Business owners should keep tax implications in mind year-round

Business owners have a lot to think about during the year. Among their concerns are taxes. However, taxes often get the least amount of consideration, though they are arguably among the more important factors impacting their business.

“In a tax year marked by the newly enacted Tax Cuts and Jobs Act, it is vital that business owners recognize the importance of understanding their tax liability and how tax planning throughout the year can benefit them come filing season,” says Brian D. Kitchen, director of Tax Strategies at Kreischer Miller.

Smart Business spoke with Kitchen about the ways in which taxes could affect business decisions throughout the year.

What are some tax incentives business owners should keep in mind?

When business owners are made aware of certain tax incentives during the year, it provides their advisers with an opportunity to explain the benefits of such incentives. It also enables business owners to factor these tax savings into their current year tax calculations.

There are many tax incentives built into the Tax Cuts and Jobs Act for businesses in a variety of industries. These incentives are in the form of tax credits, which reduce tax liability dollar for dollar, and tax deductions, which reduce taxable income.

Some common tax credits include the Work Opportunity Tax Credit, which allows employers to claim a tax credit based on hiring a certain targeted group of individuals; and the research and development tax credit, which rewards companies that innovate and invest in new products and processes. The code also provides for immediate expensing of certain depreciable property, such as machinery and equipment. The new tax bill also introduces a 20 percent deduction on pass-through businesses.

It is important for a business owner to understand the substance and mechanics of the incentives in the new tax law as well as a host of other federal and state tax incentives, as planning might be needed to take full advantage of them.

How might estimated tax payments affect a business?

The income tax expenses of business owners are a cash flow item that requires attention, not only for budgetary reasons, but to mitigate potential interest and penalties on any underpayment of taxes. The IRS and many state and local governments require that estimated income taxes are paid during the year on income that is not subject to tax withholding. This is especially important for business owners of pass-through businesses, those being S-corporations and partnerships, as their pass-through income is not subject to tax withholding.

When the estimated taxes are calculated on a quarterly basis, business owners are able to readily understand the cash flow impact their tax expense has on their business. More importantly, in a year with a dramatic change in the tax code, quarterly tax projections provide business owners with a real-time understanding of how changes in the code impact their businesses.

Why should business owners keep their advisers informed throughout the year?

When advisers are able to meet and communicate with their clients throughout the year, it enables them to provide proactive advice that will not only affect owners’ businesses during the year, but will ultimately provide peace of mind and help prepare for their tax filing the following spring. This approach lessens the probability of surprises in the form of unexpected tax bills, enables a business owner to make more informed decisions where a tax incentive could be utilized and provides for a smoother compliance season as many tax-related items would already have been discussed throughout the prior year.

Insights Accounting & Consulting is brought to you by Kreischer Miller

The critical success factor within every company’s control

In working with so many private companies, accounting firms get to see it all — different companies, industries, sizes and definitely different performance. Through that experience, some commonalities can be found that directly impact performance, for better and for worse.

Smart Business spoke with Mario O. Vicari, CPA, director at Kreischer Miller, about the differences between top-performing and underperforming companies.

What are the factors that give the best indication of a company’s fitness?

Although there are many metrics one could consider in evaluating a company, there are two that really matter and they are related. The first is net margin, which is the percentage of net profit per dollar of sales. Think of it as how many pennies you keep for yourself for each dollar you sell from operating the business. This is a simple yet powerful concept. The second is the company’s return on invested capital, which expresses how the net margin relates to the amount of total capital deployed to generate the net profit.

Looking across many companies’ performance, most companies are somewhat better or worse than average in different degrees. However, there are very few private companies that have exceptional returns. These are the outliers — the top 5 percent of private companies.

While many factors affect performance, the common denominators among higher performing companies are:

  • They have absolute clarity about the customers, markets and opportunities that fit their business model, and have clear rules around customer acceptance, including the economics that are acceptable to them.
  • Having established rules around customer acceptance, they have the discipline to follow through on their strategy, which means that they will say no to opportunities that are not a fit.

What are the commonalities of underperforming companies?

