The who, when, why and how of machinery and equipment appraisals

Executives often wonder why they need to have machinery and equipment appraised, but these appraisals are important components of business today.

“Typically, appraisals are performed because of buy/sell agreements, mergers and acquisitions, business valuations, partnership dissolutions, insurance, bankruptcy, property taxes, financing and Small Business Administration lending. Other reasons would be divorce, estate planning or other estate issues, retirement planning, cost-segregation analysis and litigation support,” says Theresa Shimansky, a manager at Cendrowski Corporate Advisors LLC.

Smart Business spoke with Shimansky about how machinery and equipment appraisals are typically handled.

What is the useful life of an appraisal?

Generally, an appraisal is good for three years, but it depends on the current market, economy and industry. An appraisal’s useful life also depends on the availability of the type of equipment being appraised. The value can drastically change with economic factors such as supply and demand.

Is a machinery and equipment appraisal beneficial when buying or selling a business?

Absolutely. Buyers want to know the breakdown between real and personal property. This is a cost segregation analysis or study. Appraisals are completed for many reasons, but most importantly for tax reasons — breaking the assets into different categories for depreciation purposes.

What information and documentation will an appraiser require?

The appraiser will need to know the manufacturer, model, serial number and age of the equipment. This information typically can be found on a plate attached to the equipment. Mostly, it will be visible; however, sometimes locating this plate can be tricky. For example, restaurant equipment will occasionally have a kick plate covering the information plate. Machines may have the plate attached inside a compartment or near the motor, while others may not have one at all. When a machine does not have a plate, it is helpful if the owner has the original manual or sales invoice that should list most of the information.

The appraiser also needs to know about the condition, special features and upgrades. Important questions to keep in mind are:

  • Does it work well?
  • Has it had any major repairs or is it in need of any?
  • Is it maintained according to manufacturer specifications? The appraiser may request to see maintenance logs or ask about special attachments or upgrades.
  • Is its software up to date?

An appraiser will evaluate and photograph each piece of equipment. When this is not possible, appraisers will note in the report which equipment could not be visually inspected and explain they are relying on the representations of similar machines’ condition and other pertinent information.

What is a ‘qualified appraisal’?

A ‘qualified appraisal’ is clearly defined in Internal Revenue Service (IRS) Publication 561, where the appraisal:

  • Is made, signed and dated by a ‘qualified appraiser’ in accordance with appraisal standards.
  • Does not involve a prohibited appraisal fee.
  • Includes, but is not limited to, a description of property, condition, date of value, terms of the engagement agreement, qualifications of the appraiser, method used to determine value and basis for value.

Generally, an appraisal is considered qualified if it follows the Uniform Standards of Professional Appraisal Practice, developed by the Appraisal Standards Board of the Appraisal Foundation.

What should you look for in an appraiser?

When searching for an appraiser, only use a ‘qualified appraiser.’ This is an individual, as defined by the IRS, who has earned an appraisal designation from a recognized professional organization for demonstrating competency in valuating property. Also, qualified appraisers regularly prepare appraisals for which they are compensated, and demonstrate verifiable education and experience in valuating the type of property being appraised.

A global revenue recognition standard for customer contracts, at last

After a dozen years of collaboration and controversy, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) finally have agreed on how and when companies should recognize revenue.

Considered the “crown jewels” of accounting convergence efforts, Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, and International Financial Reporting Standards 15 are expected to produce a major shift in how companies report the top lines in their income statements.

But many are unsure exactly how the changes will pan out, as the new standard ushers in a sea change and a learning curve.

Smart Business spoke with Mostafa Popal, partner of Assurance Services at Weaver, about these reporting updates.

What changes with recognizing revenue?

Companies will follow a single set principle-based approach for reporting of revenue from contracts with customers — a shift from industry-specific guidance of today. The new guidance is a five step principle-based approach with a core principle being to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

With the new rules, for example, companies must determine the expectation of collecting payments owed to them by recording revenue only to the extent that it’s ‘probable’ they won’t have to make a significant reversal in the future. They also must adjust the transaction price to reflect the time value of money, if the timing of the agreed payments provides customers or entities a significant benefit of financing the transfer of goods or services to the customer.

In addition, detailed footnote disclosures are required to break down revenues by product lines, geographical markets, contract length, services and physical goods.

Are there exceptions to these new rules?

