The Bailout plus 10 ToughTime Business Survival Tips

1
The Bailout! plus10 Tough-Time BusinessSurvival
Tips

• presented to
• CPCUG Entrepreneurs Consultants SIG
• by
• Jina Etienne, CPA
• Saturday, December 13, 2008

2
New Tax Laws This Year
3
The Stimulus Act

• Passed February 15, 2008
• Advance Payment of a 2008 Tax Credit
• Rebate checks base on 2007 returns
• Based on anticipated 2008 recovery credit
• 2nd Chance in 2008, if
• Recovery credit is more than actual rebate
• You did not receive rebate check by 12/31/08
• Do no need to repay if rebate too high

4
Heroes Act

• Passed June 17, 2008
• Primarily provided tax relief for military
  members and their families
• Allows businesses a 20 tax credit for
  differential wage payments made to employees on
  active duty

5
Housing Assistance Tax Act

• Passed June 30, 2008
• Part of the larger Housing and Economic Recovery
  Act of 2008
• Provisions impacting individuals and small
  businesses

6
Housing Assistance Tax Act

• Provisions for individuals include
• First Time Homebuyer Tax Credit
• Additional Standard Deduction for Property Taxes
• Prorated capital gains exclusion for sale of
  residential real estate

7
Housing Assistance Tax Act

• Provisions for businesses include
• Income Reporting for Credit and Debt card
  payments (starting in 2011)
• Election to Accelerate AMT and Research Credits
  instead of Bonus Depreciation
• GO Zone changes
• Deadline for Bonus Depreciation on GO Zone
  Construction of Property is waived
• Two additional counties added for Bonds

8
Bailout Tax Changes

• Emergency Economic Stabilization Act of 2008
• Passed 10/03/2008

9
Bailout Bill

• Faster than a speeding bullet
• Passed by Senate on 10/01/08
• Passed by House on 10/03/08
• Signed by President on 10/03/08

10
Major Components

• Bailout the Mortgage Fiasco
• Increase FDIC Insurance to 250,000
• Require health Ins to cover Mental Health
• Energy incentives
• Tons of tax changes

11
Tax Law Changes

• AMT Patch
• Extenders
• Disaster Relief
• Energy Incentives
• Tax Preparers Penalty Relief
• Many New Items

12
AMT Patch
AMT exemption amount 2007 2008
2009 Individuals 44,350 46,200
22,500 Married Couples 66,250 69,950
45,000 Married Separate 33,125 34,975
33,750 For 2009 only (one-year patch)
13
Refundable Child Credit

• Increased for 2008 only
• Refundable portion is 15 of earned income in
  excess of 8,000 (formerly 12,050)
• Example Married two children
• Earned income 19,500
• Refundable (19,500-8,000_at_15) 1,650
• Old law (19,500-12,050_at_15) 1,118
• (Note Maximum per child still 1,000 and phase
  out rules still apply)

14
Extenders for Business

• Research Credit (through 2009)
• 15 year life (through 2009)
• Improvements retail space
• Leasehold improvements
• Restaurant property
• Favorable treatment contributions (thru 09)
• S Corp stock reduced by basis only
• Above basis - C corp books to schools
• Above basis food inventory

15
Extenders for Individuals

• Sales Tax (through 09)
• Sec 222 Education expenses (through 09)
• Teachers deduction 250 (through 09)
• Standard deduction - property tax (thru 09)
• Contributions directly from IRA (through 09)
• Mortgage debt relief (through12)
• Non business energy credit (09 skips 08)

16
Other Individual Provisions

• To claim a dependent
• Qualifying child must be younger than claimant
  and unmarried

17
New Bicycle Fringe Benefit

• Starting 2009 employers can reimburse employees
  tax free
• Up to 20/month for
• Cost of bicycle ? Repairs
• Improvements ? Storage
• Bicycle used regularly for substantial portion of
  travel home/work (Guidance needed)

18
Other Provision for

• Federally Declared Disasters after 12/31/07
• Relief for Midwestern Disasters
• Energy Incentives

19
Energy Incentives

• Incentives for Solar, Wind, Fuel Cell, etc,
  extended and expanded
• Residential energy credit not blocked by AMT
• Appliance credit (refrigerators, etc) extended
  through 2010
• Builders credit 2,000 extended through 2009

