Starting a business: what salary & structure

Hey Guys,

Following too much listening to Robert Kiyosaki , I have been exploring few options to start a business. I know I should talk to a lawyer and accountant however I appreciate if you could give me your 2 cents on the below:

1) I always read about business owners paying less if no taxes. Not sure how this is possible, however for the purpose to understand how much cash I will be left with at the end of the FY (call it my salary), what sort of percentage do I need to deduct from my Gross revenue less expenses?

2) One of the business ventures I am exploring will be with a silent partner being already a successful business owner. Let`s say we agree on a 20/80 split, what`s the best way to get his position formalised? I don`t think he is interested to cash at the start, more later on if the business goes well. I would like to have 100% control of the company.

Thanks,
Luca

 

1. Focus on maximising income. Tax is a by-product of profit and can be in the range 0-47% in most cases. Would you rather be paying $0 tax or $1m. Paying tax should be a celebration. Tax planning so you avoid a unfunded tax bill could be a matter to consider. The tax system is largely PAYG focussed and there may be little choice. Its something for planning - incl super of course.
2. A silent partner will never be silent.They probably want some control and will remind you often. Equity is the best way to reward someone as you describe. But how will you pay them their equity when they want out ?

 

Thats dangerous. Much of what he says is ridiculous to be polite. It is also US centric suff

 

In my experience a good business pays an enormous amount of tax. Those that don't pay tax always seem to be struggling to some degree. Perhaps it's because many businesses are barely profitable?

I'd suggest that once your business is established, pay yourself a salary like any other employee. The money the business makes is for the business, your salary is for you. If at the end of the year there's a huge profit and you want more money, pay yourself a bonus then adjust your salary for the next financial year.

As for determining how much money to put away for tax, I put away about a third of the total revenue to cover the various taxes paid by the business. Fortunately the real figure is more like 20% on average. This is just my case, other businesses will be very different.

 

Thanks guys.

Yep, equity definitely the way to go. He already has few businesses, it will be guidance in exchange for equity. I guess it all comes down to the written agreement between parties and what everyone wants from the business? I am not sure if equity can enforce some entitlement or this can easily be detailed on the agreement between parties. I already see a $20k bill from the lawyer

It looks like to US dream is to start a business so you don`t pay taxes. Another one is Grant Cardone

Thanks Peter, good insights.