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Holbrook & Manter’s Business Valuation Practice Grows with Additional CVA

For Immediate Release:

Holbrook & Manter, CPAs, a professional services firm with offices in Columbus, Dublin, Lewis Center, Marion & Marysville announces that Mark Rhea, J.D., CPA, is now a Certified Valuation Analyst.

Mark is a member H&M’s tax team, serving as a Senior Assistant Accountant. He holds a degree in history from Ohio University and a degree in accounting from Franklin University. Mark received his law degree from the University of Toledo.

As an attorney, Certified Public Accountant and Certified Valuation Analyst, Mark is uniquely positioned to assist H&M’s client base and is adding to the continued growth of the firm’s business valuation service offerings. 

Holbrook & Manter, CPAs is a professional services firm specializing in family and closely held businesses. Since its origination in 1919, H&M has been dedicated to providing superior accounting, tax and management consulting advice to both businesses and individuals.  Holbrook & Manter, CPAs provides cost effective, high quality technical service combined with sound personal attention. They are able to serve clients in virtually all areas of business, including those that require specialized expertise.

H&M is a member of Allinial Global, an association of legally independent accounting and consulting firms who share education, marketing resources, and technical knowledge in a wide range of industries. For Media Inquires, please contact: Molly Pensyl, Marketing & Business Development Manager 614.516.0040 MPensyl@HolbrookManter.com 

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For Media Inquires, please contact:

Molly Pensyl, Marketing & Business Development Manager

614.516.0040 MPensyl@HolbrookManter.com

H&M Celebrates Team Day!

By: Molly Pensyl, Marketing & Business Development Manager

“If everyone is moving forward together, then success takes care of itself.” -  Henry Ford

The entire H&M team came together recently to hold our annual team day event. This day was used to celebrate where we have been as a firm and where we are headed. H&M principal, Justin Linscott, shared with the team that we are all rowing in the same direction. This is why it was so fitting to share the Henry Ford quote I listed above in this blog. Our team members, no matter their respective roles, work with the best interest of our clients in mind. We all forge ahead in the same manner with a true commitment to keeping our clients compliant and successful.

Holbrook & Manter will turn 100 in 2019. We shared a great deal about that fact at our team day. Our firm will enter our centennial year stronger than ever and with a new look (stay tuned for further details on that to come). We will celebrate our 100th year as a continuous firm backed by a team that not only works well together, but also plays well together.

You see, team day was also about having fun. After we handled all of the firm business that needed attention that day, we hit the bowling lanes and the pool table. Enjoying each other’s company outside of work tasks is vital to the success of any team. Lots of laughs were had… as were some strikes and some gutter balls. Team day was a success and we appreciate all of the clients that allow us to work together on their behalf each day.

Enjoy some snapshots from our day below:

Who in their right mind would want something defective? You do if we’re talking about an intentionally defective grantor trust

By: Mark Rhea, J.D., CPA- Senior Assistant Accountant

Since the passage of the Tax Cuts and Jobs Act much has been made of the fact that individuals can now exclude from taxation total lifetime gifts and estate assets of $11.18 million. This is certainly a fair amount of money to exclude for gift and estate tax purposes, but it is possible that it may not be enough for people who are growing a successful, closely-held family business or have high-appreciating, income producing assets. For people in these situations, transferring these assets to an intentionally defective grantor trust may be the best way to protect those appreciating assets from unnecessary gift and estate taxes.

Although perhaps poorly named, an intentionally defective grantor trust is “defective” because the grantor who transferred the assets to the trust is obligated to pay the income taxes on it rather than the trust or the beneficiaries. This is by design allowing the trust or its beneficiaries to not have to pay income tax on income generated in the trust.

If done properly, an intentionally defective grantor trust (“trust”) will allow a person to transfer an asset to the trust where the value of the asset can appreciate and grow without fear of it incurring any gift or estate taxes. The process starts by setting up a trust that allows whatever is transferred into the trust to be considered not part of the grantor’s estate but will permit any income generated by it to be taxed to the grantor. The taxing of income to the grantor is accomplished many times by the grantor retaining the power to substitute assets in the trust. The trust is then funded with seed money in order to give the trust some equity which will be reported on a federal gift tax return as a gift to the trust. The asset that will be transferred to the trust from the grantor will be properly valued at fair market value by an appraiser or valuation analyst and then sold to the trust by the grantor. The grantor will receive a note from the trust in the amount of the fair market value of the property with a market interest rate and terms of repayment. The amount of the note essentially “freezes” the value of the asset transferred to the trust as the value of the note will not appreciate. As the IRS recognizes that the grantor and the trust are the same for income tax purposes, no gain is reported on the sale of the asset to the trust.

