January 27, 2017
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Regional Firms Must Find New Ways to Recruit Talent
(Accounting Today) By Eileen Connor-Costilow, January 19, 2017 –
“Bigger is better.” The American cultural preference that all things big must be best certainly carries through to the accounting industry. This resonates with many job-seekers, who assume careers and job opportunities in the Big Four accounting firms must, of course, provide the best career opportunities. So the “Bigness Bias” presents a challenge for regional firms competing in a scarce market for top talent – how do regional players get on the radar, not just for new college recruits but also experienced professionals who might be looking for a new position? How do we find these people, and confront their stereotypes about pay levels, career growth opportunities and quality of the client work experience?
Don't Fear Your Impending Millennial CEOs: They're More Like the Old Ones Than You Realize
(The Business Journals) By Gina Hall, January 19, 2017 –
A new report suggests millennial leaders aren’t the job-hopping slackers many think they are, at least no more than previous generations were also accused of being. Almost half of millennials currently in leadership roles expect to remain at their companies for more than a decade. About 44 percent of millennial leaders said they could see themselves working for their companies for more than 15 years, according to a recent survey from The Conference Board conducted along with RW2 Enterprises and DDI. That’s compared to 29 percent of non-millennial leaders who see themselves at their company for that period of time. The discrepancy could be attributed to the fact that millennials simply have more time in their careers, given their youth, one of the report's authors, Rebecca Ray, told Marketplace. However some of the new data goes against apparent common wisdom that millennials job-hop as much as possible.
How CFOs Can Budget to Boost Cybersecurity
(CFO) January 19, 2017 –
As CFOs settle into the new year, routine concerns about cybersecurity readiness are being compounded by non-traditional, “nimble” technology-enabled competition, rapid globalization, and significant political changes in major markets, including ones stemming from the U.S. presidential election and the U.K. Brexit decision. Despite the financial demands triggered by those uncertainties, some CFOs show signs of boosting their cybersecurity spending this year. That’s encouraging, considering that information-security budgets were essentially flat in 2016. They registered a barely perceptible 1% dip last year, according to PwC’s Global State of Information Security® Survey 2017.
How to Overcome Succession Planning Fears
(AccountingWEB) January 20, 2017 –
There are a number of reasons behind the rampant procrastination of CPA firm owners regarding succession planning, but arguably none approach the tandem of the fears of a loss of income and a loss of control. Fortunately, there’s a deal structure that can overcome both objections.
How a Major Beer Importer is Planning for Tax Reform
(CGMA) January 20, 2017 –
With the inauguration of President Donald Trump on Jan. 20, the same political party now controls the White House and both houses of the U.S. Congress for the first time in six years. As a result, many businesses with operations in the US are planning for policy changes that could affect their bottom lines. Some companies are hoping that the new Republican administration, which has billed itself as more friendly to industry, will work with congressional leaders to lower corporate tax rates. Meanwhile, multinational manufacturers and distributors are bracing for the possibility of higher border taxes.
2017 Tax Filing Season Now Open
(IRS) January 23, 2017 –
The Internal Revenue Service says it has successfully started accepting and processing 2016 federal individual income tax returns on schedule. More than 153 million returns are expected to be filed this year. People have until Tuesday, April 18, 2017 to file their 2016 returns and pay any taxes due. Taxpayers requesting an extension will have until Monday, Oct. 16, 2017 to file.
How Financial Advisers Can Prepare Clients for Potential Life-Altering Events
(Investment News) January 23, 2017 –
As your clients' trusted financial adviser, you can play a large part in helping them feel better prepared for life-changing events before they happen. This also gives you the confidence that if something should befall your client, you have the tools at your disposal to make informed decisions while protecting your practice.
How to Develop an Accounting Firm Marketing Message That (Really) Works
(Accountants World) January 20, 2017 –
How do you develop a marketing message for your accounting firm that really works? Here are some ideas you can use in your firm’s marketing plan.
Centralized Partnership Audit Rules Proposed
(Journal of Accountancy) January 19, 2017 –
The IRS issued proposed regulations (REG-136118-15) that implement the centralized partnership audit regime enacted by Section 1101 of the Bipartisan Budget Act of 2015, P.L. 114-74, and amended by the Protecting Americans From Tax Hikes Act of 2015, P.L. 114-113. The new rules, which assess and collect tax at the partnership level, replace the cumbersome unified audit procedures that were enacted by the Tax Equity and Fiscal Responsibility Act of 1982, usually called TEFRA, and the electing large partnership rules. The new audit regime applies to partnership tax years beginning after Dec. 31, 2017, but partnerships can elect to apply them early.
Channeling the Wants and Needs of Users, What Does the Future Hold for Nonprofit Accounting?
(The NonProfit Times) January 23, 2017 –
In the beginning, there was heaven and earth. Things like water and light took a little while longer. Nonprofit accounting software providers find themselves somewhere in the middle of the tech week of creation. Basic functionality has been widely available for years and years. Sector-specific accommodations are becoming increasingly common. It’s only been recently, however, that software companies have proclaimed “Let there be light!”
Regional Firms Must Find New Ways to Recruit Talent
(Accounting Today) By Eileen Connor-Costilow, January 19, 2017 –
"Bigger is better." The American cultural preference that all things big must be best certainly carries through to the accounting industry. This resonates with many job-seekers, who assume careers and job opportunities in the Big Four accounting firms must, of course, provide the best career opportunities.
So the "Bigness Bias" presents a challenge for regional firms competing in a scarce market for top talent – how do regional players get on the radar, not just for new college recruits but also experienced professionals who might be looking for a new position? How do we find these people, and confront their stereotypes about pay levels, career growth opportunities and quality of the client work experience?
Our firm has built a successful recruitment program over the past few years that has dramatically improved our flow of qualified candidates. It didn’t happen overnight. It doesn’t happen without some creative approaches. And it doesn’t happen without consistent, uninterrupted effort.
Before we describe some of the approaches that have proven successful at our firm, let me share how we’re structured and what we were trying to achieve. Bober Markey Fedorovich is a Top 20 independent CPA and business advisory firm, founded in 1959, with two offices in Northeast Ohio. Our recruitment effort is led by me in my role as director of human resources, along with one of our HR staff members who functions as our recruitment specialist. Her role is to be a constant advocate and present our story to candidates, to help us find candidates either alongside or ideally in advance of the Big Four or recruiters. Candidate recruiting is an ongoing core focus for our HR team, which goes far beyond the traditional HR staff tasks relating to benefits and compliance matters.
Several years ago, we were paying close to six figures to recruiters as our primary talent channel, a figure that we’ve now nearly eliminated as we’ve built our own pipeline thanks to a variety of programs. Rest assured, we’re still spending those same resources, yet we’re doing it in ways that have raised our profile in the community while producing qualified candidates.
