To lower the tax liability and receive more money-in-hand, accountants typically advise clients to file business tax returns on a cash basis.
However, small business owners should consider their capital needs and expansion plans before filing returns on a cash basis. The level of free cash flow reported by the business needs to support the capital raising plans.
For example, a company showing a free cash flow of $50,000 on accrual basis compared to $20,000 under the cash basis may be eligible to for an extra $170,000 in debt financing and a 10 year term. This extra money can make or break business expansion plans and can even strengthen the overall credit worthiness of the business owner.