Companies that are struggling and in need of a turnaround often have poor gross and net margins and low returns on invested capital. Looking into the details of their customer and product mix, often what is found is a hodgepodge of customer and product sales that are widely dispersed and unfocused. These bad results come from a lack of strategy and associated rules around customer acceptance. To these companies every sale is a good sale because they have no established business rules about their target customers and products, or in some cases they have rules but don’t follow them for the sake of getting the sale. This lack of focus and discipline results in low margins and returns. These decisions are often misguided by the belief that growing sales is the goal, whereas it ought to be growing profits.

What are the characteristics of companies that perform well?

In the better-run companies, it can be said that:

  • Everyone in the company knows the company’s focus and what customers they choose to serve.
  • They establish business rules for their sales and customer service people, including pricing, margin requirements, etc.
  • They have mechanisms in place for exceptions and approval, and clear guidance for when the company may vary from its norm. Exceptions have to be approved and are not the norm.
  • The leaders of the company don’t override and break the rules. They lead by example.
  • The company’s incentive programs are designed to reward behavior that is consistent with the company’s rules.

These companies have a point of view about new opportunities that most businesses don’t have, which is why they perform at such high levels. They know that the customer acceptance decision is a two way street and is not only up to the customer. They know that they have a choice about which customers and opportunities to pursue, and which ones to avoid. They know that they don’t have to work with everyone to be successful and have the discipline to say no when the opportunity is not a fit for their business model.

Insights Accounting & Consulting is brought to you by Kreischer Miller

Understand your company’s risks with an enterprise risk assessment

Business owners are accustomed to dealing with risks. Most, if not all of them, understand the relationship between risk and reward. However, a second relationship is equally important: the relationship between risk and awareness.

“Taking risks is not in itself a problem, but ignorance of the potential consequences is an entirely different matter,” says Mark G. Metzler, director of audit and accounting at Kreischer Miller.

Smart Business spoke with Metzler about the benefits of an enterprise risk assessment.

What are the types of risk?

There are generally four types of risk: financial, operational, regulatory and reputational. If one were to dwell solely on the risks, it is easy to become paralyzed and ignore the rewards of owning and running your own business. Therefore, it is critical that you not only understand your company’s top risks, but also implement processes and procedures to effectively assess, manage and monitor risk. This is commonly referred to as an enterprise risk assessment.

Looking more closely at the types of risk, financial risk refers to safeguarding company assets, which include hard assets like cash and investments, inventories, and property and equipment, as well as soft assets such as customer lists, intellectual property and trade secrets.

Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Because people, systems and processes are not perfect, operational risk cannot be eliminated.

Regulatory risk relates to compliance with laws and regulations, and reputational risk addresses the company’s public image, which may be a company’s biggest and most important asset.

Arguably there is a fifth risk, cybersecurity, that should be included in the list. However, cybersecurity is an element of all the risks previously described and must be considered in any risk assessment.

What is an enterprise risk assessment?

An enterprise risk assessment is a process through which management identifies significant threats that would prevent the company from meeting its stated goals and objectives. It assigns specific responsibility and accountability for developing controls to mitigate risk. It also implements those controls and monitors the controls to verify that they are working as intended.

It is important to have the perspectives of all of the stakeholders in order to perform an effective enterprise risk assessment. This may include the owner, senior management, sales, operations, production, suppliers and customers. Additionally, for certain discussions, involvement of your accountant, legal counsel, banker and insurance broker may be appropriate.

To be successful, contrary views must be encouraged. Surrounding oneself with ‘yes men’ will ensure that bad news is never heard in a timely manner and may result in a decrease in information sharing. Gathering perspectives from individuals who are ‘on the ground’ helps leaders understand what risks could have the most significant impact to the company over the next few years.

In an enterprise risk assessment, the stakeholders share their views of the risks that can impact the business. The findings are then prioritized and rated based upon their risk and probability of occurrence, and potential business impact. A formal action plan is developed for risks falling outside of acceptable levels, and individuals are assigned responsibility for implementing and monitoring risk mitigation plans.

What can a business owner hope to achieve by performing an enterprise risk assessment?

An enterprise risk assessment helps to align risk with strategy. Other benefits include enhancing risk response decisions, creating more efficient operations, providing for proper resource allocation, improving the company’s reputation and possibly lowering insurance costs. Understanding potential pitfalls and developing a predetermined response can decrease the likelihood for negative outcomes.

