BFBA Blog

BFBA Promotes Nine Employees During Summer of 2017

Posted on Aug. 31st, 2017 by

One of our core principles at BFBA has always been to help our employees reach their potential and enjoy a rewarding work experience. We believe that when our employees achieve their best, so do their clients. Part of that is making sure we create a work environment where staff at all levels, from our college interns to senior managers, can advance in the pursuit of their goals. That’s why we’re excited to announce nine promotions among our staff this summer:

  • Richard Brandon – Promoted to Audit Senior Manager
  • Gabriel Fink – Promoted to Tax Senior Manager
  • Kelly Aguirre – Promoted to Audit Supervising Senior
  • Mandy Dahl – Promoted to Audit Supervising Senior
  • Jason Herrera – Promoted to Audit Supervising Senior
  • Cara Duckett – Promoted to Audit Senior
  • Jared Shimazu – Promoted to Audit Senior
  • Kaity Hahn – Promoted to Tax Senior
  • Timur Mamedov – Promoted to Tax Senior

About BFBA, LLP:

BFBA, LLP is a full-service Sacramento-based certified public accounting and business advisory firm providing audit, tax, and consulting services to clients primarily in Northern California and Nevada. Our management advisory services include business valuation, succession planning, and Research and Development (R&D) credits. BFBA, LLP was founded with the goal of providing clients superior value through consistent, attentive service. At BFBA, LLP we go beyond accounting, striving to apply the benefit of our business experience in innovative ways. Our firm’s strengths include a unique service approach and focused expertise throughout a wide spectrum of industries including construction, real estate, retail, manufacturing, nonprofit organizations, and employee benefit plans.

 

Succession Planning: Begin With the End in Mind

Posted on Jun. 21st, 2017 by

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By Craig Boyce, Audit Partner

It is never too soon to consider an exit strategy from your business.

Depending upon the industry in which your business operates, there will be multiple exit options to consider. During my 35 year career in public accounting I have had the unique opportunity to work with hundreds of privately held businesses. I have observed that businesses which have a viable plan of ownership succession in place not only provide an exit plan for owners, but often perform at a higher level than many of their competitors. A well-conceived and thoughtfully implemented plan will provide a path for owners to retire on their own terms and at their own pace. Such a plan can be far less disruptive to a business and its employees and more protective of company culture than a sale to a third party.

It is important to work closely with experienced professionals to select the right mechanism to facilitate ownership transition. Each business has its own unique circumstances that will need to be considered when choosing the transition methodology. Selecting the right vehicle will help maximize the monetary benefit to both sellers and buyers as well as mitigate the tax impact.

While the above mentioned reasons alone may provide sufficient incentive for owners to consider creating a succession plan, they may not be the most important reasons to do so. A well-managed succession plan will incentivize key employees to perform at a higher level and will create a culture of teamwork and cooperation throughout the management team. It will help the company attract and retain highly motivated and capable employees. In many cases, participants in the plan will become enthusiastic ambassadors for the company and will reach out and recruit new talent. In a market short on capable people, a well-conceived succession plan will help your company stand out.  All of this will lead to organic growth, better margins and greater corporate stock value.

In talking with business owners about succession planning, I have found that most are interested, but lack the guidance to proceed. Many owners are unsure how to approach their management team and are not even certain they have the qualified individual or individuals within their current management team to begin the process. It is critical that owners properly vet prospective owners within their management team for compatibility with other owners, fiscal responsibility, creditworthiness, risk tolerance and ability to function as a part of an ownership group.

Before committing to a specific ownership transition vehicle and incurring legal costs for operating agreements and plan documents, I have found that a good intermediate step is to create a non-qualified deferred compensation plan. Such a plan would include all prospective owners within the management group, as well as other key employees, who because of various other reasons, may not be motivated by ownership. A non-qualified deferred compensation plan with rolling vesting funded by a specific percentage of the company’s annual net income will be motivational to all participants and help foster a cohesive focus on building net income. The plan will help owners determine who among the management team best qualify for ownership and are desirous to obtain ownership. The plan will also provide capital for those selected for ownership as well as “golden handcuffs” for other participants, who because of risk tolerance, compatibility or other reasons, do not enter the ownership group. This type of plan will also be an effective tool in luring other talented people to the company.

