If you’re committing resources to a trade show, don’t expect to spend a lot of time on the golf course, poolside or in a casino.
“Once you’ve chosen a show and established a budget, the most important thing to know is that it’s not a vacation,” says John F. Kallmeyer, director, Visual Marketing, Skoda Minotti Strategic Marketing. “There’s a perception out there that you go to these trade events and it’s a big party. But the reality is that if you’re spending the money to go to a trade show, you better go in with a plan and proper training beforehand.”
Kallmeyer says an EXPO Magazine survey of business-to-business marketers showed average spending on trade shows was about 20 percent of a company’s overall marketing budget.
Smart Business spoke with Kallmeyer about preparing for trade shows, the benefits of being an exhibitor and things you might not know about industry events.
If your industry has a trade show, do you have to participate?
It isn’t mandatory, but one of the top reasons companies do trade show marketing is to increase brand awareness — to be seen by all of the major players in the industry, whether your clients, your prospects or even your competition. So in that sense it’s good to go to shows if you want to be a player in your industry.
From a business development standpoint, it’s important to note the top-cited reason attendees go to trade shows is to see new products and services. They like to stay up on industry trends and issues, so if you have something new to offer to the industry you should be at the trade shows and putting the information out there.
What do you need to know before operating a booth?
Make sure you match your message to the audience, the particular attendees going to the show, and not only know how you’re going to promote that to get people to your booth, but also have a very specific plan to follow up with anyone you talk to and capitalize on that.
Pre-show marketing strategy is very important. Promote that you’re going to be there — for example, include that information on your website, promote your participation on social media sites, send out mailings to invite people to stop by, and send emails and newsletters and include that information. The more people see your name, logo and message, the greater the chance that when they’re wandering around that 80,000-square-foot exhibition hall, they’re going to seek you out or stop if they see you.
Also, create a concise message that matches the audience and then have properly trained booth staff to get everyone on the same page, looking toward the same goal and delivering the same message.
How is the sales environment different?
The trade show environment presents a very rich, yet challenging selling atmosphere. In a very hectic, crowded environment, you have to make eye contact with a potential buyer, engage them long enough to pre-qualify them and convert them to a viable sales lead — all in under just a few minutes.
Attendees generally want to see the entire show, so you have a limited time to make an impression. That is why pre-show planning and staff training are so important.
What are some important strategies for following through on sales leads after the show?
It’s critical to have a post-show marketing strategy in place before the show. As soon as you get back you should begin to follow up on show leads — for example, send a promotional item or an email follow-up or make phone calls. Additionally, it’s imperative to identify and track show leads so you can calculate meaningful ROI from attending the show.
John F. Kallmeyer is director of Visual Marketing with Skoda Minotti Strategic Marketing. Reach him at (440) 449-6800 or firstname.lastname@example.org.
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No matter your income, your taxes are likely going to increase in 2013. Although the amount depends on what Congress does about the “fiscal cliff” of budget measures due to expire at the end of 2012, chances are that at least one of many scheduled changes will directly impact your finances.
In addition to automatic spending cuts, the fiscal cliff includes an end to Bush-era tax cuts that will take brackets from current rates of 10 percent, 25 percent, 28 percent, 33 percent and 35 percent back to 15 percent, 28 percent, 31 percent, 36 percent and 39.6 percent, respectively.
Other changes include raising the capital gains rate from 15 percent to 20 percent, reducing the child tax credit from $1,000 to $500, reducing the exemption for estate taxes from $5 million to $1 million and an end to temporary relief for the so-called “marriage penalty.”
“Absent action, we know what’s going to happen — all of these things are going to expire,” says Jim A. Forbes, CPA, a principal with Skoda Minotti. “I read an article calling this the legislative equivalent of a slow-motion train wreck. I’m sure they’ll get something done. It’s a matter of how many things get done before the end of the year.”
Smart Business spoke with Forbes about scheduled tax changes and the impact on families and businesses.
How will these changes impact business owners?
If your business is a closely held corporation, like an S Corp or a partnership, its tax flows through to your personal tax return. So your tax rates are going up if you own a small business that is an S Corp or a limited liability company.
For all businesses, regardless of the type, your ability to write off capital goods or fixed asset purchases will likely be severely limited in the future. Since 2001, we’ve had some form of bonus depreciation — accelerated writeoffs of purchases like computers, machinery, equipment and office furniture. In 2011, you were allowed a 100 percent write off. In 2012, it was 50 percent.
In 2013, absent any action, you’re not going to get an immediate writeoff; you’ll have to depreciate it over five years or whatever the life of the asset is. So incurring capital expenditures before the end of 2012 will give you a much better tax deduction than in 2013.
We’ve been telling clients for a long time to accelerate purchases if it makes good business sense because they’ll get a bigger deduction right now.
How are estate and gift taxes changing?
This year is an ideal time, if you’re wealthy, to gift something to your children. Right now, you can gift up to $5 million per individual, or, if you die today, no estate tax is paid on the first $5 million. Beginning Jan. 1, that reverts back to $1 million. If someone who is 55 or 60 years old wants to get their kid involved in their business that’s worth several million dollars, they can start gifting shares to them now because they can gift up to $5 million.
