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2004 Articles YEAR-END TAX PLANNING GUIDE: Pitfalls of the AMT Lost & Found Clock ticking on property tax benefits, CPAs warn Deeter sees window of opportunity amid industry turmoil Merger gone wrong No escaping far-reaching Sarbanes-Oxley rules Atlanta 's economy stays hot Atlanta Business Chronicle CPAs gearing up for growth Atlanta Business Chronicle February 2, 2004 Persistence pays off for accounts receivable
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YEAR-END TAX PLANNING GUIDE: Pitfalls of the AMT By Hank Ezell The Atlanta Journal Constitution reports an estimated 131.6 million taxpayers won't need to struggle to understand a load of new tax breaks and catches as they make their year-end tax plans this year. This is due to the fact that two big tax cut bills were passed in October. Most of the breaks in the American Jobs Creation Act are targeted at corporate America . The majority of the benefits from the Working Families Tax Relief Act won't take effect until next year and won't impact your 2004 taxes. This makes year-end tax planning more simple because you can stick with the old reliable strategies and put off income as long as you can and take advantage of all available tax breaks this year. According to the Atlanta Journal Constitution, a major complication this year is the alternative minimum tax (AMT). It caught an estimated 2.6 million taxpayers last year, and is continuing to rise. A taxpayer pays whichever is greater: his regular income tax liability or the AMT. "A taxpayer with significant state income taxes and property taxes, miscellaneous itemized deductions, incentive stock options or large capital gains can easily fall into AMT," said Roger W. Lusby III , an Atlanta CPA and partner in Frazier & Deeter . Figuring your liability under the AMT is a complex, even harrowing process. Tax preparation software may help, and hiring a tax professional certainly will. Lost & Found By Tom Barry Atlanta Business Chronicle featured an article on the little mistakes of doing business that add up and end up costing companies in the end. Stuff happens. Not everything goes right the first time. Silly as it sounds, duplicate invoice payment can be a problem for companies, especially as they grow in size and complexity. Businesses also lose money in failing to take advantage of credits due them and in paying sales tax where less or none is due, according to the article. "Sometimes buy-and-sell arrangements are fairly complex, and companies, no matter how good they are, wind up making mistakes on a small percentage of them," said John Cook, CEO of PRG-Schultz International Inc., a profit recovery group with 2,900 employees in more than 40 countries worldwide. Based in Atlanta , PRG-Schultz reviews accounts payable to identify and recover money for companies. It analyzes purchasing practices, agreements with vendors, and such expenses as real estate costs to maximize return to the client. Recoveries average between $1 and $2 for every $1,000 of corporate sales, which may not sound like much, but can add up to real money over time: between $1 million and $2 million in a $1 billion enterprise. "A company in the $10 million to $400 million range may have invoices going to six, eight or 10 different employees," Cook said. "Plus, invoices may come in from a supplier under various names, and so it's fairly easy to double-pay. Often the only thing that stops someone from signing off twice is memory." According to Atlanta Business Chronicle, unless a company has a procedure in place to go back and look at payments and credits on a regular basis, things will get missed. Office Depot Inc, a Delray Beach, Fla.-based corporation with $12.4 billion in 2003 sales. "One good thing about recovery audits is that they review what they've found with you, which allows you to put needed changes in place," said George Bryan, vice president of financial services. "The hope is that they won't find the same thing again next year, and so their challenge is to dig even deeper into your organization." The law of diminishing returns applies to companies chasing lost money on their own, in his view. Bryan believes even smaller businesses are well-advised to bring in a specialty firm, given that it works on a contingency basis. No savings found, no fee. "To put in programs that check for duplicate payments, missed cash discounts and the like takes up a lot of your IT resources," Bryan said. "We have extensive duplicate payment controls in our company, but that's not our core business, and we're not going to invest huge numbers of dollars to do that. Profit recovery is their business." But the smaller the company, the less likely such services are needed, said Jim Frazier , founding partner of the Atlanta-based CPA firm Frazier & Deeter LLC . "The owners of closely held private companies are much more likely to be hands-on," he said. "They tend to look at the bills and sign the checks. They have a direct vested interest in the business, and it's less likely that things like duplicate payments will happen." Frazier