When owners begin with the end in mind and carefully incorporate a well-crafted incentive compensation and succession plan into their overall comprehensive business plan, smooth ownership transition and business continuity will be more easily achieved. More importantly, your business will have a better chance to become best-in-class as top, talented people push the company forward and eventually push you out on your schedule and on your terms.  

Statement of Cash Flows for Not-for-Profit Organizations

Posted on Jun. 21st, 2017 by

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By Andrew Der, Audit Manager

Most of us are creatures of habit. I am one. When I go to Denny’s, I order the same thing every time. I don’t even look at the menu because I already know what I will be ordering (a half-order of nachos with a coke). The waiters and waitresses—even the hostesses and managers—all know my “usual.” I am definitely a creature of habit.

For many of the not-for-profit organizations (NPOs) that I work with, it is very easy to become creatures of habit with the financial statements and to simply present them in the same manner as was presented in the previous year. Certainly, there are benefits of comparability between years, but like I said, creatures of habit.

With the issuance of FASB ASU 2016-14 Not-for-Profit Entities: Presentation of Financial Statements in Not-for-Profit Entities in August 2016, I think that it is worth considering whether or not NPOs should continue to be creatures of habit regarding the statement of cash flows.

Historically, the statement of cash flows for many NPOs has been presented using what is known as the “indirect method.” Essentially, for the net change in cash from operating activities, the change in net assets is initially assumed to result entirely from cash coming in from all revenue sources and cash going out for all expenses. Adjustments are then shown for non-cash revenues and expenses and then for changes in the statement of financial position accounts for cash-to-accrual adjustments. For NPOs that choose to present the statement of cash flows using the “direct method,” a reconciliation to the indirect method is required, therefore resulting in the indirect method still being presented on those statements of cash flows even when the direct method is used. As a result, it becomes easier and more efficient to simply present the statement of cash flows using the indirect method. After all, if this presentation is required regardless whether the direct or indirect method is used, why take the extra time to also present the statement of cash flows using the direct method?

One of the provisions of ASU 2016-14 (effective for fiscal periods beginning after December 15, 2017, with early adoption permitted), removes the requirement for this reconciliation to be performed between the direct method and the indirect method. Using the direct method, the net change in cash from operating activities is presented by showing the amount of cash received during the year from various revenue sources and the amount of cash spent during the year for various expenses, such as and including personnel-related costs and amounts paid to vendors. Available resources—most significantly, cash—is often the most important consideration for many of the Boards of Directors for the NPOs that I work with. The budgets for many of these NPOs are prepared on a cash basis. Cash is easy to understand—how much do I have, how much did I receive, and how much did I spend? Using the direct method for the statement of cash flows may make it easier for these NPOs and their Boards of Directors to understand these sources and uses of cash during the year in ways that are not as easy to understand upon first glance using the indirect method. So the question, now, for these NPOs and their Boards of Directors to consider is this: Do you continue to be creatures of habit, or does the direct method represent a more useful way for you to present the statement of cash flows?

Who is testing your IT security? (Hint: The answer isn’t “no one.”)

Posted on Jun. 21st, 2017 by

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By Todd Bollenbach, CEO of GNT Solutions

When it comes to IT security, your network is being tested every day by rogue, external attackers looking to profit from weak infrastructures and unsuspecting employees.

As contractors and material suppliers, you frequently deal with purchase orders, invoices, wire transfers and ACH payments—sensitive financial information that’s ripe for exploitation. Cyber criminals know this, which puts your systems and employees at high risk of an attack if there are vulnerabilities in your network.

