A 13-point program for improving your bottom line.

If you own real estate, run a company, or manage a firm's assets, you understand the importance of bottom-line thinking. But do you know how to both reduce costs and improve facilities performance? The following plan has helped many firms and entrepreneurs to lower expenses and increase their profit potential.

Reduce Property Taxes:

The question of property value vs. assessed value can be a significant tax issue. In fact, the relationship between real estate value and business value is one of the biggest property tax issues companies face. This distinction often offers ammunition for owners to appeal property assessments. Many investors believe that they don't have control over property taxes; and yet the facts show that most property tax appeals are resolved favorably for the owner. When property taxes are protested, it is not unusual to see reductions in the range of 20 to 40 percent.

Use Tax-Efficient Entity Selection:

What type of business entity is truly best? Should you operate as a corporation (an S corporation or a C corporation), a general partnership, a limited partnership, a limited-liability corporation--or some combination of several of these? CPAs and consultants can analyze which entity will be the most tax-efficient vehicle. One recent engagement restructured a real estate investment entity and successfully eliminated $250,000 of state income tax. Wise counsel regarding entity selection can also help by providing an asset protection framework.

Employ Tax-Efficient Accounting Methods:

Many companies are unaware of the most tax-efficient accounting methods. As a consequence, they may not be maximizing cash flow. Be sure that your accounting team and their consultants regularly review the latest accounting regulations and strategies so that their efforts are giving you the absolutely best tax savings.

Take Advantage of Rehabilitation Credits:

The rehabilitation credit applies to costs incurred for rehabilitation and reconstruction of certain buildings. It does not include enlargement or new construction. If a building was placed in service prior to 1936, it may not qualify as an historic structure, but is potentially eligible for rehabilitation investment credits. A rehabilitation credit equals 10 percent of qualified rehabilitation expenditures (20 percent for historic facilities). And, rehab credits may also be available to lessees for qualified expenditures that they incur.

Invest in Communitites:

Investing in a community development entity (CDE) may pay off in real terms. Equity investments in CDE corporations or partnerships are eligible for a "new markets tax credit," which can provide up to a 39 percent credit in taxes over a seven-year period.

Accelerate Lease Write-Off Deductions:

Companies often fail to write off tenant acquisition and leased facility improvement costs in a timely manner because they are unaware of the opportunitites to do so. Depend on your CPA and/or investment consultants to find out how to accelerate deductions for leased property improvements--particularly those that have been demolished or abandoned, but remain on your books.

Reduce Telecom Costs:

Strategic telecom sourcing can lower costs and improve system performance. A sourcing partner can analyze local phone, long distance, wireless communications and data costs and suggest strategies that can lead to overall cost reductions as well as improved service. This type of sourcing solution can pay for itself in as little as 90 days--and can offer tremendous savings in future years. Recent telecom studies have found reduced costs of 13 to 45 percent for clients using these strategies.

Analyze Property/Casualty Insurance:

Are you under-insured? Over-insured? Are you paying more than you need to in order to properly protect your assets? It's important to know exactly what your policy covers, what kinds of coverages may be missing that used to be in your policy, or are available in a different policy. A risk assessment, combined with an analysis of current coverage options, can help reduce insurance costs--and often provides improved coverage while further minimizing risk and exposure.

Participate in Reverse Auctions:

A reverse auction is a great way to save on costs such as building materials. This online tool is like an eBay for businesses, with one major difference--instead of the price going up, it goes down.

A reverse auction is a fixed-duration, online bidding mechanism where suppliers compete for your business. This form of procurement has been shown to lower the cost of products and services by as much as 20 percent. Of particular benefit are multi-attribute auctions where suppliers compete not only in price, but also in relation to quality, reliability and added value.

Consider a 1031 Exchange:

Section 1031 of the Internal Revenue Code offers a vehicle for tax-deferred exchange that can provide exceptional tax advantages for real estate investors. A like-kind exchange allows postponement of the recognition of capital gains by shifting the basis of old property in to new property. As the National Association of Industrial & Office Properties (NAIOP) so aptly states: "For real estate, like-kind exchanges often provide the necessary liquidity to make deals work and have become essential to the operation of real estate markets. Without like-kind exchanges, many transactions simply would not occur."

Use Energy Consultants:

Energy consultants forge relationships with electric providers to negotiate favorable pricing for their customers. In addition, they offer energy savings procedures and equipment, efficiency and consumption audits and monitoring services to ensure that the energy you bought was the energy you truly used.

Negotiate Construction Contracts:

There can be significant value in providing third-party participation in the negotiation of building construction and renovation contracts. Allowing an experienced, outside construction specialist to participate in the process has led to improved efficiencies, cost savings and peace of mind for facility owners and their representatives. Using an outside authority can save money, and provide greater perspective and opportunities for project success.

Invest in Cost Segregation Studies:

Real estate purchasers are in a position to gain tremendous tax benefits by using this technique for accelerated depreciation deductions and easier write-offs when an asset becomes obsolete, broken or destroyed. Cost segregation studies uncover tax savings related to the construction, purchase or renovation of a building.

Usually performed by a CPA working with an engineer, a cost segregation study analyzes all costs that qualify for reduced depreciable lives. A taxpayer can use cost segregation when constructing a building, buying an existing one, or, in certain circumstances, years after disposing of one, so long as the year of disposition still is open under the statute of limitations. The shorter the depreciation period, the greater the tax savings and cash flow.

Even when conducted three to five years after assets are placed in service, significant tax refunds can be obtained. For example, the reclassification of $1 million of property at a manufacturing facility recently increased the firm's cash flow by $135,000 over a three-year period.

Every firm that owns real estate needs an accounting system that's sophisticated enough to capture all the data needed to properly assess and analyze opportunities to grow wealth. But more importantly, every firm stands to benefit from experts who understand the 13-point process and can help design a system to provide the best resources and information that lead to bottom-line success.

Brian D. Williamson, CPA, MBA ([e-mail]), is a tax planning and consulting partner with Weaver and Tidwell LLP in Dallas. He is also the director of the firm's Real Estate Services division. Bryan B. Funk, CPA, is a senior tax manager with Weaver and Tidwell.