I was walking to the grocery store a couple days ago and happened to run into a client and friend who runs a business in Philly. We chatted on the sidewalk, and then, as often happens in this line of work, they dropped a, “Oh, weird question for you….” on me.
“How do I get rid of profit?”
Now, I’ve heard this one before.
Me: raises eyebrow. “Taxes?”
My cheese buying mission temporarily on hold, we chat a bit longer while I gently steer them away from tax evasion as a primary financial driver. Look, I get it, especially these days I don’t particularly want to be funding out government at all either.
But please: don’t wring out your bank account like a sopping towel at the end of the year to avoid some extra tax payments.
Profit is about the longterm care and feeding of your business; about how you care for yourself long term; how you care for your team long term. The mindset of must minimize profit to minimize taxes is a strategy rooted in scarcity, that will ultimately harm your business. I promise you’ve got bigger fish to fry and better numbers to focus on than shaving a $100 off your tax bill.
It’s a question that clouds the more important question of how to use your profit to care for your business, and to allow your business to care for you.
Let’s talk about what profit is for:
1. Savings in case of apocalypse.
I don’t think the zombies care about money, so even with no zombies to worry about, you should be keeping a few months of operating expenses in the bank, especially if your revenue is project based or seasonal. This is risk cushioning; you’ll feel so much better.
2. Paying yourself as an owner.
Not the same as your salary you pay yourself for your job (which, we can talk about that, dear reader, if you’re like get real what even is a regular salary), paying yourself a distribution as an owner allows your business to take care of you. We’re not talking “maximize profits for shareholders at the expense of underpaid workers”; we’re talking about one of the ways that your business can take care of you and give thanks for the sleepless nights and countless hours you’ve put in tending to your business’s needs.
3. Investing back into your business.
Think of this as the Level Up Fund. Investing back into your business looks like hiring a new employee and having a month or two salary in the bank. It looks like buying new equipment or moving into a bigger space, and not having to use your credit card to float yourself.
If you have a big juicy goal for next year, you won’t know exactly how you’re going to make it happen; this is when you hire experts to help.**
The advice I gave my grocery store querent friend? Pay your employees and yourself a bonus, let the business give back to the humans, while also lowering the tax bill.
4. Investing in your community.
When your business has enough, you can invest in the world around you. This is one of the ways that business, which plays a central role in the structure of society, can work in support of positive change.
For example, Patagonia just donated a 10 million dollar windfall to organizations working to fight climate change.
Something to aspire to.