An effective information security program leverages many different layers of information security to prevent such an attack. This article focuses on the critical, yet oft-overlooked, layer of testing and its two main components:

  • Testing Systems – In 2016, an average of 41 new vulnerabilities were reported each day—nearly two per hour. Unfortunately, patching vulnerabilities is not as simple as installing Microsoft’s monthly updates; that’s only the first step.
    If you are not engaging in regular network vulnerability scanning, you will likely be shocked by the number of vulnerabilities that may exist in your corporate network. Scanning for vulnerabilities across your entire network is typically not a default service that’s included by your managed IT or information security vendor, so it’s crucial to discuss implementing this with your internal/external IT staff.
  • Testing Employees – Phishing, vishing and smishing are all social engineering tactics used by cyber criminals to exploit unwitting employees. If those terms sound like an entirely different language to you or any of you staff, then you’re in need of proper information security training. Being aware of these types of risks is the first line of defense in preventing a breach, so training your staff is the first step; testing them internally is a critical second step that needs to be performed often to ensure that information security stays at the top of their mind when interacting with sensitive data.

Implementing both components of testing will significantly reduce the risk of being targeted in a cyber attack, while also arming your staff with the knowledge to respond intelligently in the event it does happen.

About the Author
Todd Bollenbach is the founder and CEO of GNT Solutions, an IT consulting firm helping small and medium businesses deploy, maintain, and protect their technology. With a range of specializations that include security, compliance, IT management, helpdesk, and disaster recovery/avoidance, GNT Solutions serves a broad client base that includes accounting firms, developers, construction firms, economic development agencies and a host of other businesses between fifteen and two hundred employees.

5 Keys to a Successful Internship in Accounting

Posted on May. 25th, 2017 by

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By Jason Herrera

Before graduation and starting your careers, many of you will obtain an internship in public accounting at some point.  Below are five things to do while interning that will set you apart from others.  Additionally, most of these can also be applied at the start and throughout your careers.  

  1. Be open-minded.  This means no matter the task, team, or firm, do not dwell on the negative.  You might want to work with a certain team or in a certain industry, but what you want isn’t always what is most beneficial to the firm, others in the firm, or to your development.  Keep an open-mind and relish the opportunity of working in a different industry, with different people, or in different areas.  The more you can adapt, be flexible, and stay open-minded, the more valuable you are to the firm.
  2. Show a willingness to learn. The majority of interns say they want to learn, but they fail at making a lasting impression in this area.  Don’t just ask questions!  Formulate some sort of answers (even if they are guesses) to the questions you ask.  You want to show people that you are thinking about your questions before you ask.  Always think about what you are doing and why you are doing it.  This seems simple, but many times interns and new hires get bogged down in the details and forget the big picture of why they are doing what they are doing.
  3. Connect with people.  This is plain and simple; the more people that like you and connect with you, the better your chances are to land a permanent position and advance quickly in the firm.
  4. Be humble.  Many of you will be very qualified (compared to your peers) during college to obtain an internship and/or entry-level position in public accounting.  Do not let your prior success go to your head.  Even if people are telling you that you are doing a great job, be humble in your approach, and you will reap the benefits throughout your career.
  5. Have fun!  Interning is extremely stressful, as you are trying to make an impression with the firm and/or set yourself up for employment with another firm.  Try to have fun!  If you can keep it loose and have fun during your internship, you will positively contribute to the culture of that firm and leave a lasting impression with your superiors.  

Tax Accounting Methods: Cash vs. Accrual Method

Posted on Mar. 8th, 2017 by

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By Isaac Zipp

The two most common accounting methods available to businesses are the cash and accrual methods.  Small businesses typically prefer to use the cash method if it is an available option to them.  The cash method is preferred due to the simplicity of record keeping and because it allows the company to defer the taxation of their income until they actually receive payment.  On the other hand, the accrual method attempts to match the income to the year when it is actually earned, regardless of when payment is received.  

That being said, there are various limitations on what companies are permitted to use the cash method.  These limitations can be due to industry type, entity structure, and/or revenue volume.  For example, manufacturing companies with average revenue in excess of $1 million are not permitted to use the cash method, regardless of entity structure.  On the other hand, a C-corporation with average revenue in excess of $5 million is not permitted to use the cash method, regardless of industry type.

