http://www.kahnlitwin.com/index.php en jlandry@kahnlitwin.com Copyright 2012 2012-02-23T16:27:49+00:00 http://www.kahnlitwin.com/blogs/business-blog/sec-looking-into-private-equity-investment-valuations http://www.kahnlitwin.com/blogs/business-blog/sec-looking-into-private-equity-investment-valuations#When:16:27:49Z The Securities and Exchange Commission has begun an informal inquiry into how private equity firms value their investment assets and how they are “marked to market”.  A listing of the firms that received the inquiry letter has not been released but thus far, it appears the inquiry has focused on smaller firms as publicly traded firms already provide quite a bit of information in quarterly and annual filings.  One of the main areas of concern for the SEC is the valuation of the private equity firm’s investment portfolio.  Often, these investments are marked to market using complex valuation methodologies and intricate financial models.  Additionally, business valuation is as much an art as it is a science and that has led to different valuations being reported for the same portfolio company.  The chief concern is whether private equity firms have been overstating the values of the portfolios in order to generate more attention and attract new potential investors. In order to remove themselves from some level of scrutiny, some firms have turned to valuation specialists in order to help with the process.  After receiving these third party valuations, some private equity firms discuss the valuations, methodologies employed and assumptions utilized with their auditors and other advisors.  Additionally, many private equity firms also contend that interim valuations are less important to investors as private equity funds earn profits only when they sell a holding, not on an annual basis like many other investment vehicles.  Since the SEC is at the beginning of their inquiry, it’s hard to tell what may come of it, but it certainly looks like valuations are going to be getting more attention going forward.  Our business valuation team is here to help should you have any questions or concerns on your own valuations or the valuations of companies you are looking to invest in.  Please contact me (btaylor@kahnlitwin.com) or any other member of our team for further assistance. KLR is one of the largest accounting firms in Boston that offers business valuation services including ESOP valuations, small business valuations, fair market value reports, estate and gift tax preparation and acquisition assistance. Litigation support services such as marital dissolution (divorce) and shareholder and partnership buyouts and disputes are also offered. 2012-02-23T16:27:49+00:00 http://www.kahnlitwin.com/blogs/business-blog/why-your-family-business-must-have-a-succession-plan http://www.kahnlitwin.com/blogs/business-blog/why-your-family-business-must-have-a-succession-plan#When:17:15:23Z The 60 year old son in a family business walks into his 90 year old father’s office on a Friday afternoon.  The conversation is as follows: Son: Dad, I came in here to tell you that my wife and I are retiring and moving to Florida. Father: What do you mean?  Don’t you know that the business will be yours someday when I retire? Twenty years ago this conversation might have seemed ludicrous.  Today, however, people are healthier and more active than they ever have been.  Many successful entrepreneurs cringe at the thought of leaving their businesses at age 65 faced with the prospect of another 25 years of life “doing nothing.” For a family business to endure past the first or second generation, a succession plan must be put into place that clearly defines the transition of power from one generation to the next.  The most successful multi-generational family businesses had a plan.  They did not make it by accident.  Succession planning is a process that takes many years to accomplish.  It is never too early to start.  It involves a plan for the business, a plan for the retiring family member, and a plan for the successor. Do not be in a position of having your children retire before you! Questions? Contact me and stay tuned for my next blog in my family business series “Does your family business need an outside board of directors?” Peri Ann Aptaker is the chair of the KLR Women CPA’s Business Exchange. This Exchange reinforces the firm’s ongoing strategy to retain the best and brightest talent in the industry. The KLR Women CPA’s Business Exchange fosters connecting women CPA’s with other successful women business leaders. Visit our website to learn more about the KLR Women’s Business Exchange or check out our group page on LinkedIn where you can stay up to date on the latest WBE news, events and information. 2012-02-08T17:15:23+00:00 http://www.kahnlitwin.com/blogs/business-blog/dont-lose-your-right-to-do-business-with-the-us-government http://www.kahnlitwin.com/blogs/business-blog/dont-lose-your-right-to-do-business-with-the-us-government#When:21:03:45Z Compliance with the rules and regulations will not only keep you out of trouble, it might also keep you in business.  The U.S. Department of Housing and Urban Development (HUD) recently suspended a Philadelphia company from doing business with the US Government.  The Philadelphia Company ran afoul of the regulations as they withdrew over $300,000 from the reserves along with several other actions that led to their immediate suspension.  