Trends – Roth&Co

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Autumn brings falling leaves and … the gridiron. Football teams — from high school to pro — are trying to put as many wins on the board as possible to make this season a special one.

For business owners, sports can highlight important lessons about profitability. One in particular is that you and your coaches must learn from your mistakes and adjust your game plan accordingly to have a winning year.

Spot the fumbles

More specifically, your business needs to identify the profit fumbles that are hurting your ability to score bottom-line touchdowns and, in response, execute earnings plays that improve the score. Doing so is always important but takes on added significance as the year winds down and you want to finish strong.

Your company’s earnings game plan should be based partly on strong strategic planning for the year and partly from uncovering and working to eliminate such profit fumbles as:

Employees interacting with customers poorly, giving a bad impression or providing inaccurate information,
Pricing strategies that turn off customers or bring in inadequate revenue, and
Supply chain issues that slow productivity.

Ask employees at all levels whether and where they see such fumbles. Then assign a negative dollar value to each fumble that keeps your organization from reaching its full profit potential.

Once you start putting a value on profit fumbles, you can add them to your income statement for a clearer picture of how they affect net profit. Historically, unidentified and unmeasured profit fumbles are buried in lower sales and inflated costs of sales and overhead.

Fortify your position

After you’ve identified one or more profit blunders, act to fortify your offensive line as you drive downfield. To do so:

Define (or redefine) the game plan. Work with your coaches (management, key employees) to devise specific profit-building initiatives. Calculate how much each initiative could add to the bottom line. To arrive at these values, you’ll need to estimate the potential income of each initiative — but only after you’ve projected the costs as well.

Appoint team leaders. Each profit initiative must have a single person assigned to champion it. When profit-building strategies become everyone’s job, they tend to become no one’s job. All players on the field must know their jobs and where to look for leadership.

Communicating clearly and building consensus. Explain each initiative to employees and outline the steps you’ll need to achieve them. If the wide receiver doesn’t know his route, he won’t be in the right place when the quarterback throws the ball. Most important, that wide receiver must believe in the play.

Win the game

With a strong profit game plan in place, everyone wins. Your company’s bottom line is strong, employees are motivated by the business’s success and, oh yes, customers are satisfied. Touchdown! We can help you perform the financial analyses to identity your profit fumbles and come up with budget-smart initiatives likely to build your bottom line.

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Audited financial statements come with a special bonus: a “management letter” that recommends ways to improve your business. That’s free advice from financial pros who’ve seen hundreds of businesses at their best (and worst) and who know which strategies work (and which don’t). If you haven’t already implemented changes based on last year’s management letter, there’s no time like the present to improve your business operations.

Reporting deficiencies

Auditing standards require auditors to communicate in writing about “material weaknesses or significant deficiencies” that are discovered during audit fieldwork.

The AICPA defines material weakness as “a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis.” Likewise, a significant deficiency is defined as “a deficiency, or a combination of deficiencies, in internal control that is … important enough to merit attention by those charged with governance.”

Auditors may unearth less-severe weaknesses and operating inefficiencies during the course of an audit. Reporting these items is optional, but they’re often included in the management letter.

Looking beyond internal controls

Auditors may observe a wide range of issues during audit fieldwork. An obvious example is internal control shortfalls. But other issues covered in a management letter may relate to:

Cash management,
Operating workflow,
Control of production schedules,
Capacity,
Defects and waste,
Employee benefits,
Safety,
Website management,
Technology improvements, and
Energy consumption.

Management letters are usually organized by functional area: production, warehouse, sales and marketing, accounting, human resources, shipping/receiving and so forth. The write-up for each deficiency includes an observation (including a cause, if observed), financial and qualitative impacts, and a recommended course of action.

Striving for continuous improvement

Too often, management letters are filed away with the financial statements — and the same issues are reported in the management letter year after year. But proactive business owners and management recognize the valuable insight contained in these letters and take corrective action soon after they’re received. Contact us to help get the ball rolling before the start of next year’s audit.

