DBBM to Speak at SBDC Sponsored Event April 25, 2017

On April 25, 2017, the SBDC of San Mateo is sponsoring an event titled "SOURCES OF EQUITY CAPITAL & HOW TO PREP YOUR CLIENTS."  DBBM's own David Gosselin will be there to speak on behalf of the equity crowdfunding industry based on his industry leading experience in the space. 

Unlike more traditional forms of equity financing (VC financing, angel financing, private equity) equity crowdfunding through Regulation Crowdfunding (Reg CF) an Regulation A+ (Reg A+) allows entrepreneurs the ability to dictate terms, utilize affinity groups, and market to the public.  These are drastic differences compared to traditional equity financing.

dbbmckennon is a full service CPA firm with offices in Orange County, San Diego and Santa Monica.  We specialize in companies filing with the SEC and utilizing equity crowdfunding through Reg A+ and Regulation Crowdfunding. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

dbbmckennon is Proud to Sponsor the Crowd Invest Summit

As equity crowdfunding through Regulation A+ and Title III Regulation crowdfunding start to become more popular, it has been our pleasure to be one of the nations leading CPA firms when it comes to equity crowdfunding. 

We are proud to announce our sponsorship of the Crowd Invest Summit on December 7-8, 2016, a conference and expo meant to educate and bring together investors of all types with startups, issuers, and real estate investment opportunities.  

David Gosselin of dbbmckennon will be a featured panelist to discuss the accounting and audit requirements of equity crowdfunding under Reg A+ and Reg CF.  David has become the top CPAs in the nation for equity crowdfunding.  We look forward to seeing everyone at the event. 

Regulation Crowdfunding (Title III) - Power of the Crowd

Regulation Crowdfunding, Title III of the JOBS Act, or SEC equity crowdfunding goes by many names, and allows startups to raise up to $1M.  The adoption of Regulation Crowdfunding ("Reg CF") is truly a once in a lifetime event, given the fact that it changed 80 years of securities law. However, it's still not perfect.  Many will argue that the funding limit ($1M) is too low, or that the costs of legal, accounting, compliance, and/or portal fees, are too high.  We say, you can either complain or use it to your advantage. 

As an expert CPA in Regulation Crowdfunding and Reg A+, my favorite thing lately is to attend pitch competitions where various startups vie for the attention of VC and angel investors.  At these events, there are usually 100+ people; 5 VC/Angel investors listening to pitches who couldn't be more dis-interested and 100+ people there looking on.  The question I pose to each startup presenting is all the same:

"When you present are you better served facing the 5 people who likely won't like your ideas since it is not the next "unicorn" or would it be more beneficial to turn around and present to the 100+ people behind you who may be customers, stakeholders, and evangelicals for your Company?"

The so-called smart money, will tell you why Regulation Crowdfunding won't work, why it will never be successful, why it will never be as good as the connections smart money can provide. I call that market protection by the rich and powerful.  To be honest, an enthusiastic customer base is more powerful than smart money will ever be.  Enthusiastic follows is every startups trump card which makes equity crowdfunding under Tilte III of the JOBS Act such an advantage to early stage companies. 

dbbmckennon is a full service CPA firm with offices in Orange County, San Diego and Santa Monica.  We specialize in companies filing with the SEC and utilizing equity crowdfunding through Reg A+ and Regulation Crowdfunding. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

Countdown to Regulation Crowdfunding

Everyone involved with equity crowdfunding and specifically Title III, Regulation Crowdfunding (“Reg CF”) has May 16, 2016 marked in their calendars.  Now we are just a few weeks away from that magical date and there are still many unknowns.  One of the biggest unknowns is if the funding portals will be approved by FINRA to start Reg CF.  While that variable might not be known until very close to May 16, there are steps that issuers can take to prepare for Reg CF filings.   Start by organizing your information for the Form C filing (see page 603 of 685 of the link).  One of the lengthiest steps to preparing for a Reg CF raise is getting your financial statements reviewed by a CPA, which is where we (dbbmckennon) come in.

One of the biggest misconceptions about the financial statement review process is how long it takes and what is involved.  The financial statements being presented in the Form C are virtually no different than what any US public company files with the SEC.  The financials and notes, which can be lengthy, are held to similar disclosure standards.  For very early stage companies, reviews can be done in about a week.  For business that have been around for one, two, or many years, the review process can take 2-3 weeks or longer depending on how organized the Company is.