What accountants want
As our marketing colleagues would advise us, it was critical to our success to ensure that we understood our audience and what they want at both a personal and professional level. Millennials do in fact want different things from their careers than our partners may think. In truth, we often found those same themes were important to include when we’re recruiting for managers and senior managers who might have five to 10 years of experience in the market already.
So at the start, we positioned ourselves against the national mega-firms with several key themes:
Work-life balance is always at the top of their concerns. You’ll still work hard here and we’re not looking for "coasters," but regional firms typically aren’t measuring your value by whether you log 2,800-3,000 hours annually for the rest of your career.
Better variety. While it’s common to work on the same account or project for weeks or months at a time at large firms, a regional firm typically gives people far more variety in projects and exposure to more industries. Many assignments from multiple companies lead to a more interesting and diverse professional experience.
Giving back. Our firm has a legacy of community involvement that is highly attractive to many of the candidates we meet. We publish annually a list of 70+ nonprofits that our employees support, and it’s often one of the early topics of discussions in our interviews. Civic engagement is a core value for many people in their 20s and 30s, so our community involvement aligns with those we’re trying to attract.
Pay scales that surprise. When we run our college recruiting programs, I’ve asked participants what they think a partner can make at a regional firm. They typically underestimate regional salaries by a factor of three or more!
Armed with those four key themes, we’re ready to take our story to the market and change some opinions about regional firm career opportunities.
The loudest voice doesn’t always win
We’ll never have recruiting budgets larger than our mega-firm competitors, so we’ve built a program that we think works better for us as a regional player. Because merely listing job openings on our Web site no longer cuts it.
Perhaps our most creative approach has been our new Summer Leadership Program, a two-day immersion program aimed at sophomore and junior accounting majors. The Northeast Ohio market is so saturated with accounting firms that we realized we needed to talk up the benefits of regional firms long before students reached their senior years. They often form conclusions – and assumptions – about where they plan to spend their accounting careers, and we wanted to ensure that they were considering career paths at a regional as well as a mega-firm.
With 15 students in the program, we can have a real discussion with them (and by extension their accounting major friends) about what a career in regional firm public accounting is really like. Many consider public accounting in general as a "churn-and-burn" experience. It’s the ideal time to discuss perceptions about pay, work variety, work-life balance, and even corporate stability. Some students feel regional firms offer less stability than corporate or Big Four accounting careers, so the program allows us to address those concerns head-on.
Experienced professionals present their own set of challenges in recruiting. In this arena, our social media platforms have been critical for us, but we think that’s because of the subtlety of our efforts, rather than any head-on approach. We certainly list job openings on LinkedIn, but we’re identifying candidates and reaching out to them with direct messages on the platform. We can see when they visit our social media channels or my own LinkedIn profile, so it’s a perfect time to quietly ask them if they’re interested in talking about a career change.
Our approach is less social media and more conversation media, driven by one-on-one messages on the platform that have been critical to finding candidates who fit our culture and values. It’s a gentler approach that emphasizes relationship-building over time. We understand it may not be the right time today, and we underscore that you won’t offend us if you say it’s not the right time to consider other career opportunities.
Our Facebook page takes the same values-message approach, rather than what many firms do. We’re not posting tax advisories and other matters relating to the accounting profession. Instead, we’ve branded it as our "Bober Markey Fedorovich Life and Careers" page, with information about our nonprofit activities and social programs, even including photos of our children during Halloween. Candidates can quickly get a taste of the firm’s activities and see a sense of the personality and culture. We’re not a large firm, but we have four staff members who work on our Facebook content. It’s not a top-down upper management-directed approach, but rather a peer-to-peer presence that describes what it’s like to work here.
For most of our candidates, our civic engagement is a true advantage in recruiting. We’ve gone far beyond the rote United Way campaign or canned food drives common in other firms, to where the nonprofit priority is embedded in our culture. Interns have even asked during interviews if they’d be allowed to participate, though they’re not permanent staff members.
This sense of contributing to something more than ourselves is common today, far beyond the Millennial stereotype. We’ve seen that 10-to-15-year professionals find the same value in social philanthropy and the impact it has on the work-life experience, so we’ve made it a core theme for our recruiting.
Just as word-of-mouth drives many businesses, we use it to drive our recruiting as well among members of our own staff. The firm began a formal recruitment incentive program in 2010, in which we pay a referral for any candidate we eventually hire. The incentive is significant, worth up to 5-10 percent of annual salary depending on the referrer, and we also pay a bonus for administrative referrals (although at a lesser amount, of course). Sometimes recruiting quality individuals to join us at the firm is not top-of-mind, and our program helps remind us all that we’re the best recruiters we can have.
The program continues to gain traction and has a remarkably high success rate. People only refer those they respect and know would fit our culture, which is a tremendous advantage for us. They also seem to have "skin in the game," so they tend to go out of their way to help our new employee make a smooth transition into the firm.
Our campus recruitment programs have been expanded from two campuses to seven. It is a tremendous investment of time, but the results encourage us to continue those programs with the college career centers. We’ve formalized the recruitment campus process, with a core recruitment team that has been trained in competency-based interviewing skills. Our program involves our campus recruiter visiting the same candidates from beginning to end, and several elements of the interviewing process have been abandoned such as the assessments or the all-day interviews that made candidates feel de-personalized. Because we’ve already had multiple touch points with the same interviewers, these older tactics are no longer necessary for us, since we feel we already know our candidates very well.
As a regional firm, we’ve picked our methods carefully so we can ensure they have enough impact to be effective. We have to be more active at recruiting than other sectors of the accounting profession, and must remain ever-present and visible, even though we may have no open positions for them on any given day. We’ll still spend thousands annually on job ads when we have an opening, but relying solely on that as a tactic is too reactive for a regional player. It’s almost as if you’re at a cold start with a job posting, rather than dealing with a warm pipeline of potential candidates.
Even though as a two-person HR team, we’ve shown early success with our efforts, our next steps will be to engage the entire firm in word-of-mouth recruiting. It’s critical to build our brand on a variety of levels, and if you’ve never heard of us, you’re far more likely to gravitate to the Big Four than a regional firm.
Recruitment is a tough game
Whether you’re a regional firm or a mega-firm, public or private, accounting talent is hard to find. No one’s looking for just anyone; we all need the candidates who fit our skills, profiles and culture. In fact, this isn’t a unique problem just for the accounting field. I have friends in technology who face the same hiring challenges, and I found similar difficulties in my prior position recruiting for a law firm.
There’s no shortcut in building talent. We’ve found that while we have many attributes that are appealing, we have to work harder and more effectively than our colleagues at the Big Four or the corporate side. We’re fortunate that we have the technology and tools such as social media that perhaps level the playing field a bit, but nothing comes without a plan, the right message, and the execution to make it all come together.
