Article / Tax and cash flow
Plan for taxes before April arrives.
A profitable practice can still face a painful tax payment if cash planning does not keep up with income.
Profit is not all available cash
When practice income rises, some of that profit may need to be reserved for taxes. Treating every additional dollar as spendable can leave the tax payment competing with payroll, debt service, investments, and owner distributions.
Estimated payments and withholding depend on the owner's entity structure and tax situation. The practical point is to make tax needs visible during the year rather than discovering them after the year ends.
Four checkpoints, not one surprise
A quarterly conversation connects year-to-date results, changes in collections, owner compensation, and planned purchases to an updated tax projection. It also makes the cash required for the payment part of the operating plan.
A CPA or tax advisor should determine the actual liability and estimated payments. Your monthly financial reporting should make it clear what those payments mean for the practice's available cash.
- Revisit projections as the practice changes.
- Reserve for obligations before making distributions.
- Coordinate financial reporting with your tax advisor.