Braddon Group

There is a huge opportunity that most practitioners are ignoring, or worse, dismissing: an untapped client base.

This population doesn’t fit the profile of the typical client. They aren’t in their early 60s, near retirement and don’t fit the typical client profile. They haven’t worked and earned and leaned on you to help them make it to the retirement “finish line,” where they’ll begin to really enjoy the fruits of their labor. In fact, perhaps to the chagrin or confusion of their baby boomer parents, they’re quite different.

As you may have guessed, I’m talking about millennials. Before you tune out, consider the following:

• An estimated $30 trillion in wealth in the United States will be shifting from one generation to the next over the next 30 to 40 years, according to a recent Accenture study.
• By 2020, millennials are projected to be the largest client group by population, according to a Deloitte study, and will see significant increases in wealth as they enter their prime earning years and begin to receive inheritances from their baby boomer parents.
• While their level of assets may not put them on your radar now, many are high earners or entrepreneurs who have complex planning needs and are willing to pay for expertise.

If you’re not serving this generation, now is the time to incorporate them into your prospective client profile. Early adoption of business models that effectively serve millennials will enable you to protect your market share and invest in the future growth of your business. 

Millennials put a high value on trust. By building trust early on and over time, you’ll be well positioned to serve them when they start to see significant growth in their wealth. Furthermore, from a business succession and employee retention perspective, your younger advisers want to work with their peers and have greater job satisfaction when given the opportunity to serve fellow millennials.

Ready to get started? Let’s look at three simple steps to tap into this client base.

Step 1: Understand what motivates them.

Millennials typically don’t consider money as the sole factor of success, seeking work that enriches the lives of others, provides personal satisfaction and supports a lifestyle that may look different than your typical boomer client – favoring experiences over material wealth. Over the course of their lives, they are likely to have many different jobs and may ditch the notion of a traditional retirement for mini retirements or sabbaticals throughout their career. According to a Deloitte study on millennials in developed countries, more than half want to start their own business, and more than a quarter are already self-employed.

Step 2: Identify how you can help them achieve their goals.

With longer life expectancies, massive transfers in intergenerational wealth, high levels of student debt and the entrepreneurial tendencies of this generation, the need for objective and personalized advice to navigate all aspects of millennials’ personal financial lives is critical. High earners who may not have amassed significant personal wealth yet are willing to engage with professionals to help them meet their financial and life goals.

Shift your focus to address their more immediate goals (paying down debt, saving for a down payment or other milestones), recognizing that millennials are less willing to defer their lives for a distant, uncertain future. Helping them articulate life goals – not limited to purely financial goals – is an important first step in partnering with them.

Step 3: Collaborate and consult.

Warning: Traditional financial planning models and approaches don’t always fit when advising millennials. This generation has a unique outlook on work, life and retirement, requiring a different service model that incorporates technology, collaboration and financial life planning. Partner with millennial clients to provide a consultative experience that focuses on clarifying goals, imparting experiential wisdom instead of just knowledge, giving objective opinions, reliably implementing strategies and providing clarity to important decisions. You may find, as I have, that this approach is helpful in serving a broader base of prospective clients who share a similar philosophy and value set as their millennial counterparts.

If you want to dive deeper into what makes this generation tick and how to serve them, check out a Journal of Accountancy article and a recording from a webcast I presented last month on advising millennial clients. Additionally, the AICPA Personal Financial Planning (PFP) Section has resources to serve all your individual clients. The PFP Section is the premier provider of information, tools and guidance for practitioners who advise individuals and is an invaluable professional resource as you grow and develop your practice to meet the needs of your existing and future clients.

Mark Astrinos, CPA/PFS, CFP, RLP. As principal and founder of Libra Wealth in San Francisco, CA, Mark works with clients across the country to design the lives they want by integrating their financial resources and human capital. Drawing on his tax and business background as well as his training as a Registered Life Planner, he focuses not only on creating wealth, but finding a healthy balance between money and life

Millennial clients courtesy of Shutterstock.