So what does that mean.  If you plan to do a Reg CF capital raise at the very start of when it becomes available (May 16), you should contact us today to get your Reg CF financial statement review started.  With only a few weeks left, time is running out to make sure everything is complete for filing.

dbbmckennon is a full service CPA firm with offices in Orange County, San Diego and Santa Monica, focused on providing quality accounting and consulting services at reasonable rates.  We specialize in companies filing with the SEC and utilizing equity crowdfunding through Reg A+ and Regulation Crowdfunding. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

Picking a Credit Card Processor

When you are starting a business, most likely you will need to consider taking credit card payments.  While there are a bevy of options at your disposal, some types better than others. The first thing you need to do is assess your business needs:

1.  Will you need a point of sale (POS) system?

2.  Do you expect frequent or infrequent use of credit card processing?

3.  What is the average sale you expect?

4.  What are your annual sales?

Many businesses get trapped into a traditional credit card processor which at times can be a mistake.  Traditional processors tend to be clunky and the fees they charge are hard to understanding even for the most experienced individuals.  If you don’t expect frequent use of the processor, you may want to stay away from the traditional processor; they charge you monthly fees whether or not you use the service and often require a multi-year contract.  Those fees can cost you up to $700 per year even if you don’t use the processor each month.

Alternatively, if your business is mobile, or requires infrequent credit card processing, think about using PayPal or Square for your credit card processing.  The fees as a percentage of the charge tend to be more than a traditional processor, but they also have options that don’t cost you anything monthly.  Both providers have options that allow you to charge cards in a mobile setting (using mobile phones and tablets).  Both have simple calculations for fees taken out of each charge.  Lastly, both provide an option that allows you to disburse money as well. With all these benefits, it’s no wonder why these services are becoming more popular by the day.

Research these services on your own to see what makes sense for your business. There are various calculators online that will help you with your decision.

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

Three Accounting Related Technologies for the next Ten years

Here are three services that will revolutionize accounting over the next ten years. 1.  Bill.com (www.bill.com) – Bill.com takes over your payable and receivable functions in a cloud setting.  Bill.com is billed as the “No-check” CEO software.  Why…because you can pay vendors by check, ePayment, or PayPal without ever touching a piece of payer.  Bill.com take over all the back of the house work….cutting checks, stuffing envelopes, mailing payments, etc.  It also tracks receivables, sends invoices (both by mail or email) and gives your customers online access to pay bills.  Best of all, it integrates with most major accounting software.

2. Xero (www.xero.com) – Xero is simple and functional accounting software that allows you to add functionality as your business grows.  Best of all, Xero is ever evolving.  Whereas many software companies are slow to update features, Xero releases new functionality each month and allow developers to add on their own programs.

3.  Square (www.square.com) – Square is the easy breezy payment processors for retail and businesses who need on site credit card processing.  For about $250 plus an iPad, you can set up everything need to set up a storefront.  With Square, there are no hidden fees, and not complicated processes.  Swipe a credit card, and receive your money next day.

With our fast paced technological world, its vital businesses are up on current trends.  Check out these services to see if they can help your business, or speak with a trusted accounting advisor.

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

Think an Outsourced Accounting Department is Too Expensive…THINK AGAIN

Growing companies always have big dreams. Part of those dreams is growth, success, and maybe some wealth as well. There are two kinds of business owners when it comes to their thoughts on their back office accounting: 1) owners who want to hire accountants before there is a significant need, and 2) owners who won’t hire until they are absolutely forced to do so. Rarely does a business hire individuals for their accounting needs at exactly the right time. How to solve this dilemma…outsource the accounting function and back of the house processes. Think about this cost breakdown, a CFO costs between $100,000-250,000 depending on the size of the Company and location (let’s assume its $150,000 for this example). An accountant to do the day to day work will cost $35,000-50,000 (let’s assume $40,000 for this example), your tax preparer another $2,000 and so on. If you follow that model and assumptions, the cost incurred by your company would be $192,000 plus employer taxes, plus benefits, plus 401K, plus the hardware necessary for the individual to do their work, plus increased office space required, plus, plus, plus. With all those pluses, your fees are sure to be close to $250,000 per year for those two employees. That’s a significant cost to incur when you’re still in the growth phase of your business.

