Watch our Latest Webinar on Increasing Profit and Making Better Business Decisions

Streamed: Tuesday December 7, 2021
Duration: 60 minutes
Language: English

 


 

About This Webinar

The global focus on tax and its pervasive impact on businesses, brings to light the key questions business owners, CEOs, CFOs, and managing partners should be asking, ‘Do we have the right information to properly manage tax within our organization? Can tax extend beyond being a cost center to add value to the organization?

This webinar will explore and explain how tax services can be your strategic partner and enhance your business and business decisions to lower your tax burdens and inform you as to business operations and forecasting opportunities.

Moskowitz LLP provides integrated tax accounting and advisory services to support your business to provide you with a foundation you can rely upon.

 


 

Webinar Transcript

Liz Prehn:
Hello everyone, welcome to Increasing Profit and Making Better Business Decisions. Did you know that your tax advisors hold the keys to your or business and financial data? Quite simply put, because of data business owners and managers can now measure, and hence know, radically more about their businesses and directly translate that knowledge into improving decision making and performance. Steve and Cliff will walk you through the Moskowitz philosophy and approach to how our firm uses its tax services department to benefit its clients. Steve Cliff, take it away.

Steve Moskowitz:
Thanks so much, Liz. And we have a program we call Profit Optimization and we’ve added something, profit optimization and so much more. So to start off with when we think about a business we think about profit and that is what we’re trying to do, maximize your profit. But we’re trying to do other things too, meet your goals, whether those are personal goals of treating the environment better, whether it’s doing business in a certain area, whether it’s dealing with pollution, these are your goals. And one of the things that’s so very important and we’ll primarily focus on the financial, what’s so very important is that when people think about their accounting they say, oh yeah, I’m forced to do these things for the government. Once a year I have to do that tax return and boy, I’m sure glad that’s over with and I don’t have to bother with it for another year. That’s how a lot of people treat things but there’s a much better way to do it.

These records that you have to keep for your taxes can serve you so much better. You can use data to drive your business and you can make so much more in the way of profit. For example, you can have a business person who says, I’ve looked at my finance for last year and I made a profit, I’ve done a good job. Most businesses sell a multitude of goods and services, and suppose we had a business person here who’s selling 10 different items. And if we looked at them individually, and that’s part of what we do with Profit Optimization, we find out lo and behold we make a good profit on seven of them, on three of them we actually lose money. And what that means is that we could go ahead and make more money if we dropped through the lines, or we became more efficient, or we raised our fees, and we can help you do all of that.

And it’s not just about the finances themselves because you look back on your records to do a tax return, but here what we’re saying is a tax return should be a mere summarization of a year’s worth of tax planning. And don’t just think of it as the numbers, for example the people. Suppose you have a situation where a salesperson can visit 100 customers a month, and that means either servicing existing customers or going ahead and calling on new ones. And he or she adds about 10 month. Well a lot of employers hire somebody when the person, the present employee is already over maxed.

So this salesperson, this construction person, this medical professional is now at 110 people or 120. So what do we do? We quick look to hire somebody. But a better way is we say, well how long does it take to hire a good person? Let’s say it was four months. So what we do is we say, all right, when this person gets to about 60 people that he’s calling on, now’s the time to start looking for someone so when we get up to 100 we’re just up bringing the new person on.

And it’s also measuring individual productivity. So suppose you have this situation, you have a bunch of sales people and most of the sales people bring in about $80,000 to $100,000 a month, but two of the sales people are bringing in $20,000 a month. Why? Are they goofing off? Did they get bad territories? Is there something wrong? And we take a look and see well maybe we’re asking somebody to sell snowshoes in Hawaii and that’s the problem, so we can make changes. So the whole idea here of profit optimization is to use data to run your business, to make you more profit, and meet your goals.

For example with equipment, when is the time to buy equipment or should we buy the equipment? So we measure what is the machine adding to the bottom line and what is it costing us? And they say, well wait a minute, there’s some tax credits for doing things and then we can go ahead and we can decrease our costs with tax credits. We were just talking about hiring people. Well there are credits and that’s where the government is actually giving you money back, writing you a check. There are credits for hiring people in a certain category. There are credits for going ahead and having certain type of machinery. And we go ahead and we compare all these, that’s what we’re talking about with profit optimization.

And also it’s very flexible. As we go on you’re going to see that we have the year divided into 12 months and 12 different things, we’re going to take a look at, but it’s not fixed in cement. So for example, if you join us in month third, that doesn’t mean that we’re skipping one and two. Or if you have a burning desire to talk about what we would normally talk about in month five that’s fine, it’s tailored to your individual needs. And we also talk about we can work with your accountants or we can be your accountants, as you probably know if you know me. Before I was a tax attorney I was a CPA, so we offer both legal services and accounting services. My colleague Cliff Capdevielle is also an attorney and accountant, and that’s a big advantage to clients.