There is risk associated with every business venture. Without risk, there may be little reward. Business owners therefore need to understand the risks that exist in their companies and how they can minimize them.

Insights Accounting & Consulting is brought to you by Kreischer Miller

C-level succession planning for middle-market companies

Middle-market companies are more prepared than they might think for leadership succession, but many still have work to do to attract the best talent.

“Many companies have very compelling stories to tell,” says Tyler A. Ridgeway, director of the Human Capital Resources practice at Kreischer Miller. “A successful succession strategy comes down to getting everyone on the same page to develop and execute a plan.”

Middle-market companies, typically run by eight to 10 people, need a plan to attract or develop people who are in line for a leadership position and this critical plan requires the entire organization’s input.

Smart Business spoke with Ridgeway about how middle-market companies can ensure successful leadership transitions.

What tends to stand in the way of a successful C-level succession plan?

Companies may choose to invest in other areas over the years instead of building the executive talent required for the company to excel. Manufacturers, for instance, may invest in inventory rather than upgrading their head of operations, or a sales organization might think having a controller is better than spending on a CFO.

Sometimes business gets in the way, and an unintended consequence of a business expansion is the sacrifice of a training or advancement program. Companies may be attacking challenges as they arise so they’re not thinking 10-20 years down the road.

In other cases, a company might challenge a department head to bring people along, but not provide any structure for that training. Or there’s a plan, but unintended departures derail the effort and put the company essentially back where it started.

What is essential for successful C-level succession planning?

Successful succession stems from a strong company culture, which itself is a product of the C-level team. They need to hire people who are better than they are and provide leadership training to prepare the next-in-line to step into the new role. That takes commitment at all levels of the business.

Compensation is also a major factor. It’s not only about having the right leaders, but also ensuring that they are properly incentivized. Companies that aren’t paying a competitive wage will lose their top talent, so take a close look at the comparable positions and salaries in the market to determine the right compensation levels.

Although salary is important, today people want more than just salary; they want a total compensation package. If a person can trace the company’s success to their desk, they will want to get a percentage of that as compensation. Properly incentivizing the right employees will benefit the company.

How often should a plan be reviewed? What might prompt a company to revise its plan?

It’s good to review the plan quarterly and examine it through the lens of the company’s strategic growth plan. As the business grows, it changes. And when those changes occur, review the succession plan in all areas — where did the company invest, what challenges came with that, are the right people in place to deal with that?

Meetings should involve the department heads with the idea of learning what’s happened. These don’t need to be two-hour meetings. They could be brief checkups to learn whether the departments are on track with their leadership and succession training.

Communication is important, too. Let people know a leadership transition plan is in place and what they need to do in order to move up.

What should companies know or consider as they put together a C-level succession plan?

Companies need someone to champion the cause. This person won’t assemble the whole plan — it’s a group effort — but there should be one person responsible and who can be held accountable for it. And that person needs to have support from ownership.

It’s good to have a strong advisory team help assemble a succession plan. Owners shouldn’t put together a plan alone. Talk with peers who have been through it, as well as bankers, lawyers, accountants and insurance professionals who can bring their experience and knowledge to bear on the succession plan.

Insights Accounting & Consulting is brought to you by Kreischer Miller

How to execute a successful internal business transition

Business transitions have been occurring more frequently than ever with the aging of America. Some transitions are sales to outside interests while others are internal transactions with family or other key team members.

“An internal transition of leadership in a successful business is filled with opportunities and plenty of pitfalls,” says Stephen Christian, Director at Kreischer Miller. “Navigating this important time in an organization’s evolution requires not only careful planning, but focused execution.”

Smart Business spoke with Christian about factors that can impact a successful business transition that he has observed during his years of advising privately held, middle-market companies.

What groundwork should be laid before turning over the reins to someone else?

First and foremost, the successor to a business leader has to be the right candidate, not only technically and functionally, but also culturally for the organization. The world is changing quickly and the skills needed to run an organization are different today than they were 30 years ago. It’s important to focus on the critical traits that are required of a new leader.

Once this person has been identified, it is important that they get in-depth exposure to all facets of the business — suppliers, customers, professional service providers and all functional areas within the company. In addition, they should start the process of evaluating changes to shareholder agreements and other corporate documents, life insurance and business continuity plans.

