Small business owners we work with take pride in their early start up assets: a new office, company car, computers and technology.  But when it comes to valuing those assets BE CAREFUL!  Using estimates, measurements and other valuations of assets can be a sticking point during an audit.  Items such as goodwill and other intangibles are under increasing scrutiny by financial auditors.  A good rule is to discuss such times with your accountant and to keep those assets under a cap that might raise red flags.

Often business owners fall in love with their own assets and want to keep their asset estimates high.  Truth is, that can really become an issue down the road – especially if the business is successful in the long run.  No one wants a young company that is doing well to suddenly become hampered in an audit.  At Foreman & Airhart we work closely with our small and mid-size business customers to ensure that they have a fair and defensible valuation strategy for their assets – real or intangible!

Even if it has been a rough year, many businesses will offer some kind of holiday recognition to their employees.  44% will gift food, 13% will gift cash and 37% will provide a retailer gift card.  From an accounting perspective, holiday bonuses or “gifts” are treated as a taxable event subject to both income and payroll tax. Ebeneezer IRS does not see these as “gifts” so much as another payment to an employee.

The only exception? “de minimis” fringe benefits that cannot be easily valued.  Since cash, food  or gift cards can all be easily valued and entered onto the books what is left?  A gift must be of “nominal value” to be excluded from income. The IRS does not define “nominal value,” but it is clear an item with value over $100 is not considered de minimis. However, many experts advise “nominal” is much lower, either $25 or $50.  Think of something like a tote bag,ornament or other gewgaw.

So with that bit of merry cheer, we sign off for our own holiday – and wish you a holiday that would never be described as de minimis.

The Internal Revenue Service has announced the cost-of-living adjustments applicable to dollar limitations for various qualified retirement plans and other amounts for 2013. Many of the pension plan limitations will change for 2013 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. If you are a business and a plan sponsor, verify that your administrative and payroll systems reflect the appropriate limits. Communications that specify benefit plan limits should be reviewed for accuracy before materials are given to participants.

⁽¹⁾ This table has been updated based on IRS Announcement IR-2012-77, October 18, 2012.

⁽²⁾ This applies to the total of all elective deferrals an individual makes for the year to 401(k) plans, 403(b) plans, SARSEPs and SIMPLE plans.  HOwever, deferrals to each SIMPLE plan in which the individual participates are also limited, as shown later in the table.

⁽³⁾Catch up contributions are available each year to individuals who reach age 50 by the end of the year.

As you can see, this is a lot of detail and we never expect our clients to digest this.  That’s what we are here for.  If you have any questions or for more information about the 2013 Cost-Of-Living adjustments for retirement plans, please contact us.  We do more than taxes.

At Foreman & Airhart, Minnesota Dental CPA, we pride ourselves on servicing Minneapolis area dentists and dental clients.  We understand the market – and your business.  IF you are a dentist or work in a dental office and wonder if you are getting the best advice possible from your accountant, ask these questions:

1. Does your accountant understand how participation in insurance plans affect your percentage of adjustments to gross productions?  Do they help you monitor and track that key measurement?

2. Does your accountant offer guidance on a reasonable associate compensation model?

3. Do you get smart guidance from your accountant on normal standards for your accounts receivable?

4. Are guidelines about overhead established with a view for your practice’s specialty?

5. Does your business reporting give you visibility to your hygiene production and can you see the costs of your hygiene staff separately from other departments?

6. Do you track and monitor hygiene production versus dentist production? Does your accountant know your goals for each segment?

Really, these are all questions that help you gage how well connected your accountant is to your dental practice and its business goals.  We believe every business deserves an accountant that partners with them to provide insight and assistance in making every business a growth business. Especially dentists.

When you are ready to get an accountant who really helps your dental practice, contact us.  Because you are ready for the next level.

We love our dentists and dental clients.  They are dedicated to their patients and work diligently to stay educated on the latest techniques and treatments and provide a level of intimate personal care that is rare.  But many times they are so “down in the mouths” of their patients that it is difficult to look at their practice as a business and ask tough questions.

