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| 1031 ADVISOR September 2009 |
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Managing Your Cash to Grow in a Recession: A Tale of Two Companies Two companies, Company A and Company B, were competitors. In the past, Company A borrowed heavily to expand. Company B kept its debt at a minimum. When the economy slid into recession, customers disappeared and profit margins were squeezed, reducing profits. Company A initially cut costs as far as it could, sometimes making repeated cuts thus sending shock waves through its workforce. Company A then turned to reducing working capital and inventory to conserve its cash. Company B’s low overhead enabled it to survive without such drastic reductions. Facing default on its loans with its Bank, Company A offered to sell its business to Company B. The offer was a tremendous opportunity to acquire distressed assets at a fraction of the cost compared to a couple years ago. Company B weighs its options:
Utilizing Section 1031 exchanges to acquire distressed assets is a smart strategic move. It allows one to acquire distressed assets at low prices and eliminate or reduce income taxes, which can be as high as 40% of the costs of strategic sales and acquisitions. The key to managing this transaction as a Section 1031 exchange is to introduce the necessary tools and expertise at the highest levels of Company B management. By doing this, the initial planning, negotiations, purchase and sale agreements and loan agreements will incorporate Section 1031 into the dynamics of the transaction. Far too often, the transactions are blessed and inked without considering Section 1031 and are unchangeable. Tough economic times require every tool to be utilized and each stone turned for cost savings. Section 1031 Asset Manager® provides the tools to facilitate the reallocation of strategic assets by eliminating or reducing income tax expense to a fraction of the cost of the overall transaction. We provide secure web-based expertise throughout the transaction. For clients purchasing and selling strategic assets once or continuously throughout the year, we provide one single point of contact to reduce your overall transaction costs and to guide you successfully through the transaction. Our automatic tax optimization and expert matching allows you to focus on operating your business and leave the tax reduction to our experienced tax attorneys.
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