What are some factors that provide for a successful transition?

The team members in the organization will be watching the transition closely. It is important to provide for open lines of communications so uncertainties can be resolved. It also is important for the team to understand the agenda and vision of the new leader.

There can be no doubt about the boundaries dictated by the change. Change creates opportunities and the successor should be encouraged to do things their way. There are many ways to succeed in business and everyone has their our own style. With this in mind, it is important for the new leader to build a team of allies and confidants who will provide them with the necessary support.

Describe some fatal flaws that get in the way of an effective transition?

One of the biggest problems is when a successor attempts to change too much too soon. Tread lightly and be aware of changes that may have an impact on embedded cultures within an organization. Focus more strategically than tactically in the early going.

Often overlooked is the need to openly and thoroughly communicate what is transpiring with all stakeholders — internal staff, supply chain, customers and others in the marketplace.

Another issue that arises from time to time is when the new leader does not effectively relinquish the responsibilities of their previous position. It is important to fully transition these responsibilities so that 100 percent of the focus is directed on their new role.

What if the person being replaced is still with the organization?

This situation can provide opportunities, but also problems if not handled properly. Often the predecessor is a founder or otherwise a significant presence in the company and casts a long shadow. The most important thing is to establish responsibilities and boundaries with the predecessor in a constructive fashion, and adhere to these ground rules.

Take advantage of the cumulative knowledge of the predecessor and value the role they have played in the company’s success. At the same time, the former leader needs to be supportive of all new initiatives and be careful not to second-guess decisions.

Insights Accounting & Consulting is brought to you by Kreischer Miller

Recognizing when the effort to create value outweighs the value created

It’s common that companies don’t focus on value creation until the business owner begins working to generate a meaningful liquidity event as a send-off to a comfortable retirement. But creating value at every stage of a company’s lifecycle in some capacity is possibly just as important.

“At the beginning and during a company’s growth cycle, value creation helps drive growth and increases a company’s competitiveness,” says Steven E. Staugaitis, director of Audit & Accounting at Kreischer Miller. “While the need to increase a company’s value becomes more pressing at the later stages, it takes time to create that value — it doesn’t just happen over the course of a year, it takes several years.”

Smart Business spoke with Staugaitis about creating value in a company, and when the effort to create value outweighs the value created.

Generally, what are the primary ways in which value is created in a private company?

Value is a product of the cash flows a business generates divided by its risk factors. Put another way, companies can influence the value of the business by improving cash flows through increasing revenue, reducing expenses and improving efficiencies; or by reducing risk, which is affected by a variety of factors, including the number and types of customers, recurring vs. project-based revenue, the state of the balance sheet, the depth and strength of the management team, and how dependent the business is on its owner for its continued success.

In what ways can the pursuit of value creation become more costly than the value created?

Value creation becomes costly when the business owner is not thoroughly evaluating the return on the investments the organization is making. Sometimes an initiative starts with momentum and enthusiasm, and then the business doesn’t follow through on it. Instead of making investments that generate a return and add value, the company is just burning through expenses.

How do businesses determine the most economical ways to create value in their companies?

To determine whether actual value is being created, it pays to go back to evaluating what ROI looks like. For example, businesses that are looking to grow their customer base can accomplish this in a number of ways. They can buy another company that already has an embedded customer list, knowing at the time of the purchase what it will pay vs. the revenue it will earn; or look to grow internally by growing the sales team and giving them goals that will present a clear path to the type of return that’s expected. Evaluating ROI is a critical step in determining the most economical way to create value.

How can an accountant help companies in this pursuit?

Accountants have a unique perspective because they work with so many different businesses, which gives them the chance to see how lots of companies handle risks and manage their investment initiatives. They can also participate in or lead strategy sessions with business owners and/or the management team — sometimes it’s good to have someone from the outside who has deep financial knowledge facilitate a discussion or identify flaws in the process.

There are many ways to influence the value of a company. Businesses that do well at this don’t try to tackle it all at once. They take time to identify the key factors, maybe a dozen or so, then they narrow it down and focus on the top two or three initiatives. Less successful companies tend to spread themselves thin chasing too many opportunities, or start and stop and never see anything to completion. As a result, they end up with a lot of activity that ultimately results in nothing gained. Sometimes, when chasing value-creating initiatives, the expression, ‘Done is better than perfect,’ is apt.

