Steve Giordano is facing a heavy risk.
He recently opened a computer and IT network management services company. What’s more, Giordano is facing an uphill challenge: to grow his new business in Northeast Ohio’s struggling economy in which many established companies in varied industries have seen little or no growth for more than two years.
Nevertheless, the president of Westlake-based TeamLogicIT says sales are coming in at what he projected when he opened shop more than five months ago, and expenses are lower than he expected.
Giordano’s experience as a former director of global sales and marketing for a Fortune 500 company and his MBA have helped him run his company. But he also gives credit to Donnette Smith, a CPA of Zinner and Co. of Cleveland. Giordano says Smith delivers good advice helping him avoid mistakes, which can be devastating in a tough economy.
But according to a national survey of small-business owners, Giordano may be one of the lucky few getting advice without having to ask the company accountant.
A survey by Chicago-based SurePayroll Inc. found that while seven out of 10 small-business owners are satisfied with their accountants, only three out of 10 received economy-related advice from them.
“To many small-business owners, spending money on an accountant isn’t much different from spending on the latest fully loaded mobile phone,” SurePayroll’s president Michael Alter observes. “They might expect each to perform a certain set of functions while overlooking other useful capabilities that aren’t so obvious. In the same way, owners don’t always know just how far their accountants’ capabilities reach.”
n other words, your accountant can provide a lot more than keeping the book and preparing tax returns. Accountants can evaluate your business operations to uncover hidden costs and improve cash flow, which can help your company survive this unprecedented economic quandary.
“CPA firms are running a business too, so they understand what small-business owners are going through,” says Bill Beaufait, a CPA at Maloney and Novotny of Cleveland. “CPAs are very familiar with how businesses work, and they have many great ideas about how to make them better.”
Communications is key
So how can small-business owners leverage the resources that accountants can bring to the table?
It all starts with opening the channels of communications between the business owner and the accountant.
“If a small-business owner is looking for his accountant to do more and perhaps help him through this economy, then you need to have a conversation,” says Howard Kass, a CPA with Zinner and Co. “You need to let your accountant know what you are looking for and what your needs are. If you walk away from that meeting with a bad feeling that your accountant doesn’t get it, then perhaps it’s time for a change.”
Good accountants will start that conversation with their clients.
“A financial statement is often the first place a symptom of a problem will show itself,” Kass says. “For example, an accountant may see that a business is spending more money in utilities or that gross profit margins have dropped significantly. Then it’s up to the accountant to start the conversation with the client, find out why these things are happening and offer solutions.”
Ironically, small businesses have hunkered down into survival mode by making major cost cuts in every budget line item including professional services. So how can small-business owners ask for an accountant’s help if they’re so concerned about preserving cash?
Ask for reduced rates
“In this economy, most accountants are happy to provide their customers with reduced rates,” says Kathy Seitz Watson, CBIZ director of the accounting, tax and advisory division in Cleveland. “We aren’t charging our top hourly rates for our clients because we are not helping them do special projects. We are helping them survive.”
Another way to reduce costs, advises Watson, is for small-business owners to take on some of the responsibility of the day-to-day bookkeeping duties. Companies also can save money by switching from monthly financial reports to quarterly financial reports.
“A bookkeeper within your organization can be trained to do some of the work we normally do,” Watson says. “We did that for some of our clients, and we reduced their fee by 20 percent.”
Watson also is not averse to offering what she calls “off-time” advice. That means meeting clients for an evening dinner or a morning cup of coffee, listening to their issues, and providing suggestions and ideas. Although the business owner still pays for the dinner or coffee, she says, the cost is less than an accountant’s hourly rate.
Preserving cash flow
Nevertheless, to make money you need to spend money. Spending money to tap an accountant’s expertise to uncover cash savings in areas that may not be so obvious can help small-business owners survive this economic storm.
For all businesses, cash flow has become even more mission critical in a slow economy because banks have shut off the credit line spigots. Zinner CPA Donnette Smith showed TechLogicIT owner Giordano how to fund capital purchases without weakening his cash position.
“When we built our original financial model and our pro forma financials, we had the funds for capital purchases front-loaded, meaning we had planned to pay for them or make a large down payment in the initial startup period,” he says. “When Zinner reviewed our pro formas, they suggested we change the financing of some of those purchases to provide better retention of cash.”
