Months will pass before the effects of the massive government stimulus plan are seen in offices, factories and shops across Colorado.
But Americans have a tradition of self-reliance, and it’s time to tap into that tried-and-true reservoir.
There are several ways businesses can create their own stimulus plan, said Jim Vonachen, a partner at Clifton Gunderson in Denver. But some of them require a survival-of-the-fittest attitude.
First, managing working capital should be a priority.
Business owners “don’t recognize it soon enough,” Vonachen said. “But if someone is a poor credit risk, you don’t want them as a customer. If someone is shaky — put them on cash on delivery or send them elsewhere.”
Next is to take advantage of special accelerated depreciation tax deductions from the American Recovery and Reinvestment Act of 2009. Certain businesses can deduct up to $250,000 of capital equipment purchases. Extended bonus depreciation rules allow companies to deduct 50 percent of the cost of qualifying “new” assets purchases as depreciation the first year and deduct the remaining 50 percent during the next five to seven years.
Because of the new laws, business owners who purchase tangible assets should not pay their normal amount of estimated tax.
Instead, “They should factor in the deduction from the purchase of tangible assets,” Vonachen said. “It frees up cash. The key is to compute income on a quarterly basis and pay what you actually owe.”
Otherwise, business owners who purchased tangible assets and use the “safe harbor” method — paying estimated taxes based on what they owed the prior year — might pay too much.
“You may get a big refund,” he said, “but if you take the time to calculate, you’ll have cash flow instead of that excess estimated tax payment sitting with the government and not doing your business any good.”
Amend prior years
Another way to free up cash for working capital is to take advantage of the new ARRA tax code that allows eligible businesses to obtain refunds of taxes paid in previous years by carrying back any 2008 net operating losses for up to five years. This includes the option of “pinpointing” which year the business paid the highest tax rate, so as to maximize refund potential.
“If you’re unfortunate enough to have a loss in ’08, and ’06 was OK, but maybe ’03 was a barn-burner year,” Vonachen said, “you can get taxes back from ’03. We push pencils and help business owners figure out whether to carry back or carry forward their losses.”
Review retirement plans
Although some would say this is draconian, business owners also should review the retirement fund they offer employees, and determine whether the plan meets their current goals.
The employee retirement plan might have been chosen to attract key employees and boost morale — regardless of tax motives, he said.
“But if a company has had losses, and attracting new talent is not an issue — but cash flow is — is it really necessary to spend the money on a retirement plan, or the same type of plan?” Vonachen asked. “When times are tight, make sure your plan matches up with your goals.”
And, finally, meeting once a year with your tax advisor almost guarantees that he or she cannot save you much, if any, money.
People who are “busy running a business can’t be expected to keep up with tax changes,” Vonachen said. “Meeting quarterly is proactive. We can help them save money throughout the year, rather than giving them bad news once a year — if we’d met earlier, we could’ve done something different.”
And business owners should seek counseling long before the ugly spectacle of closed doors rears its head.
Matt Barrett, executive director of the Small Business Development Center at the University of Colorado at Colorado Springs, said the bulk of counseling he’s doing involves business owners who are not in trouble — yet. But they know they will be shortly if they don’t modify the product or service they are offering to a market that’s still buying.
And bailouts are for giants, it seems, not for the multiple small- and mid-size businesses that are America’s backbone.
“The government’s not going to write you a check,” Barrett said. “The average small business owner, hard-working individual is not going to get money.”
But business owners can avoid the need for stimulus by “putting what’s best for business above your own emotions,” Barrett said. “Every day, pay attention to where every penny goes. If you have 10 employees and business is down, but you don’t want to let that 10th employee go — well, you’re jeopardizing the other nine employees’ jobs and their lives. No one wants to make that decision, but you have to be able to make hard decisions in order to avoid the need for stimulus.”
And if things have deteriorated to the point that your business does need a financial stimulus package, there are still steps a beleaguered business owner can take.
“You’ve got to prioritize your expenses, and prioritize your debt,” Barrett said.
On the expense side — again, watch every penny, including the money that people owe you.
On the debt side, whom do you “have to” pay?
“If I don’t pay, who will hurt me the most?” Barrett asked. “The IRS — pay your employee payroll taxes.”
Then, look at bills you “should” pay. As in, “it’s not the end of the world today, but will be in a few months — your landlord or a key vendor,” he said.
Barrett suggests talking to your landlord about arranging reduced or deferred payments — explaining, of course, that you “need to pay but cannot pay today. But the IRS — you have to pay or you go to jail — that tends to end your business right there,” he said.
And, thirdly, in a world of cold, harsh trying-to-stay-in-business reality, look at whom you “could” pay when you get around to it.
For instance, “the vendor you bought holiday cards from. Not a primary vendor. Worst case, they will send your bill to a collection agency,” Barrett said. “But it won’t kill you, put you in jail, shut your doors or kick you out.”
But be forthcoming with such vendors about your ability and willingness to pay — later.
And, finally, “negotiate down your debts. Businesses cannot consolidate debt as individuals can,” Barrett said. “And there are no government grants. I’ve yet to come across a for-profit business that can get a government grant.”
Until your business and the economy recover, a bit of the old Wild West, I-can-do-it-myself mentality might help survival.
Don’t make routine or automatic purchases. Every purchase should be evaluated. And every purchase should be negotiated with the vendor.
“Do you really need that $15 per month water cooler you’ve had for years? You know we have tap water,” Barrett said. “What if saving $15 10 times a month saves the company?”