Understanding Business Cash Distributions

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Decoding Business Cash Distributions

This section covers all elements of cash distributions – from defining what cash distributions are to their implications on your business finances. We’ll talk about dividends, tax considerations, and the impact on stakeholders, providing you with a holistic understanding of managing and optimizing cash distributions.

Understanding Business Cash Distributions – Transcript

If you own any portion of a small business, it’s a safe bet that the reason that you do is that you want that business to make you money. 

You may have heard that it’s not a good idea for small business owners to be taking money out of the register to pay for their personal expenses — and that’s true. But what is the best way for small business owners to plan to receive financial benefit from their stake in owning the business? 

Hey everybody, Will Scheren here from Small Business Startup Guide by TRUiC. This video is part of a larger course dedicated to helping small business owners cut through the noise and get to the essentials of starting and operating their business. If that sounds really useful to you, be sure to like and subscribe. 

With most small businesses, when a business owner takes a portion of the company’s profits and moves it from the business bank account to the personal bank account, this is known as a cash distribution. Essentially, it’s just when the owners of the business decide that they want to take money out and give it to themselves. Any legitimate shareholder or LLC member is eligible to get cash distributions. 

Generally, any time distributions are paid, everyone who’s eligible to get them must get their share. This means that in a four-equal-partner business, in order for one partner to receive $1,000 in distributions, the business must pay out $4,000 in total, with $1,000 going to each of the four partners.

For the last several videos in the course, we’ve been showing you how to make financial projections using LivePlan.com, and in this video, we’re going to show you how to plan to pay yourself using this software. 

At TRUiC our mission is to offer all our resources and information for free – but we support our work by using affiliate links, meaning we earn a commission on many of the amazing deals we’ve negotiated for you. Full transparency, LivePlan.com is one such affiliate partner. Link in description below. 

To plan for these cash distributions in LivePlan, click on the “Forecast” tab and then click on the “Dividends” sub-tab. Here you can add the name of the cash distributions that you want to add in your financial forecast, set their amounts, and note whether they are a one-time distribution or a distribution that will occur multiple times throughout the planned period. 

While it’s important to ensure that your business always has enough cash to fund its operations, it is completely reasonable for a business owner to plan to take cash out of the business that they own to fund their personal life. But how can a business owner know how much money is reasonable for them to take out of their business? We’ll be talking about exactly that in the next video in the course. 

This video is part of a step-by-step course that gives business owners all of the essential information to start and operate their business. We provided a link for you to get access to all of the free and discounted business tools we mentioned in this course below this video. 

Be sure to like and subscribe to get more of this content. We’ll see you in the next video, and if you have any questions, let us know.