     

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CPAs are no strangers to helping: it is what they do every day for their clients, the public, small businesses and others. As those affected by Hurricane Harvey begin the arduous process of recovery, there are things the CPA community can do to help those living and working in affected areas—including fellow CPAs—get back on their feet. We’ve compiled a list of resources, articles and more to aid in the recovery from this unfortunate disaster.

AICPA Benevolent Fund

If you are facing financial hardship because of Hurricane Harvey, you can apply for assistance.

Want to help? You can make a charitable contribution to the fund.

Disaster and Financial Planning: A Guide for Preparedness and Recovery

This guide from the AICPA, American Red Cross and National Endowment for Financial Education (NEFE) provides guidance on filing insurance claims, government assistance, employer responsibility and much more.

Navigating Tax Issues Related to Harvey

The IRS has already extended filing and payment deadlines for those in disaster areas. This article outlines what you or your clients need to know.

Red Cross

The Red Cross has information about where to find help including where to find shelter, how to let loved ones know you are safe, as well as ways to start recovering from the devastation.

FEMA

The Federal Emergency Management Agency (FEMA) has compiled a list of resources specifically for those impacted by Harvey.

U.S. Small Business Administration (SBA)

Learn how to apply for a small business disaster loan, get deferment on an existing loan and more.

SBA Hotline

This is a customer service page specifically for those dealing with a disaster.

In addition, the Texas Society of CPAs and Society of Louisiana Certified Public Accountants have compiled a list of resources and ways to help.

Please be aware, there are also numerous organizations seeking donations. While this is a wonderful way to help those most in need, be sure you check your sources before donating supplies or money. Unfortunately, there are people setting up scams to benefit from the generosity of others during times of crisis.

Lauren J. Sternberg, Manager–Communications, Association of International Certified Professional Accountants

Emergency vehicle courtesy of Shutterstock

     

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As a CPA at a small firm, you’re constantly charged with finding the most efficient ways to get everything done and stay organized. From tracking mileage to arranging the supplies on your desk, the following low- and high-tech life hacks can help you make the most of your workday – so you can dedicate more time to what’s going on with your clients and less time to what’s going on with your desk and office space.

1. Gain an extra monitor through your iPhone or iPad using Duet Display. If you want to increase your productivity with an extra Mac or PC screen, you can multitask by using the Duet Display app, which allows you to use your iDevice as an extra monitor.

2. Organize cords with toilet paper rolls. Cords that you don’t use on a regular basis can be neatly stored away in empty toilet paper rolls placed in a shoebox.

3. Make a cell phone speaker with a plastic cup. Although it’s not going to give you crystal clear sound, you can quickly create a makeshift speaker by placing your iPhone or Android inside of a plastic cup.

4. Remind clients of key deadlines with scheduled text messages. Services like TextMagic allow you to schedule text messages that will automatically remind your clients of important upcoming deadlines. Also, you can create alerts for staff and colleagues to remind them of meetings and events. Recurring messages can be scheduled on a monthly, yearly, weekly or even hourly basis.

5. Label wires with bread tabs. Computer and device wires can easily become a tangled ball of confusion that takes a long time to separate if you need to unplug anything. To keep track of which wire goes with what device, use bread tabs to label them.

6. Track business travel electronically. The MileIQ app allows you to track how much you drive and easily categorizes business and personal travel. In addition, you can generate highly-customized reports of your business travel and automatically receive them on a weekly basis.

7. Clean keyboards with sticky notes. Use the sticky side of a Post-it Note to get the dust and dirt out of the cracks and crevices of your keyboard.

8. Hold office supplies in a spice rack. If you have a spice rack that you’re not using anymore, instead of throwing it out, bring it to the office and use the empty spice jars to hold small supplies like rubber bands, thumb tacks, and paperclips.

9. Protect your firm’s signature with practice management tools. RIVIO Clearinghouse and Online Audit Confirmations are just two practice management tools offered by CPA.com to help you reduce the risk of your firm’s signature being used in a fraudulent way. Not only that, you can securely collect financial information, digitally deliver authenticated documents and manage a variety of audit confirmation types from accounts payable to escrow accounts to signature cards.

