How Start Up Businesses Should Choose Their Accounting Firm

  1. Seek an advisor (not just an accountant) for the long-term.
    1. Your new business needs an advisor you can trust to help you manage risk and recognize opportunities – now and in the long-term future.
    2. When your accountant has a holistic view of your business, you have a trusted advisor with you to help anticipate next steps, stay ahead of trends and make valuable connections.
  2. Demand understanding, not just communication.
    1. Building a strong, long-term professional relationship with your accounting firm strengthens service quality and efficiency and enables you to plan for the future.
    2. Open, candid communications are critical to developing best practices to address the many complex issues your growing business will face.
  3. Insist on wide-ranging experience and resources.
    1. As your business evolves, so will your need for guidance, knowledge and resources.  Your accounting firm should possess comprehensive skills and resources to assist at every stage of your growth and across a variety of challenges – a business valuation, international tax, exit strategies and more.
  4. Access the right resources directly.
    1. Is your accounting firm built for service? The more access you have to your
      accounting firm’s specialist skills and resources, the better able you are to
      resolve issues before they cost you valuable time and resources, and to identify
      opportunities before they’ve passed you by. Ultimately, technical skill is only useful
      when it’s provided in a timely manner.
  5. It’s not just what they know, but who they know.
    1. Your relationship with your accounting firm is important, but so are the
      relationships they bring to the table. Whatever your ultimate aim – from access
      to capital markets to private equity – look to an accounting firm with the skills,
      experience, and relationships with other expert resources to help you achieve
      your goals.
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2015 Technology Outlook Survey

2014 was an exceptional year for the technology industry. Companies saw a strong deal environment as well as an increase in investment activity, fueling optimism among U.S. technology finance chiefs for a robust year ahead.

According to BDO USA, LLP’s 2015 Technology Outlook Survey, which polls 100 technology CFOs, 70 percent anticipate increased sales revenue in 2015. Overall, tech CFOs project a revenue increase of over 12 percent. CFOs’ bullish outlook follows forecasts of an 11 percent revenue increase in 2014 and an 8.7 percent increase in 2013, pointing to continued optimism in the industry.

Along with a positive outlook on revenue, companies expect deal pace to remain robust. CB Insights, for example, reports that in 2014, global technology transactions increased 58 percent over 2013 levels—the most in over five years. Following this positive trend, CFOs anticipate that merger and acquisition (M&A) activity will continue its strong track throughout 2015. The vast majority (96 percent) believe M&A activity will increase or stay the same this year, and 66 percent of CFOs cite that acquisitions will be primarily offensive. One-third of tech CFOs believe increased revenue and profitability will be the primary impetus for M&A activity in 2015, followed by improved market share (25 percent) and gaining engineering and research capabilities (14 percent).

“Although the tech industry is cautious of overvaluation, finance chiefs are confident that deal activity will continue its momentum well into 2015,” said Aftab Jamil, partner and leader of the Technology and Life Sciences Practice at BDO USA, LLP. “As consumers continue to demand innovative products and investments keep pouring into the sector, technology companies may be better positioned for business growth through strategic partnerships to expand their capabilities and offerings as well as to compete effectively and gain market share.”

Additional findings from the 2015 BDO Technology Outlook Survey include:

Software sector dominates deal flow. Sixty-one percent of CFOs surveyed continue to believe the software sector, including cloud computing, will drive the most M&A activity in 2015, on par with last year’s outlook (60 percent). In fact, IDG reports that cloud computing initiatives will lead in 2015 with 42 percent of enterprises planning to increase their cloud computing spending this year. As social media companies remain key players in the industry, 22 percent of CFOs say the social media sector will trigger the most deal activity this year, followed by biotechnology (10 percent).

“The software industry is quickly shifting from the traditional licensing model to cloud-based offerings, such as software-as-a-service to meet the overwhelming need for real-time responses and easy integration,” said Hank Galligan, leader of the Software Practice at BDO. “As the business environment evolves, companies are acknowledging the pressure to upgrade or introduce cloud computing services either through acquisitions or on their own.”

Despite the uncertainty of another tech bubble on the horizon, CFOs have a bright outlook for the future of deal pace with 62 percent predicting that business valuations will increase this year, a 35 percent increase from 2014.

Another blockbuster year for tech IPOs. The technology market experienced robust IPO activity in 2014, with 55 IPOs and Alibaba setting the record as the largest IPO in terms of proceeds raised, according to Renaissance Capital. On the heels of last year’s record activity, an overwhelming majority of respondents (86 percent) say IPO activity will remain the same or increase in 2015. This sentiment is also reflected in the January 2015 BDO IPO Outlook Survey, with 73 percent of capital market executives at leading investment banks predicting an increase in technology offerings.

