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