Under the Cash method of accounting, income is recognized when payment has been actually or constructively received.  Expenses are deductible when the amount is actually paid.  Under the Accrual method, income is recognized once the “all events test” has been met.  The all events test is met when all events have occurred which establish the right to a payment or the fact of a liability and the amount can be determined with reasonable accuracy.  For expenses to be deductible, the expense needs to meet the all events test and “economic performance” must occur.  Economic performance, generally, occurs when property or services are provided by the other party.  There are many exceptions to these general rules for both the cash and accrual methods depending on the nature of a transaction.  For example, a cash-basis taxpayer can deduct an amount accrued for a profit sharing contribution, provided it is paid by the due date of the return.  On the other hand, an accrual method taxpayer must recognize prepaid rental income, despite the payment being for the use of the property in the following year.

The 3 Most Common Retirement Plan Failures

Posted on Mar. 8th, 2017 by

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By Nathan Boyce, Partner

As doubts have arisen regarding the sustainability of our nation’s social security system, more than ever, money is being poured into corporate-sponsored retirement plans.  Retirement plans are an effective way for businesses and their owners to reduce taxable income, and in today’s competitive labor market, they are one of many requirements in attracting and recruiting top talent.

In the 30 plus years that we have been involved in retirement plan compliance, we have seen the great benefits that retirement plans can provide our clients, as well as their most valuable assets—their employees.  When not properly administered, however, retirement plans can cause significant headaches and can lead to significant penalties imposed by the DOL and the IRS.  I recently had a conversation with a business owner who was preparing for retirement.  He had sold a significant portion of his company and was hoping to soon enjoy his time sitting on the beach, when he received an unfortunate letter from the DOL indicating that he hadn’t appropriately filed the plan’s Form 5500 for the previous three years.  We were able to help him through the process and eventually he was able to meet all of the DOL’s requests, but not without some frustration and additional cost on his part.  At one point, he expressed that he regretted setting up the plan in the first place.  This in large part was due to the fact that the plan had been neglected and this eventually came back to haunt him.

In our audits over the years, we have come across numerous plan deficiencies and I have identified three of the most common:

1. The plan administrator fails to apply the correct definition of compensation.

All too often, the company improperly calculates participant deferrals and employer matching contributions by incorrectly identifying eligible compensation.  The company’s plan document defines which compensation should be considered and/or excluded in calculating participant deferrals.  For example, not deferring a portion of a participant’s bonus, when bonuses are included in eligible compensation as defined by the plan document, will result in a plan operational error.  The company will be liable for a portion of the participant’s missed deferrals, as well as associated missed earnings on the deferrals.

2. Late deferral remittances.

Over the last several years, the Department of Labor has focused its efforts on identifying plan sponsors who are holding employee deferral contributions for an excessive period before remitting them to the plan custodian.  For small plans (typically plans with fewer than 100 participants), there is an established safe harbor of 7 days.  For large plans, however, these funds should be remitted to the custodian as soon as they are separately identifiable following the pay date.  Holding these funds beyond this time is considered a prohibited transaction under ERISA.  The DOL is willing to assist companies to take action in correcting issues related to this, however, failure to do so could result in the plan losing its tax qualification status.

3. Participant eligibility issues.

The company’s plan document defines which employees are eligible to participate in the plan.  Often, plan administrators are not familiar enough with the plan document to ensure that employees who are eligible are given the opportunity to enroll in the plan in a timely manner.  Additionally, there are times when employees are enrolled in the plan before becoming eligible.  These mistakes constitute plan operational errors that can be costly to rectify.

You may have service providers in place to help with the various aspects of retirement plan administration, but remember, the responsibility ultimately falls upon management to ensure that the plan is operating in accordance with the plan document as well as IRS and DOL regulations.

