Thursday, November 06, 2014YOUNGSTOWN, Ohio -- In the sixth year of recovery -- the Great Recession having ended in June 2009 -- normality has returned to small-business owners and the accountants who serve them.
Their concerns are retirement and succession planning, the effect of the Affordable Care Act on premiums they’ll pay for their employees’ health insurance, tax planning, how they’ll pay for their children’s (or grandchildren’s) college educations, on financing expansion or acquiring more space, on increasing their sales forces.
They are not struggling to repay debt or worried about laying off employees to stay afloat, CPAs Sarah Baker-Curry, Paul Milligan, Mike Humphries and Jim Colella, Harold Davis and Tim Petrey, and Jerry Sutton tell The Business Journal.
Most clients of Phoenix CPAs, Sharon, Pa., “are doing well and thriving,” reports its president, Baker-Curry. The few stragglers who find themselves behind are there because of “a lack of strong leadership and good marketing decisions.”
The businesses that survived the Great Recession “are thriving because they made the hard decisions,” Baker-Curry says. “They had strong managers who communicated well with their employees and customers. They downsized quickly when they had to.”
These companies “understood their options”: come up with new products or attract new customers to make up for their loss of sales, she continues. Their owners “are charismatic,” which resulted in their success in “recruiting new people with their values to come on board, who treat customers the same way they do.”
The bulk of the companies Phoenix serves are manufacturers or in construction with 10 to 50 employees and employees, Baker-Curry says.
Many of the clients Paul Milligan & Associates CPAs, Boardman, serve are getting ready to retire, Milligan says, and so he’s devoted much of his time to succession planning, helping them prepare to sell their enterprises or transfer ownership to the next generation or key employees.
Fewer and fewer children are interested in following in their parents’ footsteps, he finds. For example, “I have a client with three children,” he relates. “One is out of the country and the other two aren’t interested.”
That prompts the owner to have his business assessed so it can be sold at a fair price to interested key employees or offered for sale at fair market value.
Those in their 30s, 40s and 50s, Milligan says, are looking to hire or expand through acquisition. Some who run a franchise are looking to acquire another.
In an improving economy, they are also “concerned with retaining quality employees [because] most are looking to grow,” Milligan relates.
The uncertainty (but likelihood) of Congress extending tax breaks when the House and Senate reconvene after the Nov. 4 elections presents a challenge to the CPA community. Humphries and Colella, who formed Colella & Humphries Certified Public Accountant LLC, Canfield, Jan. 1, 2013, discuss with their clients how they “identify tax reduction opportunities such as tax credits, incentives and tax deferral and minimization strategies,” Humphries says. Humphries earned his master’s degree in taxation at the University of Akron.
Humphries and Colella advise against letting the tax code drive business decisions, aware that that tax implications are always in the background.
“There are over 50 tax breaks between personal and business extensions due to expire [Dec. 31],” Humphries notes.
“Including accelerated depreciation,” Colella adds.
“Which makes it harder for us to plan,” Humphries picks up.
“I don’t see rates increasing [when Congress reconvenes],” Colella says. “Two years ago, Congress passed the extensions and made them retroactive.”
The challenge to business owners lies in the time remaining to order an expensive piece of specialized equipment, taking possession and putting it into operation by Dec. 31 so he qualifies for accelerated depreciation.
“I have a client who needs a specialized truck,” Colella says, “a $3 million piece of equipment. Not only does he have to buy it this year, it has to be in use before the end of the year.”
Other concerns Humphries and Colella are working with their clients on include finding qualified employees, especially welders. “In oil and gas, they’re hard-pressed to find a machinist,” Colella says, and companies are engaged in bidding wars to for the machinists needed.
“Their wages are going up more than the cost of living,” Humphries says.
The CPAs’ clients are concerned about not just whether to pay more for health-care insurance or pay the penalty and send their employees to health-care exchanges, but the paperwork they fear they’ll have to fill out to meet the reporting requirement, Humphries says. They are concerned about the time it will take to document their decision regardless.
The firm’s clients who built houses before the Great Recession have, for the most part, turned to “remodeling and are still at it,” Colella says. The residential construction business, while improved, is far from robust.
“Everybody’s doing better,” reports Davis, founding partner of HD Davis CPAs LLC in Liberty, “especially trucking firms. Trucking firms are adding employees, home health care is. Restaurants are hiring.”
Home health care and restaurants are hiring more to replace turnover, Davis explains, than to expand their workforces.
“Anybody that has anything to do with technology” is also doing well, says HD Davis managing partner Petrey. He’s impressed by the promise his clients in the Youngstown Business Incubator show. “There’s a lot of talent there and YSU produces some great talent,” Petrey says.
With the reporting requirements of the Affordable Care Act that affect who’s a full-time employee and who’s part-time, the Davis firm is writing software that should make it considerably easier for employers to track employees’ status.
“We’ve spent a lot of time learning about the ACA,” Petrey says, “but the rules and definitions keep changing.”
Incorporated in the software Davis and Petrey are writing is part of the IRS code governing the act. ‘We’ve put in the regs to run the code,” Davis says. “But the regs keep changing on who’s covered.”
Adds Petrey, “A lot is left open to interpretation. A word as simple as ‘average’ is not.”
“We kind of get what they want,” Davis says, “but we’re not there yet.”
The Davis firm expects to market the software to other CPA firms once the ACA regulations take final form.
Like Humphries and Colella, Davis and Petrey are resigned to Congress’ lack of action on whether tax breaks set to expire Dec. 31 will be extended.
Banks are more eager to lend, Davis says. Banks work closely with accounting firms who seek to ensure a business owner meets a bank’s lending criteria. “Commercial real estate [lending] is still tough,” he continues. “If you’re not owner-occupied, banks don’t have much interest.”
The Davis firm continues to grow through acquisition and closed on a second office in Canton last week, Davis says. It’s also hiring; a CPA from a competing firm just joined and HD Davis has hired three YSU graduates so far this year.
Sutton, who earned his CPA license in 1991, has his office in the 16 Wick Building downtown and says he’s pleased to see his clients grow and downtown Youngstown rebound.
His clients run the gamut from “drinking establishments” to lawn care to small restaurants and others in service industries. “Most have had a good year this year,” he says.
“Watching them grow is very satisfying,” Sutton says, pointing out Ray’s Fish Market, 3640 Belmont Ave. in Liberty.
Sutton advises his clients, especially restaurants, on how “to control their costs better, especially food, [and] payroll expense.”
The increasing preference for cremation instead of interment has affected funeral home directors’ profitability, Sutton says. “It costs less to cremate,” the CPA says, “lowering a funeral home’s costs and its profit margin.”
Another aspect where Sutton helps his clients is paying their employees’ withholding taxes on time. This is not as much a challenge as during the Great Recession, he says, but it remains an area to watch.
With the lawns no longer needing to be mowed regularly, lawn services face the uncertainty of how much snow will fall and when, Sutton says, and maintaining their workforces and deploying their plows is a challenge.
In his role as a business adviser, Sutton finds he sometimes has to counsel against expansion. He tells of a restaurant owner who wanted to open a second outlet. “We did a traffic analysis,” Sutton recalls, “and I had to advise him not to.”
Copyright 2014 The Business Journal, Youngstown, Ohio.
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