How will the Alternative Minimum Tax (AMT) change?
Your individual tax is computed under two methods. One is under the regular Form 1040. There is also a separate AMT calculation you have to do. It doesn’t allow you certain deductions, like state and local taxes, and it uses a different tax rate. What happens is that you pay the higher of the two, regular tax or AMT. The AMT captures upper middle class people generally with incomes from about $100,000 to a few hundred thousand — people who are wealthy but not in the top 1 percent of earners.
The AMT exemption is not set to index for inflation, so what’s happening is more people are going to be subject to AMT. That happens every year, but historically, they always put a patch on it. The exemption amount has been around $75,000 and it’s going to drop to $45,000 without action by Congress. About 4 million people paid AMT in tax year 2011. Without a patch, it’s projected that 31 million will pay AMT on their 2012
How will the average family be affected?
The one change that everyone will see in their paychecks is the end of a 2 percent reduction in the Social Security taxes they pay. Since 2011, the rate has been 4.2 percent. That was put into place as part of the stimulus plan. The likelihood of that one getting extended is not very high. That change affects anyone who gets wages. Absent anything else, you’re going to see a 2 percent reduction in take-home pay in January.
Another one that will affect an average family is the reduction of the child tax credit. If you have a child, you’ve been getting up to a $1,000 tax credit per child; that number is going to decrease to a maximum of $500 per child.
Also, the marriage penalty is going to come back. Many years ago, the rule was that the standard deduction and graduated tax rates for a married couple were not two times that of a single person, they were about 167 percent. Congress fixed the marriage penalty and, over the last few years, a married couple’s standard deduction and tax rate were exactly double a single person’s. What’s happening now is that the marriage penalty is returning.
The exemptions and tax brackets that were double the single person amount revert back to around 167 percent. So married couples are going to pay a little bit more tax, absent anything else. That applies whether you file jointly or separately.
JIM A. FORBES, CPA, is a principal with Skoda Minotti. Reach him at (440) 449-6800 or email@example.com.
Data centers, software providers and information technology firms can expect that clients will be asking to see their service organization control (SOC) reports.
SOC reports have replaced the Statement on Auditing Standards 70 (SAS 70) as a means of assuring companies they do business with that proper controls are in place.
“Years ago, it was mostly payroll companies having SAS 70 audits done because they were affected more than everybody else. They managed their clients’ money, and their clients needed to make sure that they had controls in place,” says Robert B. Brenis, CGEIT, CISA, CRISC, PMP, a principal with Skoda Minotti Technology Partners. “A lot of companies are now seeing the need for these because, with the advent of technology, many have access to their clients’ information.”
Smart Business spoke with Brenis about the differences between SOC reports and SAS 70 audits and the types of companies that should have them prepared.
What is a SOC report and how does it differ from the SAS 70?
SAS 70 was one report, now the SOC 1, and it covered service organization controls related to financial statement assertions. SOC reports break SAS 70 reports into three different reports: SOC 1, SOC 2 and SOC 3. SOC 2, also known as AT 101, audits any or all of five trust service principles: security, availability, processing integrity, confidentiality and privacy. It also contains descriptions of tests performed and the results. The intended audience for a SOC 2 report is management of the user entities. While SOC 3 reports look at the same data as a SOC 2, it is more of a general use report, providing only the auditor’s report on whether the system achieved the test criteria. A SOC 3 report is intended for any user who wants assurance on the five trust service principles and wants this report freely distributed.
Why was a switch made from SAS 70 to SOC reports?
The biggest reason is that the SAS 70 was not being used the way the American Institute of Certified Public Accountants intended it to be used. Accountants were opining on more technical things like firewalls they have in place and secured socket layer encryption. Accountants, however, weren’t entirely sure what any of that meant.
There were way too many IT things creeping their way into the SAS 70 report, so they broke them into two different standards — the financial assertion standard, which is now the SOC 1, and the SOC 2/SOC 3 which focus on the five trust principles.
How do you know if you need a SOC 1 or SOC 2 report?
It gets back to the type of business that’s being provided. If a service is being provided that can affect a client’s financial statements, a SOC 1 is absolutely needed. Say you’re housing servers. That’s more in the realm of security and availability, which talks to the trust services principles found in SOC 2. You should talk to the client to understand the service they’re providing and make sure they get the right one done.
What is meant by Type 1 and Type 2 reports?
As was the case with the SAS 70 audit, there are also two types of SOC reports. With a Type 1, the policies you have are reviewed to determine if they cover the controls you have described in the ‘Management’s Description’ section of the report. In a Type 2 report though, it’s not just the policies that are audited but also the procedures. If you have a policy that says you are reviewing employee network access monthly, for a Type 1 this policy is enough. For a Type 2, you need to show proof that these reviews are happening on a monthly basis.
What value does a company get from a SOC report?
- You will have a description of your business in your words.