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Extending credit to business customers can be an effective way to build goodwill and nurture long-term buyers. But if you extend customer credit, it also brings sizable financial risk to your business, as cash flow could grind to a halt if these customers don’t make their payments. Even worse, they could declare bankruptcy and bow out of their obligations entirely.

For this reason, it’s critical to thoroughly research a customer’s creditworthiness before you offer any arrangement. Here are some ways to do so:

Follow up on references. When dealing with vendors and other businesses, trade references are key. As you’re likely aware, these are sources that can describe past payment experiences between a business and a vendor (or other credit user).

Contact the potential customer’s trade references to check the length of time the parties have been working together, the approximate size of the potential customer’s account and its payment record. Of course, a history of late payments is a red flag.

Check banking info. Similarly, you’ll want to follow up on the company’s bank references to determine the balances in its checking and savings accounts, as well as the amount available on its line of credit. Equally important, determine whether the business has violated any of its loan covenants. If so, the bank could withdraw its credit, making it difficult for the company to pay its bills.

Order a credit report. You may want to order a credit report on the business from one of the credit rating agencies, such as Dun & Bradstreet or Experian. Among other information, the reports describe the business’s payment history and tell whether it has filed for bankruptcy or had a lien or judgment against it.

Most credit reports can be had for a nominal amount these days. The more expensive reports, not surprisingly, contain more information. The higher price tag also may allow access to updated information on a company over an extended period.

Explore traditional and social media. After you’ve completed your financial analysis, find out what others are saying — especially if the potential customer could make up a significant portion of your sales. Search for articles in traditional media outlets such as newspapers, magazines and trade publications. Look for anything that may raise concerns, such as stories about lawsuits or plans to shut down a division.

You can also turn to social media and look at the business’s various accounts to see its public “face.” And you might read reviews of the business to see what customers are saying and how the company reacts to inevitable criticisms. Obviously, social media shouldn’t be used as a definitive source for information, but you might find some useful insights.

Although assessing a potential customer’s ability to pay its bills requires some work up front, making informed credit decisions is one key to running a successful company. Our firm can help you with this or other financially critical business practices.

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A primary estate planning goal for most people is to hold on to as much of their wealth as possible to pass on to their children and other loved ones. To achieve this, you must limit estate tax liability and protect assets from creditors’ claims and lawsuits.

The Tax Cuts and Jobs Act reduces or eliminates federal gift and estate taxes for most people (at least until 2026). The gift and estate tax exemption is $11.4 million for 2019. One benefit of this change is that it allows you to focus your estate planning efforts on asset protection and other wealth-preservation strategies, rather than tax minimization. One estate planning vehicle to consider is a “hybrid” domestic asset protection trust (DAPT).

What does “hybrid” mean?

The benefit of a standard DAPT is that it offers creditor protection even if you’re a beneficiary of the trust. But there’s also some risk: Although many experts believe they’ll hold up in court, DAPTs are relatively untested, so there’s some uncertainty over their ability to repel creditors’ claims. A “hybrid” DAPT offers the best of both worlds. Initially, you’re not named as a beneficiary of the trust, which virtually eliminates the risk described above. But if you need access to the funds down the road, the trustee or trust protector can add you as a beneficiary, converting the trust into a DAPT.

Do you need this trust type?

Before you consider a hybrid DAPT, determine whether you need such a trust at all. The most effective asset protection strategy is to place assets beyond the grasp of creditors by transferring them to your spouse, children or other family members, either outright or in a trust, without retaining any control. If the transfer isn’t designed to defraud known creditors, your creditors won’t be able to reach the assets. And even though you’ve given up control, you’ll have indirect access to the assets through your spouse or children (provided your relationship with them remains strong).

If, however, you want to retain access to the assets in the future, without relying on your spouse or children, a DAPT may be the answer.

How does a hybrid DAPT work?

A hybrid DAPT is initially set up as a third-party trust — that is, it benefits your spouse and children or other family members, but not you. Because you’re not named as a beneficiary, the trust isn’t a self-settled trust, so it avoids the uncertainty associated with regular DAPTs.

