It’s All About Cash Flow! Tax Pros Share Tips…

It’s All About Cash Flow!  Tax Pros Share Tips…

Was just getting ready for an upcoming conference and discussion on creating a proper business case for securing tax department budget for tax technology and other tax department projects.  One of the concepts we cover is understanding what your CFO and C-Level executives care about so that you can present your projects more effectively.  In recent discussions with folks, I got a bit of a chuckle as pretty much everyone told me “it’s all about the cash”, “cash is king” or “all they care about is increasing cash flow”.  Since we are coming into summer projects season, I thought I’d share some of the discussions we have been having with Tax Pros out there about cash flow.  Maybe you can get started on planning a summer project that will result in a sizable bonus for you at year end!

We all know that there are many cash drivers or what folks sometimes call “levers of liquidity”.  Understanding your cash flows and where you can free up significant cash for your organization can be valuable.  Cash can be generated from revenues, working capital, capital assets, property holdings, a plethora of corporate contracts and sales agreements, and a multitude of other sources.  Cash management is typically not housed in your corporate tax department.  However, strategic tax management is important for more than long-term operational and investment planning. It can also help with your corporate revenue and expense cash flow cycles.

Tip #1: Managing the Top Line – Revenue Strategies
From a tax perspective, one of the simplest paradigms is to have as much revenue coming into your company coffers as possible (as soon as possible), while deferring tax payments on that revenue for as long as possible. Several revenue tax strategies that folks shared that helped their companies to optimize cash flow are below.

  • Conduct a tax accounting methods review. Pros can determine whether a change could help improve cash flow. Of course for larger companies, this has probably already been thoroughly analyzed or vetted by your accounting and tax folks.  Cash versus accrual can make a big difference depending upon the type of organization/industry.  As most accounting method changes require notification to and permission from the IRS, you will want to make sure the cost/benefit is here and that your tax advisors agree with your analysis.
  • You sales and tax professionals will be jumping all over this one.  Conducting thorough tax exposure analysis can be extremely valuable, especially for companies with high transaction volume, diverse products and services and which are doing business in many jurisdictions.  This analysis can include sales and use taxes, franchise fees, standard income tax and income tax incurred from states where your company has a business presence (a condition we all know as nexus). Analyzing each stream separately, as well as a whole can help identify opportunities to improve cash flow.

Tip # 2:  Managing the Bottom Line – Expense Strategies
Top line tax strategies can help free up and increase your corporate cash flow, however some say that you should also consider tax approaches related to reducing day-to-day expenses.

  • Reviewing your inventory accounting methods can have a weighty effect on your corporate cash flow. For example, if your company is experiencing inflation, changing to the last-in, first-out (LIFO) method of inventory accounting can enable companies to accelerate the deduction of inventory costs when prices are rising and may provide a permanent tax deferral.  Lowering ending inventory values increases the cost of goods sold, thereby decreasing the company’s overall taxable income. This might become a moot point as we transition over to IFRS and LIFO potentially goes away??  This has been a past strategy that has worked for some however, and worth noting.
  • Reviewing inventory and raw materials forecasting methodologies.  Tax pros can evaluate whether you have obsolete or subnormal inventory as you may be able to write down the value of those goods and potentially minimize the carrying value of that inventory.
  • Reviewing and reducing capital expenditures such as delaying factory expansions.  Or if you do not delay, then look at bonus depreciation and other tax breaks that may prove valuable to you on capital outlay.
  • Reducing foreign income and non income taxes to enhance repatriation to the parent.
  • Renegotiating purchasing contracts and real estate leases.
  • If you are self-insuring an employee benefit plan (medical, dental or vision), your outstanding claims may offer opportunities to accelerate eligible deductions.
  • Fully reviewing your warranty reserves and other possible deductions. Some companies use third party providers to process warranties, in some of these cases, it may be a good idea to change accounting method to take a tax deduction when the third party performs the warranty services rather than waiting for payment.  Companies that self insure their medical coverage can realize cash savings by changing their accounting method for incurred but not reported (IBNR) medical claims to take the deduction when the medical services are rendered to the employee instead of waiting until the claim is paid.

Tip #3:  Planning Strategies – General

There are many cash-flow strategies with respect to changing overall business strategies, acquiring, merging or divesting a business entity.  Some might include:

  • Changing a transaction from a stock purchase to an asset purchase can realize tax benefits with respect to depreciation and amortization savings.
  • Cost segregation studies can literally “unlock the cash in your walls” or that are locked in your assets today. You can depreciate certain building items more quickly and identify research and experimentation expenditures that qualify for a current tax deduction. State and local tax incentives may also prove lucrative.  Financing incentives and other tax credits may be available to help fund growth.
  • R&D credit studies can be extensive, but well worth it.  You may be able to qualify for permanent R&D tax savings associated with the development of new or improved products, processes, formulas, software or other technical business components, as credits abound for the past three years in these areas.  Tax returns can also be amended for those that qualify.

What strategies are you employing in your tax department?  What is working for your company to free up cash?  We would love to hear (and learn)!

Facebook comments:


  1. In order for a business to succeed it must understand its financial condition. Businesses must pay attention to their financial statements, continually make changes along the way and know where their cash is going. I’m an advocate of cash flow projections.

  2. Thanks for sharing! Easy for folks to lose focus as there are so many things popping up every day that re-direct our efforts. Always get back to cash flow and cash strategies…

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