Cleveland Advertising Firms

Seven Steps for Delegating Work
 
Do you own a small business? You may feel that the success-or the failure-of the business rests entirely on your shoulders. So you try to be in all places at all times. However, in most cases, this will result in problems for the operation and decreased productivity by other workers.

Solution: Practice the fine art of delegation. (It is an art, not a science.) If you parcel out certain jobs among other staff members, you can devote more of your time to areas with greater profit potential. Furthermore, this will enable you to develop a workforce of thinkers, not just doers.

Of course, you will still have to fight your natural tendencies.

Click here for seven practical suggestions for getting or here if you'd like to learn more about how your staff can learn to better use QuickBooks.

Locking in a Partial Home-sale Exclusion

Despite the recent nationwide real estate slump, you may realize a significant gain if you sell your home, particularly if you bought the place before prices soared in prior years. What about the tax consequences? Generally, the amount of the proceeds is subject to tax at capital gain rates. Currently, the maximum tax rate on net long-term capital gain is 15%, but rates are scheduled to increase in future years.

Click here to read more.

Prescription for the New Health Care Credit
Federal Reserve Board Compensation Guidance
By: Theodore R. Ginsburg, JD, CPA

As we are all aware, one of the side effects of the nation's recovery from the financial crisis has been a dramatic increase in financial institution regulation from Congress, the executive branch   and from the Federal Reserve Board ("FRB").  One of the primary areas of the FRB's focus has been the compensation practices of member banks.  On June 21, 2010, the FRB (in conjunction with the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Deposit Insurance Corporation) issued its "Final Guidance on Sound Incentive Compensation Policies" (the "Guidance"). 

In general, the FRB believes that incentive compensation programs caused bank employees to take actions that put their employers at risk.  While this is important information for banks, the overall guidance that the FRB provides is worth noting by all employers.

This brief article will summarize some of the key points of the 47 pages of guidance that the FRB issued.

Aurum Capital Markets Summary

Please click here for a summary from Aurum Wealth Management Group on the performance of the major market indices through the end of June as well as a recap of the significant events influencing the markets.

Click here for 2010 Second Quarter Commentary from Aurum.

Florida Tax Amnesty

The state of Florida is currently administering a tax amnesty program that runs through September 30, 2010. Eligible taxes are sales tax, fuel tax, corporate income tax, communications services tax, gross receipts tax, and Florida's intangible tax. The amnesty applies to tax liabilities due prior to July 1, 2010.

If a taxpayer owes any tax liabilities to Florida, this could be an excellent opportunity. Florida will waive ½ of the interest and all penalties on the tax due.

Click here to learn more.

Go Directly From a 401(k) to a Roth  

Do you want to transfer your 401(k) plan assets to a Roth IRA? Under a recent tax law change, you can make the move in one fell swoop. Previously, it took two separate steps. In addition, another tax law provision taking effect this year may encourage this direct approach.

Click here to read more or here to register for our free Roth IRA Conversion Seminar.

To read this issue of Special Delivery in its entirety, click here.

When companies receive a request for a SAS 70 audit, their first question is often, “What is this, and why am I being asked for it?”

A SAS 70 audit (statement of auditing standards no. 70) is one function of auditing that assesses the internal controls of a service organization. When a service organization has access to important information, such as employee banking information, social security numbers, etc., it needs to be determined that the manner in which this information is stored and shared is safe and secure.

Imagine you are a big company and another company handles your payroll. The payroll company has your employee names, Social Security numbers and access to your money, so it would need a SAS 70 because they are a service provider for your organization. A SAS 70 audit will ensure that the information shared is secure.

How does a SAS 70 audit benefit a service company?

Being compliant opens doors for more work. A lot of companies are getting inquiries from prospective clients asking, ‘Are you SAS 70 compliant?’ If they say no, that’s the end of the conversation. It’s a great marketing tool for a lot of organizations, and it helps you identify areas where you have weak controls.

Click here to read more about SAS 70 audits or here to watch my video with more information on SAS 70s and post a comment below or contact our SAS 70 Team at 440-449-6800 with any questions.

Advisor Insights

For the past several months, our Real Estate and Construction Group has been authoring a monthly column in Builders Exchange Magazine that offers advice to real estate and construction professionals.

So far this year, the following topics have been covered:

• The Benefits of Subprime Bonding  
• Selecting and Implementing Financial Software  
• The Value of a Niche Marketing Plan 
• Lessons Learned From the Construction Industry  
• Cancellation of Debt Income 
• Preventing Financial Fraud 
   

• Health insurers and group health plan sponsors are now prohibited from imposing pre-existing condition limitations on individuals who have not yet attained age 19 and from denying coverage to such individuals based on the existence of a preexisting condition. All such limitations and coverage denials, regardless of age, begin in 2014.
• Health insurers and group health plan sponsors are prohibited from imposing lifetime dollar limits on essential health benefits, and are required to sharply increase annual dollar limits on essential health benefits. Such annual limits will be eliminated starting in 2014.
• Coverage rescissions (except in the case of fraud or intentional misrepresentation) are prohibited.
• Plan-covered and insured individuals are given greater control over choosing a primary care physician and greater access to emergency services and related care.

To read more about these new rules, see this Executive alert from Baker Hostetler.

Go Directly From a 401(k) to a Roth  

Do you want to transfer your 401(k) plan assets to a Roth IRA? Under a recent tax law change, you can make the move in one fell swoop. Previously, it took two separate steps. In addition, another tax law provision taking effect this year may encourage this direct approach.

Click here to read more.

Should You Give to a Donor-advised Fund?

