How Not to Waste a Small Business Tax Refund

30 Mar, 2017 / Comments: Comments Off on How Not to Waste a Small Business Tax Refund / By

If you’re a small business owner, you already know how tight money can be. So if you’re hanging on to a refund check (or the direct deposit receipt) after filing your taxes this year, you should count yourself among the lucky few to do so. It can be tempting to take that refund check and blow it all, but what good would that really do for you, or your small business?  Here are a few ways to reinvest your tax refund back into your small business, ensuring that you don’t waste it.


Pay Off Debts

As a small business owner, you probably have several debts, such as high interest credit cards, loans and/or trade lines. Paying debts down with your tax refund is a proven way to boost your business down the line. By paying a chunk of the principal balance, there is less to pay interest on, thus reducing your monthly minimum payments. If you can completely eliminate a high interest debt, that’s better yet, because you will have more money left over at the end of each month.


There is another approach to paying off debts as well, a method coined by Dave Ramsey as the “snowball approach.”  You start by paying down your smallest debt first. With the money you no longer pay toward that debt, you start focusing on your next smallest debt, and so on, until you can focus what you would be paying toward all of your original debts on your largest one.


Invest in Better Equipment

Are you working with old, outdated equipment that you just haven’t been able to replace?  Your old equipment could be impeding your efficiency. You may have been making due with what you had, simply because you didn’t have the funds to invest in anything better. Your tax refund is the perfect opportunity to update old equipment and improve your efficiency. You can upgrade your security system. You can even make upgrades that will improve your energy efficiency, which can also make you eligible for tax deductions next tax season.


Invest in Your Employees (and Yourself)

Technologies are constantly changing, and the way things are done are always evolving. Your business might really benefit if your employees, and you, received a bit more education or certifications. Boost your business knowledge. Offer additional training and education to your employees. Check out night classes (such as at a local community college or continuing education center) or classes online. This type of investment requires more than money, though; it will require time and dedication as well. The more knowledgeable and up-to-date you are, the better able you will be to serve your customers.


Let Your Employees Know They’re Appreciated

Letting your employees know that you appreciate all of their hard work can go a long way in boosting their productivity. While extravagant shows of appreciation are usually out of the reach for small business owners, you don’t have to go crazy. You’d be surprised how small actions can speak volumes. Get your employees a gift card. Set enough into savings to provide donuts or bagels once a month. Or, if you are able, use some of your tax refund to have an employee appreciation day. Treat your employees to a catered lunch. Or, better yet, get out of the office. Have a picnic in the park or check out a local event. A little reward for all of the hard work that you and your employees have put in this year will leave everyone feeling relaxed and happy.


Set Up an Emergency Fund

You probably know all too well that business tends to be cyclical. You will be busier during some portions of the year, while other times it will feel like you have nothing going on, and therefore, little coming in. Stashing away some of your tax refund into a special savings account to use when things are slow can help cushion the blow, and help you from dipping into your profits to get the bills paid. This money will also be helpful should you ever be faced with an unfortunate financial emergency.

Rather than spending your small business tax refund with reckless abandon, why not make it work for you instead? By reinvesting your refund back into the business, you are sure to see yourself becoming more profitable in the future.

William Mahnic
William Mahnic is a Finance Professor at Case Western University and has spent more than 20 years in the finance industry before becoming a professor. Mahnic has appeared as a commentator on both TV and radio talk shows including NPR, Crain's Cleveland Business, WKYC 3 and The Washington Post. He has been interviewed in BusinessWeek, Wall Street Journal and The Los Angeles Times.

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