Don't Fear Your Impending Millennial CEOs: They're More Like the Old Ones Than You Realize
(The Business Journals) By Gina Hall, January 19, 2017 – A new report suggests millennial leaders aren’t the job-hopping slackers many think they are, at least no more than previous generations were also accused of being.
Almost half of millennials currently in leadership roles expect to remain at their companies for more than a decade. About 44 percent of millennial leaders said they could see themselves working for their companies for more than 15 years, according to a recent survey from The Conference Board conducted along with RW2 Enterprises and DDI. That’s compared to 29 percent of non-millennial leaders who see themselves at their company for that period of time.
The discrepancy could be attributed to the fact that millennials simply have more time in their careers, given their youth, one of the report's authors, Rebecca Ray, told Marketplace. However some of the new data goes against apparent common wisdom that millennials job-hop as much as possible.
"Millennials are committed to their organizations — they (mostly) get what they need, don’t like changing jobs, and want to move up in their organization," The Conference Board report said.
But that doesn’t mean millennials will remain in their current organization simply out of loyalty.
"Overload, organizational politics, bad management and unacceptable compensation are reasons millennials leave," the authors of the report noted. "Though they may be committed to their organization right now, at least one-third of Millennials are looking for other opportunities. The factors that can help stop them from leaving include better compensation, work-life balance, learning and development, promotion opportunities, and feeling of belonging to a community at work."
It appears that businesses are taking notice. The study reported that companies promoted millennials twice as often as their older peers during the last five years. Much that has to do with the massive amount of exits by the Baby Boomer generation, once 75 million strong. The 50 million Gen Xers in the workforce aren’t enough to fill the current vacancies and they are outnumbered by 83 million millennials.
Fortunately for businesses, millennials hold similar beliefs compared to older generations and current CEOs, enough so that the report contends many of the differences attributed to younger workers are simply the product of life-stage issues and not differences inherent to the generations. For example, millennial leaders place "arrogance and avoidance" as top leadership derailers, while ranking "engaging and inspiring employees" as the skills that matter most for getting leaders from one level to the next, just like older leaders do.
What makes millennials different, according to the report? Those younger leaders split from older leaders by citing "Competition, achievement, and worldly success" and "Fun, good company, and good times" as more important values in their careers. The report suggested that, while their data indicates the younger generation is much more similar to older workers than not, these differences could be the basis for small adjustments in the work culture. For instance, businesses might make a more focused effort to celebrate achievements and arrange social events.
The Conference Board report is the result of surveys, interviews and focus groups conducted at 14 organizations: Aetna, American Express, athenahealth, The Boeing Company, Cardinal Health, Humana, Johnson & Johnson, Kindred Healthcare, KPMG, Teachers Insurance and Annuity Association of America, United Rentals, UPS, Verizon Communications and Xerox.
How CFOs Can Budget to Boost Cybersecurity
(CFO) by Christopher O'Hara, January 19, 2017 – As CFOs settle into the new year, routine concerns about cybersecurity readiness are being compounded by non-traditional, "nimble" technology-enabled competition, rapid globalization, and significant political changes in major markets, including ones stemming from the U.S. presidential election and the U.K. Brexit decision.
Despite the financial demands triggered by those uncertainties, some CFOs show signs of boosting their cybersecurity spending this year. That’s encouraging, considering that information-security budgets were essentially flat in 2016. They registered a barely perceptible 1% dip last year, according to PwC’s Global State of Information Security® Survey 2017.
Overall, IT spending this year may be wavering. Research firms Gartner and IDC recently issued a slight downward revision in forecasts for global IT spending in 2017.
While the outlook for IT and security spending is indistinct, one thing is certain: CFOs today are more involved in cybersecurity budget discussions and decisions. In large part, that’s because cybersecurity is no longer seen as a technology risk but rather as a business-critical financial risk. And that puts cybersecurity squarely within the purview of the CFO.
When it comes to cybersecurity, the CFO’s job is to help ensure that the company protects such data-centric drivers of business value as intellectual property and patient health information with the same rigor as it controls financial statements and reporting. CFOs have an obligation to allocate the right resources to cybersecurity and help ensure that any security investments deliver measurable risk reduction and safety value.
To do so, CFOs should oversee cybersecurity budgets just as they do their companies financial performance reporting: By making decisions based on a balance of risk management with internal controls. They can’t do so in a vacuum, however.
Across all areas of the business, many executives — including P&L owners, chief risk officers, chief operating officers, and others — are all required to help decide which risk-mitigation controls to implement, how much to invest in them and when to make risk tradeoffs. The CFO’s expertise in making risk-based decisions and operating a highly audited control environment (such as annual audits of internal controls of financial reporting under the Sarbanes-Oxley Act) makes him or her uniquely qualified to apply proven, risk-based principles to support decisions related to cybersecurity spending.
Responsibility for Security Fractures
With digital businesses straddling industry lines to create new software-enabled connected products and services, the inherent risks and responsibilities for cybersecurity are shifting.
Increasingly, businesses are manufacturing devices that, when connected with the company’s operational technology and IT systems, enable them to deliver such digital services as home-security monitoring, in-vehicle diagnostics, and automatic maintenance of manufacturing plant equipment. Historically, cybersecurity incidents have resulted in theft of money. But when something goes wrong with connected products and services, the safety and well-being of individuals may also be at stake, and the responsibilities for remediation may be blurred.
Consider, for instance, the scramble to respond to a U.S. Food and Drug Administration alert issued on January 9. The bulletin warned that a specific cardiac pacemaker was vulnerable to hacking and, if compromised, could possibly result in physical harm to patients.
While the device maker released a software patch to automatically update the devices, the FDA also targeted healthcare providers, caregivers, and even patients in its alert. After all, physicians are ultimately responsible for patient well-being and patients needed to make sure their devices were connected to receive the software update.
As such a combined reaction becomes more widely necessary, businesses are finding that not all response funding and remediation activities will come from the IT and information security function. In the pacemaker case, for instance, the device maker’s chief medical officer or its product engineering group would be likely to bankroll costs and supply personnel for the remediation. As connected devices and the Internet of Things proliferate, such out-of-band security spending will also increase. CFOs will need to create unified controls and procedures to govern this new spending.
Just as responsibility for remediation is expanding, so too is the scope of stakeholders involved in internal cybersecurity discussions and decision-making. The conversation should include IT and cybersecurity leaders, of course. But finance leaders are also seeking input from a broader range of executives and managers. Chief among them are leaders from frontline operating units, such as product manufacturing and customer service. They alone fully understand the security needs of their business units and therefore should be actively involved in prioritizing risks and helping identify the right security controls.
It’s also critical that CFOs work with the CRO to aggregate and review company-wide risk exposure and ensure that security controls and models are within board-approved risk appetite parameters. And internal auditors should provide assurance that the risk management and security control processes are effective and operating efficiently.
