Searching for cash flow and preserving liquidity?

You may already have the cash

Mar 30, 2020
COVID-19 Life sciences Business strategy

Daily deliberations are now taking place in virtual boardrooms and on conference calls trying to determine how to best balance public health with economic survival during the COVID-19 pandemic. The imposition of temporary business closures has affected organizations in an unprecedented way. Managing cash flow and liquidity becomes critical as operations scale down or cease for potentially a prolonged period.

Companies are increasingly focused on alternatives to normal business operations for generating cash flow during a potential liquidity crisis. Reducing inventory levels (and selling at below-market values), lowering capital spending, reducing full and part-time staff numbers, and generally decreasing selling, general and administrative expenses could all be necessary for survival during this challenging time. While these actions have the potential to diminish the value and long-term viability of any business, there are ways to minimize the impact.

Maximizing cash flow

Opportunities for generating much-needed cash flow may already be available to businesses. Specific tax services to consider include:

  • Investigating all stimulus, credit and incentive programs available: Identifying programs and credits available to assist organizations during the COVID-19 pandemic as well as under existing programs.
  • Maximizing Canadian sales tax recoveries: Identifying unclaimed credits, overpaid sales tax obligations and missed exemptions under current legislation.
  • Preparing scientific research and experimental development claims: Maximizing credits recovered for all qualifying companies under the present tax legislation.
  • Reviewing customs and duty drawbacks and tariff reclassification: Reducing duty obligations through reclassification and drawback opportunity identification.
  • Reviewing other value-added tax obligations in other countries: Identifying unclaimed credits and missed exemptions under an applicable country’s tax statutes.

In many cases, these tax recovery services can be completed on a performance-based fee structure, so there are no costs to organizations if no cash is found and recovered. 

We’ve seen this before

Following the financial crisis of 2008, several businesses faced similar critical liquidity issues. For example:

  • A drilling services and equipment company that was struggling with cash flow identified more than $2 million in tax recoveries; an additional $1 million was recovered in the years that followed.
  • A software company secured several hundred thousand dollars a year in recoveries; ultimately funding roughly seven of their technical staff of 20, which helped them avoid layoffs, which was critical for the relatively small but growing business.

There are a number of solutions, from the new federal and provincial stimulus and incentives, existing credits and incentives to indirect tax and customs duties and tariffs, available for businesses to secure additional cash flow and to maximize cash tax recovery. A multidisciplinary approach could help businesses survive this liquidity crisis and ensure that those recovery opportunities are maximized.

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