On the opposite end of the spectrum, you can use an outsourced accounting department with experienced accountants and CFO types at a fraction of the cost (let’s assume $5,000 per month). If you compare that to the above scenario, it’s a $190,000 savings. Think of having all your back office, accounting and year tax needs taken care of each month for about the same price as that staff accountant. That also means no training, no benefits that need be paid, or extra costs incurred.

In the above example, we used $5,000 as a base amount, but generally such services start at $500 and go up depending on the size and complexity of your operations. In the end, it costs you not to consider having an outsourced accounting department.

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

Five Mistakes Startups Make

Five Mistakes Startups Make Following the American Dream and starting your own company can put you on the fast track to success, but it can also lead to the deep end of failure if not done correctly. Here are five accounting mistakes many startups make that hinder their potential.

1. Mixing business and personal finances – So many startups utilize their personal expenses for business use and vice versa.  Open a bank account for your business, transfer money, and keep the costs separate.  This will help minimize any negative tax consequences.
2. Entity type – A partnership can take many forms, an LP, LLC, LLP, S-Corp, or C-Corp.  There are certain entities that are better for certain businesses.  In addition the number of owners can effect which type of entity you should use.   Not all businesses can distribute earnings in the same way.  Pick an entity that best suits your business by asking a qualified advisor.
3. Not knowing obligations – That’s right, good old Uncle Sam and most states want theirs.  If you don’t have a reseller’s license, you will owe the state sales tax.  If you own an LLC and distribute guaranteed payments rather than W-2 wages, know that you will owe taxes on compensation received. Know your obligations.
4. Have the right tools – Use an accounting system that fits your company needs.  Do you need software to track your client relationships, email blasts, etc…? Make sure you use technology that fits your company and helps it grow.
5. Planning – Many startups think that they will be generating revenue from day one.  They find that it is harder to get off the ground than anticipated and they run out of money before they even start.  Make sure that you have enough money saved to live while you build your business.

And one for the road:

Consider and 83b election when forming your C-Corp.  It needs to be filed within 30 days of incorporation.   The election will minimize immediate tax consequences and lock-in your basis.

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

Employee versus Contractor

The biggest factor in assessing whether an individual is an employee or contractor comes down to control.  If a company can dictate hours and schedule, the person is more likely to be an employee.  Does a worker wear a shirt with your company’s logo on it while visiting clients?  Then they are likely an employee.  Here are a few other guidelines. Control: Does the hired person work directly under the orders of others in a defined position? They are most likely an employee. However, if the person works separately on specific projects with little to no supervision or time constraints, they are more likely to be a contractor.

Reimbursement: An important difference between a contractor and an employee is the method of payment for services provided. If the paycheck is constant and includes benefits such as a pension plan and vacation days, the person involved is an employee.

Importance: The proximity of the hired person to your vital operation is a good indicator of hired status. Is the person working on a direct part of your business model required to complete the process? Are tools provided for the job? If so, the hired person is most likely an employee.

The difference between an employee and a contractor has important tax repercussions, and should not be ignored. For more information, read information provided by the IRS here.

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

Ready Your Business for Investment

You had an idea, you started a business and put that idea into action, you looked for funding, and you found a potential investor that likes that idea.  The investor is ready to put money in and things are looking up.  Your business is about to get the money it needs to ramp up activity.  So what is the problem? Most startups strive so much for funding, they don’t necessarily think about the point at which someone says, “I love the idea and want to invest.”  It’s those magical words you've been waiting for, but now what?  Often those same words are just the beginning of the sentence which goes, “I love the idea and want to invest….so I will need to conduct my due diligence on your finances and records among other things.” Those other things include reviewing your burn rate, the runway you will need to get your product to market, etc.  All these items revolve around finance, accounting, and budgeting.  Remember, for a investor its all about the potential to make their investment back...times ten.

This is the point at which you start scrambling for the shoebox you stuffed with receipts, sift through drawers, print credit card statements, and find anything that resembles an invoice.  Then you figure out what is personal and what is business related.  Then you call a friend with “finance” experience and ask for help.  This is a dire situation to be in.  If you find yourself at this point, chances are that funding may be long-gone.  What does it say about your professionalism and your business savvy if you have to keep an investor waiting a week, a month, or even two days to get them information that you should have readily available.  We aren't talking about projections, we are talking about history.