Easing the Talent Shortage
There is a global deficit of cybersecurity talent, currently, which is bound to continue into the new year. Meanwhile, finance chiefs are acutely aware of the need to hold the cost of hiring trained cybersecurity professionals within the constraints of the company’s security budget. Many CFOs support managed security services as a way to address employee costs and ease the talent squeeze, which shows no signs of abating. In fact, a report by Cybersecurity Ventures predicted that the existing cybersecurity workforce gap will widen to 1.5 million job openings by 2019.
Already, two-thirds of CFOs responding to PwC’s information security survey have said their organizations employ managed security services to make sure that cybersecurity programs are managed in a cost-effective manner. Doing so can also help ensure that companies have access to highly trained cybersecurity talent within their budget constraints.
Insuring What Can’t Be Protected
Another way CFOs can shore up the cost of funding security risks is through the purchase of cybersecurity insurance. This year, in fact, 61% of CFOs responding to PwC’s security survey said they bought cybersecurity coverage to help curb the financial costs of breaches of personal data, payment card information, and intellectual property, as well as damage to brand reputation.
As with other types of insurance, CFOs compare the company’s individual risk tolerance with the security controls it has implemented to determine the amount of insurance that should be purchased.
Cybersecurity insurance is not the only way that businesses employ a financial mechanism to mitigate risks. CFOs can also recommend the use of financial reserves to ensure that the business has the financial resources to quickly respond to and remediate incidents — much like the way reserves are employed in the financial services industry. While the use of reserves for cybersecurity remediation is not widespread, CFOs should consider this tactic to help ensure they have the financial resources necessary to respond to and remediate security incidents.
How to Overcome Succession Planning Fears
(AccountingWEB) January 20, 2017 – There are a number of reasons behind the rampant procrastination of CPA firm owners regarding succession planning, but arguably none approach the tandem of the fears of a loss of income and a loss of control.
The thought of merging or selling their firm constitutes, in the minds of practitioners, at least a partial loss of income. So, their rationale for postponing any type of ownership transition is that if they just work X number of years they won’t be sacrificing any compensation for what, in their opinion, is a goal with a one- to six-year timeline.
Along those same lines, many equity stakeholders and firm owners have become accustomed to being the proverbial "master of their domain." The concept of someone other than themselves assuming the ownership reins and dictating strategy often leaves a bad taste in their mouth – both figuratively and literally.
Fortunately, there’s a deal structure that can overcome both objections – retaining both present level of income and reasonable autonomy for practitioners who are roughly one to six years from slowing down from full time: the two-stage deal. However, if their timeline is longer than that, they would probably be better served under the structure of a traditional merger, where an equity stake in their firm is exchanged for a similar ownership portion of the successor firm.
The Two-Stage Deal
This type of deal is designed to have an owner affiliate with a successor firm now and begin that critical client transition, while the practitioner retains control of their practice and defers any reduction in income until the time they decide to slow down from a full-time schedule.
The following case study demonstrates in detail how the two-stage deal works:
John is the owner of a CPA firm that generates $500,000 in annual revenues. He wants to work three more years full time before he slows down to a part-time basis.
John has a staff of three people and including perks and benefits, nets about 40 percent. After meeting several potential successor firms, John eventually affiliated with a $3 million, multipartner practice.
During stage one, which would last the three years, John wanted to maintain a full-time schedule. The successor firm agreed to assume all the overhead and administrative tasks that John traditionally performed.
Because John was netting 40 percent, the successor firm agreed to pay him during stage one his 40 percent annual compensation, provided his time commitment remained steady and he didn’t require any additional labor after the merger. Should either of those two scenarios occur during stage one, then John’s compensation would be adjusted accordingly.
One of the advantages to John under the two-stage deal is a less significant reduction to his income should he lose a large client during the transition. So, for example, if John had not merged upward and lost a $20,000 client, he would assume the full $20,000 brunt of that loss. However, if he lost a $20,000 client under a two-stage deal, the "hit" to his bottom line would only be 40 percent, or $8,000.
In addition, John now has the resources of the larger firm, which includes a larger platform of services that can usher in numerous cross-selling opportunities.
After three years – or earlier if John decides to end it sooner at his discretion – stage two of the buyout commences, contingent on the agreed-upon terms and John’s buyout timeline. When stage two kicks in, John reduces his role to part time. Therefore, under this structure, the successor firm would not have to pay for the practice and John’s full-time compensation simultaneously.
Stage one helps keep the seller whole in income, maintain reasonable control, and create a gradual transition of the clients. In stage two, the buyout is typically structured with a retention element thus having a better transition, as stage one enables, means the successor’s retention rate should be strong, creating more revenue for the buyer and a higher purchase price for the seller.
How a Major Beer Importer is Planning for Tax Reform
(CGMA) January 20, 2017 – With the inauguration of President Donald Trump on Jan. 20, the same political party now controls the White House and both houses of the U.S. Congress for the first time in six years. As a result, many businesses with operations in the U.S. are planning for policy changes that could affect their bottom lines.
Some companies are hoping that the new Republican administration, which has billed itself as more friendly to industry, will work with congressional leaders to lower corporate tax rates. Meanwhile, multinational manufacturers and distributors are bracing for the possibility of higher border taxes.
Constellation Brands, the third-largest beer seller in the U.S., for instance, is modelling several scenarios related to a possible increase in taxes on imported goods. One of Constellation’s labels, Corona Extra, is the best-selling imported beer and the fifth best-selling beer overall in the U.S. In addition to owning five of the 15 most popular imported beers, Constellation has numerous well-known wine brands in its portfolio.
Constellation has considered raising prices or changing to more U.S. suppliers – a move that could offset costs of a proposed border adjustment tax that might eat away at Constellation’s profit on beer brewed in Mexico. The border adjustment tax, still being discussed by legislators in the Republican-controlled House of Representatives and Senate, would tax imports while exempting exports, which could result in substantially higher tax bills in certain industries.
Constellation isn’t the only company making plans, or making statements, about potential tax changes.
Koch Industries, a multinational manufacturer, voiced concern in December over a border adjustment tax provision, which the company said would force American consumers to pay higher prices on everyday products that are produced elsewhere and imported.
"While companies like Koch who manufacture and produce many products domestically would greatly benefit in the short term, the long-term consequences to the economy and the American consumer could be devastating," the company statement said. "… The proposed border tax adjustment will distort the market, increase consumer prices, and create an uneven playing field for companies and consumers alike."
Carmaker Toyota, which announced in 2015 that it would open a new plant in 2019 in Guanajuato, Mexico, released a statement this month saying the plant’s opening wouldn’t affect jobs or production volume in the U.S. The statement came after a Toyota-related message from Trump via social media, which read in part: "Build plant in U.S. or pay big border tax."
Lower corporate tax rate?