There are several things you can do that will help you do business with the US Government: Financial Review Process Year end is the perfect time to review your compliance and make sure your financial house is in good order.  As part of a good financial review process we recommend that you put together a list of reporting and compliance requirements (i.e. Insurance, Bonding, Debt to Equity, Net worth, Liquidity, Deposits, etc.) and review it at various times during the year. Be aware of important deadlines December year-end—a number of compliance issues are fast approaching.  The HUD Annual Financial Statement (AFS) is due 90 days after year-end. December fiscal year—the March 31st deadline is fast approaching. In addition to other year-end requirements, the surplus cash deposit is due 90 days after fiscal year-end. Keep up with changes HUD has also made some changes to the electronic input forms for the Lender Assessment SubSystem which will affect the supplemental information in your financial statements. KLR has experience with HUD programs, FHA Fillings, REAC Fillings, all agreed upon procedures and electronic submissions. We also have extensive cost certification and Section 811 experience and are familiar with all related compliance requirements.  If you have worked with any of these programs and want to share your experiences, please comment below.  If you have specific questions and would like to discuss, please email me at SRoss@Kahnlitwin.com. Like this blog? You can find related information for your business on the KLR Business Blog.   2012-01-31T21:03:45+00:00 http://www.kahnlitwin.com/blogs/business-blog/retirement-planning-social-security-file-and-suspend-strategy http://www.kahnlitwin.com/blogs/business-blog/retirement-planning-social-security-file-and-suspend-strategy#When:14:48:36Z For those who are married and who are nearing retirement in the coming years where one spouse is a higher earner and the other spouse is not, there is retirement benefit strategy to keep in mind, especially if it is one of the spouse’s intention is to continue working to age 70 to maximize Social Security benefits.  Here’s how it works by example. Assume the husband is currently 66 at full retirement age for Social Security purposes and the wife is 62 (the youngest age for this strategy) who worked off and on over the years and was the main caregiver for the family. The husband wishes to work to age 70 and the wife would like to retire.  The wife’s choices for Social Security benefits are $400 based on her work history or a spousal benefit of $1,250 which is 50% of the husband’s work history ($2,500 x 50% =$1,250). Since the wife is not at full retirement age, her spousal benefit will be reduced to $937.50 ($1,250 x 75%).  This spousal benefit even on a reduced basis is over twice as much as the benefit based on the wife’s own work history. How can the wife receive the spousal benefit if her husband wants to continue to work to age 70? This is where the “file and suspend strategy” comes into play.  Since the husband is at full retirement age, the husband files for Social Security benefits, the wife applies for a spousal benefit, and then the husband has Social Security suspend his benefits.  At age 70, the husband re-applies for Social Security benefit. The Outcome: The wife receives spousal benefits while the husband continues to work to age 70 that are twice as much as the benefit would have been under her own work history. The husband is guaranteed a Social Security benefit of at least 132% of the benefit of full retirement age when he files for Social Security at age 70. The husband can continue to work and accrue delayed benefits when he re-applies for Social Security benefits at age 70. At the Husband’s death, the wife’s survivor benefit will be increased to 100% of the husband’s benefit determined at age 70, if the husband predeceases the wife. Keep in mind that this strategy is not for all married couples and should be part of your discussion with a Certified Professional.  Please contact me if you have any questions, I have experience with these types of situations and am happy to help. 2012-01-30T14:48:36+00:00 http://www.kahnlitwin.com/blogs/business-blog/recent-developments-in-tax-treatment-of-success-based-fees-in-ma-transactio http://www.kahnlitwin.com/blogs/business-blog/recent-developments-in-tax-treatment-of-success-based-fees-in-ma-transactio#When:13:49:50Z The treatment of success-based fees has been the subject of much controversy between IRS and taxpayers for some time. The argument over whether a portion of such fees can be deducted, or at least amortized, centers on the type and extent of documentation that is required to establish an allocation of the fees to activities that do not facilitate the transaction. Some new developments in 2011 that have not gotten a lot of attention may offer taxpayers a bit more flexibility on the question. First let’s understand what types of fees are at issue here. Success-based fees are amounts that are considered contingent on the successful completion of a transaction. Usually, that would encompass the investment banker or other financial advisory fee that is only payable after a successful closing. These fees are generally presumed to be facilitative to the completion of the transaction, and thus capitalizable, unless it can be documented that the fee encompassed other activities during the course of the engagement that turned out to be non-facilitative. Amounts paid for non-facilitative activities are generally deductible (or amortizable in a start up situation). On April 8, 