And the bottom line is I could go on and on and on and speak for hours about the importance of brevity, but now is the time to turn it over to my colleague, Cliff Capdevielle, and we’ll begin taking a look at some of this detail. Cliff, the floor is yours.

Cliff Capdevielle:
Everybody knows the importance of keeping good records, keeping your profit and loss statement and your balance sheet in good order. What a lot of small businesses don’t do or don’t realize they can do is track what are called key performance indicators, these are the milestones that every business should be using to help them navigate their business strategy. So what are these milestones? Typically, they reflect either the sales if you’re, as you mentioned that’s an important metric to track, but also give you the ability to make adjustments when necessary. So we’re going to talk about that in some detail today. And as Liz introduced the topic, we are taking a proactive approach to your business management which is based not just on the accounting record, but also on tax opportunities. As Steve said, oftentimes we can use the tax code in a way to change those metrics, we can bring down the cost of employees with employee tax credits for example.

Steve Moskowitz:
And I’d just like to inject one thing here that Cliff was talking about that’s so vital. When we talk about the tax code, the tax law, everybody thinks of it as oh yeah, I know what the tax law is. That’s where they extract money out of me. Here I’m working so hard as a doctor or in my construction company and that’s what the tax law is about. And that’s one of the things the tax law is about, but there’s another part too. Our country’s a democracy, in a democracy the government can’t order us to do something. They can’t order us to hire people, they can’t order us to buy a new building, they can’t order us to buy a machinery. But they say well certain things are good for the economy, so how does the government get to have us do something that they want us to do but they can’t order us to do?

They give us tax incentives, another way to think of that is they write us a check. One of the questions I always ask new clients I say, do you think you make more or less than the Apple computer company? So of course I make less than Apple, everybody does. And I said, but who do you think pays more in taxes? And that is the point that drives it through with the tax code as to it’s so important. There’s so much in here that the government can actually help fund what you want to do in business. Thanks Cliff, and back to you.

Cliff Capdevielle:
Thanks Steve. So how do we manage these key performance indicators? What are we looking for and why is this something that you would want to do? So obviously as I mentioned, you want to assess the health of your business on a regular basis, and that’s through sales. You want to keep people accountable as Steve said, if you have a group of salespeople who are underperforming you want to know that. There are other metrics that you may be tracking, marketing metrics for example, maybe you want to track how well your website is converting website visitors to leads. Maybe you want to know how an email campaign is working, what’s the response rate? All of these things can and should be tracked.

And so the question we start with is why don’t small and medium sized businesses regularly track these things? And the answer is simple, for most small businesses if you’re a contractor, if you’re a restaurant, if you’re a medical office, your budget really does not allow you to do much in the way of what we call financial planning and analysis. Because most small businesses don’t have a CPA on staff, they don’t have the resources to hire a McKenzie, or Bain, or a Boston Consulting Group. Those minimum fee, I think now Steve for McKenzie Project is about $1 million. So even for the smallest project it would be way out of the budget for a small business. And it’s very expensive to have a full-time CPA. In the Bay Area an experienced CPA is going to cost you anywhere between $20,000 or $30,000 a month, it’s just out of the budget for most small businesses.

And that’s where we come in with these services, so what we are doing is we are providing similar information to small businesses within their budget. So what Steve has done for the last 35 years is create a suite of services that can be accessed by small and medium sized businesses. He mentioned the tax credit studies, but also the accounting method changes, depreciation analysis, cost segregation, pension planning, all of these services Steve’s been offering for many years to small businesses who thought, if they were even aware that they were available, thought that these services were outside their budget and they’re really not. And this is really the difference between a business that pays a lot of tax and a business that pays little or no tax.

Everybody has heard in the news that Jeff Bezos, Elon Musk, these guys don’t pay any tax. Well why is that? Well they’re taking full advantage of the tax code, they’re using every available method to reduce their tax. And as a result they pay little or no tax. So we may not get you to Jeff Bezos level, but we’re certainly going to improve your tax situation with these suggestions. It’s a year round approach, so this is a little bit different than some of you may have been experiencing with your CPAs or tax advisors. This approach that we’re suggesting today is that we touch base on a regular basis, at least monthly to look at your business, we’re going to take a look at those key performance indicators on a regular basis, as well as doing year round tax planning. And that’s something that many of our clients have asked for, and when they start down that road they ask for more. And we are offering this to even the smallest businesses who really didn’t think that they could afford any of these services.