urges businesses to employ what he calls "separation of duties but continuity of personnel. Separation of duties is important," he said. "Generally that means having one person order the supplies, another person approve the invoice and another sign the checks." If the same person approves all invoices, "you're much more apt to catch double payment. I call that continuity of eyesight." Frazier has other advice as well. "Owners of smaller companies, $1 million to $20 million in annual revenue, are well advised on a periodic basis to open their bank statements and flip through the cancelled checks," he said. "In larger companies, the controller needs to periodically audit those statements for anything that looks odd." Clock ticking on property tax benefits, CPAs warn By Bobby Hickman Atlanta Business Chronicle published an article about an extra federal tax benefit, adopted in response to the Sept. 11, 2001, terrorist attacks, which expires at the end of this year. This leaves business owners only a few more months to take earlier deductions for personal property costs. The Jobs and Growth Tax Relief Reconciliation Act of 2003 allows taxpayers to deduct 50 percent of the value of personal property placed in service by Jan. 1, 2005. Without this “bonus depreciation,” the entire cost of personal property is depreciated over a period ranging from five to 15 years, depending upon its classification. According to Atlanta Business Chronicle, property owners who wish to get maximum value from this benefit should consider a cost segregation study. Such a study reviews construction or renovation costs to ensure they are allocated correctly to obtain the best return for taxpayers. Within such a study, costs that are not actually part of a building -- such as land improvements and various categories of personal property -- are placed in separate categories for tax reporting. Cost segregation studies require experts with accounting, engineering and construction backgrounds, said Jonathan P. Schroeder , a CPA and consultant to accounting firm Frazier & Deeter LLC . Schroeder says cost segregation does not reduce the total tax bill, "The benefit comes from the timing difference. For every dollar you save by moving something from the 39-year to the five-year category, you save 20 cents on the dollar, due to the time value of money." Add in bonus depreciation, he said, and "that's probably gone up to at least 25 cents." Deeter sees window of opportunity amid industry turmoil By Allison Shirreffs Atlanta Business Chronicle featured David Deeter , managing partner of accounting firm Frazier & Deeter LLC , in an article about the accounting industry. The accounting scandals of the last few years did more than leave a few corporations battling for their existence. They inspired government regulations and jaundiced the public's perception of some of the most well-known accounting firms. But there was a silver lining, and David Deeter is one person who isn't complaining. "It's been fabulous," he said of the fallout. "The governance issue has really been a windfall for us." According to Atlanta Business Chronicle, Deeter , a finalist for Small Business Person of the year, points out how it has been a windfall in several ways. First, the firm picked up several public clients (pre-Enron, the firm had no public clients). Second, the company can now attract top-quality talent that once would only work for the "Big Four" accounting firms. Additionally, the Big Four firms are hiring Frazier & Deeter to do miscellaneous consulting projects so they can avoid any possibility of conflict of interest. As a result, the company's 2004 revenues are up 21 percent for the first four months of 2004 and are estimated to total $13 million for the year. Those numbers will easily outshine 2001's revenues of $8.2 million. In December, Frazier & Deeter moved to its new offices in Bank of America Plaza, and Deeter thought they'd leased more than they needed. "In hindsight," he said, "it was the right thing to do." In 2001, the company had 51 employees. Today, the company has almost 80 employees. How has Deeter handled the boom in business and kept the quality of his work at a high level? Deeter explains to the Atlanta Business Chronicle that it's all about establishing personal relationships with clients and being armed with the qualifications to do the job well. "We have a window of opportunity and a lot of growth potential now," Deeter said. Deeter's favorite part of his job is relating to clients. "We're in a unique situation where clients lean on us as trusted advisers," he said. The article states that the core of Frazier & Deeter 's client base is family-owned and closely held businesses and their owners. One such client is Brad Bradford, president of Brad Bradford Realty & Construction. Deeter has been Bradford 's personal and business accountant since the late 1980s. "David has a strong work ethic, but his No. 1 asset is his integrity," Bradford said. Bob Voyles has been a friend and client of Deeter's since Frazier & Deeter opened its doors in 1981. A senior developer at Hines Interests