As business leaders and tax professionals alike continue to digest the sweeping changes introduced by the Tax Cuts and Jobs Act (signed into law in December 2017) many are assessing just how the new tax code will directly affect their business and their cash flow.
The exact ways in which the tax law changes (e.g. lower corporate tax rate, 100% expensing of business equipment purchases, interest deduction limitations, loss of business deductions, etc.) will impact profitability remains to be seen. There will be winners and losers with this legislation causing businesses to carefully evaluate their business, international operations, and ultimately cash flow. As such, business owners need to remain nimble for the foreseeable future as the legislation is operationalized into policy.
How can your businesses optimize cash flow during a period of uncertainty?
One way is to examine your expenses organization-wide to ensure money is not being left on the table with suppliers.
Here are some areas to keep in mind:
Review your organization’s spending patterns
Analyzing your spending patterns is key to identifying cash leaks in your business. Are you spending what you think you are? Are you using more suppliers than necessary? Are you buying what you thought you were? Are you receiving the negotiated prices and related credits that you negotiated? While this type of review isn’t often conducted due to lack of time and resources amongst staff, it can reveal significant opportunities for savings. It can also create a baseline by which any cost-reduction effort can be measured.
Learn about your suppliers’ industries
Insiders know the internal workings of a business and industry. They know how to make things run more efficient and where the margins live. What if you knew your supplier’s business and industry as well as you know your own? Do you know where their margins live? Accessing insights into your supplier industry provides a competitive advantage that can leverage tremendous savings. Suppliers value well-informed clients because they are easier to conduct business with and have realistic expectations. Collaboration with suppliers can reduce the cost of doing business as such efforts often drive innovative solutions, as well as better deals and pricing with your suppliers.
Monitor results and adjust as needed
What processes do you have in place to monitor purchasing activity over time? How do you keep up with supplier industry changes and review dollar spend, periodically comparing to industry benchmarks? It is important for companies to remain assertive in their supplier spends, particularly as they face change and temptation to get distracted by other priorities.
The Tax Cuts and Jobs Act introduces extensive changes that will have an impact on both businesses and individuals for years to come. Organizations will likely be positively impacted in some ways and negatively impacted in others. But, by implementing a cost-reduction assessment, your organization can optimize the value in supplier spends and unlock additional cash flow to be in a better financial position to continue propelling your business forward.