Do you Need a CPA When Buying a Franchise?

Transcription:

Leslie Kuban:
Stacey, welcome to the show.

Stacey Gorowitz:
Thank you so much for having me, Leslie. It’s such an honor to be here with you.

Leslie Kuban:
And that is quite the trophy wall that you have. Congratulations on your acknowledgments.

Stacey Gorowitz:
It’s a long career.

Leslie Kuban:
So Stacey, for our viewers were just meeting you for the first time, tell us about your firm. What you do and for whom.

Stacey Gorowitz:
Sure. SJ Gorowitz is a boutique firm located in Alpharetta. As you said, we specialize in working with emerging and expanding businesses and their owners. But our clients span many different industries from professional services, technology, real estate. And we’ve developed a specialization with franchise clients as well, ranging from personal services, business services, as well as home improvements, just to name a few.

Leslie Kuban:
You know, and I sometimes get questions about, should someone’s personal CPA be different than their business CPA? Weigh in on what you think on that.

Stacey Gorowitz:
It depends on their circumstances. However, a lot of small businesses are very much ingrained with personal taxes and tax planning. Many businesses are flow through entities, so they’re taxed at the individual level. And so it makes sense for the planning to be done by one CPA, although the accounting and tax work can be separated. We tend to work with both businesses and the individual owners.

Leslie Kuban:
Because they tie together very closely.

Stacey Gorowitz:
Exactly.

Leslie Kuban:
Now you mentioned that you work with a lot of people who are new to entrepreneurship. Maybe they’re coming from corporate careers and that’s where they’ve been their whole life. And they start to learn some new terms and new concepts about how their taxes work. So what are some of the first things that people face or they need to learn about when they’re going from employee to entrepreneur?

Stacey Gorowitz:
To me, it is a real transition going from a very large corporate environment where there are specialists across different departments, sales, human resources, internal accounting, strategic planning. And they’ve got to be able to scale it down to a small business where they’re going to have to wear many different hats. And how they’ve been taught to do certain things is not the same as best practices for a smaller firm. So having someone just to bounce ideas and plans off of and discuss the best way to handle certain areas is really helpful to them. Because it makes what they’re thinking, it puts it in the right alignment based on what they’re getting ready to accomplish. It also takes into consideration their strengths and weaknesses because everybody comes from different backgrounds. And as you know, everybody has a different idea of how much they want to do and not do.

Leslie Kuban:
And what about from the tax side? You know, I talk to a lot of people who, they’ve done their own taxes. It’s been very simple, it’s been very straightforward and they think that might translate into their ability to do the same now in their own business. But it really is a different ballgame. I’d like you to speak to that.

Stacey Gorowitz:
Very much so. I think we come at things as a consultative approach. We’re really educating them from the beginning because tax planning for businesses and business ownership is so completely different than individuals. With businesses you have options and you have the ability to structure transactions. As individuals, especially employees, you have very few options and you’re not necessarily familiar with the kind of transactions and structure. You’re not familiar with things like how to compensate yourself, how much to pay in, what kind of retirement plans and things you can utilize to minimize your taxes. So we really work together in educating as much or as little as they’re interested in.

Leslie Kuban:
You know, as a business owner, I didn’t know until I became a business owner that there’s these things called estimated taxes. And once you get used to it, it’s really not a big deal. But if you don’t have someone helping, you don’t know that there’s going to be these different way of handling your taxes than you’re used to if you’ve been working in a company. So obviously I’m in the camp of you need a CPA to help you with this. And this is not how you should be trying to spend your time as a business owner. I’m sure you’ll want to weigh in.

Stacey Gorowitz:
I absolutely agree. Not only does the tax law change from year to year and sometimes very dramatically. We stay on top of those changes and stay informed so we can give advice that actually saves people money. You know, it’s sort of like if your industry changed all the time, you have to focus on that, keep up on the news, keep up on economic developments. We’re constantly watching legislation and some of that impacts dramatically our clients and how we structure things. So I think it’s money well spent to get advice of professionals that are informed.

Leslie Kuban:
Right, because you’re in continuing education and seminars and classes. And I don’t want to have to spend my time doing that as a business owner.

Stacey Gorowitz:
Absolutely. It’s very, very confusing. And there’s so much that applies to different kinds of taxpayers. So we hone in on those that are already high net income so that we have the opportunity to save money with tax planning and minimization strategies. It’s not like using TurboTax. So it becomes very complicated when someone becomes a business owner.

