What you and your business can do to protect against cyberattacks

With all the headlines about massive security breaches at the IRS, major retailers and social media sites, it is easy to think of cyberattacks as a problem solely impacting large organizations.

In reality, small organizations and even individuals can be the victims of an attack. While it is practically impossible to completely eliminate the risk of cybercrime, there are several simple actions you can take to reduce the risk.

Smart Business spoke with Jim Martin, Managing Director at Cendrowski Corporate Advisors LLC, about what you and your company can do to protect yourselves.

What can a person or small business do about the threat of cyberattack?
As cyberthreats evolve, the methods of protecting individuals and businesses need to evolve as well. Cybersecurity should be an ongoing cycle to identify risks, work to mitigate that risk, monitor for intrusions and new threats, and respond and recover from actual attacks.

This needs to be an ongoing process as new threats emerge, rather than a one-time review. The same principles can be applied to a cybersecurity program for an individual or small business.

It’s critical to remember that our home and business lives are increasingly interconnected. Even if you don’t do much more on your home computer than check email and shop, you might still be downloading and storing information inadvertently.

For example, if you check your work email on a home computer, and open attachments, you likely have a history of correspondences and copies of the attached documents, even if you didn’t save the files.

Similarly, if you use your work computer to enter your bank account information to check your balance, or use a credit card for online purchases, residual data may be saved.

Most internet browsers will offer to save passwords for websites you visit and these are also stored on your machine. When you start to think about your actual use, you will likely find that the computers you access contain all sorts of sensitive data.

What about a person’s smartphone?
Phones and mobile devices also store file and password data, and should be used cautiously and protected. Also, be aware of cloud backup and sharing platforms as they can propagate files across all the devices on the same cloud account.

Your work might have a Bring Your Own Device (BYOD) policy that describes the limits of data you can access with your device, which should be followed rigorously. Your mobile devices should be configured with a passcode or other ID to prevent others from accessing data if the device is lost.

If possible, your device should be encrypted to prevent more intrusive methods of accessing your data.

What are some warning signs that should be noted?
Monitoring is a big part of any effective cybersecurity plan. It’s important to be aware of changes in the way your devices operate.
If you notice popup windows (especially those asking for password information), redirection to strange websites while you are browsing, or extremely slow processing it might mean you have malware infections.

While many of these simply push advertising, they all have the potential to do a lot of harm — or install other malware that could do harm. Anti-virus and anti-spyware programs can remove these malware applications, or a specialty computer support company can help.

Registering your anti-virus program with your email account can be helpful for monitoring and anti-virus companies send out frequent alerts about new types of attacks. Professionals who operate in high risk environments should consult with a security firm for in-depth assistance as part of a personal risk assessment.

For example, attorneys involved in high-profile litigation, attorneys involved with law enforcement or those who frequently access confidential documents at home are at greater risk.

Basic awareness of the risk of cyberattack to personal computing devices can greatly reduce the risk of an attack, and the impact should an attack occur. It is every user’s responsibility to ensure the safety and security of the data they maintain on their personal devices. ●

Insights Accounting is brought to you by Cendrowski Corporate Advisors LLC

What Nevada’s new commerce tax means for your business

Nevada companies, or those that do business in the state, have new tax obligations in fiscal year 2016 based on Senate Bill 483. The bill’s accompanying commerce tax, which is expected to impact some 47,000 businesses and self-employed individuals, is part of a broadly applicable tax package that will contribute more than $1.4 billion to the state’s coffers in the first two years.

Many businesses will need to begin now to accurately assess their gross revenue and business category under the law’s complex provisions and determine the relevant deductions and exclusions so they can prepare to file initial reports next summer.

Smart Business spoke with Monic Ramirez, a tax partner at Sensiba San Filippo LLP, to learn more about the Nevada commercial tax and its impact on businesses.

