Lutz adds Brady Sutfin and Tucker Zeleny

Lutz adds Brady Sutfin and Tucker Zeleny

 

LUTZ BUSINESS INSIGHTS

 

Brady Sutfin
Tucker Zeleny

Lutz adds brady sutfin and tucker zeleny

Lutz, a Nebraska-based business solutions firm, welcomes Brady Sutfin and Tucker Zeleny to its Omaha and Lincoln offices.

Brady joins the firm’s tax department as a Staff Accountant. He is responsible for preparing individual and business income tax returns, as well as providing general accounting assistance to clients in a variety of industries. Graduating from the University of Nebraska-Omaha, Sutfin received his Bachelor’s degree in accounting. Brady works in Lutz’s Omaha office.

Tucker joins the firm as a Data Analytics Associate. He is responsible for interpreting and analyzing data, data cleanup, advanced analytics, and data science to support customers’ business functions. Zeleny received his Ph.D. in statistics from the University of Nebraska-Lincoln. Tucker works in Lutz’s Lincoln office.

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OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

115 Canopy Street, Suite 200

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

Provider Relief Fund & Rural Health Clinic Reporting Requirements Update

Provider Relief Fund & Rural Health Clinic Reporting Requirements Update

 

LUTZ BUSINESS INSIGHTS

 

Provider Relief Fund & Rural Health Clinic Reporting Requirements Update

provider relief fund & rural health clinic reporting requirements update

Please note this information is updated through 11.9.2020. The reporting requirements are changing at a rapid pace – please continue to check for updates to the guidance as new information may change the information listed below:

Provider Relief Fund Reporting Requirements over $10,000

HHS released new/updated PRF FAQs on 10.28.2020 and then again on 11.2.2020. There is a significant amount of content added and implications for providers. We encourage providers and medical practices to review the new guidance in detail.

Highlighted FAQS:

  1. Page 3 – If a provider returns a Provider Relief Fund payment to HHS, must it also return any accrued interest on the payment? (Added 10/28/2020)
  2. Pages 8-9 – clarifies “health care-related expenses or lost revenues that are attributable to coronavirus” and outlines what expenses or lost revenues are considered eligible for reimbursement
  3. Page 16-18 – When reporting my organization’s other health care-related expenses attributable to coronavirus, how do I calculate the “expenses attributable to coronavirus not reimbursed by other sources”? (Added 10/28/2020)
  4. Page 18 – Do providers report total purchase price of capital equipment or only the depreciated value? (Added 10/28/2020)
  5. Page 19 – Can I use 2020 budgeted revenues as a basis for reporting lost revenues? (Added 10/28/2020)
  6. Page 20 – How does cost reimbursement relate to my Provider Relief Fund payment? (Added 10/28/2020)

Direct link to FAQs:  https://www.hhs.gov/sites/default/files/provider-relief-fund-general-distribution-faqs.pdf

Recommendations at this point:

  1. Recommendation to track provider/service lines changes between 2019 and 2020, but unsure yet if this will be factored into the lost revenue calculation
  2. Track expenses and ensure no double counting between programs – Be aware of the financial assistance received and various programs your practice received funding, track expenditures by fund.
  3. Start documentation and gathering of information for the reporting requirements – first reporting due 2/15/2021
  4. Review single audit implications if federal funds expended exceed the $750,000 threshold
  5. Review your “lost revenue” calculation; use actual year to date 2020 versus actual 2019.

Full text of Reporting Requirements: https://www.hhs.gov/sites/default/files/post-payment-notice-of-reporting-requirements-november-2020.pdf

* These final reporting requirements do not apply to:

  1. Nursing Home Infection Control distribution recipients
  2. Rural Health Clinic Testing distribution recipients
  3. Health Resources and Services Administration (HRSA) Uninsured Program reimbursement recipients

 

Rural Health Clinic (RHC) Distribution Reporting Requirements

A reminder to providers that the reporting portal is open for the $49,461.42 RHC testing distribution providers received from HHS starting back in May 2020. HRSA also updated its FAQs and clarified that reporting related to testing and spending must be reported monthly. The next deadline for reporting the October data is 11/30/2020. The PRF reporting requirements over $10,000 that are due 2/15/2021 do not apply to the RHC distribution.