 

10. Keep cords detangled with binder clips. By attaching binder clips to the side of your desk and threading cords through the metal area, you can keep cords separated and free from tangles.

11. Organize paperwork in wooden shutters. Hang old wooden shutters on your wall and use each of the slots to sort paperwork that you’ll need for the day or week. Shutters also can be used to hold incoming and outgoing mail.

12. Allow clients to make appointments online. You’ll never accidentally double book your time when using services such as Calendly and Doodle. Just add your scheduling link to your website and newsletter so current and potential clients can make appointments without all the back-and-forth. The programs automatically update your Office 365, Outlook, Google and iCloud calendars.

13. Plan your firm’s future with customizable tools. Assess your firm’s current culture, talent and clients and determine the steps and the tools you need to take your firm into the future. This Transition and Continuum Checklist from the AICPA’s Private Companies Practice Center Firm inMotion e-Toolkit will get you started.

14. Store supplies in mason jars. If you have five mason jars, hot glue their sides together—with three on the bottom and two on top—and place the combination on its side when the glue is dry. This will allow you to use them for storing small office supplies like pens, highlighters, staples, paper clips, and pencils.

15. Use a Slinky for business cards. If you have a Slinky, it can do more than just entertain you by walking down the stairs of your office—it can also become a unique business card holder. When you want to remember to connect with a new contact, put their business card between the Slinky’s springs or add some of your own to hand out after meetings.

16. Bookmark the AICPA’s new small business resource site. We’ve got resources to help you optimize your practice. Log on to www.aicpa.org/smallfirms to get access to resources, toolkits and solutions that will help you keep abreast of what’s going on in the profession, learn best practices to help you achieve success and add specialized services to your offerings that increase value to your clients and boost your bottom line.

Alexis Rothberg, Communications Manager–Public Accounting, Association of International Certified Professional Accountants

 Life hacks courtesy of Shutterstock.

     

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Last month we published the first installment of a two-part series discussing implementation of the new not-for-profit financial reporting model, as viewed through the lens of the entity’s chart of accounts. 

By now, you likely have taken some steps to prepare for implementation of the new not-for-profit financial statement presentation standard:

• Read through the standard. 
• Attended training to understand the forthcoming changes. 
• Had auditor/client discussions regarding the impact on audit timing and planning. 
• Selected team members to lead implementation of the new standard. 
• Decided whether to early-adopt. 

When you’re ready to dig in further, the chart of accounts is a smart place to go. The standard will affect several financial statement line items, so it’s important for not-for-profits to create a plan to adjust their chart of accounts during 2017 or 2018.

The timing of the adjustments will depend on your organization’s fiscal year-end and whether you plan to early-adopt the standard, which is effective for annual financial statements issued for fiscal years beginning after December 15, 2017. The exact types of adjustments will depend on the accounting system you use. If you haven’t already done so, be sure to discuss implementation timing with your external auditor to prevent any potential audit interruptions, and to determine if comparative financial statements will be presented in the year of implementation.

The Financial Accounting Standards Board’s (FASB) Accounting Standards Update No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities will impact the chart of accounts in five areas: liquidity, net assets, investment return, statement of cash flows and expense reporting. Recommendations related to liquidity and net assets were discussed in a previous blog post. This post addresses the remaining areas.

Investment Return

Under the new standard, investment expenses can no longer be presented “gross” with other expenses in the financial statements. Instead, investment expenses will be netted against investment returns. To accomplish this, consider the following recommendations:

• If your organization is currently reporting investments on a gross basis, reclassify external investment expenses from an expense account to an investment returns contra-revenue account.
• Review how direct internal investment expenses are being accounted for. Determine how those will be tracked in the chart of accounts to allow for netting against investment returns for financial reporting purposes. Your organization may need to re-evaluate its allocation methodology for internal investment expenses, create a new account or adjust tags and dimensions.

