Effective tax planning is crucial for business owners to optimize their financial health and eventual net-worth.

While ISCPA takes the lead with our clients with proactive tax planning and communication, ordinary CPAs do not. This is why many business owners become frustrated by CPAs who fail to communicate critical information or are not proactively mitigating taxes. Ordinary CPAs tend not to initiate any action, without direction from you. This article helps business owners interested in improving results with your CPA, at least until you’re able to work with us.

Business owners must establish strong communication and collaboration with their CPA. 

Best Practices in Communication and Collaboration

Establish Regular Communication Channels:

   – Schedule regular meetings with your CPA to discuss tax planning strategies, review financial data, and address any concerns.

   – Maintain open and transparent lines of communication throughout the year, not just during tax season.

Share Complete and Timely Financial Information:

   – Provide your CPA with accurate and up-to-date financial records, including income statements, balance sheets, and cash flow statements.

   – Share information about any significant changes in your business, such as expansions, acquisitions, or changes in ownership.

Set Clear Goals and Objectives:

   – Clearly communicate your financial goals and objectives to your CPA. Whether it’s reducing tax liability, maximizing deductions, or planning for future investments, your CPA should understand your priorities.

Collaborate on Tax Planning Strategies:

   – Work together with your CPA to develop tax-efficient strategies tailored to your business. This may involve structuring your business entity, optimizing deductions, and exploring tax credits.

Be Proactive, Not Reactive:

   – Don’t wait until tax season to consult your CPA. Engage in proactive tax planning throughout the year to identify opportunities for savings and address potential issues in advance.

Common Oversights and Errors

Inadequate Record Keeping:

   – One of the most common mistakes is failing to maintain organized and complete financial records. This can lead to missed deductions, errors in tax calculations, and compliance issues.

Lack of Communication:

   – Many business owners only engage with their CPA during tax season, missing out on opportunities for year-round tax planning. Effective communication throughout the year is essential for maximizing results.

Ignoring Changing Tax Laws:

   – Tax laws are constantly evolving, and failing to stay informed about changes can lead to missed opportunities or compliance issues. Regular updates and discussions with your CPA are crucial.

Not Leveraging Tax Credits:

   – Some businesses overlook valuable tax credits available to them, such as research and development credits, energy-efficient incentives, or hiring credits. Failure to take advantage of these opportunities can result in higher tax bills.

Not Exploring Tax-Efficient Structures:

   – Choosing the wrong business structure or failing to adapt to changing circumstances can lead to unnecessary tax burdens. Collaborate with your CPA to assess and adjust your business structure when necessary.

Conclusion

Maximizing tax planning results requires effective communication and collaboration between business owners and their CPAs. If you are committed to a relationship with a CPA who does not take initiative, you have two good choices – immediately change CPAs, or take control of the relationship until you’re ready to change CPAs. By following best practices in communication, sharing complete financial information, setting clear objectives, and proactively planning for taxes, business owners can achieve their financial goals while staying compliant with tax laws.

Common oversights and errors, such as inadequate record keeping, lack of communication, and ignoring changing tax laws, can compromise tax planning outcomes. Avoiding these pitfalls and working closely with your CPA year-round will ensure that your business optimizes its tax position and maintains financial stability. Ultimately, a strong partnership with your CPA is the key to success in the complex world of tax planning for businesses. If you are unhappy with your current CPA or simply interested in a second opinion on your current tax health, schedule a free consultation with ISCPA to see how we can help you. 

Time Is Your Most Precious Asset

Renowned entrepreneur and investor Kevin O’Leary asserts that “time, not money, is your most precious asset.” These words resonate deeply with those who understand the true value of time. Time represents the moments spent with loved ones, pursuing passions, and creating memories. Paradoxically, money often demands a substantial investment of time to acquire, leaving us to ponder whether we are truly maximizing the potential of our most treasured asset.

