TAX and BUSINESS TIPS
The recent credit crisis is just a
reminder of the importance and benefits of having a sound strategy that you can
use to navigate through turbulent times. Don’t hesitate to contact your CPA for
objective guidance in helping you make intelligent
financial decisions for the future of your business. In the meantime, below are
some tips to help you assess your current financial condition and start
rethinking your business plan to face the current economic challenges.
1. Don’t panic. It’s difficult to make
sound decisions if you do. To get a better sense of where you stand, begin by
reviewing your cash position and anticipated cash needs. Are they in line with
your business’s short-term needs, goals and risk tolerance?
2. Take a fresh look at your monthly
income and expenses. Have you been meeting your budgeted projections? How much
of a drop in revenues can your business withstand and for how long? What are
your cash-flow needs for the next 90 to 120 days? Or 120 to
180 days? Do you have sufficient cash reserves for the next 30 to 60
days?
3. Check with your lenders on the status
of your credit lines. Are you in compliance with their terms? Will your bank
renew their commitments at similar amounts, rates and terms?
4. Eliminate your reliance on credit by
disciplining your spending.
5. Refocus on your balance sheet and how
much credit you are extending to your customers.
6. If your credit lines are frozen or at
their maximum limits, consider meeting with vendors and working out a schedule
of partial payments that would allow continued delivery of critical materials
and supplies.
7. Look into alternative types of
financing. Some to be considered are loans on life insurance policies, loans
from key customers that rely on your business for their materials and supplies
or from labor unions, local development agencies or the U.S. Small Business
Administration.
8. Keep an eye on your accounts
receivable. Watch for new patterns of slow payments and follow up immediately.
Review your largest and riskiest accounts to determine whether credit
constraint or economic slowdown will affect their ability to pay you. Keep
receivables aging current at all times.
9. Manage accounts payable more closely.
Forfeiting early pay discounts may be more advantageous in preserving cash that
may be needed for critical items. Keep payables aging current at all times
because that’s an important tool for managing cash.
10. Manage inventory levels more closely.
Identify where lower inventory levels of materials and products can be
maintained. Consider selling slow moving inventory at a discount. Keep in close
contact with suppliers to co-manage replenishment and delivery schedules to
avoid building excess inventory levels while at the same time avoiding any
shortages that would cause a loss in revenue.
11. Analyze your expenses and determine
which ones can be controlled. Can you reduce spending in any areas to put less
of a burden on your cash-flow needs? As necessary, communicate to staff/team
members about the need to tighten spending. If you are a manufacturer, review
inventory management practices. Are there opportunities to reduce your on-hand
inventory? Service companies should make sure they’re capturing all their
billable hours and invoicing promptly. Have you billed all your contractual
items? How about all your pass-through expenses, such as billable third-party
services and travel and living expenses?
12. Consider ways to pass your increased
costs (i.e., fuel expense) on to your customers.
13. Check the safety of any cash deposits
you have. On October 3, 2008 the FDIC deposit insurance was temporarily raised
from $100,000 to $250,000 per depositor through December 31, 2009. If you have more
than $250,000 in any one bank, move the excess to another FDIC insured bank.
Consider investments such as CDARs (Certificates of
Deposit Account Registry) to spread the risk of short- to medium-term cash you
may have invested in CDs.
14. Don’t engage in panic selling of your
investments. Make sure your portfolio is diversified and in accordance with
your risk tolerance. 15. Come up with a plan NOW to respond to future declines
in revenues, before they actually occur. Re-think your business strategies and
update projections. Review your product/service lines to identify the most
profitable items and determine how to leverage for future growth in profits.
16. Contact your good customers. Even
casual discussions can lead to new business opportunities.
17. Review all your insurance coverage,
particularly any from companies with weak balance sheets. Be careful not to
surrender a policy, as securing new coverage might require underwriting that
can affect your coverage.
18. Calm your employees’ fears about how
this crisis will affect the company, their jobs and their retirement or other
benefit plans. Speculation and gossip are counterproductive, so it’s better to
address their concerns directly.
For help in understanding some of the
issues facing small business, you can turn to the CPA profession’s free
Financial Literacy Web site for consumers, http://www.360financialliteracy.org. It offers tools and tips to help you make important
decisions for your business and your own personal financial planning needs.
Finally, remain focused on your own advantages. Remember that: • Small
businesses have greater flexibility and can more easily adjust to changes in
the economy than their larger counterparts. Small business owners can use the recent
crisis as an opportunity to buckle down, refocus, assess and make their company
more financially sound, disciplined and less reliant on credit. During tough
times, it’s important to maintain communication with your CPA firm, your
trusted adviser. Remember that you are not alone. We know and understand your
business and the challenges you face, and we can work with you to navigate
these turbulent times. We can help you gauge your current situation in the wake
of recent market events and create a sound business plan in response. Contact
us today for expert advice on how to maintain your company’s success.