| Fall 2006 |
|
INFOLETTER
|
 |
 |
 |
Partner's Perspective |
|
Affordable Retirement Plans For Small Businesses
By James M. Bowen, CPA, MT, Partner
A big part of hiring and retaining the best employees is offering a
competitive employee benefits package. And a big part of any benefits package is
a retirement plan.
 Offering
employees the chance to participate in a retirement plan is a win-win for both
your company and your employees: In most instances, you can deduct your
contributions to employees' retirement accounts, and your employees'
contributions may be deductible from their taxable incomes, thus reducing their
current tax bills. Employees' contributions grow tax-deferred until they begin
taking distributions at retirement.
Simple And Affordable Plans
Many small businesses mistakenly think that offering a retirement plan is too
complicated and expensive. However, small businesses now have a variety of
simple and affordable retirement plan options to choose from. Here is an
overview of the most popular small business retirement plans:
- SEP-IRA - This is probably the simplest and least-expensive option.
Employees set up their own Individual Retirement Accounts (IRAs) and you (as
the employer) make contributions directly into each eligible employee's IRA.
Keep in mind that SEP-IRAs are strictly employer-funded - employees do not
make any contributions to them - and all contributions are 100 percent vested
immediately.
There is flexibility in contribution amounts (of up to 25 percent of annual
income or $44,000 in 2006), which can be varied from year to year or even
skipped altogether in a year with low profits. The percentage contributed must
be the same for each eligible employee.
- SIMPLE IRA - Like with the SEP-IRA, employees maintain their own
separate SIMPLE IRAs. The main difference is that both employers and employees
can make contributions to SIMPLE IRAs.
Matching employer contributions are required each year, so there's not as
much flexibility as with the SEP-IRA. Employees age 50 and older can make
special "catch-up" contributions of $2,500 in 2006 over and above the regular
contribution limit of $10,000.
- 401(k) plan - During the past two decades, the 401(k) has become
the most popular retirement savings vehicle in America. It allows employees to
save for retirement and reduce their current tax bills via tax-deferred annual
contributions of up to $15,000 in 2006. Additional catch-up contributions of
$5,000 are allowed for employees age 50 and older.
Employers often choose to match all or part of employees' contributions,
which helps encourage employees to participate. Employee contributions are made
through payroll deductions, making it easier for employees to save money "out of
sight, out of mind."
Both the 401(k) and SIMPLE IRA place the primary responsibility for
retirement saving on employees, while giving employers the opportunity to make
matching contributions. Employer contributions to 401(k)s are discretionary and
can be vested based on years of service. 401(k)s also give employers the option
of allowing employees to borrow money from their accounts.
Keep in mind that the 401(k) is administratively more difficult and more
expensive than the SIMPLE IRA, with non-discrimination testing and annual filing
of IRS Form 5500 required. Therefore, 401(k)s are usually more attractive to
larger small businesses and mid-sized firms.
- Profit sharing plan - Like a SEP-IRA, a profit sharing plan is 100
percent employer-funded. Employer contributions must be made on a regular
basis, usually based on profits. Because it allows employees to share in the
profits, this plan can serve as a valuable employee incentive and motivator.
Employer contributions may range from zero to 25 percent of employee
compensation.
More Important Than Ever
As the primary responsibility for retirement savings has shifted in recent
years from employers to employees, it has become more important for businesses
to offer their employees a retirement savings plan. It's critical not only to
helping your employees plan and save for retirement, but also to helping your
business hire - and hold onto - the best employees.
We can help you determine which type of retirement plan is right for your
company and your employees. To discuss this in more detail, please feel free to
call or email me at jimb@bobermarkey.com. BMF&C
Progress Continues On Our New
Building
By Richard C. Fedorovich,
CPA, Managing Partner
We are still very much on track for moving our offices to new
facilities under construction on Ridgewood Road in Fairlawn
before the end of the year. Our contractor and architects have
designed quite an impressive space for us, and it is going to
significantly enhance the way our people work together in
project teams, as well as provide us room for the growth that we
have been experiencing. We are also building into the facility a
conference center with seating for up to 75 people, which will
allow us to conduct more effective internal staff training as
well as client / friend training sessions.