Wealthy entrepreneurs with charitable intentions may choose to set up a private foundation. But a more convenient alternative is gaining in popularity: the donor-advised fund.

This technique may be especially appropriate if you need to devote more time to business activities in the current economic environment. The fund does most of the hard work for you and requires less personal attention than a private foundation. In some cases, you might even convert an existing private foundation into a donor-advised fund.

Click here to read more.

New Law Revamps Student Loan Program

The new Health Care and Education Reconciliation Act of 2010—recently signed in conjunction with the monumental new health care law—includes dramatic reforms in the federal student loan program. This new legislation could affect families of all stripes for years to come.

Click here for a brief summary of four points you should know about.

Aurum Capital Markets Summary 

Please click here for a summary from Aurum Wealth Management Group on the performance of the major market indices through the end of May as well as a recap of the significant events influencing the markets.

This month’s issue of Valuation & Litigation Advisory Insights includes the following articles:

• Nonqualified Deferred Conpensation: Independent Appraisals Offer Protection Against 409a Challenge
• Damage Control: Surviving a Business Interruption
• Fair Value in a Troubled Economy
   

Nonqualified deferred compensation: Independent appraisals offer protection against 409A challenge         

Businesses that provide employees with stock options, stock appreciation rights (SARs) and other types of nonqualified deferred compensation have been subject to Internal Revenue Code Section 409A for years. As you can imagine, compliance is particularly challenging in the current economic environment. To avoid Sec. 409A problems, options and SARs must be issued at or above fair market value, so accurate valuations are critical. It’s important to know what Sec. 409A requires and how to establish fair market value. Three "presumptive" valuation methods are discussed.

Click here to read this article.

Damage control: Surviving a business interruption

Whether it’s minor, such as a lightning strike that shuts down production for a day, or major, such as a lengthy labor strike, a business interruption not only reduces income, but also simultaneously creates new expenses. The key to surviving a business interruption is to restore normal operations as quickly as possible. Insurance plays a critical role. This article explains business interruption insurance, how to file a claim, what to do to mitigate loss, and how to establish a loss period. A sidebar addresses scope-of-coverage issues.

Click here to read this article.
 
"Fair value" in a troubled economy

Last year, Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 157 took effect. The statement, entitled Fair Value Measurements, provides guidance on measuring fair value for purposes of several accounting standards, and establishes a "fair value hierarchy" that emphasizes market-based valuation methods. This article explains how it works. A sidebar discusses a few opportunities to explore in this down economy.

Click here to read this article.


Prior issues are available in the E-Newsletter Archive of our Valuation & Litigation Advisory Services Resource Center. If you would like to subscribe to this free, monthly, business valuation and litigation support e-newsletter, send an email to info@skodaminotti.com.

Accounting and Tax Ramifications of Issuing Stock Options

 Click here to view Part 1 of our series and learn more about the stock option landscape.

To give you more perspective, first let us review the accounting treatment for the issuance of stock options (rest easy - this will not be too painful). When stock options are issued, an expense must be recorded based on the value of the option. A stock option’s value is derived from a variety of factors, two of which are the value of the stock as of the date of the option grant and the exercise price of the option (the price at which the option holder can purchase a share of stock). Determining the value of a company’s stock is not difficult when it is publicly traded, but privately-held companies do not have readily available market prices, which necessitates the services of a valuation expert. Unless the option is properly valued, a company cannot correctly record the associated compensation expense. If a company is unable to correctly record the results of its operations, it may find obtaining a clean audit opinion to be a difficult, if not impossible, task.

Now that I have warned you about the headaches that you may encounter on the “accounting” side of issuing stock options, let me further alarm you with the tax ramifications. If a company sets the stock option exercise price lower than the fair market value of its stock on the grant date, the stock option could be deemed to be deferred compensation according to Internal Revenue Code 409A. Under 409A, such deferred compensation would be immediately taxable to the employees receiving the grant and subject to regular income tax rates plus 1%. Perhaps even more distressing, a 20% penalty plus interest would also be triggered. In addition, employers would be responsible for withholding income taxes for employees on these types of option grants, which if not done, could result in additional tax penalties. The immediate taxability, penalty and withholding requirements do not apply when the stock option exercise price is equal to or greater than the fair market value of the company’s stock on the grant date. It is impossible to compare the exercise price of a stock option to the fair market value of a company’s stock unless a valuation of the company’s stock has been performed. In addition, when a valuation has been performed to establish the fair market value of a company’s stock, the burden of proof shifts to the IRS to disprove the appraised value. Therefore, unless there is documentation to support the fair market value of a company’s stock near the option grant date, there could be significant tax issues in addition to the accounting issues alluded to earlier.

The information in this article is not meant to represent legal or tax advice. Please consult with a Skoda Minotti business valuation professional or your tax/legal advisor regarding the applicability of these issues to your particular situation.

Visit us tomorrow for Part 3: What to Do?

In the meantime, visit our web site for more information on our business valuation services. Skoda Minotti is a CPA, business and financial advisory firm with offices in Cleveland and Akron.
 

We all know that today’s marketplace is global. What you may not know is how important it is to minimize your risk when it comes to foreign currency. Your company may be exposed to foreign currency risk even if you don’t do business in a foreign currency. However, there are ways to minimize those risks including foreign currency hedging. Hedging involves taking an equal and opposite position to protect against price fluctuations.

