Welcome to "The Bottom Line"
Welcome to the debut of “The Bottom Line,” a podcast specifically designed for closely held businesses. Our guide is EisnerAmper’s manager of private business services, Tim Schuster. In this episode, Tim breaks down what a closely held business is, the alphabet soup of different business formats such as LLC and S Corp, and how this all impacts the role of business advisors. We’ll also get a sneak peek at other topics we’ll tackle in the near future regarding this noteworthy market segment.
Dave Plaskow: Hello and welcome to The Bottom Line. This podcast examines the business and finance issues faced by closely held and private businesses. We hope to provide you with news you can use in what we like to think of as a jargon-free zone. In this, the debut issue of The Bottom Line, we thought it made sense to start with the essence of a business - how it chooses to see itself in relation to how others view it. I’m your host, Dave Plaskow, and with us today is Tim Schuster, a manager in EisnerAmper’s Private Business Services Group. Tim welcome to this maiden voyage of The Bottom Line.
Tim Schuster: Dave, I’m glad to be here. This is going to be fantastic!
Tell me, when we were discussing a name for this podcast we considered the business types – small, family, privately held, closely held. Tell our listeners what the differences are, if any.
TS: Sure . So, there are a lot of times where you hear different names for businesses and you think, “I wonder where I should be classified.” The four common types of businesses are small business which, from an IRS perspective, is anything less than $10 million dollars in assets.
TS: A family business is one where it is owned by one or two or more family members for example: two brothers, a mother and son, any combination of in-laws and so forth. Privately held is any business owned either by a non-governmental organization or by a small number of shareholders. The important thing to note is that its stock is not publically traded. A closely held business has a limited number of shareholders. Stock can be traded, but not regularly. So, the differences between privately held and closely held are: privately held is not traded on the stock market.
DP:Are there any other kinds of formalized standards – number of employees, revenue, et cetera of what constitutes a small, medium or large company, and who sets these standards?
TS: The Internal Revenue Service sets the standards. Generally, a small business is any business under $10 million in assets. Medium to large companies are anything over $10 million in assets. Personally, I think we need to update those figures; the last time I think they were updated was sometime during the 1960s.
DP:Why is understanding where you fall on that scale important?
TS: To figure out where you’re structuring your business. There are many different formats. But, if you’re a larger company, you have a much more sophisticated way of doing business. Let’s use Johnson & Johnson as an example:
TS: J&J has many different forms of structures where you’ll have a staff, a senior, a manager, a controller and a CFO all working together. So they have much more of a rigid structure on how they perform their operations and how they report their numbers. Most businesses, the “mom and pop” style of business, don’t have as much of a very strict structure. So, depending upon where you are – if you’re looking to grow your business – you want to think ahead potentially to what your structures are.
DP: We hear a lot about different types of business formats. It’s a whole alphabet soup – LLCs, S Corps, C Corps – and so on. Tell us a little bit about these – the pros and cons of each. Again, in a jargon-free zone.
TS: You hear different things, like sole proprietorships and partnerships. After discussing their differences, we should discuss the difference between a limited liability company and a limited partnership. A sole proprietorship means it’s you by yourself. You are an unincorporated business and all of your personal taxes flow through on your schedule C, which is a 1040. So, anyone that has a sole proprietorship unincorporated will file a schedule C. A partnership means you need at least two people involved. So income, deductions, gains and losses are reported on what’s called a 1065, which is a partnership return. And all of that information will flow through to an individual. A corporation is an independent legal entity where shareholders pay for different forms of stock and ownership in the company. The actual shareholders are not legally liable for any of the consequenting incurrences in the business activities. That is important to note.
TS: Let’s talk about S Corps, LLCs, LLPs. An S corporation is unique in that it will actually follow partnership rules where all of the income and losses will pass through individually to a shareholder. The advantage to an S Corp is, from a liability perspective, it is treated the same as a C Corp, which is a corporation and a partnership. If you merge the two together, that’s an actual S Corporation. A limited liability company is very similar to an S Corporation. If you’re looking for this, you may need to talk to an attorney just to make sure you get the ownership structure right. It’s the advantage of a partnership and an S Corp together and that’s the limited liability portion of it.
TS: C corporations are all of those major companies that are on stock exchanges. In some instances, smaller businesses will fall under that structure, but a lot of people will do C Corps just because they have that limited liability. You want to separate the business from your personal assets. So, an LLC, C Corp and an LLP, all have that ability where they are going to separate your legal liability from what the business is.
DP:So, it helps to mitigate risk.
TS: Precisely. The goal is to mitigate risk. And an LLP is a partnership structure. So, an LLP is the limited liability partnership structure and it has all those advantages to mitigate risk.
DP:Now, in talking about these different frameworks, whether it’s a company’s size or the formats, business structure – how does that impact what you as a business and financial advisor do?
TS: Your company size will determine how complex you advice and how sophisticated your advisors might need to be. Let’s say you’re a mid-sized company. You might need a little bit more structure, and you need your accountant, banker, and lawyer all to be all on the same page. The key is who quarterbacks this? It’s the accountant. Many times an attorney will have to contact your accountant to figure out how he or she needs to structure something. The banker may also need to contact the accountant. But, the key takeaway is no matter how complex the organization, the accountant needs to be the lead person with whom you discuss any sort of business strategy so everyone’s on the same page.
DP:As this is the inaugural podcast of The Bottom Line, what kind of topics can our listeners expect in the future?