Here are the 8 business questions every dentist or doctor should ask.  We’d like to think that they would turn to Foreman & Airhart when they want the answers:

• How can I make my practice more profitable?
  • From back office operations to renegotiating office leases, there are many ways that a dental or medical practice can change the fixed and variable costs to make their practice more profitable.  Driving the top line through new marketing is a strategy we highly favor.
• How can I make more money without working more hours?
  • Looking at new insurance policies and more efficient procedures is a start.  Streamlining operations, handling billing differently and taking on a diverse set of partners are other strategies we can help you explore.
• How much is my practice worth?
  • Sorry, but this may surprise you: and not in a good way.  Getting a realistic valuation of your practice is a healthy requirement for making improvements in everything from marketing and sales to operations to individual retirement planning.  This is not something to put off until a year before you are ready to sell.
• When, where and how do I sell it?
  • Let’s face it, you can’t put a dental or medical practice up for sale on eBay.  The market is strictly defined and marketing your practice should begin years before you will actually close.  A long transition period can make patients comfortable with the new ownership and a high patient retention rate can be built into a sales contract to maximize your sale price.  Begin to work with a competent broker and accountancy well in advance to get your practice in as strong a shape as possible before going onto the market.
• How does my practice compare to others in this area?
  • We pride ourselves on our ability to benchmark dental and medical firms against standards in the area.  We can look at measures that look at patient care and revenue by doctor, by time period and by office against others in the Minneapolis area.
• Are my key profit indicators in line with the norm?
  • This is a great question for two reasons: first, it implies that you KNOW your key profit indicators.  Do you?  It may vary by practice but it can include number of new patients per month, percent of non-insured patients seen, aging of accounts receivable, staff to patient ratio and many others.  So, first, we create a custom scorecard that provides visibility to the key profit indicators for your practice.  Then we compare those to industry standards to identify specific areas that require attention.
• Am I ready for an associate? How can I afford one?
  • Knowing how and when to grow is a key balance.  You cannot increase the patients without an increase in staff and you cannot increase staff until you have more patients.  That can seem like a Catch-22.  But we can help identify the critical tipping points when expansion makes sense to fuel new growth.
• Should I expand?
  • Nearly every dentist and doctor wants to expand up to a point.  Providing care is critical and expansion can mean many things: offering new services, opening a second location, adding more staff and partners.  Our thoughtful and fiscally conservative approach can help dentists and doctors minimize the risks associated with expansion.

If you feel like you have the answers to these 8 questions, good for you!  You probably have a trusted and engaged accounting resource on your side.  But if some of the answers are cloudy, consider a call to Foreman & Airhart.  Our experts can bring focus to your practice.

Dentists and Doctors – even Pediatricians! – have a common business issue: their patients are aging.  While that might seem to be neutral business trend, the fact is, many medical and dental practitioners become so busy with their current patients that they can miss this significant trend until late in their years.

Picture this: a young doctor or dentist with plenty of school loans goes into business and builds up a thriving practice.  In the whirlwind of annual checkups and treatments, the patients become a stable base of business.  True, children are added and some new clients come on board, but the treatments perceptibly move from orthodontia to gingivitis to implants as the median age goes up.  Suddenly, at age 55 (just as income becomes most critical for retirement planning) the doctor or dentist finds himself with clients moving away for retirement and the spigot of new client inflow is a mere drip.

Its a common scene – and completely understandable.  Practitioners goes into their field for the love of the work.  Engaged in the work everyday, it is difficult to see this silent trend.  Without good patient reports and an eye that rises above the day-to-day operations, doctors and dentists battle this issue from generation to generation.

We encourage our dental and medical clients to use new types of reports to give them a view of their business – not just a view from inside their business.  And we help them understand why then need to get into their community, continually cross-seel across generations and to engage in updated marketing to reach young patients.

If you would like to hear more, contact us.

In my earlier blog Why it Matters when Choosing LLC versus S-Corp Status, I recommended that smart business people should consider creating S-Corporations instead of LLC’s because it is easier to sell the entity if that is your exit strategy and for the tax advantages it can provide its owners.  Another compelling reason is that the S Corporation has the ability to treat a portion of its payments to shareholders as being return on invested capital not subject to employment taxes.

