2014 ISSUE - ssfllp.com · SSF’s Business Consulting team is dedicated to helping your company identify and execute on its unique formula. From corporate governance and operational

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925.271.8700 | ssfllp.com

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I’m John Sensiba,and I invite you to call me.

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INDUSTRY ROUNDTABLES10 Made in the Bay: Secrets of manufacturing innovators

24 Secrets of success: Making the most of mergers and acquisitions

SSF INSIDER17 Tone from the top How John Sensiba uses his early experience to set the tone from the top

26 Community Counts SSF sta� in the community

27 SSF Recipes Chocolate Drop Cookies

TABLE OF CONTENTS

SSF SPOTLIGHT�ought Leadership & Industry Insights Magazine

BUSINESS INSIGHTS

8 A trusted advisor Gaining the greatest value from your relationship with your accountant

9 Meeting the challenge How health care reform demands a strategic approach from businesses

12 The health care quandary �e organizational e�ects of health care coverage decisions

13 Overseas opportunities How to navigate the implications of doing business abroad

16 Hiring Tips for attracting and retaining talent as a middle market �rm

18 Cybersecurity How business owners can protect their network from the inside out

19 Network like a pro How to build relationships that will grow your business

20 Exiting the enterprise zone How new tax changes could a�ect your business’s tax incentives

21 C-corp vs. S-corp How to decide between a C-corp or S-corp designation

22 Are you ready? How businesses on the selling end can plan for a merger or acquisition

23 SOC Reports How SOC reports provide assurance to stakeholders, customers

Sensiba San Filippo LLP4900 Hopyard Road, Suite 200Pleasanton, CA 94588

(925) 271-8700www.ssfllp.com

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2014 ISSUE

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Welcome to 2014! I hope you and your family have enjoyed a safe, healthy and prosperous start to the year. �e start of each year means something di�erent to everyone. As CPAs and advisors, it means we are rapidly approaching the busiest time of our year. For me, being busy is a humbling experience. It

means that our clients have placed their trust in us and provided us with the opportunity to work alongside them as they work toward their goals.

We take our responsibility to serve our clients seriously and are committed to �nding new ways to bring value, strengthen our relationship and help businesses to prosper. I would like to take a few minutes to share details on our growth in 2013, to discuss our vision for 2014, and how Sensiba San Filippo will help our clients meet the challenges of tomorrow.

�anks to the support and success of our clients and the hard work of our professional team, the past year has been one of expansion at Sensiba San Filippo. In 2013, we launched our Business Process Assurance group. �is group will help clients meet increasing �nancial reporting and information compliance standards as well as expand assurance requirements of stakeholders related to �nancial and other controls. �e Business Process Assurance group provides Sarbanes-Oxley (SOX) services, Service Organization Controls (SOC) services and more. In addition to these new assurance services, we also launched our dedicated Mergers & Acquisitions (M&A) group. �e M&A environment has been “red-hot” all across the country and no area was a�ected more than the Silicon Valley. While we have been helping clients navigate sales and acquisition opportunities for years, we have decided to invest even more heavily in our M&A resources and expertise.

In addition to expanding our services, we were honored to have our �rm and individuals on our team receive several special awards and recognition in the market. SSF has been named as a “Top Workplace” by the Bay Area News Group and was selected as one of the Bay Area’s “Healthiest Employers” by the San Francisco/Silicon Valley Business Journals. Scott Anderson was selected as a recipient of the “40 under 40” awards by the Silicon Valley Business Journal. Karen Burns was honored as one of the “Most In�uential Women in Bay Area Business” by the San Francisco Business Times and was named as one of the “Women Worth Watching” by Diversity Journal. Karen’s hard work serving the manufacturing industry was also acknowledged when she was named President of the East Bay Manufacturing Group.

One of my primary focuses as managing partner last year was to ensure that we capitalized on our opportunities and used them to create an even better experience for our clients. Ful�lling this commitment meant investing in a record level of expansion and advancement of our professional sta�. We proudly welcomed 24 new professionals in 2013, with eight new hires joining our tax department. In addition, 15 team members received well-deserved promotions. Monic Ramirez and Bob Belshe were elected into the Partner-in-Training program, and Claudia

ENJOY SSF SPOTLIGHTThought Leadership & Industry Insights Magazine

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“We at Sensiba San Filippo pride ourselves as having grown with the Bay Area for more than 35 years — and we are as committed as ever to support business and individuals who make this place their home.”

John SensibaManaging PartnerSensiba San Filippo LLP

Necke-Lazzarato, Marcus Halluin, Brenda Stelle and Brandon Scripps joined our Emerging Leaders Academy. Lastly, we are very proud to announce that Scott Anderson will join our Partner group in May 2014.

As we move through 2014, we continue to look for talented, dedicated professionals to add to our client service team. If you know of anyone who may be interested in joining our team, please have them visit our “Careers at SSF” page on our website and submit their resume.

�is is an exciting time for our clients and our entire team at Sensiba San Filippo and we are optimistic that 2014 will be a year of expanded reach and opportunity for our clients, our professionals and our �rm. We have always been successful with our organic growth and are actively looking outward for opportunities to grow our team of nationally recognized industry experts to support the increased demands of our local markets and the rapid growth of our client base.

While I’ve spent some time updating you on us, I want to assure you that our focus remains �rmly set on helping you grow your business, take care of your family, and achieve your unique goals. Every investment we make as a �rm will be made with the goal of improving your experience and expanding on the value we deliver. �ank you again for providing us with the privilege of serving you. It is an honor to count you amongst our clients and friends. �ank you for your support. We look forward to contributing to your continued success.

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Food & Beverage Clean Technology Real Estate & Construction Estate & Trusts Privately-Held Companies

WHO IS SSF?

Sensiba San Filippo (SSF) is one of the largest Northern California based CPA and business consulting �rms focused on providing superior client service, deep technical expertise, and a passion for the industries we serve to clients throughout the San Francisco Bay Area. We are a boutique-sized �rm by choice, allowing us to deliver proactive and personalized service while delivering more than 35 years of knowledge and technical expertise that is comparable to that of a national or a “Big Four” �rm.

What di�erentiates SSF is simple – it is our focus on client service and our deep technical and industry expertise.

Our �rm includes 14 partners and approximately 95 additional professionals. We have four o�ces across the Bay Area to serve our clients including: San Jose, San Mateo, Pleasanton and Morgan Hill. Our size gives us the nimbleness to deliver the highest quality of work, while giving our partners the time to cultivate and maintain personal relationships with our clients.

Proactive CommunicationWe are committed to having timely discussions and planning strategy meetings on both tax and accounting issues to ensure that our clients are well-prepared for future growth. �is includes collaborating to �nd timely answers to tax and accounting questions. Our proactive approach means we do more than wait to solve problems; we work to prevent them. We actively seek ways to help our clients realize full operating potential.

Commitment to a Long Term RelationshipAs a matter of record, Sensiba San Filippo has one of the highest client retention rates with many of our clients remaining with our �rm year a�er year. We value a long-term relationship with our clients. Our priority is to build a relationship based on a year-round process where conversations and analysis occur contemporaneously with your planning process, not a�er transactions have occurred. We work to earn our clients trust. Our client service team will work tirelessly to ensure satisfaction with our service, our timing, and our partnership.

An International ReachSensiba San Filippo is a member of Kingston Sorel International (www.ksi.org), a global network of regional accounting �rms, with a presence in over 60 countries. KSI was formed to help its members better serve the global needs of their clients engaging in international business transactions by providing an international resource for accounting, consulting and taxation services as well as referrals to local service providers.

So you’re an accounting firm...what makes you different?

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Privately-Held Companies Venture Capital Employee Benefit Plan / 401(k) Technology Manufacturing & Distribution Agribusiness

Assurance, Advisory & ReviewFinancial statement audits and reviews are performed for the bene�t of company management as well as to provide reliable, standardized, and accurate reports to interested stakeholders — its creditors, investors, vendors, or even potential acquirers. Our assurance and advisory professionals help you understand and anticipate what an analyst will see, internalize and question, and help you best prepare to respond to any questions or feedback.

Tax Planning & Compliance SSF’s tax team arms our clients with the tax knowledge and analysis to make appropriate business choices. Our active involvement in KS International, a worldwide a�liation of public accounting �rms, provides easy access to local tax and business practices in more than 50 countries across the globe.

