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Hit 7 figures but losing 5 figures to taxes? Earn a 6-figure income but feel financial chaos? Welcome to the show helping you Simplify Your Numbers.
Most business owners in the $1M–$10M range feel like "passive payers"—surprised by a massive bill every April and wondering why their hard work isn't reflected in their bank account. Host Fabrice Metan, a veteran CFO and tax strategist, cuts through the noise of complex financial data to provide straightforward, actionable insights for the "7-6-5" entrepreneur.
This podcast is the bridge between traditional bookkeeping and high-level advisory. We move you away from a reactive "compliance mindset" and into a proactive strategy where your business becomes your greatest wealth-building tool.
Stop being a passenger in your own financials. It’s time to simplify your numbers, maximize your profit, and hold onto more of what you earn.
Subscribe to join the 7-6-5 community and start your transformation today.
Ep12
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Fabrice Metan: [00:00:00] One of the most common questions I get from entrepreneurs sound like, "Fabrice, if I made so much money, why do I feel so broke?" The misconception is that making money and keeping money are two different things.
Why You Feel Broke
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Fabrice Metan: [00:01:00] All right, so before I became a tax strategist, at tax time, I would sit down with business owners and say, "Hey, I just looked at your P&L, and congratulations, you made three hundred thousand dollars this year." And I would get this look where they would essentially say, "But Fabrice all that is great, but I don't have three hundred thousand dollars sitting in my, bank account right now.
So where did the money go?" Right?
Profit Versus Cash
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Fabrice Metan: And so business owners have a hard time understanding the difference between profit, cash flow, and wealth, right? And your profit coming from the profit and loss report essentially only looks at revenues minus expenses and gives you what that number is. That is the profit and what you will be taxed on.
Very different from the cash flow, which is the money that actually stays after you spend anything that takes cash out of your business. And by anything, I mean not just the business expenses, but also [00:02:00] anything that you do to reinvest in that business, whether it's paying down your debt, purchasing any assets, or even taking equity out of it by paying yourself as the owner, by taking draws and distributions.
All of that takes into your cash flow. The wealth essentially in the business becomes what you keep, what you keep in the business, essentially growing that equity inside the business, right? And so the main issue that business owners essentially have is that they don't necessarily understand everything that is taking away from their business without necessarily reducing that taxable profit, that taxable business income, right?
Taxes Eat Cash
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Fabrice Metan: So the first thing to talk about is taxes, right? There's so many different taxes that we pay. First of all, the business owner himself will see federal and state income tax on the income that he makes, and then would also have to pay Social Security and Medicare tax on their income, both on the employee side and the [00:03:00] employer, because now you're self-employed, so essentially you have to match both sides.
But on top of that, you would do the same for your own employees. Match their Social Security and Medicare taxes and pay federal and state unemployment taxes on the wages that you pay them. And then if you own your own property, you probably have to pay property taxes. If you're buying some supplies and material and you're not exempt, you're probably having to pay sales tax on everything that you buy to keep in your business.
And so there's a lot of taxes that you get to pay, and essentially the way taxes are calculated for most business owners who own pass-through entities, their business does not actually pay taxes. They have to feel the, burden of the tax at the personal level, right? And so it's very difficult to find out that you made three hundred thousand and that you have to pay a hundred thousand dollars or so in taxes, right?
Debt Payments Drain
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Fabrice Metan: But the other thing too is what I see a lot ~ of,~ of the [00:04:00] time is that the cash outflows, right? Like debt refinancing or debt repayments. Essentially, I have business owners that are making a lot of profit and using that profit to pay down their debt, because obviously debt is gonna be on a recurring schedule.
So on a monthly basis, you're continuing to pay that down, and you're not keeping that cash flow. So it's eventually making you feel like you're losing money, right? Like you're not really seeing the cash flow stay in the business because you're paying down the debt Well, when that happens, at the end of the year, when you find out how much money you made, you're kind of shocked.