TS: We’ll touch upon many different topics and discuss day-to-day issues greatly impacting privately held companies such as health care, technology, regulation, succession planning and a host of other news that you can use.
DP: That’s the key – news you can use. On the lighter side, it’s come to my attention that you’re a member of the New Jersey Historical Society. How about giving us a little factoid?
TS: Ah, it would be my pleasure. So, I actually have a two-factoid one for you. Why did we get our name, ‘The Garden State,’ and also did you know we actually had a New Jersey day?
DP:Those, I do not know.
TS: Abraham Browning of Camden gave New Jersey the nickname ‘The Garden State.’ while speaking at a Philadelphia centennial exhibition on New Jersey Day, which happens to be August 24, 1876. Browning said our Garden State is an immerse barrel filled with good things to eat and open at both ends – with Pennsylvanians grabbing from one end and New Yorkers from the other.
DP:Pretty cool., Tim, thanks for being here and sharing your expertise.
TS: My pleasure Dave.
DP:And thank you for listening to The Bottom Line as part of the EisnerAmper podcast series. Visit EisnerAmper.com for more information on this and a host of other topics. And join is for our next EisnerAmper podcast where we get down to business.
The Bottom Line looks at how you can use social media to grow your business and examine the different communication platforms available including Facebook, Twitter and LinkedIn. You really need to develop website content and push it on social media platforms.
Tim Schuster, a manager in EisnerAmper's Private Business Services Group, discusses new NJ legislative initiatives happening in Trenton that you should be aware of. The first is the New Jersey Family Leave Act and the second is the increase in NJ's minimum wage.
In this episode of The Bottom Line, EisnerAmper Private Business Manager Tim Schuster discusses developing a quarterly planning calendar, including budget, tax planning and speaking with your trusted advisor. Review these concepts monthly from an accounting perspective.
In the wake of the government shutdown, Tim Schuster offers tips on creating an emergency fund. To avoid living paycheck to paycheck, Tim suggests putting money into a separate savings account, as well as a portion of any windfalls. Emergency funds should include medical expenses.
Tim Schuster from EisnerAmper’s Private Business Services Group talks about the family issues and financial burdens for members of the sandwich generation - those individuals who are responsible for raising their children as well as caring for aging parents.
As New Jersey initiates paid employee sick leave The Bottom Line examines the requirements for business owners. Some reasons for which employees can use sick leave include an employee's own personal medical treatment or legal services, or that of a family member.
EisnerAmper’s Private Business Services Group Manager discusses the current unemployment rate and the booming economy despite current trade tariffs. To help attract employees, businesses are offering incentives such as assisting with student loans to attract millennials.
EisnerAmper’s Private Business Services Group partner discusses estate planning and the need to have a will - from an online provider or an estate planning professional - to help your heirs understand your estate asset wishes and the Tax Cuts and Jobs Act estate tax thresholds.
The Bottom Line looks at some of the common IRS scams out there and what you should do if you fall victim to one of these scammers, including email and personal data hacks, ID theft and fraudulent returns. Contact your accountant if you think you’re a victim of a scam
The landmark Supreme Court decision in the Wayfair case on e-commerce taxation allows states to collect sales tax on e-commerce companies, even without brick and mortar locations in that state, affecting all e-commerce companies such as Amazon. Accountant guidance is suggested.
This podcast discusses the New Jersey Department of Labor and the employee or independent contractor (freelance work) classification under new Tax Cuts. A DOL audit might look at your Facebook and LinkedIn, and can also change your employee or contractor classification.
This episode of The Bottom Line looks at New Jersey Governor Phil Murphy’s inaugural NJ budget. The discussion includes the Governor's proposed New Jersey's state tax on Uber and Airbnb, addressing tax loopholes for hedge funds and New Jersey tax's effect on the gig economy.
In this episode of The Bottom Line, Tim Schuster discusses some of the individual taxation questions bubbling up from clients in the wake of tax reform including adjusted gross income changes, private business taxation, QBI, and the importance of talking with your tax advisor.
This episode of “The Bottom Line” discusses new tax reform changes including C corp and individual taxpayer changes, NOLs, double taxation and bonus depreciation. Tim Schuster came up with a top seven list of business tax reform questions he's been receiving from clients.
In this episode of “The Bottom Line,” Tim Schuster talks about the benefits of retirement savings plans for small businesses, including SEP IRAs, SIMPLE IRAs, and Solo 401(k) plans, as well as eligibility and contribution limits set for small business contributions.
Tim Schuster discusses how starting a college savings account – sooner rather than later – can help alleviate sticker shock for your child’s college education. He talks about the different state-sponsored 529 plans, what you can use the money for, the tax benefits and more.
EisnerAmper’s examines the differences between different Health Spending Accounts including HSAs, HRAs and FSAs. It is recommended you speak with your tax advisor about qualified medical expenses and pending tax reform's affect on health spending accounts.
EisnerAmper's Tim Schuster looks at several categories of SBA loans for working capital. He covers the loan approval process, SBA 504, real estate exclusions and how business advisors can help you make the most of the Small Business Administration (SBA) loan process.
EisnerAmper’s Tim Schuster tackles the issue of succession planning - Companies should have something written down for succession planning purposes as well as take into consideration estate planning, wealth management and valuation when creating their transition plan.
EisnerAmper's private business manager, Tim Schuster discusses the need for proactive disaster planning for private businesses, as well as business interruption insurance in the event that your disaster planning fails. FEMA offers online disaster planning recovery courses.