The True Cost of that Latte: Is Starbucks Killing Your Cash Flow?

Robyn Parets

Robyn Parets

Contributor at Fundera
Robyn Parets is a personal finance and business writer based in Boston. A former writer for Investor's Business Daily and NerdWallet, Robyn is also the founder and owner of Pretzel Kids, a children's fitness brand and online training course. You can follow her on Twitter @RobynParets or reach her via email at
Robyn Parets

As a business owner, it feels good to dine out using your business credit or debit card. You worked hard for that money, you deserve.

But, it’s all too easy to quickly deplete your bank account with purchases that aren’t mission-critical to your business operations.

For example, you may not think twice about fueling up with daily double lattes at Starbucks and lunchtime sandwiches at your favorite deli. In the moment, those expenses don’t seem like much money. In fact, many business owners don’t even pay attention to their bank account balances on a daily basis and purchase that coffee with non-sufficient funds (NSFs) to cover the cost – leading to a $40 overdraft bank fee. This means that $4.50 large espresso actually costs about $45. “Those NSF fees add up,” says Joanna Ray, a loan underwriter at Accion East.

This is why it’s important to take a look at how fast your caffeine habit and other unnecessary charges add up in the long-term. Over the course of one year, for example, your lattes alone can easily swell to more than $1,000, factoring in about five fancy hot drinks a week. If you visit Starbucks twice a day, treat your employees or clients to coffee, and sometimes rack up NSF bank charges, you’re talking more like $2,000-$3,000 a year.

Although this may be okay if you’re bringing in $300,000 a year and have no overhead, most small businesses do not fall into this category.

In fact, your coffee habit could be killing your cash flow.

Why a Loss Isn’t a Win

Monitoring your business’s day-to-day cash flow is indeed more challenging than meets the eye. You can certainly treat yourself to daily meals and coffee, and legally write off a portion of the expenses on your business taxes. Many accountants even recommend this practice as long as the expenses can be attributed to the company.

With that said, it’s not unusual for business owners to deplete cash flow regularly and come out with a negative balance sheet when tax time rolls around. A loss means you may be hit with a lower tax bill or perhaps you’ll even get money back from Uncle Sam. Yet, while you may equate paying lower taxes with a win, reporting a loss – due in part to poor cash flow – will hurt your business in the long-term, says financial experts.

Tax advisors recommend spending on things that are instrumental to your company’s operations and growth – like paying vendors and staff, buying new computers and equipment, and funding marketing and advertising programs. Yet, when it comes to expenses that cross the line between personal and business, it’s key to be mindful of how much you spend, where you spend, and what you spend your money on. For example, limit the amount of suits you buy to beef up your business wardrobe. “Suits are not a business write-off,” says Dawn Brolin, CPA and owner of Powerful Accounting, LLC with offices in Windham and New Haven, Connecticut.

Brolin says you should also funnel charitable donations through your personal bank accounts as donations are not considered business write-offs. And those coffee drinks and meals? You can only legally write off 50% of these expenses as “meals and entertainment” on your taxes, she says.

If you must buy those daily meals and coffee, you might want to consider moving a fixed monthly amount out of your business account and into a personal checking account. You can then make those same purchases out of your individual bank account instead, thus keeping your personal and business expenditures separate.

Look to the Future

Although living in the present and spending money on unnecessary business purchases may feel good, it’s better to think about where you want your business to be in one year, five years or more. In other words, straighten up your balance sheet now to benefit your business down the line.

Saving money and having a positive cash flow should be a priority, says Brolin.

“We’ve had clients whose whole goal is to live week to week. They take more lunches than they should. We always tell them to plan for the future and invest in their business, which doesn’t mean spending money all the time. Your balance sheet should be healthy if you are proactive in building a future.”

Ray at Accion East agrees. “You should have a cushion to grow. It’s more important to have the cash available than to break even on your taxes.”

Want a Loan? You’ll Need to Show Cash Flow

Although company losses may lower your tax liability, they also limit your access to financing and other future possibilities.

For example, a healthy balance sheet is imperative if you want to take out a small business loan to fuel current company operations or expand your business down the line. It’s also critical if you ever decide to sell your company or have your business valued. In a nutshell, lenders and prospective buyers are going to examine your finances and will be more interested in your profits than your caffeine habit.

When you apply for a loan, lenders look at tax returns, your company balance sheet and your bank account, says Ray.

“We pay attention to bank fees as those add up. As a lender, that’s a sign that there isn’t positive cash flow,” she says.  

In fact, too many overdrafts will prevent you for getting a loan in many cases. “If there are more than five days in a month with an overdraft charge, we can’t overlook this,” says Ryan Conti, an Account Executive at Fundera.

If overdrafts and other cash flow issues prevent you from obtaining a loan, lenders will often advise you to straighten up your company’s finances so that you can show a positive running cash flow. This way you can come back in three to six months to reapply for a loan.

“The cash flow needs to be there and the stronger your business is, the better off you are,” says Conti.

Need to Clean Up Your Act?

If you know you spend too much on frivolous things and want to clean up your act, here are some suggestions to help you turn your cash flow from a negative into a positive:

  • Create a budget for your business expenditures, including your coffee fix, and stick to it.
  • Forego spending unnecessarily, not because it’s the right thing to do but because you’ll save money and bolster your company’s cash flow.
  • Know how much money you have in your bank account on a daily basis. This way you will only spend money when you have money.
  • Develop a plan to pay for unforeseen expenses and to position your company for the future.

One more thing: Consider buying a Keurig and K-cups. They are not only less expensive than coffee house drinks but you can write off 100% of that fancy coffee maker and coffee on your taxes as “office supplies.” Remember: You can only write off 50% of those Starbucks drinks.
“Entrepreneurs should be fiscally responsible. This isn’t a game. It’s serious business,” says Brolin.

Editorial Note: Fundera exists to help you make better business decisions. That’s why we make sure our editorial integrity isn’t influenced by our own business. The opinions, analyses, reviews, or recommendations in this article are those of our editorial team alone. They haven’t been reviewed, approved, or otherwise endorsed by any of the companies mentioned above. Learn more about our editorial process and how we make money here.
Robyn Parets

Robyn Parets

Contributor at Fundera
Robyn Parets is a personal finance and business writer based in Boston. A former writer for Investor's Business Daily and NerdWallet, Robyn is also the founder and owner of Pretzel Kids, a children's fitness brand and online training course. You can follow her on Twitter @RobynParets or reach her via email at
Robyn Parets

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