One of the beautiful traits of a successful business is its ability to distribute excess cash to its owners.
But it is very important to ensure that distributions are made from EXCESS cash in the business.
Oftentimes, distributions are made to support the lifestyle of the owners.
While there is nothing wrong with regular distributions of cash, they should not be based on the lifestyle needs of the owners.
They should be made based on excess cash in the business. They should be made based on how strong the business is financially. (See the 10-Step Process For Building a Financially Strong Business.)
It is also important to note that salaries for the work you do for the company should not be considered “distributions”. That is compensation for the role you play in managing and leading the business.
Distributions come from profits… after you have been paid a market-based salary/bonus.
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