BCH’s AMEN Corner – Affluent Minority Entrepreneur News
The first quarter is a good time for a business financial wellness check-up to assess your business I.Q. Knowledge is the new currency! Let’s see how you do.
The last few years have been stressful for business owners navigating the pandemic, supply chain issues, recession concerns, and rising inflation. Let’s take a moment to recognize the fact that your business has survived (and even thrived) in the midst of all this economic uncertainty. It’s a good time to get back to basics to see where you may be able to improve your Financial Wellness I.Q. and identify areas of growth.
What is Profit Margin?
One of the measures of a healthy business is its profitability. The profit margin is a metric that you should track on a monthly basis to make sure you’re on target to reach your financial goals. The profit margin is the percentage of income remaining after all expenses and taxes are paid. A profit and loss statement (P&L or income statement) measures business performance including revenue, costs, and expenses over a period of time such as monthly, quarterly or annually. There are different standards of profit margins for various industries and it’s important to understand where you rank to remain competitive. For instance, professional services firms have higher gross profit margins (36 percent) because they have lower Cost of Goods Sold (COGS) versus restaurants (5 percent).
How Do You Calculate the Value of Your Business?
A good starting point to assess the value of your business is your assets minus liabilities to give an idea what your business is worth. Business assets include anything the business owns such as equipment, inventory, buildings, and property. Liabilities include any debts, loans, accounts payable, and mortgages. A business that has assets of $500,000 and liabilities of $300,000 is roughly worth $200,000. This is one view and there are many different ways to determine business valuation including understanding EBITDA ratios and comparing it to other companies. EBITDA is Earnings Before Interest, Taxes, Depreciation, and Amortization and is calculated by adding Net Income + Interest + Tax + Depreciation + Amortization. These figures can be found on income statements and cash flow statements. EBITDA provides a clearer picture of operating profitability and cash flow although it excludes a large number of expenses that impact the business.
What are the Largest Tax Deductions for Small Businesses?
It’s recommended to partner with a CPA and tax advisor to make sure you’re taking advantage of all the deductions you can as a small business owner. These deductions reduce your tax liability and qualifications vary based on the type of business from S-corp to LLC to sole proprietorship. Some of the largest tax deductions for small businesses in 2022 include the following:
- Home Office: If you use a portion of your home exclusively to operate your business you may claim a percentage of utilities, insurance, mortgage, and repairs.
- Real Estate Taxes: If you own a property or store front for a business you can claim real estate taxes as a deduction.
- Business Property Rental: A portion of rentals such as offices, equipment and warehouses may be deducted.
- Business Vehicle: If you have a car or truck for your business, maintenance and fuel costs may be deducted.
- Legal and Professional Fees: Fees paid to accountants, attorneys, and business consultants may be deducted.
- Health Insurance Premiums: Premiums for yourself and employees may be claimed with proof and there may be limits that can be deducted.
- Employee Compensation: Employee salaries, wages, and bonuses may be deducted.
- Business Education Expenses: Seminars, classes, and online courses may be claimed as a business expense.
- Business Equipment: Purchases of office equipment such as computers, furniture, printers, and software subscriptions may be deducted.
- Office Supplies: Supplies such as paper, printer ink, and letterhead are deductible.
- Business Meals: Meals consumed while conducting business with employees, vendors, or clients may be deducted.
- Business Travel: Travel costs for business such as airfare, hotel accommodations, ride sharing, taxis, parking, and rental cars may be deducted.
These are just a few areas to keep in mind as you’re growing your business. It’s important to build a team of trusted advisors to help you navigate every aspect of your business who provide expertise on regulatory and industry changes that are important to you.
Last month, we asked you, “Does your company offer a financial literacy program?”
We’re happy to report that 100 percent of respondents said, “Yes.” This is great news entrepreneurs! Keep offering important financial wellness programs to your employees and you will see your profits grow! Financial wellness programs are proven to increase loyalty, productivity, engagement, and the bottom line. In many cases, it augments salary increases. That is a win/win for everyone.
Armed with the new knowledge you have gained reading this month’s column, we invite you to take part in our poll “What is the Difference in Net Income and Total Equity?”
Scan the QR code with your mobile device or click on the link below to participate in this month’s poll. The results will be revealed in the next column. See you next month!
— Sidney and Saundra Curry
BC Holdings of Tennessee, LLC creates new pathways for everyone to achieve balanced abundance by delivering comprehensive financial education and wellness training. Find us online at www.bcholdingsllc.com.