December, 2013 | RKL LLP
Posted on: December 17th, 2013

Buy-Sell Agreements: Why Now Is the Time to Plan for Life’s Storms (Part 1 of 3)

Buy sell agreements As consultants, we have the opportunity to work with countless business owners who are extraordinarily successful in running growing, profitable businesses.  However, it is many of these same business owners who often fall into a dangerous trap – they do not see the need to plan for the day when everything may not be so rosy.  They may be in business with family members or with trusted partners and feel confident that everything will be taken care of and that no disagreements will arise in times of trouble.  Why incur the expense and devote precious time to something that most likely, won’t be necessary?  The trap is that without planning and a formal buy-sell agreement, even the most accomplished business owner can wind up unprotected and unprepared at a very vulnerable time.

Life events happen to everyone.  Death, retirement, divorce, disability or a dispute with a business partner are either unavoidable or commonplace.  And, they can bring about adverse consequences in any business.  To complicate matters, these are the events in our lives that are filled with emotion and those involved are often not at their best.  Emotions can get in the way of effectively and equitably resolving business issues and making good decisions.  Why not implement a “plan” to deal with these issues well before they arise?

The plan is a well developed buy-sell agreement that provides peace of mind to the business owner, shareholders and the key management team.  A buy-sell agreement provides these key parties the knowledge that a vehicle exists to ensure that when life events occur, the business will continue without emotional interruptions.  The agreement functions as a “game plan” so that the owner, the shareholders and management team all understand exactly what will occur under different scenarios.

Why spend valuable resources to develop a buy-sell agreement?  We think that there are four compelling reasons, just to start…

  1. The Owner.  A buy-sell agreement integrates the needs and capabilities of the business with the owner’s personal, business and estate plans, especially with regard to liquidity needs and vision as to the future control and ownership of the businesses.
  2. The Shareholders.  A buy-sell agreement establishes the value of a shareholder’s stock in conjunction with various trigger events such as, for gift, estate, and generation-skipping tax purposes.  A buy-sell agreement can be structured to help minimize taxes and preserve the shareholder’s wealth.
  3. The Family.  A buy-sell agreement addresses business succession issues and provides a roadmap for dealing with disputes that can easily evolve into lengthy litigation, drained financial resources and the breakup of the business and family.
  4. Key Management.  A buy-sell agreement ensures business continuity amidst life’s storms.  The agreement can eliminate uncertainty and emotional unrest for management and allow the team to carry on.

Now that you have a better understanding of why buy-sell agreements are critical to privately owned companies, we’ll be providing practical tips for what to consider and what to avoid in the next two posts in this three-post series, to follow in January 2014.

In the meantime, if you have questions about establishing a buy-sell agreement, contact Paula K. Barrett, CPA/ABV, CVA, partner and leader of RKL’s Business Consulting Services Group, at pbarrett@rklcpa.com or 610.376.1595.

paulaContributed by Paula K. Barrett, CPA/ABV, CVA, partner and leader of RKL’s Business Consulting Services Group. Paula specializes in business valuation and litigation support services, assisting clients in the acquisition or sale of closely-held businesses and general business planning services. She also has experience in tax-exempt bond financing services, including bond verifications and arbitrage rebate computations.

Posted on: December 16th, 2013

RKL Hosts 350+ for Tax, A&A and Health Care Reform Update

More than 350 guests from across Central and Eastern Pennsylvania joined RKL for the latest on tax, accounting and health care reform issues at the firm’s 2013 Tax and Accounting & Auditing Update on Tuesday, December 10 at the Lancaster County Convention Center.

Despite inclement weather conditions from an early winter snowstorm, the anticipated annual event attracted a great turn-out and delivered on its promise to provide knowledge and insights (and much-needed CPE hours) to help CPAs prepare for what’s ahead in 2014.

Since 2005, the annual update has grown from under 100 attendees to more than 350 today. In addition to providing eight hours of complimentary CPE, the event included a door prize drawing with prizes ranging from the Xbox One to a KitchenAid Mixer and a grand prize drawing – a trip for two to Las Vegas – claimed by lucky attendee Shane Erb of Redner’s Markets.

Experts from RKL and partner organizations presented on a wide range of tax, accounting, auditing and health care issues, including special guest Billy M. Atkinson, chair of the newly-created Private Company Council, a body working with the FASB to determine whether and when to modify U.S. GAAP for private companies.

A special thank you to all of our presenters:

  • Thomas E. Kauffman, CPA, partner, RKL – Business Tax Update
  • Laurie M. Peer, CPA, CFP®, partner, RKL – Individual Tax Update
  • Kevin Eisenhart, CPA, MBA, MST, manager, RKL – Legislative Reform Update
  • Robert M. Glus, FSA, partner and consulting actuary, and James P. Pyne, Actuarial Analyst, Conrad Seigel – Health Care Reform Update
  • Billy M. Atkinson, CPA, chair of the PCC – Goals and Accomplishments of the PCC
  • Michael A. Hoffman, CPA, director, Accounting Standards Group, McGladrey, LLP – 2013 Recent Accounting Developments and Practice Issues
PCC Chair Billy Atkinson Lancaster PA

RKL CEO Edward Monborne (left) and Audit Services Group Leader James Pruzinsky (right) welcome PCC Chair Billy Atkinson.

 

Lancaster PA tax update

RKL’s Thomas Kauffman presents a business tax update.

