Category Archives: Small Business Finances

Financial matters for small business

How to Pay a Non-Member General Manager of a Multi-Member LLC

In some cases, all the members of an LLC may be investors only and not managers. The business may hire an outside general manager (employee) to make the day-to-day decisions, and therefore, acts as the manager. In this case, the general manager is an employee of the business, but since they are not a member (aka owner), their income is just like that of an employee in any business.

How to Pay a Non-Manager Member of a Multi-Member LLC

When you have an investor in your LLC, who works less than 500 hours in a given tax year for the LLC, and they do not participate in its management, they are considered limited in their liability and their income is usually considered passive income subjecting the income to only federal and state income taxes based on their marginal tax rate.

How to Get Paid as a Manager Member of a Multi-Member LLC

A member in an LLC that is a decision-maker (manager) is considered an employee of the business by the IRS and is treated differently than non-manager members. Income for managers is considered earned income and is subject to additional taxes but also to additional potential tax deductions. Moreover, as a manager, you are exposed to additional liabilities.

The Truth About Why Draws and Distributions Are Non-Taxable

Draws and distributions are simply a mechanism that allows owners to take out excess cash from the business. In pass-through entities, there are no tax consequences for doing either an owner draw, distribution, or a cash infusion in the normal course of business. This concept often creates a level of confusion for founders not versed in a few basic principles of accounting.

How to Control Business Risk

Would your business benefit from lower downside risk but less profit potential, or higher profit potential with greater risk if break even is not met? In this post, discover how a businesses fixed and variable costs will shape its risk and reward possibilities.

How to Make the Most of Equity Financing

Basically, there are two ways to fund a new business: debt and equity. Debt, commonly thought of as a loan, requires that the borrower/guarantor has an adequate cash flow or has enough unencumbered liquid assets to pledge as collateral. This collateral covers the debt's principle and any liquidation costs and discounts in the event that the borrower cannot make the agreed [...]

Read more »

What You Think You Know about Credit Is Just Wrong

There is a huge difference between consumer credit and business credit. Consumer credit funds consumptions while business credit is known as “leverage” and is applied to the purchase of an income producing asset. As individuals, consumer credit is generally a method we use to obtain what we desire sooner than if we were forced to save up the funds to purchase [...]

Read more »