- Your clients’ concerns about certain controls are addressed before these concerns become issues.
- You will have an SOC report completed before you are required to have one for an RFP.
- You will demonstrate to your clients that your business uses due care in managing information.
- You can use this process to review and improve internal controls, eliminating unnecessary risk from your business.
One example is a medical billing company that thought it had all the policies and procedures in place to ensure it was tracking receivables on a consistent basis. When we went through the process of the controls that were in place, it was discovered that any receivable that got beyond 180 days dropped off their radar. So they weren’t chasing after money when they should have been. It helped them realize where they had holes and led to a change in their processes. The next year they didn’t have anything in their receivables that came up to 180 days. So the receivables were watched on a much tighter basis.
Other examples would be if your SOC 1 business description says that you have service level agreements with your clients. An audit can be performed against those service level agreements to determine if they’re being met. If not, it could mean that you’re going to owe some clients money, so you need to maintain your service levels that have been agreed upon by your clients. You are liable because you’re supposed to be
ROBERT B. BRENIS, CGEIT, CISA, CRISC, PMP, is principal with Skoda Minotti Technology Partners. Reach him at (440) 449-6800 or firstname.lastname@example.org.
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When selling your company, parting with it can be difficult. You’ve spent countless hours growing the business from a small operation to the enterprise it is today, and that shouldn’t be minimized. But decision making in the early stages of this process can be guided more by emotion than logic, says Kenneth M. Haffey, CPA, CVA, a partner at Skoda Minotti.
As the project progresses, however, he says emotion lessens and upfront planning on both sides predicates whether the deal is finalized.
“Almost always when a deal doesn’t work, it’s because the proper things leading up to the merger and acquisition weren’t done — they were shortcut — and sometimes that leaves a nasty trail that has to be picked up,” says Haffey.
Smart Business spoke with Haffey about mergers and acquisitions and what both buyers and sellers should consider.
What factors should be first considered with mergers and acquisitions?
When looking to acquire a business, determine your strategic goals. Do you want to expand geographically, add to your current type of business or acquire a tuck-in or bolt-on that could be a smaller, complementary piece to your existing company? Does it make sense to stay in your area or expand to another part of the state or country? Pricing is another factor. What can you truly afford and how will you pay for it — with your own working capital or borrow from investors, a bank or a private equity group?
On the other side, a business owner looking to sell needs to find individuals or companies with which he or she feels comfortable while getting ready for the liquidity event. Hire experienced professionals — CPAs, lawyers, investment bankers or financial advisers — who work on mergers and acquisitions. Price is important for this side of the deal, too, and could be determined by a multiple of sales, net income, or earnings before interest, taxes, depreciation and amortization (EBITDA).
Who should be a part of the transaction team?
Deals happen or don’t happen depending on advisers. For example, if you let your recent law school graduate nephew be your deal attorney, it is a disaster waiting to happen. Internally, your team would be made up of human resources, operations, marketing, finance and possibly legal advisers.
Who should be on the list of potential suitors/targets?
There are different ways to compile lists of suitors or targets. For example, some advisory firms keep lists of companies that they’re working with to continually connect dots. Other options include trade associations, contacts you know from conferences and newsletters to find those who might be interested. Also, chat with others who have gone through such transactions.
There are two types of buyers — financial and strategic. Strategic buyers are in the same business space and want to expand geographically or absorb new technology. A strategic buyer usually gives the largest selling price. A financial buyer looks to get into a new business, using his or her own means to take on a new venture. There’s nothing wrong with selling to a financial buyer — that’s how private equity groups build — but the learning curve and pieces of operations are easier and quicker on the strategic side.
How can business owners determine what to pay?
Each side should have an independent valuation done by a professional. Appraisers or valuators specialize in valuing companies for M&A purposes, which differs from valuing a company for estate tax purposes — a CPA can have specialized accreditations, such as being a certified valuation analyst or accredited in business valuation. Then, stick to the value the professionals tell you. If a business owner has a preconceived, unrealistic notion of the worth, it may be impossible to continue.
Value also depends on timing. At any point, retail, service or manufacturing may be hot or ice cold. If your business is flying high and the industry isn’t, you probably won’t get the multiple of earnings you think you’re worth as buyers won’t trust what’s going on. Value is difficult to gauge because supply and demand can jack prices up overnight — some of it not based on any financial reasoning.
After the transaction is completed, what should be done to integrate the two companies?
The make-or-break point is what you’re going to do with the individuals and assets after you purchase them. You need to know where you’re going long before you finalize the deal. Once you’ve found suitors or targets, understand the financing and have hired advisers, complete your due diligence before discussing offers and finalizing paperwork. The whole process usually takes between five and 10 months; if it’s taking longer, both parties need to take a step back and determine the holdup.
Integration ranges from taking all aspects of one organization and folding them in under another — eliminating human resources, marketing, accounting and some operations — to leaving it alone because the new company is five states away or in a new business space. The integration team should analyze the company workings to figure out if one system is better. Forget who is bigger or smaller, or whose name is on the door. The smaller company may have a far superior system because, for example, it kept up on technology.