It is easy to see where you have foreign currency risk when you have foreign currency receivables or payables. If you sell some inventory worth $100,000 to a buyer in Europe for an agreed upon price of EUR 667,000 (based on an exchange rate of 1.5), if the payment does not take place immediately, then any market movement on the exchange rate until payment takes place will have a direct impact on your business. If you choose not to hedge that position, than you are truly gambling.

Perhaps you are thinking to yourself that you don’t have to worry about that since you deal in only US dollars. Even though you sell your products around the world, you only accept payment in US dollars and therefore are not subject to foreign currency risk. This could not be farther from the truth.

Suppose you sell your inventory again worth $100,000 again to a buyer in Europe and this time insist on US dollars. Again, assume that the terms or the contract call for payment in 60 days. If the dollar strengthens by 10 percent during that time period, you have effectively raised the price of your product to your client because the dollars are now more expensive. They may find a new seller who accepts Euro’s since it would cost them 10 percent less.

Even worse, suppose you are selling your product not in a European nation but in a country whose market is very volatile. If your normal terms are 30, 60, or even 90 days, what would happen if one day, the foreign currency was devalued overnight by 50 percent? Even though you only accept payment in US Dollars, you have tremendous foreign currency risk since now your client really owes you twice the amount it thought it did when it entered into the contract. In fact, this may cause them to not pay your bill altogether, which could be a huge loss.

Thus, whether you sell to foreign companies and accept foreign currency or only accept US Dollars, you need to consider a proper foreign currency hedging strategy to limit your risk and improve your profitability.

For more information on foreign currency hedging, contact our Tax Planning & Preparation Group at 440-449-6800.

According to the code section 179D, the designer primarily responsible for designing the energy efficient aspects of government buildings (including new construction and rehabilitation) may be able to take the federal energy efficient commercial property tax deduction for doing so instead of the owner of the property. This deduction is passed to them from the government agency for which the building was designed as the government agency does not pay tax and therefore would not get the benefit for this deduction. The designer is defined as the person(s) that create the technical specifications for installation of the energy efficient commercial building property, and can include architects, engineers, environmental consultants, and contractors in certain cases. Under this section, the word government includes Federal, state, and local government agencies, and although all government building categories have benefited from this, the most frequent projects are K-12 public schools, state universities and colleges. Other categories include post offices, military bases, libraries, courthouses, and hospitals.

The amount of the deduction passed to the designer is the lesser of the actual cost of the property or the calculation below:

(The square footage for the building (new construction) or area improved (rehabilitation))
x ($0.60 per each of the three areas that you pass ($1.80 total) the energy efficiency test (HVAC/Lighting/Building Envelope))

Section 179D has been beneficial for designers of this property who work with government agencies to build government buildings, depending on the size and level of energy efficiency, because they can take an additional tax deduction for the energy efficient improvements that were made. This deduction is a tax only deduction on the tax return of the designer.

In order to take this deduction, the designer will need two items to claim the deduction:

• First, a letter from the government agency must be provided to the designer allowing them to take the deduction. This letter essentially gives the permission to pass the deduction.
• The second item is an engineers report which must be prepared to support the energy efficient improvement of the building design. Of course, this report has a cost with it and companies need to compare that cost to the amount of tax they will save through the deduction.

Originally, this was only passed as a one or two year item and there was not much support for it, which is why it was not very popular and many firms were not acting on it. This past year, they extended it to include units completed or renovated between December 31, 2005 and January 1, 2013 and passed more tax guidelines to support these deductions. With that being said, it may makes sense to look at prior years as well to see if prior year returns can be amended to take advantage of the deduction.

With a small amount of information, we can quantify the deduction you would get and compare it to an estimate of how much the engineer’s report will cost in order to quantify the net savings.

To determine if your company can benefit from the Federal Energy Tax Credit, contact me or Nick Delguyd at 440-449-6800.
 

Details

The Internal Revenue Service has announced that its Employee Plans Compliance Unit (“EPCU”) will be mailing out a letter and instructions to a random sample of 1,200 employers that sponsor 401(k) plans asking them to complete a “401(k) Compliance Check Questionnaire.”

Background

The Service is well aware that 401(k) plans have far surpassed defined benefit plans as the preferred retirement vehicle for the majority of employers. A recent IRS Employee Plans Examination Study of 79 market segments indicates that 401(k) plans are by far the most non-compliant type of retirement plan. Inasmuch as these plans comprise more than 60% of all retirement plans, the Service believes that it is important to the future of the private retirement system that 401(k) plans maintain the highest level of compliance possible.

Summary

Through a secure Web site, the EPCU will collect responses on:

• demographics,
• participation,
• employer and employee contributions,
• top-heavy and nondiscrimination testing,
• distributions and plan loans,
• other plan operations,
• automatic contribution arrangements,
• designated Roth features,
• IRS voluntary compliance and correction programs, and
• plan administration.

The Service says that the information gathered will provide comprehensive information on 401(k) plans, and will help EPCU maximize resources for education, outreach, guidance, and enforcement efforts while minimizing the burden to compliant plan sponsors.

All plan sponsors will complete the same questionnaire but there are some questions that only pertain to plans with certain features. Employers that fail to respond to the questionnaire or provide complete information will result in further action or examination of their plan, the Service cautioned.

A team from all different areas of the Employee Plans office of the Tax Exempt and Government Entities Division of the Service worked to create the questionnaire. The employers selected to participate were taken from a random sample of 401(k) plan sponsors that filed a Form 5500, Annual Return/Report of Employee Benefit Plan, for the 2007 plan year.

If you have any questions, post a comment below or contact our Benefit Plan Audit Group at 440-449-6800.

