Recession Recovery

American Recovery and Reinvestment Act of 2009

A number of small businesses are wondering how the Recovery Act will ultimately affect their bottom line. The following provisions are likely to be of most importance to ALL small business owners.

If you lost money

Some small businesses will be able to use monetary losses to their tax advantage. Those with gross receipts at $15 million can use losses to alleviate tax bills for ~~two~~ five years prior to the loss and 20 years following the loss.

Money for equipment

The stimulus package maintains the increased $250,000 equipment write-off level through 2009. However, if you already spend more than $800,000 on these types of capital expenditures, the deduction is phased out. For this reason it is geared more toward small business spending.

Hiring tax credits

You can receive a $2,400 credit per worker on your taxes providing you hire a worker who falls in a targeted group of disadvantaged individuals. The Work Opportunity Tax Credit allows a 40% tax claim on the first $6,000 in wages paid to such a worker. Two new categories of disadvantaged workers have been added to the new package: veterans and “disconnected youth.”

Increased SBA lending

An additional $6 million is allocated to microlending through SBA sponsored non-profit lending organizations. The SBA has also been authorized to temporarily eliminate or reduce fees on their loan guarantee programs, and increases the amount of the guarantee to 90% for qualified loans - read more.

Reducing Estimated Tax Payments

Normally, small businesses have to pay 110 percent of their previous year’s taxes in estimated taxes. But with incomes down for many small businesses this requirement is too burdensome – and causing a cash crunch. The Recovery Act allows small businesses to reduce their estimated payments to 90 percent of the previous year’s taxes, helping to boost liquidity and better align estimated taxes with actual taxes in a year of severe economic contraction.

Extension of Bonus Depreciation Deductions

Check with your accountant about the possibility of extending bonus depreciation deductions through the end of 2009, which allows businesses to take a larger tax deduction within the first year of a property’s purchase.

Incentives for Investors to Put Money in Your Business

The Recovery Act includes a measure that will exclude from taxation 75 percent of the capital gains for investors in small businesses who hold their investments for five years.

Get Your Business Out of Debt and Avoid Bankruptcy

The U.S. Small Business Administration reports that approximately 40,000 businesses close their doors or file for bankruptcy each month. Many of these companies were mired in debt and didn't have a viable plan to work out of it.

Our partners at Corporate Turnaround offer a new resource to help:

Don’t become a statistic. If your business is experiencing problems with debt, contact your local Small Business Development Center. SBDC assistance is proven to help businesses survive.

Business Survival Workshops

In this economy, you're likely facing new challenges. The Pennsylvania SBDCs offer business management workshops to address issues small business face in everyday operations. Get help with locating new customers, managing finances, and planning for future growth.

We’ve also posted a number of online tutorials to help small businesses counter the effects of a slowing economy.

Checklist for Recession Survival

Did you know that businesses receiving SBDC assistance have higher rates of survival? Times are tough, but the SBDC can help. Here are some recession-busting steps to consider for your business:

Solve Any Immediate Cash Crisis

Organize financial data in one place
Make a list of the problem areas
Set priorities for collections and payables
Determine next day’s tasks each night
Set time frame and goals for cash management
Contact your local SBDC for FREE help.

Collect Accounts Receivable

Bill customers as soon as possible
Use account aging reports to manage and project cash flow
Collect everything now

Call everyone – don’t wait! Begin collections on overdue accounts, pick up large checks in person, require cash payment at time of service, offer discounts only on prepayments

Contact Creditors

Decide who to pay first – e.g., lenders, past-due taxes
Forecast cash flow, then payment plan
Manage your credit score. Talk to credit decision-makers early and often
Offer partial payments, if possible
Keep payment promises

Adjust Prices and Reduce Costs

Be competitive in the pricing/value balance
Charge extra for emergencies, deliveries, etc.
Ask landlord for rent reduction or restructuring to allow a short abatement period.
Rent out unused space
Reduce personnel costs (eliminate overtime, use part-timers, student interns)
Ask vendors and suppliers for trade discounts
Sell unproductive assets

Manage Inventory

Review inventory levels more often
Liquidate everyone on the shelves over 90 days
Sell outdated items at cost
Restock shelves with faster-selling or higher profit items
Buy using “Just-In-Time” ordering processes

Require Accurate and Timely Reporting

Create and use financial statements
Get involved – bookkeepers and accountants can’t do it all for you
Forecast short-term cash flow

Checks and Balances are Critical

Enforce cash-handling policies
Reconcile cash register closeouts with bank deposits
Develop new financial controls
Prevent opportunities for embezzlement (Divide financial responsibilities and functions, require checks to have 2 signatures, examine timecards and payroll records for accuracy)
Hold everyone accountable

Focus on Marketing

Redefine your target market and consider new “niches”
Look for complementary products/services to offer
Leverage social marketing opportunities – are you on Facebook, Twitter, LinkedIn?
Invest marketing dollars wisely
Keep in touch with current and past customers
Thank them for their business, suggest another specific product or service, ask for referrals

Pay Attention to Your Retail Image

Appearance counts - Clean it, paint it! Yes, the carpet might need attention too.
Keep window displays fresh
Add lighting to highlight product displays
Pay attention to your customer’s in-store experience
Use attractive and descriptive signage
Train employees to deliver top-notch customer service

Be a Proactive Business Owner

Invest time in preventing and/or solving problems
Talk with other business owners – You are not alone!
Communicate with customers, employees, and suppliers

Implementing any of these recommendations requires careful thought and planning. The SBDC can offer you for confidential, professional guidance and practical, number-crunching solutions.

Download PDF of the checklist

SOURCE: John W. Parker, Jr., a Business Analyst from the Virginia SBDC Network. Learn more about our nationwide program by visiting www.asbdc-us.org.