Money as a Representation of Time

Money, in essence, symbolizes the hours, days, and years we dedicate to our work to support the people and passions we hold dear. For business owners, this relationship between time and money is particularly profound. Their entrepreneurial journey involves a relentless pursuit of success, often requiring countless hours away from family, friends, and personal interests.

The IRS Toll on Time

One aspect of a business owner’s financial journey that can be overlooked is tax planning. Neglecting a proactive tax strategy can have a significant impact on both the financial bottom line and, ultimately, the precious time invested in their business. Astonishingly, many business owners spend more than 300 hours each year working just to pay excess taxes to the IRS.

Consider the case of a business owner who nets an annual profit of $150,000. Without a carefully devised tax plan, they might overpay by $22,940 in taxes. This amount equates to approximately 317 hours of their time devoted solely to paying unnecessary and avoidable taxes to the IRS. It’s a stark reminder that without proper tax planning, a substantial portion of the hard-earned wealth and time created through their business can be siphoned away by the IRS.

Taking Control of Your Time Wealth

Most business owners start their ventures driven by a passion for what they do. They build businesses they love working for, ensuring that their time investments align with their passions. However, they must also recognize the importance of safeguarding their success and the time wealth they’ve accrued.

Proactive Tax Planning: The Solution

The key takeaway here is that business owners should be proactive in protecting their most valuable asset—time. Just as they diligently build businesses around their passions, they should also implement strategic tax planning to preserve their hard-earned wealth. It’s about ensuring that the IRS doesn’t inadvertently steal away their precious time by way of unnecessary taxes.

In the world of business, time is indeed the most precious asset. It represents the countless hours spent building a business and striving for success. To protect this time wealth, business owners must prioritize proactive tax planning. By doing so, they can minimize their tax liabilities and preserve the hours, days, and years they’ve dedicated to creating the lives they desire.

Don’t let your time wealth slip away needlessly. Schedule your free consultation with ISCPA today and take control of your financial future. Protect your time, protect your passions, and secure your legacy.

Amending Your Previous Year’s Return To Recover Overpayments

Reviewing a previous year’s tax return for potential amendments and refunds can be particularly important for business owners. Here’s a step-by-step process for business owners to follow, along with an estimate of how long the process might take and a potential range for the refund:

Step 1: Gather Financial Records

Collect all relevant financial records for the tax year you want to review, including business income statements (e.g., profit and loss statements), business expense receipts, depreciation schedules, and any other supporting documentation.

Step 2: Download IRS Forms

Visit the IRS website (www.irs.gov) and download the appropriate forms for amending a business tax return. Business owners typically use Form 1120X for corporations, Form 1065X for partnerships, or Form 1040X for sole proprietors with a Schedule C.

Step 3: Understand the Deadline

Check the deadline for filing an amended business tax return for the specific tax year. Consult the FAQ section for amended returns on the IRS website for this information. Generally, you have up to three years from the original filing date to amend a return and claim a refund.

Step 4: Identify the Changes

Review your original business tax return and identify potential changes that could result in a refund. Common reasons for amending a business tax return include:

• Correcting errors in income or expenses.
• Adjusting depreciation and amortization schedules.
• Claiming missed deductions or credits.
• Reclassifying income or expenses.

Step 5: Complete the Amended Tax Return

Fill out the appropriate IRS form (e.g., Form 1120X, 1065X, or 1040X) based on the changes you need to make. Include the original amounts reported, the corrected amounts, and the differences for each line item.

Step 6: Provide an Explanation

Attach a detailed explanation of why you are amending your business tax return. Include supporting documentation for the changes you’re making to substantiate your claims.

Step 7: Calculate the Refund or Balance Due

On the amended tax return form, calculate the difference between the taxes originally paid and the new amount you owe or are due as a refund.

Step 8: File the Amended Return

Print and sign the completed amended tax return and any additional forms or schedules necessary for your amendments. Mail the amended return to the IRS at the address specified in the form’s instructions. Keep copies for your records.

