Tamara Wilhite is a technical writer, industrial engineer, mother of two, and published sci-fi and horror author.
“Wealth Creation for Small Business Owners” is a book by James Cheeks. It is written for owners of mid-sized businesses that may or may not employ relatives. What are the strengths and weaknesses of this book for business owners?
Strengths of This Book
The book is mindful of its audience. Its first chapter consists entirely of a checklist of topics and subtopics and a clear list of which of the 75 sections someone interested in that subject should read. It understands that many of its readers want answers to specific questions and doesn’t force them to read the whole book hunting for answers.
Unlike some generic business books and personal finance books, it doesn’t suggest hiring family members to reduce taxable income for the business. It admits that the money paid to your teen instead of taken as taxable income by the parents is of negligible benefit. Instead, it suggests employing family members of benefit to the company such as hiring your child out of college to set up a new company website. It suggests using the business to pay for their training, too, and gives information on how to do so.
There is decent estate planning advice for business owners on how to take care of surviving spouses and methods for minimizing the tax bill while passing on the business to heirs. It even addresses how to protect the interests of working heirs of the business relative to heirs who are not working for the business. It says nothing, though, on succession planning.
Where This Book Falls Short
The book was written in 2010, so much of the tax information is out of date. Many recommendations on minimizing the estate tax and using the company to pay for many relatives’ health insurance should be run by a financial adviser.
This book has many chapters on how to use the business to benefit the business owner. From using the company to provide health insurance for everyone you want to receive it to long term care insurance for the owner to perks paid for by the company, it ranges from clearly legal strategies to gray areas that are probably still legal but amount to money laundering.
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For example, this book promotes using the business to pay for country club memberships, social club memberships and a luxurious company car, things it admits are “signals of a wealthy lifestyle”. While having the business pay for lavish “perks” is cheaper than receiving income from the business and paying for it with after tax income, the financial impact of wasteful spending in these areas by draining the income of the business and supporting high spending by the owner isn’t even recognized. Even worse is the suggestion that one should travel for the business in luxury because it is almost never challenged by the IRS as extravagant. It just adds a note that you can’t do the same with your spouse, since that crosses the line into “vacation”.
“The Millionaire Next Door” describes the average millionaire business owner as someone who lived frugally while building up the business and continues to do so, while this book was written by a financial planner who earns and spends a lot and assumes all wealthy people do the same. In reality, the business owner rarely wastes their money on fancy cars, luxury travel, country club memberships and the like, much less burdens the business with those expenses to try to “save” on them. The vast majority of millionaire business owners are taking the cheap flights, driving reliable used cars and living a middle class (or less) lifestyle.
The book repeats this mistake later in strategy 41 of “wealth creation” by suggesting that you furnish a home office with luxury furniture. Again, you may save a little by buying expensive furniture through the business than on your own dime, but it is far outweighed by buying sensible, affordable furniture and saving the difference.
Only Chapter 9 is specifically for home based businesses, and much of the advice in this chapter is generic (deduct your home office expenses as percentage of rent, utilities and real estate taxes) to useless (buy luxury home office furniture through the business instead of cheaper furniture).
This book initially appeared to be a personal finance and business management book rolled into one, and it turned out to be a dream for any CPA or financial adviser, though its value to the business owner is dubious barring a few specific issues. Much of the advice can be summed up as “set up complex plans/legal documents and you may save some money”.
The book sees debt as a net benefit, since you can write off interest expenses. It even gives a lot of advice on how to borrow through the business and against the business, with no mention of the risk this entails.
If you are looking for advice on selecting the best small business retirement plan to maximize personal retirement savings, pay for health care and insurance for your family at the lowest cost or transfer ownership of a family business at the lowest overall tax rate, this book has good advice. If you are seeking advice on how to run your business day to day and build wealth, “Entreleadership” by Dave Ramsey or “The Millionaire Next Door” are better reading material than this book. Too much of its advice on how to use the business to supposedly lower expenses is really about using the business to expense luxury spending, the opposite of wealth building.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.