Steve Moskowitz:
And you know, where this comes up all the time is that sometimes when we take a client for the first time or representing him or her on an audit and we have to go through the records and we said, well wait a minute, your records are really different than what’s on your tax return. And how could that be? And they say they don’t know. And a lot of times when we represent somebody in audit, instead of the dreaded oh, you have to write that check to the IRS, the IRS actually writes them a check because they were entitled to all types of things that they didn’t even know about. And that’s one of the things we want to stress where there’s so much in here that you have to do it anyway, but there’s so many advantages where you can save tax money, have all the kinds of benefits, and run your business better.

An awful lot of business owners, whether you’re in construction or medicine or anything else, they really spend long hours working on their business. And they say, you know what? I don’t even have enough time for a full night’s sleep, what are you talking about? When in actuality we can use this information to run the business. You can run it better, you can be in charge of things. And if somebody asked you a question rather than gee, I don’t know, literally with the touch of your fingertips you can get that information on your computer. You’re in charge, it makes a huge difference.

Cliff Capdevielle:
Thank you, Steve. The approach that we’re taking as I may mentioned is year round approach, so very briefly and we’re going to talk about all of these in detail, but we start the year with the operating plan. The operating plan is your roadmap for the year. This is where you lay out your objectives, those activities necessary to meet those objectives, and the plan, the deliverable or the working document. That’s your operating plan, that’s going to be based on your overall strategy. But the ideas, we talk about that in January, February, we’re talking about the year end close. March, of course for most businesses is where we’re interested in talking about taxes and compliance. April, we’re going to dig deep into the KPIs, the key performance indicators, see if we need to adjust any of those.

Steve Moskowitz:
And one of the things that’s important here, there’s so many clients where we start this and they have a few ideas, and then what happens is this grows and grows and grows and we watch people get excited. For example with the pension plan, some of the clients have said to us, oh my God, I was complaining about paying my taxes, and now it’s a couple years later and not only did I save these taxes, but I have this big amount in my pension. I have something to look forward to in retirement. And then it’s like pulling sugar plums, well I have this idea and we do this idea. And what happens is we build on it, and we adjust it, and using the computers, it’s not like the old days where somebody read a book, we’re constantly changing things, constantly monitoring. And people are amazed and just like learning, you learn a little bit, and you learn some more, and you learn some more, and then you become quite sophisticated. Cliff, thank you.

Cliff Capdevielle:
Thanks Steve. So throughout the rest of the year we’re checking in, we’re looking at your strategy, we are readjusting your approach to any of these plans, your forecasts and budgets may change throughout the year. We’re looking at your employees. As Steve said, very important metric for most small businesses. And then we check in at least once a year on your long range plans. What are you doing with your business? Are you retiring in five years? Are your kids taking over? Or do you want to expand? Do you want to grow your business? We’ll talk about those issues. At the end of the year we’re talking about liquidity issues, do you need to raise money? Do you have an equity line, line of credit? Do you need to expand that? November and December, of course we’re talking about year end tax planning. And finally, we’re going to take one last look at your KPIs and make sure that those still make sense at the end of the year.

So let’s talk a little bit about each of these in some detail. So what’s the annual operating plan? Well this is based on your strategy and this is going to be a way for you to throughout the year take a look at a framework, and we’re going to lay out your objectives and make sure that those coming from your strategy are making sense. We’re going to take a look at any activities related to those objectives. And after we make sure that your strategic plan is in place and makes sense we identify your important goals for the year. So this is at the beginning of the year, it’s a good time to take a look at goals. Are you interested in increasing sales? Are you focused on employee productivity? And we’re going to help you select those key performance indicators.

We’re also going to make sure that we have a system to track those and regularly check in with those key performance indicators, make sure that they make sense, and then communicate those to the team. So that’s the idea with the operating plan and that’s something that you want to do at least once a year. And for most businesses, beginning of the year is a good time to take a look at those issues. You want to say anything about that, Steve?

Steve Moskowitz:
Yes, I do. Thank you, Cliff. And what happens is this is a good time to actually sit down and think about the business in large terms. And what I’ve found with an awful lot of clients is you’re so busy running the business and taking care of the details and returning the phone call to Mr. Smith, that you tend to over look the long term, big range goals. What happens with the system we have, this kind of guides you into doing that. Where at some point we say, look, let’s step back from the day to day Mr. Smith and Ms. Jones here, instead let’s take a look at the long range goals. And what you’re going to find is it helps you shape things and all the things come together.

Like instead of being so ingrained with the details you can start to pass work off to other people, you measure their productivity, and then you can do higher level work, grow the business, and achieve your goals. You’d be amazed at the difference this makes. And after you take the first step you’d be amazed it gets easier. The biggest one is the first step to go ahead and do it, and once you do you’re amazed. And then you get to like it and you say, well what else can I do? And let me have another and another, it’s just amazing to watch this.

