introduction to drda cpas & business consultants
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An Introduction toDRDA, PLLC
a professional limited liability company1120 Bay Area Blvd. Houston, Texas 77058
281.488.2022 www.drdacpa.com
DRDA Overview• Full Service CPA Firm
– Accounting and Audit, Tax, Consulting– SEC and Private Company Practice Sections– Consulting Services for Entrepreneurs
• Houston Business Journal Top 25 Firm– Among 25 Largest CPA Firms in Houston
• Founded in 1984
Business
Retirement Plans (401k, Defined Benefit, BORSA, ESOP)
Profit + Cash Flow Optimization (P+CFO)
Buy Sell Agreements FundedWith Life and Disability BuyoutInsurance
Turnarounds
Attestation Service(Reviews, Audits,Agreed upon procedures)
Strategic & BusinessPlanning
IC DISCs
Tax Planning & Compliance( Domestic & International )
Accounts Receivable Management (ARM)Valuation Services
Asset Protection Planning
STEP / Exit Strategies
Funding – Conventional,SBA, B&I
Employee Benefits Health Insurance
Transfer Pricing
RMaP 831(b)
Mergers and Acquisitions
R&D Credits & Cost Segregation Studies
It is a self directed qualified plan that allows you to infuse equity from the following sources:401(a): Pensions, Profit Sharing, ESOPs401(k)403(b) Teachers’ Annuities457 State, County & City (government only)
◦ IRAs – most all◦ Rollover IRAs◦ SEPs & SIMPLEs◦ EXCEPT Inherited Non-spouse IRAs
Participants can invest in qualifying employer securities. Once invested in the corporation, these monies can be used for the purchase of an existing business, start-up, franchise or pay normal corporate operating expenses WITHOUT being deemed a distribution subject to tax and/or penalties.
What is a BORSA?
1. Form a new C corporation - Newco 2. Newco establishes a 401(k) Profit Sharing Plan3. Existing retirement funds rolled over into new 401(k) Plan4. Participant in 401(k) Plan invests in stock of Newco
How BORSA Works
Prior Employer Retirement Plan
Rollover Cash
Cash to
Purchas
e S
hares
Corporate
Stock to
BO
RS
A
Cash to
Purchase S
hares
Corporate
Stock to
IndividualBORSA
Plan
NewcoC-Corp
Individual
Funding – Conventional/SBA• Write/Develop Business Plan – Strategic Coaching• DRDA Gathers/Prepares Credit Package• Evaluate Funding Sources/Program Eligibility• Assist Client/SBE with Submission/Presentation to Funding Sources
(Banks, Investors, Other Sources)
DRDA Accounting Professionals (CFO’s, Controllers, Auditors, Lenders) Credit Culture Expertise SBA/Government Lending Programs – 45 Years Experience
Government Loan Programs (Local, State, Federal – Credit Enhancement)• U.S. Small Business Administration
– 7a Loans to $5 million– 504 Program: Project to $12 million range
• U.S.D.A. B&I Loan Program– Gtys 50% to 80%– Project must be in rural area– Example - $25 million loan 2002 to former Texas Instrument executives purchased and
retooled silicon wafer chip manufacturing facility. Included participations sold to 6-8 community banks.
• City of Houston – Small Business Program– Loans: Direct Program $5k to $100k– Loans: Tandem Program $100k to $250k
• SME Business Owners and Officers need to analyze their businesses regularly using financial analysis tools that can give them insight into their firms just like major corporations.
• Such as:– Trends in key financial measures– Optimal profit available to the firm– Asset financing– “Z” score underwriting risk assessment– Ratio analysis introduction– Breakeven concepts– Trade-off of cutting costs vs. increasing sales
Data Information Good Decision Making Success
Profit + Cash Flow Optimization
Optimal Income Statement Summary
Optimal Profit Improvement
Business and Strategic Planning
… doing the Right Things (WHAT TO DO)
which meet which generates to
EmployeesEmployeeshave capabilities
CustomersCustomers//VendorsVendorsneeds ShareholderShareholder
value
Get, Keep, Grow
Vision
Make Make oror Buy BuyProducts or services
SellSell
RecordsRecords
Faster, Better, Cheaper1%
99%
Core ValuesPurposeTargetsGoals
Action StepsSchedule
Accountability
Should Why
WhereWhat
HowWhen
Who
ForeverLife of Mgmt
3-5 yrsAnnuallyQuarterly
WeeklyDaily
Alignment
LeadLeadPeoplePeople
Manage Manage ActivitiesActivities
Track progress through
… doing Things Right(HOW TO DO)
99%
Succession Transition and Exit Planning
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
2065
• Explosion of baby boomers retiring
Exit Planning Puts You In Charge Of Your Legacy
– Of the 7.5 million privately owned U.S. businesses, over 50% of privately owned businesses will change ownership in the next 10 years.
