet — never to look at it again?  Been six months or more behind in your bookkeeping, until your tax accountant is ready to fire you as a client?  Spent hundreds of dollars on advertising that got you nowhere fast?  Decide if you can afford something by today's balance in your checking account?  Been crazy-busy with clients, and all of a sudden, your business completely dries up?

Here's the Truth:  You need a system.  Managing your cash flow must become a habit.  Each week set an appointment on your calendar for a "Money Meeting" with yourself to review the finances of your business.  Schedule this appointment & commit to it just like a client meeting or doctor's appointment.  Could be as little as 10-20 minutes per week — if it overwhelms you, set a timer for just 15 focused minutes and give yourself permission to stop when the timer says "buzz."

Having accountability issues?  Hook up with another member of the Mastermind and schedule your appointments together.  At the set time call each other to confirm you are reviewing your finances, and send up a follow-up email afterwards to celebrate your progress (no need to share the exact financial details). 

Cash Flow Mistake #3 - "It Must Be Perfect."

I know a new client has fallen for this mistake when they hand me a multi-page, color coded, 40-category Cash Flow Projection spreadsheet.  And it's dated 3 years ago.

In an effort to "do it right," we try to create financial reports that are completely accurate and perfect.  Everything according to Fortune-500 accounting principles, highly detailed notes, extensive competitor research, and sub-part after sub-category.  But what happens?

These beautiful spreadsheets gets stuck in a drawer, never to be used again.  What a colossal waste of your time! 

Here's the Truth:  Simple is powerful. You need short, summarized financial reporting that you can actually use!  You can use two simple one-page spreadsheets to troubleshoot income problems before they start and make powerful planning decisions for the future of your business. 

These two spreadsheets are Marketing & Sales Weekly Report (statistics tracking your sales process and how you generate income) and Monthly Cash Flow Projections (projected income and budgeted expenses).

By the way, perfection is impossible.  When you are projecting the income or budgeting the expenses of your business, you are trying to predict the future.  It's an educated guess.  Your projections will never be perfect — but all you need is information just "good enough" to help you create and make changes to your business & marketing plans. 

Trying to predict weekly Cash Flow?  If you are trying to micro-manage weekly Cash Flow Projections, that's a sign you need short-term financing, such as a business Line of Credit or even a traditional American Express card. 

(part 4 coming next week)