Financial Matters for Private Equity, Venture Capital, and Family Offices

  • Impacts of financial decisions
  • 4/10/2020

Contend with the COVID-19 pandemic: evaluate the liquidity impact to your portfolio company operations and act on tax savings now available through the CARES Act.

Key insights

  • The coronavirus pandemic presents a number of pressing issues
  • Act now to assess financial management and disaster relief issues
  • Take advantage of timely tax savings opportunities from the CARES Act
  • Consider strategies peers are applying

The widespread impact of the coronavirus pandemic (COVID-19) presents a number of issues for private equity firms, venture capital firms, and family offices to navigate. As the situation evolves, tackle the financial and tax considerations highlighted below.

Assess financial management and disaster relief options

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Reduction in normal operations, business interruption, and non-recurring expenses impact cash flow. Evaluate the liquidity impact on your portfolio company operations and put strategies in place to mitigate negative effects.

Start with these three steps

  • Determine if the company is eligible for the Payroll Protection Program (PPP)
    • See Decision Tree: Navigate COVID-19 Loan and Grant Options With Ease for guidance.
    • If yes, apply immediately with your existing banking relationship. Also consider Economic Injury Disaster Loan (EIDL) and other state or local emergency funding.
    • If no, monitor the soon-to-be-released middle market lending program and various CARES Act tax planning opportunities.
  • Consider real-time financial scenario modeling with a tool such as CLA Intuition 2.0, and bolster financial forecasting capabilities to help manage cash flows and working capital needs.
  • Review debt indentures and discuss liquidity and compliance matters with lenders.

Assess regulatory and tax issues

There are a host of hidden tax issues that can affect a portfolio company’s decision-making process during this crisis.

What should be considered under the CARES Act?

The CARES Act provides timely cash tax savings and presents an opportunity for portfolio companies. Amended return opportunities are now available for:

  • 5-year net operating loss (NOL) carryback for losses generated in the 2018 and 2019 tax years.
  • 2-year NOL carryback for losses generated in a year beginning in 2017 and ending in 2018.
  • Option to loosen the business interest limitation rules for 2019.
  • Allowance of 100% bonus depreciation to qualified improvement property (QIP) placed in service in 2018 or 2019.

Discuss how emergency funding interacts with CARES Act credits and include this in your portfolio companies’ financial forecasting to assist in decision making.

Continue to track all applicable tax jurisdictions for any tax incentives or stimuli that could benefit or impact your portfolio companies.

Review more in-depth information on tax savings opportunities from the CARES Act.

Review operational challenges

Learn from your peers and consider Tips From Private Equity Clients for Managing Through COVID-19 Challenges. Keep in mind that every operation is different, and the business practices you choose to adapt are unique to you.

How we can help with COVID-19

Unforeseen disruptions — from the coronavirus (COVID-19) to natural disasters — can create many uncertainties. CLA has developed resources that can help you lay out a strategy to put your organization on its toes versus its heels. Bookmark our financial management and disaster relief resource page to stay current on these issues.

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