Yes, I've written about this before. If you're a C Corporation, you have about 4 weeks to act at the lowest tax rates on dividends we're likely to see in our lifetimes. If you're an S-Corp or an LLC, this is simply about self-preservation.
I've had multiple conversations with business owners lately who are having a record year and are sitting on piles of cash inside their businesses - one has over $1 million in cash inside his $8 million company. That just sends chills down my spine.
Why? Because that money is just like chips on the poker table -- it's at risk every day. What risk, you ask? One stroke. One beer truck. One employee harassment suit. One product liability suit. That's how far most closely-held businesses are from extinction. Would you want your surviving spouse to watch that pile of cash melt away while your estate is in the process of getting settled? Wouldn't it be a whole lot better if that money was in your brokerage account?
A good friend of mine and a CPA, Roger Clinkscales, explains it this way: "Why did you set up your corporation (LLC, C-Corp, S-Corp) in the first place? To put a firewall between your company and your personal assets, right? So, why don't you use it? Why don't you take the cash that's inside your company and distribute it to yourself, thereby taking it out of reach of creditors and judgments against your business?"
Roger's right. The next thing that comes up in this conversation is, "But I need that cash cushion for unexpected working capital needs." Do you? Why not "outsource" that problem? Where? To a bank, in the form of a line of credit. Those guys are in the business of providing short term cash, and right now they're doing it at incredibly low interest rates.
With a line of credit for a few hundred thousand dollars you have the flexibility you need to take that cash out of the business and then borrow for a few days here and there if you need some short term inventory or if a customer stretches you out a few weeks on payment.
Think about it -- would you rather have $100,000 borrowed on your line of credit and $100,00 in your brokerage account, or neither?
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Terry Weaver
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.comhttp://www.chiefexecutiveboards.com/
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