Catching the PE wave

Who: SS&G and BDO USA

What: Merged in 2015

Why it matters: SS&G partners caught a new growth wave, while BDO USA gained a valuable Ohio presence

SS&G was the fastest-growing accounting firm over the last 30 years, recalls co-founder Mark Goldfarb. “Nobody was even remotely close to us.”

In another era, Goldfarb and his senior partners might have ridden that wave to the end of their careers, selling their shares to younger partners and retiring.

But Goldfarb saw a golden opportunity to give himself and his partners a chance to tap into an even bigger growth wave: the private equity boom.

“I can see a lot of people saying, ‘This is our baby, we can’t sell it,’” Goldfarb says. “If you live in that mindset, it’s just not the world we live in today.”

As Goldfarb saw it, the world SS&G and other regional accounting firms competed in is heavily impacted by private equity.

“Being an accounting firm that is highly credentialed in the private equity world was something that we thought was very important,” he says. “Being larger and having more resources gives you the ability to attract, retain and recruit employees. That’s our lifeblood.”

SS&G had plenty of opportunities to sell or merge, including a 2001 overture from BDO USA LLP. The firm’s partners always said no. But when the big Chicago-based firm came calling again in 2014, the answer changed.

“I trust my instincts,” Goldfarb says. “Our industry was changing rapidly and I had no doubt this was the right thing for our clients, our partners and our employees. To this day, I think it was the right thing to do and I’ve never looked back.”

Here’s an inside look at how the two firms united, giving BDO USA a long-sought foothold in Ohio and giving Goldfarb — now Ohio managing partner for BDO USA — the resources to drive his team forward into a new way of doing business.

Starting small

SS&G was largely created out of necessity. Goldfarb had two young children and a third on the way. After working in public accounting for 13 years, he took that experience and started his business. In 1987, he partnered with Gary Shamis and Bob Littman to form SS&G with the goal of doing more than just helping clients file their tax returns and financial statements.

“We saw an opportunity to provide consultant services, particularly for the middle market,” Goldfarb says. “These people were hungry. How do I borrow from the bank? How do I buy that land? How do I get these tax credits? How do I make a deal to bring this person on as a key employee when I don’t have the money? There weren’t a lot of people who had the skill set to do these things.”

Over the years, SS&G grew from a small firm with about 10 employees to a company with more than 500 employees at 12 offices in four states. The firm expanded its services to include specialized divisions focused on payroll management, health care consulting and wealth management, which the partners retained after the BDO USA deal.

“It’s become a more complicated world, a world of specialization and a world of niches,” Goldfarb says. “If you’re a CEO or an entrepreneur, more than ever, you need to surround yourself with the right people and the right skill set.”

Along those lines, you also need to keep an open mind as it relates to your company’s future.

And that’s where private equity comes into play.

“When you’re a regional or local accounting firm, it’s tough to credential with private equity companies,” Goldfarb explains. “Their investors typically are looking for their assurance partners to have a nationally known name to their investors. No matter how good you are, it’s tough to get credentialed in the private equity space if you’re a local or regional accounting firm.”

Goldfarb is confident SS&G could have continued for years to come, but joining forces with a firm like BDO USA would provide opportunities he just couldn’t pass up.

Always be … skeptical?

BDO USA is part of the BDO global network, the world’s fifth-largest accounting organization behind EY, Deloitte, PwC and KPMG with more than 67,000 global employees and $7.6 billion in 2016 revenue.

While SS&G brought a significant Ohio presence to the deal, BDO USA provided access to “incredible technical resources” that gives the nearly 500 former SS&G partners and professionals an international presence.

Still, Goldfarb owed it to everyone to maintain a critical eye from the start of the negotiation.

“It’s my job as a business adviser to clients and certainly as an owner/founder to be skeptical,” Goldfarb says. “Is it the right culture? How would our clients react? How would our partners react? How would our staff react? You go down that road and try to deal with all of these issues and questions that you have in your mind. We went down the list to get answers to our questions and concerns. We spent a lot of time and had an incredible amount of meetings and internal conferences. It wasn’t a quick decision.”

This would be a game-changing deal, but it wasn’t the firm’s first deal.

“We’ve always been entrepreneurial,” he says. “We had done more than a dozen large and small mergers and started a number of different businesses in my years. So we always had the attitude that we wanted to talk to everyone and see if there was an opportunity. If anyone wanted to talk to us, it didn’t cost us anything to listen. You can always learn something from every meeting you’re in.”

That openness helped Goldfarb become familiar with BDO’s culture and its approach to its work. So it didn’t take long for that skepticism to fade.

Still, many deals get off to a great start and come apart at the end. Goldfarb still had a few hurdles to cross before this deal could be completed.

Details, details, details

One of the most important things you need to do as a business owner when negotiating a deal is to step out and look at the deal from a different point of view, Goldfarb advises.

“You really need to look at it from the perspective of the people around you and your customers,” he says. “If it’s the right thing for them, it will be the right thing for the owner. An owner has to put his or her personal situation to the side. If you don’t do that, it’s going to backfire.”

You also need to scan the details closely and be sure that nothing has been overlooked that could come back to bite you after the deal has been signed.

“Something I’ve always said to clients over the years is that it’s not so much the price, it’s the rate and terms,” Goldfarb says. “What’s key at a certain point is that there has to be a lot of trust and goodwill between the leaders of the buyer and the leaders of the seller. You have to trust in one another to get the deal done.”