As venture capital-backed investments soared in 2014, 39 percent of CFOs expect venture capital-backed companies will give rise to the most tech IPOs this year, followed by private equity (36 percent) and owner/manager or privately held businesses (25 percent; up from 18 percent in 2014).

When looking at factors driving IPO activity, more than one-third of CFOs surveyed (34 percent) say the performance of recent tech IPOs will have the greatest impact on the U.S. IPO market, followed by U.S. market volatility (25 percent), global political and economic issues (23 percent) and appeal of IPOs in foreign markets (11 percent). Notably, only five percent of CFOs say concerns about a tech bubble will have the most impact on IPO activity.

More companies plan to seek capital in 2015. Thirty-eight percent of surveyed CFOs say they anticipate seeking additional capital this year, up from 34 percent in 2014. Of the respondents planning to access capital, more than half (51 percent) will turn to a strategic partner—a significant increase from last year’s number of respondents (19 percent)—while only three percent will rely on the private debt market, down from 43 percent in 2014. In addition to strategic partners and private debt, 22 percent of CFOs plan to seek additional capital through public equity, followed by private equity (16 percent) and public debt (five percent).

These findings are from the eighth annual 2015 BDO Technology Outlook Survey, a national telephone survey conducted by Market Measurement, Inc., an independent market research consulting firm, whose executive interviewers spoke directly to 100 chief financial officers at leading technology companies throughout the United States. The survey was conducted from December 2014 to January 2015. Additional findings from the study will be released in the coming weeks.

About the Technology & Life Sciences Practice at BDO USA, LLP
BDO has been a valued business advisor to technology and life sciences companies for over 100 years. The firm works with a wide variety of technology clients, ranging from multinational Fortune 500 corporations to more entrepreneurial businesses, on myriad accounting, tax and other financial issues.

About BDO USA
BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through 58 offices and more than 400 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of 1,328 offices in 151 countries.

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit: www.bdo.com.

BMSS is an independent member firm of the BDO Alliance USA.

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IRS2Go 5.0 Smartphone App to Check Tax Refund Status

The Internal Revenue Service released IRS2Go 5.0, an update to the only official IRS free smartphone application, compatible with both Apple and Android devices.

Download IRS2Go free of charge for Android devices from the Google Play Store or from the Apple App Store for Apple devices.  Use it to check your refund status, watch the IRS YouTube channel, find free tax preparation help, get IRS news as soon as it’s released, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs.

“The new version of IRS2Go provides taxpayers another way to quickly get information and help around the clock,” said IRS Commissioner John Koskinen. “The IRS is focused on providing taxpayers with convenient self-service tools like IRS2Go, but it’s important to remind taxpayers to only use official IRS products to safeguard their personal information.”

Users who have already downloaded past versions of IRS2Go should make sure to update their devices with the most current official- and completely free-version of the app by visiting the Apple App or Google Play Store.

Taxpayers can check the status of their federal tax refund through IRS2Go – simply enter your Social Security number, which will be masked and encrypted for security purposes, then select filing status and enter the amount of anticipated refund for your 2014 tax return.

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Auditors Are Watching Your Websites for State & Local Tax Liabilities

Does your website announce that your business has office addresses in multiple cities and states? Do you describe your business as having clients in other states? If so, make sure you are in compliance with all state and local taxes and business license requirements for each area.

Municipalities often contract third-party auditors to assess and collect state and local taxes. One research method is to review company websites to see if they list an address or clients in the auditor’s specific area.

Let the BMSS State and Local Tax Services Group (SALT) help with all of your state and local tax needs. We offer planning, compliance and audit assistance, as well as a “SALT Scrub” for your company.

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Post-recession growth could signal more IPOs from Birmingham companies

My coworker, Derrel Curry, was recently interviewed by the Birmingham Business Journal about the Birmingham economy and the outlook of businesses going public.   Derrel discusses both the perks and drawbacks of going public.  Read the full article...

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Revenue From Contracts with Customers: What Software Companies Need to Know

In May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 establishes comprehensive accounting guidance for revenue recognition and will replace substantially all existing U.S. GAAP on this topic. ASU 2014-09 is converged with IFRS 15, the comparable new standard issued by the IASB.

The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It utilizes the transfer of control between the parties to determine the pattern of revenue recognition based on the consideration to which the vendor is entitled.

To accomplish this objective, the standard requires five basic steps:

  1. Identify the contract with the customer.
  2. Identify the performance obligations in the contract.
  3. Determine the transaction price.
  4. Allocate the transaction price to the performance obligations in the contract.
  5. Recognize revenue when (or as) the entity satisfies a performance obligation.

Most software entities adopting the new standard will experience a change in the timing and manner of revenue recognition.

