He spent $1M to save $220k. Good idea?

I want to share a thought-provoking story about an entrepreneur that you may relate to. Let's call him Entrepreneur X. And Entrepreneur X’s recent situation raises an important question about tax strategy.

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In 2022, Entrepreneur X was hit with a hefty $220K tax bill. Ouch.

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Determined to avoid a repeat in 2023, he went to extremes.

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By spending nearly $1M on various investments and expenses, he managed to whittle his tax bill down to zero.

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On the surface, it seems like a slam dunk win. Who wouldn't want to eliminate their tax bill entirely?

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But here's the catch: to achieve that $220K in tax savings, Entrepreneur X had to part with $1M in cash.

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Think about that for a second. He depleted a huge chunk of his cash reserves, essentially betting that his business would grow enough to replenish it.

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If everything goes off without a hitch, sure, he comes out ahead. But if his business encounters any unexpected challenges, suddenly he's in a precarious position with limited cash to weather the storm.

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Plus, now he’s depleted his business’s resources in the short and medium-term, which leaves him limited on the growth he could do - which I see as a pretty big opportunity cost.

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So even if he “wins,” he’s potentially winning much less than he could have.

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That's a high-stakes gamble.

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Had Entrepreneur X instead implemented:

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Strategic cash flow engineering -- recapturing funds that weren’t creating outside returns, and reallocating those funds to where they’d be more productive;

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Intelligent repositioning of his balance sheet, to ensure all liabilities are being properly accounted for (they’re not, 99% of the time)

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Assessed and corrected for concentration risk, to ensure more cash flow came in throughout the year

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And correctly managed debt, debt repayments, and losses...

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He could have achieved similar tax benefits while still preserving a healthy cash cushion.

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The key takeaway is this:

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The best methods to cultivating a favorable tax situation will include a host of little-discussed, even lesser-mastered financial strategies that will inevitably scale your BUSINESS VALUE and NET WORTH as a whole.

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Tax is but one piece of this.

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In fact, more small businesses (those doing between $1M - $10M/year in revenue) are insolvent than ever...

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Precisely because they don’t follow the practices mentioned above, and there are very few places on the planet they can find that type of support.

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But, by virtue of reading this message, you don’t need to play the game backwards like the rest of them.

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You can do things (UN)Conventionally and experience the glorious outcomes that come with it.

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Here’s to your success and financial certainty,

Warm regards,

Dan Nicholson

Founder, Nth Degree CPAs
Author of “Rigging the Game”

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