Another crucial step on the path to closing a deal is flexibility.

“I’ve seen it where somebody just says, ‘Here’s a line in the sand and that’s it,’” Goldfarb says. “I’ve seen where clients have blown an opportunity to sell their business for a lot of money because they were penny-wise and pound-foolish. One of my favorite sayings in business is that pigs get fat and hogs get slaughtered. It’s really the truth. Whether you’re the buyer or the seller, everybody wants to get whatever they want to get. But sometimes you can blow an opportunity by pushing too hard. You have to maintain a certain level of flexibility and look at the big picture.”

The deal to merge SS&G with BDO wrapped up in January 2015. While there was a great deal of conversation and due diligence, Goldfarb says there were no big sticking points.

“Everyone has a unique specialization,” he says. “Even though we had it at SS&G, it’s been magnified given BDO’s added resources. Any client that has any issue, we’ve got the expertise not only domestically, but internationally. That was always one of the things we thought would happen and it has happened.”

Transparency on both sides can go a long way toward creating a smooth transition in most business deals, particularly at a time when the world is changing and growing more complex.

“Be transparent with your people and communicate exactly what you are doing and why you are doing it,” Goldfarb says. “Being honest and forthright is always the answer.”

How to reach: BDO,

How Web-based accounting makes you work smarter and faster

Cloud accounting is becoming more and more a part of the business world, with its ability to access your data from anywhere, at any time. Instead of sitting on a local hard drive, your financial package is housed in the cloud — a centrally localized arena that everyone can access, based on his or her permissions.

“Just in my experience, I’ve moved 80 clients to QuickBooks online since June. The world is all going that way,” says Deborah Defer, associate director in the assurance department at SS&G.

Smart Business spoke with Defer about what you should know about cloud accounting.

What are the benefits of using a Web-based accounting program?

Owners that travel and/or have multiple locations have the ability to have everything at their fingertips, which simplifies things. When you’re moving around you can still access your real-time data, as long as you have an Internet provider.

The biggest benefit, however, is the ability to collaborate, whether internally or externally. For example, external accountants can work in the system from their location at the same time as company personnel, which increases efficiency. The ability for more than one person to drill down and see all of the details, rather than a piece of paper with the balance sheet or profit and loss statement, allows everyone to work smarter and faster.

At the same time, Web-based accounting separates and isolates different company duties, which improves internal controls. You don’t want your sales representatives looking at financial information; instead they can build sales estimates through the customer relationship management system that synchronizes to the accounting system.

You also have built-in accountability with audit trails that allow you to see who accessed what and when.

Finally, Web-based accounting can be more cost effective because you don’t have to worry about paying an IT staff to do back-ups; that’s already provided.

What about security measures?

This is a common concern, but all of these providers follow strict guidance regarding security. It’s very much on the forefront of their operations. That’s not to say nothing will ever happen. Like banking, the providers do everything they can to make the data secure because of strict regulations.

Web-based accounting programs are probably more secure than a desktop program in your office because cloud providers have stronger security surrounding their servers than you do.

Are there certain industries or business sizes where cloud accounting makes more sense?

It really doesn’t. The world is changing with the ability to scale and have add-on packages, going from small to big, or vice versa. You can customize it to where it makes sense for your particular company.

There are some industry requirements that could dictate which application your business uses, but that doesn’t mean you can’t go to a cloud environment. For example, although QuickBooks online today is a vast improvement on older versions, it might not be the best fit for nonprofits that need to do grant reconciliation. Instead, nonprofits could use QuickBooks desktop and place the file with a hosted provider, such as Right Networks, so you have a remote login. That’s why it’s critical for business owners to find the right approach to cloud accounting.

How do employers know how to pick the right program?

Reach out to a trusted adviser who is an expert on the different applications to give good guidance and direction. That person or team can come in and access where you are, while you share with them pain points and discuss where you’d like to be.

They also can help you understand the possibilities. It’s painful to see executives who go to their bank account and pay bills, and then go back to QuickBooks and pay the bills in QuickBooks. They’ve done it twice and there’s no reason for it.

When business owners try to do this by themselves, they often fail. Instead, with the help of experienced and trusted advisers, you can build and set up a system that complements other applications and accomplishes your goals. It’s just not done in a 10-minute phone call.

Insights Accounting & Consulting is brought to you by SS&G

How to raise growth capital by finding the right investors

For business owners who need an infusion of growth capital, the first step is to plan.

“I try to get business owners to articulate the goals they’d like to achieve through the rest of their lives — both with their businesses and outside their businesses,” says Scott McRill, director of transaction advisory services at SS&G. “Having that rough road map will lead them towards a better-educated decision about what to do with their businesses.”

After a plan is in place, it’s time to find a financial partner that can help achieve those goals. Clearly defined objectives make it easier to identify the type of investors to reach out to.

Smart Business spoke with McRill about the capital raising process and what business owners need to know.

What are the stages for raising capital?

Broadly, there are three types of capital raising. The early startup stage, sometimes called friends-and-family money, is when an entrepreneur has an idea and needs funds to get the business off the ground. The second stage, often referred to as venture capital money, is where venture capital firms invest in pre-profitable and sometimes even pre-revenue companies. The final stage is growth capital.

How has growth capital changed?

