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Partner Harvey Schroder Q&A in San Diego Business Journal
Harvey Schroeder, a WNDE partner who manages the firm’s Carlsbad and Escondido offices, was featured in the January 16th issue of the San Diego Business Journal. He offered the following responses to questions posed by the Journal:
How have you added value to your clients’ business in this down and then slowly recovering economy? Are there any additional services that you offer now that perhaps were not offered in the past?
In this slowing economy, our clients are looking to reduce costs where they can. One way is by outsourcing some of their accounting needs. We have worked with our clients and provided services ranging from accounting to controllership duties. This allows our clients to reduce staffing levels that are not needed because of the economic slowdown but at the same time continue to receive the timely advice and accounting information needed to make decisions. We have also been engaged by our clients to review their internal controls, information technology systems and other processes and methodologies. This has enabled us to recommend cost saving options while improving efficiencies and their processes at the same time.
Have you seen a change in the way your clients monitor cash flow and what are some examples you can share?
Nearly all of our clients have been affected by the downturn of the economy in some fashion and trying to improve cash flow has been a prime directive. To mitigate the effects of decreasing cash flows, we have seen clients revisit their contractual obligations from restructuring capital and operating leases to delaying construction and other expansion projects. We have unfortunately seen clients forced to reduce staffing levels to accommodate their lower volume of business, while at the same time making creative uses of part-time and contract labor to continue to get the work completed. Many clients have a large amount of capital tied up in accounts receivable and inventory so we have worked with them to plan for reduced inventory levels and improve their accounts receivable turnover ratio based on the lower levels of business activity. The result is the client has budgeted for their cash flows and can plan for the cash flow highs and lows instead of being surprised when there is a shortage of cash and wondering how it happened.
What Federal/ State regulations have the most significant impact on your clients’ businesses? Why?
Small businesses are faced with regulations covering just about every aspect of their business and complying is a big burden. Unfortunately, many times they are not even aware they are out of compliance. Most recently, payroll and payroll tax regulations have impacted our clients’ businesses. The recent two-month extension of the 2% payroll tax holiday has led to confusion over withholdings, particularly with highly compensated employees. Regulations impacting our clients range from the many forms of taxes to labor standards to OSHA to EPA. California taxes and fees, such as the S-Corporation taxes and LLC Gross Receipts fees, continue to frustrate our clients. California non-compliance with taxpayer friendly federal laws, such as higher Section 179 and bonus depreciation limits and net operating loss carry backs, add to their frustrations. Small businesses continue to struggle with classifying workers as independent contractors or employees and the various reporting requirements. We also provide auditing and consulting services to municipalities, and the recent California Supreme Court rulings regarding Redevelopment Agencies has severely impacted our clients in those sectors.
As of now, the tax cut provisions announced last year will expire one year from now. How are you working with your clients to help them maximize the opportunities that have been presented to them prior to their expiration?
The difficulty with tax planning around expiring tax provisions is that their expiration may not come to fruition. A prime example of this is the AMT personal tax exemption which has been set to sunset nearly every year but continues to be extended. The year 2012 will be especially difficult in this regard. Favorable tax rates for certain dividends and capital gains are set to expire at the end of year. Do we encourage our clients to sell appreciated assets before capital gain rates increase? Similarly, favorable depreciation rules are set to expire at the end of 2012. Do we encourage our clients to invest in their infrastructure? As a firm we continually monitor actions taken in Congress and alert our clients to changes that affect them and their businesses. We find that by constantly working with our clients and keeping them informed of the ever-changing income tax situation promotes more communication between us and results in tax planning that is year-round instead of just a year-end activity.
How should companies evaluate their accounting firms?
Your accounting firm should be your partner in business. As such, companies should look for a firm with similar values to their own. An accounting firm should know your industry and be able to offer not just traditional tax, accounting and audit services, but also a variety of consulting, financial services and referrals to other services, such as legal and banking. Does the firm offer cost effective “one stop” shopping for all the services you need? An accounting firm is only as good as its personnel. Companies should inquire about staff retention rates and continuing education policies. Companies should also ask for and check references. They should also ask, what do other clients think of the accounting firm’s work, performance and reputation in the community? Fee, of course, will always be a part of the decision, but companies should be careful not to let fees be the only factor. The adage you get what you pay for can certainly be true when hiring an accounting firm.