MHW recently conducted a survey of readers to determine the most urgent issues you as business owners, business executives or department managers are facing in this current business climate. I saw the survey and had some thoughts on what would be in the top 10 and was somewhat surprised when the top 10 contained what you might describe as soft issues as opposed to operational issues that MHW commentators normally address.
So this month we are going to ponder those soft-hard issues that drive you nuts, keep you awake at night because you have absolutely no idea how to deal with them that makes sense and those you still don’t understand after reading various articles or after spending money for someone to explain them to you. Recognize the symptoms?
Even though these soft issues do or may not have a direct impact on daily operations, they can have a negative impact on your job and business. It is the risk component that increases making you and your company subject to law suits, tax audits, fiduciary responsibility issues, fines, tax assessments, labor law violations
It is downright nuts! And I doubt there is a company out there that is 75% compliant with all that is out there at the moment. Heck, some of the regs still contain blank pages to be completed.
Based on personal experience I can tell you that review and compliance is a very time consuming matter, made considerably worse if the people doing the review are not experienced in such areas. There is no doubt in my mind that outsourcing such activities is a much better option because professionals will quickly cut to the chase and point out the issues with the highest risk. After reviewing alternatives and reaching conclusions you can ask for a written summary of the process in case it gets questioned by a government office. There is also no doubt in my mind that professionals are more careful about making suggestions if they will have to document their findings.
Taking this a step further, it pays to outsource the preparation of those filings with the most exposure attached to them. I don’t know about your business but the ones I work with seem to have a new form arrive every month for some state or federal government body. You can tie up key elements of your accounting function filling out these forms as required. Quite frankly, you cannot afford to let your financial reporting suffer because you have meaningless government forms to fill out; you need timely information to run the business. Let somebody else do it.
Let’s review equipment use tax as an example of what can happen. In Illinois, we pay a use tax for rental equipment….to the state and Chicago and more recently to Cook County. If you are in the rental business you are easy pickings for these taxes and in many cases you pay large sums to these entities. Pay large sums to these entities and you wind up with frequent visits from these entities looking for more. Does it surprise you that these audits tie up your controller or their department for a month or so, and maybe even longer. The auditor comes in and asks for 700 invoices with support even though 99 % of what I pay them is related to the rental equipment we bought, which is reviewable in about two hours. You cannot imagine how much time these audits take. You can get through an IRS exam in less time. If you find yourself in this situation I think you will find you are better off fending this off on a sole practitioner, an experienced accountant working from home or the small biz department of a local CPA firm.
Another pro you need to solidify a relationship with is a good state and local tax person. Every taxing body in each state is looking for money and they will assess you to the max and get away with it unless you have an experienced state and local tax expert on your side. DO NOT assume your CFO or controller or federal tax preparer is a highly qualified state and local expert. They may be but most likely are not. Being in the rental business means you are talking big potential assessment dollars. That being said, it is worth the cost to have a state and local pro defend your position and assist with your state and local tax planning.
Getting to the big gorilla in the room let’s discuss the Affordable Care Act (ACA) and the 2500 pages (now it is 3000 I think) of regulations and compliance standards that need to be met in 2014 and 2015. If there ever was an area where business owners and executives need to outsource as much potential liability as possible, this is it. If it was me (and it was me) I went to two or three different brokers and firms to get their take on ACA, where my company stands currently and where my potential risks lay going forward. Assuming health cost is going to skyrocket I asked for suggestions to minimize cost without hurting the employees too much. It worked, I have a good plan for much less cost because we moved employees and spouses eligible for Medicare on to Medicare, made sure covered employees were not covered on another plan and moved to a high deductible plan that kept out-of-pocket costs the same. We also reviewed contractor and part-time relationships. We also discussed what changes in cost would take place if certain employees left the plan for the state exchange. Needless to say we do not make a move about any health care issue without checking with the broker we selected.
One other major area concerns income taxes; federal, state and local. We have discussed these issues recently in my regular column. The major issue you face has to do with rental activity and the new 3.8% ACA tax on investment income. I have spoken to some dealers who believe they do not have an issue….. but they do. Even if you believe you don’t have an issue with this new tax you may want to know what impact it would have on cash flow should the IRS decide you do. I hate to say this again, but this is another area where you need a pro to help you understand this issue to see what exposure you may have. It is a complicated question with a lot of moving parts. On the bright side I am working with AED’s DC office to get this exposure eliminated. You will be kept informed.
Let’s see, what other government programs can we discuss? How about the fiduciary liability associated with employee benefit plans? In case you are wondering it is personal liability. You have heard about this before but have you done anything about it? If not, find a plan provider who will accept the plan fiduciary liability and will see to it that the annual compliance issues are taken care of. Did I say this was a personal liability?
We can talk about interest rates and the Fed QE policy as well but that would take about 500 pages to cover what needs to be covered. In short, the economy is still in trouble, interest rates are rising even with the continuing QE plan. To make matters worse Europe is slowing down, China is slowing down, everybody is slowing down and the markets keep moving ahead. A very confusing situation that is sure to cause hesitation concerning business investment.
We covered the big risk areas for both business and personal exposure. Not comfortable issues to deal with, but those that are thrust upon you at this moment. Left alone and should a potential liability become real there is the risk that the company valuation suffers or the personal balance sheet suffers. Both very bad news.
To avoid bad news I suggest:
You review the areas discussed and take appropriate action.
You review all contracts for business and personal liability and assess if those risks are still viable and necessary.
You get the support you need to know what your risks are and how to mitigate them.
You assess how maintaining certain risks will impact the value of your investment.
You review the ownership of all significant personal assets and take steps to transfer them to judgment proof status.
One last major point to make about government regulations is the impact they may have on the value of your company. It is no secret that many baby boomers did not sell in the last five years and as a result we may encounter a demand-supply issue in that there may be more companies for sale with not enough buyers, thus causing values to decrease. I bring this last point up because owners want to have a clean bill of health where their company is concerned if they plan to maximize shareholder value. Reducing the risk associated with the issues discussed here will make your company more attractive.
Any help required or questions that need answers ….you know where to find me.
Garry Bartecki is a CPA MBA with GB Financial Services LLC. E-mail firstname.lastname@example.org to contact Garry.