Who is affected by the new law and who is protected from its reach?
The law applies not just to businesses located in Nevada, but also to those that do business in the state that generate more than $4 million in revenue. For out-of-state entities doing business in Nevada, gross revenue sourced to the state should be determined by:

■  Rents and royalties paid for real property located or used within the state.
■  Sales of real property in the state.
■  Rents and royalties for tangible personal property that are used or located within the state.
■  Sales of tangible personal property that are either shipped or delivered to a Nevada buyer.
■  Transportation services for which the origination and destination points are within the state.
■  Any services that result in the purchaser’s benefit occurring within the state.

Passive entities, credit unions, estates, grantor trusts, nonprofits, certain Real Estate Investment Trusts and any natural person not engaged in business are explicitly excluded from the tax. The law also includes an exemption for businesses generating less than $4 million in revenue.

A net loss for the year does not remove the responsibility to pay since the tax is calculated based on gross revenue. There are, however, ways to reduce the amount owed.

How does size and business structure play a role in the net effect of the tax?
Business category is a key data point since the commerce tax rates vary based on industry. Companies representing 26 different codes defined by the North American Industry Classification (NAIC) system are responsible for paying the new tax on gross revenue in excess of the exemption amount at rates between 0.051 percent and 0.331 percent.

Unclassified businesses or those that do not clearly fit into one of the specified codes will pay a rate of 0.128 percent.

Business entities that engage in multiple business categories will pay a single rate determined by the applicable category that creates the most Nevada revenue. The category that is reported on the initial commerce tax report will remain in effect until the entity has filed and received Department of Taxation approval for any requested change.

Separate entities within a parent-subsidiary group are not treated as a single unit under the provisions of the commerce tax.

These businesses will need to file a Commerce Tax Report for each entity subject to the tax. Companies that are currently structured in such a manner are strongly advised to review their arrangements to avoid paying more than necessary in combined Nevada payroll and commerce taxes.

What are the provisions that will mean increased cost for many businesses?
Additional amendments to the bill apply to a far broader swath of the business community.

Fortunately, the law contains multiple deductions and exclusions from the gross revenue taxable under the new plan, any business that may be affected should begin a careful examination of Nevada revenue, company structure and NAIC category and adjust accordingly to prepare for next year’s tax returns.

The earlier this assessment and adjustment is implemented, the more opportunity there may be to minimize the impact of increased state tax liability as a result of SB 483. ●

Insights Accounting is brought to you by Sensiba San Filippo LLP.

How to weigh the pros and cons of auditor rotation

Some organizations switch auditors regularly — that can mean going to a new firm or just getting a new lead auditor —  but there can be both advantages and disadvantages to this practice.

Although the Securities and Exchange Commission regulates how often public companies need to switch lead auditors, there’s no requirement for anyone else to do so. It’s individually determined by the organization.

“I don’t have any hard evidence, but my perception is that very few of our clients utilize audit rotation; most don’t bid it out periodically,” says Mark Van Benschoten, CPA, CGMA, a principal at Rea & Associates.

Smart Business spoke with Van Benschoten about best practices for auditor rotation, including the benefits and drawbacks.

Why do some companies rotate auditors?

Auditors are supposed to be independent of their clients, closely scrutinizing their operations. Some feel if they’re with the same auditor too long, the auditor may lose objectivity and won’t ask hard questions. They also may feel that if the auditor has always tested the accounts receivable this way, then he or she may continue to do so — even if it’s no longer the best method.

Another reason is price. Companies may keep bidding audit work out, believing that an audit firm provides a lower price for new clients in hopes of gaining additional work.

What are the drawbacks to audit rotation?

If an audit firm is familiar with an organization, it knows what reports to ask for and where to get them. It also learns the company’s terminology, which streamlines the audit process. Auditors can be more effective after they’ve gone through a couple of audit cycles because they have institutional knowledge.