Historically, growth capital came primarily from private equity firms, which typically invest in cash flow positive businesses. They generally want a majority or large minority ownership stake in the business, in exchange for the growth capital and professional management they bring to the table.

Post-recession, two alternatives, family offices and individual investors, have become more significant players in the market.

Family offices are wealthy families who hire professionals to manage the capital they’ve built over generations. Recently, more family offices have been making direct investments or co-investing in businesses. They tend to have a longer investment horizon, sometimes holding an ownership stake for decades.

Similarly, after corporate America downsized, talented executives who were without a job but weren’t ready to fully retire started looking to invest in and manage smaller companies. Matching the right executive with the right small business is a challenge, but it’s also a nice alternative for an owner looking for growth capital and management assistance.

Where do banks come in?

Expanding an existing line of credit with a lender can be an option to obtain growth capital. Most growth capital transactions are put together with some combination of equity, senior and sub debt, along with a line of credit facility. Debt leverage into deals has also improved significantly, creating lots of opportunities for deals with less equity than was required four or five years ago.

How do business owners get in front of the right investors?

It’s an art, not a science. One way to start — once you’ve set your business and life goals — is with a trusted business adviser. He or she can help put a team together to determine your next steps, whether that comes from direct introductions to potential investors or to an investment banker.

Many business owners who were fairly frugal while building their business can get scared away from investment bankers and the fees they may have to pay to assist in selling or raising growth capital. An investment banker, however, sells businesses and raises capital for a living — and they are good at it.

What other tips do you have for putting together funding proposals?

Preparation is of utmost importance to making a pitch. Business owners who’ve frugally built their companies from scratch may have trouble understanding the value of spending money on professionals. Investors see lots of pitches, and can quickly tell who is prepared and who is not.

Take your time, hire advisers who can help you prepare and be completely honest. Make sure your books and records are clean and prepared for the buyer or investor diligence process. Don’t try to skirt around answers to questions if you don’t know the answer. You’ll maintain more credibility by saying, ‘I’m not sure about that. I’ll look into it and get back to you.’

Insights Accounting & Consulting is brought to you by SS&G

How to detect corporate fraud and protect your business

Have you ever thought: Corporate fraud won’t happen to me; it only victimizes the Targets or Home Depots of the world? No matter your industry or company size, you’re susceptible to fraud from your partners, other owners, employees, vendors, suppliers, customers, third-party companies or individuals.

Large companies may capture the headlines, but small and midsize businesses are especially prone to targeting. They tend to lack a sophisticated control structure and rely heavily on key individuals, putting them at risk for occupational fraud. And everyone is at risk for identity and trade secret theft, or billing schemes for services that were never provided or faulty/false goods.

“Telling businesses about fraud risk can be like trying to sell waterproofing for basements when people don’t see the water coming in,” says Lewis Baum, director and a certified fraud examiner at SS&G Parkland. “They think the problems and issues affect their competition and other companies — not their business, and certainly not a key employee who has been at the company for 25 years and never missed a day.”

But what if there’s a reason a trusted employee never takes vacation?

Smart Business spoke with Baum about corporate fraud and how to prepare and protect your business.

What’s the cost of fraud and how far does it go beyond the obvious financial loss?

When fraud occurs, depending upon its nature, the repercussions vary. An average organization loses around 5 or 6 percent of sales to fraud. If you have a business with a 10 percent profit margin and there is a $100,000 fraud, it needs to reproduce $1 million in sales to make up the loss. That can be a difficult endeavor for a small or midsize business.

With digital hacks and identity theft, you must deal with blows to your reputation and customers who feel their trust has been violated. Occupational fraud is not as much about reputation, but it can become a financial drain. In either case, there is a headache factor. Fraud takes energy out of management.

And the effects can ripple out with opportunity cost. If you lose profitability because of fraud, it’s profitability that could have been used for shareholder distributions, employee pay raises or investing back into the business to sustain growth.

What red flags can a company watch for?

Red flags vary based upon the type of fraud, but there are some general warning signs. You should watch the bank account information and activity, including reconciliations and credit card activity. In addition, you may have a problem if there’s an unexplained lack of cash flow or profitability. Monitor customer complaints and have a good sense of what services are being provided to the company.

A lot of fraud occurs when the president and/or owner relies on the controller, CFO or bookkeeper for all of the accounting functions. ‘I’m a sales guy. I have the relationships to build the business. I’ll hire someone to deal with the books and records.’ That absenteeism and lack of oversight is a breeding ground for potential problems.

There is a human factor as well. Profiling has gotten a bad name, but it can make sense from a fraud prevention perspective. Keep your eyes open for unexpected changes in lifestyle or someone going through dramatic life changes — a bitter divorce, unexpected medical problems. If the wife shows up wearing fancy jewelry or driving a Jaguar, yet the husband is making $30,000, it doesn’t add up. It may be explainable — Uncle Joe died and left his estate to them — but you still need to be cognizant of the discrepancy and question what’s going on.

How else can a company protect itself?

Fraud cannot, in its entirety, be prevented. At best you can deter and reduce fraud from happening, but it’s always going to be out there. Companies that take fraud seriously provide education and have a fraud hotline that they publicize to employees, customers and vendors. They ensure the workforce and management understand their roles, responsibilities and fraud risks.

You really need to be on top of your game and know what’s happening out there. That’s why it also makes sense to reach out to your consultants and service providers who have a better sense of the fraud trends and risks — use them as part of your education.

