Less certain than the specter of death and taxes is whether you'll get money back from Uncle Sam. But for the small-business owners who do get a few thousand back after tax day, the sudden windfall can be great news. To make the most out of that extra cash, you need to do a fair bit of planning, claims Amy Vetter, CPA and global vice president at Xero, which offers cloud-based accounting and bookkeeping services.
"Small-business owners need to take the opportunity to do proper business planning and proper cash flow planning for the coming year so they know how to properly plan for tax refunds they may get," Vetter says. "Once they understand the cash needs of the business, it may be important to re-invest money in the business rather than spending the money personally."
With that in mind, we asked small-business owners and experts about the best uses of tax refund money.
1. Saving It
Squirreling the extra cash away for when you'll really need it was a popular response from business owners.
"So many small-business owners live invoice-to-invoice in the beginning," says Zachary Lezberg, founder of Small Business Expo. "But if you want to grow, you need the mental and fiscal confidence of knowing there's money set aside in case you have a few slow months. Put your tax return into a savings account and don't touch it until you have an emergency."
"I usually just put refunds into savings, since you never know what's going to happen in business," agrees Chad Halvorson, founder and CEO of When I Work, an employee scheduling software company.
2. Buying Products Your Customers Want
"After many years in the e-commerce space, it's clear that great products equal success," says Bob Shirilla, founder of Simply Bags. "Every time we put great products on the website, we have a great year." That's why Shirilla plans to use the $5,400 he's expecting to receive from his taxes to buy more of the two highest performing pieces on his site.
"We must stock all the inventory in our warehouse and ship immediately. If you can't ship immediately, you lose the sale," he explains.
3. Purchasing Scaleable Tech
What are the two resources small-business owners are most in need of? Time and money. Using some of your tax money to streamline processes can be incredibly beneficial.
"Invest in things like new accounting and sales platforms that will automate a lot of the burdensome tasks sucking up your time," Lezberg says. "It will save you a lot in the end."
4. Paying Down Debts
"Paying off loans that may have been taken out to fund the business—whether they be home equity lines, credit cards or other type of loans" is a smart way to reinvest your tax refund money into your business, Vetter claims.
No matter how you decide to spend your tax refund, make sure you're spending wisely and plan ahead, Vetter suggests.
"Have a tax planning meeting with your accountant or CPA before year-end," she suggests. "If your business looks like there may be income that could be distributed, that's the time to make decisions on whether to flow through that income personally, take a distribution, take payroll for the owners, purchase much needed materials or invest in new assets for the business in the coming year."
Read more articles on managing your money.
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