The aftermath

It seems as if the once bold, fearless spending spree of our country’s dot-coms is tapering off.

The perceived market share gains of many e-commerce businesses in late 1998 and in 1999 are no longer a reality. Conversely, even pillars in the industry are struggling to stay alive as America waits to see who will be the next dot-com tragedy.

Not only are many companies experiencing an inability to produce financial returns for their shareholders, but executives are realizing that the fun is over. They must relinquish their ancillary responsibilities and develop an intense focus on their market and their products.

As a result, more and more technology-related companies are outsourcing their managerial functions, such as accounting, bookkeeping and tax, realizing that the benefits far outweigh the costs. Accountants, on the other hand, are finding a lot of clean-up work. With the fast and furious gold rush into the e-commerce world, a lot of Internet entrepreneurs forgot the most important (yet least glamorous) element of business — financial planning.

Many companies didn’t plan ahead when selecting their entity type, (C-Corp., S-Corp., partnership, etc.). They only considered the basics, such as the number of owners, the level of participation for each investor and the board of advisers. Now, after the first few years of operation, other issues are arising and making it painfully obvious they should have been more thorough in their planning.

Possibly the most important and neglected element has been the current and long-term tax planning considerations on both a corporate and personal level.

Several companies have also failed to utilize proper tax expertise during the glory days of the industry. As cash flow (or lack thereof) becomes more of an issue, more attention is being paid to corporate expenditures. Management is, in turn, beginning to realize that the proper tax treatment of certain issues unique to the industry cannot be effectively addressed by attending a seminar, and are turning to tax professionals who have access to recent court cases, authoritative rulings and experience with dot-coms.

Finally, during the past few years, many high-net-worth owners made significant personal investments into their businesses in order to get through temporary financial setbacks. Now, facing severe personal losses, along with business losses, they are wondering where they will find their much-needed product growth and development capital.

One remedy could be to prepare net operating loss carryback claims, (amended 1040X forms), to seek tax dollars paid into the federal and state governments from prior years. If significant, these refunds can be reinvested back into the company, reducing the potential amounts needed from a financial institution, venture capitalist, or angel investor.

It’s not pretty out there. But the good news is that technology companies are now aware of the importance of planning and of the tremendous impact the IRS can have on a business. As accountants in the tax department of SS&G Financial Services’ Akron office, Rich Warfield, director, and Jim Moavero, senior associate, are involved in the financial aspects of many technology-related business clients. They can be reached at (330) 668-9696 or at [email protected] and [email protected].