Exceptions include insurance contracts, leases, financial instruments, guarantees and nonmonetary exchanges between entities in the same line of business to facilitate sales. These transactions remain within the scope of existing industry-specific generally accepted accounting principles.

Who will be affected, and when?

All companies can expect some change, but certain industries will be more affected, such as engineering and construction, industrial products and manufacturing, pharmaceutical and life sciences, retail and consumer, software and technology, and telecommunications.

For public companies, the new guidance is effective for annual reporting periods beginning after Dec. 15, 2016 (including interim reporting periods). Early implementation is not allowed. Private companies have the option of taking an extra year to implement the new rules.

So, what are the first steps for companies?

Despite having more than two years before the new standard becomes effective, most companies should gear up for adoption now, especially if they choose to utilize the retrospective approach. This would require them to present not only the current year under the new standards but also prior years need to be presented as if the standard had been in effect all along.

Companies can also make a simpler transition, the cumulative approach, which would apply the standard only to the current year figures. However, companies would still have to make some adjustments to deferred numbers and include disclosures to explain lack of comparability.

The approach companies take depends on the expectations of their financial statement readers and what industry peers utilize.
In addition, companies must look at whether their infrastructure can capture the information they will need to comply with the new standards. This cost could range from minimal to significant.

Where can firms get help with the new rules?

The FASB and IASB have formed a Joint Transition Resource Group for Revenue Recognition to field questions and concerns as companies prepare to adopt the new guidance. The American Institute of CPAs has also established 16 industry task forces that are developing a new accounting guide containing helpful tips and illustrative examples for applying the new standard.

The new global standard is expected to provide a universal accounting language for revenue recognition, but it relies heavily on judgment for companies to come up with their figures, which can differ from company to company, country to country and CFO to CFO. You need to continue to work with experts for helpful hints and considerations for applying these new rules in your industry.

Insights Accounting is brought to you by Weaver

Updating your books all year long can make closing time a breeze

If there’s ever a time your company’s well-kept balance sheet is worth its weight in gold, it’s at year-end. That, of course, is when it’s crunch time to close the books, but the process can go much smoother if you follow some timely procedures throughout the year.

For instance, expenses charged on company credit cards can be tracked better if entered throughout the year.

“You don’t want to dump all those expenses into one bucket of miscellaneous throughout the year,” says Trista Acker, CPA, CFP, senior manager at Rea & Associates. “If you do, you’ll have no idea where you are really spending your money.”

Smart Business spoke with Acker about how to streamline processes when closing the books at year-end.

What are some keys to save time on your year-end financial reporting?

The key to accurate financial statements is your balance sheet. A good suggestion is to get your balance sheet out, work your way down and make sure that you tie all those balances to supporting documentation or calculations and that all those balances make sense.

In addition, bank reconciliations should be done monthly, make sure that your accounts receivable have been reviewed, writing off all bad debts and tie out loan balances to amortization schedules. Another process that could be done throughout the year is to update the depreciation schedule, making sure that new assets are added to the schedule and old ones are deleted. You want to make sure you properly record your gains or losses from sales or purchases.

It can be a real timesaver at year-end if you make the necessary adjustments throughout the year. It is easier to track it as it happens rather than trying to recall what you did months later. There’s also a greater chance of error the longer you wait.

What is one of the more common areas where mistakes can be made?

A company credit card is one area where errors often occur. Individuals may have a company card and may not allocate expenses to the appropriate accounts until the end of the year.

Then they will have to go back through a whole set of credit card statements and try to account for the charges.

But if you keep up with the bills monthly as you sit down to pay them, it will be a huge timesaver at year-end and will give you a clear idea of what’s been happening all year.

You should also look at your payroll. Companies should be reconciling their payroll on the books to their actual payroll registers at least quarterly if not more frequently to ensure gross wages are accurate. You may be able to download your payroll information from a third-party provider right into your software, which will save time and enhance accuracy.

Are there some other suggestions to make the process easier?

Try to distribute some of your tasks throughout the month instead of trying to do everything within 10 days at the end of the month. Spread it out so that you’re taking a look at your receivables on the 20th of the month and taking care of those at that time. Then a few days later you can sit down and do your billing. Another five to 10 days later you can be doing your bank reconciliation.

That way you’re not cramming everything and rushing through. You can be more focused on what you are looking at instead of thinking how to get it done.

