The most important thing we get from a business is cash flow. The temptation, of course, is to spend this cash flow on boats, vacations and other lifestyle items that don't add to our wealth. One of our School of Wealth Strategy students, however, wants to use his business cash flow to build his wealth in other investments outside his business. David asks the following question:

Q: Hi Tom! I have a business related question. Is it possible to use reinvest the positive cash flow from my business into another asset class so that my surplus funds are not just sitting in a bank account? My business is an education consulting and coaching business, and I want to use the surplus funds or profits to invest into paper assets and create cashflow through options in order to develop more cashflow. I was curious about how the taxing for this type of situation would occur, and what the cashflow from the investing would be categorized as in the book keeping. Thank you Tom!

A: Absolute yes to your first question, David. Not only is is possible, it is highly recommended. This is the way to build wealth. Here is how you do it. First, treat your business separately from your investments in your accounting. To do so, open a separate bank account in a new entity for your investing. For type of entity, speak to one of our Tax Strategists at 866.467.5809. Your new entity will have its own set of books. You will distribute out the funds from your business entity to you individually and then contribute them to your investment entity as a capital contribution. Then, you can go ahead and invest through your investment entity.

When you use the proper entity structure for your business and investing, not only do you get the best asset protection, you also reduce your taxes and maintain good records.

Everyone should follow this formula for building wealth. Use your excess cash flow for wealth building activities. Be sure you are using the right entity and maintain good bookkeeping so those entities are respected by the IRS and the Courts.

Financial freedom comes from cash flow, tax reduction and solid wealth building principles.

Warmest regards,

Tom