This issue of Construction Connections includes the following articles:

• Improving Your New Business Pipeline
• National Outlook

Improving Your New Business Pipeline
By CutterCroix

For many construction companies, today’s marketplace seems harder than ever to survive, let alone thrive.  There are many external challenges impacting the company’s ability to achieve its business goals.  Some of these external forces include the lack of available credit to support new projects, cost increases in equipment, materials and fuel, shortages of skilled trade workers, increased competition, and unrealistic bids (i.e. low or no-profit bids).  So, how does a company grow its business in this challenging environment?  The answer is to improve its critical business systems, in particular (1) the acquisition of jobs (i.e. sales), (2) building the job or work performed, and (3) key support and tracking systems (e.g. accounting, field support/stores, equipment, etc.).  We will focus our attention in this article on the development and management of a systematic and disciplined approach to securing more of the right kinds of jobs.  While the company’s leadership team cannot control the national credit market or how its competitors will bid jobs, it can control how their company:
 

• Manages sales opportunities,
• Communicates and strengthens the relationship with current and prospective customers,
• Tracks the touches with leads, prospects and customers,   
• Develops bids/estimates (e.g. efficiency, consistency and profile),
• Presents professional and timely quotes, and
• Utilizes the time and resources of its managers and employees.

Click here for more of this article.

National Outlook

One of the quirks of a major shift in the direction of the economy is that a little bit of news can influence sentiment in a short period of time. So it’s a bit dangerous to make too much of the raft of good economic news that greeted the start of the second quarter. With that caveat in place, the data and economic surveys, coupled with upbeat earnings reports from the stock market are showing the first signs of a sustained recovery.

Some of the news was good enough to embolden a minority of economists to start talking about a ‘V’ recovery instead of a double-dip ‘W-shaped’ recession.

Among the highlights of the data was a surprising rise in consumer spending during the first quarter, with the 3.5% rate of growth the highest in almost three years. March inflation was virtually flat from February and the core consumer price index was up only 1.7% in the previous twelve months, the smallest rate of inflation since early 2004. China reported stronger than expected growth in the first quarter at 11.9%, signaling better prospects that a global recovery was in higher gear. The Federal Reserve’s Beige Book of economic anecdotes showed that businesses here in the U. S. were reporting ‘somewhat faster’ rates of recovery than expected, even while indicating that loan volume and credit quality continued to decline. And in the bad news is better than worse news category, the NAHB reported on April 15 that its monthly builders’ index had risen four points in March, from 15 to 19.

The most encouraging report from the first quarter was the first significant growth in jobs during March. After mid-April revisions the Labor Department showed a gain of 220,000 jobs in March, approximately 150,000 of which were private sector created. March also marked the third straight month of job gains and the fourth month in the last five. Improving business conditions and consumer spending are only sustainable if steady progress is made in reclaiming the more than eight million jobs lost during the recession.

Click here for more of this article.

Prior issues are available at our E-Newsletter Archive. If you would like to subscribe to this free quarterly e-newsletter, send an email to info@skodaminotti.com.

If you have any questions about any of these articles, post a comment below or please contact our Real Estate & Construction Group at 440-449-6800.

Advisor Insights

With the passage of the the Patient Protection and Affordable Care Act both businesses and individuals will be feeling major effects of this bill in the coming years. To help you better understand how this bill impacts you and your business, we have put together several resources that you should find useful.

Health Care Reform Webinar

On May 5th, our own Jim Sacher participated in a Smart Business Live webinar presentation on health care reform. You can view the outline from his presentation here or you can view the webinar here.

Health Care Reform Blog Posts

Earlier this year, we covered many of the effects of health care reform in our blog:

• Effects of Health Care Reform on Small Businesses
• Effects of Health Care Reform on Employers
• Effects of Health Care Reform on Individuals
• Offsetting the Cost of the Health Care Package: Revenue Raisers
• Health Care Reform & Medical Expense Deduction
• Health Care Reform & FSAs and HSAs
• Health Care Reform & Market Sector Fees
• Health Care Reform & High-Cost Plans
• Health Care Reform & Additional Medicare Tax

For more information on the tax treatment of healthcare coverage for adult children under age 27, please click here.

Healthcare Reform Article

Finally, keep an eye out for the June issue of CPA Voice where my article on the tax implications of health care reform on individuals will appear. We will provide a link to the article in the June Special Delivery e-newsletter.

If you have any questions on how health care reform may affect you or your business, please contact me at 440-449-6800 or jsacher@skodaminotti.com. 

Six Ways to Improve Debt Collection

In the current economy, it is not enough to generate sales. It is just as important to ensure that your business is actually paid for your services or products. That is why debt collection is increasingly becoming a concern of small-business owners.

When pursuing debt collection activities, be careful to avoid violating any federal laws designed to protect debtors, including the Fair Debt Collection Practices Act and related legislation. In brief, you may be fined or forced to pay damages, or both. State law may also restrict these practices. In addition, debtors may be able to initiate civil actions.

The key is to maximize collections for your business without exposing it to liability.

Click here for six practical suggestions.

Are You in the AMT Danger Zone?

The alternative minimum tax (AMT) was originally designed to ensnare only the wealthiest individuals. But this "stealth tax" has been steadily hitting a far wider group of taxpayers than initially intended. If you are in danger of incurring AMT liability, you should familiarize yourself with the rules.

Basic premise: The AMT runs on a separate track beside your regular tax liability. After you have figured out your regular taxable income, your AMT liability must be computed.

Click here for the four basic steps.

Aurum Capital Markets Summary 

Please click here for a summary from Aurum Wealth Management Group on the performance of the major market indices through the end of April as well as a recap of the significant events influencing the markets.

