Troy Sympson

Friday, 25 April 2008 20:00

Deconstructing Form 990

The Internal Revenue Service (IRS) is in the process of redesigning the Form 990 — Return of Organization Exempt from Income Tax.

The redesign of Form 990 is based upon three principles: to enhance transparency, which will in turn provide the IRS and the general public with a more realistic picture of the organization; to promote compliance by accurately reflecting operations in order for the IRS to efficiently assess the risk of noncompliance; and to minimize the burden on filing organizations.

“In addition, organizations that were not required to report in the past to the IRS — those with gross receipts of less that $25,000 — are now required to file Form 990-N, Electronic Notice (e-Postcard for Tax-Exempt Organizations not required to File Form 990 or 990-EZ),” says Victoria Milana Odom, a certified public accountant and tax manager at Briggs & Veselka Co.

Smart Business spoke with Odom about Form 990 and why organizations need to be aware of it in today’s tax world.

Why is the Form 990 so important?

The benefits of the redesigned Form 990 are for the end users of the return, donors and the IRS. The information on the first page of the new form is a summary of the information presented throughout the return, in a format that will be standard for all filing organizations. End users will now be able to determine the organization’s mission and significant accomplishments, as well as major categories of income and expense with comparisons for both the current and prior year at a single glance. The new form is also presented in such a way that all required supplemental schedules will now be reported by completing a checklist of required schedules. This checklist will provide a view of whether the filing organization is conducting activities that raise tax compliance concerns, such as lobbying or political activities, transactions with interested persons and major dispositions of assets.

What problems or issues can arise from it?

The problems that can arise from the redesigned Form 990 are as follows:

  • An organization will be required to report its revenue in greater detail. There will be more time spent providing revenue generated from federated campaigns, membership dues, fund-raising events and government grants as well as receipts from related organizations. Program revenue will need to be reported by specific program area and not in total.

  • An organization will now be required to report on new expense categories that have not been required to be itemized in the past, such as costs for information technology, fees for various services, and grants or assistance from both inside and outside the United States.

  • The definition of related organizations takes on a whole new meaning. The IRS has defined a related organization as either a tax-exempt or taxable organization related to the tax-exempt organization in one or more of the following ways: one organization owns or controls the other; the same person(s) owns or controls both organizations; the organizations have a relationship as a supporting and supported organization; the organizations use a common paymaster; the other organization pays part of the compensation that the organizations would otherwise be contractually obligated to pay; and the organizations conduct joint programs or share facilities or employees. The key problem with related organizations is now the ‘control’ issue. For example, one organization may have a board member who is employed by one of the organization’s vendors. If this were the case, the organization would be required to report on the Form 990 not only the salaries and/or payments made to the related organization but also any income received by the ‘shared member’ from the related organization.

How can the problems be solved?

The organization can review its accounting systems now to determine what changes will need to be made to its chart of accounts to deliver the more detailed reporting. In addition, an organization should download a copy of the Dec. 19, 2007, draft Form 990 to start collecting the additional information it will need to provide to its outside accountants. By being proactive on this, the organization can hold down the costs that will be involved in the preparation of the 2008 Form 990. The new Form 990 can be downloaded from the IRS Web site at www.irs.gov/charities/index.html. The organization can also begin working with board members and key employees to determine if there are any related party issues. Foremost, the tax-exempt organization should contact its outside accountants to determine what will be required of it for the 2008 reporting year. It should be prepared for all of the additional reporting that will be required and start gathering the information that will be necessary to file a complete and accurate Form 990.

VICTORIA MILANA ODOM is a certified public accountant and tax manager at Briggs & Veselka Co. Reach her at (713) 667-9147 or vodom@bvccpa.com.

Tuesday, 29 January 2008 19:00

Enhanced education

It’s long been common knowledge that employees need college degrees to succeed in today’s fast-paced business world.

Only now more than ever, that’s not quite enough. More and more positions are requiring knowledge and skills that can only be obtained from a graduate degree.

Having your employees enroll in graduate school is a great way to ensure that your team has the education it needs to make your business succeed, according to Linda D. Maurer, the dean of the business school at Fontbonne University.

“The first step is that employers provide encouragement for an employee to continue his or her education,” says Maurer. “That encouragement can be tuition reimbursement, flexibility in work schedules and/or recognition of the accomplishment, both financially and in advancement. As we know, the world is getting increasingly complex, so organizations need to create a culture of learning, making it abundantly clear that education is vitally important to the company’s growth and development.”

Smart Business spoke with Maurer about graduate programs, how to choose one and how an employee with a graduate degree can be a valuable asset.

How could an employee who holds an advanced degree benefit a company?