The importance of keeping adequate books and records cannot be understated.  Having a professional and not a friend who "went to business school" is imperative in your growth and funding strategy.  When an investor asks for financial records, you should have it next day in their hands.  These financial records will also be the basis for your budget going forward.  Historical operating costs are a good starting point when estimating future burn rate, which will ultimately determine the runway your company has.  Remember, why would an investor put money in, knowing the company will run out of money before the intended goal is met.  Lining up your burn rate and development time line or your time to market, is critical for the success of your company.

If you are a founder of a startup, doing all the accounting and financial modeling can be slow and painstaking.  More importantly, it takes you away from what you are best at...developing your startup.  Contracting with a qualified accounting expert will expedite the accounting and finance process while freeing your time.

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

Audit, Client, Consultant Relationship

At some point, most successful businesses or businesses with significant potential must go through an audit to verify historical activity and results for investors, shareholders, or potential buyers.   However, because so many businesses are stretched thin in terms of staffing and specialized expertise, audits sometime become significantly burdonsom on a Company. These scenarios often result in delayed completion of the audit, unnecessary difficulty in completing the audit, and impaired independence for the auditor.  Companies lacking bandwidth will have to find time to devote to an audit; and those lacking expertise will have difficulty in completing the work in acceptable ways.  Regardless, often times what happens is the auditor assists the client (adjusts balances, writes financial statemens, etc...) to the point where their independence is impaired.  If an auditors independence is impaired, they are precluded from issuing an opinion.  The burden of knowing if an auditors independence is impaired can't be on the auditor alone.  If a company's auditor is determined to be not independent at a later time, their audit report can be disqualified and the Company may be subject to re-audit at the companies expense.

To remedy these situations, wise executive teams hire expert consultants to assist in the audit preparation and oversight.  By hiring a qualified consultant, companies can negate bandwidth and expertise issues, that will in turn resolve most independence issues.

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

Prepare your Financial Information to go Public

If you are thinking about taking your company public in the coming years, you should start preparing far in advance. Why?

As part of going public you will be subject to putting at least two years worth of books and records together in accordance with US Generally Accepted Accounting Principles (”GAAP”).  That information must be audited before being submitted to the SEC and available for public observation.

Any auditor will tell you it’s much easier to audit a company when you only have to audit the previous year.  Any time the audit period extends two to three years back there are various issues that are generally encountered, including: 1) missing records, 2) turnover in employees, 3) regulatory filings that will require amendment (think taxes), and the list goes on.

If you contemplating going public in the future, start a conversation with all the stakeholders that will be needed: your management team, board of directors, legal, financial consultant, and auditors.  Having these groups on the same page will ensure that everyone is working as a team to an end goal.  Being proactive in your approach will have better results than if you are reactive.

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

Accounting for Software Development

There are two types of software that are developed for a business: 1) internal-use software, and 2) software developed to be sold, leased or marketed (“software to be sold”).   The accounting and capitalization requirements for these two different types of software is very different.  Here is a high-level comparison of how each type of software is capitalized. For internal use software, there are three stages defined by accounting guidance: 1) preliminary project phase (i.e. planning, evaluating alternatives, conceptual formation); 2) application development (i.e. design, coding, integration with hardware), and; 3) Post implementation phase (i.e. testing, maintenance).   The capitalization of costs should start after the preliminary project phase, and is contingent on management committing to funding the continued development of the software, and the completion of the project being probable.  Costs should cease to be capitalized after the project is substantially finished (generally, close to the start of the post implementation phase).  All costs outside of this capitalization window should be expensed as incurred.  The costs qualifying for capitalization are also restricted, but that is a whole blog unto itself.

For software to be sold to third parties, the accounting guidelines are completely different.  Accounting guidance requires that costs associated with the development of software to be sold are charged to expense as incurred, until the point in which technological feasibility has been established.  Technological feasibility is established once an entity has completed planning, designing, coding, and testing the software to ensure that the software will work for its intended function.   As a general guideline, sometimes technological feasibility is considered established once software enters beta testing.   Capitalization must cease when the software is ready for general release to customers.  Accordingly, the window for capitalization is extremely small, and often, startup companies expense all costs during development.

Based on the above highlights, internal-use software generally carries a higher asset value on the balance sheet of companies than software to be sold (assuming the costs incurred to develop both are the same).