What other advice can you give to get the books in the best shape?

Have a checklist for your monthly close. This will help you ensure you haven’t forgotten something as you take care of tasks throughout the month. Set a deadline for completion of monthly closes, to make sure tasks get completed.

If you keep up on your books consistently throughout the year, the year-end should go smoothly and quickly. Don’t hesitate to meet with your CPA or your tax planner before year-end because there is a lot of opportunity for planning or for suggestions to make things go smoother.

Insights Accounting is brought to you by Rea & Associates

Entity choice is an important decision for any inbound franchise business

You’ve built a successful business model and now you want to bring it to the U.S. Whether your goal is to take a large chunk of the market and build a lasting U.S. presence, or just funnel profits back to your home country, there are tax implications you need to consider.

These decisions may not be exciting, but they are very important choices to make as you seek to bring your operations to the U.S., says Stephen Rickert, CPA, a partner at RBZ’s International Franchise and Tax Services Group.

Ideally, your answers will help you make the right call on decisions such as forming a corporation or a limited liability corporation.

“This is always an important choice and there is no one right answer for every franchisor,” Rickert says. “It’s a complicated decision with a lot of moving parts.”

Smart Business spoke with Rickert about what LLCs offer inbound international franchisors in the way of both flexibility and saleability.

Where does the conversation begin with inbound franchisors?

As an entrepreneur, you are proud of the business you have created, but you may not have given much thought to tax implications or entity choice.

You just want to open up your yogurt store and start selling as fast as you can. It’s really important, however, to have the proper professional guidance from the start so you don’t have to unwind problems that are created innocently.

We need to look at the reasons why you are coming to the U.S. so you can make the right decisions going forward. It’s not always a question that has been given a lot of thought, but the answers can go a long way toward determining your future.

In a corporate environment, it may be more difficult to repatriate profits back to your home country if that is your plan. But if funds are to be invested in the U.S. to grow your franchise business, this could be a good choice.

What other factors matter for the franchisor looking to build a strong U.S. presence?

Most new franchisors set up as LLCs. One of the reasons is to take advantage of the single layer of taxation that LLCs offer.

Another is the fact that LLC owners (called members) can draft the LLC governing document in such a way as to facilitate even the most complicated of economic relationships. It is simply better suited to those relationships than a corporation with several types of shares and convertible debt.

There is very little ‘corporate’ type maintenance required, meaning the owners can decide for themselves how the business is to be managed and what powers management has.

An LLC will generally require foreign owners to be pulled into the U.S. tax system, but if you’re looking to build something lasting in the U.S., that becomes less of an issue.

Are there drawbacks to choosing an LLC?

The LLC structure is still relatively new and so there are some attorneys who prefer and will recommend corporations over LLCs due to the long legal history surrounding corporations. In addition, many foreign governments have yet to form solid opinions on how to tax their residents when they receive income from U.S. LLCs.

There is less information to disclose with a corporation, making tax filings easier. There are times when an LLC can mesh very nicely for tax purposes with their home country’s tax system, but in other instances, it’s not such a good mix.

How does entity choice affect the future sale of your business?

It’s very easy to sell the assets of an LLC. Most buyers want to buy assets. If you were to say, ‘Oh, I can only sell my stock,’ a lot of buyers are going to say, ‘No thank you.’ Why? Because they don’t want to buy past liabilities. When you have an LLC, if the end game is to sell the assets of your business at some point, it opens up a world of potential buyers.

Selling or distributing assets from a corporation can lead to a tax nightmare. At the end of the day, taxes are only part of the conversation. But they are an important part and need to be considered before you make your move.

Insights Accounting is brought to you by RBZ

How to run a construction company so it yields more bottom line profit

If you are manufacturing widgets, your production environment is pretty much a controlled one. Temperatures in the plant are consistent year-round, as is the speed of your production line. Other factors are well within accepted levels also.

But think of the construction company. There are unforeseen conditions, the size and scope can be staggering and the quality of workers can vary.

“A construction company does not have that luxury of consistency. Therefore, every job is unique and presents its own challenges,” says Kent Beachy, CPA, CIT, CCIFP, principal and director of construction services at Rea & Associates.

To build a more profitable construction company, taking into account these challenges takes a four-part approach.