 
As you will see in these pictures, which were taken in late
August, the steel construction is complete and, while the
exterior framing and sheathing is well under way, the framing in
our space on the top floor is also progressing concurrently. BMF&C
|
Merklin Named To National Benefits Panel
BMF&C Partner James Merklin, who heads the firm's Benefit Plans Audit
practice, has been named to the Executive Committee for the AICPA's Employee
Benefit Plans Audit Quality Center Executive Committee. Merklin is the only
Ohio CPA on the Executive Committee. "Our Benefit Plan Audit practice has
expanded dramatically during the past few years, and this appointment is
another confirmation of the quality we're providing our clients," said
Managing Partner Richard Fedorovich.
|
Determining An Acquisition's
Profit Potential
By Mark B. Bober, CPA/ABV,
CVA, Partner, and Marcy A. Venarge, CPA/ABV, CVA, Manager Valuation and
Litigation Support
When considering an acquisition opportunity, one of the first steps is to
evaluate its feasibility and profit-making potential. The following case study
shows the steps one business buyer took to ensure the acquisition he was
considering made sense.
The Case Of The 6 Gas Stations
Sam Smith had some exciting ideas about how to maximize the value of a
planned acquisition. But he wasn't sure how to proceed - or even if he was
headed in the right direction. The acquisition was a relatively successful chain
of six corner gas station auto repair shops - the kind with a minimart attached.
The price for the business was reasonable. The valuation showed an overall
worth of nearly $3.5 million. Because the current owner wanted to wind up the
sale and retire, he was willing to sell the business to Smith for $2.8 million.
But with only average profits, the business was making money largely because
of excellent locations. While the businesses had untapped potential, the idea of
running low-margin auto repair shops didn't appeal to Smith. He wanted to
specialize. His idea was to convert the repair shops to either auto detailing
shops or another specialty business.
Smith called his valuation advisor, Jane Jones, to help him negotiate the
deal. Jones had acted as intermediary during a previous purchase and had a
background in project feasibility studies and strategic planning.
Smith and Jones met for lunch. Smith was concerned that the gas
station/repair shops would not be a wise investment unless he made some changes.
"These kinds of businesses are a dime a dozen," Smith told Jones. "I need to
figure out if I can change the focus successfully."
Jones nodded. "You're wise to ask questions about the business now," she told
Smith. "You want to get a good understanding of the potential before you make a
solid commitment. I recommend we do some due diligence strategic planning to see
what your options are."
Research. Jones started the ball rolling with a financial review of
the business. Total station sales had been growing each year and had increased
by $767,000 in 1997 when a competitor went out of business. Profits were growing
too, but weren't matching the burgeoning sales growth. Operating expenses were
major factors in the equation - they were much too high. In 2005, they were 88
percent of gross profit. Maintenance and repair expenses for the stations' tow
trucks, for example, were consistently over budget. Discounts and refunds were
also higher than budgeted. Jones interviewed the shop managers about the
business's future and their roles in it. Four of the six managers had worked for
the company for three or more years. Overall, they seemed to enjoy their jobs
and had no major problems.
Finally, Jones analyzed several related business lines to see how Smith might
refocus to fine tune the business's overall profitability. She put together
figures that showed average pre-tax profits for businesses of comparable size
and volume.
"I see some exciting opportunities if you change the focus of the business,"
Jones told Smith. "Your idea of turning the repair shops into auto detailing
shops is excellent. And converting current facilities into the detailing shops
would be relatively inexpensive." Jones explained that the detailing shops rely
on skilled help rather than high-tech machinery.
Costing out the options. Jones had costed out the various services
offered by auto detailing shops and had found that for "the works," including
pickup and delivery, a customer could expect to pay between $325 and $425.
Smith asked about costs. Jones told him that for the detailing shops he would
have to invest in a special polisher. She estimated that supplies and materials
for each fully detailed car would run him about $15. "The main cost," Jones
said, "is for skilled employees. You'll pay about $10 per hour to get the type
of reliable, meticulous employee that this kind of work requires."