Cliff Capdevielle:
Thanks Steve. And after we have the annual plan nailed down in February most of our clients need a little help with year end close, closing your books. What does that mean? Well it varies, it differs if you’re accrual or a cash basis, but for most of our clients they want to make sure that they’re recording all of their expenses, that they’ve separated their personal and their business expenses. If you’ve made loans to the business or if you’ve paid business expenses with your personal credit cards, we want to make sure that that’s straightened out. If you’re an accrual basis taxpayer then you want to make sure that all of your vendors are paid before you close your books so that you get those tax deductions, and make sure that all of your invoices are out and paid for the end of the year. We reconcile your bank account if you haven’t done that, make sure that your bank records tie out to your books.

Steve Moskowitz:
And that is so vitally important because again going back to audits, one of the first things the IRS will do is they’ll add up all your bank deposits and compare to your gross revenue. You would be amazed how often the deposits are different than the tax return. And if we’re representing the client for the first time we haven’t done his return we don’t know him we’ll say, well what’s the difference? And they say they don’t know. That shouldn’t be the case, that’s one of the things that we measure and that’s how we keep track of things.

So if your bank account has a deposit of X, the top line of your tax return may very well be different. You can have transfers back and forth, loans, non-taxable items, but the first thing if you’re audited the IRS agent is going to ask for what’s the difference between the bank account deposits and the top line on your tax return? That isn’t something you should be scrambling if you get audited, that is something you should do first. And it can prevent a lot of problems too and prevent missing things, both benefits and other items. Cliff?

Cliff Capdevielle:
Right, and that’s why we want to do that early. We don’t want to do this in March a week before the tax return is due, we want to look at those issues in February while we have time to address those.

Steve Moskowitz:
And they also keep you out of trouble. Cliff and I had another client where the client told us he was losing a lot of money and we were originally thinking about doing an LL, and that operating law said, well wait a minute, are you putting your own money into the business? No. Are you borrowing money? No. Well then how do you know that you’re losing money and that’s physically impossible. You can’t withdraw $100 from a bank account that has $30 in it. And that prevented this client from having a major problem. He never even realized that he didn’t know he was doing anything wrong, it was a simple mistake that his bookkeeper was making. But over and over through the years I’ve seen that simple bookkeeper’s mistake cause a lot of problems. And again, we can either work with the accounting staff you have or we can be your accounting staff and we can do everything remotely for you using QuickBooks online. You don’t have to leave your office or your home but you get control all over these things. Cliff?

Cliff Capdevielle:
Exactly, Steve. So the last thing we want to take a look at the end of the year is that you’ve updated your fixed assets and you’ve run depreciation for book purposes and for tax purposes. And that’s a time we take a look at possibly doing a study, making sure that those depreciable assets are all categorized in a way that makes the most sense for you tax wise. So for example, if you own commercial real estate maybe it’s time to do a cost segregation study or otherwise maximize the tax benefits with regard to depreciation.

Steve Moskowitz:
And what a cost segregation study is, is normally most people that own commercial property just take regular old depreciation, which is 39 years if you’re in a commercial building or 27.5 if you’re with residential property. What cost segregation does is it enables you to take accelerated depreciation where we can greatly increase your depreciation. So we can have something beautiful, which is a positive cash flow. The amount of money that we take in from the building is more than the amount of money that we spend on it, but you have a tax loss. Now under the general rules we can bring that down to zero, and even though you made more cash than you spent you don’t pay any taxes on that.

But then a question always comes up, well wait a minute, I have this paper loss, this book loss. We don’t write a check for depreciation but I have this paper loss. Can I offset this against business income, wages, dividends, interest? And although the general answer is no because it’s treated as passive, there’s an exception. And if you’re married only one spouse has to meet the exception. It’s called real estate professional and one of the things we do is because we’re keeping track of this all year, if possible we can work with one of the spouses and if they qualify as a real estate professional then you have the situation where not only do you not pay taxes on the profit of your building, you can legally avoid paying taxes from your business, wages, dividends, interest, and other income. It’s a beautiful thing.

Cliff Capdevielle:
Absolutely. And of course most of our businesses are S-corp, C-corps, or LLCs, so March is the month that we dive deep into tax. We’re going to make sure again that we’ve got all of the deductions straight. If we have, this year of course we’ve got a lot to think about with the, for example the coronavirus relief issues, whether or not your PPP loan money is taxable. It may be taxable for the state and not for the IRS or possibly it’s not taxable for either, we’re going to look at those issues. Obviously, we’re going to make sure that all of your pension plans are fully funded, that you’ve maxed those out, you’ve maxed out all your depreciation, and you’ve carefully segregated your personal expenses from your business expenses to make sure that you pay as little tax as possible.