Although switching to another firm may cost less upfront, in the long run, you might experience the indirect cost of your time — or, more specifically, the extra time you’ll have to spend training the new firm and familiarizing them with your operations. Or, it’s possible that the final bill is higher than anticipated because the auditor had to undertake additional work, like bookkeeping. There’s also a cost to a deficient audit. If the auditor missed something, such as an organizational weakness that encourages fraud, the company ends up paying more later.

How can employers determine if it’s time to rotate auditors or stay put?

You need to get a sense of how your audit relationship is going through some kind of auditor evaluation. Do you have a relationship with your auditor? Do you only see him or her once a year? You should have ongoing communication. Do you feel comfortable calling your auditor with a question? Is your auditor knowledgeable about your industry?

Talk to your staff about the audit itself. Was it done timely? Are the auditors pleasant to work with? Are they demanding? Did they respond to all questions? Are they always dealing with new audit staff?

You don’t want an audit to be such a laborious task that your people dread it. It should be a positive working relationship, where both parties are striving for effective and efficient audits. Financial information is most useful when it’s timely and accurate. If you sacrifice one for the other, you diminish the value.

Before you switch, think through what you’re trying to accomplish and what’s giving you angst. What do you want that you’re not getting now? You need to have some basis, so when you get proposals you have some measure to evaluate them by.

Don’t just implement auditor rotation because everyone does it. For example, if you want a fresh set of eyes, make sure that you’re really accomplishing that by changing auditors. You may decide to stick with the same firm for its institutional knowledge but just request a new partner to work with.

What else is important to know about the audit process?

There needs to be a relationship between the auditor and the board or audit committee, as well as several people in management. The auditor shouldn’t just deal with the CFO, for instance, because he or she might lead the auditor down a path that narrows the vision. If an auditor is talking to others it gives a broader perspective as to what’s going on.

Insights Accounting is brought to you by Rea & Associates

Top four tax saving incentives for Bay Area manufacturers

For leading Bay Area manufacturers, competition comes in all shapes and sizes, and from across the globe. Even in a market renowned for world-class innovation, competitive advantages are razor thin. Your success is driven by your ability to innovate and your innovation is dependent on many factors, not the least of which is your available capital.

Bay Area manufacturers are provided with many significant tax incentives that can help to mitigate tax liabilities, increase the bottom line and free up capital for ongoing investments.

Smart Business spoke with Linda Cook, senior tax manager at Sensiba San Filippo LLP, about opportunities for manufacturers that could fuel growth and profitability.

How can manufacturers leverage state and federal R&D tax credits?

Many manufacturers know that California and the federal government provide credits for conducting research and development.

What many don’t know is that federal and state tax codes define research and development much more broadly than most businesses. Far more qualifies for credits than just pure scientific research. Applied research such as new product development, process development and process improvement can also qualify for credits.

Unlike deductions, which lower taxable income, credits like the R&D credit actually provide dollar for dollar offsets to tax, making them extremely valuable.

What is the Domestic Production Activities Deduction (DPAD)?

The DPAD rewards qualified production activities with a deduction of up to 9 percent of net income, effectively reducing tax liability.

Like the tax definition of R&D, the definition of qualified production activities can go beyond traditional manufacturing to include software development, recordings and film production, and even the construction of real property. Understanding and applying these expanded definitions can lead to increased savings.

How can accelerated depreciation be helpful to manufacturers?

Depreciation deductions created by assets can actually lower tax bills and free up cash. Cost segregation allows for breaking large assets down into their component parts in order to speed up depreciation. A cost segregation study often produces significant catch up depreciation and a large break on upcoming tax filings.

Additionally, Section 179 and bonus depreciation can provide tremendous value at the time when qualifying assets are purchased and placed in service allowing for the immediate expensing of some assets and 50 percent bonus depreciation on others. While both Section 179 and bonus depreciation are currently expired, both appear to have a great chance of being extended.

What local, state and federal incentives should be considered?