Jones' estimates sounded good to Smith. He had already decided to proceed
with the purchase. While the paperwork was being drawn up, Jones and Smith
continued with the strategic planning process.
"During my research," Jones told him, "I noticed that all the managers are
paid the same salary, even though some stations are much more profitable than
others. Once you assume ownership, you may want to create written job
descriptions tied to performance appraisals for the managers," Jones suggested.
"Consider setting up an incentive program based on business growth and station
profitability."
Strategic Planning Issues
New owners can address many questions effectively with the strategic planning
process, including:
- How can I manage this business most effectively?
- How do we capitalize on our current staff?
- How can we retain experienced, skilled employees or attract new ones?
- What new business segments do we want to pursue and why?
- What growth rate do we want to achieve?
- Do we want to expand into new markets or grow in our current market?
The plan. When they went into the planning meeting, which included the
managers of the various repair shops, Smith and Jones had a full menu of
discussion topics. "Once you establish a business plan," Jones told Smith as she
distributed her report to the managers seated around the table, "you will want
to meet regularly - probably once each quarter - to make adjustments based on
changes in competition or other factors. Planning is a dynamic process, not a
one-time event."
When Jones sat down with Smith and the managers of the gas station repair
shops, she found a group that was eager to make the business more profitable. To
meet their objectives, they decided to focus on converting one location into a
prototype for the detailing services while each of the other shops would test
out one of the lower cost add-on services, such as video rental. Action steps
for the prototype included purchasing the special polishers, cleaning and
painting the premises and hiring the skilled personnel needed to handle
full-service detailing.
The group also created a business plan for each shop, with each manager
responsible for achieving specific goals. Smith's responsibilities included
allocating the resources, such as manpower and operating budgets.
Results. The purchase had proceeded without a hitch. After six months,
the strategic plan had worked wonders. Overall, Smith's expenses were down to 79
percent of previous levels because of tighter controls, and he expected to reach
the goal of 70 percent by the end of the year. Smith had started an incentive
plan, and the managers were working hard to meet the goals he set.
Research And Planning Pay Off
In acquiring a company or simply in running a business, you need to project
its future to determine how best to succeed. If you are considering buying a
company, please call or email us at
markb@bobermarkey.com or
marcy@bobermarkey.com. We would be
pleased to advise you on the feasibility of your acquisition and how to make it
successful. BMF&C
 |
In this feature of InfoLetter, each quarter we provide a profile of
one of our professionals who is available to work with our clients and
friends.
James E.
Merklin, CPA, CFE, M.Acc.
Partner, Assurance and Advisory Services |
Jim's experience is focused on serving middle market and high growth clients
in industries including manufacturing/industrial, wholesale/distribution,
retail/consumer, non-profit organizations. Jim also has specialized industry
expertise in conducting audits of employee benefit plans. He has extensive
experience in: merger and acquisition, tax and business planning, financial
forecasting, human resource consulting, attestation services, fraud
investigations, litigation and transaction support, and internal control and
operations reviews.
Jim won the Dean's Award for high scholastic achievement when he graduated
with a Masters of Accountancy from the Weatherhead School of Management at Case
Western Reserve University. Having recently celebrated his 20th anniversary in
our profession, Jim is the lead technical partner in our A&A department, and
leads the Firm's employee benefit plan audit practice.
Jim serves as a leader to the following community and professional
organizations: Chairman, Goodwill Industries of Akron; Member, Community Health
Committee of Akron General Health Systems; Vice President, Community Support
Services; Member, Rotary Club of Akron; and Chairman, Employee Benefit Plans
Task Force of PKF North American Network. And Jim recently received notification
of his appointment (October 2006) to the AICPA's national Executive Committee of
the Employee Benefit Plans Audit Quality Center.
"Bober, Markey, Fedorovich & Company provides a culture that encourages a
spirit of giving back to the community and of providing our clients with the
highest quality service possible. I also feel a strong commitment to helping
ensure that not only do our Firm's clients receive the very highest quality of
Employee Benefit Plan audit services, but also doing what I can to help ensure
that that other CPA Firms dedicate their best resources to this critical field." BMF&C
|