Accounting Services SSF’s Accounting Services team helps businesses of all sizes produce timely, meaningful �nancial statements to provide you with substantive and accurate information to support decision making. �e improved process and timeliness achieved through working with our Accounting Services team may also help reduce the costs of your annual �nancial statement review or audit. Services include:

•Periodicfinancialstatementcompilation •Fixedasset/depreciationprojects •QuickBookstraining •Accountingtraining •In-housecloseassistance,process •Accountreconciliations developmentandstandardization •Chartofaccountssetupand/orreview Business ConsultingSSF’s Business Consulting team is dedicated to helping your company identify and execute on its unique formula. From corporate governance and operational adjustments to exit strategy planning, our experienced professionals will provide your company with actionable strategies that will help improve your bottom line.

Sarbanes-Oxley ComplianceSSF’s Sarbanes-Oxley compliance team brings a value-added, �exible approach to your SOX implementation or maintenance environment. Whether your company requires turnkey, co-sourced or project management assistance, our experienced team brings the right level of resources to your project.

Mergers & AcquisitionsSSF’s M&A team is well-versed in the intricacies of M&A transactions - whether you are looking for a successful buyout or to prepare for an acquisition, SSF can advise you through the process ensuring that decisions are made with your best interests in mind. Services include:

•Businessplanpreparation •Exitstrategydevelopmentandimplementation•Taxplanning •Offerevaluation•NOLleverage/planning •Teamselection•Recastinghistoricalfinancialstatements •Transactionnegotiation•ESOPconsultationandplanning •Duediligence/Targetassessment

SERVICES WE OFFER

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No matter what industry you’re in, we’ll walk a mile in your shoes.

Every business owner requires the services of outside accountants from time to time. On the surface, many

CPAs seem similar. �ey list the same services, have the same accreditations and work in the same industries. But do they all deliver the same value? Is one CPA as good as the next? How can a business owner tell if he or she is truly getting the greatest value from a service provider?

Jerry Krause, audit partner at Sensiba San Filippo LLP, says delivering value to a business owner requires more than just technical expertise. “Serving a business owner is about much more than providing speci�c services or understanding accounting principles and tax codes,” says Krause. “Delivering value requires taking the time to understand the full picture of the owner’s business, personal and �nancial situation.” He says strong relationships are the foundation for value-added delivery.

We spoke with Krause about the best approach to building valuable relationships, where accountants could fall short and what business owners should expect from a trusted advisor.

What should business owners expect from their accountant?

First and foremost, business owners should expect their accountant to be looking out for them. �at means proactively identifying opportunities and avoiding problems. If an accountant is only providing the services a business owner is asking for, they aren’t doing him or her any favors. A trusted advisor is not an order taker. �ey listen to what their clients are saying and will be creative and proactive in �nding solutions.

For the owner of a closely held business,

an accountant needs to know more than just the business issues. Business decisions a�ect personal and family �nances, so sound advice can’t be given without knowing the rami�cations of what’s being advised. To properly advise business owners, accountants need to understand all of the factors involved.

What does it mean to be a trusted advisor?

A trusted advisor will talk about more than just numbers and compliance. Conversations should be wide ranging and include company operations, tax planning for the business and the owner, exit strategies, and estate planning.

Further, a good advisor must be willing to disagree with his or her client. Many business owners lack peers within their organization. Sometimes there can be great value in challenging a business owner’s perspective. When a good accountant anticipates that a client is about to make a mistake, he or she would be doing the client a disservice by not interjecting a solution.

What is the key to getting value from a relationship with an accountant?

Open communication is the most important factor for ensuring a successful

relationship between a business owner and their accountant. �e more open the communication, the better the service an accountant can provide.

�e test of a good relationship is if there is an understanding that a business owner can call their accountant anytime. Business owners need to feel comfortable knowing their accountant is available to discuss whatever issues they’re facing. In order for that to happen, clients have to know their accountant is not going to charge them every time a call is made.

How can a business owner assess their relationship with an advisor?

Finding the right advisor is about �t and commitment. While a business owner needs a �rm that has the right expertise and resources, it’s just as important to �nd an advisor who places high value in the relationship. Having an accountant with a high level of expertise doesn’t mean much if he or she doesn’t understand his or her client. It takes more than industry and technical knowledge to create a valuable relationship. It takes commitment and the willingness to invest the time to build understanding and trust. ●

A TRUSTED ADVISORGaining the greatest value from your relationship with your accountant

JERRY KRAUSE, CPAAudit PartnerSensiba San Filippo LLP

(650) [email protected]

BLOG: For more insights, visit our blog at www.ssfllp.com/blog.:

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Business owners have been watching the slow rollout of the Patient Protection and A�ordable Care

Act (PPACA) for a while now. But that doesn’t mean they have a �rm grasp on the breadth of the challenges, requirements and decisions that are inherent to its wide-reaching health care and insurance changes.

“If you’re like most business owners, you have already spent signi�cant time gathering and processing information,” says Bill Norwalk, tax partner-in-charge at Sensiba San Filippo LLP. “Very soon, you will make vital decisions that will have signi�cant e�ects on the future success of your organization.”

Norwalk says it’s critical for business owners not to get too caught up in the political maneuvering and analysis that �lls the news coverage.

“Regardless of emotion or political leanings, business owners must understand that the PPACA is a reality and needs to be addressed like any other challenge,” he says. “Taking an unbiased, strategic look at the law and its rami�cations for your business will allow you to make decisions that aren’t clouded by emotion or outside factors.”

We spoke with Norwalk about the PPACA, its rami�cations and how businesses can adapt to its e�ects.

How will businesses be affected by health care reform implementation?

�e PPACA will a�ect bene�ts planning, tax planning and your ability to compete in a challenging labor market. Making the best decisions will require you to understand all of the decisions and consider their varied consequences.

Taking a decision-and-consequences based approach to your analysis will help

you understand the potential e�ects of your choices. Many businesses are considering the pros and cons of o�ering qualifying health insurance versus dropping health coverage and allowing employees to utilize newly established insurance exchanges. While the analysis of direct costs may be straightforward, you need to understand how your employees will view a change in coverage. Changes in health care bene�ts could have a substantial impact on your ability to attract and retain talent.

What are the potential tax effects and what can businesses and individuals do to plan?

Tax implications of the PPACA are wide reaching for both businesses and their shareholders. New taxes were introduced that could result in signi�cant tax increases — especially for business owners and managers who don’t plan ahead.

Corporation shareholders and shareholders of pass-through entities could both be a�ected by the 3.8 percent tax on net investment income. An additional 0.9 percent Medicare surtax was also introduced by the PPACA. Shi�ing from investment income to regular income could be an e�ective strategy, but the analysis is o�en far more complex. Depending on your wage level, an additional self-employment tax on regular income could more than

o�set potential savings from decreasing net investment income. Alternative minimum tax considerations can further muddy the waters. �e PPACA simply makes tax planning more convoluted. Fortunately, quali�ed professionals will have the tools and resources needed to help you consider various scenarios and develop a plan to minimize your liability.

Where should business owners turn for guidance?

Decisions related to PPACA implementation will a�ect human resources, tax strategy and the broader organization. Business owners must �rst identify the key decisions and then weigh the consequences of each. If your strategic plan related to the PPACA isn’t complete, it’s time for you to speak with someone who can help.

Work with an insurance or bene�ts advisor. He or she can help you understand your coverage alternatives and the associated costs. An experienced accountant can o�er assistance with compliance, tax and organizational planning. �e right information, advisors and analysis will allow for decisions that can minimize negative consequences and maybe even provide a competitive advantage. ●

MEETING THE CHALLENGEHow health care reform demands a strategic approach from businesses

BILL NORWALK, CPATax Partner-in-ChargeSensiba San Filippo LLP


It’s not just our job, it’s our passion. From manufacturing to food service to tech, when it comes to personal client relationships, we’re with you every step of the way.

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On September 18, 2013, the San Francisco Business Times sat down to talk about the future of manufacturing in the Bay Area with a group of CEOs of locally-based manufacturing companies and expert advisors.

Made in the Bay Area: Secrets of Manufacturing Innovators

Q: Why is the Bay Area a good place for manufacturing companies?

Kevin Kelly: Proximity to customers is important. My customers are an hour and a half from me. If they have a manufacturing emergency, I can respond. My competition, if it’s on the East Coast or somewhere else, it can take two or three days for them to respond.

When my father was running the company, it was him and the production workers. We have six, seven engineers now. Engineers come to the Bay Area. I can �nd good engineers in the Bay Area who can help in manufacturing, help create new polymers, help di�erentiate our packaging by �guring out how to use lasers to extend shelf life. I can’t �nd those in Texas.

Jane Metcalfe: Being in the Bay Area, being at the absolute red-hot center of food innovation in the country, and possibly the world, has been an extraordinary opportunity for us – just having the opportunity to talk about packaging opportunities or systems and people that can help us grow our business.