Worker's Compensation: Reminder to Businesses Participating in Group-Rating Programs

The Ohio Bureau of Worker's Compensation Board passed a rule that requires group participants that have experienced a workers' compensation claim in the past two years (2007 and 2008) to complete two hours of safety training by 6/30/2010. If you have not completed your training by June 30, 2010, you will lose your group discount. 

For more information on how you can comply with this training requirement, including a low-cost and easy to use on-line training system, please contact Roger Gingerich at 440-449-6800 or rgingerich@skodaminotti.com.
 

How much life insurance do you need?

Your life insurance needs will depend on a number of factors, including the size of your family, the nature of your financial obligations, your career stage, and your goals. For example, when you're young, you may not have a great need for life insurance. However, as you take on more responsibilities and your family grows, your need for life insurance increases.

Here are some questions that can help you start thinking about the amount of life insurance you need:

• What immediate financial expenses (e.g., debt repayment, funeral expenses) would your family face upon your death?
• How much of your salary is devoted to current expenses and future needs?
• How long would your dependents need support if you were to die tomorrow?
• How much money would you want to leave for special situations upon your death, such as funding your children's education, gifts to charities, or an inheritance for your children?
• What other assets or insurance policies do you have?

Types of life insurance policies

The two basic types of life insurance are term life and permanent (cash value) life. Term policies provide life insurance protection for a specific period of time. If you die during the coverage period, your beneficiary receives the policy's death benefit. If you live to the end of the term, the policy simply terminates, unless it automatically renews for a new period. Term policies are typically available for periods of 1 to 30 years and may, in some cases, be renewed until you reach age 95. With guaranteed level term insurance, a popular type, both the premium and the amount of coverage remain level for a specific period of time.

Permanent insurance policies offer protection for your entire life, regardless of your health, provided you pay the premium to keep the policy in force. As you pay your premiums, a portion of each payment is placed in the cash value account. During the early years of the policy, the cash value contribution is a large portion of each premium payment. As you get
older, and the true cost of your insurance increases, the portion of your premium payment devoted to the cash value decreases. The cash value continues to grow--tax deferred--as
long as the policy is in force. You can borrow against the cash value, but unpaid policy loans will reduce the death benefit that your beneficiary will receive. If you surrender the policy before you die (i.e., cancel your coverage), you'll be entitled to receive the cash value, minus any loans and surrender charges.

Many different types of cash value life insurance are available, including:

• Whole life: You generally make level (equal) premium payments for life. The death benefit and cash value are predetermined and guaranteed (subject to the claims paying ability of the issuing insurance company). Your only action after purchase of the policy is to pay the fixed premium.
• Universal life: You may pay premiums at any time, in any amount (subject to certain limits), as long as the policy expenses and the cost of insurance coverage are met. The amount of insurance coverage can be changed, and the cash value will grow at a declared interest rate, which may vary over time.
• Variable life: As with whole life, you pay a level premium for life. However, the death benefit and cash value fluctuate depending on the performance of investments in what are known as subaccounts. A subaccount is a pool of investor funds professionally managed to pursue a stated investment objective. You select the  subaccounts in which the cash value should be invested. 
• Universal variable life: A combination of universal and variable life. You may pay premiums at any time, in any amount (subject to limits), as long as policy expenses and the cost of insurance coverage are met. The amount of insurance coverage can be changed, and the cash value goes up or down based on the performance of investments in the subaccounts.

2010 Real Estate and Construction Survey

Skoda Minotti is conducting our 3rd annual survey of the Northeast Ohio real estate and construction industries. Every participant who completes the questionnaire will receive a free copy of the survey results and analysis and have a chance to win a $50 gift card to Dick's Sporting Goods.

The goal of the survey is to provide professionals in the real estate and construction industries in Northeast Ohio with the invaluable insight into their industries.

As an added bonus, one out of every 20 survey participants will be randomly selected to receive a $50 gift card to Dick's Sporting Goods. Note that only the first 100 survey participants will be eligible for the gift cards, so act quickly.

Click here to complete the real estate or the construction survey.

Please feel free to contact Bob Goricki at bgoricki@skodaminotti.com or 440-449-6800 with any questions related to the survey.

Green Building & Green Leasing: What is it, and why should I care?

By Peter D. Brosse, Esq., Meyers, Roman, Friedberg & Lewis

Since the establishment of Earth Day, the creation of the Environmental Protection Agency (EPA), and issues brought to public light by the Oil Embargo in the early 1970's, Americans have become more sensitive to the environment and use of resources, including petroleum. However, we still continue to use many of the same chemicals, gasoline and other resources as we did before, subject, however, to regulation.  Recently, a revolution has begun with new attention to conserving energy and resources. This new "green revolution" is evident with the use of a new vernacular that has entered into our common language. Only a few years ago, such words as "green","sustainable," "renewable energy," "greenwashing," "LEED" and "Energy Star" were rarely, if ever, used.  Today, these are part of everyday speech. Nowhere has this "green revolution" been more evident than in the real estate industry.  Such words as "building green" and "green leasing" are commonly heard and many articles are written about the subject. When discussing green building and green leasing, the question that owners, developers and tenants typically ask is "What is it, and why should I care?"

Is there a difference between "green" and "sustainable?"

Yes, there is a significant difference.  When one considers green building or green leasing, it is really sustainability and not "green" that is the focus. "Green" generally means to be environmentally friendly. To be "sustainable" means more. When one refers to sustainability, it takes into consideration the life cycle of a product or a building. To say a product is sustainable, one needs to look at processes, procedures, materials, how the product is manufactured, and whether the product can be reused or ultimately finds its way to the landfill.