RHC Reporting Deadlines

Monthly Data                                     Reporting Deadline

May – September 2020                  October 31, 2020

October 2020                                     November 30, 2020

November 2020                                December 31, 2020

December 2020                                 January 31, 2021

January 2021                                      February 28, 2021

 

HRSA FAQs – Rural Health Clinic COVID-19 Testing Program: https://www.hrsa.gov/rural-health/coronavirus/frequently-asked-questions#rhc

RHC Reporting Portal: https://www.rhccovidreporting.com/

Highlighted FAQs:

What information is required for RHC COVID-19 Testing Program reporting? (Added: 10/28/2020)

RHC COVID-19 Testing Program reporting includes basic information on the RHC organization, the number of and location of testing sites (active and inactive), information on the use of funds, the total number of tests conducted, and the number of COVID-19 positive tests. HRSA intends to use this information to evaluate the effectiveness of the program at an aggregate level. The reporting requirement does not include any personally identifiable, patient-level information.

How often do RHCs/TIN organizations need to update their information on RHCcovidreporting.com? (Added: 10/28/2020)

RHCs are required to provide information monthly.

What are permissible expenses under the $225 million Rural Health Clinic COVID-19 Testing Program payment? (Added: 5/20/2020)

Rural Health Clinic COVID-19 Testing Program funding may be used for COVID-19 testing and related expenses. As set forth in the Terms and Conditions (PDF – 223 KB), examples of related expenses include, but are not limited to, planning for implementation of a COVID-19 testing program, procuring supplies to provide testing, training providers and staff on COVID-19 testing procedures, and reporting data to HHS on COVID-19 testing activities. Further, the Rural Health Clinic COVID-19 Testing Program funds may be used for building or construction of temporary structures, leasing of properties, and retrofitting facilities as necessary to support COVID-19 testing.

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OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

115 Canopy Street, Suite 200

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

E/M Changes for 2021

E/M Changes for 2021

 

LUTZ BUSINESS INSIGHTS

 

E/M Changes for 2021

e/m changes for 2021

KIM KAYE, HEALTHCARE CONSULTING SENIOR
LAUREN DUREN, HEALTHCARE & CAS MANAGER

The Centers for Medicare & Medicaid Services (CMS) launched their “Patients Over Paperwork” Initiative to reduce unnecessary burden, increase efficiencies, and improve the overall healthcare experience. This initiative focuses on eliminating overly-burdensome and unnecessary regulations and guidance to allow providers to focus on their primary mission – improving their patients’ health. 

CMS, in conjunction with the American Medical Association (AMA), announced changes for E/M services to be enacted on Jan. 1, 2021. These changes will only pertain to office or other outpatient E/M codes (99202-99215); and the deletion of code 99201.

What will change: code selection will be established by the total time on the date of the encounter or medical decision making (MDM) – versus the standard History, Exam, and Medical Decision Making or Time. Although medically appropriate history and/or examination will not be part of the basis for code selection, the history and exam findings that are pertinent to the visit still need to be documented. In addition, guidelines and codes descriptions for MDM and time have been redefined.

When billing time, the main difference is the calculation and documentation requirement. The appropriate time must be documented in the medical record when it is used as the basis for code selection.  No longer does the provider have to state, ‘greater than 50% of total face-to-face time spent counseling and coordination of care’, but rather the total visit time must be documented. This includes both the face-to-face and non-face-to-face time on the date of the encounter.

Activities may include:

  • Preparing to see the patient
  • Obtaining and/or reviewing history
  • Examination and/or evaluation
  • Counseling/education
  • Ordering tests, medications, or procedures
  • Charting
  • Referring/communicating with other healthcare professionals (not separately reported)
  • Independently interpreting results (not if billing CPT code)
  • Communication of results
  • Care coordination (not reported separately)

What is not included in time:

  • Separate reported tests/procedures
  • Staff time
  • Slow charting
  • Any element performed on a different date

A new prolonged services code will also be established to report with codes 99205 and 99215. An official CPT code number will be assigned at a later date. The guidelines for using these prolonged codes will apply:

  • Only to be used after the high-level service has been exceeded (i.e., 99205 or 99215) and only when the office or other outpatient service has been selected using time alone
  • 15 minutes of additional time must have been attained; do not report prolonged services for an additional time of less than 15 minutes
  • Time spent performing separately reported services is not counted in the E/M of prolonged services time
  • Prolonged total time may include combined time with/without direct patient contact on the date of the encounter.