Step 9: Wait for Processing

The processing time for amended business tax returns can vary, but it typically takes several months. It’s advisable to check the status of your amended return periodically through the IRS website or their toll-free hotline.

Step 10: Receive Your Refund or Pay Any Balance Due

If your amended return results in a refund, you will receive it via check or direct deposit. If you owe additional taxes, pay the amount by the due date to avoid penalties and interest.

Step 11: Keep Records

Retain copies of all documents related to the amended business tax return, including the original return, the amended return, supporting documents, and correspondence with the IRS.

Estimated Time and Potential Refund Range:

The time required for this process can vary widely based on factors such as the complexity of your original return, the nature of the changes, and the IRS’s processing times. Generally, it can take anywhere from a few months to a year or more.

The potential range for a refund depends on the specific changes made to the return. Refunds can range from a few hundred dollars to thousands or even more, depending on the size and nature of your business and the corrections made.

To get a more accurate estimate of the refund amount and to ensure the process is handled correctly, it’s advisable to consult with a professional who specializes in business taxation. Schedule your free consultation with ISCPA today to find out how our tax team will review your 2021 & 2022 taxes absolutely free!

Too Good To Be Legal? The Qualified Opportunity Zone Investment.

One tax mitigation strategy that can be highly effective when used appropriately is the “Qualified Opportunity Zone (QOZ) Investment.” While this strategy is legal and encouraged by the government to promote economic development in distressed communities, it may seem too good to be true to some due to the magnitude of its potential tax benefits.

Here’s how the Qualified Opportunity Zone Investment strategy works:

Opportunity Zones:

The U.S. government has designated certain economically disadvantaged areas as Opportunity Zones. These areas typically struggle with economic development and job creation.

Capital Gains Investment:

To benefit from this strategy, you need to realize capital gains from the sale of assets such as stocks, real estate, or a business.

Reinvestment in Opportunity Zones:

Within 180 days of realizing those capital gains, you can invest the gains in a Qualified Opportunity Fund (QOF). A QOF is an investment vehicle specifically designed to invest in qualified property or businesses located in Opportunity Zones.

Tax Deferral:

By investing in a QOF, you can defer paying capital gains tax on the original investment until the earlier of when you sell your QOF investment or December 31, 2026. This means you can defer your tax liability for years, potentially allowing you to invest the money and earn additional returns.

Reduction of Tax Liability:

If you hold your QOF investment for at least five years, you receive a 10% reduction in the deferred capital gains tax. If you hold it for at least seven years, you receive an additional 5% reduction, totaling a potential 15% reduction in your original capital gains tax.

Tax-Free Gains:

If you hold the QOF investment for at least ten years, any additional gains you earn on the QOF investment itself become tax-free when you sell it. This can result in significant tax savings.

This tax mitigation strategy can seem too good to be true to some because it offers substantial tax deferral and potential reductions in capital gains taxes. However, it’s important to note that the primary objective of this strategy is to drive investment into economically distressed areas, and it does come with certain compliance requirements and risks.

The National Association of Realtors provides numerous resources to examine this opportunity closely and consider your option. It’s crucial to work with tax professionals and investment advisors who are well-versed in Qualified Opportunity Zone investments to ensure that you navigate the program correctly, follow all regulations, and maximize its benefits while staying within the bounds of the law. Additionally, consider the long-term nature of this strategy, as you need to hold your QOF investment for an extended period to fully realize its tax advantages. To learn more about complex and highly effective strategies that can reduce your taxes or potentially eliminate them entirely – schedule your free consultation with ISCPA today. 

How a Family Management Company Benefits Business Owners

The world of tax regulations can be a labyrinth for business owners, but there’s a strategic solution that not only offers tax advantages but also enhances business operations and succession planning. This solution involves the creation of a Family Management Company (FMC). In this article, we delve into the tax benefits of establishing an FMC, providing concrete examples and highlighting its role in avoiding payroll taxes.