20
New CreditPlug in Electric Vehicles

• Effective 2009-2014
• Maximum amount based on weight
• Up to 10,000 lbs 7,500
• 10,001 -14,000 lbs 10,000
• 14,001 26,000 lbs 12,500
• more than 26,000 lbs 15,000
• Phase out-250,000 cars per manufacturer

21
Plug in Credit Other Points

• Basis must be reduced by the credit
• Must be original use property
• Placed in service in USA
• Can be purchased or leased
• Recapture provisions apply
• Must pass vehicle safety provisions
• Personal use unused credit lost
• Business use carryover/back applies

22
Coming Soon Chevy Volt
23
Chevy Volt Features

• Available November 2010 - 30-40,000
• Not a hybrid - Extended Range Electric Vehicle
• 4 Passengers 5 Doors
• Gas engine only to charge batteries - Comes on at
  30 charge
• Lithium-ion batteries
• Time to fully charge - 3 Hrs
• Driving range 640 miles

24
Tax Preparers Penalties

• New Law (5/25/07) 1,000 or 50of fee
• No penalty if
• Tax preparer did not know of position
• Position more than likely sustained
• Position disclosed
• This is a higher standard than applies to
  taxpayers

25
Preparer Penalty Relief

• Penalty amount unchanged
• No penalty if
• Tax preparer did not know of position
• Substantial authority for position
• Position disclosed
• Old standard still applies for Tax Shelters and
  Reportable Transactions
• Relief is retroactive to 5/25/07

26
Misc. Other Provisions

• Stock brokers to report basis after 01/01/11
• Exxon Valdez settlements use Inc Avg
• Wooden arrows exempt from Ex Tax
• Limit deduction for compensation to 500K
  (Bailout companies)
• Suspend Section 199 for oil companies
• FUTA surtax .2 extended thru 2009

27
10 Tips for your Business

• Surviving a Tough EconomyMoney Matters
  Budgeting Basics

28
Realistically answer the question

• Are you prepared for tough times?
• Pinpoint your specific problem areas
• Highlight steps to turn things around

29
Did you know

• Americans spend 120 of what they make

30
Dont panic

• Tip 1

31
Panic Bad Decision Making

• Get a sense of where you stand by
• Reviewing your cash position
• Anticipate cash needs
• What are your short-term needs

32
Erma Bombeck wrote

• Given another shot at life, I would seize every
  minute, look at it, really see it, live it and
  never give it back. Dont worry about who
  doesnt like you, who has more, or whos doing
  what. I would have sat on the lawn with my new
  clothes and not worried about the grass stains

33
Check your credit lines

• Tip 2

34
Status of Loans Credit Lines

• Are you in compliance with their terms?
• Will the bank renew their commitments at similar
  amounts, rates and terms?
• Can you eliminate reliance on credit by
  disciplining your spending

35
Financing Options

• Debt Financing
• Most Straightforward
• Repayments (with interest) due on a schedule
• Equity Financing
• Selling ownership to investors
• No guaranteed return
• Investors may insist on sharing management
  control

36
Which Option is best for you?

• Do you want total control of your business?
• Do you want to leave a legacy?
• Eventually, do you want to sell your business?
• What is your exit strategy?
• Never too early to start planning your exit

37
Sources of Financing

• Commercial Banks
• Do they focus on small businesses?
• SBA or other guarantees?
• Community Banks
• Accommodate individuals businesses
• Internal lending standards
• Credit Unions
• Support vision of their members
• Easier to qualify for loans? (is this a myth?)

38
Alternative Sources of Funds

• Working Capital
• Line of credit
• Secured by assets (PPE? Receivables?
• Economic Development Groups
• Federal, state local programs
• Micro lending programs
• Friends Family
• Treat it like a business
• Use Promissory Notes payment schedules

39
Take a fresh look at monthly income expenses

• Tip 3

40
Monthly Cash Flow

• Have you been meeting your monthly obligations?
• How much of a drop in revenue 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? 60? 90 days?

41
Setup a budget

• Tip 4

42
Speaking of cash flow

• Create an annual budget and review it
• Budget allows you to
• Compare performance to projections
• Communicate your expectations
• Use budget to chart progress by comparing budget
  to actual each month or quarter

43
Vince Lombardi said

• The difference between a successful person and
  others is not a lack of strength, not a lack of
  knowledge, but rather a lack of will. Once you
  learn to quit, it becomes a habit.

