A game plan for finding business capital fast

8/4/2020
A playbook for finding business capital fast

Finding cash is the way to win in business – get proactive strategies you can use right now.

The sentiment “cash is king” never has been truer than in a distressed economy. Your business likely is looking left and right to find different ways to save cash, get cash, and make cash. With the multitude of advice in the market, it can be hard to focus on which tactics will work best for your business. Depending on your company’s size, position in the market, and business goals, any one or a combination of strategies could be the best capital plan for your business. Here are some pro tips on ways to score cash quickly for your business.

Start with a good offense: Raise cash through capital market transactions

Start with a good offense: Raise cash through capital market transactions

When you think about raising capital for your business, the easiest thing to imagine is getting a business loan. But while getting a loan might be simple, it isn’t always easy – and there are more sophisticated ways to infuse cash into your business.

If you’re a public company, consider offering additional debt or equity securities to the market. If you’re a private company, have you considered looking for new investors to purchase debt or equity securities in exchange for cash?

Public companies should consider the complications if debt security offerings get drawn out. The SEC has stringent rules and governance policies on debt security offerings, which means the process can take a significant investment of both time and money.

If your equity security offerings (stock) create a change in ownership as defined under the applicable rules (generally a greater than 50% change in stock ownership as measured by value), you’ll also want to consider the tax implications – specifically regarding IRC Section 382. Section 382 can limit a company’s ability to use tax attributes. For example, current net operating losses may become limited in terms of prospective utilization to offset future losses.

Working with a trusted tax adviser is key to understanding all your options and mapping out the tax consequences of each.

Analyze the stats: Save cash through a detailed look at your books

Analyze the stats: Save cash through a detailed look at your books

In addition to raising supplemental capital, make sure you’re seeking out all the places you can save cash in your business. An operational overview can help you see any duplications or inefficiencies that can be addressed. Maybe you need to consider deferring certain compensatory events, such as raises, bonuses, and other added compensation, to conserve cash in the short term.

Public companies might want to consider cutting their dividend rate and/or deferring any stock buyback programs in place. While these policy changes can have some negative consequences, many companies are considering such strategies as viable alternatives to add cash to their bottom lines – especially if their record up to this point has been favorable.

Are you considering any upcoming capital expenditures? If you were planning on building or buying additional facilities, or making a large investment in inventory or equipment, you might want to reconsider. Based on the current environment, does your company still have a need for that investment? Is there a way to scale back or postpone the purchase?

Evaluating your current balance sheet is another way to preserve cash. There might be parts of the business that are not producing the value they once were, or facilities that no longer fit your current level of production. Are these assets key to what you’re currently doing and where business is heading? If not, consider unloading them to free up extra resources.

Keep up on the latest tax developments with Tax News Highlights.

Crossing the finish line

Every business is different and requires its own specific game plan to find and preserve cash. And every strategy comes with its own set of implications for the business – including tax implications. If you’re looking for a trusted adviser who can help you create the best playbook for finding cash in your business, our team is here to help. We can work with you to determine your options, define the tax consequences, and create a plan for success.
Howard Wagner - social
Howard Wagner
Partner, National Tax Services