Providing CFO services in Kirkland, WA and surrounding areas

This year is the 100 year anniversary (1913 – 2013) of the creation of the US Federal Income tax. There will no big parties or celebrations as what began as a limited tax on income has grown into the burdensome and complex world of funding our government’s spending.

The original tax rates ranged from 1% to 7%.  If we adjust the brackets for inflation the top bracket would be applied today on income above $500,000 with a tax of 7%.  It is ironic that this week our Fiscal Cliff will be averted if we increase taxes on those making $450,000 to about 40%.  Taxes on corporate dividends were exempt in 1913 and now will be taxed at 20% in 2013.  Clearly the chunk of our earnings that are siphoned off through federal income taxes has increased greatly over the past 100 years.  Add to that state, local and payroll taxes.

When I was practicing as a CPA in my first 20 years and specifically growing my knowledge of US Federal Income tax laws, I often heard the phrase “Aggressive Tax Planning”.  Typically this was in reference to taxpayers who wanted to use anything legal, maybe legal or borderline or flat out illegal to not pay taxes.  This era gave birth to tax shelters, off shore tax scams and other techniques to facilitate this aggression against the government’s imposition of taxes on income.  Some of the plans were not investments but creative ways to shelter far more income than was invested.

Some promoters of these schemes were jailed, many people lost their “investment” and being “aggressive” became a target for IRS rules, laws, audits and litigation. The IRS now demands that taxpayers and tax preparers disclose any aggressive tax treatment they are using right on the tax return. Can you say raise your hand and ask for an audit…and penalties!

Often I would have new client come to the first appointment with me and let me know they wanted me to help them be “aggressive” with creative ways to eliminate all taxes.  They usually “knew” someone who didn’t pay any taxes on any of their income.  I have never met anyone who did not pay taxes and I have worked with thousands of clients and hundreds of CPAs, attended seminars and read nearly every tax avoidance book I could get my hands on.  These mystery individuals, who don’t pay taxes, don’t exist.  Some may pay less than others, but everyone I ever met pays some taxes.

I informed my clients that I was a “defensive” tax planner; I would help them create ways to defend their income from the federal income tax siphon. My goal was to find whatever legal way we could to lower taxable income and the related tax, by means that were within the tax code.

Today is January 1, 2013 and I know with a high degree of certainty what my 2012 income tax return will reflect.  I always plan my taxes throughout the year.  In the final week of the year, I update my income and deductions and compute the amount of tax for the year and what estimated payment I need to make on January 15^th.

This year I noted that a fuzzy tax concept called the Alternative Minimum Tax (AMT) is growing in my total tax computation.  This year that tax on AMT Income rose from less than $100 to almost $9,000.  That is during a year when my taxable income went DOWN.  Why did this happen?  Well the exemption for AMT dropped from about $80,000 to $45,000 this year.  That means more of the income computed under this 26% rate alternative was subject to tax and raised my effective tax rate over last year.  Standard Federal Income Tax rates did not change this year…..but I am paying more effectively.

The top federal income tax rate when I entered public accounting in 1979 was 70%.  That is effectively increasing to 39.6% in 2013 over 2012.  But in addition there is another AMT (Additional Medicare Tax) that will impact those high bracket earners.  This is the new Obamacare tax of 3.8% that effectively drives the rate to 43.4% at the highest taxpayer level of income.

We always fear things we can see coming at us but we have time to adjust and protect when possible. In reality the things that come from the sides or behind us can do more damage.  Tax rate increases are coming from all kinds of sources.  Personal tax preparation tax software programs have deluded some individuals to think they don’t need an experienced CPA as their tax advisor.

Although I keep current with tax laws, I no longer offer tax preparation services, with the exception of some friends and family.  I strongly suggest as we continue into the next 100 years of federal income taxes in this nation that you employ a seasoned tax expert to help you legally defend your income from the attack of the numerous ways that are being created to tax you.

Over the past two weeks I have met with two widows to discuss their economic future. Within 2 days of each other men I had known recently and long term died suddenly.  The two men were both about the same age; 59 and 61.  Both men were successful in business.  Both men were passionate about their forms of recreation, love of family and enjoying life.  In fact both had significant accidents, one in his car and one on his bike.  One lived another 12 years disabled, retired and with a different perspective on work, life and family.  The other died almost instantly.

The fact is that I have known the one whose accident happened 12 years ago and spent time with him each year.  These times gave me understanding of the physical and emotional pain and suffering he endured and how much his life changed from the high flying times in business.

