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Business owners often take the ‘profit’ home…all of it

A factoid in the September 2006 Journal of Accountancy caught my eye.

In the 2005 “ACNielsen Online Consumer Confidence Study”, 72% of U.S. respondents had money left over after paying basic living expenses. (Source)

They have choices with that money. Admittedly, that does not mean they are saving it or putting it into retirement or using it to build their business.

Another factoid comes from me…businesses make money (we hope) and typically, the owners take it home. All of it.

Many reasons for this…tops may be advice from their CPA to reduce business income to zero by paying themselves wages and bonuses in order to minimize taxes.

The major issue … do the business owners need every penny to support their lifestyle or not? That is why we take a good look at the owner/guarantor when considering a small to mid-size businesses loan…especially if the business seems undercapitalized.

The capital may be there…just not on the business balance sheet.

Consolidate the analysis of the business and the business owners tax return to see if the strength of the borrower (along with their guarantee and your collateral) gets you what you need.

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at, she speaks at banking associations on risk management, lending and director finance topics.