2011, IRS issued guidance in Revenue Procedure 2011-29 which permits taxpayers to elect to treat 70% of success-based fees as non-facilitative. Taxpayers would then have to capitalize the remaining 30% as an amount that facilitates the transaction. This revenue procedure is effective for all success-based fees paid or incurred in tax years ending after April 7, 2011. The election is made by attaching a statement to the return and, once made, is irrevocable. In addition to the revenue procedure, the IRS also issued a recent directive to its Large Business and International (LB&I) examiners not to challenge the treatment of success-based fees incurred or paid in tax years ending before April 8, 2011, as long as the taxpayer capitalized at least 30% of the total success-based fees incurred on the transaction on its originally filed return. The net result from these new developments is an opportunity for affected taxpayers to take a very practical, and less time-consuming, approach to determining the deductibility to these types of fees. For some taxpayers, a 70-30% allocation is a better result than they may be able to support through documentation. For others, a 70-30% split may not be the optimum answer that a taxpayer could achieve if they had the opportunity to develop the documentation necessary to support a more aggressive allocation. Nonetheless, this latter group of taxpayers should weigh the additional time and cost necessary to develop the documentation, as well as the potential increased audit risk. The directive to LB&I field examiners may also present an opportunity for companies to reassess their previous measurement of uncertain tax positions relating to success-based fees for financial reporting purposes. If you have any questions, don’t hesitate to contact me or anyone directly involved on your engagement. KLR is one of the largest CPA firms in Boston, and offers assistance to venture capital firms. These include internal audit assessments as well as international tax services and specialized tax services such as cost segregation, research and development and energy studies. Due diligence for buyers and preparedness for sellers can also be provided during the acquisition process. 2012-01-16T13:49:50+00:00 http://www.kahnlitwin.com/blogs/business-blog/10-reasons-why-you-should-consider-a-regional-accounting-firm1 http://www.kahnlitwin.com/blogs/business-blog/10-reasons-why-you-should-consider-a-regional-accounting-firm1#When:21:36:22Z As we meet with prospects in the Private Equity/Venture Capital world, many times the conversation turns to what makes dealing with a regional firm different than a national or international firm.  With that in mind, I’ve developed a list of reasons why there should be no choice (in no particular order). Low turnover rate - our employee turnover rate is lower than industry averages, meaning that the engagement team that works on your account this year will handle your work next year, and the year after that, and …. No re-training of our staff - since our turnover rate is lower, you’ll spend less time training our staff and more time dealing with the needs of your company. More competitive fees - lower firm overhead = lower fees. Our clients are your targets - since we deal with middle market clients, our client base is most likely your target market, and may even include some of your portfolio companies.  This offers the opportunity for proprietary deal flow. Worldwide reach - many regional firms are part of national and international networks, which gives you the same access to services in markets outside of the country that larger firms offer. Local decision-making - complex issues and technical questions can get resolved much quicker since the ultimate decision is made locally, not by a central office somewhere else in the country. Client service is our priority - we pride ourselves in client service – not just talking about it, but delivering it. Understanding your business – we deal with pre-revenue start-ups to multi-billion dollar enterprises.  We have the resources to deliver solutions to all of your challenges. Our people - we know that our people are our most valuable assets – once they are introduced to your account, they will become yours, too! Growth - our firm doesn’t grow if yours doesn’t.  We are prepared to grow with your business, so we can meet your needs now and in the future. Hopefully this gives you some insight as to what it’s like to use a regional accounting firm.  Please contact me directly at JSurrette@KahnLitwin.com or call 888-KLR-8557 to learn more about how we can help. 2011-12-01T21:36:22+00:00 http://www.kahnlitwin.com/blogs/business-blog/retirement-plan-limits-announced-for-2012 http://www.kahnlitwin.com/blogs/business-blog/retirement-plan-limits-announced-for-2012#When:20:22:35Z On October 19, 2011, the IRS published the 2012 retirement plan limits.  The increases were greater than in the previous two years, when inflation was lower.  In fact, many of the limits will increase for the first time in 4 years.  Most of the limits are adjusted based on cost-of-living increases.  