�ere’s a reason we are willing to pay a premium to be in the Bay Area. It’s innovation. �e whole world looks to us for what the next thing is. It

feels like everybody looks to the Bay Area for a taste of the future.

Karen Burns: You can’t �nd a more innovative place than the Silicon Valley. Manufacturing close to where innovation happens is key. �at’s why we’ve seen a lot of re-shoring happening. Companies think it will be less expensive to manufacture abroad, until they lose control of their IP, until there is a quality issue, until there are rising costs of fuel to get the product back to the states after it is manufactured.

Q: How does manufacturing locally in the Bay Area play as an advantage?

Mark Dwight: San Francisco is an essential part of our branding. In my business, most manufacturing of fashion accessories, apparel and footwear, is made in anonymous factories in Asia. In fact, many of them are made in the same factories, so there is no di�erentiation. �ere’s a lot of mixing that goes on there, and things start to look very homogenous.

So we use this notion “we make what we sell,”,and it isn’t coming from the same factories that all the other brands are coming from. Most brands in our business today are simply marketers; they are not makers.

Jane Metcalfe: I think of our factory as our biggest marketing operation. As of June 30, over 150,000 people came into the factory at Pier 17 in 2013. Last year 11 million people walked up and down the Embarcadero.

Robin Azevedo: I would not leave the City. “Made Locally” has been a great marketing statement for us. “Know the maker” is a great phrase. Our tag line is “locally made, universally adored.”

Q: What are some of your top challenges?

Kevin Kelly: We worry about customer consolidation and what that could potentially do to us. I’m worried about productivity. I’m worried about quality. Cash keeps me up at night. Ever since 2008, I watch what’s in the bank really, really closely.

I worry about the work force a lot. If we lost a plant manager, where do I �nd a new plant manager? While companies were going out of business in our sector, we were able to grab the best of those people. We’ve harvested that. But where do I go to get the next generation? �ey are not obviously out there. We’ve begun to form relationships with universities with programs focused on packaging, where industrial engineers are being graduated.

We’re �nding we have to bring people in at lower levels, train them up and train them in our culture.

Our factory is our primary marketingvehicle. We invite everyone in to come and see what we do. I tell people I’m not just in manufacturing. I’m in show business.

—Mark Dwight

Having a hub of suppliers and customers that are close to you, and having R&D in house is fantastic. Some small companies outsource R&D, often working with Berkeley and Livermore labs. Having R&D so readily available, and tapping into that, happens primarily because we are in the Bay Area.

—Karen Burns

When you manufacture, it’s sort oflike a sports game all day long. To us,everything is competition. �ere’s a lot of noise in the mattress industry, so it’s learning how to hold us up and separate ourselves.

—Robin Azevedo

�ere are people from all over the world who now know about TCHO chocolate because they just wandered down the street and we said “free chocolate,” and they said “I’m in.”

—Jane Metcalfe

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Robin Azevedo: We had an employee we hired to work for us in human resources. She had a background working with union employees in the hospitality industry. She’s now in charge of manufacturing. �at’s a person I would be worried about if she would leave. Where do you �nd talent like that?

Q: What incentives and resources, nancial or otherwise, are available to manufacturing companies?

Michael Shabaka: We are a resource in terms of special funding that may come out for speci�c types of programs, such as ETP (employee training program), for example, which is through the State, and also a special biotech medical device grant.

Kevin Kelly: �ere are wild incentives in California that many manufacturers don’t know about. For instance, the PUC has a program administered by Lockheed Martin. We invested in a $4.5 million printing press last year. Lockheed Martin will do an energy audit, looking at how much energy you’re saving using the new equipment vs. the equipment it’s replacing. Ours happens to be from 1969. �rough the PUC we received $200,000 back on that piece of equipment. We put in a piece of push and control equipment and $300,000 was virtually paid for by the PUC. I don’t think that incentive is widely known. We go back to it every year.

Karen Burns: Understanding when things expire and when new things come into play is key to planning. For example, the sales tax exemption will be increased and e�ective state-wide beginning July 1, 2014. �is will allow for a sales tax exemption when you buy manufacturing R&D equipment. If you buy equipment before December 31, 2013 you can get extra depreciation. You will want to talk to your CPA and make the best business decision.

Q: What role does technology play in your operations, and how do you stay ahead of the curve?

Mark Dwight: Internet technology has made it much easier to go direct to consumer, and it’s made it easier for the consumer to go direct to the manufacturer. �at dialogue is vitally important to us.

Robin Azevedo: One of the things we are struggling with now is our IT system, our software. IT changes and decisions come about every three years. We’re looking for a software system that when someone makes a purchase will take us from production to the delivery to invoicing.

Jane Metcalfe: Systems can improve your business, whether it is ERP systems, inventory control, IT systems, or whether it is new equipment. �e way to build a pro�table business is continued investment in information systems, infrastructure and equipment, and having a really good forecasting system. Not getting ahead of your growth is a big trick, whatever you can do to get tighter and tighter on your information and your production. Make as big an investment as you can possibly support in the most leading-edge, capable systems, and then drive your business towards that equipment.

Q: How does being in the Bay Area allow you to have access to the most leading-edge technology and equipment?

Mark Dwight: We are seeing a renaissance ofmicro manufacturing, driven by technology. Take 3D desktop printing. Within �ve years you will be able to print just about anything that can be made out of plastic or metal in a machine that costs a thousand dollars. It will print multi colors. It will be a serviceable part. Whether it is 3D printing or laser cutting, or in our case we’re getting into fabric printing, those digital technologies are taking the price performance on a steep curve down. You’ll be able to have a factory in your garage, not just to start a company in your garage.

Micro manufacturing has a huge future in the U.S., and some of them ultimately will become medium and large-sized businesses as they prove out their businesses and invest in their capability.

Karen Burns: No question 3D printing is advanced manufacturing, and it is becoming much more accessible and a�ordable. A key element is getting that spare part and �xing something quickly, or producing something once. But it really has an impact on R&D. It used to be when a manufacturer wanted to

1 �e East Bay Manufacturing Group (EBMG) is a resource for

East Bay manufacturing business owners to network with peers, share industry speci�c best practices and promote innovative changes in the regional business climate.

2 SF Made is a great resource for San Francisco and Peninsula

manufacturers that encourages entrepreneurship and innovation. (sfmade.org)

3 Manex is a Manufacturing Extension Partnership (MEP)

which assists in getting money from the government and into the manufacturers’ hands. �ey are also a great resource for speci�c types of programs, such as Employee Training Program (ETP). (manexconsulting.com)

4 �e Bay Area is a great place to become a beta or alpha testing site

with new innovative software for your company. Being a technology pioneer is a good di�erentiator from your competitors.

5 Talk to your CPA to understand when certain incentives will

expire and when new ones come into play. Some bene�ts for purchasing equipment expire in 2013, while new incentives will be available in 2014. (eastbaymanufacturinggroup.com)

5TipsWe are a door and a resource formanufacturers that don’t know where to go. We focus on small and mid-sized businesses in Northern California. We help manufacturers innovate, improve their processes and help retain jobs. Because we are nonpro�t, the delivery of our services is very di�erent from a regular consultant. We come in and do an assessment, which often is free.

—Michael Shabaka

Part of being in the Bay Area is that you have access to that thinking and that equipment. We’re looking at buying a digital printing press that prints in lots of one, changes over in one image as opposed to 5,000. �e company that makes those presses is Hewlett Packard, and they are right across the Bay. We’ve been talking to them for about 15 years. I’m hoping to �nalize a deal to buy one of the �rst presses that’s put in the U.S.

—Kevin Kelly

produce a new line, they had to create all the tools and dies and run a line for a while to see if it all works, and that takes months. 3D printing has shortened the R&D process from months to weeks, from weeks to days. It’s all about who’s �rst to market when you’re producing things.

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To provide or not to provide? �at is the most pressing health insurance question facing companies across

the country this year. As implementation of the A�ordable Care Act moves forward, many businesses are making strategic decisions regarding health care bene�ts. �ose that have sponsored health insurance for years are now considering dropping coverage and reallocating resources.

But what are the true costs of dropping coverage? While the questions may be simple, the analysis can get fairly complex and extend beyond easily identi�able costs.

We spoke with Sholly Nicholson, human resources manager at Sensiba San Filippo LLP, to examine some of the most important health care questions businesses face this year.

How should businesses approach their health care coverage decisions?

It is critical for any company to evaluate health care coverage based on the anticipated impact it will have on the entire organization. �at means considering both easily recognizable and potentially hidden costs associated with sponsoring or dropping coverage. Will dropping coverage negatively a�ect your ability to attract and retain talent? Will it result in a loss of valuable personnel, and if so, to what degree?

