by Brian Hemsworth | May 31, 2017 10:52 am
Don’t call Drew Grey an accountant. He hates that.
It’s not that he isn’t a CPA (he is), or that he is ashamed of it (he’s not). Quite the contrary, Grey is proud of his financial service background. But being a certified public accountant only scratches the surface of what Grey does, and therein lies the rub.
His unique C-level business experience in conjunction with his BIG eight audit and tax training puts him in the unique position of really being a business advisor a step above the average CPA. Grey’s business experience as a CEO and CFO has helped companies grow from infancy through public offerings and ultimately generating large profits or his companies and clients.
He has also developed an extensive audit and tax practice, specializing in tax minimization, financial statement optimization and sophisticated estate tax and asset protection planning for growing businesses and their owners. This one-two punch, of highly level business experience, combined with very practical financial, tax and audit experience, makes Grey a highly sought after advisor, working primarily with companies either in or seeking rapid grow and significant profitability.
We recently caught up with him long enough to get his thoughts and feelings on the state of financial affairs in California’s business marketplace.
SCP: How are income tax rate increases affecting your clients?
Grey: Successful clients are faced with paying more taxes on federal, state and local levels. We have assisted our clients with effective strategies to reduce or eliminate California taxation. Clients who have significant taxable income can use techniques such as captive insurance companies, which offer significant tax deductions and other benefits. Many clients are able to reduce their taxes from research and development credits and perform cost segregation studies on their real estate. Other tax minimization techniques include deferrals of taxable income by using cash basis distribution companies to avoid being taxed on accounts receivable, disbursements to fiscal-year sales and marketing companies to defer income recognition, utilization of pension and profit sharing plans, and other techniques. Every client has unique characteristics. We study each client to determine the optimal strategy that meets specific goals. Paying less in federal, state and local taxes provides more cash flow for business or investment.
SCP: What are some of the top concerns of middle market CFOs today?
Grey: CFOs are concerned with many issues; however one of their primary issues is having sufficient debt or equity to fund their business. We actively assist our clients in the preparation of detailed financial projections to plan for their needs. We have developed strategic relationships with conventional and non-conventional financing sources that can provide the debt needed to expand their businesses. We have strategies that separate the financial statements from the income tax returns thus enabling our clients to pay less tax while not impacting the financial statements. Commercial lenders make borrowing decisions based on the company’s compiled reviewed or audited financial statement. Therefore our clients are able to increase their cash flow through paying less in income taxes and are able to obtain the maximum amounts available from lending sources.
SCP: How do business owners and clients handle the challenge of increasing their credit facilities while minimizing the taxes?
Grey: Clients preparing financial statements for financial institutions must find the balance between reducing federal and state taxes, and reporting strong earnings to the financial institutions that have provided credit facilities. Our strategies emancipate the clients’ financial statements from their tax reporting. How do we do this? Financial institutions require an accrual-based financial statement, while tax law differs significantly from accrual accounting. This difference can yield lower taxable income without impacting the accrual-based EBITDA of the company. We evaluate each company to identify areas where the financial statement and tax reporting can be separated by applying different year-ends and methods of accounting. At SRG, we use the GAAP and tax rules to our clients’ advantage, while maintaining integrity in all aspects of our reporting. This is another example of our creative, value-added approach to solving our clients’ problems.
SCP: What is the biggest difference between the accounting profession today as opposed to 20 years ago?
Grey: The most significant change is the amount of new financial statement and income tax changes in the rules that impact the clients and our firm. Our services have evolved to meet the changing landscape of business operations today. We are active in strategic financial consulting, and act at a level of a Chief Financial Officer and, in some cases, as the Chief Executive Officer. Many of our partners and professional staff have been controllers, CFOs, or CEOs. This level of seasoned experience gives our firm a unique ability to meet our clients’ needs. We are actively involved in the Merger and Acquisition activities from the buy and sell side, selecting the appropriate investment banker, and assisting with long-term planning for tax minimization and succession planning. We have developed effective strategies to eliminate or substantially reduce estate taxes and regular taxes from the sale. Asset protection is another benefit that flows from an effective structure. Our firm has become global to meet the needs our clients who cover the world.
SCP: Is your firm offering more or different services than you have offered in the past?
Grey: Our firm has developed value-oriented services that increase our clients’ net after-tax cash flow. We provide tax strategies that reduce taxable income and do not impact the financial statements that commercial banks rely upon to provide credit facilities. We separate tax planning from financial reporting in a responsibly creative manner. We are trusted advisors serving at top levels in management. Our expertise as Controllers, CFOs and CEOs offers our clients knowledge and experience, which other CPA firms do not possess. Our services have evolved to meet the changing landscape of business operations today. We are active in strategic financial consulting, and act at a level of a Chief Financial Officer and, in some cases, as the Chief Executive Officer. Many of our partners and professional staff have been controllers, CFOs, or CEOs. This level of seasoned experience gives our firm a unique ability to meet our clients’ needs.
SCP: What are some of the biggest mistakes companies make in managing cash, taxes, and financing?
Grey: Companies need to better plan for their financing needs, and more effectively project their covenant performance. This planning helps to confirm and maintain compliance and the conditions required to increase their credit facilities. Companies also need to communicate more frequently with their lenders regarding both positive and negative situations. The biggest mistake companies make is that they try to reduce their tax obligation in the same entity that they are using to borrow from the bank. Tax minimization and financial statement optimization are mutually exclusive, and cannot be achieved in the same entity. The SRG Advantage is the emancipation of the financial statements from the tax returns, yielding our clients optimal results. Lower income taxes are paid and the financial statements are fairly stated; this enables the company to obtain the maximum amount of available financing.
SCP: What do CPA firms need to do to help growing companies in business today?
Grey: The CPA firm needs to identify growth opportunities and help clients implement strategies to optimize their market share. Short term, mid-term and long-term planning contributes to achieving these goals. Once a comprehensive business plan is developed, our firm will introduce lending institutions, private equity firms or private sources to achieve the goals. The accounting firm is an active partner with its clients in reaching their goals. Continual monitoring of results is a critical contribution of the accounting firm. The business plan and forecast should be monitored and revised regularly to properly plan for the company’s success.
SCP: What advice do you have for clients when it comes to future planning?
Grey: Clients need to adapt to continually changing circumstances. We meet regularly with our clients to review their goals and desires, and ensure that we are providing them with the maximum value possible. We recommend that our clients who own businesses plan their exit strategy well in advance, as they may need to transition family members or key employees into a succession plan. Exits can be costly; we have ways of reducing costs substantially. Our income tax and estate tax methods achieve the transfer while offering our clients maximum control and cash. Many clients want to maximize their entity value and then exit through a sale. We can assist with the sale. We recommend that exit-strategy planning be done many years before it is executed. Having a well-seasoned plan can ensure proper capital gains treatment, avoid inclusion in the client’s taxable estate, and often help avoid paying taxes to the state of California.
Grey began his career at Ernst and Whinney where he became an audit and tax manager. He became the Controller and Senior Vice President of a real estate company that grew from $2M to $250M per year before joining SRG. A partner at Los Angeles-based SRG since 1988, he has helped grow the firm as well as many of their clients’ businesses. He has been the Chief Financial Officer of two publically traded companies and the Chief Executive Officer of a consumer product Company with products in 27,000 store doors in 22 countries. Most recently Drew was named one of the top “Trusted Advisors” by the San Fernando Valley Business Journal and received their award for “Client Service.” He can be reached at www.srgcpas.com. •
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