Some of the more significant potential changes for software companies include:

  • The requirement for Vendor Specific Objective Evidence (VeSOE) is eliminated.
  • Payments from customer which extend beyond one year will no longer automatically preclude revenue recognition.
  • For many software companies, the changes could be significant and will require careful planning.

BDO has published a Revenue Recognition Resource Center, which includes an in-depth publication with examples and practical considerations for your business.

Talk with your BMSS CPA about how these new standards will affect your company.

*By Hank Galligan. This article originally appeared in BDO USA, LLP’s “BDO TECH” newsletter (Winter 2014). Copyright ©2014 BDO USA, LLP. All rights reserved. BMSS is an independent member firm of the BDO Alliance USA.

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Are Software Companies Missing Out on Section 199 Deductions?

Section 199, also known as the Domestic Production Activities Deduction (DPAD) or the Domestic Manufacturing Deduction, is centered on production and manufacturing activities. The deduction is, however, also applicable to many other activities, including software development. With the proper knowledge and understanding of its intricacies, determining this deduction can be worthwhile and provide substantial benefits for software companies.

BACKGROUND

DPAD provides a tax deduction for production within the United States and was enacted with the intent to reward and enhance job growth and competitiveness. DPAD generally gives a deduction equal to 9 percent of income from qualifying domestic production activities.

Businesses that operate in the following industries may be eligible: manufacturing tangible property, computer software, sound recordings, construction, engineering or architectural services, qualified film or the production of electricity, natural gas or potable water.

The deduction is allowed for both regular and the alternative minimum tax for corporations – both C and S corporations – individuals, partnerships and limited liability companies. Under a “safe harbor” rule, companies can claim the deduction even if their production activities are  only partially produced in the U.S., as long as its domestic labor and overhead related to production activity account for at least 20 percent of its total cost of goods sold (COGS).

Although the benefit was designed to incentivize U.S. production, its limitations, complex rules and potentially onerous compliance requirements have deterred some taxpayers from claiming the deduction. Still, with its many attractive characteristics, companies should seek to claim these benefits and enlist the help of tax professionals, if necessary.

SOFTWARE CONSIDERATIONS
A company producing computer software within the U.S. should consider its eligibility for this deduction. Computer software includes code for video games, equipment that is an integral part of other property, typewriters, calculators, adding and accounting machines, copiers, duplicating equipment and similar equipment. This category further includes any incidental and ancillary rights necessary to effect the acquisition of title to or right to use the software.

With this broad definition, software businesses are well-positioned to take advantage of the DPAD. Treasury has, however, somewhat limited the ability of these businesses to claim the deduction by excluding gross receipts derived solely from online software or software as a service (SaaS) delivery models.

With companies offering more and more software exclusively online, it may be more difficult for them to claim this deduction. Thankfully, there are two exceptions to this general rule:

  • The first exception applies if a company generates gross receipts from software provided in a tangible or downloadable form that is nearly identical to the online software in question.
  • The second exception applies when an unrelated party offers software in a tangible or downloadable form that is substantially identical to the online software.
  • Thus, as long as either the company or a third party offers substantially identical software to the online software and offers it in a tangible or downloadable form, then the online software may also be eligible for the deduction.

In 2012, the IRS released a memorandum addressing whether certain third-party computer software products were equivalent to a taxpayer’s online software in order to meet this second exception. The outcome is that a company cannot aggregate multiple software programs in order to meet the exception. Fortunately, components of the online software can be used if a company can identify other businesses that offer substantially identical features offline.

Furthermore, on Nov. 7, 2014, the IRS National Office released in a Technical Advice Memorandum that a taxpayerconducted qualifying activity from licensing customized software to contracting parties that then used their own data in conjunction with the licensed computer software to provide services to end users.

In addition to the pure software development opportunity, there is also an exception for software that is part of a hardware product. If the software development takes place in the U.S. and the cost of the software development is 20 percent or more of the total COGS of the product, the entire product is eligible for the DPAD regardless of the manufacturing location. This is a significant opportunity for companies that write software for hardware products that may be manufactured offshore.

CONCLUSION
The DPAD provides software companies an attractive opportunity to effectively lower their tax rate by approximately three percentage points. The Joint Committee on Taxation estimates that the DPAD will cost $78.2 billion in foregone revenue from 2013 through 2017. With this sizable expected benefit and the chance to lower tax rates, software businesses that are not already claiming this deduction should consider reassessing their activities to determine whether or not they are leaving generous benefits on the table.

Talk with your BMSS CPA or one of our Technology professionals about your specific situation.

*By Chai Hoang and Jonathan Forman. This article originally appeared in BDO USA, LLP’s “BDO TECH” newsletter (Winter 2014). Copyright ©2014 BDO USA, LLP. All rights reserved. BMSS is an independent member firm of the BDO Alliance USA.