Owners should play a role in helping to recognize when they and their executive teams are getting distracted by day-to-day activities that sacrifice time that could be spent working on bigger-picture plans. These plans are vital to the ongoing success of the business and ultimately benefit the business much more in the long run.

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Identifying, understanding fraud is the first step in its prevention

To determine whether a company is at risk for fraud or mismanagement, business leaders need to move their thinking from “outside the box” to “inside the fraud triangle.”

“Recognizing the key attributes and influences of fraud provides a baseline for addressing the risk of fraud in your organization,” says Elizabeth Pilacik, director of Audit & Accounting at Kreischer Miller. “When addressing the risk of fraud, internal controls become more dynamic as the focus is the integrity of the process.”

Smart Business spoke with Pilacik about fraud: its types, the conditions that breed it and how organizations can mitigate it before significant damage occurs.

What are the more common types of fraud?
Fraud exists in various forms, including internal and external, as well as fraud committed specifically against individuals.

Internal fraud occurs when an employee, a manager or an executive commits fraud against his or her employer.

External fraud can be perpetrated by dishonest vendors that bill for services or goods that were not provided, or attempt bribes; or dishonest customers who use false account information or return stolen property for a refund. External fraud also includes health care and insurance fraud. Fraud against individuals is more frequently seen with identify theft, and Ponzi and phishing schemes.

In the financial world, fraud reveals itself through asset misappropriation, corruption and fraudulent financial reporting.

Asset misappropriation is the theft or misuse of an organization’s assets, a type of fraud more easily committed by employees because they have both the ability and access to execute. Corruption exists when one misuses his or her influence in a business transaction to personally benefit — by accepting kickbacks, for example.

The intentional manipulation, falsification or altering of accounting records, documents, and/or transactions is categorized as fraudulent financial reporting. Primarily management or executives commit this type of fraud because they have the authority to override internal controls.

Why does fraud occur?
There are three components, identified as the fraud triangle, that lead to fraudulent behavior. The first component is financial pressure brought on by a financial need such as an inability to pay bills or falling short of earnings or productivity targets.

With a motivation for the crime, the fraudster searches for the second component, opportunity — a chance to solve the financial problem in a way that seems to carry the lowest possible risk.

The third component of the fraud triangle is rationalization, which is the justification for the actions the person caught in the bad circumstance has taken.

What puts companies at risk for fraud and mismanagement?
Potential opportunities for fraud are often more prevalent at organizations that have inexperienced governance structures, financial constraints, IT risks, and weak or nonexistent internal controls.

Management is responsible for the prevention and detection of fraud and error. This is typically accomplished through the proper design, implementation and maintenance of an internal control structure, which includes the organization’s operations, compliance and financial reporting.

For all significant account balances and transactions, management should conduct a risk assessment process to identify, evaluate and estimate the levels of risk involved, and to determine an acceptable level of risk for the organization. The same assessment process is performed for fraud risk — identifying the potential exposure to the various types of fraud and the presence of the components of the fraud triangle.

Who should be responsible for risk management and fraud prevention?
Risk management and fraud prevention are tasks that involve everyone in the organization, but begin with the tone at the top. Management and those charged with governance are responsible for cultivating an anti-fraud culture within the organization.

The fraud risk assessment process needs a proactive, not reactive, approach whereby risks are identified and prioritized. Successfully addressing and potentially mitigating fraud takes awareness, training and communication.

Insights Accounting & Consulting is brought to you by Kreischer Miller

Implement Enterprise Risk Management to survive disaster

Business owners face numerous challenges on a regular basis, but it is the daily challenges that can distract owners from a potentially major catastrophe.

“Too often businesses are unprepared for major disasters,” says Brian Sharkey, director of audit and accounting at Kreischer Miller. “Failing to plan for such events can be a crippling mistake.”

In order to be better prepared for such disasters, companies should implement an Enterprise Risk Management (ERM) process within their organizations.

Smart Business spoke with Sharkey about the impact of ERMs on companies’ continuity and value.

What is Enterprise Risk Management?