Insights Accounting & Consulting is brought to you by SS&G

How to use a cost segregation study to shorten property depreciation

Normally a building is depreciated for income tax purposes over 39 years. A cost segregation study essentially looks at that building — which can be new construction, an existing building that was purchased, or a large build-out or improvement to an existing building — and analyzes the components in pieces and parts.

“For example, if I bought an office building for $5 million, a cost segregation study says that I didn’t really buy a building for $5 million. Instead, I bought various components, such as carpeting, ceiling tiles, lighting fixtures, etc. that totaled $5 million. So, a cost is assigned to all of those individual items,” says David A. McClain II, CPA, associate director of tax at SS&G.

By breaking out the pieces/parts that typically have shorter lives of five, seven or 15 years, you accelerate the return on your money — your depreciation deductions.

Smart Business spoke with McClain about what property owners need to know about cost segregation studies.

What are the tax benefits of a cost segregation study?

The tax benefits are the accelerated depreciation deduction, which increases your cash flow in the first years of your ownership or the renovation project. As a rough illustration, if you purchase a new building for $5 million, instead of waiting 39 years to get a $5 million deduction, you may get $1 million over five years, $500,000 over seven years, another $1 million over 15 years, and then the rest, which is $2.5 million, you’d get over 39 years. Because of the time value of money, it’s better to get deductions earlier, as opposed to over the full 39 years. Obviously, the amount of the purchase price assigned to these shorter lives will vary building by building.

When should a property owner consider getting a study done?

Any time you have building construction, a purchase or a substantial renovation, it should at least be considered. You’ll need to look at cost versus benefit to ensure the cost of doing a study — a function of the project’s size and availability of documentation — is offset by the benefit. In addition, the longer you wait, the study’s benefit versus what you’ve already taken in deductions is smaller.

With renovations and purchases, many people don’t realize cost segregation studies can be done on buildings where you don’t have the original documentation and/or blueprints. There are IRS-approved methods and software that can estimate costs, even in the absence of actual invoices from original construction.

What’s important to understand about the new repair regulations and how they’ve changed cost segregation studies?

Cost segregation studies have been around for a while, but what’s made them even more important is the issuance of new tangible personal property regulations, also known as repair and maintenance or 263A regulations.

Previously, you could not partially dispose of an asset. If you had an asset and part of it, for whatever reason, went away, you had to wait until you got rid of that entire asset to actually dispose of it.

Some classic examples are a roof or HVAC system. Let’s say you bought a building and had to replace the roof eight years after the purchase. The initial cost allocated to this roof, signed to a 39-year life, might be $200,000. Eight years in, you’ve only depreciated roughly 20 percent the cost. With the new regulations, you would capitalize the cost of the new roof, and go back and write off whatever is left of that old roof — the remaining 21 years or about $120,000. It’s a different timetable, and you’re no longer stuck depreciating two roofs, one of which you don’t own anymore.

Under the new regulations, you’re required to know the allocated costs from day one. You cannot go in on the back end and estimate what the cost would have been.

Who is involved in doing the study, and how much of the owner’s time will it take?

A proper study needs to include a licensed engineer and accountant, as required by the IRS. Someone should physically inspect and review the property — do a walkthrough of the facility, take notes and pictures, etc., which are all incorporated into the study.

Generally, accountants try to minimize the impact to building owners, but you may need to be involved in some conversations and/or help go through older records to pull information. However, the benefit should outweigh any inconvenience now.

Insights Accounting & Consulting is brought to you by SS&G

Charitable giving when selling your business offers benefits for everyone

Good business owners are known for their ability to capitalize on opportunity. This is especially true when they decide to sell their business. More and more, business owners are using what is likely their largest influx of income as the charitable opportunity of a lifetime.

“Business owners are faced with what to do after the sale and also how to cope with one of the biggest expenses in their lifetime, which is the income tax on gains from the sale,” says Thomas A. Kotick, CPA, CFP®, director at SS&G. “That gets a lot of people talking about what to do to minimize the impact of those taxes. It’s a good time for business owners to reflect.”

Smart Business spoke with Kotick about how charitable contributions can be used to reduce income tax burden and leave a legacy of goodwill in a business owner’s community.

Why do so many business owners include charity as part of their exit strategy?

The community in which a business operates is a big reason for its success, so charitable giving is most often a token of gratitude for the community’s support. As a financial strategy, making a charitable contribution as part of a sale event can significantly reduce the income tax burden.

Depending on how much the business is worth, selling a business could boost the owner’s net worth to a point at which he or she is subject to estate tax. Anyone with more than $5.34 million in assets is subject to a 40 percent estate tax. By giving away part of the income from a sale, the owner has less estate tax exposure.

What options do business owners have when donating their closely held shares?

One option is for an owner to donate a portion to charity. If a charity sells those shares, it isn’t required to pay income tax on the sale. When the donation is in this form, a decision regarding the amount needs to be made prior to the sale.

Business owners can also take the cash from the sale, pay tax on the income and give a portion to charity, which is tax deductible. A direct gift to a public charity gives a business owner a favorable tax benefit, but the decision on where the gifts go must be made that same calendar tax year.

