All Posts By

Thomas Vereecke

2017 – 06/28 – Why business owners should regularly upgrade their accounting software

Years ago, all a business owner needed was a big, leather-bound ledger on the desk. These days, regularly upgraded accounting software is a must. Why? As a system ages, bad data can build up and adversely affect financial reporting. Ever heard the term “garbage in, garbage out”? It’s true. In addition, by regularly upgrading your accounting software, you may be able to identify better ways to manage expenses and handle internal controls. Let our firm help you set a budget for regular upgrades and choose the products that best suit your company’s needs.

It may be time for your company to create a strategic IT plan

Many companies take an ad hoc approach to technology. If you’re among them, it’s understandable; you probably had to automate some tasks before others, your tech needs have likely evolved over time, and technology itself is always changing.

Unfortunately, all of your different hardware and software may not communicate so well. What’s worse, lack of integration can leave you more vulnerable to security risks. For these reasons, some businesses reach a point where they decide to implement a strategic IT plan.

Setting objectives

The objective of a strategic IT plan is to — over a stated period — roll out consistent, integrated, and secure hardware and software. In doing so, you’ll likely eliminate many of the security dangers wrought by lack of integration, while streamlining data-processing efficiency.

To get started, define your IT objectives. Identify not only the weaknesses of your current infrastructure, but also opportunities to improve it. Employee feedback is key: Find out who’s using what and why it works for them.

From a financial perspective, estimate a reasonable return on investment that includes a payback timetable for technology expenditures. Be sure your projections factor in both:

• Hard savings, such as eliminating redundant software or outdated processes, and
• Soft benefits, such as being able to more quickly and accurately share data within the office as well as externally (for example, from sales calls).

Also calculate the price of doing nothing. Describe the risks and potential costs of falling behind or failing to get ahead of competitors technologically.

Working in phases

When you’re ready to implement your strategic IT plan, devise a reasonable and patient time line. Ideally, there should be no need to rush. You can take a phased approach, perhaps laying the foundation with a new server and then installing consistent, integrated applications on top of it.

A phased implementation can also help you stay within budget. You’ll need to have a good idea of how much the total project will cost. But you can still allow flexibility for making measured progress without putting your cash flow at risk.

Bringing it all together

There’s nothing wrong or unusual about wandering the vast landscape of today’s business technology. But, at some point, every company should at least consider bringing all their bits and bytes under one roof. Please contact our firm for help managing your IT spending in a measured, strategic way.

© 2017

What can a valuation expert do for your succession plan?

Most business owners spend a lifetime building their business. And when it comes to succession, they face the difficult decision of whether to sell, dissolve or transfer the business to family members (or a nonfamily successor).

Many complicated issues are involved, including how to divvy up business interests, allocate value and tackle complex tax issues. Thus, as you put together your succession plan, include not only your financial and legal advisors, but also a qualified valuation professional.

Various value factors

When drafting a succession plan, a valuation expert can help you put a number on various factors that will affect your company’s value. Just a few examples include:

Projected cash flows. According to both the market and income valuation approaches, future earnings determine value. To the extent that a business experiences decreasing, or increasing, demand and rising (or falling) prices, expected cash flows will be affected. Historical financial statements may require adjustments to reflect changes in future expectations.

Perceived risk. Greater risk results in higher discount rates (under the income approach) and lower pricing multiples (under the market approach), which translates into lower values (and vice versa). When selecting comparables, the transaction date is an important selection criterion a valuator considers.

Expected growth. Greater expected revenue growth contributes to value. In addition, there’s a high correlation between revenue growth and earnings (and thus, cash flow) growth.

Other determinants of discounts

In many cases, valuation discounts are applied to a company’s value. For example, decreased liquidity translates into higher marketability discounts, while increased liquidity reduces marketability discounts. Other factors that affect the magnitude of valuation discounts include:

• Type of assets held,
• Financial performance of the underlying assets,
• Portfolio diversification,
• Leverage,
• Owner rights and restrictions,
• Distribution history, and
• Personal characteristics of the general partners or managing members.

Discounts vary significantly, but can reach (or exceed) 40% of the entity’s net asset value, depending on the specifics of the situation.

For best results

An accurate and timely value estimate can facilitate the succession process and prevent costly and time-consuming conflicts. Please contact Tom Vereecke for more information.

© 2017

Don’t make hunches — crunch the numbers

Some business owners make major decisions by relying on gut instinct. But investments made on a “hunch” often fall short of management’s expectations.

In the broadest sense, you’re really trying to answer a simple question: If my company buys a given asset, will the asset’s benefits be greater than its cost? The good news is that there are ways — using financial metrics — to obtain an answer.

Accounting payback

Perhaps the most common and basic way to evaluate investment decisions is with a calculation called “accounting payback.” For example, a piece of equipment that costs $100,000 and generates an additional gross margin of $25,000 per year has an accounting payback period of four years ($100,000 divided by $25,000).