44
How to Create a Budget

• First, find a starting point
• Pull last 3 months bank/credit card statements
• Add up your bank deposits (this is income)
• Add up all checks, debits, withdrawals and
  charges (this is what you spend)
• Subtract spending from income
• Positive you are building equity
• Negative going into debt

45
How much do you pay for

• Direct Costs (cost of items needed to make a
  sale, like chocolate for MMs)
• Core Operations (money you spend to stay in
  business , such as rent, telephone, internet,
  etc)
• Mandatory Costs (Professional license and/or
  education, permits, insurance, etc)
• Marketing (Now is not the time to stop)
• Be honest with the categories!
• Be realistic!

46
MANAGE ACCOUNTS RECEIVABLES

• Tip 5

47
Accounts Receivable

• Always keep A/R Receivable Aging current
• Watch for new patters of slow payments
• Follow-up immediately
• Offer payment arrangements
• Announce payment alternatives (dont wait for
  them to ask because they wont)
• Review largest riskiest accounts to determine
  if the economic slow down will effect their
  ability to pay

48
Write (or at least draft)a business plan

• Tip 6

49
Business Plan Components

• Reflects your goals for the company
• Identifies steps necessary to accomplish them
• Plan describes
• Where you company is today
• Where you want it to be tomorrow
• How you plan to get it there

50
Manage business risk

• Tip 7

51
Im Talking About Insurance

• Review your coverage
• Is it enough?
• Are you paying too much?
• What are your deductibles?
• Are multi-premium discounts available?

• Life Health
• Casualty Theft
• Disability
• Auto
• Business Overhead
• Key Employee
• Professional Liability

52
Life Happens

• Unexpected Crisis/Disasters
• Prolonged health issue
• Fire or Flood
• Car Accident
• Lawsuit
• Death of a spouse

53
Leverage technology

• Tip 8

54
Considerations

• Is your technology serving the needs of your
  business and customers?
• Businesses can deduct new equipment purchases
• You can recoup depreciation deductions not taken
  from prior years
• May want to consider leasing equipment

55
Technology vs. Staff

• Can computers replace people?
• Outsourcing
• Virtual Assistant
• Remote staff
• Can you save money using technology?
• Web-based training
• Web-based research (subscription or free)
• Can computers make people more efficient?

56
Protect yourself your files

• Tax Related Identity Theft has gone up 664 since
  FY2005
• Improve the use of passwords
• Require stronger passwords
• Change them routinely
• Secure your network (Im preaching to the choir,
  Im sure)
• Secure your emails, use secure file transfer
  protocols or direct data transfers

57
Relationships Are Key

• Even casual discussions can lead to new business
• Reassure them that you are not going anywhere
• Calm any fears that the crisis will affect the
  company or the services they expect from you
• Speculation and gossip are counterproductive, so
  its better to address any concerns directly.

58
Contact your good customers

• Tip 9

59
How to Stay Safe at Tax Time

• Keep paperwork safe (not in your briefcase or
  car)
• Shred documents you no longer need or that you
  have in duplicate if they have your SSN and/or
  credit card number
• Update computer firewall install antivirus and
  anti spyware programs do not leave internet
  connect open indefinitely
• Get the mail everyday dont leave it sitting
  outside in your mailbox. When sending mail,
  actually take it to the post office or personally
  drop it in the post office mailbox. Unguarded
  and/or uncollected mail is a theft waiting to
  happen.
• Password protect documents sent by email. Never
  send the password in the same email!

60
Dont Forget Employees

• Reassure them that the crisis will not affect
• Their jobs
• Their retirement
• Their benefits
• Subcontractors, too

61
more things to consider

• Tip 10

62
Other ideas

• Can you reduce on-hand inventory?
• Have you billed all pass-through expenses?
• Consider ways to pass on your increased costs
  (i.e., fuel) to customers
• Dont engage in panic selling of investments
• Come up with a plan NOW to respond to future
  declines in revenue
• Check the safety of cash deposits (new FDIC
  limits)

63
Stay Positive Focused

• Stay Positive (an upturns always follow a
  downturn)
• Small businesses are more flexible and can adapt
  to changes in the economy faster and easier than
  our larger counterparts
• Use this as an opportunity to buckle down,
  refocus and assess to make your company more
  financially sound, disciplined and less reliant
  on credit

64
Thank you!

• Jina Etienne, CPA
• direct 301.576.9686
• fax [phone]
• email jina_at_etiennnecpas.com
• Offices in White Oak Downtown Silver Spring
• www.etiennecpas.com