ERM is the process of identifying, planning, organizing and integrating the activities of a business to prepare for any dangers, hazards and other risks that would interfere with a company’s long-term objectives and continuity. ERM not only addresses risks from accidental losses, but also includes financial, strategic and other risks, which can be summarized as:

  • Organizational — lack of leadership, obsolete systems, brand erosion, security breach.
  • Physical — unauthorized use, catastrophic loss, natural disaster.
  • Financial — poor economic performance, insufficient liquidity.
  • Customer — loss of market, loss of significant customer share, ineffective alliances.
  • Employee — labor shortages, work stoppages.
  • Supplier — poor quality, ineffective partnerships.

Does this impact a family-owned business differently?

Family-owned businesses face similar risks as larger private or publicly traded companies, but they also have some unique risks. For starters, reputation risk is something a family-owned business needs to consider. Were a disaster to occur, it could have an impact on the personal and business connections of the entire family.

Risks to succession and transfer can be more significant in family-owned businesses, which are typically passed down from generation to generation. In this day and age, it is common for the next generation to not be interested in taking over the family business.

Capital risk is also critically important in a family-owned business. Most private business owners have a significant amount of personal capital invested in their company, and consequently have more to lose if a major, adverse event were to occur.

What should companies do?

Implementing a proper ERM strategy should not be handled informally. With the multiple hats many people wear in a small or midsize company, it is easy for an ERM process to fall to the bottom of the to-do list. Like any good process, it is best to have a well-defined plan with time-based goals and objectives. But most important, there needs to be oversight and accountability.

What does it mean from a governance perspective?

One responsibility of an outside board of directors is to help management minimize risks to an organization’s capital and earnings, looking beyond day-to-day responsibilities to keep leadership focused on long-term goals. A board should be included early on to help identify risks since they hold a unique perspective in ensuring that all stakeholders’ risks are addressed. The board is also an ideal body to oversee the process and those who are actively managing it.

Can ERM impact the value of the business?

Implementing a sound ERM strategy can only improve a company’s value. Businesses are valued based on their ability to produce and sustain cash flows. Unaddressed risks create uncertainty about the future earnings and cash flows, and accordingly, a valuation analyst or even a third-party buyer will look at these very same risks when determining the value of a business entity.

A well-planned ERM strategy will not only identify the risks that most significantly impact a company, but create value and security for ownership, employees and customers.

Insights Accounting & Consulting is brought to you by Kreischer Miller

Addressing these areas of your business could unlock its potential

Growing a business is important. It provides opportunities for earnings for both owners and employees, helps more customers with products and services, and many other benefits. But growing a business takes more than a great idea and some capital. In fact, history tells us that two thirds of businesses fail within the first two years and that only about one-third of businesses make it to 10 years.

Smart Business spoke with Todd E. Crouthamel, CPA, director of Audit & Accounting at Kreischer Miller, about the many obstacles to growth in today’s businesses, their sources and how to address them.

How does hiring affect growth?

Many middle market companies find themselves hiring people when their revenues have increased and they need additional people, or in the event of employee turnover. This staffing plan is reactive in that companies are hiring because of a need. Reactive hiring often results in bringing on people who aren’t the best fit for the culture.

Hiring people who fit a business, when they are available, increases the chances of getting the right people, which in turn increases the chances that they quickly become productive contributors.

Retention is another issue. Employees want to be challenged, valued and feel they are making a difference. That makes employee engagement a critical element of high-performing companies. Components of employee engagement include making sure employees have the right tools for the job, and listening, giving them individual attention and recognizing their accomplishments.

What is it business owners might be doing that could stunt their company’s growth?

How business owners and leaders spend their time is important. Many business owners and leaders work ‘in’ the business, but to be successful, they should spend more time working ‘on’ the business. Business owners who are involved in every decision at their company, from pricing to who to use as a coffee vendor, are too far into the weeds, which leaves little time for strategic thought and planning.

Business owners eventually need to transition away from being so enmeshed in the day-to-day operations. Otherwise, they may have issues with transitioning the business to an inexperienced next generation, or face a reduced selling price in the event of a transaction.

Consider what tasks could be moved to other people within the organization and start freeing up time to be more strategic. If the right people are in the organization, they should flourish with these increased responsibilities. This change will then free up business leaders to lead and do more strategic thinking about the business.

What is the relationship between a company’s value proposition and its growth?