“You first estimate, then you do the work, then you account for it and then you analyze it,” Beachy says. “You bring all those pieces together, then you tweak it, and see that you can make money in the business, and then you go for it.”

Smart Business spoke with Beachy to learn the keys of building a more profitable construction business.

What’s a good rule of thumb to follow as your first step toward profitability?

You have to be able to estimate for profit. Construction companies are generally bidding against the competition. You have to know your company’s backlog, what work flow you have in place, how busy the company is at present and how busy it will be when construction actually begins.

What other considerations are there?

Is the job within a niche of yours where your labor is skilled and has done work before and can do it efficiently and effectively? Or is it something new that you’re going to have to get up to speed on? That is a risk factor you have to be concerned about.

If you are a general contractor, you have to consider the subcontractor, what is his or her schedule and if you can use him or her.

If you are a subcontractor, you have to consider if you have the labor in place and will be able to get the job done effectively and efficiently.

You also have to know your overhead — the fixed prices, utilities, rent, the telephone — to be able to estimate for profit.

What about benchmarks and key performance indicators?

Another process within a more profitable construction company is being able to measure the financial aspect of your company. That includes breaking it down by job using a construction accounting software that allows you to job-cost.

That way, you’ll know whether or not you’ll have potential change orders, work that is added to or deleted from the original scope of the job. You have to be able to manage a change order and still be profitable.

After you tally up the figures for these jobs, then you can do your analysis. For instance, if a company wants to measure profitability on a job, you would measure gross profit margin. If you want to measure profitability within the company, you would measure return on assets or return on equity. Liquidity ratios, such as the current ratio, is an important measurement and one the surety is interested in as it measures to what extent your current assets are available to satisfy your current liabilities. An efficiency ratio one may want to consider is backlog to working capital. While backlog represents jobs waiting to start, the relationship between committed work and working capital may determine if you need more working capital to be able to finish the work.

How can ratios help you analyze your company’s performance?

You could do comparisons to industry — in fact, that is how you benchmark. You can get ratios for the industry through the Construction Financial Management Association, which conducts surveys. You can benchmark against the industry and determine which ratios are key to the company’s performance and measure those.

You can put everything in a nice package and show the company executives where they’re at. But you want to be able to determine what ratios are important to the company, to its profitability. Just a few ratios will make sense to the owner, the controller or other executive so they can measure on a regular basis to spot signs that will let them know if something is wrong.

Insights Accounting is brought to you by Rea & Associates

Protecting your company from state tax exposure in your next acquisition

When you acquire another company, there is a hidden exposure that is catching many new owners by surprise — state sales taxes.

Often, the entity’s prior owners did not file sales taxes in a number of states they were doing business in. Then, one of those states conducts an audit and notifies the company of the tax liability, interest and penalties.

As the new owner, this is something to pay attention to because states have the ability to come after the company and current CEO, CFO and/or board of directors, regardless of when the tax was incurred.

“Most, if not all, states have these types of laws on the books. In addition, it doesn’t matter if the deal is a stock or asset acquisition, or what your corporate structure is,” says Mike Goral, partner-in-charge of State and Local Tax Services at Weaver.

“As the buyer of a company, you may not know that this risk exists. The issue can even make the transaction completely different,” Goral says. “States can put levies on bank accounts and can even go so far as to use criminal sanctions in order to get the company’s attention.”

Smart Business spoke with Goral about this contingent liability and how you can mitigate the state tax exposure.

Why is this state tax liability even more of  a risk right now?

States have become much more aggressive with this issue. Their budgets are down, and they’re looking to generate revenue. When states become aware that a business should have been filing sales tax, they will pursue it to get those back taxes.

Part of the problem is that there is no statute of limitations. So, if you haven’t filed a tax return, the state can go back to whenever the company first started doing business in the state, whether that’s five, 10 or 20 years ago. This can lead to a small initial tax liability growing exponentially over the years as interest and penalties are imposed on top of that. For example, in one case, Hawaii went after a company for a $5,000 tax from 1978. In the end, the company had to pay significantly more after interest and penalties incurred over the years were applied.

Private equity and venture capital firms that are holding on to their investments may be completely unaware of this exposure, which could mean a good deal turns bad or becomes less attractive.

Wouldn’t it make sense to get these back taxes from the seller?