The second man was introduced to me about two months ago, we had not yet met and all I know of him I have learned from those who knew him and loved him.  He was well known in business and had lived life well.

Both widows are reeling from the grief of the sudden loss of their husbands and life partners.  Their long term marriages were solid and yielded wonderful children and some grandchildren.  Both have concerns about the choices to make and are still deep in grieving for their loss.

The two men had made some preparations in life and business, but neither had a written exit plan that could be carried out after weighing what would be best for in all aspects of their estate, business and funding their spouses future.  This was not due to lack of consideration on both of their parts, but in reality their plans were only partially conceived and implemented.

This plight of the widows has impressed me again how important planning your exit from business and life is really too often delayed.  The women will survive but in both cases there are decisions that they have to make and are not sure what to do.

Both women are incredibly strong, purposeful and wise.  They will find their way through the maze of decisions about business sales, assets to liquidate, future needs and how to live within their resources.

Both would tell you they wish Exit plans had been in place to make this easier on them, particularly while they are consumed by the loss of their husbands.

Don’t delay, engage in planning the Exit from your business now, finalize your will, talk about your wishes and introduce the key advisors to one another.  Consider the options, choose the best path and set the plans in motion so that your spouse will not be stuck with choosing without you!

If you own a business and don’t know what step to take next….call me.

Despite tough economy, B2B CFO continues record growth and takes spot in the prestigious Inc. 5000 list

Phoenix, Ariz. – August 21, 2012 – B2B CFO, the nation’s largest provider of CFO services, has been named to the prestigious Inc. 5000 list of fastest growing companies in America for the third consecutive year.

The annual ranking by Inc. Magazine judges US-based and privately held companies by their revenue growth. This year’s list was ranked on the percentage in revenue increase from 2008-2011. B2B CFO’s 111% growth over the three year time period earned the position on Inc’s 2012 list.

In a personalized letter congratulating B2B CFO, Eric Schurenberg, the new editor-in-chief of Inc. Magazine’s wrote “To be honored this year is a particularly notable achievement. To rank among the 2012 Inc. 5000, your company had to thrive through three of the toughest years this economy has seen in living memory. Your success in such times is eloquent testimony to your team’s creativity, resilience, and tenacity. Congratulations to you and your team. You should be proud of all B2B CFO has achieved to date.”

In addition to attending the Inc. 500/5000 conference as an honoree, B2B CFO will also once again sponsor the upcoming conference. B2B CFO will also hold a “Meet and Greet” reception for business owners and CFOs in conjunction with the Inc. 500/5000 conference on Wednesday, October 3rd. For location, time and to RSVP please visit www.b2bcfo.com/inc5000

“It’s a great honor to make Inc.’s 5000 list for the third consecutive year,” said Jerry L. Mills, founder and CEO of B2B CFO. “We look forward to participating in the conference this October as both honoree and exhibitor and celebrating all the entrepreneurs who build businesses that move America’s economy.”

B2B CFO has grown steadily and consistently despite the tough economic conditions. In August 2012, B2B CFO has grown to 213 Partners across 45 states, boasting more than 5,000 years of cumulative experience. Each Partner is a seasoned financial executive who serves as 1099 CFO to growing businesses on as-needed basis. Together, B2B CFO Partners work with more than 600 businesses in the nation with combined annual sales of more than $3 Billion.

About Inc. Magazine

Founded in 1979 and acquired in 2005 by Mansueto Ventures LLC, Inc. is the only major business magazine dedicated exclusively to owners and managers of growing private companies that delivers real solutions for today’s innovative company builders. Inc. provides hands-on tools and market-tested strategies for managing people, finances, sales, marketing, and technology.

Inc. Magazine’s 31st annual Inc. 5000 ranking of the fastest-growing private companies in the country is available online at www.inc.com/inc5000/list

About B2B CFO^®

Headquartered in Phoenix, Ariz., the firm was founded in 1987 by Jerry L. Mills who pioneered the “1099 CFO” concept. Today, B2B CFO is the nation’s largest CFO services firm serving entrepreneurial, growth and mid-market companies. The firm’s partners have an average of 25 years of experience and each individual partner is a senior level executive with a broad range of expertise. Please visit online at www.B2BCFO.com to find out more about the company and B2B CFO careers

Note to editors: high-resolution image of the headshot is available upon request. Interviews, press materials, and any additional information can be obtained by emailing ania@anglespr.com

I just finished reading a book over a long weekend that had been recommended to me.  The author is Patrick Lencioni and the book is entitled Getting Naked.  This is about the fable of a client service approach that yields uncommon levels of trust and loyalty.  In many ways the book re-enforced the concepts of Integrity Selling as well as the way I have found that potential clients turn into clients.