Local, state and federal incentives are designed to attract businesses, reward expansion and job creation, and promote specific activities. Many manufacturers miss out on these opportunities because of the large number of incentives and the varying processes required to claim them.

At the federal level, the Empowerment Zone Employment Credit incentivizes hiring within designated areas while the Work Opportunity Tax Credit provides tax credits for hiring individuals within target groups. Both credits are currently expired, but they are likely to be renewed.

In California, three new incentives were recently introduced: a new sales tax exemption rewards targeted industries and activities; the California Competes program provides tax credits for businesses expanding or creating new jobs in the next five years; and the New Employment Credit provides credit opportunities for companies with net increases in jobs in designated areas.

When it comes to tax incentives, knowledge and action are the keys to opportunity. Identify the right opportunities and take the necessary steps to qualify or apply. Manufacturers should specifically discuss incentive opportunities with their tax adviser every year, matching opportunities with activities and proactively taking the steps necessary to realize savings.

Insights Accounting is brought to you by Sensiba San Filippo LLP

How best to open the door when the government comes knocking

Missteps in the days immediately following the launch of a governmental investigation can have costly and far-reaching consequences. Organizations need to plan ahead and be prepared.

Cooperate, be honest and forthcoming, have a complete and total understanding of your company and be sure to communicate with your employees. Firms need to have a set of proper procedures and processes in place early in order to avoid any scrambling.

Smart Business spoke with Theresa Mack, senior manager at Cendrowski Corporate Advisors, to discuss what your firm should do if it becomes subject to a government investigation.

If a company is facing a government investigation, what are the first steps?

A firm often learns it is going to be the subject of an investigation when an agent either serves a search warrant or requests an employee interview. There is no time to prepare for these, which is why your firm needs to have standard processes in place to handle these situations.

One of the most important steps after being informed of a governmental investigation is the preservation of documents. Once a firm has been notified of the investigation, its counsel should issue a written directive, a preservation memo, to everyone in the company telling them not to destroy any documents.

This written directive applies to all offices and branches of the company worldwide, not just the physical location where the investigation started. Do not destroy or delete anything that could be perceived as important to the investigation. If the investigation leads to a trial and the destruction of documents comes to light, there can be dire ramifications.

In these types of investigations, everything eventually comes to light. Firms must be especially careful about the inadvertent destruction of documents. Many servers automatically delete stale emails or documents housed in electronic storage areas. If any employees are leaving the company, their records should be maintained rather than deleted.

This will likely require informing a firm’s IT staff about the investigation to ensure none of the former employee files are deleted. Firms can go one step further and have IT staff back up everyone’s data, so even if people delete documents on their machines, a copy will be preserved elsewhere.

How do you know where your company stands during an investigation?

First and foremost, cooperate with the investigation. Your counsel should be in contact with the prosecutors. Be responsive and timely, and ask any questions you may have. Make sure you ask what your status is in the investigation, as all companies and individuals fall into one of three categories: witness, subject or target.

A witness is not yet under suspicion but may have information of interest. A subject is someone whose conduct is within the scope of the investigation, but it is uncertain that any crime has been committed. A target is someone whom the prosecutor has substantial evidence linking him or her to the commission of a crime and who, in the judgment of the prosecutor, is a likely defendant.

Listen to the terms that the prosecutor or investigator is using and have your counsel inquire as to the status of the investigation where appropriate. Some prosecutors are more willing to discuss the investigation than others.

Some will provide ‘non-target’ or ‘non- subject’ letters to the individual upon request. This request is often made before someone will submit to an interview, assuming that he or she is not a target of the investigation. This letter, when obtained, provides a level of comfort to the interviewee and allows for a more cooperative and informative interview.

Should a company make a public statement if it is under investigation?

Some companies will want to send out a press release right away to show that they are on top of things, but firm executives and board members should first weigh their options. Will coming out to the public impact the company’s value and or stock? Are you sure that the investigation will not lead to charges?