Most people run their company, do a good job and then go home. Many employers will only have one transaction their whole life, so competent professionals are necessary to meet your needs and maximize your situation.
Kenneth M. Haffey, CPA, CVA, a partner at Skoda Minotti. Reach him at (440) 449-6800 or email@example.com.
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Well-drafted executive compensation programs aren’t just used to recruit and retain top-level leadership to your company. Public and private companies can tailor executive pay packages to encourage executives to achieve certain goals.
“We can put strings on short-term and long-term benefits to drive executive behavior, and that’s one of the things that’s really coming to the forefront now,” says Ted R. Ginsburg, CPA, JD, a principal with Skoda Minotti.
Smart Business spoke with Ginsburg about leveraging executive compensation.
What are the key components of an executive compensation program?
In general, an executive compensation program consists of four key parts. These are base pay, annual bonus, long-term incentives and perquisites, which could include car allowances, country club memberships, executive physical programs, security services and use of the company airplane. Because of recent economic events and more scrutiny by shareholders, perks are not such a big part of the package anymore; employers are providing higher base pay and instructing executives to acquire the perks on their own.
An optional component is a sign-on and/or retention bonus. A sign-on bonus is appropriate when trying to hire an executive from another company who would lose a bonus if he or she left. The retention bonus — a promise to stay through a certain date or event in order to receive a bonus — is used when you have incurred hard times and worry the executive is going to leave.
How does executive compensation differ in a public and private company?
There are some significant differences, and oftentimes, private companies are at an inherent disadvantage. A public company normally provides a long-term incentive using either a stock option or restricted stock. A stock option allows executives to purchase shares at a stated price while he or she remains employed; a restricted stock program gives executives a share of stock outright after meeting certain targets. Stock doesn’t drain cash flow, often doesn’t immediately reduce earnings and can have favorable tax treatment for the company and the recipient. In a publicly traded company setting, the recipient can usually turn around and resell the shares on the open market immediately. The total pay package of chief executives of major public Cleveland corporations may comprise 60 to 70 percent in company shares.
Many executives in private companies don’t want to receive stock unless they already own a substantial company stake. Executives would need to pay income tax on the stock and can’t sell part of the shares to cover the amount. Also, executives usually must sell the stock back when they leave in exchange for a cash payment made over time. Furthermore, private company owners might not share financial information with executives so the value of the ownership interest is unclear.
What can a private company offer someone from a public company instead of stock options?
Some private companies award only base pay and an annual bonus, but attracting a senior-level executive from a public company is difficult without a long-term incentive program. There are programs that provide a cash payment based on company performance and the current company value over a number of years, making executives feel as if money has been put aside for their future. Two types of long-term incentive programs are:
- Phantom stock — an owner gives executives a check representing the full value of a number of shares of stock when they leave.
- Stock appreciation rights — an owner gives executives a check when they leave, which equals the number of rights given to them multiplied by the difference between the value of the stock when it was awarded and when they leave. Mimicking a stock option, it rewards executives for increasing the value of the company.
These programs often have a vesting schedule stating an executive leaving before a certain time does not receive the entire benefit.
Another methodology is a change of control payment, where an owner planning to sell or transfer the business gives the executive a check based on the sale price or value of the company at the time ownership is transferred.
Some larger private companies with the necessary liquidity also use long-term cash incentive programs. Over a period of time, if revenue is up or costs are down, cash is put aside for when the executive leaves.
Why do long-term incentive programs help an employer?
These programs act as retention devices. They focus employees on long-term performance rather than maximizing annual bonuses and they don’t drain cash immediately as they are deferred payment obligations.
Long-term incentive programs are familiar to public company executives. If a private business owner offers to pay to replace the value of stock options lost because the executive left for a private company, the recruited public executive might ask what he or she is going to get for subsequent years.
Finally, they allow for a trial period, giving the option of cutting him or her loose early.
Why are employers moving away from discretionary annual bonuses?
With discretionary bonuses, private company executives walk away without knowing what they did to earn it and how to repeat it. Many businesses now give bonuses based on company performance.
Well-drafted programs have easily measured goals that drive behavior and set annual priorities. Long-term, multiyear program goals relate to financial performance and other forward-thinking items, such as establishing a new geographic market or bringing a certain number of products to market. If the goals aren’t met but executives put in the effort, ownership can always give discretionary bonuses. This type of program helps employers manage the executive’s expectations and creates transparent working conditions.
Ted R. Ginsburg, CPA, JD, is a principal with Skoda Minotti. Reach him at (440) 449-6800 or firstname.lastname@example.org.
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When one company is acquiring another, the deal price is often the primary factor considered. Too many times, however, critical issues are overlooked, says Sean R. Saari, CPA/ABV, CVA, MBA, senior manager with Skoda Minotti’s Valuation and Litigation Advisory Services Group and Accounting and Auditing Team.