In my firm we start by asking questions in the networking meeting and Discovery Analysis of what is not working well for the business owner.  The point is not to sell them on your abilities and skills but to demonstrate your abilities by listening, asking deeper questions and seeing what has been attempted to resolve the issues.

During the past few years I get asked what makes me successful in gaining clients and this book crystalized for me the way I go about the process of interviewing the business owner.  Patrick runs an organization called The Table Group and is the author of several other books including The Advantage, The Five Dysfunctions of a Team and Death by Meeting.

I highly endorse this book and hope that the concepts of client service presented in the book help each of you find greater personal and professional success!

Brett, my business partner for the past 15 years is a DeWalt Junkie!  He has saws, drills, combo sets lights, vacuums and every imaginable product made by the DeWalt Company.  If it comes in Black and Yellow, it is sitting in his garage.  Now mind you I do have 5-6 DeWalt items on my workbench, but Brett he is truly the collector’s collector.

Over the years we have had a lot of fun at his expense with practical jokes. Once an employee contacted DeWalt and learned a Vice President of the company was in Seattle to meet with some dealers.  The employee explained how Brett had nearly every product ever made by the company.  The VP agreed to stop by the office to present a special award to Brett for his faithful acquisition of the entire catalog.

Another time on April 1^st the same employee put up flyers around town saying “DeWalt Tool liquidation, my wife says everything must go.” We laughed as he got calls all day long on his cell phone asking if he was selling various DeWalt branded tools.  Eventually he found out about the prank and understood the interest in his tool collection.

In business like in the garage, tools come in handy when you have experience using them; have access and the perfect application to maximize the use of the given tool.  DeWalt sells a 90 degree drill to assist in tight fits when the full size drill won’t fit. I may not know when I will need it again, but it sure was handy when I needed it.

Planning the exit from your business requires the use of the right tool to accomplish the desired goals.  Sometimes this is a management buyout or gifting program to transfer the interest to family or management members who are equipped to take on the leadership and ownership role.  Sometimes, the best tool is an ESOP, to reward the employee base and build a culture of ownership amongst the entire organization.

If you know your goals as the owner, then choosing to deploy the right Exit Planning tool can make the job efficient and effective.  I recently heard the phrase “Owner Motives Matter Most”, this is true in all exit planning, but getting an independent opinion on the selected successor is critical that the motives of the owner will result in a successful transition.

We have all heard of family owned business statistics that demonstrate that succession plans often fail at the second or third generation. I coined the phrase that “Not all your family DNA may have the MBA to be successful”. My point is family does not always have required talents and mindset to assume the management and ownership of the business.

I have seen this first hand in small and large companies.  When I use the term MBA I don’t mean the Master’s in Business Administration degree, but more the clear understanding that the business is a fragile organization that can be damaged by neglect, abuse or abdication.   It is not a slot machine that churns out money by pulling the handle.

In the past 3 years I have met two business owners in their early 70s who had desired to transfer their family business to their daughter and their sons.  In one case it only took the daughter a couple of years to undermine the company and require that dad come back to work full time, without a salary to salvage the company.  In the other case two sons who had worked in the company since high school had never got along, much less supported their parents in the business.  They took a salary, vacation and an attitude that they were owed the business. One son drove it to point of bankruptcy by his financial mismanagement and the other refused to invoice customers timely because he didn’t like to be bossed around.  In both cases the DNA was lacking the MBA to make for a successful transfer.

Succession plans fail when the decision is made to pass on the business without properly vetting that the family member or management team members are not capable of assuming the risk as well as rewards as the owner.  The error in judgment is that of the parent, not the child who can’t assume the role.

The right tool in the hands of the right worker can make the job go smoothly and build something that will last for generations.  The right tool in the wrong hands, or wrong tool in the right hands can both result in a disaster.  Consider the tools you need and make sure you properly train anyone else to use them before sending them off to learn on their own, at your expense.

The food stamp program, part of the Department of Agriculture, is pleased to be distributing the greatest amount of food stamps ever.

Meanwhile, the Forest Service, also part of the Department of Agriculture, asks us “please do not feed the animals” because the animals may grow dependent and not learn to take care of themselves

Recently there has been a good deal of press about the state of the Social Security reserves to fund the upcoming wave of baby boomers.  The forecast I saw earlier last year indicated that without some significant changes the funds would run out by 2017. I commented on this in a prior blog article and since then it seems our political leaders have ignored this information from the General Accounting Office in an effort to get voters to see them as wise and generous by reducing these taxes to stimulate the economy.

