Family Business Succession Tips

Family Business Succession Tips

This article discusses the sad reality of how fewer than 1/3 of family businesses are successively handed down to the second generation. However, utilizing the tips outlined in this article such as starting your succession planning early, including family members in discussions, training, and sticking to the facts can all set your family business up for success for generations to come. Be sure to check out this link for more details!

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Getting the Most From Selling Your Business

Getting the Most From Selling Your Business

This article discusses how there are many factors at play when a business gets bought or sold. Specifically, topics such as reoccurring revenue, why someone sells, buyers' interests, evaluation criteria, and the 4 P's (People, Platform, Processes, and Product) are all outlined within this link. No matter where you are at in the mergers and acquisition process, be sure to check out this link for more information and to be as educated as possible!

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Audits in Accounting: Improving Audit Quality with Data Analytics

Audits in Accounting: Improving Audit Quality with Data Analytics

Auditing is crucial to ensuring the accuracy and fairness of financial information; however, one of the biggest threats to the audit field’s reputation is data quality. This is due to the large volumes of data that businesses produce these days. In order to manage the vast quantity of data, auditors are turning to data analytics.

Data Analytics and Audits

Technology plays a major role in business growth as it aids in reducing operational costs and improving customer service. As such, many businesses have adopted enterprise resource planning (ERP) systems. These systems produce huge volumes of data, making it nearly impossible to analyze using the traditional audit process.

Auditors are left with no choice but to also use IT-based solutions, which has led to the development of audit software to support the auditors in data extraction and analysis. To further enhance the workings of audit software, the programs are being integrated with data analytics. Since data analytics works with structured data, the systems incorporate machine learning (deep learning) to extract useful data from a host of unstructured data.

Although these developments in the audit profession have not changed the primary role of auditors, they have changed how an audit is done by helping produce high quality audit evidence.

How Data Analytics Improves Audit Quality

Traditional audits involve combing through piles of data, which is time consuming. As a result, auditors prefer workarounds like data sampling, which does not give a true outcome. With data analytics, an auditor does not have to restrict data to financial reporting systems only. Instead, they can use data from multiple complete data sets, such as sales statistical data and employee and customer master data. This enables an auditor to go beyond traditional audits that target limited data and include different audit-relevant data.

Using data analytics tools, auditors look for predefined patterns that help reveal ambiguous relationships between variables that a manual system might not identify. This helps facilitate a more comprehensive decision that includes all data sets.

By integrating data analytics, auditors have access to a powerful tool that helps them better understand a business. As a result, they can easily identify key audit risks, provide deeper insights into a business’ systems and controls, detect fraud, and provide value in a less costly manner.

Apart from simplifying and speeding up the audit process, data analytics also enables auditors to focus on key risks. The capabilities of data analytics continue to evolve to the point of automating the auditing process through advanced data analytics (ADA). This enables the automation of routine audit processes, allowing the auditors more time for matters that require professional judgment.

Challenges of Audit Data Analytics

Audit data analytics is not without its challenges, though. One obstacle is data exchange between a business and an auditor, whether internal or external. This is in relation to different systems used in data collection. To handle this challenge, the AICPA introduced data standards to be used for data requests and to ensure the production of standard reports from the ERP systems.

Another challenge is the integrity of data fed into the analytics systems, as this determines the quality of the end results. Systems used should be designed around collecting meaningful data. Auditors must also ensure that the conclusions fed into the systems are accurate and correct. 

Although data analytics reduces the sampling risk, it introduces the challenge of dealing with exceptions, mostly referred to as outliers, that produce results outside audit expectations. This calls for auditors to investigate the exceptions/outliers to determine if they are errors or misstatements.

Conclusion

Integrating data analytics into the audit process greatly improves audit quality and credibility. With rapid advancements in technology, the capabilities of data analytics will continue to evolve, making auditing work even more efficient while maintaining high quality.

Although the adoption of data analytics is dependent on the size of a business, the availability of skilled staff is also crucial. To remain relevant in a fast-changing environment, auditors need to advance their skills to effectively use the data analytics tools.

Restricted Stock & RSUs: 3 Planning Tips

Restricted Stock & RSUs: 3 Planning Tips

Equity compensation is becoming more mainstream and is not just for executives anymore. Grants of restricted stock or restricted stock units (RSUs) are getting to be more common than stock options – and the rules are different, as is the tax planning. Below we will look at some of the particulars of how restricted stock and RSUs operate, how to understand a grant, planning for the tax consequences, and what to do after the shares vest.