Steve Moskowitz:
And there’s other areas that we help you with here too. For example as Cliff was saying, because of the coronavirus you may have had to be innovative, made changes, done new things in your business, and that’s good. But we say, well wait a minute, the government rewards that with R&D, research and development credits. So we actually take a look, what did you do? Does it qualify? And if it does for money you’ve already spent, not spending a new penny. We say, government, you owe my client some money for that and the government writes you a check for research and development. Again, the big companies do that.

And we talk to you about things, for example in the Tax Cuts and Jobs Act people lost the ability to deduct state taxes paid in excess of $10,000 on their federal return, but almost half the states have enacted legislation that’s a workaround. And we say, well okay, in order to do that we may have to be an S-corp. But then we say, oh, the Congress right now is considering upping the $10,000 to $80,000. So the bottom line is we keep you apprised to that, and if you’re in that situation we say, look, a change in your entity could be a big tax deduction which otherwise is going to waste.

That’s all part of this is getting to know you and keeping constant track of this. And also we’ve dedicated our professional careers to this. And if you’re a medical doctor or in construction or a restaurant, we wouldn’t expect you to be familiar with the tax law anymore than we can do brain surgery. However, it’s our job to say, hey look, be aware of this, be aware of this, be aware of this to all help you through your business.

Cliff Capdevielle:
Thanks Steve. And April is when we take a deep dive into your key performance indicators, your KPIs. Those are going to be more or less customized for you. Obviously, if you’re in a particular industry we’re going to use the industry accepted KPIs, but maybe you want to track something in particular. Maybe you’re expanding your marketing budget, you want to take a look at seven or eight different KPIs related to marketing. Or perhaps you want more detail about how your sales team is performing so we’re going to take a look at all of those.

Steve Moskowitz:
And if you do expand into those other areas we can let you know how worthwhile it was. Suppose you said, okay, I’m going to spend more money in this area. What was your return on it? These are all things we measure.

Cliff Capdevielle:
Yeah. And these can be company wide measures, these can be particular to a department, sales, marketing, operations. This is really where we can customize a solution for you and the way that we do that is we use what are called dashboards. So these are similar to what a pilot has in a cockpit, these are typically between five and 15 of the most important key performance indicators that we put on a dashboard using what we call tiles. These are ratios, for example cost of customer acquisition, the employee turnover, any of these things that are important to you that you want to track on a regular basis, we create a customized dashboard for you to look at. A lot of businesses run with those.

The CEO or CFO might once a day or twice a week just take a look at the dashboard that we’ve created for them and that’s enough information. Most CEOs really don’t want to spend their day looking at spreadsheets. As much fun that is for Steve and Cliff, a lot of business owners have other things that they want to do. So the dashboard is really a way to run your business with enough information to help you guide your way without overwhelming yourself with details. Can you imagine a pilot who had to print out a spreadsheet and look at each indicator for his fuel, for his altitude? It would be a nightmare. So the dashboards that we create are a simplified way to take a look at the business data and run your business that way. I’ll give you a quick detour down the Excel nightmare. We have had clients who don’t have CPAs on staff and they attempt to create their own budgets and forecasts using Excel. You spend a ton of time doing that and really if they get any useful information it’s after a tremendous amount of effort.

Steve Moskowitz:
And Cliff, what happens if the bank asks them to make a change and they make a change in that

Cliff Capdevielle:
And that’s where it really turns into a time consuming project. Because if you change one cell it may or may not flow through properly to the other cells and it really can be a mess. If you don’t have somebody who’s an absolute expert in Excel with a CPA license it can be overwhelming. A few years ago we had, JP Morgan went through what was called the London Whale Debacle, and after JP Morgan had paid out the $6.2 billion in losses Jamie Diamond commissioned a deep dive postmortem to figure out what went wrong. And this is my favorite quote from the report, it says the model operated through a series of Excel spreadsheets which had to be completed manually by a process of copying and pasting some data from one spreadsheet to another. And as a result, one of these cells was improperly pasted to another and that ended up costing JP Morgan a little over $6 billion.

So it’s not just small businesses who struggle with this, really what we found is almost every business of any size struggles with the Excel spreadsheets when they attempt to do any kind of detailed budgeting, forecasting, or other analysis. So we’ve simplified that in a way that you don’t have to do that at all. We’re going to pull the data from your QuickBooks file, we’re going to create these reports whether it’s a one year budget or a three year forecast, whatever you need. As Steve said, that’s going to be dependent on the external users. Is it a bank that needs the information or is it for your internal reporting? We’re going to create the reports in a way that’s useful for your business. You want to add anything to that, Steve?