A value proposition is a statement that identifies measurable and demonstrable evidence of the benefits that a customer receives from buying a business’s goods or services. A good value proposition will clearly communicate what the product is, who it is for and how it is good for the user. The value proposition should be communicated to customers, but it should also be communicated internally and woven into each employee’s workday. It’s also the foundation of the company’s branding efforts and training programs. Having a continuous focus on the value proposition will help get everyone on the team working together on delivering the value the company has promised.

An unclear value proposition can stunt growth. Consider reviewing the value proposition by organizing a client advisory board or engaging a third party to conduct a customer survey to ensure that the company is focused on what is important to customers, and that the company is providing the value that has been promised.

Focusing on these areas of a business will increase the likelihood of success. While there are many other challenges to growth, careful consideration of these items should help take care of many other barriers at the same time.

Insights Accounting & Consulting is brought to you by Kreischer Miller

Ohio’s budget brings changes to businesses in and out of the state

With Ohio’s new budget come pro-business changes that aim to simplify tax filing and draw in revenue from out-of-state sellers that have in many ways eluded sales tax collection.

“It’s clear from the provisions in this budget that Ohio is working to improve and modernize its tax laws to help private companies and attract more business to the state,” says Mary Jo Dolson, CPA, partner, State and Local Taxes, at Skoda Minotti.

Smart Business spoke with Dolson about Ohio’s budget bill and the changes it brings.

How is Ohio’s recent budget bill expected to impact businesses from a tax perspective?
Businesses will appreciate the state’s attempt to simplify tax filing with its municipal reform. For example, one provision gives businesses that file in multiple cities the option to file one municipal net profit tax return through the Ohio Business Gateway that reflects all activity in all cities.

This will greatly reduce the filing burden because businesses that opt in file one return to the state, which handles everything, rather than the individual municipalities.

The process for opting in opened on Oct. 19, and March 1, 2018, is the deadline to register. Businesses can file their 2018 returns though the Gateway, but they can’t file municipal withholding payments. Only C corps, S corps and/or partnerships are currently permitted to take advantage of this program.

Another provision of the budget’s municipal reform is a major change to the complicated throwback rule. Cities can no longer require that businesses ‘throw back’ sales of tangible personal property attributable to a state and/or city where the business is not filing to the city from which the goods were shipped.

Under current law, if a business is not filing in the state and/or city where the goods were shipped, the business is required to treat those sales as sales for the city from which the goods were shipped. This is a very pro-business change to city taxation in Ohio. Business owners should talk with their accountant or tax adviser to fully understand how the change affects their business.

How does the current budget affect the state’s sales tax?
There is no sales tax increase, but there are other changes. For instance, the sales tax holiday has been preserved and is approved for August 2018.

But the most significant change in the budget bill is the way in which the state deals with out-of state or remote sellers that sell into Ohio. With the new budget bill provision, remote sellers with $500,000 in sales in Ohio that either utilize in-state computer software to make Ohio sales or utilize a third party to provide a content distribution network are required, effective Jan. 1, 2018, to begin charging and collecting Ohio sales tax.

This ‘cookie nexus’ follows a trend happening across the country. Revenue-hungry states are looking to capture sales tax that’s escaping collection through online retailing with more diligent enforcement and the creation of laws that compel online retailers to collect and remit sales tax.

What pending federal legislation could impact taxpayers?
While many states have adopted legislation similar to Ohio that requires taxpayers to collect sales tax on internet transactions, federal legislation introduced this year is designed to prevent states from imposing nexus standards, such as Ohio’s previously mentioned ‘cookie nexus.’

Instead, it seeks to require a physical presence in the state before a taxpayer can be required to comply with a state’s sales tax laws. Similar legislation has been introduced in the past, but was never enacted. It’s not clear how this legislation will fare or what it will mean for Ohio’s provision targeting out-of-state sellers.

Mobile workforce legislation is also making its way through Congress. It indicates that states cannot require businesses to comply with state withholding laws until an employee travels in state for at least 30 days. This would make a law that varies by state uniform and easier for businesses to comply with.

The laws are ever changing and each impacts a business for better or worse. Now is a good time for companies to talk with their accountant or tax adviser to understand how new and pending legislation will affect their business.

Insights Accounting is brought to you by Skoda Minotti