Focus Clients and Industries

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Product Clients:

• These Clients have Accounting, Advisory and Tax needs that are more complex than Businesses that are Service-based.
• Product and asset focused.
• Income is generated by how well assets and operating activities are managed.
• Product pricing is key.
• Product-based companies are under much more scrutiny from regulatory agencies – both at the federal and state level.

Some of these complexities are listed here (this is by no means an exhaustive list):

Some Accounting Characteristics

Inventory

• Product producers are generally required to maintain an Inventory count – a physical count and count by dollar value.
• Inventory is managed on a perpetual or periodic basis.
• Usually requires an end-of-year count and by dollar value.
• Ending Inventory counts enable a Cost of Goods Sold calculation.
• Ending Inventory calculations are often different for book vs. tax purposes.

Accrual vs. Cash Basis Accounting

• An accrual basis method is generally required for Product-based businesses.
• Accrual basis accounting requires adjusting entries for income, expenses, assets and liabilities.
• Accruals give external users – creditors, investors and other stakeholders a more accurate and complete picture of the business.
• Accrual basis Accounting adds complexity, and complexity adds cost.

Advisory

Some Thoughts Re: Advisory Services

• Any Advisor or “Coach” should consider the complexity of the Client’s operation before they give advice.
• A one-size-fits-all overly simplistic approach to Advisory services will not provide the same (positive) impact to a Client’s potential growth than a method based on data – my opinion.
• Simplistic advice might work for a very small Service-based business with a basic operating model – because the advice and implementation do not require a lot of knowledge of the business, or experience/skill.
• Simplistic advice won’t work with a small product-based business that is trying to extend 2 product lines to 4, 6, or 7 or a business with several separate entities and related-party transactions.
• Advisory plans won’t work for an Advisor that attempts to do so with a limited to (zero) knowledge of the business, no experience or expertise, and no ability to help the Client implement what the Advisor or Coach is selling.
• Clients will not draw a distinction between Accountants that are solely, Advisors and those Accountants that do Compliance work. Client’s normally expect their Accountants to do both.
• Operating activities should be looked at to improve the time it takes to start, create/manufacture, complete and deliver products and services. The velocity of this start and delivery cycle determines how fast revenue is recognized and payments (cash) are ultimately received.
• We always advise Clients to take obvious actions to better cash flow to enhance faster growth. But, other advice requires a more in-depth review of a business’s financials and their operation to understand how best to plan for future growth.

Re: Implementing Advice

• Credible advice should consider how this advice would impact the business’s operation, resources, and employees.
• Anyone can give advice. The key is often how well the advice is implemented.
• Being a successful Advisor (also) requires that the advice or service be successfully implemented. Great plans, poorly executed, spell disaster.

Taxes

Huge topic. There isn’t enough ink or space on this page.

Research and Development Tax Credits

• Qualifying activities – material, development, engineering and testing costs are eligible for tax credits.
• R & D costs are expensed for book purposes but not for tax purposes to avoid duplicate (tax) benefits.

Inventory

• Inventory calculations for tax purposes involve methods like – Average Cost, FIFO and LIFO.

Equipment/Depreciation

• Assets need to be managed for books and taxes, but they also need to be managed for productivity – income producing assets need to be monitored for their capability to continue producing products.
• Accelerated depreciation, like bonus depreciation or Sect. 179 elections are preferable in periods where businesses are looking to offset higher Net Income.

Service Clients:

• Less complex Accounting, Advisory, Bookkeeping and Tax needs.
• Service-based businesses are people-focused.
• Income producing factors lean toward employees and employee-efficiency.
• Cost control is key.
• Client or customer relationships (often) take on a greater degree of importance than Product-based businesses.

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