Steve Moskowitz:
Yeah, one of the things that you were talking about, that is the financial equivalent of the $0.39 part that brings down the multi-billion dollar rocket that is so important. And you think big companies, they all do things perfectly. They do a lot of good things, but you have a situation like this where it’s costing them billions of dollars because they’re doing something by hand. And the worst part is, and I know that from the CPA background, is when you have to make a change. One change on one financial statement can cause a whole bunch of changes in other financials.

And if something doesn’t get changed that can be harmful. It can be harmful because it can lose you money, or the bank could accuse you of giving them a wrong or dirty word, fraudulent financial statement, or maybe cause you not to get the loan you deserve, all kinds of problems that can be so easily avoided by doing what Cliff and I are talking about. And when you need this information just pressing a button, and when you need to change something, there’s almost always changes. The bank says, well we’re interested in you but what about if this? And what about if that? And how about so and so? You can easily and quickly make the changes. It also shows the bank that you’re large and in charge of your business and [inaudible 00:39:49] beneficial.

Cliff Capdevielle:
Thanks Steve. And in May we turn our attention to the big picture, strategic business review. And while we’re not going to run your business, we do work with many, many small businesses and we have that experience, Steve’s been doing this over 35 years. So if you’re a contractor, or restaurant, or you’re running a medical practice, we can talk to you about the strategy, the big picture. What are the big picture goals? How do you intend to implement those in the long run? Who are your key people? How are you going to use them in the years going forward?

Steve Moskowitz:
And although we’re certainly not running your business for you, here’s something that comes up all the time. A client will have a particular problem and say Cliff or Steve, have you ever come across this before? And when you say yes, this is a common problem. And more importantly is, is there a solution for it? Well yes, we’ve had other clients that have that same problem, and when they did X it solved the problem. That is so beneficial because when you’re running a small business you don’t really have the resources to call on and say, well how are other people handling this? You don’t have to reinvent the wheel if most people or a majority of people have pretty much the same problems. And when you have solutions that work for other companies that say, well look that comes up all the time, here’s how to handle it. That’s a, first of all it’s a comfort, and secondly you have a solution that’s been proven and tested by others. You don’t have to worry is it going to work or not, there’s a track record.

Cliff Capdevielle:
Exactly. And in June we’re at midyear, so we’re going to take a look at how the operating plan is working. You launched it in January, does it still make sense? Do you need to make adjustments? We’re going to review all the KPIs and other metrics. We’re also going to look at tax planning and tax compliance at midyear. Are all of your estimates current? Are all your formalities, the corporate formalities, are those all in place? Your regular meetings, your minutes, et cetera, look at all that at midyear.

Steve Moskowitz:
And the reason the formalities are so important is, for example a lot of people become corporation for limited liability. In our world today everybody loves to sue and somebody sues you, well the reason you formed that corporation in large part was for limited liability. So if something goes wrong the loss is contained in the corporation. But the enemy lawyer is going to try to say, well you know what, judge, this person is not really running the business like a corporate, they’re really running it like his own solo show and therefore we should have at his personal assets. That’s why these formalities are so important. And also with our midyear review, think of it like artillery. It’s rare that the first shot hits the bullseye. So what happens, you take a look where did the first shot land? It was a little right of the target so you adjust the muzzle a little to the left, and that was a little bit too much to the left. A few adjustments and you do hit the bullseye and that’s part of what we do here. And it’s not only this month, it’s all the times. And again, what I want to stress and what I opened with is we broke it up like this in a year because these are multiple things we do for you, but it’s not fixed in cement. And we can certainly deal with any of these at any time during your business year practically. Cliff?

Cliff Capdevielle:
That’s an important point. These are jumping off points, and you may have a tax audit come up and that may trump the effort that we’re putting into developing KPIs. So certainly this is our preferred method to work, but certainly emergencies come up, other priorities come up and we’re certainly going to be open to working with all those issues throughout the year.

Steve Moskowitz:
And crises are common to every organization, whether it’s government or a business. And when some crises hits we’re ready to say, okay, we have the information, here’s how to respond to that, here’s what’s to do. Rather than oh my God or worse yet, did you do something wrong? And now to July.

Cliff Capdevielle:
And July, of course this year more than any in recent memory businesses have been focused on employee costs, how to retain employees, how to hire employees, it’s been a real challenge. Staffing, a lot of businesses have been significantly impacted by the Great Resignation and they’ve had to dramatically increase salaries this year. Is there any way we can help with that? We’re going to look at the metrics, see where we are in terms of employee turnover, employee costs. And as Steve mentioned, this year there are a bunch of opportunities to hire non-traditional employees and those may make you eligible for significant tax credits as well.