Another option is to create a private foundation. The foundation can bear the family name and allow the delay of charitable decisions, but it can be a lot of work. This legal entity requires family management, the filing of tax returns and distribution of 5 percent of assets annually. In addition to a smaller tax break on contributions, private foundations also pay an excise tax. It is one option for carrying on a person’s legacy, but it requires a willingness to manage and file tax returns.

Are there any less complicated options?

You can create a donor-advised fund by giving an irrevocable gift to an administrating public charity. The donor earns the same tax deduction as a direct gift — the most favorable allowed by the IRS — and can later recommend charitable distributions from it. That fund can bear the family name, but the family doesn’t have to manage it. Instead, the administering organization processes all gifts into the fund and invests them. The business owner then advises on where distributions go. There is no excise tax on earnings and no 5 percent distribution requirement. It’s also possible to take time before deciding where to send the money, which allows time for the money to grow, giving the donor’s charities more dollars in the end.

Donor-advised funds are also a better choice for those who want to remain quiet in their giving. Since the assets are held by an administering organization, the distributions made from donor-advised funds can be kept anonymous, both publicly and to the nonprofits they support, if preferred.

What types of organizations administer donor-advised funds?

Commercial entities are great if someone wants little personal contact and doesn’t mind their money residing in New York or Chicago. Community foundations are a better option for keeping charitable assets local while still having the option of supporting charities anywhere in the U.S. Fees are low and starting a fund is a quick, efficient process that can take as little as a day.

Insights Philanthropy is brought to you by Akron Community Foundation

How to stay compliant with out-of-state taxes and minimize penalties

States are hungry for revenue, which means nexus questionnaires that determine the connection required for a state to be able to levy a tax on a person or company are on the rise.

States send out these questionnaires after identifying potential non-filers. One of the ways they do this is by auditing in-state companies that do business with out-of-state vendors. In this environment, to be compliant and minimize your potential penalties, it’s important to stay proactive.

“It’s a matter of understanding your exposure,” says Deborah R. Kovachick, CPA, MT, director of tax at SS&G. “It really depends on the facts and circumstances of your unique company.”

Smart Business spoke with Kovachick about why nexus has become a hot topic and what to do about it.

How has the definition of nexus evolved?

Nexus used to require a physical presence in a state, such as owning or renting tangible property or having employees who performed services in the state. Today, not only are more companies conducting business on a multi-state basis, but taxes also may capture a broader range of activities.

In 1959, Congress enacted Public Law 86-272 to provide protection from state income tax for out-of-state sellers of tangible personal property whose activities in a state didn’t go beyond solicitation of sales. This law doesn’t apply to state gross receipts taxes, sales and use taxes or franchise taxes, so the nexus threshold is lower for these taxes.

What do Internet sales mean for nexus?

Internet sales have caused states to lose tax revenue from people who previously purchased products from in-state retailers and paid sales tax. At some point, federal legislation on Internet sales will even out the playing field, but it’s still stalled in Congress.

Today’s situation puts a spotlight on nexus and filing responsibility. It has caused some states to change tax statutes or how they interpret statutes to recapture lost revenue. For example, a company may have no other contact with a state, but if sales go over $500,000 or apportionment factors in that state are greater than 25 percent of total apportionment, nexus could be established.

Will states ever have uniform rules?

No, the country is just too vast, both geographically and culturally. The states and their constituents need and want to control how they generate tax revenue.

How can businesses stay in compliance?

When initiating business in a state or starting a new business line, a company must consider the ramifications on its state tax filing requirements.

As for old activities, there may be no statute of limitations. If no returns have been filed, states can go back to when a company started doing business there and assess tax, interest and penalties. The penalties can be severe — 25 percent or more in some states on top of the tax assessed — and interest can really add up.

Those at risk should consider investing in a nexus study to determine their exposures. This includes:

  • Businesses with a heavy concentration of sales in a state where they are not filing.
  • Companies providing services to clients and conducting activities in a state that go beyond the solicitation of sales of tangible personal property.
  • Owners who are considering selling, to see if eliminating or reducing exposure can provide a clean bill of health to potential buyers and prevent reductions in the business selling price. State tax exposures are a hot topic during due diligence.

How does a nexus study work?

Nexus studies start with fact gathering to understand where and how a company is conducting its business and the volume of business in various jurisdictions.

After tax experts determine where there are filing requirements, they can help calculate potential exposure — tax, interest and penalty — in each jurisdiction. Then, you can make an informed decision about whether or not to take action. If you decide to reduce or eliminate that exposure, a third-party can approach the state to minimize the look back period and generally get any penalty abated by negotiating a voluntary disclosure agreement with the state.

Only by being proactive and determining where you have nexus can you understand any tax exposure.

Insights Accounting & Consulting is brought to you by SS&G

How to find opportunities and mitigate risk with a second glance at your tax filings

Michelle Mahle, CPA, Director of Tax, SS&G

Michelle Mahle, CPA, Director of Tax, SS&G

Frank Taylor, CPA, Director, Tax, SS&G

Frank Taylor, CPA, Director, Tax, SS&G

Taxes are complicated, confusing and sometimes intimidating. Even though you might want to put everything on the shelf after getting through another filing season, a checkup could be in order.

“If your car is running fine, you shouldn’t wait until it breaks down to get it tuned up or have routine maintenance,” says Michelle Mahle, CPA, director of tax at SS&G.
There are valuable tax opportunities you may be missing. Certain tax positions or reporting could help your business mitigate risk.