Statement of Cash Flows

Organizations may continue to use either the direct or indirect method for reporting operating cash flows under the new standard. However, organizations using the direct method will no longer be required to show the indirect reconciliation. We recommend the following:

• Discuss with senior management and the finance committee which method the organization would like to use going forward. Both methods are often included as standard reports in accounting software packages.

Expense Reporting

The new standard requires organizations to present an analysis of expenses by both function and nature in one location and to include a description of the method used to allocate costs among program and support functions. Consider the following recommendations to comply with these requirements:

• Review any expenses currently being netted against revenues, such as cost of goods sold or special events, and determine if changes to the account structure need to be made. For this analysis, the standard specifically prohibits the inclusion of investment expenses netted against revenue, as discussed above.
• Consider revisiting the functional coding of expenses if that hasn’t been done recently, as functions may have changed over time.
• All organizations will need to disclose their allocation methods, so review the allocation tables and expense holding accounts to ensure they still support the documented methodologies.

Since your staff will be expending the effort to learn the new requirements and potentially update the chart of accounts, consider whether additional work is needed. Specifically, this may be a good time to clean up or reconfigure the chart of accounts to support the organization’s current financial reporting needs or address any business-model changes. Looking beyond the chart of accounts, remember to reflect changes to the terminology used in your current financial reports, and consider whether additional reports may need to be created.

To learn more about the not-for-profit financial reporting changes, visit the AICPA Not-for-Profit Section’s Financial Reporting Resource Library.

Cheryl R. Olson, CPA, CGMA, Director of Not-for-Profit Consulting, Clark Nuber, PS. Cheryl provides consulting, training, and advisory services in the areas of operational capacity, finance, and governance. Cheryl is a member of the not-for-profit services team and software solutions team. She volunteers on the AICPA Not-for-Profit Advisory Council and is an instructor for AICPA’s Not-for-Profit Certificate II, a video-based eLearning program for not-for-profit professionals and their business advisors.

Diane Shey, CPA, Lead Software Implementer, Clark Nuber, PS. Diane oversees deployment and training of various accounting and fundraising software programs. Her clients include not-for-profits, associations, and foundations, as well as organizations providing healthcare, arts and recreation, and social services.

     

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Do you ever feel like people are constantly saying what you should be doing, without actually telling you how to do it? Same. I bet your clients feel the same way. That’s why I love our Feed the Pig campaign – it’s more like a best friend giving a subtle nudge in the right direction, instead of the typical guilt trip.

To get a better idea of exactly how millennials feel about their finances, we hit the streets to ask the hard-hitting questions that most prefer not to discuss. In doing this, our hope is to help others feel more comfortable discussing their own finances, and provide resources to reach their financial goals.

Here are a few millennial money woes we’ve come across while filming, along with strategies you can share with your clients to help guide them back to the path toward financial success.

 

• Saving for Retirement. For most young adults, retirement seems far away, but, as you probably know, the more you save NOW, the more you’ll have in the bank LATER. We asked people at what age they think they should start saving for retirement, and the answers varied – most saying sometime in their 20’s. Most encouragingly, almost everyone agreed that you need to start as soon as you can.

 

However, saving for retirement is easier said than done. To really get someone motivated, it’s often easier to help them visualize what their future looks like, whether through a retirement savings calculator, or a fun game like Yesterday’s Tomorrow.

• Investing. For our next question, we asked people to show us the face they make when they think of the stock market…and let’s just say, it wasn’t pretty.

 

Many millennials think investing is a far-off fantasy reserved for the rich. But, there are a variety of ways to invest that people don’t often think of (an employer-sponsored retirement plan is one of them), and it’s a surprisingly attainable goal.

• Budgeting. One of the most basic steps in personal finance management is setting limits. We asked people if they set a weekend spending limit, and the overall response was mixed. And we get it – having more money in the bank is great – but that doesn’t make it any easier to turn down fun plans when an opportunity presents itself.

 

This is where visualization can come into play again. Ask your client what their life goals are and what they look like. For instance, maybe they want to buy a house: Where is it? What does it look like? What kind of lifestyle do they have with that house? The more they can picture what they want and really understand what it will take to attain it, the more motivated they’ll be to stick to their financial plan.