But where's the cash flow? Where did the money go? It went to pay down the liabilities that you had, so you could grow the equity in the business, but the cash is now gone because you had to pay back the debt that you once took, either to buy the business, to buy your equipment, right?
Owner Draw Trap
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Fabrice Metan: But the last thing that we also don't talk enough about is distributions and owner's draw.
At the end of [00:05:00] the day, as your business continues to do well, as a business owner, you don't even realize that you are also upgrading your lifestyle. And so you start taking more money out of the business for yourself without even realizing, using the business to pay for your personal debt, using your business to pay for your car, to pay for your mortgage, those kind of things.
The problem is that every time that you're using the cash flow of the business to pay for your personal expenses, those expenses do not reduce the profit of the business. They essentially go on your balance sheet as a draw, which does not reduce the taxable profit of the business. So as you're taking money throughout the year, you're not even realizing that, you know, a few hundred dollars here, a few thousand dollars here, a couple trips, you know, a few, uh, additional things that you pay for the house, and all of a sudden you actually took two, three, four hundred thousand dollars in owner's draws or owner's distribution from your business and took all the cash [00:06:00] out without realizing that you were reducing cash flow, but not reducing profit.
You were reducing wealth and not reducing profit. And so big difference.
Fixing The Formula
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Fabrice Metan: Your formula should always be to recognize the difference between profit, cash flow, and wealth, and understand the items that are affecting the profit side of things. Everything affecting the profit is where your tax reduction would really happen, right?
And so I think that's the best way that I can answer this. To the business owner that is grinding, that is growing the business and just cannot seem to understand why is it that they're feeling so broke, they need to get a better understanding at exactly what their business numbers are telling them, right?
And working with a tax strategist is the best way to then figure out ~transform some of those items into taxable T-tax, you know, how to ~how to transform some of those items into tax savings tools, right? How do you transform them in a way that affect your actual profit? How do you have an asset on the balance sheet that [00:07:00] then turns into depreciation to reduce the profit of the company so that you don't have to pay the tax on that, right?
How do you transform some of your no- typically personal expenses into business expenses by having an actual business purpose for some of those items, or by reimbursing yourself for some of the things that you're benefiting from, both at the personal level and the business level, so that your profit continues to reduce and your tax liability as well.
Profit First Method
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Fabrice Metan: And so one, one resource that I also wanna mention, you know, that kinda breaks that down really well from the business owner's perspective, is a book that I read a few years back called Profit First.
And essentially, the business owner who was describing his situation was that exact situation we hear all the time, where he couldn't understand why his accountant was telling him at the end of every year how much money he made and how much in taxes he would have to pay, when he couldn't understand where the money actually went.
And the concept was if you were setting up your accounts in a way where your [00:08:00] profit was automatically being put away into a separate account, you could actually see that profit and exactly understand, "Okay, here's my money. Here's what I made." And you can als- also see the tax liability into a separate account where you can actually know, "Okay, we've cal- calculated my tax liability, and here's the money that I set aside for it," right?
And so I think that's a great resource that kind of explained to you some of the things that you can do at your level as a business owner to try to monitor this a little bit well and in an easier fashion, because a profit and loss, I understand, can be hard to understand. And what we try to do at Simplify My Numbers is to try to give things to our clients in a ~sep-~ simplified format so that they have a better clue, a better understanding as to what their money is doing and what the business is generating from a profit, cash flow, and wealth ~sen-~ standpoint.
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Fabrice Metan: Hopefully this made a little bit more sense for you. ~Um,~ but if it's something that you think you might need more help with, we'll be happy to help at simplifymynumbers.com [00:09:00] and give you a few more tips on what you can do to monitor your numbers a little bit better, understanding how the profit affects you from a tax standpoint, and how you can mitigate all of those tax issues that you may experience year after year.
And we can't wait to speak to you again next time on our next episode
[00:10:00]