In late 2010 Congress voted to reduce the FICA (social security) tax on employees from 6.5% to 4.5% for 2011 and similar cuts in the Self Employment taxes.  This was touted as giving the average taxpayer more cash from their paycheck of about $1,000 for the year.  The FICA tax is what funds the social security and the reduction of what the employees contribute means we are increasing the pace by which the Social Security Administration will run out of money.

The irony here is that this was bad enough in 2011 but on February 17, 2012, Congress approved the Middle Class Tax Relief and Job Creation Act of 2012, which extends through December 31, 2012, the 2% reduction in payroll taxes currently in effect.   Mark Miller of Reuters Money wrote on September 9, 2011, “The current and proposed FICA tax cuts don’t directly affect the long-term health of Social Security, because the revenue that normally flows directly to the Social Security Trust Fund is being reimbursed out of general revenue.”

Since we have enormous deficits it seems that we are planning to fund the shortfall with tax revenues we are not currently collecting specifically for the Social Security fund but by from general revenue which is not covering budgeted deficit spending….am I missing something here?

I understand we all enjoy paying less in taxes and I benefit by this reduction in taxes as well.  What I also know is that every dollar I have paid into the SSA funds since my first job delivering papers till now has been something that was to fund my supplemental retirement benefits as mandated by our government. Now I am beginning to sense that full benefits will not be something I will receive unless a huge burden is put on my children and grandchildren.

Now we have a clear perspective that the funds on hand and those forecasted for the Social Security Administration will not support the pending wave of baby boomers who will be drawing on these over the next 30-40 years.  The governmental accounting office has raised the warning and our politicians from both parties continue to make political decisions to stimulate the economy by reducing the savings and solvency of the Social Security program.

Nancy Altman, co-director of the Strengthen Social Security coalition and author of The Battle for Social Security says, “Look at the controversy over ending the Bush tax cuts, which would only affect a small portion of taxpayers. In this case, if you propose restoring the payroll tax down the road, you’d have to double the rates on workers making minimum wage. This is being sold as temporary, but it’s not likely to work out that way.”

It seems we should look at the irony of the Department of Agriculture issues outlined above and consider if our government is again making policy that flies in the face of logic and wisdom. . The time is now to take control of your finances and not depend on the leaders in government to make sure you receive the benefits you have been promised and paying for.

In my last article I addressed the topic of the CEO of the company having a dual role as the Chief Executive Officer as well as the Chief Encouragement Officer.  The basis for this dual role is that the CEO must be a source of encouragement to the management team as well as all levels of employment.  Although in a large multinational or multi-locational company the CEO may never see the entire base of employees face to face, the need still exists.  If you are a closely held company or regional enterprise, as the CEO you will interact with your levels of management and staff on a regular basis this becomes all the more important.

As the CEO of two companies I have come to realize the significance of my role in providing an atmosphere and attitude that encouraged my staff and managers.  Unfortunately, I did not always understand how my leadership required me to also be a source of encouragement.  The old adage that “If mama ain’t happy, then nobody gonna be happy!” rings true for the CEO as well.  If you either bring your bad day with you or allow the stress of your position and responsibility to permeate the office environment you are likely to infect the office with a less than encouraging outlook.

During my tax seasons as the CEO of my CPA firm I knew that the stress of serving 500 to 600 business and individuals in a 3 ½ month window of time many times got the better of me.  There were times my night’s sleep was only 2-3 hours long.  On rare occasions I stayed up all night to get through the workload.  I also rushed home to eat or out to a restaurant to grab a bite with my wife and four young kids.  At the conclusion of the meal they went home and I went back to work.  They would even bring fast food to the office for a meal with me during times when I felt it was impossible to leave my staff behind and take a meal break.

Those are seasonable examples of how I mismanaged my role as father, husband and CEO of the company.  My thought was I needed to get the work done, show my staff my personal sacrifice of time with family and be there to help review their work and assign more if need be.  What did I end up with for all this after 15 years of running my firm?  Well my wife and kids knew when tax season came around that I was not much fun to live with or even my attempts to be a loving husband and dad were not as effective as I intended. 

One year my oldest son Jason asked if I was going to make it to his basketball game.  That seemed like an odd question, but one that I still remember to this day. I was the coach of his team and had never missed a game.  He was wondering if my busy schedule would allow for me to attend his game that week.  That was the point where after 20 years of public accounting and the stress I allowed in my life and my family that I knew it was time to find another occupation.

