What Should I do With My Tax Return?
As a small business owner, you may be tempted to take your tax return and run. Cash can be hard to come by and the temptation to treat yourself at tax return time can be hard to resist. Instead, take some time to think about how you could use the money for your business. Here are some ideas for what you could do with your tax return:
Pay off some debt. This is probably the smartest thing you can do with your return. Debt is expensive and can really drag down your cash flow each month. Wipe out the smallest debt first, then the next smallest, then go up from there. If you get enough of a return, you could wipe out some monthly payments that will help your cash flow and credit rating.
Upgrade your IT. It may be time to upgrade your computers, printers, telephones, or software. Locally, we use SBTI Technology because they offer pre-pay plans that allow for emergencies and regular upgrades to software. If you buy new equipment (or refurbished) make sure you get your IT person to connect everything for you properly. You will not save money doing it yourself. You will cause headaches and delays because you don’t know what you’re doing and will end up calling the IT guy anyway.
Spruce up your office. Take a look at the space you ask your employees to work in every day. It is possible (dare I say probable) that your carpets need to be cleaned, chairs replaced, and walls painted. Replace the nasty coffee machine and microwave with new or get a new table for the break room. Your employees will appreciate it.
Get a new website. If your website is more than a few years old, chances are it is not responsive design and needs an update. Significant updates may need a brand new site. Shop for a website designer who offers responsive design (websites that can be easily viewed on mobile devices), and affordable and effective SEO packages. Ask for samples and proof that their SEO has worked for previous clients. A new website can cost anywhere from $500-$10,000 depending on what you need and which bells and whistles you’d like, and the expertise of the website designer. Shop around and don’t be tempted to buy from the first person you speak to. And please do not have your cousin’s son’s girlfriend’s younger brother do it for you because he is 15 and likes computers. Every day without a responsive design site and SEO is costing you money.
Invest the money. If you don’t need the cash, you might consider investing it in something with a return. Ask your tax preparer and financial advisor about ways you could wisely invest the money for the long term.
Set up an emergency fund. Next to paying off debt, this is one of the best ways to use your return. Having an emergency fund for the business gives you some breathing room and will protect your cash flow from those emergencies that seem to pop up from time to time.
Jump start your business or marketing plan. A tax refund is a great way to jump start business plans, but sometimes it isn’t enough to cover all of the costs of expansion. There are other funding options available to small businesses to stretch their refund further. As a provider of working capital loans, Kabbage is one solution that offers flexibility. Check them out.
No matter what you do with your tax return, resist the urge to spend it right away. Get some advice from your tax preparer or financial advisor. You don’t get a big chunk of money every day. Be smart with it and make it work for you.