What other tips do you have for connecting with young adults about money? How was your money management in your early twenties? Let us know in the comments!

For more “man on the street” interviews and information about managing personal finances, check out feedthepig.org and follow Benjamin.Bankes on Instagram!

Samantha Delgado, Manager – Communications, PR & Corporate Responsibility, Association of International Certified Professional Accountants

Millennial Finances courtesy of Shutterstock

     

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Part I – Control Principles

Intelligent automation (IA) is getting the attention of finance teams, operational environment leaders, and shared service center executives across the world. Not to mention, it makes regular appearances in most major business periodicals.   

Think IBM’s Watson – IA covers all technologies from robotic process automation to artificial intelligence. It is a set of technologies that enables accountants and process owners to configure a software robot to execute, manage, control and audit process tasks. It analyzes data required to manage business and reports on business operations to an experience-based, decision-making software robot.

But like any technology that impacts business, it will require the application of standard control frameworks and principles to ensure that the robots are performing as intended. The good news is that these are the same principles that have been applied to processes and applications for years.

So how will an internal accountant or a CPA firm providing advisory services, audit services or bookkeeping apply control principles in an environment dominated by IA?

The answer is that an effective, principled approach will be necessary for all CPA practitioners and companies, from small practitioners to the Big Four.

Control principles were developed over many decades to help business leaders keep tabs on what is taking place inside the business, which became more of a challenge as businesses grew from small storefronts to the multifaceted operations that exist today. Questions emerged, such as: Is fraud reduced or eliminated? Are physical assets being protected? Is electronic customer and business information accurate, complete, timely and protected? 

To help guide businesses in answering and managing such questions, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) created a framework in 1992 that provided guidance around risks and controls. In 2013, to address the digital age, 17 COSO principles of effective internal controls were updated. The Seventeen Principles of Effective Internal Controls still focus on environment, risk, control activities, communications inside the business and monitoring efforts. 

Two of the 17 controls, “Selects and develops control activities” and “Selects and develops general control activities over technology,” focus on control activities, just as in the past. But now, general controls must be developed over technology. What does this really mean? It means looking at all technologies in the business, from desktop applications (such as Excel and related macros) to emails and enterprise reporting platforms for weaknesses that might result in errors or fraudulent activities. Not an easy task for any organization.

No longer is a control just a physical control activity (like locking the front door of a business), but in a virtual environment, the application of such principles has become more complex. Changes in technology are about to make control activities much easier to implement, ultimately leading to a reduction in key controls. Continuous controls (preventive, detective, corrective), continuous audit and real-time controls of core business technologies are just around the corner.

Steve Palomino, CPA, CGMA, CITP. Steve guides businesses in the application of software robotics strategies that increase controls over operations and reporting, resulting in significant effort reduction, efficient transparency and continuous audit capabilities.  

     

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The Q1 2018 score release dates are posted to the Score Release Timeline page of the AICPA’s CPA Examination page. For complete information regarding scoring, please visit the Examination Scoring and Scoring FAQ pages

The National Association of State Boards of Accountancy will release scores to candidates and state boards of accountancy based upon the target score release dates listed in the tables below.

• All dates and times are based on Eastern Standard Time zone.

• For the vast majority of candidates, the AICPA receives the Examination data files from Prometric within 24 hours after a candidate completes the Examination

• The scores for the Examination data files received after the AICPA cutoff dates will be in the subsequent scheduled target score release.

• Some candidates who take the BEC section might receive their scores approximately one week following the target release date due to additional analysis that might be required for the written communication tasks.

• We encourage candidates to visit the Psychometrics and Scoring page on the CPA Examination website for information about score release and the scoring process.

For updated information, please visit nasba.org.

     

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In recent months, sweeping global cyberattacks have taken thousands of businesses offline, compromising valuable data and blocking access to critical services and information assets. If it wasn’t clear before, it is now: cybersecurity is a business imperative with direct implications for overall company value. Prior to this spring, and without a common language or benchmark for cybersecurity, how do you quantify and communicate your cybersecurity risk in a meaningful way?