When billing based on Medical Decision Making, the level of service selected (when using MDM) is still based on meeting the requirements for the level of service for two of the three elements in the MDM risk table. Medical Decision Making has the following three elements to the risk table:

  • The number/complexity of problems addressed
  • Amount/complexity of data to be reviewed and analyzed
  • The risk of complication and/or morbidity or mortality of patient management

It is imperative to understand the various definitions that appear in the MDM Risk table.  (The AMA MDM Risk Table is available online.)

 

Sources:

1. “CPT® Evaluation and Management (E/M) Office or Other Outpatient (99202-99215) and Prolonged Services (99354, 99355, 99356, 99XXX) Code and Guideline Changes.” Available from: https://www.ama-assn.org/system/files/2019-06/cpt-office-prolonged-svs-code-changes.pdf

2. “Table 2 – CPT E/M Office Revisions Level of Medical Decision Making (MDM).” Available from: https://www.ama-assn.org/system/files/2019-06/cpt-revised-mdm-grid.pdf

3. Stephanie Scot, RHIT, CPC – VP of AAPC Audit Services Group. “Everything You Should Know About the 2021 E/M Changes (But Were Too Afraid to Ask)”.

ABOUT THE AUTHOR

402.827.2353

kkaye@lutz.us

LINKEDIN

KIM KAYE + HEALTHCARE CONSULTING SENIOR

Kim Kaye is a Healthcare Consulting Senior at Lutz with 16+ years of experience. She is responsible for providing professional coding assistance, chart audits and chargemaster reviews for clients with a focus on the healthcare industry.

AREAS OF FOCUS
  • Coding Assistance
  • Chart Audits
  • Chargemaster Reviews
  • Healthcare Consulting
AFFILIATIONS AND CREDENTIALS
  • Certified Professional Coder
  • Certified Evaluation & Management Auditor
  • American Academy of Professional Coders, Member
  • National Alliance of Medical Auditing Specialists, Member
EDUCATIONAL BACKGROUND
  • BA, Bellevue University, Bellevue, NE

402.827.2062

lduren@lutz.us

LINKEDIN

LAUREN DUREN + HEALTHCARE & CAS MANAGER

Lauren Duren is a Healthcare & CAS Manager at Lutz with over five years of relevant experience. She provides healthcare consulting, as well as outsourced accounting services to clients with a focus on QuickBooks, tax, and payroll compliance.

AREAS OF FOCUS
  • Healthcare Accounting Consulting
  • Outsourced Accounting
  • Tax
  • Payroll Compliance
  • QuickBooks
  • Financial Reporting, Budgeting & Forecasting
  • Provider Compensation Plans
  • Practice Benchmarking
  • Private Physician Practices
  • Nonprofit Industry
AFFILIATIONS AND CREDENTIALS
  • American Institute of Certified Public Accountants, Member
  • Nebraska Society of Certified Public Accountants, Member
  • National Medical Group Management Association, Member
  • Nebraska Medical Group Management Association, Member
  • Certified Public Accountant
EDUCATIONAL BACKGROUND
  • MBA, University of Nebraska, Omaha, NE
  • BSBA in Accounting, University of Nebraska, Omaha, NE
COMMUNITY SERVICE
  • Lutz Gives Back, Volunteer

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Toll-Free: 866.577.0780  |  Privacy Policy

All content © Lutz & Company, PC

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

115 Canopy Street, Suite 200

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

Lutz adds Tony DeSantis to its Consulting Division

Lutz adds Tony DeSantis to its Consulting Division

 

LUTZ BUSINESS INSIGHTS

 

Tony DeSantis

Lutz adds Tony DeSantis to its consulting division

Lutz, a Nebraska-based business solutions firm, welcomes Tony DeSantis to its Omaha office.

Tony DeSantis joins Lutz’s consulting division and will be leading the charge for the firm’s data analytics and insights service offering as a Data Analytics Manager. He is responsible for interpreting and analyzing data, as well as designing report visuals in support of client engagements. In addition, he specializes in data management and the application of artificial intelligence to simplify business processes. DeSantis received his Bachelor’s degree in finance and operations from the University of Delaware.

RECENT POSTS

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We tap into the vast knowledge and experience within our organization to provide you with monthly content on topics and ideas that drive and challenge your company every day.