The state has the ability to go after either the seller or the buyer, and it may decide to pursue the entity within the easiest reach and/or with the deepest pockets. As the buyer, you can pay the tax and then sue the previous owner to recoup the cost using the indemnification in your sale documents. However, this can be complicated if the seller has moved to another country, for example.

How do you recommend companies proactively deal with this risk?

Before the transaction takes place, consider a nexus review for sales tax purposes to see whether the prior owner has sales tax exposures in any states. If there’s exposure in just one state, it could be immaterial; but if the company owes a small amount in 10 different states, the tax liability can add up quickly.

If the nexus review spots a problem, a potential buyer can:

  • Set aside extra funds in escrow.
  • Work out a voluntary disclosure agreement, where a neutral third-party contacts that state on an anonymous basis to settle the tax.
  • Reduce the purchase price.

The right strategy depends on the situation and the deal’s structure. However, at any time, a buyer or seller can start the procedure for a voluntary disclosure agreement, which may take two or three months to negotiate. States usually ask for three year’s worth of taxes and interest before waiving all penalties and prior back taxes and interest.

Taking the extra steps to better understand your state tax exposures will take more time and money up front, but it can save both the buyer and seller a significant amount of money in the end.

Insights Accounting is brought to you by Weaver

How to manage risk and counter crises with a corporate response plan

The goal of any incident response is to minimize the impact of a negative event on an organization’s objectives. This involves responding to an incident as quickly and efficiently as possible, making good decisions to limit further damage and repair any damage that has been done. In order to accomplish this, an organization should have a corporate response plan (CRP) in place that is ready to go at a moment’s notice.

A CRP typically includes an oversight committee that will design the CRP and oversee the work of the corporate response teams.

Smart Business spoke with James Martin, managing director at Cendrowski Corporate Advisors LLC, about the finer points of a CRP.

What sort of events should be addressed with a CRP? 

A CRP is a natural extension of an organization’s risk management process and can be designed to address risks that are particular to an organization and its industry. Such a plan could help manage risks that have a high likelihood of occurrence and a high impact if they were to occur. An organization might have several CRPs, each designed to address specific events, for instance cybercrime, fraud, business interruption and other public relations disasters.

Why does an organization need a CRP?  

Risk management attempts to identify and mitigate risks, however, it is impossible to completely prevent risk occurrence or even to identify all risks facing an organization. This is why an organization needs to be ready with a plan. The future really is unknowable; the goal of the CRP is to make sure the organization has a mindset of preparedness and the basic tools to manage a risk occurrence when it happens.

What are the basics for setting up a CRP? 

Setting up a CRP is an extension of the risk management process. It involves deep planning around what tools will be needed for specific threat types and proactively ensuring they will be available.

When a risk actually occurs there will be no time for planning and coordination, so it needs to be done upfront. Consider who should be involved, both from a company perspective and any outside experts who would be required. Identify the information that’s essential to evaluate the extent of the threat and analyze an appropriate course of information. Also, consider procedures to ensure that data and information are adequately preserved and available for the CRP.

Who should be involved?  

A corporate response committee should tailor the CRP for the company’s situation and determine who should be involved with the operation of a response team. The team is responsible for operating the CRP when an event occurs. Of course, for IT security events the committee should include members of the technology team. The members of the committee should be senior management so they can authorize the CRP and provide team members with the authority to examine transactions and events on behalf of the committee.

What are the keys to success?  

Planning needs to be done to progress from threat identification to a desired outcome — the organization needs to determine the acceptable end resolution. This will also vary by threat type, but should consider the overall goals of:

  • Minimizing business impact.
  • Resuming normal operations.
  • Repairing any damage done. 

Consideration should always be given to the need for confidentiality. For certain threats, such as a report that fraud has occurred, the CRP should involve confidentiality during the process to ensure that the investigation can proceed appropriately and protect the rights of the parties involved.
As with any other risk management activity, the CRP should also include an evaluation process to gauge the effectiveness of the response and identify areas to improve. Also, the risk occurrence and mitigation information should be used to check if prior risk evaluations for risk impact and likelihood ratings need to be updated.

Insights Accounting is brought to you by Cendrowski Corporate Advisors LLC

Why transferring your IRA into your 401(k) plan might be a smart move

The reverse rollover is a financial strategy that involves transferring your IRA assets into your company’s 401(k) plan.