There’s little doubt that a properly structured third-party trust avoids creditors’ claims. If, however, you need access to the trust assets in the future, the trustee or trust protector has the authority to add additional beneficiaries, including you. If that happens, the hybrid account is converted into a regular DAPT subject to the previously discussed risks.

A flexible tool

The hybrid DAPT can add flexibility while offering maximum asset protection. It also minimizes the risks associated with DAPTs, while retaining the ability to convert to a DAPT should the need arise. Contact us with any questions.

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Here are some of the key tax-related deadlines affecting businesses and other employers during the fourth quarter of 2019. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

October 15

If a calendar-year C corporation that filed an automatic six-month extension:
- File a 2018 income tax return (Form 1120) and pay any tax, interest and penalties due.
- Make contributions for 2018 to certain employer-sponsored retirement plans.

October 31

Report income tax withholding and FICA taxes for third quarter 2019 (Form 941) and pay any tax due. (See exception below under “November 12.”)

November 12

Report income tax withholding and FICA taxes for third quarter 2019 (Form 941), if you deposited on time (and in full) all of the associated taxes due.

December 16

If a calendar-year C corporation, pay the fourth installment of 2019 estimated income taxes.

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Roth&Co is honored to once again to be listed on Inside Public Accounting’s annual ranking of the top 300 accounting firms in the country. Inside Public Accounting is a highly regarded independent publication, which produces one of the most comprehensive benchmarking reports in the industry. Roth&Co has been listed as one of the top 300 firms three years in a row, and they have steadily moved up the ranks to become one of the most respected and valued firms in their class.

When asked about the continued growth and success of Roth&Co, Co-Managing Partner Zacharia Waxler replied “Here at Roth&Co, we have always believed that the success of our firm is tied to the success of the community.” He continued, “We therefore take enormous pride in the dozens of community members we employ and the hundreds of local businesses that we have guided towards success.”

Much of Roth&Co’s steady growth can be attributed to their attention to the community, and them working to actively satisfy the needs of its members. From sponsoring community events and conferences to hosting public workshops and seminars, Roth&Co makes it a priority to provide the people of the community with the services that they need.

In this vein, Roth&Co has recently begun offering outsourced CFO services, ideal for businesses that need a CFO, but do not have the resources to maintain one in-house. They also provide not-for-profit compliance services, for schools to ensure that they are meeting all government regulations and standards. Their robust tax resolution services for businesses and individuals help with IRS negotiations, lien removals, and government tax audits. They are also ever expanding the Advisory Services that they offer, to include supplying formal business valuations, litigation support, due diligence, and quality of earnings reports, among their wide breadth of other services.

In their own words, Roth&Co “has been carefully guiding businesses through the complicated maze of the financial world,” and for over 40 years they’ve continually looked for ways to provide additional resources for its clients and community members.

Roth&Co was founded in 1978 by Abe Roth, with a vision of building a firm on a set of values designed not just to create a better future for its clients and employees, but to positively impact our community and the world around us. Over four decades later, Roth&Co now has four locations, relationships that span more than four decades, and over 100 specialized employees ready to serve as trusted guides through the complicated maze of the financial world. For more information or to speak with a professional, visit www.rothcocpa.com or call 718-236-1600

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All communities, big or small, have a culture. Made of beliefs, customs, social norms and achievements, it is the glue of any society. Every organization has one too. It dictates more than just personality and atmosphere, it identifies values and goals, attracts and retains talent and contributes to brand image. These benefits of strong company culture have been well documented. Recent studies found measurable turnover increases in companies with poor or nonexistent culture. Low-level engagement within companies was shown to result in a 33 percent decrease in operating income and an 11 percent decrease in earnings growth, whereas high level engagement achieved the opposite.

In 2014 Satya Nadella was named CEO of Microsoft and poised to make major changes. The company was losing its creative edge, had made a string of bad investments in bringing products to market and was slipping further behind its competitors. Four years later, his leadership showed consistent gain, and in November Microsoft’s market capitalization briefly surpassed Apple’s, temporarily making Microsoft the most valuable company in the world.

