Have extra cash due to lower fuel costs? Here’s what to do with it

energy savings to fuel businessAmazon.com founder, Jeff Bezos, isn’t very enthusiastic about posting profits. After all, when there’s a profit at the bottom of your balance sheet, the taxman comes knocking – no, pounding – at your door. Bezos would rather create cash flow and plow it all back into the growth of Amazon.com.

While none of us have a hefty Amazonian-sized cash flow to play around with, many small businesses are enjoying improved cash flow right now because of lower energy prices. To put this quite frankly, if you let all that money flow down to your bottom line or personal income, you’re going to lose a big chunk of it to the IRS.

The net result will essentially erase the benefits you seem to be enjoying today due to lower energy prices. Instead of giving it to multinational oil companies or OPEC nations, you’ll be giving it to Uncle Sam. Here are some approaches to dealing with the extra cash you may have on hand because of lower energy costs.

Improve and grow

Invest in your business. This is the Bezos strategy. Depending on how much you are saving due to $50-barrel oil you can do things such as:

  • Increase your marketing budget,
  • Hire temporary employees to handle special projects,
  • Research/develop new markets and new products,
  • Catch up on deferred maintenance,
  • Improve/expand your facilities,
  • Redesign your website,
  • Buy new equipment,
  • Boost inventory by negotiating lower pay-on-delivery prices.

Resuscitate your retirement

Another tax-free way to deal with the extra cash is to invest in yourself. Plow it into your retirement accounts. Talk this over with your accountant or financial advisor. There are a variety of retirement accounts available to small business owners and if you’re at least 50ish, you can often make larger contributions, and now is the ideal time to do that.

And since I’ve mentioned professional financial advice, there are some strategies that require more scrutiny that I can offer here, including:

  • Boosting cash reserves in a contingency fund,
  • Depositing with a bank in order to help qualify for a loan or line of credit,
  • Setting up a holding company where you can park the cash, and others.

Look to the future

Having a windfall of cash due to lower energy prices is a good thing, even if some of it flows to the net income line of your tax form. But remember, energy prices will go up again. Be careful about investing this increased cash in ways that will cause you problems when your fuel bills return to higher levels.

In fact, that suggests another way to spend the money: Launch an energy efficiency project, upgrading equipment and facilities, then when prices go up again, they won’t take such a big bite out of your bottom line.

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Image: R. Manley from public domain graphic.