What are the benefits to providing health care coverage?

Depending on the nature of your business, employer-sponsored health care plans might already be expected. It’s possible to drop coverage and increase employee pay to allow them to choose their own plans on the health care exchange networks. However, continuing coverage can be a critical part of strategic planning.

Employer-sponsored plans provide control over the plan’s design and bene�ts available to employees. If you operate in

an industry with heated competition for a limited talent pool, selecting and managing your plan could provide a competitive advantage. With current uncertainty regarding exchange health plans, employees may feel more comfortable knowing that your organization is selecting a plan that allows them access to the doctors and hospitals they want.

What can companies do to control rates?

If you decide to o�er health care bene�ts, managing costs will be critical moving forward. Get as many quotes as possible. Insurance providers are always o�ering new plan designs and premium pricing.

Incentives can be o�ered to employees who participate in annual health risk assessments, biometric screenings or other wellness initiatives. Promoting health and well-being through education, exercise facilities and nutrition initiatives can have a long-term e�ect on the number of claims incurred, which will have a signi�cant e�ect on your group rates.

What should a company consider when designing its plan?

Not all plans are created equal, and the organizational bene�ts of a well-designed and well-managed plan can be substantial. It’s important to look closely at the provider network. Will your employees be covered by the primary care physicians they want? Will they have access to the best

hospital facilities? Smart companies review residential locations and current providers of their employees before making any changes.

�e structure of the plan can also be important. To balance costs and bene�ts, many companies are moving toward high deductible plans combined with health savings accounts (HSA’s). �e high deductible plans keep premiums under control, while HSA’s allow employees to set aside money pretax to o�set deductibles.

What’s the best advice you can provide regarding health care coverage decisions?

�e health care decisions you make today will have a profound e�ect on the future of your organization. A happy and healthy workplace will be productive and pro�table.

�e right answer is unique to every company, but the best approach to �nding that answer is consistent: Expand the scope of your analysis and conduct a broad investigation in order to discover how your health care decisions will a�ect your company moving forward. If you consider all of the rami�cations of your decisions and align your strategy with your desired outcome, you will �nd the best solution for your employees and organization. ●

THE HEALTH CARE QUANDARYThe organizational effects of health care coverage decisions

SHOLLY NICHOLSON, PHR, HCSHuman Resources ManagerSensiba San Filippo LLP



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As technology continues to make the world seem smaller, more U.S.-based companies are looking

overseas for untapped opportunities. International expansion has traditionally been undertaken primarily by large, multi-national companies. Today, small, private companies are increasingly venturing outside the U.S. But seeking overseas opportunities comes with a di�erent rulebook. What are the hazards and pitfalls that companies may encounter when expanding internationally?

We spoke with Greg Brown, tax partner at Sensiba San Filippo LLP, to discuss why more businesses are considering overseas expansion and what they need to know before investing in international markets.

Why are more and more companies looking overseas for opportunity?

In recent years, we’ve seen locally based companies looking into international expansion for two primary reasons: increased sales opportunities and access to new talent pools. Consumer markets are expanding across the globe, while Bay Area technology companies are increasingly looking to India, the U.K. and Asia for specialized talent. In both cases, in order to increase their probability of success, company decision makers need to educate themselves or partner with those who know about the geographies they are entering.

What’s the first thing a company should do prior to opening a foreign operation?

Most businesses considering foreign expansion already have a good idea where they want to go and why they are going there, but their certainty isn’t always the result of thorough planning. It is not unusual for a business to make a snap decision about entering into a contract with a foreign customer or to hire a talented foreign employee without doing its homework. While the business decision

may make sense, the company may not know the operational or cultural challenges and the tax implications of the decision.

Companies venturing out should use quali�ed advisors who have local connections and experience in the country where they are considering doing business. �ese advisors can navigate through the applicable laws and provide valuable advisory services to the stateside leaders. Many law and accounting �rms have international resources and can o�en connect their clients with these advisors through global professional a�liations.

How can culture affect the outcome of an overseas venture?

Cultural di�erences are o�en overlooked during international expansion. Without prior experience in a speci�c location or the luxury of a local partner, it’s easy to miss cultural di�erences that could signi�cantly impact the success of a venture. An understanding of proper manners and etiquette are important and should be valued. A local advisor or business partner can help you understand cultural di�erences ahead of time and potentially avoid embarrassing faux pas.

How important are the tax ramifications of international business?

�e tax rami�cations of operating in a foreign country are an important aspect of the overall business decision. Businesses

should consider what level of activity would cause them to come under the laws of another country, and what they’ll need to do to ensure compliance. Even having a few employees in a foreign country may require the company to �le tax returns and possibly pay tax. Establishing a subsidiary comes with additional requirements, such as transfer pricing agreements.

Moving existing employees to another country or having them work overseas will more than likely require them to pay foreign and U.S. taxes. It is normal for companies to enter into agreements with these employees in order to equalize the �nancial tax burden and bene�ts that result from overseas employment.

Any other advice you want to share?Have a clear vision of what you want to

do, educate yourself and your team, and use competent legal, tax and business advisors. Start by talking with your lawyer and accountant. Many professional advisory �rms have experience in foreign operations and very useful contacts in other countries that can help ensure that your venture has the greatest possibility for success. ●

OVERSEAS OPPORTUNITIESHow to navigate the implications of doing business abroad

GREG BROWN, CPATax PartnerSensiba San Filippo LLP



14

15

Accurate and up-to-date �nancial information is a powerful tool for a growing business. With reliable

information, business owners can make better strategic decisions, secure resources and increase pro�tability. But how can business owners ensure they have this competitive advantage?

“If you want to get powerful �nancial information in your hands without slowing down your business to put it together, you might have to make a choice,” says Brenda Stelle, manager of the business services department at Sensiba San Filippo LLP, a regional CPA �rm based in the San Francisco Bay area. “Financial information can be empowering, but managing it can also be a burden on a growing business. Partnering with a CPA �rm that specializes in providing business services can provide a spark for many organizations.”

We recently talked with Stelle about tools and tips for business owners as they evaluate their current �nancial processes and how to determine if they could bene�t from working with a Business Services Department.

What are business services and how do they bring value to a growing business?

From pre-revenue startups to thriving companies, more and more businesses are turning to CPAs to provide the additional accounting services needed to transform their business. Having their �nancials and accounting processes evolve from a tedious and o�en overlooked burden to a streamlined solution, empowers owners to focus on the growth of their company.

Recognizing the need for accounting solutions for small and mid-sized businesses, some leading accounting �rms have assembled business service teams that provide tailored payroll, bookkeeping, �nancial reporting, and even tax planning services. �ese business service teams

work with businesses of all sizes; however, they are particularly useful for growing or startup businesses that need help, but may not yet require an internal accounting department.

“�e classic case we see,” Stelle says, “is a growing business where one person has taken on multiple responsibilities. �ey act as a bookkeeper, an account coordinator, a receptionist, and on and on. But as the business expands, the business needs greater expertise in all those areas. Working with a business service provider allows the business to acquire expert services without the risk and investment of a new hire.”

Many business service teams also o�er services such as project costing and accounting system design and implementation. “People reach out to us for various reasons,” Stelle says. “We get calls from startup companies who don’t know where to begin. �ey don’t know how to properly prepare expense reports. �ey don’t know how they’re going to get a loan to �nance growth opportunities. We have answers, so they don’t have to waste time searching for answers or, even worse, do things improperly.”

How can business owners know when they should consider outside help?

If a business owner feels like they are making too many decisions without the information they need, or if they feel like they have to chase down �nancial information when an opportunity or decision arises, it might be time to look for outside help.

“When employees and owners are spending too much time counting money instead of making money, bookkeeping becomes a liability,” says Stelle. Similarly, if business owners are distracted from the areas of their core business practices, they run the risk of missing opportunities. In this way, partnering with a CPA that

specializes in business services can not only provide much needed resources, but can help restore focus.

“Leveraging a CPAs business services expertise can be a smart move because they can help you as your business evolves,” Stelle says. “Your business may need immediate help or maybe you just need an outside party to help you see what’s really happening.”

What should a business expect from their accounting firm’s business service team?

“So many businesses are in reactionary mode and don’t see challenges coming,” Stelle says. “We help clients see that their future success depends on acting proactively. We help them analyze the critical decisions that may help to avoid a crisis, manage an unforeseen �nancial problem or take advantage of an opportunity for growth.”

Financial information should help business owners make better strategic decisions, recognize opportunities and avoid critical mistakes. With accurate, meaningful and timely information, a business owner can analyze key performance indicators with con�dence.