The employee is able to bring to the work-place the most current knowledge on the newest trends and issues that will impact the organization. The employee develops an awareness of how these trends and issues may challenge how the organization is currently doing business. This knowledge can provide that critical advantage of anticipating issues and being prepared for them. It can also create a competitive advantage for the organization that understands what’s behind the current trends and issues and responds to the deeper issues. Employees always seem eager to share what they are learning in the classroom with their colleagues at work. Therefore, these employees bring synergy to the workplace — everyone is looking at his or her role differently. Beyond the actual knowledge the student acquires, he or she gains much more, such as the ability to ‘learn how to learn.’ Graduate students know how to use their skills to gain valuable industry information, and they possess the confidence to utilize that information.

What should a company look for in a graduate program?

A company should look for a program that will allow the employee to ‘stretch,’ both in the knowledge he or she obtains and in the understanding of the dynamics of the knowledge. The dynamics are the implications of what students have learned and how that impacts all parts of the organization. The decisions employees make are not in a vacuum but have implications for all parts of the organization. The employee will also benefit from a program that has a low instructor/student ratio so that he or she can receive personalized attention. A small class will allow the employee to develop relationships with classmates and the instructor, encouraging everyone to share his or her personal experiences, allowing the employee to examine issues from several perspectives.

I believe there is also value in programs that have a focus on the adult student. These programs provide very practical knowledge that the student can implement in the workplace the next day. These types of adult professional programs also recognize that the student has academic, professional and personal commitments. Each commitment is important and must be met. Often, small things that make the student’s experience more convenient can be a great stress reliever — such as the ability to plan his or her complete schedule so he or she doesn’t get sidetracked. These programs should also provide flexibility if professional or personal commitments demand that the employee take a break.

Can programs be specialized to meet a company’s specific needs?

There is a trend that educational institutions develop partnerships with organizations to meet the organizations’ specific needs. The partnerships allow the two organizations to meet each other’s needs. Sometimes that can mean the development of a specialized program, a concentration, a set of courses bundled together to meet specific objectives or just modifications of format, such as having a break in classes geared for tax professionals during the tax season.

What factors need to be considered when a company is choosing a graduate program?

Recognize that employees have varied learning styles, so different programs will appeal to different people — it is not a one size fit all. Ensure that the institution is regionally accredited, and that the specific programs are accredited or in the process of accreditation. Make sure the academic institution has the programs that will meet your long-term objectives. Finally, find out what graduates of the institution have to say about their experiences and whether or not the institution has experience developing and maintaining these partnerships.

How does a degree benefit the employee?

An advance degree benefits the employee in several ways. He or she will obtain the latest knowledge in the field, gain greater personal development and fulfillment, show the organization that he or she possesses the personal and professional discipline to accomplish a difficult goal, gain confidence and engagement in his or her field, and has the opportunity for advancement.

LINDA D. MAURER is the business school dean at Fontbonne University. Reach her at (314) 889-1423 or lmaurer@fontbonne.edu.

Wednesday, 26 December 2007 19:00

Location solutions

Whether your company is starting out, expanding or opening a new location, the process of finding a space and getting moved in can be a difficult one. After scouring your area for the best neighborhood and the best space, your work is just beginning.

Getting from choosing your location to actually opening the doors involves several steps, all of which need to be monitored with painstaking detail. There’s negotiating and signing the lease; hiring a legal counsel; selecting architects, engineers and contractors; due-diligence concerns; and installation projects — just to name a few.

“When you’re in the process of moving into a new location, you have to choose the right team,” says Brandon K. Mann, senior vice president of Colliers Corporate Solutions in St. Louis. “You want to be sure that every player has your best interests in mind every step of the way. No matter what you’re looking for — broker, architect, general contractor, etc. — you have to find the one that best fits your needs. There is no onesize-fits-all solution.”

Smart Business spoke with Mann about the process of getting your doors open, what to look for along the way, and the benefits and drawbacks of a complete turnkey solution.

What does a company need to think about once it finds a location?

First, you need a real estate broker to wade through the paperwork of the lease, negotiate the terms and get the deal signed. But, the broker typically doesn’t have full responsibility for the lease, so you need a legal counsel to review everything. You need to be sure your legal counsel has a good feel for commercial leasing, so this may or may not be your normal business attorney.

On top of that, you need to know how the space should be laid out, what improvements are needed and what architectural and engineering elements are involved. You then have to go through the process of finding the proper architects, engineers, general contractors, installers and movers. The key here is finding the appropriate ones who are best equipped to deliver the space.

Oftentimes a broker and a project manager handle the entire turnkey process. Is this always the best route to take?

