Smith, who had two spells as manager at Selhurst Park from 1993-95 and 2000-01, believes the club will have to sell their most valuable assets, starting with teenager Moses.
He told Sky Sports: "Inevitably Victor Moses will be sold. The club have to pay off their debts as quickly as possible.
"The club have to sell him because the administrators need to recoup their debts and if Victor can give money back to the club by leaving then that's a good thing."
He added: "For some time this club has been on shifting sands and going into administration could be a major turning point for them."