BY: Chris Lanchech
I’m sure that you’ve heard the old saying that there are only two certainties in life: death and taxes. And to be sure, the only way to avoid the latter is to embrace the former.
Not much of a choice.
But taxes have a way of coming due at the most inconvenient time. For some, it’s just after the busiest season of their year. From Thanksgiving to the middle of January, some firms can do 20% or more of their annual business. But, when the season ends, then what? Business often slumps for a couple of months at least.
And that can mean that when the tax bill arrives, you aren’t financially prepared for it.
I haven’t met anyone who likes to pay taxes.
Oh sure, you hear of people like Warren Buffett talking about how they ought to pay more tax, and how the government needs to change the law so that they will. But you’ll never catch any of them forgoing a legitimate tax deduction to do it.
And they’ll never donate anything to the federal government, either.
Donate? To pay the national debt? Yes. That’s what I said. It’s right there on your tax return.
You can check a box, and donate your refund to the federal debt.
Fat chance, I hear you say. And I agree with you. I mean, who in their right mind would do so?
My point is that apart from the odd billionaire who thinks that the law should be changed so they are forced to pay more, the rest of us, and no doubt that includes you, prefer to pay less. But the thing is that time and taxes wait for no man, and certainly no business.
The failure to pay taxes in the short term can give something as small as your town government the right to put a lien on your business, which can make them the owners, and not you, in the stroke of a pen.
And that means that you have to have an alternative method that you can draw upon quickly, in order to find the money you need to pay it when it does become due.
The risks are just too high to ignore it.
Factoring your invoices is a sensible way to keep the tax man off your back and to retain ownership of the business that you worked so hard to create.
It enables you to obtain the money you need sooner than you otherwise would expect to get it.
For example, let’s say that you have issued invoices worth $50K, and that you expect them to be paid in 90 days. You knew that your taxes would be due in a month or so, but you got so busy that the time slipped by before you knew it.
Then your accountant tells you that you have to pay it in 45 days. What do you do?
One option would be to
That would prevent a problem with the government.
Or, let’s say that you had a particularly good year, but you earned more money at the end than at the beginning. And that meant that instead of holding some of what you earned in reserve for your taxes later, you had to use it to keep the company going during those lean months.
But now, because of your unexpectedly high earnings, you have more tax to pay than you were able to prepare for.
One way to deal with that problem is to use factoring to cover the difference. Even with the interest rates at historic lows, you’ll find that the discount at which you sell your invoices will be considerably less than the interest you would pay on a loan.
Not only that, but you’ll avoid taking on any new debt.
And that has to be a bonus for you.