If you have a broker and a project manager who are integrated, experienced and work together on the same page with the same goal, you’ll get a holistic solution. However, typically a broker just handles the front end [lease execution], and the project manager handles the back end [everything after the lease is completed]. This is where having a complete turnkey provider can be beneficial. This way you have one account or relationship manager who oversees every aspect of the process, from selection of brokers and attorneys to getting your systems installed and moved in.

What are the benefits/drawbacks of having an all-in-one solution?

In the beginning, the selection of players is key. You need a broker who has your fiduciary interests in mind, and one who has experience in the type of space and location you’re looking at. You need the proper architects, engineers and contractors who know what you want and how to deliver it to you. Having the right people in place every step of the way will help you ensure that problems are quickly spotted and resolved. Having that alignment is a clear benefit, and you know you’re covered every step of the way. Plus, you’ll generally see cost savings in every step, and you’ll usually get your doors opened faster.

The drawback of an all-in-one solution is if your provider is all talk. He or she may talk about turnkey solutions and promise big results but, at the end of the day, they’re just passing stuff off internally and things aren’t getting done. You need to know that your turnkey provider is focused on you and on your needs every step of the way.

What pitfalls should companies look for during turnkey processes?

Dealing directly with landlords and not being represented on the buyer or tenant side is something to avoid. Executing or negotiating a lease without knowledge of pre-existing conditions is another. You have to know what you’re getting into, what needs to be done and how it’s all going to get done. One of the biggest pitfalls I’ve seen is a company settling on what seemed to be a good estimate for services, only to get nickeled and dimed to death by change orders and additions. <<

BRANDON K. MANN is the senior vice president of Colliers Corporate Solutions in St. Louis. Reach him at (314) 392-2777 or bmann@ctmt.com.

Wednesday, 26 December 2007 19:00

Finding value in valuations

For biotech companies, the valuation process can sometimes be a long and difficult one. In fact, according to Carl Saba, Senior Manager, Consulting, for Burr Pilger Mayer in San Francisco, valuation is one of the biggest issues biotech companies are currently facing.

“The Financial Accounting Standards Board (FASB) increasingly requires fair value measurements in accounting, so valuations are needed in order to comply with financial reporting requirements,” says Saba.

Saba notes that, in general, valuations are done for financial reporting, tax purposes, mergers or acquisitions, or in litigation. He says that while most of the time biotechs will fall under the first two categories, the exposure risk makes it imperative to get one — regardless of what stage of development the company is in.

Smart Business spoke with Saba about valuations, and how biotech companies can use them to their advantage.

What are some of the tax and accounting requirements that drive valuations for biotech companies?

Many biotech companies issue stock options to employees in order to conserve cash resources, because the biotech business model generally takes a long time to mature. When a biotech does this, there are both tax and accounting implications.

On the accounting side, Financial Accounting Standard 123 (FAS 123) was recently revised, becoming FAS 123 (R), which, in part, says that companies have to expense the fair value of their stock option awards on their income statements. Under the old rules, stock options didn’t have to be expensed on financial statements; they were generally shown as a footnote disclosure. In order to expense options under FAS 123 (R), biotechs need to know what grants are worth on the grant date and, in order to value that option, they must know what the underlying stock is worth. Biotechs primarily use valuations as a basis for valuing options, and subsequently expensing them. If they don’t, they may have issues clearing an audit or possible restatement risk if the company becomes public, and thus, subject to SEC review.

On the tax side, IRS Section 409A deals with deferred compensation, and part of that covers stock options. IRS Section 409A prevents companies offering stock options to employees from setting the exercise price on the option below the fair value of the underlying stock. If they do, the grant becomes subject to IRS Section 409A, and both the issuing company and the employee can face adverse tax implications.

What risk factors do biotechs face in valuations?

There is significant tax exposure to a company’s employees in the issuance of options, so if the company doesn’t complete regular valuations, it could be in trouble. Also, unlike in the past, a company’s board of directors cannot ‘decide’ what the stock is worth without a proper valuation analysis to support that conclusion. The Silicon Valley rule of thumb establishing a 10 to 1 or 8 to 1 ratio between common stock and preferred stock will likely not hold up to an IRS audit under 409A. On the financial reporting side, the risks are either not clearing an audit or restatement if the company becomes public and there is a large gap between a recently determined stock value and the IPO price.

What are some of the challenges that come up in valuations of biotech companies?

The biggest challenge is that the business model for most biotechs takes time to mature. Typically, a biotech will spend 10 to 15 years incurring heavy research and development expenditures, while trying to generate compounds that might have marketability, and then try to get them through all the stages of preclinical and clinical trials. Thus, a lot of conventional valuation approaches don’t work. Most valuations use income, cost or market approaches. The cost approach doesn’t generally apply to a going concern company, and the income approach is reliant on the ability to forecast future cash flows, which is difficult to do as far as 10 to 15 years out. The market approach uses metrics that are typically related to positive cash flow, which is non-existent for most early-stage biotechs. A biotech has to try to determine possible future outcomes for the company and the relationship between current expenditures and future results.