If this is the first time you’ve heard of this approach, you’re not alone.

“The average retirement-minded taxpayer thinks that there is something inherently wrong with combining different types of retirement accounts,” says Kory Klein, CPA, a Principal in the Business Management division at RBZ. “While that is true for many retirement accounts, it is not true for all.”

Smart Business spoke with Klein about what you need to know when deciding if a reverse rollover is right for you.

What are the benefits of doing a reverse rollover?

Company 401(k) plans offer benefits that individual IRAs do not.

You can take distributions from a 401(k) plan without a 10 percent penalty once you are 55 years old and have separated from your employer.

With certain exceptions, you cannot take money out of an IRA without penalty until age 59 ½.

The funds in your 401(k) plan also have greater protection against legal judgments. If it was set up under the Employee Retirement Income Security Act (ERISA), then it is usually protected from creditors.

Most people wrongly assume that their IRAs are protected against legal judgments. If your retirement account is not qualified or covered by ERISA, then a creditor could potentially seize it.

You may find that your company’s 401(k) plan has better investment choices at a lower cost than what you could find on your own.

How do I know if a reverse rollover is right for me?

You may get better investments cheaper. If you work for a large company, there is a good chance that it has put some effort into making sure you have state-of-the-art investment choices. You probably have separately managed accounts within your 401(k). There are portfolios of investments created for your plan that cost less than mutual funds.

You may also want to consider the Back Door Roth strategy.

What is the Back Door Roth strategy?

You can’t make Roth contributions if your income exceeds certain limits.

The Back Door Roth strategy involves making a contribution every year to a traditional IRA and then converting that to a Roth IRA, with the goal of paying little or no tax on the converted amount that has not yet been taxed. The maximum contribution for any type of IRA is $5,500 plus an extra $1,000 “catch-up” contribution if you’re at least age 50.

Usually, when a retirement account has both pre-tax and after-tax money, withdrawals are partially taxable and a calculation needs to be made to determine the taxable portion. The reverse rollover enables the pre-tax and after-tax dollars to be split.

The 401(k) can only accept pre-tax dollars, so that’s an easy way to split it. All the money that’s left in the IRA is after-tax dollars. Therefore, you can move the percentage of money attributed to the deductible contributions plus earnings into your 401(k).

You can then convert the remaining, nondeductible contributions to a Roth IRA. Because the tax has already been paid on these contributions, there is no tax on the Roth conversion.

What do investors need to know before moving forward with this strategy?

If you have older IRAs, you have to pro-rate the amount you convert among all of your IRA money and not just pull from your latest contribution. That could result in a sizable tax bill, as the older IRA money has probably accumulated untaxed earnings that will have to be taxed as they are moved to the Roth.

Here is where the reverse rollover helps: You can move all of your old IRA money into your 401(k). From then on, make the contribution to the traditional IRA and then convert it to the Roth IRA. This way, there will not be any old tax-deferred IRA money to which you will have to allocate a portion of your Roth conversion.

A high-earning couple over 50 could put $13,000 a year into Roth accounts while paying little, if any, extra tax.

Insights Accounting is brought to you by RBZ

How to understand the elements that could make or break your next deal

Tax implications are an important factor to consider in the process of completing a business merger or acquisition.

But problems can arise when you alter the path of a deal simply to avoid a particular change in the tax laws or take advantage of a law that will soon be phased out.

“It’s just one of many things to take into consideration,” says Corinne Baughman, a partner with Moss Adams LLP.

“We don’t want the tax tail to wag the dog. I’ve seen plenty of deals where the client just couldn’t get it done in time. They decided they weren’t going to race just for that. It’s more important to make sure the deal is done correctly.”

Smart Business spoke with Baughman about how to make sure the deal you’re negotiating is right for your company.

What one step can help you make a more informed decision about a potential business transaction?

It’s always helpful if you have people on your negotiating team with experience in your industry, because they’ll know the nuances that come into play, especially as they relate to the types of assets and liabilities you’re negotiating over.

It might not be the person you use on a day-to-day basis, but rather somebody with a specific skill set who would be helpful in this situation.

How do you manage the people involved in this process?

If it’s a group of people who do this kind of work all the time, they know how to get through it. The individuals know that they can’t be seen as the one holding things up, so they keep everything moving forward. They have a working list of who has expertise in certain areas, and it’s all very organized.