“Maybe the biggest thing a business service provider can o�er is peace of mind,” Stelle adds. “I have frequently met with business owners who feel overwhelmed on a daily basis, just because they don’t have an accounting system in place that tells them ‘Yes, we can pay our bills.’ �ey can’t run their business without worries, let alone plan for future success.”

“At SSF we sit down with clients and get to know them, their business and where they want to go,” Stelle says. “We identify the critical functions that will provide the information needed to run a strategic business. From there, we set up a plan of action and move forward.” ●

SERVICES SPOTLIGHTHow we can help you make educated business decisions

16

Understand your business goals. It is critical to understand where you are and where you are going. Sensiba recommends having a vision and a plan for your �rm’s market growth. Anticipating areas of growth, such as industries and services, will help you prepare to grow your team along with your revenue.

Have a plan. Once you have an understanding of where you are currently and where you want to go (your ideal “future state”), develop a market strategy plan that will support this growth. �is plan needs to incorporate your growth and hiring goals, with actionable items outlined. Having a strategy plan in place that clearly aligns your �rm’s growth goals with your hiring goals, is a critical best practice.

Anticipate growth requirements. “With a market growth plan in place and an understanding of where your business is heading,

you’ll be able to anticipate future sta� needs and develop a hiring plan,” says Sensiba. Depending on your growth goals, will you need more of the skills you have now? Are there speci�c skills missing in your organization that you’ll need to grow your business? Assessing what you have and what you’ll need will allow you to hire the right people at the right time.

“Out of the box” compensation philosophy. “Many organizations make the mistake of believing that paying people well is the only key to retaining employees,” says Sensiba. “While pay is important, it is o�en not the most important motivator.” Today’s employees want it all – good pay, bene�ts, career advancement, and the opportunity to do new and exciting work.

Sensiba recommends developing a compensation strategy that makes you competitive and unique within your market. If your overall compensation plan lags behind your competitors, you’ll be �ghting an uphill battle.

Find the right fit. �e cost of hiring the wrong people is far more than the cost of ensuring you hire the “right �t.” Before you can �nd the right �t, you’ll need to de�ne the right �t in terms of both culture and ability. What kind of company do you want to build and what are the characteristics of the type of employee that will be successful in this culture?

Successful corporate cultures don’t happen by chance. �ey happen as a result of a vision and by leadership setting a “tone from the top”.

Develop good job descriptions. “Really understand the core competencies of all positions, and measure against these as you evaluate candidates and current employees,” says Sensiba. If you don’t know exactly what you want, you are unlikely to �nd the best �t for your needs. SSF has used core competencies to measure and set expectations for all levels of sta� to improve and advance their careers within the �rm.

Create a strong interview and evaluation process.Remember that the interview process is not just a time for the candidate to impress you. It’s also the �rst impression you’ll make on a potential employee. SSF has created a process for evaluating candidates that is timely and consistent.

Keep them motivated! �e process doesn’t stop once you get talented employees in the door. Now you have to keep them.

Develop a rewards strategy to attract, motivate and retain your employees. “You need to include compensation, bene�ts, work-life balance, performance recognition, and professional development opportunities,” says Sensiba. ●

In the extremely competitive Bay Area market, attracting and retaining top professional talent is always challenging. With four generations of employees in today’s workforce, it is critical to consider how as a middle market firm your corporate culture practices can help attract and retain the very best from a diverse employee population.

John Sensiba, managing partner at Sensiba San Filippo LLP (SSF), an accountancy and business advisory firm headquartered in Pleasanton, identifies eight best practices for hiring and retaining top talent.

HIRINGTips for attracting and retaining talent as a middle market firm

17

When John Sensiba became the managing partner of Sensiba San Filippo LLP (SSF), the �rm was facing a recession and the steepest competition in its history.

Now in his ��h year as the �rm’s leader, John’s vision and unique management style have allowed him to shape a culture of growth by setting the tone from the top. �is leadership has directly contributed to SSF being recognized as one of the region’s top CPA and business consulting �rms. We sat down with John to discuss how focusing on people and culture has shaped the success of SSF.

When John took the helm at SSF, many other �rms were reacting to a struggling economy with deep sta� reductions. SSF bucked the trend, as John and his business partners increased their investment in attracting and retaining their professional talent. “We treated people the way we would want to be treated and made decisions I was proud of,” says John.

The foundation for Sensiba’s success is simple: He finds power in the Golden Rule. By treating employees as he would want to be treated, John has earned the trust and respect of his employees.

For SSF, the commitment to their people paid o�. As competitors saw sharp drops in revenue, SSF moved forward, with employee morale high, and a client retention rate among the highest in the industry. John believes strongly that investment in culture is the key to the �rm’s achievement. At SSF, John and top management actively promote priorities in the following order of importance:

FAMILY. COMMUNITY. FIRM.

Under John’s leadership, SSF has made meaningful community involvement a core value. One example of this is SSF’s annual “All Hands Day.” �e �rm shuts down for the day, and leverages their large employee base to volunteer with a local nonpro�t.

Within the �rm, John has worked to empower employees and allow them to shape key business strategies. “Helping people move up to leadership roles is important to us,” says John. “You need to have good role models at all levels. Within our �rm, we want our employees to feel that they can have a family, be involved in their community, and be successful.”

SSF has worked to ensure that employee contributions are highly valued at all levels. �is is evident in SSF’s recent Go-To-Market competition in which sta� members compete for points earned by active participation in industry and market events. In addition to spurring growth, the program helped foster a culture of “top-to-bottom” accountability, participation, and ownership of SSF’s future. John encourages each of SSF’s 100+ employees to think of themselves not as workers, but as leaders in the business.

John makes sure employees know they are the �rm’s most valuable asset. SSF is committed to doing its part to contribute to its employees’ physical and spiritual health. Some of the services SSF provides include �tness activities during the workday, wellness coaching, �rm-wide team sports, and other programs. With over 70 percent employee participation in SSF’s wellness programs, SSF earned the title of AccountingWEB’s “Fittest Accounting Firm” and “Healthiest Employer in the Bay Area” by the San Jose Business Journal in 2012.

John has no plans to decrease his focus on the �rm’s people and its culture going forward. “We believe our commitment to our people has paid dividends,” says John. “Our ability to serve our clients depends on having the most talented, motivated professionals we can �nd. I expect our investment in our people and culture to be the cornerstone of future success.” ●

JOHN SENSIBA, CPAManaging PartnerSensiba San Filippo LLP

(925)[email protected]

TONE FROM THE TOPHow John Sensiba uses his early experience to set the tone from the top

A Ring is a Sign of CommitmentRelationships are serious business and we don’t take them for granted.

So when the phone rings, we are happy to address client concerns, anytime—day or night. It’s how we think a committed relationship should work.

18

In this day and age, only a small number of businesses can function without a network of computers. Unfortunately,

there are inherent risks to computer usage — hackers, viruses, worms, spyware, malware, unethical use of stolen passwords and credentials, unauthorized data removal by employees with USB �ash drives, or servers crashing and bringing productivity to a halt. Owners of small to midsize businesses have to be cautious of cyberattackers, and depending on your industry, your business may be an easier target than larger businesses.

With cyberattacks on the rise, we sat down with Jalal Nazeri, a certi�ed information systems auditor at Sensiba San Filippo LLP to discuss what business owners can do to protect themselves.

What is the first step toward protection?

�e �rst task in creating a secure network is to dra� a security policy, which, if carefully managed, can lower the risk of these threats.

When dra�ing a policy, consider every perceived threat, no matter how unlikely it may seem. Communicating and monitoring these policies regularly will lay the groundwork for compliance in defense of your network.

�ere are a number of core ideas to consider in implementing a policy. First, you will need to perform a risk assessment to identify risks and determine the best methods to prepare for them. �en you will need to classify data by sensitivity level and develop access restrictions. Consider what the security requirements are of an authorized user and assess the possible risk, both logical and physical. In addition, create a plan to back up each user’s data. Finally, ongoing monitoring and maintenance of your risk assessment and the underlying

policies and procedures is a must.

How do you manage employees’ usage of company computers?

An acceptable use policy is a common element to include in your security policy. �e acceptable use policy restricts users by giving them guidelines on what they can and cannot do on your company’s network. Adding these restrictions can place an inconvenience on the end user, but it’s imperative to have them in place for the protection of your organization. �e end user can be an organization’s weakest point.

Once a user reviews the policy and accepts the restrictions in place, it’s important that he or she sign the policy. Users should be made to re-sign the policy whenever it changes, and at regular intervals even when unchanged. Some companies set a six month timeline, others vary. �e value of the policy depends on the communication and monitoring of compliance. Without enforcement, its value is greatly reduced.

What are other tools businesses can use?