How did he do it? The company shifted from a “devices and services” company to predominantly “mobile and cloud” and made notable acquisitions, but Nadella credits something else with preempting and enabling that. He changed the course of the ship by changing the culture on board. He had inherited a company culture of toxic competition. It led to dirty politics, power struggles and discontent that hindered the collaborative and creative process. Missteps and project failure created fear that led to more product failure.

To turn around a company of 130,000 employees, Nadella says he began by changing the company’s mission statement: “To empower every person and organization on the planet to achieve more.” He started in his own house. Over the next five years price per share climbed steadily to triple its value, reaching an all time high for Microsoft.

Want to conduct a culture audit of your own? Start by asking these questions:

How well defined is your company culture? Where is it defined? How are these plans available to your new hires?

How would you gauge your employees’ current understanding of your company culture? Next, take a poll of your employees. Do they have reasonable knowledge of your organization/brand values? How well did you predict the outcome?

How consistent are your team leaders and their subordinates in adhering to your ideal culture?

There is no “one size fits all” company culture – every business is different. But to remain competitive in the near future you will need a strong and consistent set of values of your own.

Strong culture, strong team, strong results

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Everyone needs to plan for retirement. But as a business owner, you face a distinctive challenge in that you must save for your golden years while also creating, updating and eventually executing a succession plan. This is no easy task, but you can put the puzzle pieces together by answering some fundamental questions:

When do I want to retire? This may be the most important question regarding your succession plan, because it’s at this time that your successor will take over. Think about a date by which you’ll be ready to let go and will have the financial resources to support yourself for your post-retirement life expectancy.

How much will I need to retire? To maintain your current lifestyle, you’ll likely need a substantial percentage of your current annual income. You may initially receive an influx of cash from perhaps either the sale of your company or a payout from a buy-sell agreement.

But don’t forget to consider inflation. This adds another 2% to 4% per year to the equation. If, like many retirees, you decide to move to a warmer climate, you also need to take the cost of living in that state into consideration — especially if you’ll maintain two homes.

What are my sources of retirement income? As mentioned, selling your business (if that’s what your succession plan calls for) will likely help at first. Think about whether you’d prefer a lump-sum payment to add to your retirement savings or receive installments.

Of course, many business owners don’t sell but pass along their company to family members or trusted employees. You might stay on as a paid consultant, which would provide some retirement income. And all of this would be in addition to whatever retirement accounts you’ve been contributing to, as well as Social Security.

Am I saving enough? This is a question everyone must ask but, again, business owners have special considerations. Let’s say you’d been saving diligently for retirement, but economic or market difficulties have recently forced you to lower your salary or channel more of your own money into the company. This could affect your retirement date and, thus, your succession plan’s departure date.

Using a balance sheet, add up all your assets and debts. Heavy spending and an excessive debt load can significantly delay your retirement. In turn, this negatively affects your succession plan because it throws the future leadership of your company into doubt and confusion. As you get closer to retirement, integrate debt management and elimination into your personal financial approach so you can confidently set a departure date. We can help you identify all the different pieces related to succession planning and retirement planning — and assemble them all into a practical whole.

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If you’re self-employed and don’t have withholding from paychecks, you probably have to make estimated tax payments. These payments must be sent to the IRS on a quarterly basis. The third 2019 estimated tax payment deadline for individuals is Monday, September 16. Even if you do have some withholding from paychecks or payments you receive, you may still have to make estimated payments if you receive other types of income such as Social Security, prizes, rent, interest, and dividends.

Pay-as-you-go system

You must make sufficient federal income tax payments long before the April filing deadline through withholding, estimated tax payments, or a combination of the two. If you fail to make the required payments, you may be subject to an underpayment penalty, as well as interest.

In general, you must make estimated tax payments for 2019 if both of these statements apply:

You expect to owe at least $1,000 in tax after subtracting tax withholding and credits, and
You expect withholding and credits to be less than the smaller of 90% of your tax for 2019 or 100% of the tax on your 2018 return — 110% if your 2018 adjusted gross income was more than $150,000 ($75,000 for married couples filing separately).