“Deals get started and then take on a life of their own. During the acquisition process, the company is often focused on negotiating and finalizing the deal. However, there are a number of valuation-related issues that can be important to consider, but which are often overlooked,” says Saari. “Some companies try to address these issues after the fact, but the earlier you’re able to get the valuation and accounting issues handled on the front end, the easier things are going to be on the back end.”
Smart Business spoke with Saari about the five things you need to know regarding business valuation before making an acquisition.
What is the appropriate standard of value to consider in an acquisition scenario?
There are two different standards to keep in mind — fair market value and strategic value. Fair market value represents the value of the business if it were to be sold to an unrelated third party and it sets the floor value to what an acceptable purchase price may be. Fair market value is typically most appropriate when financial buyers are involved because they don’t really have any synergies to squeeze out of the company, they simply want to purchase the business ‘as-is’ and continue its operation. However, if the potential acquirer is in the same industry as the target company and the deal is a strategic acquisition, it is important to consider the ‘strategic value’ of the business. Under this standard of value, the acquirer considers the impact of certain redundant expenses that may be eliminated. The elimination of certain expenses may allow a strategic acquirer to pay a price that is greater than fair market value while still receiving an appropriate return.
Can the structure of an acquisition impact the price paid for the target company?
There are competing benefits between structuring a deal as a stock or an asset deal, which can impact the purchase price of an acquisition. Generally, sellers prefer stock deals because their proceeds are taxed only once as capital gains. In stock deals, however, the buyer cannot pick the assets and liabilities that it would like to assume, all unknown and contingent liabilities must be assumed by the buyer and the buyer gets no step up in the basis of the assets purchased. Therefore, buyers typically prefer asset deals because they can pick the assets and liabilities they want and they get a step up in the basis of the assets acquired. This step up, typically for fixed assets and intangible assets, creates additional depreciation tax deductions for the buyer, which can allow them to pay more than they would under an asset deal. This is particularly true when fixed assets with little carrying value are purchased or when intangible assets make up a significant portion of the purchase price. Sellers can be averse to asset deals, however, because contingent and unknown liabilities existing as of the purchase date typically are retained and the sale proceeds can be subject to double taxation.
How are earnouts accounted for?
Earnouts can be an effective tool to bridge the gap if the owner and the seller can’t agree on price. In an earnout, the buyer and seller agree that, after the transaction has closed, there may be additional payments to the seller based upon company performance. It allows the buyer to compensate the seller if certain levels of activity are achieved or to keep the purchase price lower if the targets aren’t met.
However, while it is a great tool, there are some accounting issues that the acquirer is often not aware of.
When an earnout is present, generally accepted accounting principles require the buyer to record the fair value of the earnout as a liability on its books. This is based on the likelihood of the earnout being paid and how much the earnout payment might be. Buyers often don’t realize they have to carry that extra liability on their books and that the balance has to be adjusted every reporting period until the earnout is settled, with the changes in value being reported in the income statement.
What other accounting requirements must be addressed when an acquisition is made?
When making an acquisition, consider the post-acquisition purchase price allocation, in which the purchase price is allocated to the various assets acquired. In many cases, the purchase price exceeds the value of the tangible assets acquired. Accounting rules require that the purchase price in excess of the tangible asset value be allocated to the intangible assets purchased, such as trademarks, customer relationships, technology and non-competition agreements. Any unallocated purchase price left after the intangible assets have been valued is assigned to goodwill.
Determining the fair value of intangible assets acquired is a complex process and typically involves the use of a third-party valuation expert to develop a supportable valuation analysis that will withstand scrutiny from the acquiring company’s auditors.
What are the potential issues if you overpay for an acquisition?
If an acquirer overpays, it results in a lower return on their investment or possibly the loss of a portion of the investment.
From an accounting standpoint, if an overpayment has occurred, it’s likely that goodwill and certain intangible assets may need to be impaired, which can result in a significant charge to the company’s earnings in the period of impairment. Assistance from a third-party valuation expert is often necessary when goodwill or intangible asset impairment is present to determine an appropriate amount that satisfies the company’s auditors.
Sean R. Saari, CPA/ABV, CVA, MBA, is senior manager with Skoda Minotti’s Valuation and Litigation Advisory Services Group and Accounting and Auditing Team. Reach him at (440) 449-6800 or email@example.com.
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If your company has a benefit plan such as a 401(k) with 100 or more eligible participants, each year you are required to have an audit performed on that plan that is filed with the IRS and the Department of Labor (DOL). Failing to do so could mean major penalties for your business, says Danielle B. Gisondo, CPA, a principal with Skoda Minotti.
“What often happens is that a company gets to that 100 employee mark and it is not aware of the requirement,” says Gisondo. “A few weeks before the deadline, the company that is preparing the required Form 5500 for all benefits plans for the company will send the company a letter that says, ‘You need to have an annual audit this year because your participant count has climbed to more than 100, so please forward us your auditor’s information.’ The company may read that and begin the search for an auditor or just ignore it. And ignorance of the requirement is no excuse.”
Smart Business spoke with Gisondo about what you need to know to stay on the right side of the law and avoid stiff penalties.