A few other key items a business can use are �rewalls, content �lters, encryption, virus protection, and accounts and passwords. Business owners need to maintain these tools, not just put them in place and forget about them.

Firewalls act as a barrier to the internal network, blocking unwanted tra�c, while

content �lters restrict material delivered on the network and control what content is available to users on the Internet. Encryption is becoming more vital for transferring and storing data, whether it is for regulatory compliance or customer protection from the�.

Anti-virus so�ware is a must on all your servers and workstations. A scheduled virus scan should never be missed, and always have automatic updates turned on.

Never use generic passwords or account names, and restrict users to using only their own login. Passwords should follow a complexity requirement, like the use of a mix of letters, punctuation, symbols and numbers, and should also have a limited lifetime and a rotation.

What is the value of taking these steps?

With small to midsize businesses, budget is always a major consideration in what is plausible in obtaining the most secured environment. With a good policy in place, identi�cation of priority spending can be determined and can reduce the need for excess so�ware and hardware.

Cyberattackers look to gain access to networks that have the least amount of resistance. A good security policy protects data against potential threats. Without one, the company may incur signi�cant remediation costs, lose productivity and even lose clients. ●

CYBERSECURITY How business owners can protect their network from the inside and out

JALAL NAZERICertified Information Systems AuditorSensiba San Filippo LLP


No matter what industry you’re in, we’ll walk a mile in your shoes.

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Networking is a critical best practice for business owners regardless of their company’s size. When you

are just starting out, the e�ort you put in to making and nurturing contacts can directly impact your revenue and the future success of your business.

We spoke to Elisabeth Fraser Au-Yeung, vice president of marketing at Sensiba San Filippo LLP, about tips and tools that can help you become a polished and eloquent networking expert.

How can business owners prepare for a networking event?

Savvy networkers always have a plan in place before attending an event. A plan may include evaluating the event — is the event of high value to attend? What are your goals for attending? Will your target audience be in attendance?

Try to obtain a list of attendees and any sponsor �rms prior to the event. Use the list to build a prioritized list of ‘target’ attendees you want to meet and speak with. You can take it one step further and create goals for each person you want to meet, as well as speaking points that you have thought out and practiced for when you meet that person. You can even search online for photos of the individuals you want to meet so you can more easily �nd and recognize them.

In addition, you need to have a few tools including business cards, a practiced and polished elevator pitch, and even marketing collateral that you can hand out. Have a pen so you can make notes on the back of the business cards you receive. Note any signi�cant details that the person you met shared so when you follow up, you can mention this and make it a more impactful and personalized connection.

When you arrive, how do you start a conversation?

It can be more comfortable to arrive to an event early, as the room will be less crowded. Do not wait for someone to approach you. Be the master of your own destiny. Approach a person or a group and ask if you can join them. When you meet someone, make eye contact, have a �rm handshake and smile. By doing so, you will look and feel more con�dent.

As you are speaking with people, listen to what they have to say and be cautious about interrupting. When it is your turn to speak, ask open-ended questions about the people with whom you’re speaking, such as what brought them to attend the event? What makes them passionate about their business or industry? What are they doing for the summer? People enjoy discussing the things they are passionate about, including their business and personal interests.

How should business owners ‘pitch’ themselves and their business?

When asked about your business, have a brief and easily understandable description of what you do. Be sure to incorporate into your description the ‘so what’ factor — what it is that makes you or your

company di�erent and why the person you are speaking with should be interested in hearing more about your business.

What are the most important tips for success in networking?

Networking is all about relationship building — having rapport and building chemistry over a period of time with people you meet. A relationship will not be built at just one event. It is something that needs to be nurtured.

Remember to ask everyone you meet for a business card. A�er the event, send an email and a LinkedIn invite to connect with them within 48 hours. Reference something you discussed by checking your notes on the backs of the business cards so your contacts have a recollection of your conversation. Make yourself ‘valuable’ by o�ering to send a white paper or thought-leadership piece. Follow up with your contacts every 30 days to keep in touch, and even o�er to meet for co�ee or lunch to further strengthen your relationship. ●

NETWORKING LIKE A PROHow to build relationships that will grow your business

ELISABETH AU-YEUNGVice President of MarketingSensiba San Filippo LLP



It’s not just our job, it’s our passion. From manufacturing to food service to tech, when it comes to personal client relationships, we’re with you every step of the way.

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If your business has bene�ted from California enterprise zone credits, the next few months might shock your

system.AB 93, signed into law by Governor

Jerry Brown on June 12, 2013, e�ectively eliminates the enterprise zone program. In its place, three new tax incentives will take e�ect beginning Jan. 1, 2014. Will these new incentives bring the same value to the California economy? Will your business lose bene�ts that it has come to rely upon, or will it �nd new bene�ts?

We spoke with Marcus Halluin, CPA, tax manager at Sensiba San Filippo LLP, to �nd out more about these incentives, what’s coming in 2014 and what businesses can expect moving forward.

What was the enterprise zone program and what did it do for businesses?

�e enterprise zone program was a long-standing state incentive designed to encourage speci�c business activities in designated ‘economically depressed’ areas. �e program provided lucrative hiring credits, sales tax credits, net interest deductions, business expense deductions and net operation loss deductions.

What new incentives does AB 93 create?

AB 93 creates a statewide sales tax exemption, which will be available for equipment purchases made by businesses engaged in manufacturing or biotechnology research and development. It will signi�cantly modify and restrict eligibility for the hiring credit. AB 93 also creates a new investment tax credit based on a competitive application process.

How has the California sales tax exemption changed?

�e new sales tax exemption created by AB 93 targets industries and activities rather than geographic areas. Speci�cally, the exemption will apply to manufacturers and biotechnologyR&Dcompanies.Qualifyingbusinesses can exclude the �rst $200 million of eligible purchases per year from state sales and use tax. At least 50 percent of quali�ed purchases must be used in the process of manufacturing or R&D.

How will the hiring credit change in 2014?Beginning in 2014, the hiring credit will

be signi�cantly more restrictive and will apply only to the net increase in jobs. �e expected e�ect of this change is signi�cant. Many businesses that previously relied on hiring credits may no longer qualify or may see their bene�ts signi�cantly reduced. �e new law also makes changes to the de�nition of quali�ed jobs, including reducing the number of qualifying target employee groups and requiring hourly wages between $12 per hour and $28 per hour.

What is the investment tax credit and how will it be administered?

�e investment tax credit will be based on a competitive application process and will be awarded by a newly established California Competes Tax Credit Committee. Competitive criteria have been outlined

and include the number of jobs created or retained, the compensation paid to employees, the total value of the investment made in the state, the level of unemployment in the area in proposed business locations and the overall economic impact in the state of the project or business. �e Governor’s O�ce of Business and Economic Development will negotiate agreements with applying businesses, subject to approval by the committee.

What do California businesses need to know before these changes take effect?

Businesses need to understand that the game has changed. Just because your business quali�ed for credits in the past doesn’t mean it will in the future.

If you were relying on enterprise zone credits, you should sit down with your accountant or tax advisor and analyze the e�ects of the changes. Getting caught by surprise with an unexpected tax bill could have a negative long-term e�ect on your business.

�e new incentives are certainly worth investigating. Manufacturers and R&D companies will likely qualify for new sales and use tax exemptions. And the investment tax credit could be very lucrative for businesses that qualify and participate in the application process. ●

EXITING THE ENTERPRISE ZONEHow new tax changes could affect your business’s tax incentives

MARCUS HALLUIN, CPATax ManagerSensiba San Filippo LLP


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Privately-Held Companies

Every business, regardless of size, desires to maximize value to its shareholders. And maximizing

value usually means minimizing tax liability. For many businesses, the decision between �ling as a C corporation versus S corporation can have a signi�cant e�ect on overall tax liability, and by extension shareholder value.

“As a business owner, you should be asking yourself, ‘Is our �ling status maximizing shareholder value?’ If you’re not sure, it is probably time to talk to a professional,” says Wonsun Willey, tax partner at Sensiba San Filippo LLP.

We spoke with Willey about the bene�ts of C-corps and S-corps.

What makes an S-corp different from a C-corp?

C-corps and S-corps both provide the same legal bene�ts. �e di�erence lies in how the corporations are taxed. Income from a C-corp is actually taxed twice. �e C-corp itself is taxed on its net income at its corporate tax rate. �en, a�er paying tax at the corporate level, shareholders also pay dividend tax on distributions. Income from an S-corp, on the other hand, is only taxed at the shareholder level at individual income tax rates.

Common sense would indicate that it’s better to be taxed once rather than twice. In many cases, that’s exactly right. But it’s not always that simple. Variances in tax rates, the availability of incentives, ownership requirements and investment opportunities can cloud the picture. �ere isn’t one ‘right answer’ that applies to every organization, but there is almost certainly a right answer for your organization.