Often an investigation ends with minimal evidence and the case is closed before it can go to court, so consider not speaking too soon. However, if you do decide to disclose the investigation, ensure everyone in the company is on the same page.

Insights Accounting is brought to you by Cendrowski Corporate Advisors LLC

What companies can do now to get ready for the 2016 tax season

It’s time to do your business tax planning and, just like a doctor’s check-up, if you decide to skip it, you may regret it.

You could face a larger tax bill because you weren’t in close enough contact with your advisers when you did a transaction, changed a policy or practice, or amended what you are doing with insurance. You may encounter wide swings in income and tax due from one year to the next if you don’t check in with your advisers.

“Fall is the best time for tax planning,” says Tracy Kaufman, CPA, a principal at Rea & Associates. “By now, the majority of the year has gone by, and you have a good feeling for what the rest of the year is going to be like. If you wait until after the year-end, it’s too late. It’s also a good time to explore additional ideas like profit sharing/retirement contributions, bonuses and review of insurance.”

Smart Business spoke with Kaufman and Joe Popp, JD, LLM, a tax manager at Rea & Associates, about some best practices that will help your company prepare for the upcoming tax season.

Are there certain tax law changes that companies need to plan for?

There are a number of tax provisions that are in flux each year, but unfortunately, Congress has not acted to extend them yet. Some programs like the Section 179, bonus depreciation, and Research and Experimentation Tax Credit are usually extended every year, but that hasn’t been confirmed yet for 2015.

We do know some changes related to the Affordable Care Act (ACA) and insurance in general. First, companies that extend coverage to spouses must now recognize and cover same-sex spouses, as well.

Second, employers with 50 or more full-time employees must file Form 1095-C, which is like a W2 for health care. If you need to do this reporting, you must determine who is collecting the data and populating the forms right now as many providers have stopped accepting new projects. Are you doing it internally, through your payroll company or CPA firm?

With this uncertainty, how can employers get ready now?

There’s a lot of planning that you can do already. Provide your accountant with your income so far and a projection for the rest of the year. Then, you’ll be able to see what actions to take to help your tax situation or changes to make to take advantage of a particular credit or program. You also can determine how much goes into the company retirement plan or what bonuses need to go out by the end of the year.

With an S corporation or partnership, it’s important to remember that your income trickles down to your individual return, so you need to be planning on both sides, and account for state taxes due.

As companies evolve, they often become more complex, which may mean that a different type of retirement or corporate structure will be more useful. If you’ve added employees, you also may have crossed a threshold that relates to the ACA.

Instead of trying to follow a cookie-cutter checklist, sit down with your professional advisers and discuss your unique situation and needs, as well as any significant changes.

What’s the biggest mistake you see employers make?

Business leaders make a change, and then ask an accountant or tax adviser about it. By then, it’s often too late. Your advisers’ hands are tied, and the available options are severely limited. You may face adverse tax consequences or not be able to utilize a more advantageous tax treatment.

For example, you might add another line of business or incorporate it into your organization without consulting your professional team, and it would have been better to be structured as a different type of entity.

If you’ve already negotiated a deal, it may not be practical to change it, even though you haven’t signed the final papers. This kind of thing happens all the time.

Tax planning is important, so as soon as you start talking about a potential change, call your CPA. An ounce of prevention today is worth a pound of cure tomorrow.

Insights Accounting is brought to you by Rea & Associates

How to leverage LinkedIn to generate sales leads for your business

LinkedIn is quickly replacing the business card.

More often at networking events, people are asking for a person’s LinkedIn account to enter into their smartphones, enabling them to immediately connect to a source that has much more information than is available on a business card.

“It’s vitally important for people to have an up-to-date LinkedIn profile,” says Jennifer Cantero, head of marketing at Sensiba San Filippo LLP. “It’s equally important for companies to have a LinkedIn page and be active on it. If you are not active, it can’t serve as a lead generation tool.”

