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    0 Replies Latest reply on Feb 18, 2016 1:40 AM by Vilnius Industries

    Knowing how to use extra business cash from low fuel costs.

    Vilnius Industries Tracker

      First we should understand that gasoline and diesel fuel affect profit margins of all businesses but

      some business are effected more if you are a delivery company for example and rely on carbon based vehicles as your primary income source, and second we should realize that oil price will most likely rise

      from where are have been for the past 16 months. Now we should recognize if our business is over indebted and if so then obviously the savings from low fuel cost should go to creditors.


      Here's a situation that might take some more thought, if your business has too much working capital  due to low energy prices like low natural gas prices witch a business might heat their warehouse with or might have been saving on fuel cost for a fleet of trucks, but knows fuel prices will most likely go up in the near to mid term but wants to use the extra business cash and does not need it for paying down debt.


      While this is a good situation to be in it takes some planning to make the most of your money, for example if you take it out as a bonus you might have to pay personal income tax on it, and that's not necessarily the best thing to do with extra business cash anyway. Here are some ideas I would like to suggest for such business capital.


      • Replace outdated fixed assets (PP&E)
      • Purchase Certificate of Deposit
      • Hedge fuel prices in brokerage account


      1.Using  extra business cash for a down payment for critical equipment will lower monthly payments for years to come even when oil and energy prices rise.


      2.Purchasing a Business CD is a way to set the extra cash aside from working capital where it can earn interest and can serve as collateral for a line of credit at low secured loan rates with a bank the Business CD is at, if you use the Business Line of Credit against the CD, the interest accrued to your business by the Line of Credit in tax deductible in many cases, and the business should not have to pay any tax on the money borrowed either, if the situation to need cash should arise.


      3.Using an Exchange Traded Fund (ETF) is a simple reliable way to purchase an equity investment in a bunch of oil and energy corporations that will rise in price as gasoline and diesel fuel rises over the coming years. I would suggest not using ETF's that hold futures contracts because they don't pay dividends but many low cost ETF's do pay quarterly dividends with exposure to companies that will hedge against rising operating cost of your business because the ETF's you purchase will gain in value as your monthly fuel cost rise even if this happens 6 months from now or 6 years from now, many brokerage companies allow account types for several different business entities.


      Please consider all options and your specific situation and consult an account for possible tax liabilities before acting on these recommendations, thank you.