When is a benefit plan audit required?
ERISA requires that an audit be performed on most benefit plans with more than 100 eligible participants. The auditor is required to be an independent accounting firm, one that is independent not only of the client but of whomever is administering the plan and holding the investments.
Every plan has to come up with a standard plan document that outlines how the plan should operate relating to contributions, distributions and loans. The DOL wants to make sure companies are properly running their plans in accordance with what their plan document says.
What happens if a company does not have a benefit plan audit performed?
If a company fails to have an audit performed, it will be faced with penalties from the DOL and the IRS, which can get very steep. If you fail to file at all, the penalties can be up to $30,000 per year per plan. And a deficient filing can result in penalties of up to $50,000 per year per plan.
How long does the benefit plan audit process take?
If the auditors get everything they need, the process typically takes three to four weeks. If there’s a delay in getting information, either from the client or from one of the third parties involved, it may take six or seven weeks to complete.
The auditors will first compile a comprehensive request list with everything they need copies of and access to. Depending on the size of the plan, the auditors will be on site for one to three days and will typically work with someone in HR or accounting to get the necessary information. The rest of the work is done off site to minimize disruptions to the client’s business.
What are the deadlines?
For a calendar year-end plan, the initial due date for Form 5500 and the audit is July 31. If you can’t meet that deadline, you can file a two and a half month extension, which brings the due date to Oct. 15.
What steps can you take if you realize you should have had an audit performed but you didn’t?
If the IRS/DOL notifies you that you should have had an audit, it’s difficult to get out of paying the penalties by saying that you didn’t realize you needed one.
However, the DOL offers compliance programs that companies can go through if they failed to file. These programs allow you to pay a reduced fee that varies depending on the type of plan and the number of participants. Once you have paid that fee and file the necessary 5500 forms and audits as needed, you can be relieved of the penalties.
If you know you have a problem, don’t wait. Reach out to the IRS/DOL and let them know you have a problem. If they come to you and say, ‘We don’t have your 5500 form and the applicable audit,’ it’s too late to go through the compliance program and you will face major penalties.
What should companies consider when selecting a benefit plan auditor?
Ask if the firm has expertise in performing benefit plan audits. A lot of people assume that any accounting firm can do them, but it is a separate area of expertise and you should make sure the firm has it. Accountants undergo specialized training on an annual basis to ensure they are comfortable with all of the changes that continue to come from the IRS and the DOL.
Make sure the people you are working with are properly trained, that they know what they are doing and that they audit multiple plans, because a firm that audits just one or two plans doesn’t have the experience of a firm that is doing 20 or 30. Also ask about the audit process and ensure that whomever you are working with has the experience necessary to perform the work.
Danielle B. Gisondo, CPA is a principal with Skoda Minotti. Reach her at (440) 449-6800 or firstname.lastname@example.org.
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Once you have researched long-term care insurance and are seriously considering buying a policy, there are still many things to consider before your purchase, says Robert D. Coode, a Principal and Registered Representative at Skoda Minotti.
“Make sure you’re doing it for the right reasons and are not being swayed by unsubstantiated sales pitches,” Coode says.
He says potential buyers should consider possible increases to the premium over time; the definition of terms, such as what constitutes an assisted living facility in different states; the financial strength of the institution from which the policy is being purchased; and the chance that an unscrupulous agent is out to inflate his or her commissions to the detriment of the client.
Smart Business spoke with Coode about buying long-term care insurance and what to be wary of before jumping into a policy.
What is long-term care insurance?
Long-term care insurance helps those with chronic illness, disability or those who are unable to perform the basic activities of daily living to offset the cost of care. These policies generally cover services not addressed by health insurance, Medicare or Medicaid.
Are all types of care facilities covered through these policies?
Currently there are no national standards for what constitutes a long-term care facility. This means that an assisted living facility or adult daycare could have one meaning in a particular policy or state and another elsewhere.
This can pose a problem if you buy a policy in one state and retire to another. There could be no facilities in your new state that match the definitions in your policy. To protect yourself, make sure you understand exactly what the policy covers before you buy it.
If I purchase a policy now, will premiums remain the same over the life of the policy?
With most policies, your age at the time you purchase the policy is a factor in determining premiums. However, that doesn’t mean your premiums will stay the same as long as you own it. In fact, your premiums can increase if your insurance company establishes a rate increase for everyone in your class and the state insurance commissioner approves increase.
As a relatively new type of insurance, long-term policies could be more susceptible to rate increases because insurance companies lack a sufficient amount of underwriting data to predict the number and size of claims they can expect in the future. Unfortunately, if your insurance company raises premiums, taking your business elsewhere might not be that simple. Any premium on a new policy will still be based on your age, which will be older, and your health, which might be worse than when you initially bought the coverage. So no matter when you buy your policy, make sure you can afford the premiums both now and in the future.
Is the financial stability of the insurance carrier relevant to the purchasing decision?