Deciphering the Family Management Company (FMC):

Think of a Family Management Company (FMC) as a specialized entity designed to oversee various aspects of a family’s businesses and investments. Unlike a typical operating company, an FMC doesn’t engage directly in core business activities. Instead, it becomes a hub for strategic decision-making, financial management, and asset ownership. By separating management functions from operational tasks, business owners can tap into the FMC’s potential to streamline processes, optimize taxes, and ensure a seamless intergenerational wealth transfer.

Unveiling the Tax Benefits of an FMC:

Smart Income Allocation:

The FMC allows for intelligent income distribution among family members. Suppose a family business generates $1 million in profits annually. By distributing a portion of this income to family members in lower tax brackets, overall tax liability can be minimized. For instance, if a business owner falls into a higher tax bracket while their children are in lower brackets, distributing income to the children can lead to substantial tax savings.

Estate Tax Planning in Action:

Let’s consider a scenario where a business owner wishes to transfer ownership interests in their operating company to their children. Rather than a sudden transfer triggering substantial estate taxes, an FMC enables a gradual transfer. This measured approach can significantly reduce estate tax liabilities, preserving family wealth and minimizing tax burdens.

Shielding Assets from Risk:

Imagine a family business faces unforeseen financial challenges. If the business and personal assets are intertwined, both could be at risk. An FMC acts as a barrier, separating business assets from daily operations. This segregation shields family assets from potential business liabilities, providing a safeguard that helps protect the family’s financial foundation.

Transitioning with Grace:

Succession planning can be complex, but an FMC simplifies the process. Family members can gain experience within the FMC before taking leadership roles in the operating businesses. This gradual transition ensures continuity and minimizes disruptions that could trigger tax consequences. For instance, a business owner can mentor their successor within the FMC, ensuring a smooth handover of responsibilities.

The Payroll Tax Advantage:

By employing an FMC, a business can potentially avoid or reduce payroll taxes. For example, instead of direct employment, family members can become employees of the FMC. This approach could lower payroll tax liabilities while still providing compensation to family members involved in the business.

The Family Management Company (FMC) stands as an ingenious solution for business owners seeking tax advantages while securing their legacy. With real-world examples illustrating its benefits and its role in circumventing payroll taxes, the FMC is a multi-dimensional strategy that aligns financial goals with taxation efficiency. However, it’s imperative to engage experts who specialize in family wealth management and taxation to create a tailor-made FMC strategy. By leveraging the tax benefits of an FMC, business owners can navigate the intricacies of the tax landscape while charting a course toward a prosperous and tax-optimized future. ISCPA can help you with this as well as many other strategies to optimize your relationship with taxes and grow your wealth. Schedule your free consultation today to learn more. 

In the meantime, take advantage of our free DIY guide that should reduce any business owner’s taxes by at least $10k this year. Download your copy HERE.

Save $100k in Less Than 5 Years Through Tax Optimization

Saving $100k in less than five years while maintaining your current lifestyle might seem like a lofty goal for business owners. However, with a well-structured approach to tax optimization, this aspiration is not only feasible but can also lay the foundation for financial security. Kevin O’Leary wisely advises that everyone should aim to have $100,000 saved by the age of 33. While many of us make wise decisions early in life, late bloomers aren’t a minority. A German film on Netflix, Paradise, is an entertaining albeit dark portrayal of the human inclination to assign a timeline to success.  In reality, this habit succeeds only in making most of us feel bad, while driving some of us insane (back off my time bank Sophie Theissen!). When we rise above the illusion of time, reason avails itself along with a plethora of opportunities. ISCPA focuses on the “zen” in reason for business owners of all ages. Business owners of any age can catch up on their savings to build a very comfortable financial future. If you’re a business owner with a net revenue of at least $150,000.00 – tax optimization alone can save you $100k in less than 5 years, without changing your lifestyle at all.

Understanding the Power of Tax Optimization

Tax optimization is a strategic method for minimizing tax liabilities while maximizing savings and investment opportunities. This proactive approach to managing your finances not only helps you retain more of your earnings but also provides the means to achieve significant financial goals.