But this oversimplified metric ignores a key ingredient in the decision-making process: the time value of money. And accounting payback can be harder to calculate when cash flows vary over time.

Better metrics

Discounted cash flow metrics solve these shortcomings. These are often applied by business appraisers. But they can help you evaluate investment decisions as well. Examples include:

Net present value (NPV). This measures how much value a capital investment adds to the business. To estimate NPV, a financial expert forecasts how much cash inflow and outflow an asset will generate over time. Then he or she discounts each period’s expected net cash flows to its current market value, using the company’s cost of capital or a rate commensurate with the asset’s risk. In general, assets that generate an NPV greater than zero are worth pursuing.

Internal rate of return (IRR). Here an expert estimates a single rate of return that summarizes the investment opportunity. Most companies have a predetermined “hurdle rate” that an investment must exceed to justify pursuing it. Often the hurdle rate equals the company’s overall cost of capital — but not always.

A mathematical approach

Like most companies, yours probably has limited funds and can’t pursue every investment opportunity that comes along. Using metrics improves the chances that you’ll not only make the right decisions, but that other stakeholders will buy into the move. Please contact our firm for help crunching the numbers and managing the decision-making process.

© 2017

The Cost of Converting from a C to S Corporation

When choosing the right business structure, it is important to understand and weigh the pros and cons of your different options. There are many different factors to be aware of that could be costly if they are overlooked.

Keith Sellers and John Tripp, in a recent article published in the Journal of Accountancy, discuss in detail a costly consequence of converting your business from a C to S Corporation. The premise of the article discusses how, if a business owner plans to gift all or part of their business’s stock, the appraised fair market value (FMV) could increase by 50% or more if converted to an S-Corp. This being true, it is important for shareholders, if considering making a gift of stocks, to obtain an appraisal of their C-Corp and make the gift(s) before making an S-Corp election.

While there are certainly positives about changing from a C to S Corporation, this is one consequence that a business owner may not be aware of.

To read the full referenced article, click here. For assistance in business valuations or deciding on/changing a business structure, contact Thomas Vereecke, CPA, CVA (616) 608-8510 or

Learn more about our business consulting and business valuation services.

New Growth to Grand Rapids West Side

Nick Manes, in a recent article published in MiBiz, discusses the revitalization that is happening on Grand Rapids’ west side. After Leonard Street was closed for sewer construction in the early 2000s, many businesses closed down. Now, a local cidery, The People’s Cider Co. LLC hopes to open a tasting room in May on Leonard Street. The business would join the popular Mitten Brewing Company as well as Long Road Distillers.

The owners of Long Road Distillers have additional plans for the area. They are hoping to convert an abandoned and contaminated gas station property to a two or three story apartment or office building.

The West Grand Neighborhood Association is in support of adding housing and new business to the area.

While these are just a few of the new and hopeful projects, other investors are working to recover vacant buildings in the area. It is hoped that investors continue to see the potential in the area and more unoccupied buildings continue to be recreated.

For more information on this revitalization on the west side, please read the full referenced article.

GR Airport Experiencing New Autonomous Airport Authority

Recently, Governor Rick Snyder signed legislation that will transfer the operations of Gerald R. Ford International Airport to a regionally-managed authority with an autonomous board of directors. An article by Nick Manes, published in MiBiz, discusses the potential impact this change might have on the airport and its surrounding area.

The Kent County Department of Aeronautics currently operates the airport and will still retain ownership once the proposed authority model is put in place. However, all operations will be handled by the new authority.

This new operating model is being put in place in hopes of strengthening regional coordination and creating a stronger platform for economic development.

For more information, please visit the referenced article by Nick Manes published in MiBiz or contact Thomas Vereecke at (616) 608-8510 or

What are Top 5 Divorce Tax and Financial Planning Tips?

Careful thought and planning are necessary while proceeding through a divorce, especially related to five general areas:

  1. What is alimony and its deductibility;
  2. What is a QDRO and its application;
  3. Jointly-owned primary residence;
  4. Life-insurance;
  5. Planning before and after divorce is final

For more information, please read the referenced article from The Tax Advisor, or contact Tom Vereecke at (616) 608-8510 or

What are the IRS 2014 Per Diem Rates for Business Travel?

In late 2014, the IRS issued its updates of special per diem rates for certain business travel expenses incurred by taxpayers in IRS Notice 2014-57.

The IRS Notice includes rate for the following:

  1. Meal and incidental expenses,
  2. Incidental-expenses-only deduction, and
  3. List of high-cost localities for the high-low substantiation method.

For more information, please visit the referenced article or contact Thomas Vereecke at (616) 608-8510 or tvereecke@brickleydelong.