She says many companies, when they approach LinkedIn, incorrectly apply a traditional marketing approach that emphasizes selling instead of service, sharing and conversation.

“LinkedIn and social media allow companies to have direct conversations with potential clients, hear their pain points and respond within minutes or hours,” she says.”You’re nurturing relationships that build trust. Once that’s built, they’ll come back and buy.”

Smart Business spoke with Cantero about leveraging LinkedIn to generate sales.

What are some best practices for setting up a company profile on LinkedIn?

When setting up a LinkedIn page, fill everything out.

That might seem obvious, but many companies enter just their name and employee count. The platform offers the opportunity to display photos and videos that can be great branding tools because they stick in a viewer’s mind more than copy. It also adds a personal touch.

Once the page is up, nominate someone to maintain it. That will ensure a consistency of voice and create a level of accountability.

Populating the page with content can take as little as 15 minutes a week. It’s important to post things of value that reinforce your brand or directly serve your clients by solving a problem for them. Don’t spam your audience with sales messages. Content should be about clients, not about you.

The aim is to start a discussion. If you find an interesting article, post it and ask a question about it to start a conversation. You can also offer quizzes and contests on your page to better engage your visitors and gain more followers.

How can LinkedIn be used for lead generation?

You want to draw in prospects by posting short informational articles that serve as teasers for more in-depth white papers on the same topic.

If they want the full white paper that goes into greater detail, they’ll need to provide their contact information. These are warm leads that are telling you directly what they’re looking for by their choice to download a paper on a particular topic. Once you have this information, you can follow up with more on that topic and make yourself available to answer further questions.

It’s a mistake to take that information and try to go in for the sales kill, pressing them to buy. In this medium, that’s too harsh. Social media leads need a softer approach.

What does the lead generation/conversion cycle look like?

People visiting your LinkedIn page have done their research already, so the sales lead time is generally shorter. Your salespeople then become more of a customer service liaison.

They can fill in any information gaps, but it’s important to remember that the relationship is more about service than closing the sale. They should exercise patience, help customers solve problems and facilitate greater service.

How can ROI be measured?

LinkedIn and other social media allow companies to get hard numbers. You can see how many new followers, how many downloads and purchases your pages are generating. You can pick metrics to measure — such as the number of people who provide their contact information — set a goal and track it.

By assigning a monetary value to these metrics you can establish ROI and compare the performance to your traditional advertising.

LinkedIn and social media are offering low-cost inroads to connect with potential clients. It’s easy to get out there and start generating leads. Through analytics you’ll see what’s working and what’s not, then you can adjust your strategy to what you’re followers respond to most.

Insights Accounting is brought to you by Sensiba San Filippo LLP.

What you need to know to protect your business from a cyberbreach

In today’s complex business world, cyberthreats are becoming more prominent.

As dependence on computer systems continues to grow, so does the threat for data and security breaches. Cybersecurity encompasses all the processes involved in protecting data that is stored or transferred between computer systems, networks and programs.

Smart Business spoke with Michael Maloziec, an accountant at Cendrowski Corporate Advisors LLC, to discuss the risks associated with cybersecurity and what your organization can do to protect itself.

What impact can a cyberbreach have on an organization?

A cyberbreach can have a varying degree of impact, ranging from minor inconveniences all the way up to compromised customer data and lost information. Kaspersky Lab’s IT Security Risk Survey 2014 found that damages from one successful targeted attack could cost a company as much as $2.54 million in repairs. Cybercrimes are continuously evolving and businesses need to take a proactive approach to ensure protection from unauthorized users.

Who is vulnerable to a cyberattack?  

Any organization with an internet connection could be susceptible to an attack.

