The Globe and Mail | John Warrillow
Along with his brother Michael, Andrew Warner built Bradford & Reed, an online greeting-card company, into a business generating $39-million (U.S.) in sales.
When I recently asked Mr. Warner about the sale of his business, he revealed that “in total, we made more money from regularly pulling profits out of the company each year than we did in selling.”
I think it can be tempting to reinvest all of your profits into creating a business to be sold, or avoid the feeling of double taxation by keeping your cash in your company.
But I’d like to make the case for why you should consider paying yourself a healthy dividend each year – just in case.
Assuming your accountant thinks it makes sense given your personal tax situation, here are six reasons to pay yourself a dividend now:
1. To avoid sloppiness
If you have a lot of excess cash sitting in your company, you can get sloppy. Cash sitting in an interest-bearing account earns very little interest.
If you pull the money out (even if it is just to another holding company), you’re forced to run a tighter cash ship – charging your customers more up front, collecting faster, paying slower. The less of a cushion you give yourself, the more efficient you become.