What makes biotech valuations unique?

As biotechs have to keep raising capital for an extended period of time, they often end up with complicated capital structures. There isn’t just one type of ownership, such as common stock. Other types of ownership include a layered capital structure, with common stock, preferred stock and, possibly, convertible debt, options and warrants. One has to value the biotech’s total equity, then determine how to allocate it among the layers of ownership. There are three ways to do this: a probability-weighted approach based on future outcomes, a forward-looking option model, or by considering the company’s worth on the valuation date — which is only acceptable in very limited circumstances.

The body of knowledge, models and expectations within the valuation profession have increased dramatically. I expect that we will continue to refine our ability to address the unique challenges in valuations of biotechs.

CARL S. SABA is Senior Manager, Consulting, for Burr Pilger Mayer in San Francisco, California. Reach him at (415) 288-6261 or csaba@bpmllp.com.

Sunday, 25 November 2007 19:00

The future of the 401(k)

No matter what point you are at in your career, it’s always a good time to plan for the future. All employees need to adequately plan for retirement, no matter how much they earn. Yet, while most people know they need to be prepared for retirement, many people don’t know how to properly prepare.

Several options are available to employees, such as pension plans, 401(k) plans and IRAs. Luckily, more and more employers are taking an active role in retirement plans, offering new and redesigned plans to help employees prepare for tomorrow and beyond.

“Retirement plans take a lot of time and effort — from both employees and employers — but when they’re done right, they can have amazing results,” says Dale R. Vlasek, a member and chair of the Employee Benefits Practice Group of McDonald Hopkins LLC.

Smart Business spoke with Vlasek about the future of retirement plans and what employers and employees can do to maximize their golden years.

Is there something wrong with 401(k) plans?

That is something that has been debated lately, but, for what they are, 401(k) plans are good programs. The issue is that all retirement plans are subject to various nondiscrimination rules and regulations. By law, employees are split into two groups: highly compensated employees [those who own more than 5 percent of the company or earn over $100,000 per year] and nonhighly compensated employees [everyone else].

The issue concerning 401(k) plans is that there is a limit to how much money highly compensated employees can put into 401(k) plans, based on how much money the nonhighly compensated employees put in it. In simple terms, we’re looking at a spread of about 2 percent. So, if, on average, nonhighly compensated employees put in 3 percent, then highly compensated employees, on average, can put away 5 percent. The major issue is that, generally, nonhighly compensated employees usually don’t have a lot of disposable income, so they can’t afford to put a lot into 401(k) plans. This then limits a highly compensated employee’s ability to save.

Is it possible for employees or employers to contribute more money to retirement plans?

There are good ways for employers to get employees to contribute more, such as automatic enrollment, where all employees are enrolled in 401(k) plans no matter what. There are also ways to design plans so that designated executives or employees can contribute more to 401(k) plans.

In 2007, the largest amount of money that can be contributed to a 401(k) plan, as a combination of employee and employer contributions and any forfeitures, is $45,000 or 100 percent of pay — whichever is lower. But, employers can design programs that say they’ll give a certain employee a $45,000 contribution, so the employee doesn’t have to contribute anything. This can be a wise use of company dollars, because you can take care of your highly compensated employees without worrying about how much the nonhighly compensated employees are contributing to their 401(k) plans. Of course, the discrimination rules would require contributions to nonhighly compensated employees. But, with proper design, the cost of those contributions can be kept at affordable levels for employers.

Is there a place for defined benefit pension plans in the 21st century?

Absolutely. In fact, the only way to put more money in a 401(k) plan, above the $45,000, is through defined benefit plans. You hear a lot today that defined benefit plans are dead. And for a lot of blue-collar workers, that may be true, but there is still a place for them. For instance, the formula of a defined benefit plan is designed to give an employee a sum of money when he or she reaches retirement age, let’s say age 65. Generally, a retirement plan needs to have $1 million in it for the employee to retire comfortably. So, if employees start a plan when they are 20, they have 45 years to get that million. But, if they start when they are 50, they only have 15 years. Defined benefit plans will give those 50-year-olds the ability to put away a lot of money in a short amount of time. Besides benefiting the employees, defined benefit plans help companies because they can provide even more retirement benefits, without violating 401(k) laws.

Where else can you use these more sophisticated plans?

You can use these plans as ways for employees to shelter additional dollars, so they can adequately prepare for retirement. Also, you can structure defined benefit plans so that, for instance, when a son is buying out a father, part of the purchase price, if you will, can be a defined benefit plan that takes care of the parents in the future. That way, a company gets paid for, or a portion of it gets paid for, with tax-deductible dollars.