What businesses are eligible for S-corp status?

S-corp �ling status is intended as a �ling option only for small corporations. An S-corp can have no more than 100 shareholders, can only include U.S. citizens and resident aliens, and must have a calendar �scal year. An S-corp also does not have the ability to have di�erent classes of stock. So organizations that have foreign ownership, a large investor group or that may seek private equity investments are not good candidates for S-corp status.

What is involved in making or terminating an S-corp election?

Making the S-corp election is relatively simple. An existing corporation must �le a Form 2553 with the IRS. If the election is made within 75 days of formation of the corporation, there are no additional tax rami�cations.

Converting a long-established C-corp to an S-corp can be more complicated. �e accounting rules for S-corps are di�erent, o�en making the conversion a cumbersome task. An S-corp can also face additional tax on net unrealized ‘built-in gains’ from the C-corp. Gains recognized during the 10 years following conversion are subject

to the highest corporate tax rate of 35 percent. Selling a business within 10 years of converting to S-corp status can trigger a substantial tax liability.

Changing from an S-corp back to a C-corp has fewer challenges, but should be carefully considered before action is taken. Once you give up your S-corp election, you can’t go back to being an S-corp for �ve years.

How should a business decide which status is best?

For many small businesses, especially start-ups, S-corps are clearly preferable. �ey provide signi�cant tax savings and any losses incurred can be passed through to the personal level rather than being trapped within the corporation. Businesses seeking outside funding, looking for rapid expansion or needing multiple stock classes are limited to C-corp status.

Small C-corps that meet the requirements for S-corp status frequently bene�t from making an S-corp election, even years a�er formation. Ultimately, the decision should be made based on the individual circumstances of the organization following consultation with a quali�ed advisor. ●

C-CORP VS. S-CORPHow to decide between a C-corp or S-corp designation

WONSUN WILLEY, CPATax PartnerSensiba San Filippo LLP



Venture Capital Employee Benefit Plan / 401(k) Technology Manufacturing & Distribution Agribusiness

22

Many of us have heard the saying, “By failing to prepare, you are preparing to fail.” While most

business owners meticulously plan the ongoing management of their organization, far fewer prepare for a successful sale. If the sale of the company is a part of your exit plan, it quite literally pays to be prepared.

With merger and acquisition activity heating up, we sat down with Kevin Strain, audit partner at Sensiba San Filippo LLP to discuss what speci�cally businesses can do to ensure they are ready.

Why is it critical that businesses be prepared for an acquisition?

�e current climate for acquisitions makes it more likely than ever that you’ll �nd yourself talking to a potential buyer. Acquisition activity has been ramping up since 2010, and is only expected to increase. Low interest rates and resurgent equity markets have le� corporations �ush with cash, and looking for opportunities.

Yet even in the current environment, the majority of deals still fail. Over 85 percent of prospective deals are never completed. Suitors come calling, but the process breaks down prior to execution, o�en because sellers are unprepared.

What is the first step a company should take to prepare?

It is critical to identify and document the areas that drive organizational value. Every organization is di�erent, and what makes you an attractive candidate for an acquisition depends on the nature of your business. Some acquisitions are technology buys, driven by intellectual property. Others are organizational or revenue buys, driven by the desire to add personnel or future earnings.

Regardless of what drives the marketability of your company, it is important to recognize the value drivers and document them. For example, if you hold technology patents, it’s essential that these are defended and documented.

What financial preparations should be made?

A detailed examination of �nancial records and projections should be expected during the negotiation process. If you haven’t had an audit completed recently, that should be the �rst step. If you have been through an audit, you need to be ready to provide the same information on relatively short notice. Make sure to keep the information that your auditors ask for current.

�e focus of the �nancial review may also be driven by the type of acquisition. If a suitor is seeking to buy a future revenue stream, you need to be sure your projections are tight and defensible.

What pitfalls can derail the sale of a business?

Areas of potential risk can provide bargaining power to a buyer or stop the process in its tracks. Whether it’s an uncertain tax position, legal exposure, or

patent dispute, exposure can damage or kill a deal. Ideally, you’d like to resolve these issues. But if that’s not possible, put them on the table as soon as possible. It’s best for buyers to know where you stand sooner rather than later so the investment in the process is not wasted.

What else should business owners keep in mind?

Understand your own expectations and limits. You don’t want to be deciding where you are willing to bend during negotiations. �at will weaken your ability to negotiate the best deal. Are you comfortable with an earn-out? How much guaranteed cash do you need? Are you willing to indemnify the buyer against any contingent liabilities?

Finally, it’s wise to �nd an experienced advisor to help you navigate through the process. �e majority of business owners only sell a business once, so it’s important to get it right the �rst time. ●

ARE YOU READY?How businesses on the selling end can plan for a merger or acquisition

KEVIN STRAIN, CPAAudit PartnerSensiba San Filippo LLP




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Privately-Held Companies

Service organizations are trusted with some of their customers’ most sensitive information. In order to

thrive, these organizations need their stakeholders’ full faith that their internal controls safeguard both �nancial and non�nancial information, and are designed and operating e�ectively. How can service organizations demonstrate that their control systems are protecting their customers? According to the American Institute of Certi�ed Public Accountants (AICPA), Service Organization Controls (SOC) reports are the answer.

We spoke with Je� Stark, audit partner at Sensiba San Filippo LLP, about SOC reporting and how they help service organizations provide the broad spectrum of assurance their stakeholders require.

What are SOC reports?SOC reports are standards created by the

AICPA to allow for reporting on controls at service organizations. �ere are three types of SOC reports: SOC 1, SOC 2 and SOC 3. Together, they both replace and expand on Statements on Auditing Standards (SAS) 70 reports, giving service organizations the tools they need to provide the assurance their stakeholders require.

�ough not widely known, SOC reports are becoming essential to the ongoing growth of the technology service sector as more businesses are outsourcing tasks and functions to outside service providers. Since the risk of the service provider becomes the risk of their stakeholders and customers, SOC reports provide much needed assurance, empowering service organizations to gain trust, while helping to protect their stakeholders from outside risk.

Why was SAS 70 replaced?Since 1992, SAS 70 has provided service

organizations with a vehicle to disclose control objectives and activities related to �nancial reporting. As the market changed, service organizations had a growing need to report on many non�nancial control objectives. SAS 70, with its limited intended focus, was too o�en being used for purposes outside of �nancial controls.

In order to solve this problem, the AICPA issued Statements on Standards for Attestation Engagements (SSAE) 16, which replaced audit standards with attestation standards for internal controls over �nancial reporting. SSAE 16 standards became the basis for SOC 1 reporting, replacing SAS 70.

Additionally, the AICPA issued guidance related to attestation on controls relevant to the Trust Service Principles and Criteria including security, availability, processing integrity, con�dentiality and privacy. �is guidance became the basis for SOC 2 reporting, bridging the gap between market need for broad assurance reporting and the previously narrow �nancial focus of SAS 70.

How can an organization know whether a SOC 1 or SOC 2 report is right for them?

Whether an organization should obtain a SOC 1 or SOC 2 report depends entirely on the controls in question. Controls relating to information that could a�ect �nancial statements are covered by SOC 1 reports. SOC 2 covers controls related to non�nancial information.

Payroll processors, employee bene�t plan managers and banks commonly use SOC 1 reports. Data centers, So�ware as a Service providers and companies subject to industry-speci�c regulatory standards frequently bene�t from SOC 2 reports.

Why should companies consider SOC reporting?

Service organizations that want to remain competitive need internal control attestation in a variety of areas. Many companies will not even consider working with an organization without assurance that relevant controls are well designed and operating e�ectively. In a highly risk-averse business climate, organizations can demonstrate e�ective controls with the appropriate SOC report. ●

SOC REPORTSHow SOC reports provide assurance to stakeholders, customers

JEFF STARK, CPAAudit PartnerSensiba San Filippo LLP



Venture Capital Employee Benefit Plan / 401(k) Technology Manufacturing & Distribution Agribusiness

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On May 16, 2013, the Silicon Valley Business Journal sat down to talk about today’s complex world of mergers and acquisitions with respected experts in the �eld. Held at Rosewood Sand Hill in Menlo Park, the conversation was hosted by accounting �rm Sensiba San Filippo LLP and moderated by Silicon Valley Business Journal’s Senior Technology Reporter Cromwell Schubarth.

Secrets of Success: Making the Most of Mergers and Acquisitions

Q: What is the current climate for mergers and acquisitions, and how has it changed since last year?