L.P., a commercial real estate firm with its headquarters in Houston, Voyles' and his family members' tax returns all are done by Deeter . "David cares deeply about his clients, and he's also built a good organization that shares the same values," Voyles said. According to Atlanta Business Chronicle, Deeter considers attracting top talent one of his biggest challenges. "We need to make sure that top talent knows it can come to Frazier & Deete r and have an amazing career -- whether we recruit you from a college campus or one of the Big Four firms," he said. He believes his company's culture helps do that. The company provides flexible work schedules and contracts with a day-care facility. His firm established FD Project Impact , a volunteer group, and Frazier & Deeter is a corporate sponsor of Hands On Atlanta. Deeter is active with Whitefield Academy , a Christian preparatory school in Mableton , Ga. , and the firm established the Whitefield Academy Frazier & Deeter Foundation. Merger gone wrong By Tom Barry Mergers and acquisitions sometimes build synergy, but sometimes they don't. The trick is keeping your company together amid the turmoil. Atlanta Business Chronicle featured an article which illustrates mergers and acquisitions by profiling the procedure where a particular example is detailed. Atlanta entrepreneur M.W. "Whit" McIsaac sold two companies, Client Profiles Case Management and Clockwork Legal Accounting Systems, to Winston-Salem, N.C.-based FirmLogic for $5.4 million. According to Atlanta Business Chronicle, the 35 employees, including McIsaac, remained employed with the new ownership under the conditions that they cut payroll costs by 20 percent. At the time, the technology sector was in a full nosedive, and the once-flush, rapidly expanding FirmLogic suddenly didn't have the money to implement its vision. Atlanta Business Chronicle states seven months later, fearing his 35 employees would lose their jobs, McIsaac and fellow managers bought back the companies for roughly 20 percent of the original selling price. The businesses have since doubled in size. The two companies today have 60 employees, a combined revenue approaching $10 million and a 37-state, 1,000 law-firm client list. FirmLogic downscaled and rebounded. Today it's a thriving 180-employee enterprise. The article points out the distinct differences which arose over strategy. FirmLogic favored an Internet-based approach that conflicted with McIsaac's vision. FirmLogic wanted to get out of the products business. "Our employees were nervous about what was going to happen, but we kept them informed," he said. "We told them what we were up to and what we needed from them." This was critical in dealing with vendors and customers. Consultant Ty Dealy advises executives experiencing rough waters to maintain their focus on running the day-to-day operations and to keep key clients and vendors as well as employees apprised of developments. "It's so easy to get distracted," said Dealy , principal and head of corporate finance at Frazier & Deeter LLC . "But you have to keep selling. You have to keep running your business." If employees aren't kept up to date, the rumor mill inevitably will crank up, which can damage relationships with customers and vendors as well as wreak internal havoc, Dealy said. "Employees are the eyes, ears and face of your business," he said. "They're the people vendors and customers see. They need to be happy. So give them timely updates." Dealy said struggling operations need to maintain the status quo as much as possible. "For example, don't change the terms of customer and vendor relationships," he said. "If your payment terms are 30 days, don't suddenly go up to 60 days." No escaping far-reaching Sarbanes-Oxley rules By Bobby Hickman Atlanta Business Chronicle featured an article concerning how business executives are beginning to tackle the latest reporting requirements for the Sarbanes-Oxley Act of 2002. Sarbanes-Oxley was initially created to restrain corporate fraud and requires that chief financial officers and CEOs certify a public company's internal controls. Section 404 commands companies to document, test and have their auditors sign off on company procedures affecting the numbers on their annual reports as well. Section 404 is causing Sarbanes to not only involve the financial area including CFOs, but is now spreading out to affect information technology, human resources, and sales departments. The SEC recently extended the dates for companies to include Section 404 requirements in annual reports, from June 15 to Nov. 15 for companies with more than $75 million in outstanding shares. For smaller firms, the date moves from April 15, 2005, to July 15 next year. Mark T. Miller , partner in charge of business consulting at Frazier & Deeter LLC comments on the Sarbanes-Oxley rules, "Large companies have been going great guns for quite a while. Smaller companies are just getting started." According to Atlanta Business Chronicle, the costs associated with Sarbanes compliance can be steep. Financial Executives International (FEI) publicized a survey