If your business was affected by COVID-19 and you applied for the Employee Retention Tax Credit (ERC), you might be sitting on some extra cash.
The ERC encouraged business owners to keep employees on their payroll during the pandemic by offering a refundable tax credit. Through the ERC, businesses that have been finally impacted by COVID-19 can get tax credits worth up to 50% of up to $10,000 in wages paid per employee.
With the ERC can come excess cash flow, which will positively impact your business if you know what to do with it. It might be a great time to invest in new equipment, reward your employees, and think about other things your company may need for its future.
If you received the employee retention tax credit, it’s time to consider your options. While there are tons of different ways to spend your money, it’s important to weigh all of your options.
Below are eight different things that your business can do with your ERC cash to improve your and your employees’ future.
1. Reward Your Employees with the ERC Money
Cash bonuses or 401(k) contributions are a great way to reward your employees for their hard work. These financial rewards can be made possible with the money you receive from your ERC.
No matter how big or small the bonus may be, being generous with your employees can encourage them to keep up the excellent work. In addition, it can boost company morale, make employees feel valued, and help you reduce employee turnover.
2. Build Out Your Benefits Program
Benefits programs are one of the best ways to make employees feel valued. They’re also a great way to increase employee retention and hire new talent.
A business with a solid benefits program will be considerably more appealing than a business without one. With the extra cash from your ERC, it may be in your best interest to build on your pre-existing benefits program.
Consider adding more paid vacation, child care perks, and fitness memberships on top of any medical, disability, and life insurance policies you may have in place.
3. Use the ERC Money to Invest in New Equipment
Extra cash flow can be a great time to invest in new equipment for your business. Maximizing your capital expenditures can also set you up for an even more profitable future.
Moreover, making big purchases can be helpful when tax season rolls around, as they can increase your business deductions.
Consider what equipment will help you, your business, and your employees continue to prosper in the future. Extra cash flow can allow you to ensure your next year is even more profitable than the last.
4. Invest in Real Estate
Purchasing new real estate can help you grow sales in the years to come. Similarly to buying new equipment, investing in real estate can propel your business into the future. Additionally, if you have enough cash to purchase an asset without financing, now is the ideal time to make a big investment.
Consider how much your business will profit with more real estate. Sometimes, putting a large sum of money back into your business is the best way to make more money well into the future.
5. Use the ERC Money to Eliminate Debt
Often, having debt can have negative impacts on you and your business. The longer it takes to eliminate debt, the more interest you will accrue. If you find yourself with extra cash flow, this can be an ideal time to pay off debt and lower your debt-to-equity ratio.
On the other hand, sometimes having specific amounts of debt can be a smart business move. Whether or not having some debt makes sense depends on your business’s overall strategy and business model. The most important aspect of having or paying off debt is ensuring you retain agency over the money you owe.
6. Build Cash Reserves
Take the extra cash you received from your ERC and create a cash buffer or savings pool for emergencies. Putting money aside can be a lifeline if something unexpected happens to your business, employees, or the market.
It’s always a good idea to have an emergency fund in place. Keeping money in a safe account can help you be prepared for hardships that may arise in the future.
7. Launch a New Product with the ERC Money
Launching a new product with the money you receive from the employee retention credit can help you make more money in the coming years. Devoting some of your cash to launching a new product can be an excellent business investment.
To launch a new product, a business owner often needs to hire new employees, invest in equipment, and run new marketing campaigns. Usually, this requires a lot of overhead cash flow. If you received the ERC, it might be the perfect time to get a new project or idea off the ground.
8. Acquire Another Business with the ERC Money
If there’s another company that you feel fits into your pre-existing business, now may be a good time to make a move. With the ERC money you received, consider making an offer on the new company that aligns with your current business ventures.
Although acquiring a new business can cost a lot of money, it can significantly increase your market share. In addition, with the ERC comes cash flow that may be unmatched for years. Taking a risk with the money that you get from the tax credit can change the future of your business.
Employee Benefits Consulting
If your business received the ERC and you are sitting on some extra cash flow, it’s the perfect time to consider getting employee benefits consulting. LG’s benefits consulting services make it easier to attract high-caliber employees. In addition, employee benefits consulting can save you money.
LG Resources is also a recruitment firm that helps connect talent to employers in the warehousing, manufacturing, transportation, clerical, and technology sectors. So whether you’re looking for full-time, part-time, temp-to-hire, or other staffing solutions, LG Resources can help.
Get in touch today to see how our experienced professionals can help you beneficially channel the money from the ERC.