Kevin Spain: Over the last six months we’ve seen interest in acquisition rise quite a bit. We focus exclusively on software as a service [SaaS] and Cloud computing companies, which is one of the hottest sectors in technology today, from both an IPO and M&A perspective.

Jamie Leigh: �e beginning of this year was slow, which we anticipated. But somebodyturned the spigot on in March in the technology sector in particular, on the private company side. On the public company side, acquirers have been a little bit more timid, watching what else is going on in the market.

Brett Rochkind: We’ve seen a lot of activityamong strategics in the SaaS and Cloud area. Buyouts are also starting to pick up with the very robust leverage market.

Jon Soberg: We’ve seen the same shift we’re seeing with venture, that there’s more interest in software as a service model with real revenues.

John Sensiba: We have seen a lot of pent up capital and more activity in the tech space, particularly within the middle market sector,

and amongst private companies. Overall, while M&A activity has increased, we have not seen the expansion as signi�cantly as forecasted, however we anticipate a cascade e�ect will take place.

Q: How would you compare opportunities for buyers versus sellers?

Brett Rochkind: It’s de�nitely a seller’s market. You have public market values at all-time highs, the IPO market has been very robust for growth-oriented companies and it’s a great time to sell assets. We had almost record liquidity last year.

Kevin Spain: In general, sellers are at an advantage in SaaS and Cloud. With so much relatively inexpensive capital available for these companies to continue to run and grow, most of them would prefer to do that rather than sell.

John Sensiba: �ere’s just more optimismall across the market right now. And because people are inclined to stay in the game a little longer, it can drive multiples up for folks who really want to get a deal done.

Jamie Leigh: �e buy side is usually morestraightforward, because someone has identi�ed something that they want. On the sell side, it can be quite complicated when large companies have built up massive patent portfolios; you want to be very certain of what you’re selling and how much you think it’s worth.

Q: Are you seeing any trends with acquisitions? And what are your thoughts on acquisition for hire?

John Sensiba: Amongst many of our clientswho are acquiring companies, we are seeingmore and more post-transaction integrationand budgeting, making sure that there isenough budget and resources to make surethe deal is successful. A transaction needs alot of care. We talk to our buyers about making sure they have a view beyond the transaction closing date.

Jon Soberg: For companies acquiring a good team that has executed really well or built a very interesting product, the multiples can be high, and for the seller these can generate the best outcomes and the best multiples.

Brett Rochkind: On the company side, I think acquisition for hire is �ne: why not build versus buy? But be balanced on the price you’re paying, relative to the cost and time. We’ve let companies in many ways decide what they want to do, because they’re closer to the engineering teams understanding what they can do internally versus externally.

Of my client base, at least 50 percent of them are either being pursued, looking for targets or trying to �nd somebody to buy them.

—Kevin Strain

For buyers, the real focus is onintegration and doing detailedemployee diligence. One thing buyers are being very savvy about is timing to execution. From a competitive landscape, making sure top talent doesn’t go to a competitor.

—Jamie Leigh

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Q: What advice do you have for clients coming to you with an M&A deal?

Kevin Spain: You need somebody who’s going to drive the process. It doesn’t have to be somebody on the board or an executive; it can be a lawyer or a trusted advisor from outside the company. Find someone who has been through it before, this is not something you want to learn on the job.

Jamie Leigh: Coordination even on the buy side is very important, being very clear in your advisor teams about where you are in that process. �ere’s a lot of pressure around liabilities now for buyers.

Q: What about advising a seller, somebody who’s going to be making a pitch?

Kevin Strain: I advise my clients to focus on why you’re at the table and the value that you’re bringing. Make sure your forecast and projections make sense and that you can explain them; if it is a technology play, make sure it works and that you can explain it and sell it well. Have a well prepared pitch and know what you’re thinking through theentire transaction.

Jamie Leigh: On the private side with M&A deals, the biggest thing is being organized and coordinated — from diligence, pitch and investor perspectives. Having a key point person on the deal is crucial and having consensus is incredibly important. Investors on the repeatsale side can be stewards to the executive team in making sure they’re getting ahead of issues quickly. You want to be ready to sell, and understand on what terms.

Q: What’s happening in M&A that you’reinterested in or concerned about now?

Kevin Spain: One of the trends that we’ve seen is buyers recognizing that what they’re buying is di�erent from their core business. Buyers are more willing to allow these companies to operate in a very stand-alone fashion. In this dynamic, integration is much looser than it has been in the past.

Jamie Leigh: We’re seeing more willingness to stay private longer, and maybe grow as a private company through acquisition. You also have investors who — because they had to hang on through some darker times recently — are willing to make the choice not to exit. Also, you have extremely sophisticated activist shareholders: part of public company planning now, on a regular basis, is dealing proactively with potential activists.

Q: Will health care play an important role with M&A in the future?

Kevin Spain: We made four health care IT-related investments in the last �ve years, extremely deliberately, because health care is a market full of land mines. But there are de�nitely pockets of opportunity. We look for a clear business model that doesn’t require a lot of di�erent constituents to sign o� on it. We look for leaders of these companies who really know the health care market. So, we’re bullish, but careful.

Jon Soberg: Fields like bio-informatics that are just coming up are going to make massive changes in health care. I think over the next few years we’ll see huge in°ection points in terms of investment opportunities and breakthroughs in health care technologies.

John Sensiba: �e M&A activity that we’re going to see in health care, even in the next three years, is going to be pretty incredible. Change creates opportunity — and nowhere is more change happening than in health care.

1 Dress for success from an infrastructure standpoint,

and get your �nances in order so that there’s no hitch when it comes time to do due diligence.

2Be organized, from a diligence perspective,

from a what’s-your-pitch perspective, and from an investor perspective.

3In negotiating, it’s important to come

from a place of strength. Position all the assets that you bring to the table and communicate that you have other options.

4A merger or acquisition is like having a baby…

they may be fun to have, but there is a lot of posttransaction care. You’ve got to have a view beyond the transaction to be successful.

5Recognize the workload of a transaction and

remember not to take your eye o� the ball of your daily business — because most deals don’t happen.

5TipsWe’re �nding founders/CEOs showing a greater appreciation for what it means to be acquired, and paying attention to cultural �t. �ey want to feel that they’re taking the company they helped build someplace where it’s going to beappreciated — and where their team is going to be valued.

—Kevin Spain

Founders/CEOs pursuing a deal, need to recognize that they’re going to triple their workload. �ey need to continue to focus on their business, work on the deal, and maintain open communications with their people, making sure everybody is comfortable with what’s going on and understands the path forward.

—John Sensiba

It’s a case-by-case basis for us: if thecompany has the appetite and the desire to continue to go, there’s capital available to grow and otentially to �nd a much better exit on the outside.

—Jon Soberg

On the IT side, this is an area that should be very attractive over the coming decades. �ere’s a lot of talk about cost containment and electronic medical records; we’d love that to be a larger part of our portfolio.

—Brett Rochkind

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SSF IN THE COMMUNITYThe people of Sensiba San Filippo not only live, work and play in the Bay Area, but are committed to finding ways to better our community and ensure its longevity as well.

Partner Greg Brown (second from le�) with his team BigRing Riders at Tour de Cure raising funds to �ght diabetes.

Administrative Assistant, Arlene Baisa, at Ronald McDonald House.

SSF sta� at HERS Breast Cancer walk in Fremont, California.

SSF employees gather to help the Oakland Zoo get ready for their annual fundraising event.

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�ese are John’s absolutely favorite cookies. His wife, Marianne, makes them for John’s birthday every year and plates of these cookies will show up at the o�ce from time to time, much to the sta� ’s pleasure.

JOHN & MARIANNE SENSIBAManaging Partner & his wife

Cookie Directions

Mix together melted butter, sugar, egg, buttermilk and vanilla.

Si� together �our, baking soda, salt and cocoa and mix with butter mixture.

Cover and chill for 1 hour.

Drop a teaspoon size ball on baking sheet, 2 inches apart. Bake at 375˚ for 10 minutes, just until a light touch with �nger leaves no imprint.

Frost with co�ee frosting.

Makes 3 ½ dozen.

Frosting Directions

Brown the butter in a medium size sauce pot. Turn o� heat.

Add powdered sugar and enough cof-fee to make the consistency of frosting.

Add vanilla.

Frost cooled cookies and serve.

Cookie Ingredients

½ cup melted butter1 cup sugar1 egg¾ cup buttermilk1 tablespoon vanilla1 ¾ cup �our½ tablespoon baking soda½ salt½ cup Cocoa

CHOCOLATE DROP COOKIES

Coffee Frosting Ingredients

2 tablespoon butter1 one pound box powdered sugar1 teaspoon vanillaStrong black co�ee

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