Step 1: Assess Your Tax Profile

Before embarking on a tax optimization journey, it’s essential to assess your current tax profile. Understand your income sources, business structure, deductions, and credits. Consulting a tax professional can provide valuable insights into tailoring your strategy to your unique situation.

Step 2: Align with the Right Business Structure

Choosing the correct business structure can wield a significant impact on your tax responsibilities. Whether you’re a sole proprietor, partnership, LLC, or S-corporation, evaluating and potentially adjusting your structure can help optimize your taxes.

Step 3: Meticulously Track Expenses

Maintaining detailed records of business expenses forms the backbone of tax optimization. Deductible expenses, such as business-related travel, equipment acquisitions, and home office expenditures, can effectively lower your taxable income and consequently reduce your tax burden.

Step 4: Invest in Your Future

Kevin O’Leary’s recommendation to have $100,000 saved by the age of 33 highlights the value of early savings and capitalizing on retirement accounts like a SEP IRA or Solo 401(k). These contributions offer immediate tax advantages, ultimately decreasing your tax liability while building a robust retirement fund.

Step 5: Capitalize on Deductions

Explore every available deduction opportunity, ranging from home office usage to healthcare premiums. Each deduction directly chips away at your taxable income, significantly enhancing your tax savings.

Step 6: Strategic Timing

Manipulating the timing of income and expenses can play a crucial role in optimizing your taxes. By postponing income or advancing deductible expenses, you can shift your tax obligations to more favorable periods.

Step 7: Investment Intelligence

Investment choices impact your tax responsibility. Opt for tax-efficient assets and gain a comprehensive understanding of the tax implications associated with your investments, ensuring minimized taxes on investment gains.

Step 8: Embrace Continuous Review

Tax laws evolve, and your financial situation changes. Regularly reviewing your tax strategy with experts ensures you remain in step with current regulations and continuously optimize your approach.

Step 9 Assures Your Success With 1-8 (So you should actually do it first!)

So – are you business owner who feels likea late bloomer in any capacity? Get off the wall then and Schedule your free consultation with ISCPA now, so that we can help you achieve your goals quickly and easily. Embarking on the journey to save $100,000 in less than five years through tax optimization aligns seamlessly with Kevin O’Leary’s advice to secure your financial future. Regardless of age, tax optimization enables you to catch up on your savings and build a stable financial foundation. By taking control of your tax situation, maximizing deductions, and strategically managing your finances, you’ll not only reach your savings goal but also enjoy a more prosperous and secure tomorrow.

Irrelevant Side-Note

If you  have not seen Netflix’ Paradise, check it out – or at least read the synopsis. Then listen to the Sade classic – Paradise, paying attention to the lyrics. Was the writer inspired by this song, or was it just a coincidence? No idea, but weird!

Tax Calculator – Overpayments, Reductions, & Refunds

Do you want to know how much you’re on track to overpay this year? Our tax calculator will give you a reliable estimate of how much you may have overpaid last year, and are on track to overpay this year. But it’s actually good news. This calculator also estimates how much ISCPA can reduce your taxes by in 2023 and what we may be able to recover on your behalf for previous years! We are proper Robin Hoods – (non criminal, of course).

Click the link below to access our quiz and find out how much money ISCPA can effectively take from the IRS to give back to you.

OVERPAYMENTS, REDUCTIONS, AND REFUNDS

Schedule a free consultation to talk about your results and how ISCPA can help you!

Overlooked Self-Employed Insurance

When you pulled the trigger and decided to “free” yourself from working for someone and became a freelancer, you probably felt this sense of power.  You can now make the decisions and do the kind of work YOU want to do!  Being a freelancer has many perks; flexibility, opportunities, independence, control, TAX deductions (yay!), and overall freedom!