Federal Work Opportunity Tax Credit

Posted on Mar. 8th, 2017 by

By Uri Noah Carrazco, CPA (Partner at Carrazco – Innovative Tax Solutions)

With the March 15 tax filing deadline upon us, many companies have just filed their tax returns or at least made a hefty payment with their extension.  Once that money has flowed out of the business, most of us want to bury our head in the sand and hope those estimated tax payment due dates stay far away.  However, that’s the last thing you should be doing!  Now is the time to start thinking about your 2017 taxes and ways to mitigate that tax burden. 

Did you know that many companies are already doing things that qualify for tax credits?  Yes, things that you are already doing could reduce that tax burden for 2017, making that March 15, 2018 deadline much easier on you and leaving a lot more cash in your business!  One example is the Federal Work Opportunity Tax Credit (WOTC), a hiring credit.  If you’re hiring individuals in certain categories, veterans or people who have received federal aid, to name a few, then you could qualify for a $2,400 to $9,600 tax credit per person you hire!  That is a direct reduction of the tax you owe – money that goes directly back into your business!  Be sure to ask your tax adviser about the WOTC, or other tax credits that you may qualify for, while there is still time to shape your future.

5 Tips for a Successful Day at Meet the Firms

Posted on Mar. 8th, 2017 by

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By Will Ho

1. Do not treat Meet the Firms like an interview.

Not treating Meet the Firms like an interview seems counterintuitive, but there is a method to the madness. Interviews are dependent on the first impressions you make with key decision makers at the firm you are interested in. For many of you spring candidates, first impressions are vital if you are planning to land an interview with the recruiter. That said, how do you make a good first impression at Meet the Firms?

The secret to making a good first impression at Meet the Firms is not making it the first impression. If you have not done so already, you should seriously get started on building relationships with the firm that interests you prior to Meet the Firms. You can do this by going to the firm’s office tour, company sponsored events, tech meetings on campus, or any other type of social event where professionals of the firm that interests you might be present. Building a relationship with the firm early on in the semester gives you the upper hand when Meet the Firms approaches. You will have the advantage of having talking points from previous events held on campus or an event that you helped coordinate. Additionally, if you have already taken the step to build a relationship with the firm, remember not to focus on any one person at the firm. Although an individual at the firm may have the power to bring you on board, they are not the only ones in the decision-making process. With that said, if you have started to build the relationship prior to Meet the Firms, you will have better chances on making a good first impression and hopefully landing an interview.

 

2. Bring resumes that are tailored to the firm(s) you are interested in.

At Meet the Firms, there is not a more important piece of paper than your resume. But bringing 20 copies of the resume you drafted the night before because your professors all decided to have midterms the same day as Meet the Firms is not a situation you want to be in.

The key to a successful resume depends on the firm you are interested in. If you are printing out the same 20 resumes on plain printer paper to different firms, you have just committed an accounting sin. Next time you stop by the bookstore, get some cotton resume paper. However, what you really need to do to make your resume stand out is to have it tailored to the firm or firms of your interest. The best way to tailor a resume to fit the firm’s values is to find a mentor within the firm of your interest and have him or her review your resume. Having a mentor on the inside of the firm review your resume is the best way to get your resume picked out from a stack of resumes at Meet the Firms. Not only is your resume going to stand out and align with what the firm values most, but your resume will also find its way to others within the firm if your mentor likes you and will vouch for you. Overall, having a mentor is a huge benefit, not only for Meet the Firms, but for your career.

Last point about your resume: Unless asked by a professional, do not spend too much time talking about your qualifications at Meet the Firms. Your resume has all your qualifications—there is no need to regurgitate information you have printed. Instead, you should talk to the professionals about things they cannot get from a resume, such as your hobbies, interests, goals, or anything appropriate for the professional setting.

 

3. Make some friends before the event.

By now, hopefully you have a clear idea of the firms you want to talk to the day of Meet the Firms. The key to a successful day at the event is to pick a limited amount of firms you want to talk to because, let’s face it, you won’t be the only one at Meet the Firms trying to get your name out. There will be hordes of students and candidates crowding the recruiters. The best way to beat the crowd is to 1) plan which firms you would like to talk to and find out where they are located within the event center, 2) skip the delicious food that is laid out before you in the middle of the building, and 3) walk over to the recruiter with your friend who just so happens to be signed with the firm you are interested in. This might seem cliché, but at Meet the Firms it is not about what you know—it is about who you know. Most of the candidates at the event have the same qualifications as you, have the same amount of job experience as you, attend the same classes as you, and get the same grades as you. So who do you have to know?

