Question for small business owners

[Anonymous]

How much do you leave in your business bank accounts each year from profits vs. distributing (if S Corp)? It passes through, so taxed either way.

Company is finally picking up and expect $2m+ split among 2 other partners. Leaning towards paying ourselves more vs keeping it in the LLC.

Curious what others do. Another owner in my industry told me recently they have $10m+ in their business accounts, which seems excessive (even accounting for the fact payroll is by far our largest expense).

[Anonymous]

There's really no rules but the two things you want to make sure of is that the business is properly capitalized to operate and cash in the business is properly insured/ protected. I have 30+ trucks on the road at any given time and no amount of insurance is going to keep my business or the cash in it afloat if for example someone was to plow into a bunch of kids waiting for a school bus. I run pretty lean for that reason.

Not sure how you and your partners handle taxes but you can get into some weird bookkeeping/ tax situations dealing with passthroughs. On paper at least my business owes me a pretty significant amount of money for earning I paid taxes on but never took over the years.

I keep a months worth of expenses in our checking/ operating account. This account is trued up overnight via a sweep to a high yield saving account. I take any balance above another month's worth of expenses in the high yield account as a distribution quarterly. Based on the COVID lockdown experience I can pay our bills and keep everyone paid for about 90 days with 0 incoming cash.

[Anonymous]

Appreciate the above reply - thanks!

[Anonymous]

I keep at least 6 months of operating costs in cash on the company, but we're in a cyclical business so some months we bring in a lot less than others (think a business that is tied to the seasons).

One hint: with decent sums of money, ask your bank for a better interest rate. Also, keep your money in at least 2 banks. I had a friend with all their money in Silicon Valley Bank and missed payroll due to a run on the bank. Another had their accoutns frozen due to a fraud attempt and it took 3 days to unwind that.

[Anonymous]

Congrats on your success!

Just make sure you take enough distribution to pay the current year taxes and the sizable quarterly estimates you will have as a result of your success.

In business, cash is the queen, but cash flow is king. The decision you need to make can only be made well with a cash flow estimate you are confident in. Good cash flow, take as much as you can, NOW. Uncertain cash flow, keep what you need to sleep at night.

/30 yr+ s-corp ceo

[Anonymous]

We made the decision to distribute 75% and keep 25% in the company.

Our agreement also requires partners make capital calls if for some reason the business hits a cash flow issue…which has never happened because of the 25% requirement.

[Anonymous]

We keep enough in the business to run two months with no revenue (which doesn't ever happen) but as a safety. Then we distribute the rest and haven't had any issues, but it depends on how reliable your revenue is to your expenses.