Toll-Free: 866.577.0780  |  Privacy Policy

All content © Lutz & Company, PC

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

115 Canopy Street, Suite 200

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

7 Vital Tips for Introducing Data Analytics to Your Business

7 Vital Tips for Introducing Data Analytics to Your Business

 

LUTZ BUSINESS INSIGHTS

 

7 Vital Tips for Introducing Data Analytics to Your Business

7 vital tips for introducing data analytics to your business

tony desantis, data analytics Manager

 

Integrating data analytics into your business can help your revenue grow, the organization mitigate risk or gain insight into your business operations. There’s a wealth of information available at your fingertips if you know how to decipher it.

It’s easy to become overloaded figuring out where to start or by the amount of data you have, but it’s important to have a plan and understand your goals before launching the process. Follow these seven tips to make a solid plan for introducing data analytics to your business.

 

1. What your goals are and why you are introducing analytics.

Understand you and your organization’s meaning of “Analytics.”

Data analytics is a term that gets tossed around rather loosely, so be sure it’s clearly defined for all those involved. Set realistic expectations and well-defined deliverables, so everyone is on the same page.

The basic definition of data analytics is “the process of analyzing raw data to find trends, patterns, and anomalies to answer questions.” Techniques and approaches for producing data analytics can vary widely. It’s important to determine the intended goals before developing a set of results.

Reporting vs. Analytics?

Many organizations wade into “analytics” through some sort of reporting functionality, sometimes referred to as business intelligence.  It is important to understand that reports differ from analytics. Reports are simply a static presentation of collected data. Conversely, analytics is a dynamic interpretation of trends and details within that data that indicate reasons for the results in the report and help answer the question of “why?”. Basically, a report is a postmortem display of collected data, while analytics is more of a holistic, real-time explanation of why the results occur, based on granular data points in action.   

 

2. Figure out what business questions you want to answer.

Common missteps in the adoption of analytics involve not asking (or understanding) the true question the business wants to answer or the unrealistic expectation that the data will simply “tell you something” without prompting or direction.  The reality is that analytic techniques are applied to help answer specific questions to help explain, identify, validate, or refute a business issue or opportunity. 

For example, your organization may say their goal is to use analytics to make more money.  However, is that ultimately the question you need to answer?  An organization may use analytics to determine, what products are most profitable, how to sell more of those products, what customers buy those products, and how to find or create more of those customers.    

The questions your business looks to apply analytics to should focus on those that help them understand the company’s business, customers, products, issues and future opportunities. They usually begin with, “Why did that happen?”, and are followed with, “how do we never do that again?” or “how can we do that more often?” The answers to most of these questions may require a multi-step explanation. Make sure you understand the ultimate question management is asking, so you don’t chase down a partial answer or fail to identify the “why.”

 

3. Decide what tools may be needed.

What existing tools might your organization already utilize that can be leveraged?

You might not have to reinvent the wheel. Be sure you understand what’s already available to you.

Do you want a system that packages up the analytics already, or will you do some work yourself? 

Your journey into data analytics may not be as big of a leap as you think. Check to see if any of your existing systems, like CRM or ERP software, already have automated analytic capabilities embedded. You may want to supplement with a data visualization software like Power BI or Tableau.

 

4. What skills sets exist within the organization that may be capable of executing or learning data analytic techniques.

Identify folks who have the skills or desire to learn.

There may already be members of your team that have an interest and desire to apply analytics to their day-to-day work.  Seek out individuals within the organization that may already be using analytic techniques in their Excel modeling, using data visualization tools or “dabbling” in analytics on the side.  Another source can be resources that are involved with your backend databases and have skills around collecting and managing large volumes of data. Make sure you have staff that embraces the possibilities and understands how transformational data analytics can be.

Invest in some training, but…

As you get started, leverage free resources online until you know what tools and skillsets will be most valuable. There are many ways to utilize the data you have available to you, so it’s wise to start by dipping your toes in the water before you ramp up capabilities.

 

5. Identify internal business champions that have a need or desire to use analytics.

These are the people that get it! These partners have a vision and yearning to go beyond the basic nuts and bolts of reporting. Champions of the cause can inspire your whole enterprise to embrace data analytics and help stimulate productive growth. 

 

6. Understand your data landscape.

What data does the organization have?

Make sure you have a good understanding of what data each department collects. To start, shape your analytics program around what’s available and plan for collecting and managing more data as the program grows.

Where is the data?