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Alabama Launchpad Accounting Compliance Awards

I am proud and excited to announce that BMSS is participating in the Alabama Launchpad’s Accounting Compliance awards.  Myself and others at BMSS will provide  consulting to the award winners to help with setting up appropriate federal grant compliance accounting systems.

Program Overview:

Alabama Launchpad’s Phase 0 program provides Alabama-based, early stage technology companies and Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (STTR) winners with the tools and technical assistance needed to commercialize their innovation, grow their business and create quality jobs. The Phase 0 program is designed to give Phase I and Phase II proposals a greater rate of success by providing expert review and financial support.

REQUIREMENTS & INSTRUCTIONS

Applicant must complete the application process through Alabama Launchpad’s SBIR/STTR Assistance Program. Email Addie Mancuso at amancuso@edpa.org to fill out an application.

Phase 0 Support Grant Requirements:

  • Applicant must be an Alabama Company
  • Applicant must meet all federal SBIR/STTR program eligibility requirements that are applicable to the relevant federal solicitation

All SBIR/STTR Phase 0 proposals must be assembled in the following sequence:

  • Email Addie Mancuso at amancuso@edpa.org
  • Create FluidReview account
  • Complete pre-screen questionnaire
  • Complete Phase 0 application
  • Pay the $150 application fee

Award and Reporting Requirements:

Applicants will receive notice of SBIR/STTR Phase 0 award/declination via email. Any and all documentation (required documentation varies on the award sought) requested by Alabama Launchpad must be returned within 21 days of the request or the award will be forfeited.

Award recipients are required to provide Alabama Launchpad with project data for evaluation and reporting purposes. Further instructions for the preparation and submission of progress reports will be sent to the awardee within 30 days after the expiration of the award.

The Economic Development Partnership of Alabama Foundation reserves the right to prioritize funds to companies with less than $500,000 in Phase I and $1,000,000 in Phase II.

Failure to provide any requested materials for award or evaluation purposes will constitute default under this program. In such cases, Alabama Launchpad reserves the right to recover all previously expended funds issued under the related SBIR/STTR Phase 0 Award and the right to refuse any future SBIR/STTR Phase 0 proposals for consideration of funding.

Requirements for Accounting Compliance Awards

Applicant must be SBIR/STTR Phase I or Phase II award winner (notice of award proof must be provided).

Applicants must schedule an initial meeting with their preferred vendor of choice (see list of vendors) no later than 30 days after receiving the notification of the Phase 0 award. The determined accounting services must be completed within 90 days of the agreed upon start date based on the letter of acknowledgement.

The Phase 0 program will not cover additional costs outside of the determined services. A copy of the invoice to be reimbursed must be submitted to ALP, as a precondition to receiving the Phase 0 award funds. Applicants must notify Alabama Launchpad of award or decline of their Phase 0 award. Businesses can only receive Phase 0 funding once within the calendar year.

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Get Started on Those Positive Resolutions – Join TechBirmingham Before the End of 2014!

The mission of TechBirmingham is to strengthen and promote Birmingham’s technology ecosystem by highlighting tech companies in the region, helping to recruit and retain technologists and entrepreneurs, and providing technical training and education.

Get started on those resolutions now and become a member of TechBirmingham today!

Learn more about TechBirmingham…

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Tax Increase Prevention Act of 2014: Act NOW to Take Advantage of Extensions

During the late hours of Tuesday, December 16, 2014, Congress passed the Tax Increase Prevention Act of 2014. President Obama has indicated that he will sign the bill as soon as it reaches his desk. This bill extends through 2014 many tax incentives that expired on December 31, 2013.

Taxpayers will have to act quickly and may need to revisit year-end tax planning discussions that have already taken place.

Some of the more popular tax extenders affecting individuals and businesses are below.

Business Tax Extenders:

  • Bonus depreciation (50% bonus depreciation on qualified property)
  • Enhanced Code Section 179 expensing ($500,000 dollar limit with a $2 million overall investment limit)
  • Research Tax Credit
  • Work Opportunity Tax Credit
  • 100% Exclusion for gain on qualified small business stock

Individual Tax Extenders:

  • State and local sales tax deduction
  • Higher education deduction
  • Teacher’s classroom expense deduction
  • Mortgage debt exclusion
  • Mortgage insurance premium deduction
  • Charitable distributions from IRAs

Please also see the attached Tax Briefing for a more in-depth look at this bill.

Contact me at technology@bmss.com or call (205) 982-5500 if you have any questions regarding the opportunities presented or would like a more customized analysis of steps you or your business may take to minimize taxes and maximize overall tax opportunities.

At BMSS, we also take this opportunity to provide a holistic planning/strategy session for you and your business beyond just tax planning.  The BMSS Tax Planning Professionals are able to work with you on your unique situation.

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