Enter the AICPA’s cybersecurity risk management reporting framework. Unveiled in April, the framework is intended to standardize the way organizations define their cybersecurity objectives and report against those standards in a format that works for all stakeholders.

At BDO, we work with clients to leverage the reporting framework in two key ways:

1) to design and assess a comprehensive cybersecurity risk management program, taking into account industry best practices and regulatory requirements; and

2) to undertake an examination-level attestation engagement, known as a SOC (system and organization controls) for cybersecurity examination.

BDO has been providing advisory services on cybersecurity strategy and risk management for some time. Before the new AICPA cybersecurity engagement guidance was even released, client questions started rolling in—how do we evaluate our cybersecurity risk management program? How do we talk with our board about it? What can we do to convince our clients and investors their data is safe with us?

Although a number of strong frameworks and standards have been in the cybersecurity space for some time, they are designed for an IT-savvy audience and are difficult for nontechnical stakeholders to understand. Unlike other frameworks, the AICPA’s reporting framework was designed to enable users to compare an entity’s cybersecurity efforts to that of other organizations while maintaining a degree of flexibility.

BDO uses the AICPA’s reporting framework when performing a SOC for Cybersecurity examination, which takes an enterprise-wide look at cybersecurity risk management, as opposed to focusing in on system controls relevant only to a service provided to an outside party. A SOC for Cybersecurity examination is a natural extension of the work CPAs are already trained to do: We look at controls and processes and quantify risk in a standardized way. In our traditional attestation work, we’re already assessing cybersecurity risk in terms of the potential financial impacts. Now, we’re looking a level deeper, examining cybersecurity controls not just in terms of financial risk, but to the extent that they can help the entity achieve its cybersecurity objectives.

Many companies will find they haven’t yet reached the level of maturity necessary to receive an unqualified opinion in a SOC for Cybersecurity examination—which is why we recommend most companies start with an internal readiness assessment before undertaking that engagement. An internal readiness assessment gives companies a snapshot of their current overall cybersecurity health—for example, whether their cybersecurity controls align with their overarching cybersecurity objectives, if resources are concentrated in the right places, and whether there are gaps in their existing controls that need to be remediated. After performing the internal assessment, we work with the organization to develop remediation strategies or to reprioritize cybersecurity investments as needed, and communicate those changes across the organization.

In addition to SOC for Cybersecurity, the AICPA has announced plans to address other system and organization (SOC) engagements. First, the AICPA is in the process of updating the SOC 2® Guide, Reporting on Controls at a Service Organization Relevant to Security, Availability, Processing Integrity, Confidentiality or Privacy, to align it to the clarified attestation standards and to the 2017 Trust Services Criteria, which are used as measurement criteria for the engagement. The SOC 2 guide is expected to be issued by year end.

Second, the AICPA is developing a new attestation examination and related guide addressing vendor supply-chain cybersecurity risk that will enable CPAs to examine and report on controls relevant to the security, availability, information processing, confidentiality, and privacy of manufacturers and distributors to enable entities who use their services to assess the risks in their supply chain and distribution networks. The vendor/supply chain guide is expected to be issued in 2018.

We see the AICPA’s SOC for Cybersecurity examination, which is performed using the cybersecurity reporting framework, as the beginning of a rapidly growing new practice, bringing together the discipline of an auditor with the tech savvy of our cybersecurity professionals. Firms can explore this opportunity by accessing the AICPA’s Private Companies Practice Section (PCPS) Building a Cybersecurity Practice toolkit. You’ll find resources that help you assess clients’ cybersecurity needs.

To find the AICPA’s cybersecurity risk management reporting framework, visit aicpa.org/cybersecurityriskmanagement. For more information on cybersecurity, visit the AICPA’s Cybersecurity Resource Center at aicpa.org/cybersecurity.