Mature businesses often have legacy systems that have difficulties communicating with each other. Know where to find the data and understand any current limitations to connecting with it.  Also, keep in mind that data sources may exist in spreadsheets or other bespoke applications. 

How detailed (or not) is the data?

The richer the information, the better the results. When collecting data, try to start with information that is as detailed as possible. Typically, the more, the better.  This will allow the most flexibility; however, if aggregated data is all that is available, just make sure the consumer of the analytics understands any limitations that may exist.

How complete (or clean) is the data (Garbage in, garbage out)?

The quality of existing data is crucial to avoid misleading and ineffective analytics. Too often, data input is duplicated or incomplete. Either will skew the workings of the analytics.  Data validation and profiling are important to detect potential errors ahead of time. If data is missing or incomplete, come up with a plan to address the handling of any missing information.

 As you define the questions you are trying to answer, determining the data landscape is a critical next step.

 

7. Focus on quick wins to get buy-in from the organization.

You have to crawl before you can run. Early success will fuel more acceptance and appreciation for greater possibilities. Prove your point on a small scale to encourage bigger projects in the future. Grow with the data analytics process. Start with small, manageable projects with clearly defined goals and expectations. Use that experience to plan for future development. Before you know it, management will be suggesting more projects beyond your original scope!

 Effective business decisions require sound information and timely data. Properly assembled analytics can bring disparate information together to form logical patterns and associated data points in a more reportable manner that decision-makers can better comprehend. In an age when you’re required to “do more with less,” effective data analytics can expand the capabilities of a smaller staff.

The possibilities for integrating analytics into your business are endless. These seven steps are a great start to effectively implementing a data analytics program. If you need assistance with your business’s data analytics, contact us today or click here to learn more about our offerings.

ABOUT THE AUTHOR

Tony DeSantis

402.496.8800

tdesantis@lutz.us

LINKEDIN

TONY DESANTIS + DATA ANALYTICS MANAGER

Tony DeSantis is a Data Analytics Manager at Lutz with over 20 years of experience. He is responsible for interpreting and analyzing data, as well as designing report visuals in support of client engagements. In addition, he specializes in data management and the application of artificial intelligence to simplify business processes.

AREAS OF FOCUS
  • Data Analytics
  • Data Visualization
  • Data Management
  • Artificial Intelligence
  • Forensic Analytics
EDUCATIONAL BACKGROUND
  • BS in Finance and Operations, Minor in Management Information Systems, University of Delaware, Newark, DE
COMMUNITY SERVICE
  • Junior Achievement, Volunteer
  • Gilda's Club Chicago, Past Board Member

SIGN UP FOR OUR NEWSLETTERS!

We tap into the vast knowledge and experience within our organization to provide you with monthly content on topics and ideas that drive and challenge your company every day.

Toll-Free: 866.577.0780  |  Privacy Policy

All content © Lutz & Company, PC

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

115 Canopy Street, Suite 200

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

Salary vs. Distribution: Effect on Valuations

Salary vs. Distribution: Effect on Valuations

 

LUTZ BUSINESS INSIGHTS

 

Salary vs. Distribution: Effect on Valuations

salary vs. distribution: effect on valuations

michael greteman, financial analyst

 

One of the indisputable benefits of owning a private company is the ability to determine your compensation. Whether this comes in the form of salary, bonus, owner’s perquisites or distributions, an owner is able to effectively set their income (within reason, the Internal Revenue Service has stipulated).

In the case of a pass-through entity, such as an S Corporation, after deducting all expenses, including salaries and wages, all of the business income/loss will flow to the owner’s tax returns to be taxed at the individual rather than entity level. This single level of taxation for a pass-through entity is a primary benefit in electing to be taxed as an S Corp rather than a C Corp, which faces both an entity and dividend tax.

If the owner of a pass-through entity elects to make distributions, so long as the distributions received by a shareholder do not exceed his/her basis, they will not be taxable. Therefore, many business owners elect to make distributions from the company on a periodic basis, often becoming reliant on these earnings as a primary income source.

Practically speaking, this indistinguishable reliance upon salary and distributions as equal forms of compensation is not unreasonable. So long as the money flows to the owner and taxes are paid on the earnings, the difference seems more akin to an accounting/tax issue than a misleading indifference.  However, the lack of a distinguisher between the treatment of salary and distributions as compensation can have implications when the need for a valuation arises. To demonstrate this, see the following example:

Example: Valuation of Company XYZ

Company XYZ is an S Corporation engaged in the business of providing landscaping services. The company is owned and managed by three individuals. Recently, a third-party approached Company XYZ with a buy-out offer, which is dependent on the three owners/managers continuing to work for the company. The price included in the buy-out offer is $1,250,000. Management of Company XYZ retained a valuation advisory firm to determine the reasonableness of the third-party offer price.