Giordano was looking to buy a company car to service customers. There were several payment and financing choices ranging from full cash payment to 60-month no-money-down financing.
Zinner looked at the financing he was leaning toward, made some additional comparisons and suggested a different financing option, explains Giordano. It reduced his initial cash outlay, preserved cash and didn’t burden his monthly cash flow.
Smith also helped Giordano develop a three-year financial projection model. It is integrated, meaning that if your customers are taking longer to pay your bills, the model can show you how that will impact the rest of your business operations.
“The value of a financial projection model is that it can provide you with best-case scenarios and worst-case scenarios, which can help prepare you to address issues before they become major problems,” says Smith.
More cash savings
Because the poor economy has cut commercial property values by as much as 30 to 50 percent, renegotiating your lease payment for your office space or store is another way to save cash, says Steven Hartstein, CPA for Skoda Minotti of Mayfield Village.
“One thing that we’ve seen is that most businesses don’t think about rent renegotiation, which can save them a bunch of money,” Hartstein says.
For example, if you’re paying $12 per square foot but a certified valuation shows you should be paying $10 per square foot, that can help you start a conversation with your property owner, Harstein says. To avoid a vacant space that doesn’t produce revenue, the property owner may be willing to cut back on your lease payment that closely matches the commercial property valuation.
An accountant also can show you how to improve cash flow by taking a closer look at your working capital.
“The more money that a company has tied up in working capital assets, the less money they have for business operations,” says Beaufait of Maloney and Novotny. “We’re doing a lot of work right now for companies by reviewing their account receivables policies, their inventory policies or how they order inventory and their payable policies.”
An accountant can recommend how those policies can be adjusted to help business owners keep more cash in their coffers to fund operations.
Additionally, companies should look at their compensation practices, Beaufait adds.
Restructuring wages and benefits as well as eliminating or reducing holiday or profit-sharing bonuses will preserve cash.
“This may make employees angry, but the market is such that companies cannot afford to be overpaying employees,” Beaufait says. “Employees would rather take the pay cut to help their company stay in business rather than see their company go out of business and have no job.”
Working with bankers
Gary Isakov, managing director of SS&G’s Cleveland office, is meeting with many bankers these days.
“When business was strong, companies had good lines of credit with their banks but usually didn’t have a need to use them,” Isakov says. “Now, all of a sudden, companies are using their lines of credit, and their debts levels are climbing. Bankers are nervous and they want assurances that they are protected, or that companies will be able to pay back their loans.”
Isakov says accountants can be a valuable resource to help clients work with their banks to address financing issues.
For example, Isakov helped a client put a proposal together that clearly showed the bank why the client’s collateral was good and secure. “The bank left the meeting feeling significantly more confident,” Isakov says. “It’s about how you present the client to the bank, which is where accountants who really know their client’s business can do a lot of good. Banks just want information, and if your accountant can present the information to bankers in a logical way and show them why it’s positive, then that can help bankers make a better business decision.”
Taking tax advantages
Finally, accountants can ensure that you take advantage of every tax deduction and credit.
For example, the Worker Homeownership and Business Assistance Act, passed in November, included a modified provision that extends the net operating loss carry-back period from two years to five years. A net operating loss occurs when deductions of a small business exceeds its gross revenue. The purpose of carrying back a new operating loss is to offset income from prior years, which can result in a refund of taxes the business previously paid.
“That is a great source of cash for some companies,” Beaufait says. “We know the Internal Revenue Service is processing these refund checks very quickly because they know many companies are struggling in this economy.”
The IRS also allows companies to deduct bad business debt in the year it became worthless. If a company that owes you money goes bankrupt, there is very little chance you’ll collect that debt, which allows you to deduct it, says Beaufait.
If the business that owes you money doesn’t declare bankruptcy, however, you have to show the IRS that you did everything possible to collect the debt. That means documenting all of your debt collection efforts, such as letters, phone calls and e-mails.
Also, state and federal tax credits are available for companies that install energy-efficient lights, an HVAC system or new equipment.
However long the economy takes to recover, it is important for small-business owners to remember that they shouldn’t turn their back on their advisers when they need
them most.
“It’s not all about billable hours from the adviser’s standpoint,” concludes Watson of CBIZ. “It’s about making sure their clients survive, grow and prosper because that benefits everyone.”