A large number of unexpected long-term care claims could potentially devastate an insurance company that isn’t financially strong. So before you buy a policy, it’s always a good idea to check the company’s financial rating by using a rating service such as Standard & Poor’s, Moody’s, A.M. Best or Fitch Ratings. You can also check with your state’s insurance department for more specific financial information on particular companies.
Is a long-term care policy a good tax write-off?
Although it’s true that premiums paid on a tax-qualified long-term care policy can reduce your tax burden, it’s important to note that you must itemize deductions to be eligible. This type of insurance premium falls under the write-off for medical and dental expenses, which is limited to expenses exceeding 7.5 percent of your adjusted gross income. For example, if your adjusted gross income is $60,000, you are able to deduct only that portion of your unreimbursed medical and dental expenses, including long-term care premiums, exceeding $4,500.
However, there’s another caveat. Even if your premiums exceed 7.5 percent of your adjusted gross income, you can’t include all of the premiums in your deduction for medical and dental expenses. Instead, your premiums are deductible according to a sliding scale that’s contingent on your age. So what might look like a great tax write-off at first might not be so great after all.
Also, it’s important to note that beginning in 2013, the threshold to deduct medical expenses will be raised from 7.5 percent of adjusted gross income to 10 percent. The threshold increase will be delayed until 2017 for those ages 65 and older.
What should someone keep in mind when switching policies?
Although in some cases a new policy might have an attractive added benefit that your old policy doesn’t, red flags should go up if an insurance agent encourages you to ditch your old policy for a new one without providing a clear explanation of the added benefits.
For one thing, your premiums are based on your age and health at the time you purchase the policy. So all other things being equal, your new policy will be more expensive. For another, you run the risk that a pre-existing condition won’t be covered under the new policy.
If you’re unhappy with your current policy, an alternative might be to upgrade it rather than replace it. Unfortunately, there are unethical agents who make misleading comparisons of long-term care policies in an attempt to get you to switch products for no more reason than to boost their commission.
If you’re considering switching policies, make sure you understand exactly what the new one offers, whether the additional coverage is important to you and what you’re giving up in the exchange.
Robert D. Coode is a Principal and Registered Representative with Skoda Minotti. Reach him at (440) 449-6800 or email@example.com.
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When you’re launching a product or considering new markets, do you perform market research before moving ahead? If you do, then are you really listening to the results, or just looking for results that support what you’ve already decided to do?
“Companies that I have seen that conduct their own research sometimes get caught looking for data points to support what they want to do rather than looking for data points to validate their ideas,” says John Moore, managing director — strategic marketing programs, with Skoda Minotti’s Strategic Marketing Group. “Market leaders truly embrace market research, and when they do get results that don’t support their position, they change their strategic direction.”
Smart Business spoke with Moore about the market research process and the times when it is critical to engage in it.
When are key times to conduct market research?
Before you start a business, you need to look at total strategy development, with research as a component of the plan. You need to know your markets, who your customers are, who the competition is, what price points you can use to position your product, and what sales channel you should use. Answers to these questions are all gained through market research, by digging into data, using industry reports, accessing online data, using government information, conducting face-to-face focus groups and phone surveys, and attending industry trade shows.
Market research provides you with the base to develop the strategy and provides direction for moving forward. But as you continue, you may find that you need to change your strategy. For example, you may find a business similar to the one you want to start so you may decide an acquisition is a better path than a startup.
Although there are ways to ‘mine’ the data yourself, it’s sometimes better to have an outside party involved to validate your plan and help you develop a strategy. Having that outside research partner gives you input from someone who may see something you are overlooking because of a bias. An outside research partner may minimize ‘group’ think and may provide a different view when looking at the same data.
How can market research help with the launch of a new product?
Before developing a new product, a market researcher should be involved from the development of the idea through all the stages of the product development cycle. This includes from design to marketing to sales. For example, if a company has an idea, market research can help validate and define market potential. Basic questions will be answered. Will anyone buy the product? How will it be used? What features should be included that benefit the customer? How should it be priced? How will it get to market?
In fact, in the initial research, you may find the product isn’t needed. For example, a sales group suggested a new product, but the company wasn’t sure it could allocate the engineering design resources. In this instance, the marketing partner surveyed customers regarding the features and functions of the new product. In the end, the customers said they didn’t need the features. This research saved the business a significant amount of money in engineering resources, freeing those people to perfect products the company already had. This is what the customers wanted.
Another example of market researching being used to validate a new product involves a product being developed for the fire industry. Focus groups helped to shape the idea for the product and then broader population of fire chiefs evaluated it. From that research, a prototype was developed and sent to fire departments for beta testing, and it was then sent to a university to test according to established industry criteria. After each step, the process was stopped and evaluated to determine if it should continue. The product launch was successful. Had it not gone through all of those stages, the company could have gone to the considerable expense of developing a new product that nobody wanted.
How can market research assist in determining a new market?
You should know where your competition and your customers are located. You should map where your customer base and potential customers are. Then you need to ask: Do I have the proper support? Do I need channel partners to sell to this new area? Do I have the direct sales team to support this new area? You also need to consider regional pricing issues. Take the time to look at the strategy you want to implement, find additional data, and if it’s a significant opportunity, go to the area to look around and talk to local officials and the chamber of commerce.