Click here for more of this article.

Residential Real Estate: Making Modifications Work
By Brian Bader

Lew Ranieri, often credited with creating the mortgage-backed securities industry when he was at Salomon Brothers in the early 1980s, has returned to try to save America from the worst effects of that accomplishment. In 2008, Ranieri established the Selene Residential Mortgage Opportunity Fund, raising money primarily from foundations and pension funds, to buy and restructure failed mortgages created to feed the securitization process. In doing so, he is showing how mortgage modifications can work - and why the federal home-owners modification program (HAMP) has done so poorly by comparison.

Click here for more of this article.

CMBS: Special Servicers
By John Tax

Special servicers are the firms trying to correct mortgage loans in the later stages of delinquency or in actual default. Their role has become increasingly important as a result of the tremendous number of troubled loans According to a report by Standard & Poor's (S&P), servicers have been training their staffs to address the unique aspects of these loans, packaged as commercial mortgage-backed securities (CMBS). Almost 50 percent of these unresolved assets are loans originated in 2006 and 2007. Many of the loans are more complex than older ones, which mean it takes longer to resolve them, either by a full workout, a discounted payoff or foreclosure sale. Because of the time period in which they originated, many of the newer loans lack some of the safeguards present in the commercial loans originated before 2004.

Click here for more of this article.

Securitization: Covered Bonds
By Anthony La Malfa

The use of covered bonds as a source of home-mortgage funds is being encouraged by the U.S. Treasury Department and the Federal Deposit Insurance Corporation (FDIC) because they offer much greater certainty for the bondholders with respect to damages and rights.

Covered bonds contain a key element that is missing in many commercial mortgage backed securities (CMBS), i.e., a double layer of protection for investors, with the asset being backstopped by the issuer of the securities. The key difference between CMBS and covered bonds is that the latter requires lenders to retain the default risk. On the other hand, covered bonds fail to provide a good option for private labels because they require a capital base to retain loans on balance sheets and do not provide the higher level of leverage that was available with CMBS.

Click here for more of this article.

Leases: Subordination Clause Could Harm Tenants
By David Tevlin

Commercial lease agreements often are long and complex, with clauses neither party may expect will ever be triggered by events. But sometimes they are. One such is the lease subordination clause, by which the tenant agrees the lease is subordinate to any present or future mortgage that the landlord may put on the property. Accordingly, foreclosure of a mortgage (depending on the law of the state involved) either will automatically terminate the lease or entitle the lender, at its option, to terminate the lease.

Click here for more of this article.

Legal View: Second Circuit Rejects Champerty Defense
By Alvin Arnold

Champerty is not a word often heard these days, even though it is a living doctrine in modern law and on occasion has real bite. In a recent case, the Second Circuit Court of Appeals reversed a trial court ruling that had dismissed a mortgage trust's suit for indemnification for loan losses from the originator. Trust for Certificate Holders of Merrill Lynch Mortgage Investors v. Love Funding Corp., 391 F.3d 116 (C.A.2, N.Y.). However, the reasoning of the decision leaves some room for the distressed debt markets to be concerned.

Click here for more of this article.

Migration: Major Shifts
By Andrew Dalecki

Every type of real estate - housing, business, retail, and office - is impacted by population movements across the U.S. and across its borders. In its most recent report, based on new Census numbers, the Brookings Institution says the past ten years saw the greatest migration slowdown since the end of World War II. Significant events were the housing bubble and the worst recession in more than half a century, as well as major storms and terrorist attacks.

Click here for more of this article.

Cleveland Market Overview

Signs are pointed towards recovery for commercial real estate in Cleveland.  The vacancy rate was down over the previous quarter, with net absorption totaling positive 293,238 square feet in the first quarter.  In fact, with the exception of the Southwest and Downtown's Financial and Warehouse submarkets; all markets posted a positive overall net absorption for the first quarter of 2010.  The Cleveland office market ended 1st Quarter with a slight decrease in the overall vacancy rate, 21.8%, as sublease space outperformed direct deals.  Another good sign; rental rates are stabilizing, ending the first quarter at $17.90 per square foot. 

Nationally, as job losses abate and turn into employment gains across various industries and geographies, more markets are moving towards recovery.  This includes Cleveland because we lacked the high stock of inventory that plagued more developed markets (Las Vegas, Phoenix, Florida).  Cleveland should be in a good position to rebound quicker than other markets and continue to see an increase in activity and deal flow.

More information on the real estate markets in North America is available courtesy of Jones Lang LaSalle .  For questions on this information, please contact Andrew Coleman or J.R. Fairman at (216) 861-7171.

In June 2011, the SSAE No. 16 will replace the SAS 70 as the standard for reporting on service organizations.

Statement on Standards for Attestation Engagements (SSAE) No. 16

The SSAE No. 16 was finalized by the Auditing Standards Board of the American Institute of Certified Public Acountants (AICPA) in January 2010. It was drafted to replace the SAS 70 as a more effective standard for reporting on service organizations, and to update the US service organization reporting standard so that it fits with the new international service organization reporting standard, ISAE 3402.

For those service organizations that have a performed SAS 70 audit, minor changes will be required to effectively report under the new SSAE No. 16 standard. Details are limited in this regard, and will be provided as they are released.