But with the economic slowdown over the last few years, the limits remained flat from 2009 through 2011. The new limits are as follows: Annual Salary:  Increases from $245,000 to $250,000 Social Security Wage Base:  Increases from $106,800 to $110,100 HCE Determination:  Compensation increases from $110,000 to $115,000 Key Employee:  Officer compensation increases from $160,000 to $165,000 Elective Deferrals 401(k)/403(b)/457:  Increases from $16,500 to $17,000 Simple IRA:  No change from $11,500 Catch-Up Contributions 401(k)/403(b)/457:  No change from $5,500 Simple IRA:  No change from $2,500 Annual Additions Limit Defined Benefit Plan:  Increases from $195,000 to $200,000 Defined Contribution Plan:  Increases from $49,000 to $50,000 Please let us know if we can answer any questions about how these new limits may impact your plans for 2012. 2011-10-21T20:22:35+00:00 http://www.kahnlitwin.com/blogs/business-blog/the-true-meaning-of-wealth-management http://www.kahnlitwin.com/blogs/business-blog/the-true-meaning-of-wealth-management#When:13:44:57Z Most consumers haven’t noticed yet but confusion again has a foothold in the financial marketplace. I’m not referring to a new insurance product. I’m referring to the true meaning of wealth management. It seems everywhere you turn these days; the wealth management label is showing up all over the various media outlets. I conducted an unscientific poll this past month asking colleagues, friends, and other professionals what comes to mind when you (they) hear the words wealth management. Most people said investment management. It appears that the companies known for investment advisory services are now incorporating wealth management into their marketing campaigns further confusing the general public with these inter changeable disciplines. Wealth management is much more than investment management services. A wealth manager is focused on the client, to ensure that all aspects of the client’s financial affairs are being managed appropriately and in accordance with their life goals. A wealth manager must extract important information through a discovery process and listen attentively when the client speaks of goals and dreams. The wealth manager’s goal is to uncover a client’s key financial needs, their worries, concerns and how they want to be remembered, and to whom. It is the wealth manager’s job to take this information and assist the client in developing a customized financial plan (also referred to as a financial road map) and help with the plan implementation. This advanced planning involves cash flowing planning, tax mitigation, asset protection, and asset transfer. The wealth manager coordinates with other advisors, such as insurance brokers, estate attorneys, and tax professionals to assist with the plan implementation. The wealth manager’s job does not end here. Monitoring the investment, financial, and estate plan is crucial. It is important that clients understand that financial planning is not a one time event, it’s an ongoing process. The wealth manager meets with the client on a regular basis (at least once a year) to evaluate investment performance and to review the financial plan and update it accordingly for any changes that have taken place. It is important that the investment and financial plan are in sync. For example, there may come a time that the financial plan indicates that a predetermined goal can be achieved with less risk. At a minimum a discussion should take place in this case to determine if the investment portfolio should be adjusted to take on less risk. Financial plans need to be kept current and in focus because of an ever changing investment, tax and legal landscape. Finally, we in wealth management are constantly collaborating with the advisors who are part of the financial team. As a team, we are apprised of the alternatives and based on thorough current information, we either make changes or roll over to the next year. By having these collaborations, wealth managers stay contemporary because of a cross planning understanding and collaboration. We find the best results in this process. There is a lot more that can be written on this topic and my objective was to give you, the reader, a better sense of the basic framework of the wealth management process. This is the frame work that my colleagues and I use at KLR Wealth Management. If you have any questions, feel free to contact me at any time. 2011-09-16T13:44:57+00:00 http://www.kahnlitwin.com/blogs/business-blog/the-threat-of-social-media http://www.kahnlitwin.com/blogs/business-blog/the-threat-of-social-media#When:11:45:55Z We spend a lot of time talking about the obvious when it comes to fraud; how the fraudster is trying to misappropriate corporate assets for personal or professional gain, how personal greed outweighs the moral and ethical principles that the majority of us abide by, what we need to do to protect ourselves from these threats. While it is critical that we make sure these concerns are addressed, there are other threats that may be present but are not as evident due to their nature and therefore are disregarded during an organization’s risk assessment. Let’s think for a minute what we, as a society, have been surrounded by for the past several years. It started with reality television, expanded with the advent of texting, and now includes the ever present forces of Facebook, Twitter, and LinkedIn. There is a whole generation of people in the workforce today who think that everyone in the world is concerned with their every move, whether it be heading to lunch, going on vacation, or laying down for a nap. Now I know you might be thinking that I’m starting to drift away from my point (or any point for that matter), but bear with me. My concern is this – with this generation (which is not necessarily defined by age but rather the need to tell everyone everything about themselves) so concerned