One factor is the size of the deal. If you’re doing a $10 million deal, you shouldn’t have more than a handful of people involved. If it’s a $100 million deal and it’s in a highly regulated industry, you’re going to have to get more people involved.

What are some things to consider when assessing the merits of a potential deal?

In every deal there’s usually one side in the driver’s seat. So that side is going to drive the initial conversations about how the deal is going to be structured. Is it a purchase of assets? Is it a purchase of stock? Is it a purchase of limited liability company interests? You get into this process, and you start moving the boxes around.

Look at the proposed structure from a legal perspective and recognize the tax implications of the steps you need to go through prior to any merger or acquisition. There’s never just one step.

You also need to be a pessimist. Don’t expect that whatever positive thing you think is going to happen down the road will happen. If it’s not a good enough deal today— based on the money you get in cold cash — then it’s not a good enough deal period.

How important is it to look beyond the day the deal closes?

It is easy to lose focus because you’re thinking, ‘Hey, the deal is closing on Monday.’

You have the structure down, everyone’s happy and you really haven’t taken the time to model out what happens a year from now if you’re profitable.

What happens if you’re not profitable? What if you don’t hit your targets? What else could impact any future earn-out you’re supposed to get?

You need to not only look at how to get through the transaction, but also at what happens six months from now, a year from now, three years from now, etc.
What are all the things that could happen? Does everybody fully understand what the implications could be if one of those things were to happen?

Insights Accounting is brought to you by Moss Adams LLP

Tips for an efficient, successful month-end close

Closing your books at the end of each month might not be the most exciting part of running a business, but efficient and accurate monthly closings are important for any organization. Month-end closings are not only essential to effective fiscal governance, they also provide management with financial information that drives strategic decisions. The sooner management gets good information, the more quickly they can respond — and organizational agility can be an enormous competitive advantage.

Smart Business spoke with Jennifer Henson, a senior business services associate at Sensiba San Filippo LLP, about how businesses are transforming month-end closings from a cumbersome and stressful process into a value driver for their management.

Why is a streamlined month-end process important?

Month-end can be a very stressful time for finance departments. Management is often eager to get their hands on financial information that will inform their decisions. Developing an efficient, ‘streamlined,’ process for month-end will create a more relaxed environment, free up man hours and ensure that management receives accurate and timely information. When month-end is completed quickly, you can adapt sooner, capitalize on more opportunities and make better strategic decisions.

What pitfalls can slow down the month-end process?

Even a well-designed process can become obsolete as needs change or become cumbersome over time. When data is not recorded correctly throughout the month, it creates a tremendous burden on the month-end process. Finance professionals often find themselves looking for missing expenses, searching for expenses that have been entered multiple times or correcting items that were coded or categorized incorrectly.

Process and procedural problems aren’t the only things that can slow down month end. Many companies spin their wheels tracking information in greater detail than is ever needed. A swollen chart of accounts may require detailed tracking that provides no organizational value.

How can an organization simplify and improve the month-end process?

Before you can fix a problem, you first have to recognize it. Look out for signs of stress within your month-end process. These symptoms might include monthly closings dragging longer and longer into the next month, finance professionals putting in significant overtime at the beginning of each month or general tension related to the process.

Once you decide that your month-end closing process isn’t working, you need to diagnose the problem and take corrective action. Do you have a cumbersome process that is creating unnecessary work? Consider simplifying your chart of accounts.

Month-end problems can also be caused by a failure to define and follow effective recording procedures throughout the month. Set strong deadlines for critical tasks and monitor adherence to your procedures. Many of the symptoms that you see during month-end are actually a manifestation of ongoing problems.

Once your ongoing accounting processes and procedures are fine-tuned, there may be opportunity to improve your closing process as well. Analyze your month-end routine. Follow a checklist, but be able to think outside of it. Ask a lot of questions. ‘Why are we doing this?’ ‘Should we be doing this?’ ‘Are there steps in our process that don’t accomplish anything?’

What else should business owners know about month-end?

Financial accounting, which includes the month-end process, is an important function within any business. It can either positively or negatively affect overall business performance. Business owners shouldn’t hesitate to ask for outside help when they need it. Experienced accountants can help setup a system that works for your specific needs. Professional expertise and experience can be very valuable. It can save a lot of time, stress and angst over the long term.

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