What you should know about the SSAE No. 16

• The new standard is an attest standard, not an audit standard. Organizations should expect a separate audit standard to be issued addressing the requirements of the user auditor.
• In the new reporting standards, management will be required to provide a written assertion.
• Subservice organizations are required to provide a simliar assertion when the inclusive method is used.
• Similar to the SAS 70, Type 1 and Type 2 reports may still be issued by the service auditor.
• Type 2 reports require the service auditor to express an opinion on the suitability of the design of controls related to the control objectives throughout the entire period. The format of the service auditor's opinion will change.
• The service auditor is required to disclose any reliance on the work of Internal Audit or other independent management testing functions within the report.

Overall, the changes to the new standards do not seem to be significant. More details will be shared as they become available.

To discuss the revised standards and what this replacement means to your organization, visit the SSAE No. 16 web page, or contact Ken Haffey at 440-449-6800.

Advisor Insights

Skoda Minotti is conducting our 3rd annual survey of the Northeast Ohio real estate and construction industries. Every participant who completes the questionnaire will receive a free copy of the survey results and analysis and have a chance to win a $50 gift card to Dick's Sporting Goods.

The goal of the survey is to provide professionals in the real estate and construction industries in Northeast Ohio with the invaluable insight into their industries.

As an added bonus, one out of every 20 survey participants will be randomly selected to receive a $50 gift card to Dick's Sporting Goods. Note that only the first 100 survey participants will be eligible for the gift cards, so act quickly.

Click here to complete the real estate or the construction survey.

Please feel free to contact Bob Goricki at bgoricki@skodaminotti.com or 440-449-6800 with any questions related to the survey.

Lower Your Worker's Comp Premiums with the BWC's new Drug-Free Safety Program

The new Ohio BWC Drug-Free Safety Program (DFSP) will be available for all Ohio employers, including previous participants, beginning July 1, 2010. The DFSP is easier to understand and implement, and provides a long-term discount for an unlimited number of years of participation.

There are two levels in the DFSP; eligible employers may elect to join either level of the program:

BASIC LEVEL: Participating non-group-rated employers receive a 4-percent discount by meeting all program requirements. These include completion of a safety review, accident reporting, accident analysis training for supervisors, employee education, supervisor skill-building training, alcohol and drug testing, and a written DFSP policy.

ADVANCED LEVEL: Participating non-group-rated employers receive a 7-percent discount by meeting all of the Basic Level requirements, as well as conducting 15-percent random drug testing annually, and completing a safety action plan. Advanced level participants must also provide a second chance after employee’s first positive test with BWC to specify exceptions.

For more information on how you can sign up for this program, please contact me at rgingerich@skodaminotti.com  or 440-449-6800.

How to Raise Cash for a Business

It "takes money to make money," but some of the conventional sources of cash have dried up for small-business owners. But that does not mean you should give up. If you lack the necessary funds to start a business or you need more money to expand your current operation, there are still several possible ways to raise the cash.

Click here to read more. 

Sweep Away "Nanny Tax" Concern

If you employ a household worker, such as someone to watch young children, you may be liable for the so-called "nanny tax." However, you can sidestep any dire tax consequences if you pay close attention to the rules.

Click here to read more.

Protecting Your Business from Embezzlement

It seems that every other day the newspapers feature a story where a longtime employee has embezzled money from his or her employer. You may sadly shake your head and blithely continue to go about your business. After all, this cannot happen to you ... can it?

Click here to read more.

Aurum Capital Markets Summary

Please click here for a summary from Aurum Wealth Management Group on the performance of the major market indices through the end of March as well as a recap of the significant events influencing the markets.

Not-For-Profit Seminar - June 8th

Skoda Minotti is pleased to announce that we will once again be hosting a not-for-profit seminar featuring nationally recognized not-for-profit expert Dick Larkin of BDO Seidman.

Dick will be presenting a not-for-profit industry update that will contain valuable insights for anyone involved in the not-for-profit industry. In addition to Dick's presentation, two Skoda Minotti professionals will also be presenting on Form 990 as well as an information technology primer for not-for-profit entities.

Seminar Details

• Location: Hilton Garden Inn, 700 Beta Drive, Cleveland, OH
• Date: June 8th
• Time: 8:00 - 11:30am
• Cost: $25
• Registration: Click here - http://www.eventbrite.com/event/674362035 

If you have any questions on the seminar, please contact Bob Goricki at bgoricki@skodaminotti.com or 440-449-6800 with any questions.
 

This month’s issue of Valuation & Litigation Advisory Insights, includes the following articles:

• Struggling Economy Presents Business Valuation Challenges
• Nonpublic Information Considered in Valuing Securities
• Are Valuations Recyclable?

Struggling Economy Presents Business Valuation Challenges     

In bad times, appraisers may face a disconnect between the income and market approaches, creating a wide gap between valuations. The challenge becomes reconciling these differences. This article explains how to approach valuation for both profitable and distressed companies, and notes that the purpose of a business valuation can have a big impact on the valuation methods that are used. A sidebar looks at one case in which a court rejected the uses of the discounted cash flow method by both the creditors’ and the debtors’ experts.

Click here to read this article.

Nonpublic Information Considered in Valuing Securities

In one recent case, a district court held that it was reasonable for a jury to conclude that material nonpublic information possessed by the defendants affected the fair market value of certain securities. The case is significant because it seems to offer a novel interpretation of the phrase "reasonable knowledge of relevant facts" in the definition of fair market value. The decision suggests that even nonpublic information can be a "relevant fact."     

Click here to read this article.

Are Valuations Recyclable?