Jeff Ward heads BDO’s AICPA SOC for Cybersecurity/Third-Party Attestation National Practice and is a member of the AICPA’s Assurance Services Executive Committee’s (ASEC) Cybersecurity Working Group, which developed the new cybersecurity risk management reporting framework.

Gregg Garrett is the Head of International Cybersecurity in BDO’s Technology and Business Transformation Services practice.

Cybersecurity courtesy of Shutterstock.

     

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IRS penalties and fees have caused a fair amount of consternation among taxpayers in the past, but in what might be a bout for the record books, we could witness the first time a taxpayer literally fights to pay what they owe and reduce penalties.

Floyd Mayweather, widely regarded as one of boxing’s greatest, apparently owes the IRS unpaid 2015 taxes. The boxer’s recent tax court petition seeking an installment agreement with the IRS might represent his first foray into the super heavyweight category.

Mayweather’s 2015 fight against Manny Pacquiao reportedly earned him as much as $220 million, and likely represents a significant portion of his income to which the taxes are due. The $22 million Mayweather reportedly owes is tiny relative to his estimated net worth, but net worth doesn’t need to be liquid. And as penalties and interest accrue over time, it’s a safe wager the bill could amount to a knock-out blow.

The boxer has requested in his petition that the IRS await payment until his August 26 fight with Conor McGregor, which he claims will provide the liquidity he needs to meet his tax obligation: the fighter’s guaranteed purse from the 2015 Pacquiao fight was $100 million, and his upcoming fight with McGregor is expected to earn him a similar amount. Again, keep in mind, that’s the guaranteed purse—win or lose. The final amount to the winner is a composite of various factors that could boost Mayweather’s take as high as $400 million.

The IRS, on the other hand, holds that Mayweather’s substantial estate (reportedly including a garage filled with about $15 million in cars) could liquidate assets or apply for a loan to pay the back taxes and penalties immediately.

Mr. Mayweather has done some—let’s call it “creative”—bobbing and weaving when it comes to taxes. In 2014, he visited a strip club, where he dropped a reported $20,000 cash on exotic dancers, and then proceeded to 1099 the club for the amount. While this is something the IRS would probably appreciate, it’s not exactly what one might term a common occurrence.

In the meantime, should the IRS grant Mr. Mayweather’s request for an installment plan prior to the McGregor fight, he will have to provide them with information on all his available assets, which includes homes, cars, jewelry and a host of other items against which the IRS could place a lien as a hedge against potential nonpayment of the installments. Additionally, they will demand information on all outstanding debts and a statement of monthly necessary living expenses. The IRS will use Mr. Mayweather’s list of necessary expenses (tips to exotic dancers surely fail to meet the standard) to help determine how to craft his installments so as not to interfere with the necessities of life (mortgage, food, transportation, etc.), but also to make certain that Mr. Mayweather does not attempt to reduce his installment amounts by claiming unnecessary expenses (see the aforementioned tips).

Even if Mr. Mayweather’s request is granted, he will continue to accrue penalties and interest on the unpaid balance until it is paid in full. The penalties generally amount to 0.5% of tax not paid by due date on the return (reflected in the notice) —generally 21 calendar days from notice date, 10 business days if the balance equals or exceeds $100,000; 0.25% during approved installment agreement (if return was filed on time, and taxpayer is an individual); 1% if tax is not paid within 10 days of a notice of intent to levy.

It seems likely, however, that the tax court petition is a delay tactic. By the time the court has a chance to hear the case and make a ruling, Mr. Mayweather will probably have had his payday from his upcoming fight and made payment in full, averting a lien action.

IRS payment agreements can be complex, even for clients who don’t climb into the ring, then climb back out with a few hundred million dollars. For guidance that can save your clients time and money, be sure to check out the AICPA Tax Section’s dedicated IRS Collections Guidance and Resources page.

Adam Eric Junkroski, Lead Manager­, Communications, Tax, PFP, S&C — Public Accounting, Association of International Certified Professional Accountants

Boxing courtesy of Shutterstock

     

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If you work with entrepreneurs or small business owners, you likely have an appreciation of their vision, determination and work ethic.  You may also have run into some common hurdles that can derail their finances.  By focusing on the following planning considerations, CPAs and advisers serving entrepreneurs can keep their clients’ business and personal finances on track.