Leslie Kuban:
Something I learned from you is there’s a big difference between accounting and tax planning. And this usually is new to people who are entrepreneurs for the first time. That’s important to speak to. What’s the difference and why does it matter?

Stacey Gorowitz:
It’s a good question. Accounting is historic information. It’s used internally and externally by bankers, decision makers, managers, franchisors, to keep track of timely historic information so they can make managerial decisions. Tax planning is completely different. Tax planning is projecting what one’s net income is going to be and changing some of the structure of transactions to actually reduce someone’s tax liability. So we tend to do that as a baseline and then we adjust throughout the year if necessary. And that way there are no tax surprises. It should not be a surprise when someone files their tax return, that they have a big balance due that they were not prepared for. I think that a lot of CPAs don’t focus on the planning, and that’s a real specialty of ours. We’d rather have clients that are informed. We know the answer before the end of the year, not in October of the following year. We already know what to expect and so should business owners.

Leslie Kuban:
So it’s looking in the windshield instead of in the rear view mirror, which is worth the money. I mean what it can save in taxes that you are not, I mean, you pay taxes as a business owner, but just some different decisions that you might make that might mitigate the tax bite can be well worth the fees that you pay for it.

Stacey Gorowitz:
I believe that truly. And for my clients that do do planning, they tend to do it year after year because they understand the benefits exceed the costs and it’s worth their time of being informed. So it alleviates anxiety. They don’t have to be worried about what’s unknown. Also there’s a real difference between big corporate plans, retirement plans, employee benefits, what’s deductible, what’s not. And they get to establish what the norms are for their company and what they’re going to offer and not. And we want to make sure that they are keeping track of the historical records and also what may not meet the eye that’s flowing through the banking and the credit card and the accounting systems. Another thing is accounting can be customized. There are all kinds of software solutions and pros and cons to different ones. So for each potential business, their choices can be very different dependent upon their needs and their resources.

Leslie Kuban:
And they may not even know their options unless someone’s kind of spelling it out and helping them decide which the right pathway is.

Stacey Gorowitz:
Absolutely.

Leslie Kuban:
And you do work with, I know, and by the way folks, Stacey is my CPA. So I know her very well and what a great job she does. And I refer a lot of my clients to you. And you’re helping people exploring entrepreneurship, franchise ownership or startups to prepare for business ownership. What are the types of things that you’re talking about with people who have not yet pulled the trigger on starting a business or buying a franchise, but you’re helping them get it set up in the way to be successful. What does that look like?

Stacey Gorowitz:
We tend to help them from inception through mergers and acquisitions and entity selection, tax monetization strategies, all the way through exit, through the entire life cycle of a business. So when we’re first talking to someone who’s anticipating starting a business, or franchise in particular, we’re going to talk about their goals and their cash flow needs. It gets very personal because we can customize things to meet those needs. We’re also going to talk about their long term goals and exit strategy. Because we’ll want to structure different activities in different entities to provide liability protection, minimize taxes, and also be able to get investors and financing. It all matters, depending upon what they’re doing and what their situations are.

Leslie Kuban:
And a key first step for any business owner is this entity choice. And I find that’s an area that people have a lot of questions about, a lot of confusion about. And it matters if you are an LLC versus a C corporation. Just talk about why that’s such an important decision to get right at the onset of your business.

Stacey Gorowitz:
Sure. It’s easy to make costly mistakes unbeknownst to someone. They may think I’ll just start making money and then eventually I’ll go see somebody and they’ll help me to save it. We have to plan prior to starting. Starting it correctly with the right structure can save huge amounts of money. Partnerships for example, the income derived from a partnership might be subject to self-employment tax. That could be a huge additional tax burden someone wasn’t prepared for. Certain types of entities like S corporations can’t have foreign partners. So they really need somebody. They might have done a lot of reading. They might have read all kinds of guides to how to, but having us explain the pros and cons of each and then explaining why we’re helping, why we suggest a particular structure, it makes sense. Because it’ll reinforce what they’ve already learned or read or don’t know. And it makes moving forward easier.

Leslie Kuban:
Right. When the right decision is made, you don’t run into speed bumps later down the road. You can just focus on growing your business then.

Stacey Gorowitz:
Exactly.

Leslie Kuban:
So talk about what does your engagement look like with your clients after they’ve bought their franchise or their business and they’re running their business, and then maybe when they’re preparing to sell their business, what do those conversations look like?

