Business people are often misled by their investments in their own companies. How much to invest in the company and how much to pay to themselves? These are constant questions of operating a business.

Business people who borrow money from their companies frequently face an I.R.S. challenge. To win the case they need to have a signed note with a repayment schedule and a stated interest rate. Otherwise, the tax people are likely to view the loan as a dividend, taxable to both the business and the owner. There are more and more cases where the I.R.S. has accused business owners of family-owned S corporations of underpaying themselves.  

So, how much to pay and how much is right? The amount depended on the business and on its industry. One of the creative things business people do to keep themselves from running afoul of the I.R.S. is to keep careful minutes of board meetings and record any bonuses paid, making clear that they are performance related, not paid because the owner wanted a new car or luxurious dwelling.

Another is to insure that compensation is based on service rendered, not on the percentage of stock held. The I.R.S. is likely to view payment for stock holdings as a dividend. The last one can’t be deducted as a business expense, but compensation can be, however. The third one is to convert to an S corporation, the entity which allows earnings flow through to the owners, rather than being retained at the corporate level. This type of corporation is not always preferable, because of the various restrictions on S corporations, where only one class of stock and the corporation is must have 35 or fewer shareholders, all United States residents.

In case you go on a regular C corporation, compensation should always reflect performance, not a current performance, however. Although it’s very easy for business people to identify themselves with the company and to feel the ownership, legally the company is a separate entity, and the legal standard of financial operations including owners’ compensation packages is reasonableness. 

As one who lived long time in three different countries I personally like to compare everything. The biggest part of my life I spent in Russia which looks completely different right now from what I remember about 10 years ago. Business people doing international business transactions know that Russia is a modern and powerful country.

I recently came across the book “The Next American Century: How The U.S. Can Thrive As Other powers Rise” which deals with the issue of how American economy will “survive” along with the power of rising economies of India, Japan, Russia, China and Europe. I have never had, how the authors say “sorry tale”, but I guess, it is pretty much calming those business people who feel uncomfortable.

According to Brent Scowcroft, former National Security Adviser to Presidents Gerald R. Ford and George H.W. Bush: “We live in an era of great opportunity. In The Next American Century, two brilliant young foreign policy thinkers argue that the growing strength of India, China, Japan, Russia and Europe, competitors but not enemies, can benefit the U.S. as long as we invest anew at home. The Next American Century provides a strong, practical, optimistic lesson that Americans should take to heart.”

This video is a brief introduction to the book. Enjoy your weekend!

People are clearly comfortable asking their friends and family about their finances. There is also a demand for good online advice. We must ensure people have the tools to make sensible and informed financial decisions throughout their lives. They say quality financial education is the key to helping people help themselves. Others say that this should ideally start in schools at the earliest opportunity. Here is a brief list of things business people do to manage their finances properly.

It is essential to establish a credit card with a small limit and always make the monthly payment. Making at least the required monthly payment is important for young adults because they have a short credit history and any blemish, such as a missed payment, can be very damaging to their credit score. To avoid situations when credit report says that you missed a mortgage payment which you never even had, it is recommended to obtain a free credit reports through the government mandated website. This technique will also help to control spending habits of business people in favor of more money set aside in savings.

This quick MBA tool helps to monitor your current value. If to add up the value of all current assets and to subtract current liabilities including home, other real estate, business interests, pension plans, stocks, bonds, mutual funds and other securities it is possible to calculate a net worth. Now it is important to make sure the net worth rises each year, not just by the inflation but by the rising value of those personal investments.

If you have no personal investments, do something today. For the beginning it is good to start with a money market mutual fund, setting up a regular electronic transfer of money from your bank account. Money fund yields rise as interest rates rise. Phil Laut, author of “Money is my friend” tells that the basic principles of investing is spending money that you saved, in your name, to increase your income. If all you have is an understanding of financial markets and don’t deal effectively with your own psychology, it is possible, but unlikely, that you will get rich, but you certainly won’t sleep at night.

How should couples handle money? This is a very important topic that is almost always clouded by family conditioning and foolish romantic notions. It is essential that both partners have money of their own to use as they see fit free from permission and judgment, even if only one of them is earning an income. However, always share all your financial knowledge and details of your investments with your spouse so that person won’t have to scurry around after your death, asking mostly strangers what you have been doing with your money all these years.

And finally, if you plan to express your purpose and your values you can’t afford to miss this. If you are looking for the best investment advisor, look in the mirror. No one will ever care more about your investment success than you do.