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How to Build Wealth in Your Small Business

January 10, 2024

Navigating the financial landscape of a growing business demands more than just celebrating the inflow of cash; it requires a thoughtful approach to expenditure and investment. Making purchases with the allure of 'tax benefits' might seem advantageous at first glance, but without practical utility, such assets can become liabilities, depreciating both in value and utility.


To achieve long-term wealth creation, you must use strategic decision-making to ensure that your business not only thrives today but also builds a solid foundation for the future, culminating in a legacy you can retire on.


Below we provide the pivotal financial steps that we believe are necessary for sustainable business prosperity and wealth building.


Assess the True Cost of Tax-Incentivised Purchases

Before making large purchases for the sake of potential tax deductions, evaluate the actual financial benefit to your business. For instance, buying a $50k excavator may offer a tax write-off, but if it’s only used twice and then loses value, it's not a sound investment. Weigh the tax advantage against the asset's utility and depreciation.


Avoid Reckless Spending

Frivolous expenditures can quickly erode your profits. It’s important to distinguish between essential spending and wastefulness. Implement a rigorous financial review process for all spending, especially when it comes to significant outlays that don't directly contribute to increased revenue or operational efficiency.


Embrace Tax Payments as a Sign of Success

Paying tax is indicative of a profitable business, which is attractive to banks and investors. It's a validation of your business's success, so don't shy away from it. Instead, focus on smart tax planning to manage liabilities without compromising your company's profitability profile.


Resist the Lure of Immediate Gratification

When your business starts seeing an uptick in cash flow, resist the urge to spend on luxury items like high-end vehicles or unnecessary equipment. Such purchases may offer short-term satisfaction but can be detrimental to your business's long-term financial health. Always prioritise investments that offer tangible returns.


Make Decisions with Longevity in Mind

Every financial decision should be made with an eye towards the future, particularly when it comes to exit strategies. If you wish to sell the business upon retirement, ensure that its assets are valuable and its financial records are attractive to potential buyers. Invest in building wealth within your business that will pay off in the long term.


Build Wealth, Not Just Income

Our aim at Wrights is to support those who are committed to building wealth through their businesses. This means making strategic decisions that increase the net worth of your business, rather than just drawing a higher income from it. Wealth accumulation should be the goal, ensuring you have a solid financial foundation for the future.

 

If you would like to know more about how you can use your small business to build wealth, we have a team of strategic accountants who can combine their specialist knowledge and expertise in commercial finance, audit and compliance to provide you with effective solutions for growth. To find out more about how we can help you, please contact one of our team at admin@wrightsca.com.au.

 

Important notice: This article provides information rather than financial advice. The content of this article, including any information contained in it, has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the information, taking these matters into account, before you act on any information.


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