However, the major downside to freelancing is losing ALL the security benefits that your employer provided in the past. We all know that we need health insurance and that is usually the first thing you would purchase when you “free” yourself.  After getting sick from the sight of their monthly bill for health insurance, many new entrepreneurs stop there.

Life and Disability Insurance are thus easily forgotten as a freelancer, with your “living” benefit being next on the list!

Disability Insurance replaces your monthly income in case you are unable to work.  Ironically, it is the most overlooked but MOST used insurance. After the crazy COVID years, I think we can all agree that anything can happen, especially to our health.  Car accidents, work accidents, ANY accident, cancer, surgeries, carpal tunnel, herniated discs, concussions, and the list goes on and on.

Think about what YOU would do if you couldn’t work.

How would you pay for your home, car, food, bills, etc.  It is a scary thought, and it could change your financial world quickly if you are not insured or prepared.

Here are some interesting stats and facts about Disability Insurance:

• A 35-year-old has a 50% chance of becoming disabled for a 90-day period or longer before age 65
• Almost 90% of long-term disability claims are caused by illnesses, not accidents and aren’t work related
• Average long-term disability claims for group members last 34.6 months.
• 51 million working adults in the U.S. are without disability insurance.
• Americans are 5 times more likely to become disabled than die but they are more financially prepared for death.
• The top 3 reasons for Long-term Disability Claims are Musculoskeletal disorders (29%), Cancer (15%) and Pregnancy (9.4%)
• More than 375,000 Americans become totally disabled every year.

Disability Insurance is based on your current age and health.  It gets more expensive as you get older and it gets harder to obtain it as your health declines. It can also play a role in tax planning strategies to mitigate your tax debt.

Please click HERE to schedule a free consultation.

Tax Implications of Crowdfunding

With the advent of crowdfunding platforms, it has become easier for individuals and small or new entities to raise capital. According to the 2021 GoFundMe Giving Report, the platform has raised more than $15 billion since 2010. The report notes that the fastest-growing campaign categories are newlyweds and animals.

The easing of SEC regulations permitting private companies to raise equity capital through crowdfunding has opened doors that were be inconceivable just a decade ago. As limitless as the opportunities may be, beneficiaries and donors to crowdfunding platforms need to be aware of the tax implications.

According to a 2015 article in the Journal of Accountancy, “congress and the IRS have not addressed crowdfunding income specifically. Leaving scant guidance for CPA tax advisers whose clients may have this source of income.”

More recently, the Bradford Tax Institute writes that “there has yet to be a court decision or IRS ruling on the subject” and elaborates that the only guidance from the IRS is a couple of information letters guiding that “the IRS will examine all facts and circumstances…and use general principles of income inclusion to determine the proper tax treatment.”

Types of Crowdfunding

The Bradford Tax Institute notes there are four types of crowdfunding sources. Each of these present tax consequences.

Donation-based Crowdfunding 

Donation-based crowdfunding is composed of donations for causes such as medical expenses, economic hardship, emergencies, memorials, education, and non-profits.

Donations from such crowdfunding platforms are generally considered gifts and are not taxable to the beneficiary. The key qualification is that the contributions are gifts, which the Bradford Institute cites as “motivated by detached and disinterested generosity and made out of respect, admiration, charity or like impulses.”

An important exception noted by the IRS to this interpretation is “contributions to crowdfunding campaigns by an employer to, or for the benefit of, an employee is generally included in the employee’s gross income.”

Another caveat is that donations made to campaigns are not tax deductible for the giver unless made to a charitable organization known as a 501(c)(3).

Finally, any amount given to an individual over the annual gift tax exclusion would require the giver to file a gift tax return.

Rewards-based

Crowdfunding sites such as Indiegogo and Kickstarter help startup-up entities and creative ventures to raise capital through rewards-based donations. Donators receive rewards but have no equity and are not creditors. 