“You have an opportunity to have somebody independent of what’s been done historically to come in with a fresh set of eyes,” she says.

Frank Taylor, CPA, director of tax at SS&G, says it comes down to how you feel about your current tax situation.

“If nothing else, you can get peace of mind that everything is being handled correctly,” Taylor says.

Smart Business spoke with Mahle and Taylor about how a third-party checkup of your tax filings might uncover new opportunities and tax savings strategies.

How do you know whether your tax returns need a second glance?

First, this goes beyond the scope of just federal tax returns. It could include international, state and municipal tax compliance, as well as personal property and sales and use tax filings. An independent party can look at your business and say, ‘We should see this, and that’s a concern because it’s generally required with the business you’re operating.’ A third-party checkup can help you mitigate risk and exposure to audit, provide insight on tax strategies, and avail opportunities to secure tax credits and incentives unique to your industry.

It comes down to whether you feel comfortable. Maybe you’re unhappy about the taxes that you just paid, feel like you may be missing opportunities or just hope your next filing season will be different. A second glance or opinion may provide the peace of mind you need to stay focused on growing your business.

What are some examples of opportunities businesses could be missing?

Just looking at the restaurant industry, for example, there are organizations overlooking routine benefits available to them. They might be missing out on FICA (Federal Insurance Contributions Act) tip and work opportunity tax credits. Owners, previously paying alternative minimum tax (AMT), have found that their AMT credit carry forwards were handled improperly and when corrected resulted in substantial refunds. Many companies continue to improperly capitalize assets, not taking full advantage of accelerated depreciation deductions.

Business owners in general tend to be intimidated by the Internal Revenue Service (IRS). When they are under audit or receive a notice, they just assume the IRS is right. The number of IRS audits taking place is increasing steadily. Always consult with your service provider to find out how much experience they have handling these types of matters so that you can be poised with good information and tax strategies to mitigate your risk and exposure.

What should you look for when going to an independent party for a tax filing review?

You want someone with experience, particularly in specialty tax niche areas. There are a lot of service providers who perform very good basic federal tax compliance services. If you are feeling like your business is no longer vanilla, however, basic service may not be enough for you. The way people do business today is very different than the way business was done five years ago. Even small companies have international exposure, and almost every business crosses state lines.

You want an independent party to have the depth and experience in both specialized areas of taxation and industries. You also want tax experts who stay on the cutting edge of legislative changes and developments, and who can identify tax saving strategies and refund opportunities. The right third party can provide a well-rounded second glance to any industry, for any circumstances, and could bring you real money in the form of refunds or credits as a result.

Michelle Mahle, CPA, is a director of tax at SS&G. Reach her at (440) 248-8787 or MM[email protected]

Frank Taylor, CPA is a director of tax at SS&G. Reach him at (440) 248-8787 or [email protected]

Website: Get the latest tax news and industry developments, available 24/7, on our website and blogs at

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How to successfully set up performance-based compensation

Brian Berning, managing director, Cincinnati, SS&G

Brian Berning, managing director, Cincinnati, SS&G

Performance-based compensation is the variable component of total compensation that may be paid to an individual, team or even companywide upon achieving some defined performance metric. For instance, when a salesperson is paid a commission for achieving a sales target, or an annual bonus is distributed after meeting a companywide goal.

“You need some form of performance-based compensation to keep top performers motivated and happy,” says Brian Berning, managing director at SS&G’s Cincinnati office. “They want to believe that they can make as much as they possibly can if they are able to achieve goals. And with a variable component, there’s rarely a ceiling on it.”

Smart Business spoke with Berning about using incentives to benefit both the employee and the company.

How do companies typically pick incentives for performance-based compensation plans?

It’s largely based on defining goals and setting performance benchmarks around them, which can be for an individual, team, companywide or any combination of the three. It’s important to understand that without consequences, positive and negative, it’s not a goal — it’s a wish. The best companies develop incentives with clear, objective and measurable goals, stating exactly how to successfully get to the target.

You also want to target the right people. A shop foreman of a manufacturing company can influence on-time delivery but shouldn’t be tied to goals for meeting sales initiatives.

Which incentives can be problematic?

Those that are difficult to explain, to measure or achieve are prime for failure. Remember you’re trying to reward results that are largely influenced by behaviors in connection with the company’s goals. So, if the incentive is tied to a behavior that the responsible party has no control over, or the performance measurement isn’t in alignment with meeting the desired goals, it simply won’t work. Employees must be able to understand it, measure it and achieve it.

Why is it important to avoid rushing in?

Look at various scenarios and test to make sure that they mathematically work — that they’re achieving your desired goals. There’s nothing more embarrassing than implementing a performance-based incentive structure that doesn’t work.

On a commission-based structure, for example, be careful when trying to reward certain behavior. If you sell two products, product A and product B, and you want to encourage additional product B sales, you may increase B’s commission. But if everyone is focused on selling product B, there could be a loss of sales in product A. It’s better to use minor awards or only change the commission structure minimally, enough to keep people conscious of it, but not enough for them to ignore product A.

So, talk to your staff and others, and make sure the plan is designed properly.

How can awarding equity in a private company be problematic?

There seems to be two situations that prompt a company to look at a plan like this.

1. Senior management thinks that by giving employees ownership, it is going to motivate results. But by giving stock, you haven’t tied that to goals. The award isn’t instantaneous; employees don’t have more cash. As an owner, how is an employee going to behave any differently?

