The current economic situation can be unsettling for even the strongest and healthiest of companies. It’s easy to see why some people are starting to panic when one considers the events that already have transpired and the bleak outlook espoused by the experts. Nevertheless, quick decisions made without the benefit of a well-thought-out action plan may be a surefire recipe for larger problems. The good news is there are numerous strategies and business planning techniques available to meet the unique challenges of the present economy.
We are proud to be the first CPA firm to create a unique multidisciplinary task force that focuses solely on providing comprehensive advice during these tumultuous times. Last month, Wipfli launched the "Troubled Economy - Surviving and Thriving" (TEST) task force. TEST is featured prominently on our website, so please be sure to check it out. More importantly, we are sponsoring two one hour informational webinars that you may be interested in attending. See the TEST portion of our website for instructions on how to registers and available time.
Here are some strategies to help you survive and thrive in this economy.
Control your cash. Cash is the lifeblood of all companies. It is vital to monitor and assess your cash flow situation to ensure that you have the required cash to pay workers, vendors, and lenders. How close is your actual cash flow to what you budgeted? Do you have any additional credit you could use? Are you meeting all covenants? What does your accounts receivable aging schedule look like? Does it make sense to utilize early pay discounts on payables? Do you have too much inventory on-hand? Are you controlling discretionary spending where possible?
Retain your relationships. Other people are experiencing difficulties too, and it takes many components to effectively run a business. Are you working with your best customers and vendors to see if there are ways to help each other out? Have you directly communicated the situation to your employees so that no fearful gossip destroys morale? Have you talked with your lenders about renewing lines of credit?
Trim your taxes. Although we are already a month into 2009, there are still several things you can do to reduce your 2008 tax bill. Assets added in 2008 should be carefully analyzed to make sure full bonus depreciation and Section 179 expensing is being taken. Conducting cost segregation studies, bad debt analysis, and a review of intangible asset accounts can also identify items to be expensed immediately. Automatic changes to accounting methods are also available, enabling companies to lower taxable income by switching to the LIFO inventory method, the cash-basis method, or possibly accelerating deductions for medical liabilities and payroll taxes on accrued vacation and sick pay.
Request your refunds. If your estimated tax payments from the beginning of the year are now in excess of what you will actually owe, you may be able to file Form 4466 (Corporate Application for Quick Refund of Overpayment of Estimated Taxes). It may be filed before the actual return is filed, potentially accelerating the receipt of your refund. If your company is projecting a loss for 2008, planning can be done to maximize that loss and the corresponding NOL carryback (Form 1139) or carryforward.
Evaluate your efficiency. The contraction of the economy may necessitate cut-backs in spending and searching for ways to reduce waste. Have you identified areas with opportunities to reduce spending? Have you spoken with employees about the need to tighten budgets and eliminate expenses? Are you utilizing the most efficient legal structure for your business? Is your employee benefits package serving the needs of your employees at the lowest cost possible? Are you getting value from the services you may outsource, such as payroll or HR?
Review your rates. Property values have fallen and interest rates are at historic lows. This may be an ideal time to transfer assets or re-do related party promissory notes. The low values and interest rates also provide an ideal time for estate planning, including gifting stock, intra-family loans, GRATs, and more.
This is not a great time to be running a business. But it’s important to put the current downturn in perspective. During the “Great Depression” the US economy shed about 30% of its size in about three years; three times the rate of the current fourth quarter contraction. More importantly, this decline was sustained over three years.
There are some bright spots; the current 3.8% decline compares favorable to the 6.4% decline in 1982. Disposable income rose 3.3% at an annualized rate (a turnaround from an 8.8% drop in the third quarter). A second round of stimulus will soon be pouring into the economy and current predictions call for the recovery to be underway in about nine to 12 months.