How Restricted Stock and RSUs Work

At their core, restricted stock and RSU company shares that vest according to a schedule can be awarded as compensation. The vesting schedule can be tied to the length of employment, meeting certain performance criteria, or a combination of both. Upon vesting, the employee owns the shares themselves and can do what they wish with them – from holding, selling, gifting, etc. While this might sound simple, the devil is in the details.

Understanding Your Grant

First, it is important to understand that restricted stock or RSUs are similar to stock options but have important tax and financial planning differences.

There are important facts you need to determine. First, how does the vesting schedule work; what amount of shares vest and when? Is the vesting simply tied to the length of service or are there performance or even liquidity event triggers? Second, what are your tax-withholding choices?

From there, you can determine, or at least estimate, key factors such as how much the award will be worth both pre-tax and post-tax.

Tax Planning – Section 83(b) Election

Taxation can be tricky with restricted stock and RSUs. One strategy is to use a Section 83(b) election for restricted stock.

Typically, a person is taxed when the restricted stock vests, regardless of whether the shares are sold. The Section 83(b) election allows the taxpayer to be taxed on the share value at the grant date instead. This election can be made within 30 days from the grant date of the restricted stock and is not an option for RSUs.

Why would you want to consider a Section 83(b) election? Remember that regardless of the election or not, you are taxed as ordinary income for the share value regardless of whether you hold or sell the shares. The advantages are that if you think the stock price will rise between the grant and vesting, then you will pay less ordinary income tax and have lower cash outflows. Second, after the initial taxation of the grant, the change in value after this point is capital gains.

Tax Planning – Withholding

The other issue to consider is not withholding enough taxes. The IRS rules say that your company is required to withhold 22 percent for restricted stock and RSUs (37 percent for income over $1 million during the same year).

The problem is that there is a good chance your margin tax bracket is higher than 22 percent if you are receiving these kinds of equity compensation awards. As a result, you will need to make some estimated payments to cover the difference. Unless you have enough cash from other sources, you may need to consider liquidating some of your shares to cover the tax bill.

The conundrum here is that if you do not see the shares immediately and the price falls, then you will be selling shares at a lower value than what you are being taxed on. It is best to consider your holistic tax scenario and work with your tax advisor to come up with a plan.

Game Plan for After Vesting

Aside from the tax consequences, you need to consider the impact on your overall financial planning. One of the biggest risks taxpayers can face is that they become heavily concentrated in the company stock. You will need to look at your overall portfolio and consider if you need to diversify depending on how much of your net worth is tied up in a single stock now.

Some financial planners recommend looking at the situation this way in an example with your shares worth $150,000 at vesting. If you had $150,000 in cash to invest, pay down debt, etc., would you use all of that to buy the company stock? If the answer is no, then why would you hold it? In other words, do not let tax implications lead your financial planning decisions.

Conclusion

More and more companies are issuing compensation in equity forms such as restricted stock grants or RSUs. Make sure you understand your vesting schedule and conditions so you can plan for the tax implications as well as your overall financial picture.

Which Meals Qualify for the Temporary 100% Expense Reduction?

Which Meals Qualify for the Temporary 100% Expense Reduction?

This article discusses how the IRS released guidance explaining deductions on food and beverage within a restaurant. There was a temporary 100% deduction which was “designed to help restaurants, many of which have been hard-hit by the COVID-19 pandemic.” However, as we continue to move forward, there were questions regarding when the 100% deduction and when the 50% limitation applied. Be sure to check out this link for more information and details that are relevant as an employer!

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Creating a Post-COVID Workplace

Creating a Post-COVID Workplace

This article discusses how businesses are starting to return to the workplace following the relaxing of COVID-19 regulations. However, this process may be more difficult than anticipated. This article outlines three steps to consider when implementing your return to work process. For example, determining what this process looks like operationally, prioritizing what employees need, and supporting growth in both work and personal aspects is going to be key these next few months. Be sure to check out this link for more information and details!

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Marketing Your New Startup

Marketing Your New Startup

This article discusses how many startup firms are having similar problems in marketing and getting their new ideas out there. Whether your startup is 5 years old or 5 days, utilizing tips such as email best practices, social media, blogs, and truly staying authentic can prove beneficial in the long run. Be sure to check out this link for more information and details!