How can partnering with a market research professional improve the process?
A market research professional can help you determine possible results before you even get started. A research professional can also help you establish your objectives. Are you looking to grow sales revenue, reduce costs, increase brand awareness and recognition, or take market share from a competitor?
They will help you dig in to what you do well and what needs improvement. They should provide a collaborative environment and work closely with you, treating every decision as if it was a decision they had to make themselves for their own business. At the end of the day, that person is telling a story to your business. It may not be a story that you want to hear, but it includes all the facts, allowing you to make an informed decision to grow your business.
John C. Moore is managing director – strategic marketing programs, with Skoda Minotti’s Strategic Marketing Group. Reach him at (440) 449-6800 or firstname.lastname@example.org.
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As a company grows, its information technology (IT) needs to grow with it. But some areas may be overlooked in the day-to-day hustle of getting the job done, says Timothy A. Heikkila, a principal with the Skoda Minotti Technology Partners Group.
“Companies should be considering options such as the cloud, looking at the security of their data and setting up a disaster recovery plan,” says Heikkila. “An outside advisor can help you ask the right questions and identify areas of concern.”
Smart Business spoke with Heikkila about what IT issues growing businesses should be concerned about and how to address those issues.
What is the first IT issue that growing businesses should look at?
As a business’s IT needs grow, companies need to consider whether cloud computing makes sense. If you aren’t familiar with cloud computing, it’s essentially remote access to applications and services via the Internet; it gives you secure access to all your applications and data from any network device.
Would it be cost effective to take your company’s e-mail to the cloud so that you don’t have to worry about maintaining data at your own location? When considering questions like these, companies should really weigh the pros and cons of taking that step. For instance, do you already have a location for your servers in-house, are you going to have remote offices, do you have a large traveling sales force? For a single location office, the cloud may not be a beneficial or cost-effective step, but for a company with multiple locations or a traveling sales force, it could make perfect sense to have your data housed at a central location in the cloud so that everyone shares access.
How can an outside technology expert help determine your needs in the cloud?
Outside expert advice is definitely recommended because the industry is changing so quickly that the types of questions you need to ask and the way to ask them are changing daily. For example, does the cloud provider have multiple Internet connections coming in to eliminate service interruption? What is the cloud’s capacity? How much is your business going to be able to grow at your current facility without shortchanging yourself?
Security is another important area to ask about. A lot of data centers that house this equipment are having SOC Reports prepared to make sure they have the proper controls in place that ensure their data is secure and not at risk of being breached.
What other technologies should growing businesses be aware of?
We’re seeing a lot of mobility with the evolution of the iPad and other tablets. A sales force can really take advantage of those devices by using them to take notes, share presentations, adjust quotations on the fly, get signed quotes, and close deals on the spot. It benefits the sales team because they can be connected to the office immediately, respond to e-mail and get instant answers as if they were sitting at their desks in their office.
One area of concern around these devices that a company needs to consider is security. Companies need to make sure that they have a policy in place that protects the company’s data in the mobile hands of the employees. For example, companies should be able to lock down or control the devices should they get lost. If a salesperson accidentally leaves an iPad somewhere, the company needs to be able to erase all of the data on that device so that it doesn’t get into the wrong hands.
Most e-mail servers have controls built into them that allow you to send a signal wirelessly to devices to erase the data, but if you don’t have an e-mail server with that capability, you have to get a third-party, add-on product that can erase it wirelessly. Companies need to have a plan in place to cover these new and growing concerns.
What should businesses think about when considering a disaster recovery plan?
Disaster recovery is another area that can help a business grow, or at least ensure that it is not set back. As technology grows more complex, having a disaster recovery plan is becoming more vital, and planning for if something does fail has become almost as important as investing in technology to grow your business.
A disaster recovery plan starts with sitting down to figure out what disasters your company should plan for, prevent, or recover from. For example, if you are OK with a tornado coming through your building and you don’t think it’s worth the investment to plan for a second, off-site location to back up your data, then you don’t need to plan for that event.
But, if you want to prepare for a virus attack against your mail server because it’s critical to get that server up and running again, it’s a complex process. Businesses need to sit down and figure out what they want to plan for and determine the most critical pieces of technology that they need to have up and running again if something should fail. Once the company determines which critical pieces of technology they need to have up and running, the next question to ask yourself is how quickly does it need to be up and running? For example, if you need to have your e-mail fully functional within two hours, you will need to have a standby e-mail server already built and ready to go.
Too many companies understand that something could happen, but they put the blinders on and think that it won’t actually happen to them. There are a lot of things they can’t control, though, and that they may not have thought about. This is another area in which an outside technology expert can help. That person will know all of the questions that go into building a disaster recovery plan and make sure that plan can be executed if needed.
Timothy A. Heikkila is a principal with the Skoda Minotti Technology Partners Group. Reach him at email@example.com