DALE R. VLASEK is a member and chair of the Employee Benefits Practice Group of McDonald Hopkins LLC. Reach him at (216) 348-5452 or dvlasek@mcdonaldhopkins.com.

Friday, 26 October 2007 20:00

All in the family

The business world is a cutthroat place. Owners need good people behind them — people whom they can trust no matter what. Since good help is always hard to find, one way companies can ensure that they’re filled with trustworthy people is by keeping the business in the family.

Family-owned businesses can be great because, theoretically, family members will always be loyal and dedicated to the company. But, sometimes, family interests conflict with business interests, opening up a whole new set of business problems.

“Within the next five years, 40 percent of closely held and family-owned businesses will be changing hands and be in transition due to the baby boomers retiring,” says Carmen Bianchi, director of the EMC Business Forum of the Entrepreneurial Management Center at San Diego State University. “The keys for these closely held and family-owned businesses are having a succession plan in place and creating some kind of governance structure for the successful continuance of the ownership’s legacy.”

Smart Business spoke with Bianchi about family-owned businesses, what makes them unique and how to put a proper succession plan in place so that the business stays in the family for generations.

What are the pros and cons of a family-owned business?

Being intimately familiar with the company and its staff can be very beneficial. Having good backup and a built-in support system around you ensures you’re never going it alone. Also, usually families will be more lenient when it comes to schedules, on-the-job judgments and decisions, and mistakes. Other advantages include long-term stability, shared values, loyalty, commitment and inherent trust. Families are usually willing to sacrifice more for the business.

On the other hand, personal interactions and emotions might affect working relationships, which could lead to distractions. Decisions on how to run the business could be very different across generations, which may lead to conflict. Beware of family members feeling entitled to enter the family business. Just because someone is a member of the family doesn’t mean he or she will be a good fit for the family business. On the flip side, just because the parents love the business doesn’t mean the children will. Also, family businesses can make rapid decisions, as opposed to public companies that have to think about the shareholders.

What are common problems a family-owned business faces?

When close relatives work together, emotions often interfere with business decisions. In some family companies, control of daily operations is a problem. In others, a high turnover rate among nonfamily members is a problem. In others, growth is a problem because some of the relatives are unwilling to put profits back into the business. In the end, however, problems that the manager of a family-owned business faces are the same as those at any company. What makes it all complicated is the aspect of working with relatives you have to deal with your whole life — in and out of the office.

Still, the biggest problem a family-owned business will face usually has something to do with succession planning.

What are important things to consider in succession planning?

A succession plan is as important as having an estate plan, financial plan and strategic plan. Good succession should encompass all four plans. Every family-owned business should have an exit strategy. Is your exit strategy written down or is it in your head? Are you willing to sell your company? If not, why? Could it be that your company is your legacy and that your dream is to perpetuate it through the generations? But, whose dream is it? If your successor does not have that fire in the belly, he or she won’t succeed or successfully steward the company through to the next generation. Also, primogeniture is passé — the most competent person should be the successor.

Once you establish who the successors are going to be, the next stage is leadership development, where successors acquire the needed leadership skills and experience and are acknowledged by employees and clients. This will lead to a natural and seamless transition.

Finally, you should create an ‘ethical will.’ This is a tool that will communicate the most sensitive issues of succession, issues that deal with retirement, death, legacies, family values and love. These issues are then passed on through the generations.

What are some of the structures that can be put into place to promote success?

One thing is a family council: a platform where family members can voice their opinions and be heard by those who work in the business. You’ll also need a code of ethics or family creed — a set of values by which a family business conducts its dayto-day business. Another structure is a family employment policy, which outlines criteria for family members in the business. Along with that, you’ll need entry and exit criteria, which are the rules and regulations on how family members enter and exit the business.

CARMEN BIANCHI is the director of the EMC Business Forum of the Entrepreneurial Management Center at San Diego State University. Reach her at cbianchi@projects.sdsu.edu or (619) 594-4949.

Friday, 26 October 2007 20:00

The devil is in the details

When the new margin tax replaced the old franchise tax in Texas, practically every business was affected. The transition isn’t necessarily seamless either, as the new tax brings many changes. For instance, limited partnerships that were previously exempt from the franchise tax now must pay the margin tax. Corporations and limited-liability companies that previously paid the franchise tax now must use new methods to calculate the margin tax. Businesses are facing new reporting rules for combined groups and tiered-partnership arrangements. All business owners are being forced to look at how they structure their businesses, account for business operations, file tax returns and how much tax they’ll have to pay.