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Tips for Family Business Success

Tips for Family Business Success

This article acknowledges and discusses how running a family business can be difficult at times. From balancing a family work-life balance to communication issues, this industry can be very challenging. However, by following tips such as actively managing family dynamics, hiring externally when necessary, establishing a structure, and succession planning, your family business can be at the top of its game. Be sure to check out this link for more information and details!

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Financial Mistakes Business Owners Made During the Pandemic and How to Avoid Them

Financial Mistakes Business Owners Made During the Pandemic and How to Avoid Them

This article discusses how many businesses felt a significant negative impact due to the coronavirus pandemic this past year. Although most of the setbacks were unavoidable, it is important to do everything in our power to avoid making the same mistakes in the future. For example, mistakes such as not keeping good business records, not having cash reserves, not having multiple streams of income, and not being somewhat educated on your numbers are all instances that can lead to avoidable setbacks. Be sure to check out this link for more information and details about the things you can be doing to prepare for the future!

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Congress at Work: Advancing Healthcare Initiatives, Small Business Funding and Protecting the Elderly from Scams

Congress at Work: Advancing Healthcare Initiatives, Small Business Funding and Protecting the Elderly from Scams

The Congress at Work series of articles is designed to give you a glimpse of various types of legislation currently under consideration. While either the Senate or the House of Representatives may initiate a bill proposal, be aware that many bills never become law. They may never make it out of committee, be blocked by a Senate filibuster, be delayed, lack sufficient votes, never be agreed upon by the two houses, or be vetoed by the president. 

FASTER Act of 2021 (HR 578) – This bill expands the definition of major food allergens for food-labeling purposes to include sesame. It is designed to protect Americans with food allergies and related disorders that could be affected by anaphylaxis, food protein-induced enterocolitis syndrome, and eosinophilic gastrointestinal diseases. It also authorizes the Department of Health and Human Services to report on food allergy research and data collection activities. The bill was introduced by Rep. Tim Scott (R-SC) on March 3. It was passed by Congress on April 14 and is currently awaiting enactment by the president. 

Advancing Education on Biosimilars Act of 2021 (S 164) – This bill was introduced by Sen. Margaret Hassan (D-NH) on Feb. 2. The legislation requires the Food and Drug Administration (FDA) to educate and promote awareness about biological products and biosimilars among healthcare providers. The FDA may also host a website to provide educational materials. This bill was passed by Congress on April 14 and is awaiting signature by the president. 

TRANSPLANT Act of 2021 (HR 941) – This bill reauthorizes the Stem Cell Therapeutic and Research Act of 2005, which makes genetically matched cord blood stem cells available to patients who need them. The legislation was re-introduced by Rep. Doris Matsui (D-CA) on Feb. 8 and passed in the House on April 15. It is currently under consideration in the Senate. 

504 Credit Risk Management Improvement Act of 2021 (HR 1482) – Introduced by Rep. Dan Bishop (R-NC) on March 2, this bill passed in the House on April 16 and goes to the Senate next for consideration. It amends the Small Business Act to require the administrator of the Small Business Administration to issue rules relating to environmental obligations of certified development companies and for other purposes. 

504 Modernization and Small Manufacturer Enhancement Act of 2021 (HR 1490) – This bill was introduced by Rep. Angie Craig (D-MN) on March 2 and passed in the House on April 15. It is currently under consideration in the Senate. The bill would amend the Small Business Investment Act of 1958 to improve the loan guaranty program in order to enhance the ability of small manufacturers to access affordable capital. In addition, the bill adds policy goals such as facilitating reduced costs via energy-efficient products, generating renewable energy, and providing aid to revitalize disaster areas. The bill also would increase the maximum loan amount from $5.5 million to $6.5 million for small manufacturers and reduce the amount that they must contribute to project costs, among other provisions. The legislation authorizes each SBA district office to engage a resource partner to provide training for small manufacturers. 

Fraud and Scam Reduction Act (HR 1215) – This bill would establish an office within the Federal Trade Commission and an outside advisory group for the purpose of preventing fraud that specifically targets the elderly, including mail, telephone, and internet scams. Furthermore, the bill would form a Senior Scams Prevention Advisory Group to create educational materials for distribution to employees of retailers, financial services, and wire-transfer companies to help them identify and prevent scams that affect older adults. The FTC also would establish an advisory office within the Bureau of Consumer Protection to monitor scams targeting older adults, educate consumers, and receive complaints. The bill was introduced by Rep. Lisa Blunt Rochester (D-DE) on Feb. 23. This bill passed in the House on April 15 and goes to the Senate next for consideration.