During the preliminary analysis stage, the valuation firm engaged by Company XYZ made three normalizing adjustments to the company’s pre-tax income to derive an adjusted EBITDA figure, as shown below.

Applying a market-derived EBITDA multiple of 4x to the company’s adjusted EBITDA yields an implied value of company operations of $1,820,000. Based on the current fact set, the offer price of $1,250,000 seems to undervalue Company XYZ significantly.

To better understand the operations of Company XYZ, the valuation firm requested information relating to the management compensation of the company. As stated earlier, the three owners of Company XYZ are also the three managers. When asked about their pay, the individuals stated that their take-home pay was competitive for the market. Owner #1, serving as the President of the company, earned $210,000 in 2018, while owners #2 and #3, both Vice Presidents, earned $160,000 each. Based on the valuation firm’s research, this level of compensation is a fair indication of market compensation and what the owners could expect to receive, assuming they stayed with the company in their current management positions after the transaction.

However, red flags were raised by the valuation firm upon performing an independent analysis of the detailed compensation paid to the owners. While the owners were technically truthful in describing their level of earnings, both the substance and the form of the compensation must be considered. The following chart details the total compensation paid to the three owners/managers:

There are two main issues in play here.

1) The IRS may take issue with the level of salary and bonus paid to the owners. As demonstrated in various IRS cases (JD & Associates, Ltd. vs. United States of America [Case No. 3:04-cv-59]), a reasonable level of compensation must be paid to owners of pass-through entities. The basic thought process here is that even though the company’s total business income will be taxed as earnings to each of the owner’s personal tax returns, reasonable salaries must be taken to ensure the 15.3% of payroll taxes are collected based on total wages paid.

2) Assuming the owners expect to receive similar compensation after the transaction is completed, the cash flows of Company XYZ are overstated. The $325,000 of distributions paid out to managers in the prior year would now flow directly to the new owners after the transaction. Therefore, an adjustment must be made to appropriately reflect the miscategorized distributions paid to the owners as salaries and wages, as well as the associated payroll taxes, assessed at 15.3%.

Adjusting the company’s compensation levels to classify distributions received as salaries and wages appropriately greatly reduces the EBITDA of Company XYZ, as shown below.

Applying the same 4x multiple to the new adjusted EBITDA results in a diminished value of $321,100.

Conclusion: The above example demonstrates the impact that can occur with a simple adjustment made during the course of a valuation. While there was no ill-will by the owners in how they structured their compensation, the simple reclassification of distributions to salary and wages effectively eliminates the majority of the value of Company XYZ. It is best for both sides in a potential transaction to discover issues related to owner compensation before a large amount of resources are spent pursuing a deal destined to fall apart during the diligence phase.

ABOUT THE AUTHOR

402.514.0015

mgreteman@lutz.us

LINKEDIN

MICHAEL GRETEMAN + FINANCIAL ANALYST

Michael Greteman is a Financial Analyst at Lutz M&A with over two years of business valuation experience. His primary responsibilities include performing business valuation analyses, analyzing and interpreting company historic and projected financial data, building financial models, and developing marketing and transaction materials.

 

AREAS OF FOCUS
  • Business Valuation Analyses
  • Analyzing & Interpreting Financial Data
  • Building Financial Models
AFFILIATIONS AND CREDENTIALS
  • Accredited in Business Valuation
  • American Institute of Certified Public Accountants, Member
  • Certified Public Accountant
EDUCATIONAL BACKGROUND
  • MAC, Creighton University, Omaha, NE
  • BSBA, Creighton University, Omaha, NE
COMMUNITY SERVICE
  • Big Brothers Big Sisters of the Midlands, Volunteer
  • Siena Francis Homeless Shelter, Volunteer

SIGN UP FOR OUR NEWSLETTERS!

We tap into the vast knowledge and experience within our organization to provide you with monthly content on topics and ideas that drive and challenge your company every day.

Toll-Free: 866.577.0780  |  Privacy Policy

All content © Lutz & Company, PC

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

115 Canopy Street, Suite 200

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850