Last update:
February 05. 2010 04:49:04

Business and taxes > Owners cash flow

Owners cash flow

OCF equals:

1. Net profit. If there is a net profit shown on the tax return.

2. Officers Salary: This is the amount of money that he reports to the IRS as personal income. This may include the salary that is being paid to the spouse who is also an officer of the comany. In many cases the children are also being paid by the business. These amounts also count as OCF.

3. Interest that the business earns on money that has been deposited in the bank is part of OCF.

4. Depreciation of Capital Equipment and Capital investments are also a part of OCF. Depreciation lowers the taxable income of buisness.

5. Owners Benefits. Such as health & life insurance being paid for by the buisness.

6. Vehicles & related expenses. As the owner of the business, he may have a company vehicle. So may the spouse and even the children. Company vehicles expenses are paid for by the company. Thus making it a part of the OCF.

7. There are other ways that a owner of a business may hide income. Checks may be cut to pay for lease of equipment that the owner owns personally. This creats cash flow to owner threw that business. Being the owner of the company and the owner of the equipment means that he can lease the equipment to who ever he wants and can charge the compoany what he wants. All very legal. However he must claim the lease income on his personal income taxes.(it is a much lower rate then what is being paid by the business)

8. There is personal travel that is written off through the business that is called business trips. The trip to Vegas where the trade association is meeting or the trip to Aspen for that "Work Shop" is being held are excellent examples of how this is done.

9. Also there is the old trick of cutting checks to the owners or whomever and calling the check a "Reimbursement" for services rendered and accounting for as an expense. (Personal Credit Cards)

10. CASH is always under reported. Most cash sales are not reported depending on the kind of business it is. A cash heavy business never ever reports all it cash. In very general terms, most cash heavy business only reprot from 1/3 to 1/2 of their cash income.