displaying total costs of first-year compliance with Section 404 could exceed $4.6 million for the largest U.S. companies. The average across all companies was nearly $2 million. FEI reported only 25 percent of the companies responding have already deployed a permanent solution for Section 404. Miller remarked that even smaller organizations are spending 15 to 30 man-weeks to comply. "If you don't have the resources internally -- and most companies do not -- it's significant dollars," he added. Miller said his clients want more than just "hard-core audit and control backgrounds" for their compliance teams. "They need business process knowledge as well. We're bringing in blended teams ... that also include process engineering, technology and reporting experts." Although Section 404 compliance is optional for private companies, some may find themselves expected to meet the requirements anyway. Miller noted more companies are being asked to follow "the spirit of Sarbanes" by bankers and investors. Frazier & Deeter's Miller touted once a company becomes compliant the first time, annual certification should become easier. "It should be a more structured process to follow the next time." Unfortunately, regulators and legislators could bring more changes to Sarbanes-Oxley. “Hitting the target is not going to get any easier," Miller said. "More likely, any changes will bring more stringent rules. Some of the wounds that caused [the act's passage] are still fresh." Atlanta 's economy stays hot By Jim Lovel Local economy expanding Atlanta Business Chronicle reports Atlanta created about 61,800 new jobs in 2003. Nationally, the number of jobs decreased by 74,000 a number buoyed by the creation of 278,000 jobs during the last five months of the year. All but about 1,000 of the new jobs in Georgia are in Atlanta , and more than half of them are in the professional services industry, which includes lawyers, accountants, engineers, consultants, architects and computer technicians. Those jobs usually pay more than jobs in the manufacturing and service industries, Miller said. Roger Lusby , a partner in the Atlanta accounting firm of Frazier & Deeter LLC , said he is seeing the growth at his company. The firm hired 14 new employees last year, seven of them to replace employees who left the company. The firm already hired four more this year and plans to hire at least three more, he said. Currently, the firm has about 70 employees. The expansion is a stark contrast to the past few years, Lusby said. “The firm averaged about one new employee in 2001 and 2002. We saw a large increase in demand for our services last year,” Lusby said. CPAs gearing up for growth By Meredith Jordan Atlanta Business Chronicle featured an article about how Atlanta 's top accounting firms are gearing up for big growth in 2004. The Atlanta offices of three of the Big Four accounting firms have seen 20-25% growth in the past year and are continuing to expand. Tim Bentsen, managing partner of a Big Four firm, says that growth is going to continue. “There's probably more work out there than all of the Big Four can handle today,” he added. The large accounting firms are not the only ones to benefit from this major surge in the industry. Smaller Atlanta-based firms have seen increasing numbers and are projected to benefit from the phenomenal growth in the industry expected for 2004. According to Atlanta Business Chronicle, the primary engine behind the growth remains the Sarbanes-Oxley Act of 2002, sweeping legislation passed in the wake of accounting scandals at Enron Corp., the Houston-based energy trader. Although the legislation was passed in 2002, it is becoming law in stages. Additionally, the article states that the number of resignations, or accounting firms stepping down as auditors of public companies of their own volition, also is on the rise. Jonathon Hamilton, editor of Public Accounting Report, a national newsletter, is mentions, “The Big Four are able to be selective about who they work with.” Failure to meet minimum pay requirements and not meeting the “risk profile” of the accounting firm are both grounds for being dropped as a client. It is stated that other firms are benefiting from Sarbanes-Oxley for different reasons. “The Windham Brannons, the Frazier & Deeters, the Porter Keadle Moores, those firms are uniquely positioned,” Hamilton said, referring to smaller firms in Atlanta . Ranked number of professionals in Atlanta, Windham Brannon P.C. placed 13 th on the Chronicle's Jan. 16 list, Frazier & Deeter LLC ranked 10 th , and Porter Keadle Moore LLP ranked 20 th . “The firms in this area, the regional and local players, they are going to have a good year,” Hamilton said. Persistence pays off for accounts receivable By Karen Dean Atlanta Business Chronicle published an article on collecting accounts receivable. The article is comprised of a few rules that will make managing accounts receivable smooth sailing. (1.) Have a good system (2.) Preparation (3.) Deliver the goods (4.) Consider outside sources (5.) Follow-up |
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