February is always a tight month for personal finances and sometimes business finances as well. Taking time off during the holidays and having a low cash flow in January will produce sacrifices in February. In the month of “tight-uary”, scrutiny of details is the flavor of the month. Individuals do it and businesses do it too.
Living on a thin margin of error creates conflicts. What is helpful to get through the tight times and what is not? Deciding to use your credit card to go on holiday doesn’t help your longer-term goal of debt-free living. That doesn’t mean it’s still not tempting, it certainly is, but that choice is not helpful. Choosing to stay home for an extra day or two will not help your financial margin either. When you are in a situation of “all hands on deck”, it doesn’t help to have a hand voting in favor of going on a ski trip.
Managing finances is all about priorities and systems. Even when someone has no wiggle room… it’s always a matter of priorities. I remember a couple of decades ago when I was going through a really difficult time financially… not paying the telephone bill so we could pay the hydro… then next month, not paying the hydro so we could keep our phone operating. There are seasons of life when things are tight. The key is to not give up, not lose heart and say, “to hell with it, I’m going to Cancun”, because when you get back, your problem is even worse.
A system tells your finances what to do, rather than having your finances tell you what you can and cannot do. One of the greatest advantages incorporation has on financial management is separating personal and business money. Corporations have rules assigned to managing finances. When you are a self-employed operator, the rules are nearly non-existent, but corporations are clearly defined.
Following restrictive rules is not in many people’s DNA. We all like to do what we want to do when we want to do it. Following the rules for a corporation allows for a safe and secure method of cash flow management. Following no rules for the self-employed will tend to create a financial conflict unless you impose your own rules (such as putting money aside for future taxes).
If you see the benefits of following the rules, you will love non-taxable benefits (NTB). Following the rules, NTB will save $12,000 in taxes. It’s the reason I wrote my first book and it’s one of the only reasons operators should even go the incorporation route. It may well complicate your process of managing cash flow in your business and personal life, but… for $1000 a month, it’s well worth the few hours a month of dedication you will need for it.
National averages show operators grossing $65-70,000 in taxable income and they pay between $12-20,000 in taxes. All else being equal, an operator using NTB pays taxes of $2-8,000. The tax savings to husband and wife “teams” is double that ($24,000). This is using the exact same miles and expenses for comparisons. It’s a real game-changer. However, there is a problem with the system – people don’t use it. Too many operators think that just incorporating saves the taxes… NOPE. You must follow the rules for non-taxable benefits. You must use the system to create the benefits. It takes some learning, but not nearly as much as you think. Compared to a logbook (ELD or otherwise), submitting yourself to NTB rules is a snap… easy… if you’re not attached to cash. If you grab the cash, without following the rules, you pay the same rate as if you’re self-employed… you miss out on $12,000 in savings. Follow the rules, gain the benefit.
Without a doubt, these times are difficult for some operators. Every penny counts to build after-tax wealth. If you are looking for more operational and industry advice, look up our PODCAST “Making Your Miles Count”. Our long-form podcast can assist you in your business.
About the Author:
Robert D. Scheper is a leading Accountant and Consultant exclusively serving the Lease/Owner operator industry in Canada. His first book in the Making Your Miles Count series “taxes, taxes, taxes” was released in 2007. His second book “Choosing a Trucking company” is the most in-depth analysis of the independent operator industry today. He has a Master’s degree (MBA) in financial management and has been serving the industry since he and his wife came off the road in 1993. His dedication, commitment and strong opinions can be read and heard in many articles and seminars.
You can find him at www.makingyourmilescount.com or 1-877-987-9787.
Robert D Scheper operates an accounting and consulting firm in Steinbach, Manitoba. He has a Masters Degree in Business Administration and is the author of the Book “Making Your Miles Count: taxes, taxes, taxes” (now available on CD). You can find him at www.thrconsulting.ca and thrconsulting.blogspot.com or at 1-877-987-9787. You can e-mail him at: firstname.lastname@example.org.