Stacey Gorowitz:
Well as you know, it really depends on the person, the client, their business, and their expectations. And for clients, we have core services that we provide. So oftentimes we’re providing those accounting services, computer systems set up and training, tax preparation, tax projections and planning. But we’re also doing ongoing consulting with clients about expanding, opening a next location, bringing on a new partner, setting up divisions or departments or classes, adding a real estate component, incorporating it all with different transactions that might occur. And so dependent upon their needs and how material the transactions are, our services tend to change over time.

Stacey Gorowitz:
Also we serve as a resource for the client’s internal accounting staff. Whether it’s a bookkeeper or the business owner or a CFO or controller, we’re there to help them with transactions they don’t come across frequently, unusual transactions, and as an oversight to make sure they’re doing a good job. We’re also there as a resource for the owner, more importantly, to make sure they have someone to ask questions of. Oftentimes that internal person is not aware of all the things that owners have going on and they need somebody who’s informed about the various aspects that all come together to, form their tax and accounting picture, if you would.

Leslie Kuban:
And looking at it full circle, a lot of people buy a business, they buy a franchise because they have an exit plan attached to that. They want to buy this business, grow it and sell it in 10 years and retire. Maybe they want to transition it to an adult child seven years into the business. And these definitely have tax and accounting implications. So when someone is starting to think about a point of transition with their business, is there an ideal time? How far in advance of that transition should they start talking to you?

Stacey Gorowitz:
Sometimes, I have a client just recently that was going to sell to their child over the course of several years. And they wanted them to achieve certain accomplishments each year. And as each was reached, they would move to that next level. So they structured things very differently. They didn’t want to adversely affect the senior or the junior, and they wanted to come up with a strategy that worked for both. And sometimes those are a little bit different and tricky to work with, whether it’s gifting or selling outright.

Leslie Kuban:
Especially with family. That can get very interesting.

Stacey Gorowitz:
Absolutely. We love working with the second generation business owners because they tend to want to implement new things. They tend to see how things were done in the past and be open to improvements in accounting systems and planning all across the board. It’s exciting.

Leslie Kuban:
And would you say that if you’re planning to make a transition of some kind, whether it’s selling your business or transitioning to an employee or a family member, for those two or three years in advance of that transition date, you may make some different decisions. You might run your business differently. What do you have to say about that?

Stacey Gorowitz:
Well, there are people who manage valuations and can really speak to what adds value. From our perspective, we can make sure that the records and accounting are in good condition so they can be relied upon for transition. Sometimes we have to say things that the client or business owner doesn’t want to hear. You know that. Sometimes we have to say, why do you want to sell this? You’re doing so well. The cash flow is much better if you don’t sell and if you save and continue to go down this path, or the multiple for sale will be so much greater if you grow either the top line or the seller’s discretionary income, the bottom line. So really we look at it individually, there’s small business and there’s mid-market and each has different multiples. There’s also considering the tax law.

Stacey Gorowitz:
I mean, if capital gains were 20% and then they went up to 40%, which we were all worried about, it would’ve been a very different net cash flow experience for a business owner that was looking to sell. So we need to make them aware of the whole situation so that they know what it looks like. Not just from a financial, but from a legal, from a contractual, from all the different elements. We bring in other resources when the clients want or need to pursue those in more detail. So we’re not expert of none, as you know, we’ll bring in those resources and make sure they get the right attention from people who are very experienced.

Leslie Kuban:
And I’m sure you end up working with your client’s attorneys and their financial advisors, almost in a kind of a team.

Stacey Gorowitz:
I think that’s the best. When we collaborate as professional advisors, we do what’s best for the client and they know that people are looking out for the various interests that come together and affect them.

Leslie Kuban:
Well, Stacey, how can viewers get in touch with you if they would like to learn about your services?

Stacey Gorowitz:
Sure. They can visit our website at www.SJGorowitz.com. All of our contact information, a location and phone number, can easily be found there.

Leslie Kuban:
Well, thank you so much for joining me on this show today. Very informative and very important of how making decisions early on can really impact the mid and longer term success of your business. Thank you for sharing your wisdom.

Stacey Gorowitz:
We love working with you, Leslie. Thank you so much for having me.

Leslie Kuban:
Thank you. And folks, thanks for joining us on another episode of Atlanta Franchise Today. We look forward to seeing you next week.