[IMGCAP(1)]We all use the cliché that we give the clients the best we got, but what does it really mean?
I’ve posted many columns with value-added services and efforts we can do on behalf of our clients, but here is a different approach.
In any firm there are at least two people. What I have done is assemble the best people in the firm to discuss our clients. This meeting would consist of the partner in charge of the client, the manager if there is one or the person handling the routine services, and the firm’s top tax, accounting and consulting people. The purpose of the meeting is to review each business client’s situation to see if there is anything that can be done to make the client richer or more secure, improve cash flow or create value. This can be organized with the financial statements and tax returns available to be reviewed and any other information that might be helpful to review.
When I attend these meetings I usually review the information beforehand, taking notes and trying to develop ideas or suggestions that I could bring up at the meeting. Depending on the size of the client that I do not directly work on, it could take anywhere from 15 minutes to two hours to review their data. The meetings are scheduled so that five or six clients can be discussed at any one time and these meetings can last about an hour to hour and a half.
These become brainstorming sessions where I have seen tremendous ideas developed, providing great value for our clients. One problem is that these meetings need to be built into the fee structure and they do not always result in a benefit for the client. Assuming we are already doing our routine great work, coming up with ideas is not that easy. However, it has worked enough times on enough clients to make it well worth the added costs. The meetings also assure that nothing falls through the cracks.
Some of the ideas generated at these meetings were:
• An elderly client with a huge business loss that cannot be absorbed by carrying it back was told to convert enough of his IRA into a Roth IRA to establish income that would offset the unused losses.
• We did not take the Section 179 depreciation on new equipment on a client’s purchases since she was going to have a loss, and opted instead to have larger deductions over the succeeding years when they would reduce her taxable income. This did not create much of a benefit for federal taxes, but resulted in substantial savings in state taxes, which did not recognize the loss or permit carry forwards.
• A client who owned real estate in a C corporation that wanted to convert to an S but had an NOL that would not have benefited them unless the real estate was sold during the next 10 years (now five) was told to sell the tangible property in the building to the owner, who would then lease it back to the corporation. The gain was offset by the NOL, and the owner was able to receive rent income from the corporation that was offset by the depreciation deductions on the tangible property.
• A client with substantial income from web-based sales was given an idea to spend $1 million advertising in the Sunday newspaper supplements to drive traffic to their site. The advertising would be fully deductible, sheltering profits and reducing the current year’s taxes and the following year’s estimated tax payments. This resulted in an 80 percent reduction in tax cash flow through the end of the following year, substantially reducing the out-of-pocket investment. Given that the lifetime value of a new customer was 250 percent of their first order, and the gross profit was 65 percent, the client needed initial orders of about $620,000 to break even pre-tax on this idea.
• A client with an unusually large profit and who was in the midst of an estate plan and succession plan for his children was introduced to establishing a captive insurance company and having the owner be a grantor trust, with the successor children as the beneficiaries along with a plan for the client to capture that cash. … That’s all I want to write about this idea here. I found out a while back that the IRS reads my technical tax articles because I saw them respond with a Revenue Ruling closing a loophole I wrote about. No more secrets for them to close up.
• A client wants to start the succession process but wants a fair payout and is not ready to give up all of the company’s ownership. Many ways were kicked around and it seemed a leveraged ESOP might fit the bill. Having multiple specialists at the meeting enabled a meaningful conversation of the pros and cons, and a way to present it to the client and his key personnel.
• There are many other ideas developed at these brainstorming sessions, including discussions about a client’s vulnerability to violating a bank loan covenant because of a GAAP-dictated change in their reporting; how a client could reduce exposure to a customer with a very large past due accounts receivable balance; a way that clients should look at their business in terms of long-term value creation rather than immediate profits; long-term wealth creation for clients independent of their business; and many estate-planning issues.
I noticed that some of the ideas I shared above involved clients with large losses. Many times we concentrate on reducing taxes and seem to pass over clients going through hard times other than discussing cash flow issues. These meetings create a venue to discuss all clients and actually force the creation of ideas.
Any one of the above clients will gladly testify to the value created for them by these meetings and the relatively low cost of the meetings. Another suggestion is to come up with a fixed fee for the meeting, considering that at least four people will be attending the meeting and will do some advance preparation.
With the fixed fee, the client can consider the value. I also want to point out that many such ideas are generated as part of the regular services. These meetings are not instead of that, but are an added assurance that nothing is being missed. I also found out that such brainstorming meetings create a time and place for the free-flow exchange of ideas, and I have seen many really bad ideas evolve into great ones.
Question: What is better—no ideas or a bunch of bad ideas?
Answer: No ideas lead to nothing new. A bad idea might lead to a good idea.
Give the client the best you’ve got. That’s why they are using you!
Edward Mendlowitz, CPA, is partner at WithumSmith+Brown, PC, CPAs. He is on the Accounting Today Top 100 Influential People List. He is the author of 24 books, including “How to Review Tax Returns,” co-written with Andrew D. Mendlowitz, published by www.CPATrendlines.com and “Managing Your Tax Season, Third Edition,” published by the AICPA. Ed also writes a twice-a-week blog addressing issues that clients have at www.partners-network.com. Art of Accounting is a continuing series where Ed shares autobiographical experiences with tips that he hopes can be adopted by his colleagues. Ed welcomes practice management questions and can be reached at (732) 964-9329 or firstname.lastname@example.org.