Choose an appropriate business form

Helping entrepreneurs evaluate key tax and nontax factors when selecting a business entity is not only important to the business’ financial success, but also the owner’s.

Should they operate as an S or C corporation, partnership, limited liability company or sole proprietorship? What are the classes of ownership, special allocations, basis, liability, elections and distributions for each structure and the impact of these factors on the owner? Navigating these complex decisions is crucial to getting their business off on the right foot. If you are an AICPA Personal Financial Planning Section member or CPA/PFS credential holder, see Chapter 18 of The Adviser’s Guide to Financial and Estate Planning for a comprehensive overview of entity selection.

Define an exit strategy from the start

If your entrepreneurial client hopes to run their business for an extended period of time, they should consider the current and future market for their industry, how to maximize the value of the business for its eventual sale, a time frame to exit and preparations for due diligence. When an entrepreneur starts with the end in mind, they can make critical personal and business finance decisions along the way.  They are also better equipped to avoid unfortunate scenarios like forced liquidation or an undervalued sale.

Cash (flow) is king

Without the promise of a steady paycheck, entrepreneurs often find their financial net worth tied up in the company and live in fear of bankruptcy.  

When advising entrepreneurs in the start-up phase, encourage clients to shore up personal assets prior to starting their venture.  Relying on alternative sources of income to cover personal expenditures in the early years (e.g. spousal income or steady cash flow from a side venture) helps entrepreneurs successfully manage cash flow challenges that inevitably arise.

Additionally, CPAs and advisers can help make sense of financing options – weighing the pros and cons with clients of private equity, venture capital, crowd funding, angel investors, accelerator programs and debt.

Focus on profit by managing expenses

Helping your entrepreneurial clients manage expenses can provide them continuity in cash flow, as well as make certain that the owner gets paid. In the focus on the business, sometimes the owner’s personal interest is lost in the shuffle. Ironically, this interest was likely one of the primary drivers for creating the business in the first place.

In his book, Profit First, Mike Michalowicz turns the classic accounting equation (income – expenses = profit) on its head and suggests that entrepreneurs focus on profit first by paying themselves out of income and then using what’s left over to determine what expenses are necessary in order to balance the equation (income – profit = expenses).

 Risk and retirement should not be ignored  

Entrepreneurs often have much of their financial net worth tied up in their company, making it critical to save for emergencies, retain adequate insurance for unforeseen disability or sudden death and set aside money for longer-term goals like retirement.

As entrepreneurs evaluate expenses, the adviser should discuss the importance of disability, life, overhead and key-man insurance policies (in the case of partnerships). Not only is adequate insurance coverage essential to replace income and protect their family, but also to protect business continuity and prevent layoffs or bankruptcy.

Furthermore, the CPA and adviser can help with the selection of an appropriate retirement plan depending on the company size and lifecycle (e.g. SIMPLE or SEP IRA, traditional or Roth 401(k) plan, traditional or Roth IRAs).

Turn to AICPA for support

If you provide advice to entrepreneurial clients, the AICPA Personal Financial Planning (PFP) Section can help. As the premier provider of information, tools and guidance for practitioners who advise individuals and small business owners, the PFP Section can equip you with in-depth resources to help you navigate estate, tax, retirement, risk management and investment decisions for your clients. Be sure to check out the 2017 edition of The Adviser’s Guide to Financial and Estate Planning – a comprehensive, 1000 page, 4-volume downloadable publication covering all aspects of financial planning.

Deborah Meyer, CPA/PFS, is a fee-only financial planner and investment advisor who serves clients nationally and is based in greater St. Louis, Missouri.  As CEO and founder of the financial planning firm WorthyNest, Deborah empowers families to build and sustain long-term wealth.  She also serves as CEO of SV CPA Services, offering clients traditional accounting, business consulting and tax compliance services.

Advising entrepreneurs courtesy of Shutterstock.

     

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