“This new law contains many exceptions, and the devil will be in the details,” says Johnny J. Veselka, shareholder, Briggs & Veselka Co. “There’s combined reporting based on the ‘unitary business’ concept. The law requires that taxable entities that are part of an affiliated group engaged in a ‘unitary business’ report as a ‘combined group,’ instead of reporting as separate taxable entities.”

Smart Business spoke with Veselka about the new tax, what’s different about it and what business owners need to be aware of.

Why is there a new business tax in Texas?

The Texas Supreme Court found that the state’s method of financing public schools violated the constitutional prohibition against a statewide property tax. After several attempts by Governor Rick Perry and the Legislature to reform the Texas tax system, the governor appointed the Texas Tax Reform Commission to recommend reforms to the Texas tax structure. The commission, chaired by John Sharp, issued a report on March 29, 2006, that proposed substantial modifications to the Texas franchise tax. The actual law enacted closely followed the recommendations in the report. The margin tax was to close the tax shortfall created by reduced property taxes.

When does the new tax go into effect?

For calendar year filers, the new tax will be based on its taxable margin generated in 2007. The first report would be due May 15, 2008. For fiscal year filers, the liability will be determined based upon whether its fiscal year end falls before or after May 31, 2007. Fiscal year taxpayers, with a tax year ending on or after Jan. 1, 2007, but before June 1, 2007, will be subject to the margin tax for the period beginning June 1, 2006. All other fiscal year taxpayers will file based on their reporting period ending after June 1, 2007.

How is the tax calculated?

The tax is calculated on taxable margin or for certain electing taxpayers on total revenue. Taxpayers’ taxable margin is a concept similar to taxable income. Generally, an entity’s taxable margin is its revenue less either cost of goods sold or compensation expense, but not both. This choice can be made annually. If 70 percent of an entity’s revenue is less than either of these calculations, then 70 percent of revenue is the taxable margin. Taxable margin must also be apportioned to business performed in Texas.

What is the tax rate?

Most entities pay at the rate of 1 percent. Retailers and wholesalers pay at a .5 percent rate. Taxpayers determine whether they qualify as wholesalers or retailers by reference to their industry classification under the Federal Standard Industrial Classification codes. If the business activity has a SIC code number in the 5,000s, it is a wholesaling or retailing activity. Businesses with total revenue below $900,000 also will receive a discount on their tax based upon a discount table. Businesses with less than $300,000 of revenue are not required to pay the tax.

How are revenue, employee compensation and benefits defined?

An entity must look to its federal income tax return to determine its revenue. The income amounts generally include gross receipts — less returns and allowances — dividends, interest, rents and royalties, capital gains and other income. The cost of goods sold deduction calculation depends entirely on Texas rules that are similar, but not identical, to the federal rules. Wages and cash compensation cover most typical compensation expenses. The starting point is the Medicare wages and tips box on the Federal W-2. It also includes the net distributive income paid to natural persons of pass-through entities like S corporations, partnerships or limited liability companies. Stock awards and options deducted for federal income tax purposes are also included. Wages are capped at $300,000 per person. Benefits are also deductible and not subject to the $300,000 per person limitation.

JOHNNY J. VESELKA is a shareholder of Briggs & Veselka Co. Reach him at (713) 667-9147 or jveselka@bvccpa.com.

Tuesday, 25 September 2007 20:00

Not all programs are equal

In today’s fast-paced business culture, companies need employees who are highly educated in all aspects of business, as well as certain specialized areas.

One way to ensure that your employees have the education they need to make your business succeed is by having them enroll in and complete a Master of Business Administration (MBA) program.

“An employee with an MBA will be in a better position to manage people, work in teams, know when to follow and when to lead, and know how to ask the right questions and to get the information needed to make good decisions,” says Dr. Gail Naughton, dean of the College of Business Administration at San Diego State University.

Smart Business spoke with Naughton about MBA programs, how to choose one and how an employee with an MBA can be a valuable asset.

How could an employee who holds an MBA benefit a company?

MBA students are equipped to deal with issues relating to both managing people and teams, and managing innovation and growth. While undergraduate programs tend to focus on preparing students for entry-level positions in specific areas, much of an MBA program focuses on the integration of the specific business function areas into the bigger picture. Companies often have outstanding scientists, engineers and technology people who are in a position to lead and supervise others, but are thrown into a management position without proper education and training.

Rather than going for the quick-fix seminars and training, MBAs will have a variety of course work in their program stretched out over a longer period of time. They get to deal with a variety of examples, assignments, business case studies and interact with other students to better prepare them for the multitude of situations they will face in their companies. MBAs are better problem-solvers and not only focus on answers, but how to ask the right questions and to research the situation.

What should a company look for in an MBA program?