– These companies have a estimated value of over $10 trillion.
– How will these facts affect you?
What is STEP?(Succession Transition and Exit Planning)
STEP is an integrated approach designed to help you address all of the:•Business•Personal•Legal•Financial•Tax•Risk issuesInvolved in monetizing your business.
10 Components of a Successful Exit Plan
1. Goals & Objectives2. Personal Financial Plan3. Contingency Plan4. Team Approach5. Business Valuation
6. Strategic Analysis7. Exit Options8. Tax Plan9. Detail Action Plans10. Your Commitment
Analysis of Exit Options
Internal• Transfer to Family Members• Sell to Shareholders• Sell to Management
External• Sell to Third Party – Strategic,
Financial• Sell to Employee Stock
Ownership Plan• Go Public• Liquidate the Business
Multidisciplinary Team• Your team of professional advisors should include:
– A CPA– A Legal Advisor– A Financial Advisor– An M&A Advisor– A Risk Advisor– Other Professionals, as needed
The Exit Planning Process:Data Collection Valuation/Analysis Recommendation Implementation
Identify Owner objectives & gather
data
Internal discussions & review of data
Determine exit channel options
Prepare a business
valuation for channel’s desired
Analysis includes most likely price and
optimal deal structure
Financial needs analysis and macro
financial plan
Value factor analysis: Examines business through eyes of a
prospective buyer to see what drives value
Detailed analysis of your succession
options
A business action plan to ensure that the
business is ready for your succession
A personal action plan to ensure that you and your family are
ready for your succession
Meeting with Owner to discuss findings
Market & transition the business
Successful transition to the Next Venture /
Phase of Life
Profit Optimization and value enhancement
Pre-transaction due diligence on business
Update estate & financial plans
Initial meeting with Owner to discuss the
process
ESOP
What is RMaP?DRDA’s Captive Risk Management Plan, or RMaP, is a tool for managing business and financial risk in a more cost effective, tax efficient and protected manner.
Insure risks with RMaP pre-tax dollars not after tax savings. When structured properly, a captive can take in a maximum of $1,200,000 in premiums annually. The captive pays no tax on the premium it receives, yet the premiums are tax deductible by the insured business. Investment income made by the captive is taxable.
Improves Risk Management3 Types of Risks:
Operationally managed risks (e.g. training) Insured Risks Self Insured Risks
A captive changes current insured risks and/or covers additional risks to improve overall costs.
Before
Operational Company
Operational Managed Risks
After
Operational Company
Operational Managed Risks Captive
3rd Party Insured Risks3rd Party Insured Risks
Standard Self Insured Risks
Non-Standard Self Insured Risks
Standard Captive Insured Risks
Non-Standard Captive Insured Risks
Some Standard Previously Self Insured Risks
Some Non-Standard Previously Self Insured
Risks
How It Works
Upon liquidation, the captive assets are transferable at capital gains rates to the owner.
*Stop-loss reinsurance is available if desired.
Risk Shifting and Risk Distribution
RMaP Candidates• Small and Middle Market businesses and their owners• $150K in discretionary cash flow• Desire to participate in risk management• Desire to accumulate wealth pre-tax• Desire to protect assets
Potential Income Reclassification & Retirement Planning
Operating Company Captive Premium Paid
Ordinary Deduction
CaptiveOwner
Capital Gains on Liquidation
Exit PlanningOperating Company
Profits & Value Reduced by Operating Expenses
Captive
Tax DeductiblePremiums
Possible Multi-YearCoverage
Existing Parent Owner
NewChildBuyer
Existing Parent Owner
Capital GainsUpon Liquidation
Income Shifting and Estate Planning
Operating Company Captive Tax Deductible
Premiums
Parent OwnerKids or
Grandkids Owned
Key Person Incentive & Retention
Operating Company Captive
Tax DeductiblePremiums
Owner10%
Key Management
90%Owner
Capital GainsUpon Liquidation
S/H Agreements
Improved Asset Protection
Operating Company
Captive Separate Entity
Free & Clear
Premium Payments
JudgmentsCreditor Claim
Lawsuits
Bankru
ptcy Lender
Liens
Warranty
Claims Reg
ulator
y Clai
ms
An Introduction toDRDA, PLLC
Douglas A. Dickey, CPA, CEPAa professional limited liability company
1120 Bay Area Blvd. Houston, Texas 77058 281.488.2022 www.drdacpa.com
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