If you know a classmate, an Accounting Society member, a Beta Alpha Psi member, or any other business club member that is involved with professional events and might have connections with the firm you are interested in, you should definitely talk to them. Talk to him or her about their experiences with the firm and the company culture. Ask him or her questions about things that you might face the first year of working with the firm since they are going through it right now. Talking to a new hire, intern, or someone with connections to the inside of the firm not only gives you a better understanding of the firm’s culture and values, but you also can eventually develop a relationship and hopefully work together in the same office.

At Meet the Firms, ask this friend of yours if they can introduce you to the hiring manager or recruiter if you have not met them already. You will have the perk of skipping the huge lines and hordes of students trying to talk to the hiring manager like you are some kind of VIP at the hottest nightclub. One final note: Use professional judgement and be patient when you are with a friend on the inside of the firm. You do not want to interrupt a conversation a professional is having with another candidate.

 

4. Show your soft skills by relaxing and hanging out afterwards.

Usually after Meet the Firms, some firms and professionals go to the CalCPA sponsored event at Fountains or another bar in the area to relax in a more social environment without being bombarded by tons of students. When you are at the bar with professionals, remember that they probably had a long day at work or at Meet the Firms and probably do not want to go over your resume.

This will likely also be the type of setting you will be exposed to when you are on an audit if that is going to be your career route. Not necessarily a bar, but you will be working with colleagues, seniors, and managers long after the clock hits five when you are out of town for a client.

What this means is when you are at the bar after Meet the Firms, professionals are testing your soft skills and gauging how you are as a person outside the office setting in an open environment where drinks are flowing. If anything, relaxing and hanging out after Meet the Firms with professionals can help influence the professional’s decision to hire you. After all, if you get hired by the firm, you will be working with them not only inside the office, but also outside the office.

 

5. Email the professional or send a letter.

It is a good idea to email the professional or send a letter to the professional the day after the Meet the Firms event. You can send an email or letter about the topics you discussed at Meet the Firms and how you enjoyed getting to know the professionals at the firm.  

Domestic Production Activity Deduction (DPAD)

Posted on Mar. 8th, 2017 by

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By Billy Rodriques

The tax laws offer the construction industry many tax deferrals, deductions and credits. The most commonly utilized is the federal Domestic Production Activity Deduction (“DPAD”).  This is a 9% federal deduction that is calculated using readily available information related to gross receipts and costs of goods sold. It is a year-by-year deduction with no carryovers to future years and requires taxable income to be utilized. There are many ways to qualify for the DPAD deduction, but we are just going to focus on the construction-related industries.

To qualify, the business must be in active conduct of a construction, engineering or architectural trade or business performing work in the United States related to the construction of commercial property, residential property, bridges, roads and other real property. The qualifying work is only for new construction and substantial renovations to real property. The IRS defines “substantial renovation” in Reg 1.199-3 to mean the renovation of a major component or substantial structural part of real property that materially increases the value of the property, substantially prolongs the useful life of the property, or adapts the property to a new or different use. The IRS has added that the real property must be capitalized and not qualify for repairs and maintenance treatment under the final regulations under 1.263(a)-3.   

All items related to the physical improvement of a qualifying unit of real property will qualify for DPAD. These activities even include the initial site work of demolition, grading, excavating and other land transformations included in the process of the construction of a qualifying real property.  The act of painting real property or repaving a parking lot by itself would not qualify, but would qualify if associated with the construction of new property or substantial renovations.

In conclusion, be aware of the requirements for DPAD when entering into contracts and it is recommended by the IRS to track why individual jobs qualify for DPAD. You can track this directly on your job schedule or on a separate workpaper. We are available for more detailed conversations about DPAD and unique circumstances that may exist for your company.

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