Donations received through rewards-based crowdfunding should be considered income. However, there are potential exceptions; the reward has no economic value, is not accepted, or donations are beneath the qualifying threshold to be awarded. Understanding which expenses are tax-deductible for beneficiaries of crowdfunding mitigates most potential issues. Startup costs are generally non-deductible as a fundraising expense. In this case, “up to $5,000 in startup expenses are deductible the first year a business begins operation, with any remaining amounts amortized over the next fifteen years.”

Equity-based

In 2016 SEC Regulation CF (crowdfunding) went into effect and now allows small private companies to raise up to $5 million a year in equity through crowdfunding.

While companies must be diligent in complying with SEC rules and filings, funds received are considered equity and not income.

Debt-based

Crowdfunding platforms have also allowed smaller companies and startups to raise capital efficiently through debt financing. Instead of utilizing a traditional bank loan, companies can obtain a loan from a platform such as Lending Club or Prosper.

In turn, the debt-based crowdfunding sites bundle a package of loans and “sell” them to investors.

Funds received are not classified as income. Interest expenses for business loans are tax-deductible expenses for the business.

Final Thoughts

Beginning in the 2022 tax year, the IRS requires payment processors to issue 1099s for anyone who receives payments exceeding $600 during the year. While the regulations don’t require a 1099-K for donation-based crowdfunding, beneficiaries may receive one. In such cases, beneficiaries should work with their tax preparer to properly report the donations as non-taxable donation proceeds.  Participants in crowdfunding may benefit from seeking professional guidance on potential tax liabilities.

If you have received crowdfunding funds, and have questions about the tax liabilities, schedule a free tax planning strategy session.

It is crucial to monitor cash flow to ensure the continued prosperity of your business. Looking just at the revenue or the bottom line is a common error made by young enterprises. Significant revenue or net profit from Profit and Loss statement does not mean you have cash in the bank and can fulfill your financial obligations. Poor cash flow management is a major contributor to the demise of small businesses.

Cash flow is a company’s inflows and outflows of cash. Cash flow can be positive and negative. Positive cash flow means that there is more money flowing into the business than flowing out of it. Negative cash flow means that the company has more money outflowing than inflowing.

When evaluating the success of a business, the cash flow is as crucial as net profit.

Why is it crucial to forecast your cash flow?

Your business cannot survive without cash flow forecasting. Not knowing/anticipating how much cash your business will have at a certain time can result in grave consequences such as overspending or failure to invest in the right person, technology, or equipment. Forecasting cash flow can help your business in the following ways:

1. Bill payments: when you forecast your cash flow, you will know when you can pay the bill and when you need to postpone or seek credit terms.
2. Stop over-spending: you will know if you can afford a certain purchase if you know what your bank balance will look like in the future.
3. Grow your business: growth requires initial cash investment and planning your cash flow will tell you exactly what you need to have in cash to achieve a certain growth goal
4. Invest in new products/technologies/people: doing cash flow projections you know what your cash flow surplus is and how much you can invest in new products/technologies/staff
5. Avoid unfavorable credit arrangements: many businesses apply for credit when they have no cash to operate their business and that’s where financing becomes very expensive. Doing cash flow projections will help you predict when you will need financing and apply to get credit when you are not desperate for it.
6. Profit distributions: business owners can project when they can take additional profit distributions by projecting cash flow and making sure distributions will not hurt the business down the line.

How Can You Keep Cash Flow Healthy?

To improve your cash flow, you can follow some of these tips:

1. Choose correct invoicing strategy
2. Invoice more frequently
3. Collect open receivables quickly
4. Provide incentives to your customers to pay fast
5. Pay your bills strategically
6. Consider delaying some expenditures
7. Have a line of credit
8. Do cash flow forecasting on a regular basis, weekly, biweekly, or monthly
9. Always review your statement of cashflows alongside P&L and Balance Sheet

Conclusion

An overwhelming majority of young enterprises fail because of the failure to manage cash flow. It is sited that over 60% of small businesses from around the world struggle with cash flow. Prevent yourself from becoming a statistic by proactively managing your business cash flow.

Schedule a free consultation if you need assistance managing your cash flow.