Sound too good to be true? It almost was when the Obama Administration sought to close the loophole that allows this to occur. Fortunately, it still exists, but the fact that actions were sought to do away with these trusts should tell you that it may not be around forever and now is the time to act in order to lock in the positive effects of an intentionally defective grantor trust.

If you believe that your circumstances are such that you and your family may benefit from an intentionally defector grantor trust, do not hesitate to contact us. Even if it turns out that it is not the best avenue for you, we can suggest alternatives that are. At Holbrook & Manter, CPAs we stand ready to help with all your wealth planning needs.

Blockchain and the Future of Business

By: Jordan Matulevich, Senior Assistant Accountant

Imagine if you were able to go back in time and invest in the business Bill Gates was building in his parent’s garage. Well a moment of deja-vu is happening in technology again and it has the potential to alter the landscape of several industries in a similar way to what Gates’ company did and it all revolves around Blockchain.

So, what is this “Blockchain”? Blockchain is a program that produces a ledger system that follows a transaction from beginning to end without the ability for manipulation or alteration of data by unauthorized parties. Thus, Blockchain isn’t one company or one group trying to sell you a product, but a new way for businesses to increase efficiency in operations. One of the best parts about this new technology is any business can go out today and hire programmers to produce a Blockchain that is tailored to their specific purposes. Currently, large international businesses are developing their own Blockchain platforms to suit their business needs with the underlying characteristic being honesty. Businesses ranging from banks to international shipping companies are building Blockchains to cut costs and remove some of the fog of uncertainty around their operations.

Okay, so big banks and shipping companies are using Blockchain today, what does this have to do with the average small business looking to cut costs? Blockchain has the potential to revolutionize small business through removing human error and the costly surprise delays that arise when completing a business transaction.

Take for instance the home buying process: trying to keep track of phone calls with a real estate agent and emails with a bank creates the potential for delays due to missed deadlines or errors from someone forgetting to complete something. A Blockchain introduced into this process would act like a central hub between the three parties. The technology would allow the buyer, the agent, and the banker to build and amend a single continuous record showing the progress and open items around the transaction. What is drawing the attention of global businesses to Blockchain is the security and authenticity around this process.

Continuing with the example above, a Blockchain would operate by only granting access to a computer at the bank, the agent’s computer, and the buyer’s computer. This process then only allows these three users to add to the ledger and make addendums to previous entries. On top of that, the computers running the Blockchain software prohibit any one party in the process from going back and altering the record of the transaction without consent from the other two users involved. Thus, the ability for a hidden fee to be added to the process, or for someone attempting to cover up a missed deadline is removed from the process.

With all that said, the future of Blockchain is still unknown. The possibilities and potential functions this technology could serve are limitless. Considering the ease with which international companies are testing and developing their own forms of Blockchain indicates that the effects this new technology could have on small businesses to lower costs and improve efficiency may be closer than expected.

Contact Holbrook & Manter today for more information on this topic.

The Importance of Audit Readiness

By: Shannon Robinson, CPA- Senior Accountant

Timely audits are important for organizations.  Timely financial statements can help an organization plan for the coming year.  Timely financial statements will also allow organizations to make smarter budget and financial decisions.  Second, timely internal control reports and management letter comments can help organizations’ correct issues before they create bigger problems.  Auditors often have very helpful recommendations on how to correct various issues and save the organization time, money, and resources in the process.  

How does an organization receive a timely audit report? 