If you’re a sole proprietor, partner or S corporation shareholder, you generally have to make estimated tax payments if you expect to owe $1,000 or more in tax when you file your return.

Quarterly due dates

Estimated tax payments are spread out through the year. The due dates are April 15, June 15, September 15 and January 15 of the following year. However, if the date falls on a weekend or holiday, the deadline is the next business day (which is why the third deadline is September 16 this year).

Estimated tax is calculated by factoring in expected gross income, taxable income, deductions and credits for the year. The easiest way to pay estimated tax is electronically through the Electronic Federal Tax Payment System. You can also pay estimated tax by check or money order using the Estimated Tax Payment Voucher or by credit or debit card.

Seasonal businesses

Most individuals make estimated tax payments in four installments. In other words, you can determine the required annual payment, divide the number by four and make four equal payments by the due dates. But you may be able to make smaller payments under an “annualized income method.” This can be useful to people whose income isn’t uniform over the year, perhaps because of a seasonal business. For example, let’s say your income comes exclusively from a business that you operate in a beach town during June, July and August. In this case, with the annualized income method, no estimated payment would be required before the usual September 15 deadline. You may also want to use the annualized income method if a large portion of your income comes from capital gains on the sale of securities that you sell at various times during the year.

Determining the correct amount

Contact us if you think you may be eligible to determine your estimated tax payments under the annualized income method, or you have any other questions about how the estimated tax rules apply to you.

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Most not-for-profit board members are unpaid volunteers. They’ve agreed to serve because they care about your mission and the impact your organization is making. You owe it to them to make the job as easy as possible — starting with well-organized board meetings that are only as long as necessary.

Setting the agenda

The key to effective board meetings is good planning. Once the meeting date is set, your executive director and board chair should prepare an agenda. To ensure the meeting will cover all pressing concerns, email board members to ask if there’s anything they want to add.

For each item, the agenda should provide a timetable and assign responsibility to specific members. Include at least one board vote to reinforce a sense of purpose and accomplishment, but be careful not to cram too much into your agenda. Otherwise, the meeting is likely to feel rushed and some items may need to be postponed to a future meeting.

Distribute a board packet at least one to two days before the meeting. This packet should consist of the agenda, minutes from the previous meeting and materials relevant to new agenda items, such as financial statements and project proposals.

Keeping things moving

Start with a short pre-meeting reception that allows members to chat. Some board members have little time to spare, but most will welcome the opportunity to get to know their colleagues. Staff should help facilitate communication by introducing any new members to the group and ensuring people mingle.

During the meeting itself, your executive director and board chair should stick to the agenda and keep things moving. This means imposing a time limit on discussions and calling time when necessary — particularly if one or two individuals are dominating the conversation.

Encourage a vote after a reasonable period. But if your organization requires a consensus (as opposed to a majority vote), the board may not be able to reach a decision in one meeting. If members need more time to think about or research an issue, postpone the decision to a future date and move on.
Finally, end the meeting on a positive note: Remind board members why they’re there and thank them for their time.

Following up

Board meetings can’t be effective if there’s no follow-up. Find answers and supporting materials for any questions that might have arisen during the meeting and make sure unresolved items are placed on the next meeting’s agenda.

Also ensure that board members are fulfilling their commitments to your organization and fellow members. If their busy schedules are impeding them, step in and help. If the issue continues, consider replacing the board member.

Does your team know the profitability game plan?

Management letters: Have you implemented any changes?

How to research a business customer’s creditworthiness

When it comes to asset protection, a hybrid DAPT offers the best of both worlds

2019 Q4 tax calendar: Key deadlines for businesses and other employers

Roth&Co Once Again Named in List of Top 300 Accounting Firms

Ahron Golding on the Very Real Threat of IRS Passport Revocation

Culture Matters

Putting together the succession planning and retirement planning puzzle

The next deadline for estimated tax payments is September 16: Do you have to make a payment?

It’s about time: Don’t waste that of your board members