Business cash advances are not loans, but are purchases of future business sales. It's not only possible to get a lump sum of cash quickly; the process is relatively simple and stress-free. This type of funding does not come with all the restrictions that may be associated with some other funding options. Business cash advances are considerably easier and faster than traditional loans to get, they have becomes a way for businesses to get needed funding without taking a loan from a bank.
Business cash advances are repaid when the purchaser takes a fixed percentage of daily credit card sales until the advance is satisfied. The time period for repayment is typically 3 to 12 months, much shorter than a loan repayment would be. Because they are not loans, there is no interest involved.
How to Account for a Business Cash Advance
When handling the accounting for business cash advances, it's important not to designate them as income, at least not taxable income.It doesn't really work well to designate business cash advances in the same way that loans are designated, either. This is because the repayment of cash advances is variable - based on a percentage of daily sales. When designating loans in accounting software, you need to designate an interest amount to get the correct repayment period, and there is no interest on cash advances, only the agreed-upon fee.
The advance can be entered as non-taxable income. When you figure out the overall percentage of the fee you are paying, you can record payments as they occur each day, notating how much of the payment is the fee, which is tax-deductible.
If the entire fee is paid in one tax year, it is fairly easy to know how much to deduct. If the fee is paid over multiple tax years, you can prorate it as such and avoid more complicated calculations. As with many accounting records, there is more than one way to keep track of things.
Getting Advice and Help with Accounting
If you're just not sure how to handle business cash advances or any other business finance issue, it's always a good idea to consult with an expert for help. Financial advisors can give you proven suggestions and advice on how to best account for a business cash advance. It may be tempting as a small business owner to try to figure things out on your own, but it's worthwhile to make sure you are doing things correctly with your business's financials and accounting. It is always best to consult with your accountant or tax adviser to discuss your individual situation. This information is provided as some possible benefits of a cash advance.
Quikstone Capital Solutions provides business cash advances to help your business thrive.