First, it is important to have everything reconciled and ready for the auditor as soon as possible after year end.  Auditors, like many others, schedule out their work or audits a few months out at a time.  If you are not ready when you are scheduled to be this can cause scheduling problems and make it hard for the auditor to complete your audit.  A few things are very important for the auditors to get starting planning for your audit.  Most auditors like to receive the following items a few weeks prior to their scheduled onsite audit work; a final trail balance, detail schedules, account reconciliations, and updated bank confirmations.  A final trial balance allows the auditor to see what kind of numbers they are working with and how they compare to prior years.  This allows them to determine what sections they need to detail test and how many testing selections they need to make.  Once auditors know how many selections they need to make they need detail reports that reconcile to the trial balance in order to make their selections.  If auditors are provided this information prior to coming on site they can make their testing selections and provide the selections to the organization ahead of time.  This way the organization can have the detail pulled when the auditors arrive onsite.  Lastly, it is important to let the auditor know if you opened any new bank accounts or took on any new debt during the year.  Most auditors will send confirmations to financial institutions to confirm the balances of the organization’s accounts at year end.  It takes several days to get these confirmations completed and mailed back to the auditor.  If the confirmations can be set up, signed, mailed, and returned prior to going onsite for the audit it will make the audit process go much faster.  If the organization doesn’t let the auditor know about new accounts and waits until they are onsite to provide the new information the auditor then has to wait another several days to send out and receive new confirmations thus adding a week or more to the audit completion date. 

Secondly, it is important to be available during the onsite work to answer any questions the auditors might have and to pull any additional information the auditors request while on site.  The more of the audit that can be completed while onsite the better.  It can be hard to audit by email and it is not efficient.  Again, if the organization is not ready when the auditor comes on site and the auditor has to finish the audit later it can be difficult to find the time to finish the audit.  As mentioned early auditor’s set up their schedules a few months out at a time.  Even though auditors have their schedules planned out they understand that things don’t always work out as planned.  It is best for auditors if you let them know as soon as you know you are not going to be ready or available during your scheduled onsite work dates.  If you don’t let us know we can’t re-work our schedules.  If we show up and the organization is not ready we often waste time that we could be working on another audit.  It is best for auditors if they can come on site and complete all the work necessary during that time.  If we leave with open items it makes our audit less efficient which can lead to higher fees for the organization.

Every organization has different closing processes.  Figure out which process works best for your organization and help improve the timeliness of your organization’s audit.  Hopefully, by improving your audit timeliness, you can improve the organization overall with timely financial statements and by timely implementing internal control recommendations.  Please reach out to H&M for help with all of your audit needs. 

H&M Welcomes New Senior Accountant

H&M is proud to announce that Jennifer M. Moore, CPA, JD has joined our team!

Jennifer has been working in public accounting since 2015. She received a B.S. in Finance from Ball State University before going on to Ohio Northern University Pettit College of Law where she earned her J.D. While at Ohio Northern, she was a member of the Law Review and her work was published, (Ohio Northern University Law Review: Volume 39, No. 3 State v. Dunn Ohio N.U.L.REV.1075 (2013).

Jennifer was admitted to the Ohio Bar in 2014 and earned her CPA in 2018. She is a member of the Ohio Society of CPAs and the American Institute of Certified Public Accountants. She is also active in the Columbus Young Professionals Club.

Jennifer grew up in Canton, Ohio. She was a member of the Women’s Softball Team at Ball State University. In her free time she enjoys being outdoors, running, hunting, and spending time with family and friends.

Welcome to the our team, Jennifer!

Tax strategies for accrual-basis businesses as the year winds down

The last month or so of the year offers accrual-basis taxpayers an opportunity to make some timely moves that might enable them to save money on their 2018 tax bills. The key to saving tax as an accrual-basis taxpayer is to properly record and recognize expenses that were incurred this year but won’t be paid until 2019. Doing so will enable you to deduct those expenses on your 2018 federal tax return.

Common examples of such expenses include commissions, salaries and wages; payroll taxes; advertising; and interest. Also look into expenses such as utilities, insurance and property taxes. You can also accelerate deductions into 2018 without paying for the expenses in 2018 by charging them on a credit card. (This works for cash-basis taxpayers, too.)

In addition, review all prepaid expense accounts and write off any items that have been used up before the end of the year. If you prepay insurance for a period beginning in 2018, you can expense the entire amount this year rather than spreading it between 2018 and 2019, as long as a proper method election is made. This is treated as a tax expense and thus won’t affect your internal financials.

There are many other strategies to explore. Review your outstanding receivables and write off any receivables you can establish as uncollectible. Pay interest on all shareholder loans to the company. Update your corporate record book to record decisions and be better prepared for an audit. Holbrook & Manter can provide further details on these and other year-end tax tips for accrual-basis businesses. Contact us today. 