about telling the world what they are doing, what might they tell the world about your organization? There are a lot of things happening in your organization on a daily basis, and I know that there are a lot of those things that you may not want to see posted on the front page of the paper for the world to see. Although it may seem like common sense, some of your employees might not think twice about throwing up a post on Facebook about the proposal they are working on, talking about confidential information, or the fact that they are completely unsatisfied with their working conditions and are looking for another job. So, I ask, what are you doing to make sure your employees aren’t out there virtually airing your dirty laundry to the world? If you said nothing, you are not alone, as this threat hasn’t been around for that long and chances are it hasn’t been an issue for you yet. My question is, why wait? If you don’t already have one in place, now is the time to get a social media policy implemented in your organization. This will help lay the groundwork for the acceptable use of social media in your organization and makes it very clear that there will be consequences if your employees do not follow the policy. If you are not sure as to what to include in such a policy, here are some tips: •Ensure your employees know that the use of your corporate computer system is a privilege and not a right, and must always be used in a manner to further the objectives of the organization. •Hold employees personally accountable for anything they post on blogs, message boards, etc., that relate directly to your business. •Make sure your employees understand that there is NO PRIVACY on the web. Anything posted on the web can be retrieved for YEARS after it is posted. •Make sure your company’s intellectual property is treated as confidential in all settings (virtual and physical), and ensure employees understand the sensitive nature of that property and how important it is to your organization. •Encourage the positive uses of such mediums including what is considered acceptable content and what is not acceptable. •Have your employees sign the policy asserting that they have read and understand it. There are numerous other items you can include in your social media policy, but the key thing is to make sure it is tailored to your organization and effectively communicated to your employees. In addition, by implementing such a policy, you are showing them that you are aware of the positive impact that these tools can have on your organization and that you not adverse to using new technologies to promote your business. Please let me know if you would like help in getting such a policy instituted in your organization. 2011-09-09T11:45:55+00:00 http://www.kahnlitwin.com/blogs/business-blog/how-do-you-evaluate-and-manage-risk http://www.kahnlitwin.com/blogs/business-blog/how-do-you-evaluate-and-manage-risk#When:13:07:41Z It seems like every day there is an event, whether domestically or internationally, that has an impact on the world economy. Whether it’s earthquakes in Japan, uprisings in the Middle East, or floods in the heartland of the country, there always seems to be something happening that potentially will have an impact on your business. Knowing what’s coming next is certainly not something you have the ability to predict, but having a plan in place BEFORE it happens will make responding to it a lot less painful. In recent years, larger organizations have been shifting the responsibility of managing a company’s risk to a Chief Risk Officer. The evolution of the global marketplace has forced these companies to shift from analyzing risk on a periodic basis to a daily routine, always being prepared in the event the unexpected were to occur. That’s all well and good if your company is of the size that would allow for such a position to be warranted, but, for most of you, that probably isn’t the case. Therefore, what are you supposed to do? You can look back to my previous posts to see how to protect yourself from internal fraud, which is obviously a big risk that a company can easily analyze and implement measures to prevent and detect. But that is only one area where your company is exposed. By adopting a policy to perform a complete risk assessment analysis on at least an annual basis, and periodically reviewing that analysis to ensure that all of your bases continued to be covered, you will be prepared react should the unexpected happen. If you haven’t gone through such an exercise in the past, this may be a time consuming and potentially frustrating process. You will need to breakdown all of the “mission critical” aspects of your business and analyze them both individually and in the aggregate to make sure you are evaluating all aspects of exposure. This process will obviously be different depending on the type of business, and may require you to look to your consultants for assistance (including your insurance advisors, attorneys, accountants, or others). It is critical that this is an “all in” effort by all involved, and could potentially include employees from all levels within your organization. By formalizing the process, you will not only have all of the information in one place, but you will be able to effectively manage, and delegate management of, these risks appropriately. Stay tuned for my next post “Top 10 Areas to Evaluate in Your Risk Assessment”. If you need any help with this process, please contact me 401-274-2001. 2011-08-12T13:07:41+00:00