The CFO at Pfizer, the multinational pharmaceutical maker, said that, overall, tax reform could be beneficial to business. He cited the tax plan of Paul Ryan, speaker of the House of Representatives, as one that could save Pfizer millions on earnings.
The current top U.S. corporate tax rate is 35%, but Republican plans could lower that rate to 15% or 20%.
"Obviously, the lowering of the corporate tax rate would be a good thing," Pfizer CFO Frank D’Amelio said at the J.P. Morgan Healthcare Conference on January 10, according to a transcript of the event.
Jeff Boyd, the interim CEO at Priceline Group Inc., a global provider of travel booking services, is keeping an eye on how the change in administration could affect international travel. He also expects tax reform to be good for his company, he said on a conference call just after the election.
"With a Trump administration and Republican Congress, I think it would be fair to expect a generally more favorable environment to business in the United States, which I think would be a good thing for our business and for other businesses," Boyd said.
2017 Tax Filing Season Now Open
(IRS) January 23, 2017 – The Internal Revenue Service says it has successfully started accepting and processing 2016 federal individual income tax returns on schedule. More than 153 million returns are expected to be filed this year.
People have until Tuesday, April 18, 2017 to file their 2016 returns and pay any taxes due.
The deadline is later this year due to several factors. The usual April 15 deadline falls on Saturday this year, which would normally give taxpayers until at least the following Monday.
However, Emancipation Day, a D.C. holiday, is observed on Monday, April 17, giving taxpayers nationwide an additional day to file. By law, D.C. holidays impact tax deadlines for everyone in the same way federal holidays do. Taxpayers requesting an extension will have until Monday, Oct. 16, 2017 to file.
"Following months of hard work, we successfully opened our processing systems today to start this year’s tax season," said IRS Commissioner John Koskinen. "Getting to this point is a year-round effort for the IRS and the nation’s tax community. The dedicated employees of the IRS look forward to serving taxpayers this filing season, and I want to thank all of the tax and payroll community for their hard work that makes tax time smoother for the nation."
The IRS expects more than 70 percent of taxpayers to get tax refunds this year. Last year, 111 million refunds were issued, with an average refund of $2,860.
A law change now requires the IRS to hold refunds on tax returns claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) until Feb. 15. Under this change required by the Protecting Americans from Tax Hikes (PATH) Act, the IRS must hold the entire refund — even the portion not associated with the EITC and ACTC. Even though the IRS will begin releasing EITC and ACTC refunds on Feb. 15, many early filers will still not have actual access to their refunds until the week of Feb. 27. The additional delay is due to several factors, including weekends, the Presidents Day holiday and the time banks often need to process direct deposits.
This law change gives the IRS more time to detect and prevent fraud. Beyond the EITC and ACTC refunds and the additional security safeguards, the IRS anticipates issuing more than nine out of 10 refunds in less than 21 days. However, it’s possible a particular return may require additional review and take longer. Taxpayers are reminded that state tax agencies have their own refund processing timeframes that vary, and some states may make additional reviews to ensure their refunds are being issued properly. Even so, taxpayers should file as usual, and tax return preparers should submit returns as they normally do.
Use e-File and Free File
The IRS expects more than 80 percent of returns to be filed electronically. Choosing e-file and direct deposit remains the fastest and safest way to file an accurate income tax return and receive a refund.
The IRS Free File program, available at IRS.gov, gives eligible taxpayers a dozen options for brand-name products. Free File is a partnership with commercial partners offering free brand-name software to about 100 million individuals and families with incomes of $64,000 or less. Seventy percent of the nation’s taxpayers are eligible for IRS Free File. People who earned more than $64,000 may use Free File Fillable Forms, the electronic version of IRS paper forms.
Protecting Taxpayers from Identity Theft-Related Refund Fraud
The IRS continues to work with state tax authorities and the tax industry to address tax-related identity theft and refund fraud. As part of the Security Summit effort, stronger protections for taxpayers and the nation’s tax system are in effect for the 2017 tax filing season.
The new measures attack tax-related identity theft from multiple sides. Many changes will be invisible to taxpayers but will help the IRS, states and the tax industry provide new protections. New security requirements will better protect tax software accounts and personal information.
Renew ITIN to Avoid Refund Delays
Many Individual Taxpayer Identification Numbers (ITINs) expired on Jan. 1, 2017. This includes any ITIN not used on a tax return at least once in the past three years. Also now expired is any ITIN with middle digits of either 78 or 79 (Example: 9NN-78-NNNN or 9NN-79-NNNN). Affected taxpayers should act soon to avoid refund delays and possible loss of eligibility for some key tax benefits until the ITIN is renewed. An ITIN is used by anyone who has tax-filing or payment obligations under U.S. tax law but is not eligible for a Social Security number.
It can take up to 11 weeks to process a complete and accurate ITIN renewal application. For that reason, the IRS urges anyone with an expired ITIN needing to file a return this tax season to submit their ITIN renewal application soon.
New AGI requirement for e-file
All taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a tax filing software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.
Free Tax Help
Low- and moderate-income taxpayers can get help filing their tax return for free. More than 90,000 volunteers around the country can help people correctly complete their return.
To get this filing help, taxpayers can visit one of the more than 12,000 community-based tax help sites that participate in the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs. To find the nearest site, use the VITA/TCE Site Locator on IRS.gov or the IRS2Go mobile app.
The IRS reminds taxpayers that a trusted tax professional can provide helpful information about the tax laws. A number of tips about selecting a preparer and information about national tax professional groups are available on IRS.gov.
The IRS urges all taxpayers to make sure they have all their year-end statements in hand before filing. This includes Forms W-2 from employers, Forms 1099 from banks and other payers. Doing so will help avoid refund delays and the need to file an amended return.
Many tax issues can now be resolved online or by phone from the convenience of a home or office. The IRS urges taxpayers to take advantage of the many tools and other resources available on IRS.gov. IRS phone lines will be busy again this year, so in order to save time, people should first visit the IRS website for tax assistance.
How Financial Advisers Can Prepare Clients for Potential Life-Altering Events
(Investment News) By Francis J. McAleer, Jr., January 23, 2017 –
We plan for weddings, vacations, retirement, education, concerts, dinners, errands and appointments. We plan for just about everything in our lives, but no one plans on getting sick or becoming disabled. Ironically, this highlights the importance of preparing clients for potential life-altering events.
Experiencing an unexpected death or debilitating illness suffered by a family member or close friend is likely to conjure up some immediate questions: Who is the first person to contact? Who has the authority to make medical decisions or funeral arrangements? Did this person oversee their family finances? If so, who now has the authority to make these decisions? Is there an inventory of all financial accounts and legal documents?
Making decisions and delegating responsibilities in light of a sudden situation can be incredibly daunting. Contemplating these kinds of scenarios is difficult enough for our clients, let alone the considerations that need to be made and documented. The flip side, however, is the extreme distress of an unforeseen tragedy, along with the overwhelming anxiety that comes with quickly getting a loved one's affairs in order without any direction. The outcome often is hasty and panicked decision-making, which differs from the actions otherwise taken if only afforded more time and a clear mind.