Much of this depends on the type of business, the nature of the company, its needs and its presence outside of the local area. However, I would suggest that they look for a local program accredited by the Association to Advance Collegiate Schools of Business (AACSB) that has a strong international/global curriculum. A local program will be most in tune with the conditions and parameters of the local economy and the international/global focus will allow students to build the skill sets needed to compete in international markets. Even if a company does not compete in an international market, much of its competition might. A company should also look for an MBA program with high admissions and graduation standards. Students learn not only from their professors, but also from each other, so having bright and motivated classmates greatly enhances the value of the MBA experience for students.

Can programs be specialized to meet a company’s specific needs?

Certainly. At SDSU we’ve done programs at various San Diego companies, including Qualcomm and Hewlett-Packard. We are able to tailor examples, assignments and cases to fit a specific culture. However, we also recognize that companies need to be flexible and adaptive to change, both internally and externally, so that part of a company’s specific need is dealing with uncertainty, innovation and growth.

What factors need to be considered when a company is choosing an MBA program?

Several factors may be important. Would employees prefer something in-house or at a campus? After hours or during work hours? Face-to-face instruction or distance education? What is the frequency of class meetings? What support will the company give to its students? Sometimes, it’s valuable to interact with students from other companies, who often can offer a different perspective or confirm situations similar to what students experience at their own company. A company should also consider program costs since the time to recoup its investment may be greater for the relatively expensive programs.

How does an MBA benefit the employee?

In a recent Graduate Management Admission Council survey of alumni of MBA programs, 97 percent of the respondents were satisfied to extremely satisfied that their education was personally rewarding, while 94 percent were satisfied to extremely satisfied that their degree was professionally rewarding. For this same group, 87 percent were satisfied to extremely satisfied that their degree was financially rewarding. Plus, any employee with an MBA from an accredited institution is going to be in a better position to understand the company’s big picture and how different divisions need to work together in the best interest of the organization.

DR. GAIL NAUGHTON is the dean of the College of Business Administration at San Diego State University. Reach her at (619) 594-1575 or gail.naughton@sdsu.edu.

Tuesday, 25 September 2007 20:00

Finding the best and brightest

In today’s ultracompetitive job market, it’s hard to find a good fit. It’s difficult for applicants to find a good job, and it’s equally difficult for companies to find good help. But, if both sides are looking for the similar qualities, shouldn’t it be easier to find common ground?

According to Jessica Morris, accounting/finance recruiting manager with Burnett Staffing in Houston, finding the right candidates can be easy if a company knows what they’re looking for and knows how to attract it.

“To find the right person, you can’t just post a job in the paper or online anymore,” says Morris. “Companies need to actively recruit candidates, but also, they need to know exactly what they want in a candidate before bringing anyone in for an interview.”

Smart Business spoke to Morris about today’s tough hiring market and what companies can do to stand out to potential candidates.

How can a company find good applicants?

In most cases, the best candidate is not actually looking for a position. To locate these hard-to-find, passive candidates, your staff will have to work harder and smarter. But finding, recruiting and screening candidates can be a very time-consuming process, and an expensive one to boot. Utilizing outside recruiting specialists, networking with colleagues and encouraging employee referrals are ways companies can effectively find good applicants, without wasting valuable time and money.

What can a company do to stand out to an applicant?

Know exactly what you want out of an applicant and be sure that you clearly express it in the job description. Many companies spend a great deal of time in the recruiting and hiring process only to find that their top candidate has accepted another job offer. In today’s tight market, communication and timeliness are keys. You have to make a candidate feel special — you can’t leave them hanging. When you begin recruiting, effectively communicate with applicants where they are in the process. Immediately notify candidates if you have no interest in them, because if your recruiter has to keep fielding follow up calls from a candidate you're not interested in, it's a waste of time and resources. If you are interested in the candidate, continue to keep him or her updated at each stage of the hiring process. Even if the decision won’t be made for another three weeks, communicate this to the applicant. They may wait for your offer. Otherwise, they’ll assume you have no interest and accept a competing offer.

What, besides salary, can attract a potential applicant?

When the demand for candidates is high and the supply of top talent is low, sign-on bonuses should be utilized to set your company apart. This will discourage candidates from taking the counteroffer their current company is likely to make. For professional candidates, benefits can make or break an offer. In addition to salary and benefits, companies who discuss career development during the hiring process are given a competitive advantage. I encourage companies to continue to highlight the employee’s career path. The majority of the candidates I interview who are currently working choose to leave their position because there is no growth potential. Do your employees know what your plans are for their career development? If not, you could lose some of your top talent. Other attractive incentives could include matching 401(k) plans, vacation time, access to company vehicles and tuition reimbursements.

What are companies looking for? What positions are in high demand?

