Business Planning Issues: Recession-Proof Your Business
Many businesses and their employees are facing challenging economic times. Credit restrictions, job losses, sales cutbacks, soaring energy prices, mortgage foreclosures and a downward economy make it hard to run a business successfully.
Whether you operate here in New Jersey or internationally, here are some of the basic ideas to keep your business profitable in any business climate:
- Don’t stop marketing. It is tempting to cut marketing as sales decline. In the short run, that false economy may increase profits. In the long term, you may lose customers and sales and ultimately decimate your business. Instead, try to cut back on lower-return advertising and emphasize the more efficient methods of promoting your business. Focus marketing on those customers who are most profitable to your business.
- Do financial analysis. This is the time to check the numbers, consult with your tax attorney and accountant, and determine how to increase profits and lower taxes. Make the changes to increase the efficiency of your business.
- Develop a plan for efficiency. Revise your business plan and budgeting process to squeeze out the efficiencies in your business. Look at the long term. If you cut off a customer’s credit, will you lose the customer in the long run? If you play money games with suppliers now when you are needed, what about when demand from other customers increases?
- Optimize cash flow and capital. In a turbulent economy, your business needs cash to pay its bills. Cash is needed to implement growth plans and take advantage of business opportunities.
- Look for buying opportunities. Some of your competitors may need to scale back or sell outright. Look for good deals that can position your business to take advantage of economic growth.
- Be fair to employees. If you have rounds of across-the-board firings, your employees become scared, and good employees will look to your competitors for job opportunities. Employees work for your business because they seek the security of a continual paycheck.
An uncertain economy or recession may be the opportunity for your business to grow market share, cut expenses and increase efficiency. Be prepared.
Legal Services For Businesses
Businesses are frequently in need of legal services that keep their financial and tax matter in mind. If you own or operate a business, please do not hesitate to reach out to find out how I can help you. Learn more about my services:
- Starting a business: Making sure your legal and tax bases are covered as you plan and launch a new business
- Mergers and acquisitions: Handling transactions of all sizes, from small business sales to complex corporate mergers
- Acquiring real estate: Guiding businesses through the process of purchasing real estate
- Marketing and sales: Understanding that keeping customers is the key to business growth and profitability
- Save payroll taxes: Guiding on ways to save payroll taxes by using a “common paymaster”
Questions And Answers About Buying Or Selling A Business
Name: Lisa S********n
Subject: selling our business
Question: Hi, My husband and I are 50% owners of a commercial electrical contracting business. The business has been very successful, grown from 2 to 45 employees and we’re in our 21st year of business. We would like to sell our 1/2. How do we go about finding out (accurately) what the business is worth? Our business partner may be interested in selling as well if we can find the right buyer. Where do we find buyers? Thank you!
Answer: Lisa: First, you must look at the business records. Is there a Buy/Sell Agreement? Are sales restricted? Is there a stated price or formula? Next, you need to have the tax impact of the sale determined. Is the Business a corporation? Is it a C or S corporation. If the corporation is a C corporation that will greatly lower the net after-tax proceeds for the sellers. First, you should talk to your tax and business attorney about the different sale options (asset sale, stock sale, merger) and to help determine the value. Your attorney can recommend a good business advisor to help you determine the value an marketing options. I hope this helps!
Name: Cyndi
Subject: Buying into a business
Question: Scenario: I rent space as an independent contractor in a business. I’m considering a partnership in that business. If I want a stake in the company, I’m being asked to “buy-in” to this business. The owner took out a $50, 000.00 loan for T.I’s. (sign, built-in partitions, furniture, etc) Other than the structural T.I’s and furniture/decor, there is no “real” property. The space is leased. Services are provided to clients, but my services are in a different area of expertise than the current owner. We each would continue to keep our own revenue from those services. My question is this: The business has been open 2 years. (each of us have more years than that working in business but THIS business is 2 years old) It still has this debt. Would it be customary for me to buy into that loan? Say the loan is $50K: I become a 30% partner. Is the appropriate “buy in” for me $15K since that’s the amount of loan she took out for T.I’s? And I understand that after all P&L is calculated for each month I would receive 30% of what’s left. What about loss? Am I correct in assuming that whatever we were to be in the red would be 30% my responsibility at that point?
Answer: Cyndi: This is a great question! Doing this very complex business transaction is a perfect example of why people “lose their shirt” in business. You need a business lawyer to help before you sign anything. Get help now!
Name: Brian
Subject: Convoluted Bid
Question: My clients are attempting to sell a quarry. The person below sent the following bid which feels like a scam. Can you clarify?………..I am following up on our previous conversations and wanted to remind you of our investor group’s interest in acquiring closely-held corporations that have sold, or, are intending to sell their real estate assets (or, real estate-like assets) in a divestiture transaction. If the quarry, you mentioned, in your e-mail is in the form of a ‘C’ corp. and an Asset sale takes place, then we would like to buy the stock of the shell company. Our business strategy is to purchase the outstanding stock of target, immediately after the asset sale has been completed, but before it is liquidated, and then to invest the acquired cash in a portfolio of like-kind exchange replacement property pursuant to a 1031 exchange. Our acquisition of the target has to be completed within 180 days of the completion of the real estate asset sale. The investor group is willing to pay more for the stock of the target, than what the shareholders would have received, in a standard asset disposition. This is because the inherited tax liability is deferred over a 10 year period. The net financial result to the selling shareholders is a 20-30% increase in ROE. In addition, they provide an immediate, compliant and profitable exit for the selling shareholders from the target’s corporate tax liability. Their consideration is paid in cash. The recent crackdown by the IRS on cash-box transactions, or, substantially similar transactions as described in Notice 2001-16 and Notice 2008-20, that use loss assets to offset gain, enables us to differentiate our business model from others in the industry, with a compliant exit strategy for the sellers of real estate in a tax-inefficient ‘C’ corp. formation. Our secondary stock acquisition of the target, is not a potentially tax abusive, or, a listed transaction for tax shelter purposes – as described in Notice 2001-16 and Notice 2008-20. The acquisition structure is based on a 1031 exchange program, in which the sale of real estate asset(s), followed by the replacement of such real estate, results in gain which has been realized and deferred, but not recognized as yet. Please note that our business model is, therefore, only applicable and available to closely-held corporations, with underlying real estate assets – which may include real estate-like assets, e.g. long term leases, mineral rights, oil & gas timber etc. (We might also consider ‘S’ corps that derive their tax status from a ‘C’ corp.) If you have clients that might benefit from such a secondary stock acquisition transaction, (that would maximize the sale proceeds of a real estate asset sale to the selling shareholders), then look forward to discussing opportunities with you.
Answer: Brian: I believe this is a scam. If your clients insist that you pursue it, be very careful to research the buyer. I hope this helps!
Call An Experienced Business Planning Attorney Today
I provide experienced legal advocacy so you can set your business up for success.
Call my law firm, Ronald J. Cappuccio J.D., LL.M. (Tax), in Cherry Hill at 856-665-2121 or text at 856-745-4330, or send me an email to schedule a consultation.