As your clients' trusted financial adviser, you can play a large part in helping them feel better prepared in such situations before they happen. This also gives you the confidence that if something should befall your client, you have the tools at your disposal to make informed decisions while protecting your practice.
The first step is identifying a primary contact should there be questions or concerns about a client's health status or cognitive ability to manage their financial affairs. This point person can be an immediate family member, close friend, attorney, an accountant or clergy. A contact authorization form can help you identify this key decision-maker so you know whom you should call first.
The second step is asking the right questions, as difficult as this may be. Consider these three questions to begin the discussion on how your client will handle challenging scenarios:
1. How will you maintain your current home in the future? (housing)
2. How will you ensure your ability to come and go as you please? (transportation)
3. Will you live in a community near family and friends? (social networks)
Many times, these three questions lead to deeper, unanticipated discussions around topics your client was unaware that you, their trusted adviser, can help address. By incorporating these questions into your general planning conversations, you are enhancing your value in the eyes of your clients while identifying issues that have real financial consequence.
The third step is adding substance around these questions by walking through the most essential documents that will impact a client's medical and financial affairs. Take stock of the pieces that matter most, and keep a running log of when changes have been made. This way, if the unexpected happens, you'll have an updated list of legal, financial, health care, insurance and legacy documents.
Preparing your clients for the future can be challenging, particularly when the possibility of disability and/or diminished capacity seems remote or unreasonable. By having these invaluable conversations upfront, those gut-wrenching choices in a tragedy can be somewhat eased with the knowledge that decisions have already been made. While illness and death cannot be controlled or predicted, you can improve your clients' confidence in knowing they are prepared for the inevitable — and so are you.
How to Develop an Accounting Firm Marketing Message That (Really) Works
(Accountants World) By Hitendra Patil, January 20, 2017 – How do you develop a marketing message for your accounting firm that really works?
Here's a hint: Ask Gillette!
According to CampaignLive, Gillette’s 2016 Father’s Day ad achieved an extremely rare 709 Ace Score. Less than 1% of ads receive an Ace Score over 700.
It further explains that the ad’s biggest strengths are:
- being liked, and
- being relevant.
Nearly 65% of the viewers thought the single best aspect of this ad was the "message." Not the visuals, music, characters, etc.
Why? Because the message is completely relevant to what is going on in the world today.
Inspired by this awesomely clever yet simple video ad, here are some ideas that you can use in your firm’s marketing plan.
1. Be relevant to your target clients.
The "message" you deliver to attract your ideal clients needs to be relevant to their lives.
Question for you:
What is really relevant to your target clients? (Hopefully, you have defined your target clients very precisely).
2. Compare to show wisdom and expertise.
Yes, accounting is a bit more (okay, a lot more) complex than shaving. But that's the point.
The key marketing principle here is contrast. When you show what is difficult, the easier option is understood better, in a comparative sense.
Question for you:
Which stressful results can you show your clients if, for instance, they did their own accounting and taxes?
Now show them the results you can produce, without that stress.
3. Connect via context.
Some viewers felt that the story was great but the content was not that well related to the product.
When you deliver the context, your target audience should connect your story (message) with your services.
Question for you:
Here's an example: Can you figure out the most common entries that go into "Ask My Accountant" and WHY?
Answers to these WHYs can be your context that clients will quickly relate to.
So, what's next?
Giant corporations can spend millions to do market research and demographic studies. They pay a lot to creative ad agencies and media producers to create such awesome ads.
It is not easy for accounting firms to do the same. And it is rare to see mass video ads in the accounting profession.
But your message can still deliver the same type of impact - on your website, in your personal interactions with prospects, in your emails, perhaps via videos on your website.
Centralized Partnership Audit Rules Proposed
(Journal of Accountancy) January 19, 2017 – The IRS issued proposed regulations (REG-136118-15) that implement the centralized partnership audit regime enacted by Section 1101 of the Bipartisan Budget Act of 2015, P.L. 114-74, and amended by the Protecting Americans From Tax Hikes Act of 2015, P.L. 114-113.
The new rules, which assess and collect tax at the partnership level, replace the cumbersome unified audit procedures that were enacted by the Tax Equity and Fiscal Responsibility Act of 1982, usually called TEFRA, and the electing large partnership rules. The new audit regime applies to partnership tax years beginning after Dec. 31, 2017, but partnerships can elect to apply them early.
The rule requiring any partnership adjustments (the imputed underpayment) to be paid by the partnership contains an exception that permits a partnership to elect to have the partners in the partnership tax year to which the adjustment relates (the reviewed year) take into account the IRS’s adjustments and pay any tax due as a result.
Another change from the TEFRA rules replaces the tax matters partner with a partnership representative. This representative must be a partner (or other person) with a substantial presence in the United States. The IRS may select any person as a partnership representative if the partnership does not have a designation in effect. The proposed rules explain how the IRS’s designation works and prohibit the partnership from revoking the designation without the IRS’s consent.
The partnership representative may be an entity, but if the partnership chooses an entity, the proposed rules require the partnership to identify and appoint an individual to act on the entity’s behalf. The rules permit a partnership to appoint a partner or a nonpartner, including the partnership’s management company, as the partnership representative, provided the person otherwise qualifies. The proposed rules have detailed procedures for appointing the partnership representative on the partnership’s tax return and for changing it.
The proposed rules provide that the partnership representative has the sole authority to act on behalf of the partnership and all of its partners on the following matters: agreeing to settlements, agreeing to a notice of final partnership adjustment, making a Sec. 6226 election to pay the partnership liability at the partner level, and agreeing to a Sec. 6235 extension of the limitation period for making partnership adjustments. Even partners that have elected out of the centralized audit regime are bound. And there is no requirement that the IRS communicate with anyone but the partnership representative, placing the burden on the partnership to notify partners of any IRS proceedings.
Partnerships that are required to furnish 100 or fewer Schedules K-1, Partner’s Share of Income, Deductions, Credits, etc., and whose partners are individuals, corporations (including certain types of foreign entities), or estates can elect out of the new partnership-level audit regime. If a partnership furnishes more K-1s than required under Sec. 6031(b), those K-1s are not taken into account when determining if the partnership meets the 100-or-fewer K-1s threshold. The proposed rules explain how to make the election out of the regime.
Special rules determine the number of partners when a partner is an S corporation. Under the proposed rules, the number of shareholders of the S corporation partner are taken into account in determining the 100-or-fewer threshold. Another provision counts partners who are married as two separate partners because Sec. 6221(b) does not require them to be treated as one partner.