The Tax Advantages of a 529 College Savings Plan

A topic often on the minds of parents (or grandparents) is college funding. One option, which can be especially beneficial if the children in question still have many years until heading off to college, is a Section 529 plan.

Tax-deferred compounding

529 plans are generally state-sponsored, and the savings-plan option offers the opportunity to potentially build up a significant college nest egg because of tax-deferred compounding. So, these plans can be particularly powerful if contributions begin when the child is young. Although contributions aren’t deductible for federal purposes, plan assets can grow tax-deferred. In addition, some states offer applicable state tax incentives.

Distributions used to pay qualified expenses (such as tuition, mandatory fees, books, supplies, computer-related items and, generally, room and board) are income-tax-free for federal purposes and, in many cases, for state purposes as well. (The Tax Cuts and Jobs Act changes the definition of “qualifying expenses” to include not just postsecondary school costs, but also primary and secondary school expenses.)

Additional benefits

529 plans offer other benefits, too. They usually have high contribution limits and no income-based phaseouts to limit contributions. There’s generally no beneficiary age limit for contributions or distributions. And the owner can control the account — even after the child is a legal adult — as well as make tax-free rollovers to another qualifying family member.

Finally, 529 plans provide estate planning benefits: A special break for 529 plans allows you to front-load five years’ worth of annual gift tax exclusions, which means you can make up to a $75,000 contribution (or $150,000 if you split the gift with your spouse) in 2018. In the case of grandparents, this also can avoid generation-skipping transfer taxes.

Minimal minuses

One negative of a 529 plan is that your investment options are limited. Another is that you can make changes to your options only twice a year or if you change the beneficiary.

But whenever you make a new contribution, you can choose a different option for that contribution, no matter how many times you contribute during the year. Also, you can make a tax-free rollover to another 529 plan for the same child every 12 months.

More to learn

We’ve focused on 529 savings plans here; a prepaid tuition version of 529 plans is also available. If you’d like to learn more, contact Holbrook & Manter. 

A Valuation Can Strengthen Your Buy-Sell Agreement

A solid buy-sell agreement can help closely held businesses avoid disruptions when a shareholder leaves the business. Arguably, the most critical provisions in a buy-sell agreement are those that address valuation-related issues. Incomplete or outdated valuation provisions can lead to costly, bitter disputes that hurt both individual shareholders and the company.

Here are some business valuation issues to consider when drafting a buy-sell.

What’s the appropriate valuation method?

The valuation provision of a buy-sell agreement describes how a departing shareholder’s business interest will be priced for purchase by the company or the remaining shareholders. Three common methods of valuing an interest include:

1.      Prescribed formula. Some buy-sell agreements call for a simple formula to establish the amount of the buyout. For example, a buy-sell might specify that “shares will be purchased at four times earnings before interest and taxes (EBIT) for the previous 12 months.” Usually, a valuation professional will suggest an initial buyout formula.

A drawback to valuation formulas is that they typically apply to historical financial results (not projected results) and may not reflect a business’s current value in today’s marketplace. Moreover, it’s difficult to account in a formula for all factors that can affect earnings in any given year — including discretionary, unusual or one-off expenses.

Earnings-based formulas also may be subject to misinterpretation or manipulation. For instance, shareholders might over- or understate expenses in anticipation of a buyout. Or they may disagree about what’s included in (or excluded from) “earnings.”

2.      Fixed price. An agreement also might specify a fixed price reached through negotiation by the shareholders, often with the input of a business valuation expert. This approach fosters collaboration and discussion among shareholders at a time when they aren’t yet facing a triggering event.

Like a formula, the main appeal of a fixed price often is its perceived simplicity. But a fixed price may not reflect the business’s value at the time of a triggering event. And both formulas and fixed prices might require periodic adjustments due to external factors (such as the recent Tax Cuts and Jobs Act) that can affect a company’s value and capital structure in ways not contemplated when the agreement was drafted.

3.      Outside opinion from a business valuation professional. Alternatively, a buy-sell agreement could call for an agreed-upon process, usually a formal business valuation, to guide the buyout when a triggering event happens. Objective, timely business valuations are likely to take into consideration current circumstances, thereby producing more meaningful results.