The level of security needed depends on what sensitive information your organization possesses. Obvious high-risk information includes anything from credit cards, bank account information or even Social Security numbers, amongst other important data. Different organizations will face different risks depending on their industry and operations. It is impossible to completely prevent cyberattacks or even identify all the possible forms of cyberrisks because of their changing nature.

By implementing a cyberrisk management plan ahead of time, you will be better prepared for any risks that could arise.

What steps are involved with a cyberrisk management program?  

The five steps present in every cyberrisk management program are: identify, protect, detect, respond and recover.

The first step would be to identify and catalog the critical data within your organization. Employees should have an understanding of what critical data impacts their business. This also includes identifying key infrastructure and security assets.

Improve protection by managing access to systems. Implement policies and standard procedures, verify system backups and hold regular staff training. Continuous monitoring of the network and threat environment will aid in the detection of unauthorized actions and programs. In order to adequately respond to a suspected attack, organizations should proactively test their response plan and identify the root cause of each incident.

This includes applying procedures to contain the incident and mitigate damages as efficiently as possible. The final step of a cyberrisk management plan would be to learn from an attack and update your recovery strategies based on evolving best practices. Installing a cyberrisk management program can greatly reduce your risk to any threats or breaches.

What can organizations do to help prevent being the victim of a cyberattack?

The first step would be to become familiar with some of the known risks. Hackers try to gain access into your computer system from the outside through a weakness in the programming or software.

Malicious code or malware are specific codes sent out to gain access into your system. Malware requires an action from an existing user in order to take effect. Many attacks are disguised as email attachments or links to a specific Web page. Once a user opens the attachment, or visits the Web page, access could be granted to that computer or even your entire system.

To protect your business, keep your systems and software up to date. Replace old operating systems (like Windows XP), apply software updates and patches as soon as they become available and keep your antivirus software up to date.

Regular testing of firewalls and server settings will help keep unauthorized users out. Also, educate your staff about the risks of opening suspicious emails or attachments. If you use laptops or other portable devices, use encryption, and be sure to educate the users of those devices about their responsibility to keep them physically secure.

Insights Accounting is brought to you by Cendrowski Corporate Advisors LLC

When do you need a business valuation?

The majority of business owners don’t know the true value of their company — whether it’s a C corporation, S corporation, partnership or sole proprietorship.

Often they think their company is worth more than it actually is, which can be problematic if, for instance, they’re trying to sell the company and retire by a certain age.

“If a business owner hears a valuation multiple, he or she may continue to refer to that number without consulting a professional, understanding how a business valuation works and ultimately knowing the true value of their business,” says Holly Taylor, CPA, ABV, ASA, senior manager at Rea & Associates.

It’s a common misperception to say that your company is worth four times EBITDA (earnings before interest, taxes, depreciation and amortization), as that doesn’t take into consideration your industry, business risks, cash flow expectation, debt and more, she says.

Smart Business spoke with Taylor about when you need a business valuation and the importance of it.

Why should a business owner have a business valuation performed?

Some valuations — ‘have-to valuations’ — are required because they are triggered by an event, like:

  • The death of a shareholder.
  • Gifts of closely held stock.
  • Equity compensation valuations.
  • Dispute related valuations, such as a shareholder dispute or divorce.
  • Forming employee stock ownership plans.
  • Converting from a C-corp to S-corp.
  • A charitable contribution.
  • The allocation of intangible assets.

‘Should’ valuations aren’t driven by a specific event, but are used by owners to make important decisions about their future. You can use them for estate planning, succession planning, selecting the appropriate exit strategy, determining life insurance needs, looking for ways to increase value, setting or updating the value in a buy-sell agreement and/or setting up incentive plans for management.

Before you go into the valuation process, you should already have in mind what you are going to do with the valuation results. In order to get an accurate value, use an experienced, credentialed professional who will take all of the factors and variables into account.

Is there a specific time frame when a business valuation should be performed?

The ‘have-to’ valuations will need to follow set time frames. Depending on the triggering event, the IRS or court sets these dates.