The paper a valuation report is printed on may be recyclable, but in most cases the content is not. This article points out that recycling valuations poses two major problems: First, the value of a business or other asset can change dramatically over time — in some cases, overnight. Second, a valuator’s methods depend to a large extent on the valuation’s purpose.  The article discusses the problems that can ensue when business owners are tempted to stretch their valuation dollars by using a single valuation for several different purposes.

Click here to read this article.

Prior issues are available at our E-Newsletter Archive. If you would like to subscribe to this free monthly e-newsletter, send an email to info@skodaminotti.com.

Whether it is through acquisition or organic growth, more and more of today’s companies have the ability to offer numerous services and/or products to multiple target audiences across vastly different industries.

However, according to Jonathan Ebenstein, the managing director of Skoda Minotti’s marketing services group, all too often companies are using a shotgun approach to marketing, when a rifle-based solution is needed.

“In other words, you can’t use the same broad-based, one-size-fits-all marketing approach to go after a construction company as you would for a law firm,” says Ebenstein. “These are two different industries with vastly different needs, hot buttons and challenges.”

Click here to read more of this article from SmartBusiness Cleveland.

And, for more information, post a comment below or contact our Marketing Services Group at 440-449-6800.

This is the fifth and final installment of our five part series on niche marketing.

Clearly it is imperative that you put some kind of system in place to monitor and evaluate your efforts. Without a tracking mechanism it is difficult to know what strategies work best and those that should be either revised or not carried forward in the future. My advice would be to design or invest in some kind of CRM system that will track new and repeat customers and allow you to determine how they learned about your product and/or services. And, should they be repeat customers, why they have returned and what new or additional services or products they purchased. An­other way to track your efforts is, as you get to know your repeat customers better, to meet with them for detailed feedback and ask them for ideas and suggestions about how you can introduce your prod­ucts and services to more prospects that are just like them. 

Click here for part one, part two, part three or part four of this series. Or, for more information on niche marketing or any of our other Marketing Services, contact Jonathan Ebenstein at 440-449-6800 or visit our marketing web page.

This is the fourth part of a five part series where we have been elaborating on why niche marketing is a vi­tal concept to consider when developing a marketing plan, while addressing some of the key elements to developing a niche marketing plan.

The basics start with a description of your target market, competitors and products or services. Additionally, you’ll need to put together a marketing plan and budget, which will contain your advertis­ing and promotional plan along with a detailed account of costs allocated for the development, creation and execution of the marketing initiatives and tactics detailed in your plan (i.e., Web site, ad creation, PR, sales collateral, SEO, Social Media, etc.). You’ll also want to make sure you’ve thought through such things as geo­graphical boundaries (i.e., do you want to be local, regional, national or global?) and industry trends. Completing a SWOT anal­ysis of your company’s strengths, weak­nesses, opportunities and threats is often very helpful in forcing yourself to better understand the nature of the market space you are playing in. Lastly, you’ll also need to determine your pricing strategy and rev­enue goals.

Click here for part one, part two or part three of this series. Or, for more information on niche marketing or any of our other Marketing Services, contact Jonathan Ebenstein at 440-449-6800 or visit our marketing web page.

International Financial Reporting Standards (IFRS) exist as an alternative to U.S. generally accepted accounting principles (GAAP) as issued by the Financial Accounting Standards Board (FASB).  Designed to replace the “rules based” GAAP with a more principles based approach, FASB has been working with the international standard setters to conform and converge GAAP to IFRS.

The SEC has recently signaled their support for a switch to IFRS by 2015, so long as progress continues to be made in a number of areas.  For private companies, there is actually an IFRS–lite version (called IFRS-SME for Small and Medium sized Entities) that came out in 2009 and is a mere 230 pages, as contrasted to the 10,000+ pages of today’s GAAP.

CPA’s are now able to issue reports on either IFRS or GAAP. 

During 2010, the FASB has signaled that proposals will be forthcoming to continue the convergence in the following key areas:

• All leases, including operating leases, will likely be capitalized onto the balance sheet
• Financial reports will need to be comparative, not just show a single year
• The cash flow statement will need to be presented on a “direct” method to provide more information about operational cash inflows from customers, and cash outflows to vendors and employees

So, what are the differences between GAAP and IFRS-lite?  Here is our short list:

• Prepaid insurance and other expenses: Will be shown within trade and other accounts receivable under IFRS.
• LIFO inventory method: Will not be permitted under IFRS as a way to save on taxes.
• Deferred loan and other financing fees: Will no longer be spread over the life of the loan under GAAP’s matching concept, but rather would be expensed in the year paid under IFRS.
• Intangible assets, such as customer lists acquired in a business combination: Will no longer be stated separately from goodwill, but rather would be included as one category, subject to both amortization over a maximum of 10 years AND subject to an annual impairment test.  This may be attractive to some companies, as it avoids the expense of having an outside financial valuation consultant perform a study to allocate business combination consideration into buckets.
• Costs of a business combination: The former GAAP rule to include these costs as a part of the combination has been retained by IFRS.  Under current GAAP since 2009, these are period expenses.
• Internally developed software: Would always be a current period expense under IFRS.
• Fixed assets: Large assets would be separated into individual components, something that is only rarely done under GAAP.

Other, less common areas where there could be differences include revenue recognition in certain areas (including the completed contract method), some elements of balance sheet presentation, accounting for restructuring costs, lease escalation clauses, and pending litigation matters.  Under IFRS, there is greater flexibility in valuing stock options and doing asset impairment evaluations.  There is little or no industry specific guidance. 

We think having options is a good thing.  If you would like more information, post a comment below, call Pete Metzloff at 440-449-6800 or take a look at the IFRS web site at www.iasb.org.