The agreement might provide for the retention of a joint valuation expert or require that both sides hire their own experts. In the latter situation, a third expert might be needed if the experts’ opinions don’t fall within a certain range of each other. The buy-sell agreement should specify who’s required to pay the valuation fees (the buyer, the seller or the company).

What are the valuation parameters?

Other relevant parameters to consider in the valuation provision of a buy-sell agreement include the appropriate level and standard of value, as well as the valuation date.

There are basically three “levels” of value: 1) minority, marketable, 2) minority, nonmarketable, and 3) controlling. In turn, these levels can affect the methods, assumptions and adjustments the expert uses — and, therefore, the final value.

For example, if an expert uses publicly traded (minority, marketable) stock prices to value a private business interest on a minority, nonmarketable level, it may be appropriate to apply a discount to reflect the time and effort required to sell private stock vs. an actively traded stock. Conversely, if valuing a controlling interest, the expert might apply a control premium or make adjustments that only a controlling owner could do to optimize the company’s earnings.

Likewise, the buy-sell agreement should specifically define the “standard” of value to prevent disputes during the buyout process. A business valuation expert can provide definitions for a variety of relevant standards, including fair market value, fair value, book value and investment value. Different triggering events or departing shareholders may require different levels or standards of value.

It’s also critical to specify the valuation date in advance. After all, a business’s value can change overnight. Using the date of the triggering event could prompt shareholders to time their departures to maximize their buyouts. It could also create financial reporting headaches if the buyout happens in the middle of the reporting period. So, many owners opt to value the interest “as of” the last day of the most recent fiscal year.

Choose wisely

When creating or reviewing a buy-sell agreement, there are no one-size-fits-all valuation provisions. The right choice depends on the shareholders’ objectives — and what’s right today might not be the right choice tomorrow. Contact us today for assistance with this matter. We would be happy to assist you. 

Proper SOX Planning

By: David J. Gruber, CPA- Director of Risk Advisory Services

The Sarbanes-Oxley Act of 2002 (often shortened to SOX ) is legislation passed by the U.S. Congress to protect shareholders and the general public from accounting errors and fraudulent practice on the enterprise, as well as improve the accuracy of corporate disclosures.  Section 404 of Sarbanes-Oxley mandates public companies to issue an internal control report that contains management’s assertions regarding the effectiveness of the company’s internal control structure and procedures over financial reporting.  The steps leading to the company’s assessment can include:

· Documenting the company’s processes through narratives, flowcharts, and / or matrices

·  Identifying and documenting the key controls present to prevent financial statement errors

·  Evaluating the design of the key controls

·  Perform testing on the effectiveness of the key controls

·   Evaluating the results of the testing

Proper planning for Sox projects is the key to making them run smoothly and efficiently. This compliance work of documenting and testing the internal control structure can be an arduous task, and can be very time consuming for both the client and the SOX service provider.   Proper planning can ease the pain of of this work and help avoid any unnecessary bumps in the road.

Keys to proper planning:

·  Effective communication is often a key element in the proper planning and successful completion of a project.  Communication of the plan up-front, including timing and expectations, as well as ongoing communication of the progress during the project are essential to keep the project on track.

·   Well in advance of starting the project, hold a detailed planning meeting with all key personnel covering various topics such as:  changes in the business that could have an effect on the control environment (i.e. change in major customers, major acquisitions, etc.), changes in key personnel, discussion of the company’s risk assessment (have this document updated with the latest financial information prior to this meeting to allow for analysis), and changes in scope.

·   Plan the fieldwork around the work load of the client – avoid being on-site during the busiest times for the client, such as, month-end close, quarter-end filing deadlines, etc.

·   Properly plan the staffing of the project – ensure knowledgeable well-trained staff are ready and available to meet the client’s needs (i.e. plan for success and succeed in meeting the plan).

·   Do the little things well that will ensure the proper completion of the project with as little disruption to the client as possible.  One good example of this – during fieldwork, compile a list of questions / issues to discuss with client personnel and go over them all at once, instead of interrupting the client multiple times for each individual question.  Another example is to coordinate sample selections between the Sox service provider and the external auditor to minimize management and staff time in pulling information and answering information.

In short, proper planning can help your SOX project run as smoothly as possible to the benefit of all parties involved. Contact me directly for assistance with your planning and your SOX project. Shoot me an email now at DGruber@HolbrookManter.com or call me at 614.494.5300