The proposed regulations define the term "eligible partner" as any person who is an individual, C corporation, eligible foreign entity, S corporation, or an estate of a deceased partner. The preamble states that the IRS rejected suggestions made in response to Notice 2016-23 that the IRS exercise its regulatory authority to expand the types of entities that could qualify as eligible partners.
The proposed rules explain that the imputed underpayment is calculated by multiplying the total netted partnership adjustment by the highest rate of federal income tax in effect for the reviewed year under Sec. 1 or 11 (the individual or corporate rates). The product of that amount is then increased or decreased by any adjustment made to the partnership’s credits. If the result of this summation is a net positive adjustment, the resulting amount is the imputed underpayment, and, if it is a net nonpositive amount, there is no imputed underpayment. The proposed regulations provide rules regarding the grouping and netting of adjustments in calculating the imputed underpayment.
The proposed regulations provide rules for multiple imputed underpayments. The preamble states that the option to create multiple imputed underpayments provides flexibility for the partnership, the partners, and the IRS to address fact-specific issues that may arise as part of the administrative proceeding at the partnership level.
Under the proposed rules, a partnership that has received a notice of proposed partnership adjustment (NOPPA) can request a modification, but only the partnership representative may do so. However, if the NOPPA does not have an imputed underpayment, the partnership may not request an adjustment. However, if the NOPPA sets forth an imputed underpayment, the partnership may request a modification with respect to adjustments that do not result in an imputed underpayment.
These regulations are proposed to apply, when final, to partnership tax years beginning after Dec. 31, 2017 (which is the effective date of the centralized audit rules), and to partnerships that elect to have the rules apply early.
Channeling the Wants and Needs of Users, What Does the Future Hold for Nonprofit Accounting?
(The NonProfit Times) January 23, 2017 – In the beginning, there was heaven and earth.
Things like water and light took a little while longer. Nonprofit accounting software providers find themselves somewhere in the middle of the tech week of creation.
Basic functionality has been widely available for years and years. Sector-specific accommodations are becoming increasingly common. It’s only been recently, however, that software companies have proclaimed "Let there be light!"
Flat-file integration had long been the common way of nonprofit accounting, according to Dan Murphy, senior manager at Abila. Organizations might have had financial management and billing capabilities and the two might have even been able to integrate. There was one flexible system that could handle donor management, mailing, and billing — serving as a jack-of-all-trades, but a master of none.
More tailor-fit solutions have come into high demand in the past few years. "What we’re seeing is reliance on technology to scale," Murphy said. "Organizations can’t have generic technology. They have to have purpose-built technology…the past two years we’ve seen this as being highly preferred or required."
The trend is called "channeling," a move toward organizations seeking solutions that are unique and flexible not only the broader nonprofit sector, but their specific subsector — health, education, etc. — and needs. Features such as cloud-to-cloud capabilities and synchronization with multiple systems are now not simply requested. They are expected.
The needs of an affordable housing nonprofit are an example of this shift in the market in action, Murphy said. Subsidized rent is likely a component of the nonprofit’s billing process, but it also plays into execution and performance metrics. Solutions that are capable of centralizing that information and sharing it between departments serving different purposes thus become more important.
This is especially true as nonprofits face a squeeze from regulators regarding both their bottom line and services provided. "As compliance gets more specific, a lot of people are looking beyond generic," added Jenna Overbeck, the Austin, Texas-based company’s public relations and social media manager. "The need to track and pull reports – that’s been a big turning point."
Murphy spends much of his time tracking the volume of activity customers are experiencing, speaking with customers, participating in usability sessions, and fielding requests from customers as well as resellers. From a product perspective, Abila has prioritized building out, according to Murphy. The company has developed a Partner Ecosystem of resellers, implementation partners, and product partners with products that complement, extend, or integrate with one or more of Abila’s products. Abila Marketplace was launched last year in an effort to help customers more easily find integration partners.
Blackbaud, too, has emphasized collaboration and strong application program interfaces (APIs) – products that can integrate with other products, said Tom Walker, financial solutions product manager. The balance Walker tries to find is determining and prioritizing where Blackbauad should allocate its resources.
In some cases, it might make more sense to look outside the Charleston, S.C., company, he said. Blackbaud is a strong accounting-solution fit for clinics, for instance, but that doesn’t mean that the company will take the next step and develop an electronic records system. It might not make sense. "If you think of verticalization, it’s not just the four walls of Blackbaud, but who we can partner with," Walker said. "What would it take me to build it? Can I get my executives to fund it…I’m going to go out and see who I can partner with or if it would make sense to acquire an organization."
The ability to reach niches is important in today’s market, added Michael Blanton, senior product marketing manager. From a client’s perspective, there is value in using APIs to build off the strengths of different vendors as opposed to having to purchase a stack of products from one software company. Blackbaud might be able to fill an organization’s accounting or CRM needs and then connect to those specializing in other areas. Acquisitions also serve this purpose. MicroEdge, a grant administration product, was acquired to help serve a broader network of customers, Blanton said.
Verticalization has been a priority for Blackbaud for many years, Blanton said. K-12 education, for instance, has always been a market of emphasis for the company and solutions have long been tailored for the education space. That perspective has been ratchetted up further in the past few years, driven by a more nuanced market and increased connectivity of software.
Blackbaud is fresh off the heels of its annual conference and the things the market seems to be clamoring for are readability and connectivity, according to Blanton. Organizations are prioritizing better reporting, not just financial, but in services provided such as beds at a hospital or meals for a social-service provider. Integration is important in that, Blanton said, and a learning gap remains. Some organization staffs still struggle with adapting to the cloud.
The regulation crunch helps inform practices and partnerships, added Walker. Blackbaud, for instance, has begun using Microsoft Office APIs to help organizations better connect journal entries with accounting. "If I can save them 20 minutes on this or 30 minutes on that…It’s focusing on efficiencies to help them do more with less," he said.
Peter Stam, president of Needham, Mass.-based Accufund, also sees regulation as a driving force behind software specialization. More regulations equate to potentially less money available for services. With that comes important organizational decisions in terms of what client base they can best serve, who to focus on, and how to show compliance and success.
"I think that they are beginning to get more into performance reporting, the ability to include unit accounting or performance accounting. It is easier to see units served or expenses per unit," Stam said. "More people are taking advantage of capabilities there."
Accounts receivable billing has become very specific in some cases, according to Stam. In response, Accufund has looked to its customer base to gauge their needs and what variations to modules would be helpful. An example of this is client services. Users are prioritizing being able to track more client-level data, Stam said, in an effort to deduce how client bases affect the organizations’ bottom lines to help inform where additional funding is needed.
Stam has seen a market for specialization, but he doesn’t think it’s a particularly new concept or one that is sweeping the market. Some products might fit better in some niches, he said, but products that can deliver accurate reporting in real time still tend to be the most successful. "[Customers] need numbers quickly, they need accurate numbers quickly," said Stam. "When you live on razor-thin margins, there is no room for error."