2. The business uses this as a tool to recruit talent when cash flow is tight. It may work, but it can have consequences later if it doesn’t work out with that employee.
There are other options that look and feel like equity, such as contractual arrangements that don’t necessarily result in the award of true stock or units in a partnership.

What should management be doing to measure, review and adjust these plans?

Measure it frequently and pay promptly. Otherwise, people will lose interest in it.

When reviewing or adjusting the plan, that should be far less frequent. If you’re continuously tweaking your plan, you’re going to create confusion. If there’s some anomaly, fix it immediately, but if you’re making wholesale changes right away, you made a mistake and didn’t do your due diligence. A well-defined performance-based compensation plan provides employees with an upside they feel they can achieve that ultimately helps the company.

Brian Berning is managing director at the Cincinnati office of SS&G. Reach him at (513) 587-3270 or [email protected]

Website: SS&G was named a top workplace in Northeast Ohio.

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SS&G’s leaders found that when they accentuate the difference, success follows

Mark Goldfarb, Bob Littman and Gary Shamis

Mark Goldfarb, Bob Littman and Gary Shamis

When Gary Shamis, Bob Littman and Mark Goldfarb created the accounting and business consulting firm SS&G Inc. in 1987, the trio had a vision that defied the traditional accounting world.

Their radical idea: Focus on people.

“It was a real sweatshop kind of mentality for the profession,” Goldfarb says. “You worked 3,000 hours a year [eight hours a day, every day of the year]. We opened it up and created opportunities for people who worked part-time.”

That was the genesis of the partners’ philosophy that today continues to define how SS&G differentiates itself from the competition: Growth, client service and an employee-centric culture.

“All three work together harmoniously,” says Shamis, senior managing director. “If you have them all going and you focus on it, the results can be very positive.”

You’ll notice that absent among the three is the notion of operating with a generous supply of black ink.

“We always felt that partner profitability and things like that were going to be a byproduct of doing all the other things right, so we didn’t focus our business on enhancing the bottom line of the owners,” Shamis says. “We focused our business on cultural aspects that we thought would be good for our people, good for our clients and, in the end, what we thought would be good for us. It has really worked out that way.”

Today, SS&G provides various client service initiatives. Each of them is intended to make an impression.

“We publish stories about client service going above and beyond in terms of, say, driving through a snowstorm to deliver a tax return,” says Goldfarb, senior managing director. “We really try to make that part of the culture, so that when somebody calls, everyone knows here, you had better call that client back; if not immediately, certainly within the next business day.”

This mentality has helped the partners and their teams spark significant growth over the past few decades. From a small firm with about 10 employees, SS&G has grown to more than 500 employees at 12 offices in eight cities in four states, including new offices in Chicago. With annual revenue of $70 million, SS&G ranks among the top 100 independent accounting firms in the U.S., including being named the 41st largest U.S. accounting firm by Accounting Today.

Here’s how Shamis, Goldfarb and Littman grew the firm by emphasizing its differentiation and is taking steps to ensure SS&G continues long into the future.

Get the talent

Some professions attract more men than women; in others, it is the opposite case. Accounting had been a traditionally male-dominated industry until the 1980s, when it reached parity. In recent years, however, women have been rapidly joining the ranks. The U.S. Bureau of Labor Statistics for 2012 reports that 61 percent of all accountants and auditors were females.

So with an eye on whom and where the talent was coming from, SS&G years ago established a plan that fit lifestyle concerns and issues into the firm’s culture.

“Most of our offices are suburban,” Shamis says. “Many other large accounting firms are downtown. Suburban locations make it a lot easier for somebody who is female and raising a family to be more accessible to what she needs access to — school for conferences; and if she has a sick child she can get home sooner rather than if
[her office were] downtown — and it really became a focus on being able to try to hire these professionals who were women in their family-raising years.

“We have been able to get this incredible, top-notch talent, but we had to create an environment that was slightly different,” he says.

And this has opened the door to groom a lot of great female professionals

“We probably have one of the largest percentages of female partners in the accounting profession because of that,” Goldfarb says.

And, Goldfarb says, this has contributed to such a positive work environment at SS&G that it has become genetic.

“We are told all the time from people we hire that this is such a great, warm environment here compared to where they worked in a previous life,” he says. “It’s something that is really part of our DNA.”

With a powerful corporate DNA in place, you can then develop a culture that attracts talent by which you can grow a company.

“It’s important that everybody here understands the culture; it’s important that we follow it, we preach it,” says Littman, SS&G’s CEO. “Our organization is obviously about people. And to attract key people, you have to grow. If you don’t grow, you can’t find the talent and you can’t keep the talent. Growth has been important, and that is why we have been a Weatherhead 100 company more than 10 times.”

Be creative in your growth

Creativity comes in many forms. In business, you can as creative as you want to be when it comes to determining how to differentiate your company from the competition. SS&G looked at the kind of organic growth it had achieved over the years and took the entrepreneurial path.

First, the partners began to develop specialized divisions.

“We formed a wealth management business almost 20 years ago,” Goldfarb says. “Health care consulting, probably 15 years ago, payroll, 30 years ago [and] SS&G Parkland, which is our consulting division, was created last year.”

In an effort to strengthen this differentiation, SS&G opted to mold itself as a one-stop shop for clients and their financial service needs.

