Just about every business owner looks towards the end of their fiscal year with a combination of relief and dread. Not only will you know what the final profit amount is for the year, but you will know just how much of your hard earned money is owed to the United States government. While no one really enjoys paying taxes, there are a lot of great opportunities for reducing business tax burdens written into the Federal Tax code. The most popular of these is Section 179.
Section 179 is a section of IRS tax code that allows a tax deduction of the full price of qualifying equipment purchased, financed, or leased during the tax year. Although, Section 179 can and does benefit larger businesses, it is one of the few incentives that is tailored to benefit smaller businesses, motivating owners to put money back into their businesses.
Here is how it works. If you purchase up to $500,000 in qualifying equipment you are eligible to write off the entire amount of your purchase or lease. Beyond $500,000 you may be eligible for Bonus Depreciation. We highly recommend contacting your tax professional or CPA for more information regarding Section 179 and what steps you should take before the end of the year to increase your tax deductions.
A couple things to note in order to ensure your purchases are eligible for the Section 179 deduction.
If your CPA has been telling you to purchase business equipment, this may be why. There is more good news, though, you don’t necessarily need to spend all of your cash on new business acquisitions. Instead, consider financing options that will place you in a position to take the tax deduction, while spreading the cost of the equipment out over a longer period of time. Many different financing structures exist and Aztec Financial can help you get into the structure that best suits your business needs.
You need new equipment for your business, now what?
The capital outlay required to purchase new equipment can be intimidating, especially for a newer business or a company experiencing sudden growth. Most businesses don’t have enough available cash to consider an outright purchase. Even if they can afford it, they may want to put their money to good use and investing cash in assets leaves them with less working capital to finance operations or explore new growth opportunities. The flexibility of equipment financing allows them to align repayments to suit their cash flow and may be able to claim certain tax deductions.
Equipment finance allows you to spread the burden over a period of weeks, months, or years, gaining access to the equipment in the meantime instead of paying upfront.
Of course this option is more expensive. However, if you choose the right deal it could actually be of a great benefit for your business in the long run.
But how do you find the right financing deal for your business?
There are many benefits to using equipment finance, primarily because it allows you to save money upfront. Spreading the cost over a period of months or-more commonly- years, allows you to ease the financial burden of obtaining equipment for your business. Some deals also let you spread payments to accommodate fluctuations in your cash flow such as arranging an initial program that defers the first few payments. Aztec Financial offers such a program and also has a mulligan program available that allows for a (skip) payment at any time annually throughout the contract.
Always look for a lender with fixed rates and term arrangements, using your Line of Credit may have other considerations including rates that are susceptible to increases. In addition look for lenders who will use the needed equipment as the ONLY collateral for the contract. Unlike other loan deals you don’t need to offer anything else as security as the equipment itself acts as security. Failure to keep up with repayments will generally only results in you losing use of the equipment.
It’s best to work with a lender that knows your business, knows your equipment, and knows your industry. Have you recently had your largest commercial contract change the date they are paying your invoice? Will your lender alter the due date of your payment? How will that effect cash flow?
For information regarding the different types of equipment finance programs offered by Aztec Financial please call 800-644-9537
What Is Cash Flow and Why Does It Matter?
Cash flow is one of the most important aspects of business, standing right there alongside providing great customer service and offering a quality product. According to the Small Business Association having an inadequate reserve of money is one of the top reasons that small businesses fail.
So why is the flow of cash in and out of your business so important? First, let’s take a moment to consider what cash flow really means. Cash flow is a term used to describe the movement of money into, and out of, your business accounts. When you are at a positive cash flow, you have more money coming in than there is going out. This happens when costs are low, contracts are plentiful, and everything is going well. A negative cash flow, on the other hand, happens when more money is being spent than is being taken in. This happens when unexpected bills arise, business is slow, or other circumstances occur that cause income to go down or the cost of business to go up.
Cash flow is so important that most accounting software includes a cash flow statement, and accountants are almost guaranteed to bring it up during meetings.
What can businesses do to maintain a positive cash flow?
While there is no one-size-fits-all answer, here are some tips and tricks for maintaining a positive cash flow and keeping your business on track.
Balance the books
Pay close attention to the money coming into and going out of your business. Don’t ignore the checkbook until taxes are due, but instead take time to regularly review the numbers. This will make you more aware of your cash flow and give you a better sense of where the money is going. When you notice unnecessary expenses, you’ll have an opportunity to eliminate them before they’ve eaten up hundreds of dollars.
Sell at a profit
Know how much it costs to provide your product or service, then charge enough to cover those costs with a little extra as profit. Breaking even, or selling at a loss, can be a great tool when you are establishing yourself or trying to pull customers away from your competition, but it is not sustainable long term.
Add on services
Watch for opportunities to sell additional products or services. If you are cleaning a carpet, offer to clean the upholstery as well. Selling a basketball hoop? Sell the basketball that goes with it. These services can be bundled together as packages, or offered on the job. Either way, you are increasing your cash flow and creating additional profits.
Encourage repeat business
Marketing professionals worldwide will tell you how much easier it is to keep an existing customer than it is to attract a new one. Retaining the customers you have through high quality service, products, and experiences is one of the best ways to grow your cash flow over time. Customers who have used your services in the past are much easier to contract with again, creating repeat business and a steadily rising cash flow.
Keep cash available
This may be difficult to do as a new business owner, or when really pushing your business to grow into the next stage, but experts recommend keeping 10 percent to 20 percent of your monthly revenue on hand at all times. That way, should something unexpected happen you have enough money to get the business through hard times.
For additional tips and tricks for keeping cash flow positive, we recommend consulting your accountant or tax professional. These highly skilled individuals can assist you with a cash flow analysis, break even analysis, and more.