If your startup is developing software, it would be wise to contact an accounting consultant with software accounting experience to review which category your software falls into and what costs qualify for capitalization, if any.   In addition have your CTO track and document the progress of the project.  The accountant will need to line up expenses with the progress of the project to correctly account for the software.

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

Minimize Business Taxes Before Year End

Minimize Taxes before year end If you find that your Company has been profitable during the year and it is looking at a hefty tax bill after the year end, there are a few things you can do to minimize your businesses taxes.  Note however, that you should consult your CPA to determine if these action items are right for you.

1. Make payments - Pay all your payables and payroll before year end.  Remember, cash expenditures during the year qualify for deduction.  If you normally would run payroll on January 2, consider running that payroll on December 31 instead.
2. Prepay - Prepay certain expenses normally due on the first of each month.  Traditionally, recurring bills such as rent and insurance are due on the first of the month for the following month.  Take advantage of prepaying these items to push the deduction to the current year rather than the next year.
3. Buy equipment – Certain types of businesses can accelerate depreciation for tax purposes during the year of purchase.  For instance, if you have a construction related business and buy a qualifying truck, you can accelerate the depreciation on that truck and take the total value as a deduction to businesses income.

Remember that your businesses may have NOL (Net Operating Loss) carry-forwards and getting extra deductions in a given year may not be needed.  In addition, law changes can effect when and how you should spend money.  Contact your CPA to determine what is best for your company.

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

Raising Money for Inflection Points

As a business gets off the ground and ideas are swirling in the air, startup founders start committing significant time to raising money.  The question is how much money should a startup raise?  Most founders will answer “as much as possible,” however, that is often the wrong answer for investors. Some founders think it’s important to get a high valuation in hopes of more money coming in the door upfront.  This can also be another potential pitfall.  Valuations are great, but the market sets the price of your company.  A valuation can be high, but the market may indicate and act otherwise.    A company will never raise more money than the market is willing to invest.

What founders should be focusing on is infection points in their business.  When raising money, there should be a reason as to why you are asking for $5M compared to $1M.  An investor needs to know where that $5M is going to get the company.  If a company can only accomplish half their goal with $5M, than that $5M is already lost money to an investor.  If a company can have a finished product ready for market with that $5M, that is an inflection point in your business that an investor can get behind.

As you map out your business, think long-term and realize that your business likely won’t get big money up front.  It will take a few small tranches of money, until larger sums are realized.  Accordingly, think of fundraising like a road trip.  Plan your path and know where you need to take a pit-stop (i.e. get more money).  Think about each tranche of money and how it will relate to an inflection point in your business (i.e. working prototype, completion of code development, finished product, commencement of revenue, etc…).  Think about how much of a runway you need to reach each inflection point and how much money will be required to get there.  Creating a plan and a road map will help investors understand that you have a structured plan to execute an idea.

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

Five Accounting Resolutions for 2013

Improving your company should be a constant effort.  Here are fie resolutions to make for 2013 to improve your company's accounting and business.

1. Outsource the work that doesn't benefit your top or bottom line – Business owners should not spend one, two, three or four or more hours a day doing administrative work that doesn't directly impact the company’s growth and future.  Business owners are the face of the company and shouldn't spend all their time behind a computer and a stack of paper.  Outsource the accounting work to a qualified accountant that can take over receivables, payables, and general oversight of the company’s accounting needs.  Use a payroll company that can also help you with HR related issues.  Don’t try to wear all the hats in the organization.
2. Review – Create a monthly or quarterly review process.  Review margins, receivables, payables, and cash forecasts.  Sometimes business owners aren't as profitable as they think they are.  You may get a great margin on a sale, but are you thinking about your overhead costs, how long the product sat on the shelf, etc?  Are your prices to low/high?  Your product/service may need price adjustments.  Reviewing these items regularly will ensure your company doesn't fall behind needlessly.
3. Automate – As your business expands, make sure that efficiencies are found where available.  Credit card processing, storing bank information for clients, or automating payments can assist in becoming more efficient.  Upgrading your accounting software or billing practices can also help.
4. Plan – Speak with your CPA a few times throughout the year not just at year end.   Planning with your CPA can help minimize taxes.  Planning expenditures, creating retirement plans, and taking advantage of certain deductions can all help minimize taxes.
5. Take action – Most resolutions never get off the ground.  Make a concerted effort to do at least one thing that will help your accounting in 2013.  The first step is usually the hardest!

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.