Steve Moskowitz:
And here’s one of the things you have to watch out for in what we do. Certainly we use computers and they do a lot of good things for us, however what we also do is put the human touch in. For example, a lot of companies are complaining I can’t hire anybody, I can’t hire anybody, there’s nobody available. And what happens is they use these completely computerized searches. And this search will go ahead and eliminate a lot of people that maybe shouldn’t have been eliminated. For example, some employers say must be college graduate, so everybody who doesn’t have a college degree is eliminated. Does this job really need a college degree? Well if it doesn’t you can expand the parameters, and now all of a sudden you can talk to a lot of good candidates that before you didn’t even know existed.

Not to mention what Cliff was talking about with the tax benefits, the government so wants employers to hire people that they’re offering all kinds of credits for all types of different groups. And one of the credits gives you up to $9,600 per head. So suppose you’re a restaurant, all the restaurants are crying, hey, we have to close down hours, we don’t have enough people. Well suppose you went ahead and you hired 10 people that qualified, the government writes you a check for $96,000. To a lot of small businesses $96,000 would be a nice chunk of change that the owner could invest in the business for even more employees, or equipment, or take some of it home, or use some of it as an incentive to hire on say, hey, if you hire on to my company and you stay longer than such period of time, I’ll give you a bonus. And that, you’re writing the check from the money the government gave you and that goes on and on and on. Cliff?

Cliff Capdevielle:
Thanks Steve. And in August we’re looking at goal deployment planning. And so here we started out in January with our annual plan, we took a look at that in mid-year, and in August we’re going to make sure you’re on track. We’ve reviewed your strategy in May and we talked about some long term goals, and we want to make sure that those plans are being implemented. So typically we look at your processes and make sure that the plan that you put together at the beginning of the year and in the prior year with your strategic plan is all happening, and [crosstalk 00:48:44].

Steve Moskowitz:
-It’s not an on and off switch, it’s constant adjust. And think about it not as an on and off switch but as a dimer switch that can go all the way off or all the way to maximum brightness, but there’s a lot in between. And that we’re constantly adjusting it and when you make an adjustment you say, oh, you know what, I can adjust this more, I can adjust it more. That’s why we have these regular meetings. It’s not just a list, yes or no. Did you do this? Yes or no. It’s, well how’d you do it? And then do this, do this more, do this even more. That is some of the beauty of this plan that we’re constantly making adjustments, and that’s one of the benefits with computers that you’re constantly making adjustments. It’s a difference between reading a book that’s set in a particular period time and reading something on the internet where it’s constantly changing and being updated. Cliff?

Cliff Capdevielle:
Exactly. And September we’re looking at the long range, three to five years or even the life of the business. So this is a time to talk about what your ultimate goals are. Do you intend to sell the business? Hand it over to your kids? Should we be talking about estate planning, making gifts of business interests? Or are you in growth mode? Are you thinking about raising money from professional investors? All of those issues we’d take time in September to talk about those.

Steve Moskowitz:
And also when you’re talking about raising capital, that’s a really important question. So how are you going to do that? Do you have a check that you can write from your personal account? Can you take a second mortgage on your house? Can you fund it with your credit cards? Can you go to the bank and ask for a loan? Or do you want to sell stock and raise equity? There’s a big difference between bringing in money that’s a loan and bringing in money that’s equity. And Cliff and I could do a seminar just on that alone, but the bottom line is when you need to raise money, and most people do, that’s a major decision and we show you all the differences in raising it on your own, or with a loan, or with equity, that’s a big one. Cliff, back to you.

Cliff Capdevielle:
And following up on that, in October if needed we do a deep dive into the liquidity and capital planning. So is you your equity line sufficient? Do you need to increase it? Do you have any cashflow issues? Are you in a seasonal or cyclical business and you need working capital during the year? We’re going to talk about how to deal with the banks. As we mid mentioned earlier, oftentimes a small business, medical practice, construction company needs to raise money or you need to buy equipment, maybe you need money to hire staff during the off season. All of these issues require relationships with banks.

And guess what, banks want to see clean financial statements. They want to see the three to five year forecasts and that has to be done by a professional. Now you may have a bookkeeper who is great and comes in twice a week and enters your receipts and your expenses, but that person probably is not going to be able to put together a three to five year forecast. You’re going to need a professional to do that and we’re ready to help you with that if that’s what you need.