Lancaster CPA firms

Hundreds of attendees joined RKL for the event, despite an early winter snowstorm.

 

individual taxes

RKL’s Laurie Peer presents an individual tax update.

 

tax code legislative reform efforts

RKL’s Kevin Eisenhart presents a legislative reform update.

Private Company Council Chair Billy Atkinson provides insights into the goals and accomplishments of the PCC.

Private Company Council Chair Billy Atkinson provides insights into the goals and accomplishments of the PCC.

 

Lancaster PA CPAs event

Cynthia Aument, CFO of 140 East Market (formerly Susquehanna Real Estate) enjoys some networking during a mid-day break.

 

Posted on: December 16th, 2013

Cost Segregation Study Benefits for PA Manufacturers

cost segregation for manufacturers in PAPerhaps no other industry stands to benefit more from cost segregation studies than the manufacturing industry. With the accelerated depreciation that cost segregation allows, you can increase tax deductions and pay less tax during the early stages of a property’s life, resulting in increased cash flow. Even if you built or purchased your facility several years ago, the benefits of a cost segregation study are not lost.

How can manufacturers take full advantage of the benefits a cost segregation study can provide? Click Here for Full Case Study

Posted on: December 16th, 2013

Tax Savings for U.S. Exporters

ic-disc tax savings for US exportersExport a product overseas or a product that’s eventually sold internationally? Closely-held companies that export – including the many family- or privately owned manufacturers that comprise a large portion of Central and Eastern PA’s business community – have a unique tax-savings opportunity in creating an Interest Charge – Domestic International Sales Corporation or IC-DISC.

Learn more about the potential tax savings and qualifications required for this tax export incentive. Click Here for Full Case Study

Posted on: December 16th, 2013

LIFO IPIC Tax Savings for PA Manufacturers

Central and Eastern Pennsylvania’s distinct economic climate, conservative financial environment and geographic proximity to LIFOmajor markets have fostered a healthy and thriving manufacturing sector. These characteristics are also important factors for why area manufacturers could reap major tax savings by leveraging nationwide inventory inflation rates via the Inventory Price Index Computation (IPIC) LIFO methodology.

In this case study, you’ll learn why manufacturers in Central and Eastern PA may want to consider using the IPIC LIFO methodology; its benefits and considerations; and some practical examples of tangible tax-savings. Click Here for Full Case Study

Posted on: December 3rd, 2013

From the Auditor: Three Top Tips for Preparing for a Nearly Pain-Free Audit

accounting firms in Lancaster PAWith year-end approaching, few things are more anticipated (okay, dreaded) than the annual audit. As an auditor, I can tell you that your organization’s next audit doesn’t need to be a nerve-wracking ordeal.  With some thorough preparation and communication, your audit can be a painless process that does what it’s intended to do: help ensure your financial reporting systems are sound.

#1: Reconcile, reconcile, reconcile.

This is by far the most crucial step you can take. Every significant account that shows up in your financial statements should be reconciled to the respective underlying records as of year-end. Most adjustments we discover during fieldwork relate to one of the following reconciliations either not being completed or being completed inaccurately:

  1. Cash and Debt: Reconcile to bank statements
  2. Accounts receivable and payable: Reconcile to underlying detailed aging sub-ledgers
  3. Investments: Reconcile to brokerage statements
  4. Fixed assets and depreciation: Reconcile to your fixed asset software’s reports
  5. Prepaid assets or deferred liabilities: Reconcile to the transactions giving rise to the prepaid/deferral, and double check the math

It is imperative to ensure that reconciliations with significant reconciling items have support for such items. If you have a reconciling item on the bank reconciliation for outstanding checks, do you have a complete list of outstanding checks that agrees with that amount? If you manually accrue invoices for trade accounts payable at year end, do you have a list of invoices that support the balance? Does the reconciliation foot? Does the reconciliation actually agree with the year-end trial balance? These all sound like pretty simple suggestions, but they do trip up some of the best companies each year. Finally, it is a best practice to have a controller/CFO review all reconciliations which are prepared by accounting staff.

#2: Prepare everything on the request list before the auditors arrive.

No matter which audit firm you use, your auditors should be providing you a request list of items to prepare ahead of the audit. This list is fairly comprehensive and will usually include requests for populations of transactions from which your auditor will pick a sample. Generally, if the items on the list are completed and delivered to your auditors prior to or at the beginning of the audit, the audit will be completed faster and with fewer questions. Additionally, it is usually better to provide support electronically, rather than in paper format.

#3 Explain any significant changes in your business to your auditors before they ask.

Auditors use analytical procedures for a portion of the testing in most areas. So, if your headcount is the same as the prior year, but your payroll expense increased by 25%, we’re going to ask why. If you are able to proactively address such items ahead of the audit, rather than needing to research such info during the audit, you will save time for yourself and your auditor. Likewise, if during the year you enter into a major transaction (purchase a business, obtain new debt, sign a new lease, change accounting software, adopt new accounting pronouncements, etc.) communicate such transactions to your auditors upfront; they will likely be able to ensure you are getting the accounting treatment correct the first time.

Audits can be a daunting and stressful process, however, with an adequate amount of preparation and communication during the year between Company and auditor, the process can be relatively painless for all involved.

wayneContributed by Wayne E. Groff, CPA, a manager in RKL’s Audit Services Group. Wayne specializes in serving the audit and accounting needs of closely-held businesses, manufacturing operations and not-for-profit organizations.

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