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Learn why the amount of taxes you pay is the truest indicator of success – and how avoiding taxes can harm you more than you might think.

Read the full article Save Cash Instead of Saving Taxes This Year

Read the full article here.

Read the full article here.

More so than access to capital, tax policy, or research and development, labor productivity is what powers great businesses. It is essential to understand that you must manage the delicate balance of the right labor at the right time at the right price to maximize your profits. The business media touts technology that eliminates labor, but technology eliminates head count, not labor dollars. You may get away with eliminating low-wage, repetitive jobs, but technology-aided jobs require better skills, and employees with those skills demand higher wages and are often harder to find.

Business analysts have been measuring labor productivity all wrong as businesses create streamlined processes and technology-aided jobs. Most people measure their labor efficiency as sales per full-time equivalent (FTE). The problem is, both sales numbers and the number of FTEs are hopelessly flawed. The key is gross profit per labor dollar. I refer to this measurement as your labor efficiency ratio (LER).

After you model your target for your LER, you will find that it is the most critical indicator of your profitability. I know that if my firm hits an LER of $1.80, I hit my profit target. My nonlabor operating costs vary so little that I know it is all about my labor productivity. Every business has its own target, but many businesses within the same industry have similar labor efficiency targets. Keep in mind that a month of data is a very inaccurate period of time, so I look at my LER on a monthly, quarterly, and rolling twelve-month view so I can spot key trends in the movement of my LER.

Correctly measuring your labor productivity as gross profit per labor dollar will help you walk the tightrope of the right labor at the right time at the right price so you can hit your profit target.

The size of the check you write to the IRS is the best key performance indicator of true wealth creation. That may be an odd statement for a CPA to make, but I have seen so much wasted spending to save taxes. It prevents business owners from building wealth that will sustain them.

There was a lot of hubbub at the end of tax season this year about GE not paying taxes. Some authors described how you can avoid paying taxes too, but that advice underscores the bad thinking on this subject. It’s true that GE paid virtually no taxes in 2010 due to large losses from their GE Capital subsidiary, but trust me—they would have rather paid taxes than taken the losses.

If you, as a small business owner, take every conceivable deduction, you’d have to spend the maximum allowable amounts on retirement contributions, tuition, health insurance premiums, energy-saving measures, and whatever else you can dig up to qualify for all those deductions. Sure, you’d save on taxes, but after all that spending, you wouldn’t have enough to live on.

Every tax benefit comes with a cost. Spending $1 to save $0.35 in tax is not a good deal. If you want to build wealth in your business (without cheating!), you must generate income that you will owe taxes on. If you are not paying any taxes, you either cheated or you did not make any income. Both are bad!

When you buy into the fact that paying taxes is necessary, you have to adjust your consumption so you can live on less than your after tax net income. Don’t pay more in tax than you should, but those so-called tax benefits can be traps that keep you from reaching your wealth-building goals.