Steve Moskowitz:
And we also help you after you get the money because here’s another trap that small businesses fall into, you go ahead and you get that credit line. Well now you have to pay your bills, but what you find out is each month you’re paying out more than you’re bringing in. But now with the credit line you can still write a good check, but you can only do that for a limited period of time. So if you’re spending more than you’re taking in, why are you doing that? And that has to be very short range.

For example, if you said, oh, I bought some new equipment and I had a deal, I didn’t want to finance it, that’s fine. But if it’s just for normal operating expenses it’s not because then there’s a problem, we have to look at well wait a minute, you’re either not charging enough or you’re being inefficient, but you can’t continue to draw on the credit line for the monthly expenses because that’s going to run out and then you’re going to have a big problem. That’s part of it, it’s not just, okay, we got you your credit line. Thanks very much, goodbye. It’s well no, how are you using it? And you’re constantly tracking and monitoring this. How am I using it? What am I doing? What am I making a profit on it? What are my costs? That’s all important part of what we do here. Cliff?

Cliff Capdevielle:
Thanks Steve. In November we’re turning our attention to tax planning. So we start November instead of December in case there are any major issues that we need to deal with. So many big issues this year, and Steve mentioned the COVID driven innovation may make you eligible for an R&D tax credit, this makes sense to do an R&D tax credit study. The interest expense limitation is now affecting businesses that have a lot of loans, you’re limited to 30% of your adjusted taxable income in many cases so maybe it makes sense to pay down some of that debt. Remote worker issues, a lot of people are hiring employees in other states and other countries, those create tax issues and we deal with those as part of our tax planning. Maybe you’re going to have an NOL this year, does it make sense to minimize that or do you want use that in the next year? We’re going to talk about those kind of issues as well.

Steve Moskowitz:
And also we have to interrelate things. For example yes, the tax planning in November is really a summarization of all we’ve done during the year, because we’ve done things all throughout the year that’s going to save you taxes, in November we’re summarizing it for you. And another thing we do with tax planning is say tax planning is nice but are there some other things I need to deal with? For example, suppose you say, you know what, there’s an expense that I could prepay and wipe out my taxes. Is that a good idea? Well it saves taxes but what if you have a credit line that requires you to have a certain profit or the bank can call it?

So it’s terrific you save taxes and the bank says, oh, well wait a minute. You know that money we lent you, now we feel insecure under the terms of our agreement. We’re calling the loan, you have to pay us all back today. We want to avoid that. Or even if you have that situation we could still talk about going to the bank and saying look, I’ve made a profit of X so far and that’s well above what you require me. I can save taxes which makes me even more liquid if I wipe that out with this expense, but that would violate paragraph so and so of our loan agreement, what do you say about giving me an exception to that? I think it’s a good idea. And if the bank says it, they’re happy with you because you kept on top of things, they’re happy with you because now you’re even more liquid, which means you’re even more able to pay them back, and you’re happy because you saved tax and you didn’t violate a provision of your credit line, they could otherwise have destroyed you.

Not to mention are other provisions that we have to worry about, like do you have a credit line that says for 30 days you have to not use it, you to be out of debt with them. Well okay, is it with them or is it with everybody? In which case maybe we have two credit lines. Or what are we doing with the money? There’s all kinds of things that are involved here and the bottom line is we want to see you prosper.

Cliff Capdevielle:
Exactly. And finally in December we’re going to take another look at the KPIs and internal control. So we’re going to look, we’ve set up these KPIs and adjusted them throughout the year. How did we do? Does it make sense to review those now, change those? We’re going to take a look at your policies and procedures, and reviewing your accounting data and make sure that it’s all in line with the direction that you want go with the company. Anything you want to add to that, Steve?

Steve Moskowitz:
Yes, the bottom line is another thing that I’d like to say is nice. Because we’re so familiar with your situation when we do this, you can call us and you can have a lot of good advice that we already are tapped into. For example it’s like a medical doctor, if you call up a medical doctor and you haven’t seen him or her before and you say doc, this or that hurts. So doc said, well okay, come in for an examination, I’ll try to see what’s wrong with you. But if this is your regular physician that you go to all the time, you say doc, my so and so hurts again, he or she knows, oh look, here’s what you have to take and you’ll be fine. That’s still another benefit with doing this. And back to Cliff.

Cliff Capdevielle:
Thanks Steve. And we’ll turn it back to Liz and she can tell you how to get in touch with us if you have any follow up questions or if you’d like a copy of the slide deck.

Liz Prehn:
Yes. Thank you everyone and thank you Steve and Cliff, that was interesting. You’ll be getting an email with a slide deck and an offer to see the recording of this webinar. And please feel free to reach out to us for a consultation, you can call the office or contact us through the website, MoskowitzLLP.com. Thank you.

Steve Moskowitz:
Thanks to all.