Tips for Accelerating Income and Deferring Expenses

Accelerating Revenue and Deferring Spending

Article written by EricBank

As a small business owner or corporate CEO, you can employ strategies that affect your net income and cash flow by accelerating your revenues and postponing your spending. This is the opposite of a tax management strategy, because it tends to increase your current-year taxes. Rather, you increase collections and defer expenditures to conserve cash, and you accelerate revenue recognition and postpone expense recognition to increase earnings.

Accelerating Revenue

Under accrued accounting, you recognize revenue when you earn it. By offering your customers special inducements, you can incentivize them to make quicker and/or larger purchases. You have several options, including:

·       Better credit terms

·       Volume discounts

·       Rebates

·       Markdowns

Another tactic is to speed up the shipping cycle, which allows quicker revenue recognition. Depending on your cash needs, you might auction your inventory to accelerate income, although your total income will probably be lower. If you perform work billable in stages, you might speed up the delivery of goods or services linked to billable milestones.

Accelerating Collections

Your goal might be to simply increase you cash balance. For this purpose, you can consider accounts receivable factoring. Under this procedure, you receive a percentage of your A/R's value from a factor -- a bank or other financial institution -- that purchases your customer invoices. For example, the factor might advance you 80 percent of your A/R balance and then pay you a portion of the money it collects above that threshold. If you'd rather not sell your invoices, you can hire a bill collector to track down delinquent accounts, or you can auction off your inventory, which accelerates both collections and revenues. Another ploy is to offer a better cash discount for prompt payment. For example, if you normally offer 2/10 net 30, you can consider changing it to 4/7 net 20 -- a 4 percent discount if paid in seven days, bill due in 20 days.

Deferring Expenses

Despite the accounting principle that matches expenses to revenues, you often have some discretion in recognizing or paying expenses. A spending freeze applied to items like inventory, equipment and supplies will postpone expenses. You might also cancel or delay attending corporate junkets, conventions and training sessions. In tough times, you can stop hiring and even lay off workers, perhaps filling some gaps with unpaid interns. You might also be able to skip your annual contributions to employee retirement accounts, cut employee benefits, defer advertising and insurance purchases, and even save money on paper by going paperless whenever possible.

Deferring Spending

You must be careful to recognize expenses in the proper period -- your accountant will advise you on this -- but you certainly can delay paying cash. Of course, if you extend you accounts payable cycle too far, you could lose purchase discounts, but this might be a good trade-off for you nonetheless. A corporation can withhold dividends or terminate stock buyback programs to conserve cash. Perhaps some employees would be willing to take a smaller salary in return for stock options. However, never fail to pay your interest and taxes on time -- as your accountant will tell you, now you're playing with fire.