However, it’s always important for an owner to know the value of their business. For example, with succession planning valuations, business owners should start thinking about their business succession plan at least five years before planning to implement it.

In general, it’s a good idea to have a business valuation done every other year, since your business interest is most likely your most valuable asset.

What are ways to grow the business’s value?

Growing your business starts with the mindset that the business is an investment. In fact, it’s typically an owner’s largest investment — 50 percent or more of his or her net worth — and therefore should be treated like any other investment.

The first step to increasing value is understanding what the business is worth. Only then can you set goals for where you’d like the value to be in the future.

The owner should develop a growth plan and have written goals and plans to increase the value. Three key areas to focus on are:

  • Increasing cash flow. Investors buy future cash flow; so increased cash flow will increase the business value. You can do that through increased revenue, an improved gross margin such as higher selling price or lower cost of goods sold, or lower operating expenses.
  • Decreasing business risks. These are issues like reliance on the owner, key employees, managers, customer concentration, supplier concentration, etc. The more risky an investment, the higher the rate of return is needed to entice a buyer.
  • Improving growth prospects. The higher the growth rate, the higher the value of the business.

Insights Accounting is brought to you by Rea & Associates

State, federal credits can provide savings for qualifying businesses

American businesses are continuously working to develop new products, create new processes, improve quality and increase efficiency. While many business owners consider these efforts a normal part of doing business, the federal government and the state of California believe that this process of innovation is critical to the future of the economy. To provide incentive and reward companies that choose to invest in research and development (R&D), lucrative state and federal tax credits were created.

Smart Business spoke with Gary Price, a tax partner at Sensiba San Filippo LLP, to learn more about R&D tax credits and how qualifying businesses can benefit.

What do business owners need to know about R&D tax credits?

Business owners should first be aware that R&D credits can be extremely valuable. Next, businesses should know that the definitions of qualifying research are in some ways more expansive than many know. Many businesses that qualify for R&D credits don’t know that they qualify and miss out on valuable tax savings.

What activities qualify for R&D credits?

R&D tax credits reward very specific activities defined by the federal tax code. In order to qualify, research must meet a four-part test. First, the research must be performed to discover information about improving or developing a business product or process. Next, the information that the research seeks to discover must be technological in nature. The research also must include a process of experimentation. Finally, the research must relate to a new or improved function, performance, reliability or quality.

What expenses can be included when calculating R&D credits?

Only specific types of expenses related to qualified research can be included in credit calculations. These include wages, supplies and contract expenses paid to a third party for qualified research.

How are R&D credits calculated?

Credits can be calculated by comparing current year qualifying expenses to research expenses in previous years. If a business didn’t have many research activities in prior years, the credit will be approximately 6.5 percent of the current year’s research expenses. There is also an alternative method for calculating the credit if the business doesn’t generate any credit under the regular method. The California credit uses a similar calculation and can actually produce even larger credits.

With the federal R&D credit currently expired, what should businesses expect in the future?

While the federal credit has expired, most expect Congress to once again renew the credit in time for 2015 filings. Congress has a long history of extending the R&D tax credit, but the process of allowing the credit to expire before renewing it just in time for tax filings can make planning a challenge.

Many prominent businesses and lawmakers are calling for a permanent extension of the R&D credit. With uncertainty regarding the credit’s future, businesses could look to move their research to friendlier countries. Making the credit permanent would help to prevent a brain drain where research-related jobs could be transferred to other countries.

How can businesses determine whether they qualify for R&D credits?

The best way to determine whether your business may qualify for credits is to speak to a CPA who has specific experience regarding the R&D credit. To determine eligibility, you will need to not only know the definitions, but also how they apply to your specific activities. Your financials will also play a role in your ability to utilize identified credits. Working with a qualified adviser can help you understand the potential benefit that R&D credits could provide you as well as the process that will be required to document, calculate and file for credits.

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