Managing Business Finances in a Crisis

Whether the economy is in a recession or not, businesses of all types are experiencing financial crisis. Some still have a pandemic-related drop-off in business activity and income. Many businesses are challenged by supply chain issues and labor shortages and cannot plan ahead to meet customer needs. But they all have one thing in common – times of crisis require greater attention to managing business finances. 

Planning for a crisis will not prevent the crisis from occurring. Crisis management mitigates the impact on a business when the inevitable occurs. It’s like attending to your physical health. Planning a healthy lifestyle doesn’t prevent illness or aging; however, it can reduce the duration of the illness’ severity and ease the aging process.

Owners and managers should follow three steps to manage business finances in a crisis:

  1. Assess Financial Position

Up-to-date, complete, and accurate financial recordkeeping and a monthly review of financial reports allow business owners to immediately assess overall financial positions related to liquidity and payment commitments. That information allows them to adapt quickly as soon as a crisis occurs or appears to be imminent. Immediately knowing the financial status of your business is always immensely important; even more important during, or leading up to, a crisis.

  1. Conserve Cash

During times of crisis, cash is king. Even more than usual. When business activity slows down or stops, businesses are less able to predict income and cash flow, resulting in a reduced ability to forecast how long cash balances will last. The only thing to do in a crisis is to hang onto cash to avoid missing crucial bill payments, like rent and payroll. It’s also wise to obtain a signature loan or line-of-credit in advance of impending trouble to help keep the doors open during a crisis.

  1. Scrub the Budget

Assuming that a crisis was not baked into this year’s budget – and let’s face it, that almost never happens – many businesses probably budgeted for income and expense items that no longer make sense under the circumstances. Examine each budget category for both income and expenses to identify any items will either not occur, or will increase, decrease. Expense categories may need to be added based on the crisis’ type and anticipated duration.

Recession or not, businesses experiencing a crisis require greater attention to managing business finances. Planning for a crisis will help to mitigate the impact on business finances to a steep drop-off in business activity from circumstances you have no control over, like say, a global pandemic. Following these three steps to managing business finances can reduce the duration and severity of a crisis.

Extended Tax Returns Due October 17

Way back in April when you requested an extension to file your 2021 income tax returns, you breathed a sigh of relief. Phew! Six additional months to file. It seemed like all the time in the world. Well, “all the time in the world” is passing quickly. You have about a month left to file – by October 17th. The 15th is a Saturday, so the IRS is giving you two extra days. On October 17th, there are no more extensions and no more excuses.

Of course, you don’t need to wait until the October deadline to file. The IRS will be happy to get your tax return as soon as you have all of your information together. Actually, filing electronically and paying any amount owed as soon as possible can help you avoid further interest and penalties, even if you did not file an extension by the April deadline.

Here are two essential tips about filing your 2021 extended income tax return:

  1. File by October 17th

Failure-to-file penalties are expensive. If you really cannot get your business expenses or other tax-related information organized as thoroughly as you should to file a complete and accurate income tax return, use your best estimates and file by the due date. Then, finish getting those documents together and file an amended return. You have three years to amend a return but don’t procrastinate. Interest continues to accrue on any unpaid tax balance that may be due with the amended return.

  1. If You Still Owe

Even if you tax paid with your extension request, you could still end up owing more when you file. Keep in mind that interest accrues daily on unpaid tax balances, so pay as much as possible with your return to reduce interest and penalties. Using IRS Direct Pay to securely pay from your checking or savings accounts is free. Can’t pay it all now? The IRS offers payment plan options. Details about payment options and their costs are all found at the Paying Your Taxes page on IRS.gov.

Filing an extension in April feels terrific, until that six-month reprieve flies by and you there you are, confronted with another deadline. Only about a month to go. No more excuses. Go ahead and get started. Maybe it won’t be as painful as you think. 

Need help meeting the October 17th tax filing deadline? Go to the IRS website at https://www.irs.gov/newsroom/dont-wait-to-file-irs-encourages-taxpayers-with-october-filing-extensions-and-others-who-still-need-to-file. Need more guidance? Consult a qualified tax professional.