Tax season is upon us, and while that means crunch time for accountants, it’s also good news for companies who find a refund in their accounts. But what’s the best way for a small business to utilize their tax refund? We reached out to accountants and small business owners to get their suggestions on how to maximize an unexpected tax-day windfall.
Pay Off Debt
It’s fun to daydream about the gadgets and upgrades you could splurge on, but the most common suggestion we heard about that refund burning a hole in your pocket was to pay off debt. And with good reason: the average credit balance carried by a business in 2020 was $30,919. At 14% APR, that’s over $4,000 in interest per year. While paying off your debt with your refund not only lowers the amount of interest you would pay in the long run, there are other benefits, too. “Making on-time payments and keeping your debt level low help to enhance your company credit score, which can help you qualify for more appealing financing in the future,” Tyler Martin, Founder and Certified Business Coach at ThinkTyler, told us. It might not be as attractive as a new computer or an Eames office chair, but there’s nothing quite as liberating as paying off debt.
Save for a Rainy Day
According to a survey by the Federal Reserve, a two-month revenue loss would require 47% of small businesses to use the owner’s personal funds to stay afloat, while another 17% would have to close. That’s why Lattice Hudson, business coach and founder of Lattice & Co, recommends setting up an emergency fund. Instead of taking out a loan, you can handle an unexpected bill with funds you’ve left aside (and untouched) reserved for emergencies. But how much should you keep in saved? Experts recommend maintaining a buffer that covers three months of expenses.
Expand Your Internet Visibility
No matter what kind of small business you’re operating, your web presence is crucial to acquiring new customers. In fact, the first result of a Google search gets one-third of the traffic from that search, and links on the first page account for over 90%. That’s why Calloway Cook, president of Illuminate Labs, suggests leveraging your refund and hiring a specialist to perform a Search Engine Optimization (SEO) site audit. An SEO audit “analyzes all pages on a website, along with the information architecture and off-page ranking factors, and provides a set of recommendations for the site owner to optimize their search performance. This can lead to significant increases in organic traffic to the site if implemented correctly,” he explained. The more traffic your site gets, the more exposure you get to potential new clients.
Invest in Your Workforce’s Skills
Your team’s knowledge base and specialization is the foundation of your company. But as laws, regulations, and even best practices change, you may find your workforce would benefit from a skills update. “Think about the future and how you can boost your company’s credentials,” Francis Locknear founder and CEO of TheCostGuys.com, said. “Pay for courses and training programs that will help continue everyone’s growth.” Online courses are abundant, and sites like LinkedIn Learning offer lessons across the entire skill spectrum, from improving your Excel and spreadsheet game to mastering the art of the elevator pitch. Of course, you can also increase the collective skillset of your team by adding new members to your talent bench.
Give a Bonus to Your Team
We’re strong believers that you should share your wins with your team. But in addition to the feel-good celebrations of meeting deadlines and beating benchmarks, there’s also cold, hard cash. “You wouldn’t be where you are today without your employees,” Brad Cummins, owner and principal agent at Insurance Geek, emailed, who advocated showing your team some “extra love” to help keep them loyal and happy. Considering that the average cost of onboarding a new employee costs $4,000, retaining your workforce could save you money in the long run. With more and more people seeing the Great Resignation as an opportunity to hang their own shingle, showing your team how much you appreciate them is an excellent way to entice them back for future projects.
Don’t think about your tax refund as just a number on your balance sheet. Instead, consider it an opportunity — a chance to invest in your team or expand your web presence. Even leaving it untouched as a buffer against slow months is an excellent move, because if there’s one thing small businesses are good at, it’s persevering.