Focuses have, in turn, been on developing and marketing Accufund as a flexible, configurable product with detailed reporting and client-data capabilities. Stam sees Accufund and its competitor products specializing in the nonprofit market as increasingly valuable because "people are finding that the Quick-Books, the generic, horizontal products don’t have the reporting capacities that they need. That’s opening up more opportunities."
Flexibility and configurability are the names of the game now, according to Donald Cassady, president and CEO of Grants Management Systems (GMS). Five years ago, most nonprofits were 100-percent budget driven. Today, as much, if not more, results-related data are being collected and sent to funders as compared to financials. Organizations are, in turn, being asked to do more on thin margins. "Accountability has been there forever," Cassady said. "Accountability is paramount when you are spending these kinds of dollars."
GMS, based in Kensington, Md., has not ventured into dedicating itself to specific verticals, Cassady believing that it limits more customers than it would gain. In an era in which providers are more specialized and nobody does everything well, leaders at GMS have also shied away from building out too many ancillaries and have instead focused on being able to sync well with various APIs.
Mergers between organizations and nonprofit-corporate partnerships have also driven the need to be compatible. These types of moves have become increasingly common in the past two or three years, according to Cassady, and are necessary for cash-strapped organizations to survive. Software providers, in turn, are expected to accommodate integrations with organizations’ ancillary software or existing accounting software.
Even small soup kitchens, for example, don’t conduct manual payroll anymore, according to Cassady. So, when a GMS client merges with that soup kitchen it is paramount that the product is flexible enough to hit the ground running.
The real-time needs of existing clients mirror the priorities of potential new ones. When GMS employees conduct demonstrations for prospective clients, the ability of the accounting software to connect with other software drives a good part of the conversation. "Any software that is out there right now needs to play well with others in order to survive," Cassady said.
Jay Malik, CEO of Tangicloud, is a veteran of the nonprofit tech space, but is entering this new age of nonprofit accounting software with fresh eyes. Tangicloud, based in Littleton, Colo., gained access to OneNFP’s client list early last year. The deal wasn’t a product acquisition, Malik explained, and a new system based off Microsoft’s new Dynamics 365 technology had to be built. Product building began in March, followed by customer conversion in July, and complete conversion in August.
Malik said nonprofit and government clients have gravitated toward leased, cloud-based products for three particular reasons:
1) The cost of leasing is a predictable expense that can be plugged into budgets year to year;
2) Cloud-based software is generally up to date. Customers aren’t faced with the dilemma of buying a new system or continuing on with something that’s several years old; and;
3) The independence from having to manage servers and infrastructure. This benefit is harder to quantify, but is still significant, according to Malik.
Customers in Sudan, for instance, either can’t or don’t want to be responsible for the maintenance of expensive equipment. The cloud is safer in many ways, he said. Stateside, customers appreciate not having to tie up IT personnel in the management of servers, with one customer telling Malik that he would rather hire another accountant than an IT staffer.
The new age has also had the effect of broadening the marketplace with new price structures, Malik said. A decade ago, it might have cost between $50,000 and $100,000 to sign on and implement a new solution. The on-boarding phase is now down to $5,000 or $10,000, he said, making it easier to fit into organizational budgets. This cost is down for providers as well, Malik said, as customers are often able to on-board themselves with their own resources.
In turn, Tangicloud is able to zero-in on smaller organizations. Ten years ago, Malik would have defined his customer base as those with $5 million in revenue or more. "Bending the cost curve, when you look at the United States nonprofit market, we’re now targeting $1 million and above, or even $250,000," said Malik. "The number of organizations that we can reach is much greater. Smaller nonprofits need sophisticated functionality as much as large nonprofits because of compliance requirements."
Aplos, headquartered in Fresno, Calif., caters to small and medium-sized nonprofits, those with $5 million or less in revenue. The company was pretty early to the game in targeting that market, according to Eric Nasalroad, chief operating officer. At the time, Aplos’ client base which was comprised of churches, booster clubs, and community groups was thrilled to just have quality fund accounting capabilities. Expectations have risen as time has gone on.
"They all have nuances," Nasalroad said of Aplos’ customers. "They expect things that are nuanced. Even if they are smaller, they are shopping for those nuances." Leaders at Aplos decided to keep product development rather lean. Instead of gearing toward a few key verticals, Aplos conducts customer interviews and fields requests while trying to build itself toward being more customizable as opposed to really specific.
Aplos built out feature sets on the fund-accounting side. Where it has been unable to meet requests, it has looked to fill gaps with API partners. Community Church Builder has served as the management complement to Apolos’ accounting solution in some cases, according to Nasalroad. Products like Kindful can be used by Aplos customers to handle donor management.
While Aplos leaders have tried to stay lean on the development side and avoid pigeon-holing the company into a specific vertical, ways to make the solution customizable have been created. For instance, Aplos has a feature that allows users to track specific expenditures department to department and location to location. The salary of a manager of five Boys & Girls Clubs might be split five ways, for example, Nasalroad said. Using the tracking capability, that expense can be followed across locations. Tracking can be similarly done with other activities, incomes, or expenditures.
Nasalroad said that for the smaller and start-up organizations that Aplos serves, the emphasis has been on starting out with basic software and adding on modules for things such as online donations as needed. "The software can grow with them without complicating things and it may grow differently than the customer that came in last week," he said.
What Next? Will 1 Plus 1 Equal 3?
What does the future hold for nonprofit accounting? Those in the field were asked what they believe will be driving conversations a few years down the line.
Their answers included:
1) Artificial intelligence. Automation and machine learning are the new golden geese, according to Michael Blanton, senior product marketing manager for Blackbaud. "How do we leverage data to help inform people with technology? The more we build on that the better everyone will be," he said. Tom Walker, financial solutions product manager at Blackbaud, echoed his colleague. Machine learning, he said, has the potential to improve audit services and workflows;
2) A focus on performance. Peter Stam, president of Accufund, predicts that there will come a point when funding agencies will note over-regulation and move back toward more of a block-grant concept. Less focus on regulation and more on performance will, in turn, change reporting and reporting needs. The pressure will be put on organizations to be able to report not only they are the right agency for a grant or a project, but also their efficiency; and,
3) Customization and flexibility. By far the most common trend according to nonprofit tech executives, ease of use and ability to accommodate different types and sources of information will only become increasingly important, said Dan Murphy, senior manager at Abila. Donald Cassady, president and CEO of Grants Management Systems agrees with him. Integration between other systems and revenue sources has been a priority for about two or three years now and he expects that to grow.
The increasing number of applications and pull to become more transparent and accurate fuels this trend, said Eric Nasalroad, chief operating officer at Aplos. "From our standpoint, we stay up at night trying to keep it simple without losing robustness…if you, as a software, can’t move with them, they’re going to find somebody who will."