Of the divisions I manage, accounting and finance candidates are in the highest demand. Many companies are seeking degreed accountants who have experience at one of the ‘Big 4’ CPA firms or those with a specialty like manufacturing, cost accounting or audit experience. Companies are also looking for candidates who are professional, accepting of changes and challenges, driven, detail-oriented, and, most importantly, willing to do whatever it takes to succeed.

What hiring challenges are companies facing and how do they overcome them?

Many companies have their HR staff recruit for internal positions utilizing job descriptions that do not accurately portray the requirements of the position. It is important to list all the education, skills and experience necessary for the job, and then highlight the preferred skills. Do not limit your candidate pool in a tight labor market. If you are not able to relax any requirements and you are still having trouble filling a job, I recommend adjusting one of the other main components of a candidate’s hiring decision or highlighting how your company or this position already enhances one of these areas. Salary, benefits, location and environment are key components of a candidate’s hiring decision. In addition to increasing the salary range, a company can also offer telecommuting or a flexible schedule to improve its ability to attract top talent.

JESSICA MORRIS is an accounting/finance recruiting manager with Burnett Staffing in Houston. Reach her at (713) 977-4777 or jessicam@burnettstaffing.com.

Tuesday, 25 September 2007 20:00

Government incentives

Running a business is increasingly complex. On any given day, a business owner worries about employees, customers, supply, demand and the all-important bottom line, among a million other things. So, a little bit of help goes a long way — in all facets of business.

One bit of help that many companies are not aware of is the myriad government economic development programs that are available. These programs can help businesses grow, expand and be more profitable. In Ohio, there are several state incentive programs available, all with intentions of enhancing the state’s economy and business culture.

“In Ohio, there’s assistance available in the form of grant dollars and favorable term loans. In certain cases, the financing may encompass a variety of business investments that a commercial bank may not finance,” says Tom Carton of the law firm McDonald Hopkins LLC. “The state’s interest is in business development in the state of Ohio. When companies come to the state, stay in the state, or expand in the state, the state has an interest in assisting those companies and promoting job creation, retention and attraction.”

Smart Business spoke with Carton about incentives available to companies and how to get them.

Why don’t companies know about the incentives available to them?

Well, for one, they’re so busy doing other things, whether it’s expanding, adding employees or locations, or just handling day-to-day business, these state and local incentives just aren’t on the radar. Plus, many companies have limited resources — there just isn’t the time or the manpower available to research incentives. They know about bank financing and other sources of capital, but they tend to overlook incentive programs. On top of that, states aren’t banks, so it’s not as easy to attract companies to their programs.

How can companies find out about the incentives?

State Web sites will have a lot of the information a company needs, but there’s a lot of information to wade through, and at times it can be cumbersome and time-consuming for a busy executive to search the various programs, determine what they finance, what their purposes are and how to apply for them. Your lawyers can help you find the best programs out there, help you understand them and determine which incentives fit within your business plan and objectives. Other resources are the regional offices of the Department of Development. There are approximately a dozen geographic regions in Ohio, and the representatives in each of those locations will help companies understand and apply for the programs.

Discuss some incentives and assistance programs companies can utilize.

There are mainly three types of incentives: tax credits, loans and grants. It is important to note that each of the programs — whether tax credits, loans or grants — may have different objectives, prerequisites and/or eligibility requirements.

 

  • Tax credits: Tax credits are primarily designed to encourage both job creation and job retention.

     

     

  • Loans: Loan programs have favorable interest rates and terms available. For example, in Ohio, there’s the ‘166 loan,’ which provides financing for land and building acquisition, expansion, renovation and equipment purchase; the Ohio Innovation Loan Fund, which offers financial resources for product commercialization for technology companies; and the R&D Investment Loan Program, which encourages companies to make investments in research and development activities.

     

     

  • Grants: There are Rapid Outreach Grants for business development, the Ohio Investment Training Program that provides grants for job training, and the Job Ready Site Program, which provides grants for infrastructure development.

     

What benefits can companies see from these incentives?

All of these incentives relate to the bottom line. If your company is expanding your business in the state, relocating to the state, or keeping your business in the state, incentives may be available that will help your bottom line. On top of the monetary value, many of these programs offer services, such as training and development, which enhance your business as well.

How can a company stay ahead of the game?

Incentives can certainly be a moving target, as the availability and eligibility can vary from time to time. But, it’s simply a matter of staying in touch with your financial and legal advisers to review what programs are available and how they can fit within your business plan. The state is always focused on both fine-tuning the incentives to fit today’s business environment and enhancing the processes to facilitate awareness, application and implementation. In addition, different programs may be focused on different objectives.

TOM CARTON is a member in the Columbus office of McDonald Hopkins LLC law firm’s Business Department and chair of its Economic Development Practice Group. Reach him at (614) 458-0036 or tcarton@mcdonaldhopkins.com.