But as with all things, there are those who push the boundary too far.  There are many S Corporations that are being so aggressive on this front that they assert all of their profit is return on investment and none of it is compensation.  Needless to say the IRS is focusing on this and as you might expect, the IRS always wins these battles.

We can help advise companies about where to draw the line.  Reasonable compensation is a test that typically includes looking at the training and experience of the shareholder/employee, their duties and responsibilities and the time devoted to the business.  The IRS will usually also include the history of the company’s dividend payments, payments to non-sharholder employees and capital invested into the company.  If the business is primarily a service business with the services performed by the principal shareholder, the IRS would tend to expect that the majority of the earnings of the company be treated as compensation.  As a service company, the business would have relatively less capital and less need to accumulate capital for expansion.  A service S corporation with large dividend payouts compared to the amount treated as compensation could be a potential candidate for an IRS audit.   This is the #1 issue facing S Corpoartions and the comparison between W-2 compensation and K-1 dividend is a relatively easy one for the IRS to make.

One of our key responsibilities for our clients is to help them understand how to balance their returns from their capital and their hard work fairly so that they maximize their returns while minimizing their exposure for IRS audits.  Want to learn more?  Call us.  We do more than taxes.

If you are a small business facing difficult decisions and a less than satisfying performance, you may be considering buying a consultant’s expertise to help you out.  But before you begin that expensive journey, ask yourself if you need specific skills to create a solution – like expertise in a specific warehouse management system  - or a logical business person who can help identify waste and opportunity?  For many small business clients, the answer lies with an engaged outside accountant.  Firms like ours dive into our clients’ business and work hand in hand with business owners and management to identify opportunities to build sales and eliminate waste.

For the same fees you may be paying your accountant today, we also bring the skills and expertise to look at your unique business and find opportunities to improve its performance.  Because we work side by side with businesses for years, our insights can be trusted.  And we’ll live with the results – just like you do – not leave you behind after you pay the invoice from our consultancy.

When you are ready to be more competitive, improve your bottom line and lean on an objective accountant who does more than just bookkeeping, call us.  We do more than taxes.

Think you can run your business with a P&L and a balance sheet?  More US Companies (and their customers) are demanding sustainability reports to evaluate and publicize their “green” metrics.  More companies are asking to report on “the triple bottom line” – profit, people and planet. 80% of the Global Fortune 250 issue corporate responsibility reports.  For your customers, just knowing that you are measuring and tracking your recycling efforts, carbon emissions, energy and water usage can build goodwill.

For our small business clients in the Twin Cities, it can mean creating a simple report that aggregates utility metrics from a variety of sources onto a single page to create a “current run rate” baseline level.  Companies can create their own targets for reductions and work within the organization to develop initiatives to reach their targets.  All along, we help create reports to track their progress.  Our best clients create dedicated teams to lead their sustainability efforts and communicate wins to customers and internally.

If your current accountant hasn’t shown you how to create a “green report card,” call us.  We do more than taxes.

Succession plans are central for any company that need to navigate transitions smoothly.  They are doubly critical for small businesses with a limited pool of candidates and urgent business operations to tend.  As a financial advisor, I find getting  company owners to prioritize creating plans difficult.  But with baby boomers officially reaching age 65 and 94% of recent business respondents saying succession planning is important while only 31% have plans, the need is more urgent than ever.  It’s one of the first things I recommend clients complete if they want a smooth running company with a legacy of stability.   Because for me, its not just about managing a client – its about caring for their business like my own.

Savvy businesses update their succession plans at least once a year. (Best practice is twice a year in firms over 70 employees.)  Critical positions should have natural successors identified and there should be plans in place to cross-develop talented people to ensure that skills and experience gets developed prior to any official job changes.  Examples of ways clients can do that is to share clients across multiple managers over time, create temporary assignments to develop experience and to create task forces so that candidates can get exposure to new areas before they are slotted into new positions.  This gives management a chance to evaluate the choice and for candidates to gain confidence in new areas.  Even if succession is years in the future, the diversity of experiences and training can create goodwill and job satisfaction to keep key talent engaged in running the business in the short- to mid-term.

If you recognize that you need help creating a succession plan and a reasonable action plan to ready your company for change, call us.  We do a lot more than taxes!