“Rather than referring to different service providers, where we had no ability to control the outcome, we created these businesses, which have been very successful and have grown dramatically over the years,” Goldfarb says. “But these businesses share the same culture of being employee-centric. All share the same client service culture and growth for the purpose of creating opportunities for employees.”

“Being entrepreneurial was really part of the vision of our firm for years,” Littman says. “We had an outlook that we could provide these other services that would fit for many of our clients. And it has been very, very successful.”

In addition to creating new divisions, SS&G also played a large part in creating an association of accounting firms. Shamis led the formation of the Leading Edge Alliance, of which SS&G has been a member for 10 years.

Leading Edge firms share best practices. Goldfarb says it has been an invaluable asset – not just to SS&G but to all the organizations and their respective clients.

“We like to think that that gives us a lot of credibility when we sit down across the table from a prospective client,” he says. “We can certainly be a better adviser, given all the things that we have done on our own.”

Develop a succession plan

While your company may have established a name for itself through differentiation, all the years of building that reputation can be lost in a flash if, for example, a new leadership team comes in with different ideas.

Enter the succession plan.

SS&G recently completed a reorganization of the firm’s leadership, and then spent more than a year preparing the company for the transition.

“It was announced some 16 months ago,” Littman says. “We have been planning for this over that time frame, and we will continue to plan and transition even after the target date.”

The plan signaled to SS&G employees that Littman, Shamis and Goldfarb were focused on the long-term future of the firm and intended to protect it from the confusion and disorder that often happens whenever there is a shakeup of any size.

Doing so also allowed the trio to help boost morale, motivation and satisfaction among employees since more than likely there will be other changes, such as promotions and movement across positions.

“This can be a real pivotal place (in time),” Shamis says. “(People wonder), How is this going to work? Is it going to be the same place?”

Also, by establishing a clear succession plan, it helps clients reduce any fears that the team they’re used to working with will still be there for them. Shamis says it preserves their trust and confidence that you will continue to provide the solutions you have promised — without interruption — and that you have your ear to the ground.

“The three of us, although we have executive roles, all have client relationships and all touch clients in one way or another,” Littman says. “So it’s not like we are that disconnected to the practice. We know what is going on.”

Under SS&G’s succession plan, Littman assumes the managing director role. Shamis and Goldfarb take on lesser roles, but remain very involved with the firm.

“I have been the managing partner for close to 30 years, and I’ve had a great run,” Shamis says. “It is a lot to give up, but I am starting to realize that there is a lot to look forward to in terms of Bob running this organization.”

And that optimism extends to how SS&G will continue to differentiate itself from the competition.

“I am really excited to see what this place is going to look like down the road,” Shamis says. “I think it is even going to exceed where it is today.”

How to reach: SS&G Inc., (440) 248-8787 or


Getting the talent is a priority.
Be creative in finding growth options.
Draw up a succession plan and live by it.

The file

Mark Goldfarb, senior managing director
Bob Littman, managing director
Gary Shamis, senior managing director
SS&G Inc.

Born: All in Greater Cleveland/Akron

What was your very first job and what did you learn from it?

Gary: My first job was in a place called Mr. Junior’s on Cedar Road in University Heights. I sold boys clothes. I think I learned if you work hard, and make the commitment, then good things will happen.

Mark: A caddy at Fairlawn Country Club. Certainly you learned etiquette and you learned service.

Bob: I was a tennis instructor. What I really learned from that was dealing with people, trying to help people.

What is the best business advice you ever received?

Gary: Try to work on your business instead of in your business. That was a big change for me and for our firm years ago. The firm allowed me to begin working on the business. And in that time frame, I think our firm has grown probably 600 or 700 percent.

Mark: People do business with people they like. Relationships are very important in the business world. That was from my father, Bernard Goldfarb.

Bob: I don’t want to copy off Mark, but relationships are really important to me as is taking time to get to know people and build meaningful relationships.

What is your definition of business success?

Mark: If you do a great job for your clients, and you treat your employees well, success will follow.

Bob: I certainly think similar to what Mark has said and that’s building relationships, creating an opportunity for other people in this organization so they can do the same and also being able to go to work, personally anyways, and have fun and enjoy it. It’s not a job; it’s a career.

Gary: I have a really narrow view of this and people know that. For more than 32 years, I have always felt that if you can be a little bit better next year than you were last year then that is going to drive success. I think constant improvement, the ability to continually try to get better, to not be satisfied with the status quo, has really been a huge driver for me.

Mark on the succession plan: It’s just been a tremendous ride for all of us the last 26 years. I will continue to be responsible for managing the firm’s Akron office, serve on the firm’s executive committee, chair the firm’s finance committee, act as the liaison to SS&G Healthcare and SS&G Parkland, develop larger business opportunities and continue as a client service partner

Bob on the succession plan: Mark and Gary are not retiring. This is part of the succession plan and they still have very, very important roles here with the firm to help execute certain growth strategies and still be involved in the management of the organization. We have viewed the succession as an evolution and not an event from the beginning. Gary will be actively involved in leading the firm’s growth strategy, including geographic and existing office. He will also focus on a restaurant initiative and other large opportunities.

Gary on the succession plan: I really think Bob has the abilities to drive this firm to even more successful and higher levels than we’ve operated at in the past. I just think that this firm happens to be incredibly lucky, blessed, or whatever you want to call it, to have Bob Littman take over the practice.