Did I need to leave the CPA world or did I really need to learn how to manage my type “A” personality, the stress of the job and enjoy life more.  I remember a friend of mine who was also a CPA with a similar sized practice.  His goal every tax season was to take a week-long vacation out of the country with his wife to pace himself for the grueling schedule that we worked. I marveled and assumed he just didn’t see how important it was to keep the work flowing.  I was proud to be the CEO….but not aware that Encouragement was lacking.

If that is the impact to my wife and kids, I can only imagine the lack of encouragement my staff felt when I was operating on little sleep and not pacing myself to get the work done without the insane compromises that I made.  How did I reflect and offer encouragement to staff or my family when I was allowing the career choice and the workload to rule my schedule.  Rather poorly is the answer.  My kids grew up aware of my stress level, my wife and I grew apart due to the lack of intentionally dating her and although I was able to earn a nice income, it pales in comparison to what I exchanged for allowing myself to get caught up in the position of running the firm.

Why share this in a newsletter, because at 54 years old I can say, “I am not the man I used to be.”  That is actually the lyrics to a song by Brandon Heath I have come to identify with.  I now see my role to encourage others as my privilege and my responsibility.  I still own a company with a partner and I make sure to express gratitude to the employees and my partner each time I am in the office.  I know that for years I just expected my staff to know that I appreciated them; I paid them their salary, provided an annual review and on occasion would utter some type of thanks.

Being the Chief Encouragement Officer has more to do than just managing busy schedules or lack of sleep and thanking your employees for their service.  The purpose is leading with a vision, empowering the management team and staff to make important decisions and driving the process in a way that reflects the TEAM nature of the organization. The Trust Employees And Managers approach is just another way to use the letters in TEAM to mean something greater as their CEO.

When you entrust your team with responsibility it reflects that you are comfortable with their leadership.  When you let your son or daughter take the car out by themselves after they get their driver’s license, they realize that you are trusting them to return safely, with the car in the same condition you saw it last.

It does not mean that all trust must be given at one time but age and competency based trust being transferred to your children is the same concept of empowering your employees.   When they are ready, let them have the car keys.  You will be amazed how much that provides encouragement to those who serve alongside you.

Part 1 – What does it take to Encourage?

I noticed the title of a person who emailed me recently and although he was the CEO of the organization, he used the term Chief Encouragement Officer as his title.  It struck me that many times the Chief Executive Officer of the company does not do the things that they should do to ensure that they encourage those serving in roles that support the organization.

Roget’s Thesauruses lists the following definition to the word encouragement:

noun

1. Something that encourages: inspiration, motivation, stimulation.
2. Something that causes and encourages a given response: fillip, impetus, impulse, incentive, inducement, motivation, prod, push, spur, stimulant, stimulation, stimulator, stimulus.

That definition tells us that to encourage means to inspire, motivate and stimulate, to prod, push or spur on.  How many times as CEO’s do we in reality invoke these characteristics in those we lead in the organization?  Not only do they need to be inspired, motivated or stimulated, but they need to be inspired to do what is right, best and most valuable to the company.

 We can also inspire or motivate someone to leave the company if we are not careful how we communicate and what we communicate to them.  Many times we actually discourage, de-motivate or stimulate the wrong behavior.  It is important that we understand the role of encouragement in being the CEO.  We are visible to others, expected to lead and communicate effectively and to be an example that inspires.

With respect to leading a company it is essential that we have a plan for the growth, stability, finances and infrastructure of the entity. We should encourage our staff by being prepared, focused and profitable.

Encouragement in terms of the finances comes from things that the CFO (not Chief Fun Officer) has prepared for you.  Here is a list of things that provide a basis for encouragement to the employees of your company:

• Forecast of sales/income for the coming year
• Budget of expenses for the coming year
• Profitability plan for the coming year
• Set of Goals for the company as well as each department
   
• Set of Goals for the employee in each department
   
• Compensation Plan for each employee that is line with the preceding items.

  Are you encouraged by things you don’t know, don’t hear about, don’t understand or don’t experience?

  To me I am encouraged by those things I hear, see, feel and experience.  Therefore, you can possess these things but unless they are communicated and reinforced for your employees, you will not be serving as the Chief Encouragement Officer. 

  If you don’t have those financial tools in place you also may become discouraged.  It takes a lot of work to be a CEO and even more help from your CFO to ensure that your role is seen as an encouragement to those you are working with.

  Don’t leave your staff in the dark, don’t be in the dark yourself. Take the steps to encourage those in your company and you will find by being prepared you will also enjoy encouragement as those around you radiate those feelings. Make sure your CFO provides the financial tools to ensure you provide encouragement