- Restructure debt with care: A mistake could be fatal. It may not feel like productive work to analyze the advantages of workout versus insolvency versus bankruptcy. But it is. "Doing this right can save your business, as there are different sets of rules for different circumstances. To put it a bit more positively, you may have alternatives you didn't know about," Mr. Eliach said.
- Re-evaluative financial management's job; it may be very different than it once was. Restructuring a business - or just restructuring debt - is a full-time job, and it's usually the responsibility of the financial manager. In fact, many companies bring back their original principals to help. This could be a 24-hour-a-day assignment for eight to 12 months.
- Re-think estate planning - especially when it comes to passing along a business. Michael Bekas, CPA, a tax partner at MP&S, said, "If you own a business that will survive - but take a hit - in the recession, remember that it now probably has a lower valuation. That means taxes will be lower if you pass ownership to heirs now rather than a few years from now, when it will be worth more. So speeding succession and estate planning may be a smart move," Mr. Bekas said. "As another option to lower taxes, estate planners should consider techniques such as the Grantor Retained Annuity Trust (GRAT). With low interest rates and low stock and property values, donors can carve significant amounts out of their estates."
- Look for savings and government incentives - including those that might not have seemed worthwhile during good times. "In boom times, some companies might think that, say, a $200,000 tax break to move a company to a tax advantage zone in the Bronx, just isn't worth the effort. Now's the time to hunt down and seriously pursue these incentives; they'll pay off now, and may continue to do so when the economy bounces back," Bekas said.
- Seize the opportunity to invest in your business - when prices are favorable for some capital items. MP&S accounting & auditing partner Steven J. Ciavarella, CPA, said, "Most companies might be looking to defer capital expenditures. However, due to favorable provisions in the tax law, now is the time when business owners should consider acquiring assets because there will be less impact on cash flow. The economic climate may result in opportune pricing for some capital items."
- Watch receivables - like a hawk. When cash flow is strong, companies often let receivables build up - and think of them as a solid asset. They're probably going to be less solid now, so active collection efforts will pay off.
- Watch Inventories - like a hawk. "Close attention should be paid to inventory levels," added Ciavarella. "In most industries, sales are declining. Inventory that is too slow-moving will put an even greater negative strain on your business' cash flow."
- If one is eligible for credit, hoard it. Even if a company or an individual doesn't believe an increased credit line will be necessary, it's worth securing it, if it's available. "When you do wind up needing it, you may not be able to get it," Mr. Eliach said.
- Seek advisors with strong reputations and access. "If you need to restructure debt, borrow more or ask for forbearance, it's often best to work with professionals - such as lawyers, turnaround firms and accountants - that have strong banking relationships," Mr. Eliach said.
- Count on taxes going up, so do transactions now. "Given the country's deficits, it's unlikely that taxes will stay as they are. So, wise individuals and companies will work to quickly complete any transaction if they want to trigger a tax now," said Mr. Eliach.
- Consider consolidating. Give some thought to combining business entities and divisions that may not be core practice areas: Not only will it help simplify business process and keep focus on the core business, but it can also help lower costs at a time when it means the most.
- Pay attention to the books, and beware of an increase in tax
examinations. "A serious recession often leads to less care in
accounting - as departments downsize - and, at the same time, a greater
need for tax revenue on the part of the government. That combination could
lead to more, and more costly, audits and examinations. So general managers
and affluent individuals need to take care and be very detail-oriented,"
Eliach said.
"In addition to taking steps to protect their businesses, affluent individuals should consider other proactive steps to maximize their own wealth options," added Bekas. For instance... - Consider the risks of deferring payments under a severance package: It may be worth it to take it all at once and pay more taxes. Executives being offered severance packages often agree to get paid over a period of years - so they get more money, according to the package's terms. But if the company seems shaky - and even if it doesn't - a smart risk management move might be to take the whole amount - even if it's smaller right now. You should also consider the possibility of a future tax rate increase when planning a severance package.
- Take advantage of a low interest rate environment. "Now's the time for high net worth individuals to make use of certain techniques that are interest-rate sensitive and can have real tax benefits, such as Charitable Remainder Unitrusts (CRUTs), an often overlooked vehicle that can help high net worth individuals looking to sell assets and minimize income tax, generate ongoing income and minimize the impact on estate taxes," said Mr. Bekas.
Contact Information: Contact: Adria Greenberg Sommerfield Communications, Inc. 212-255-8386 adria@sommerfield.com