The following is a brief outline of the factors that make up the three aspects:

Behavioral Control:
- Do you train or instruct the worker?
- Where does the individual perform services (onsite, offsite, etc)?
- Does the individual work a fixed or variable amount of hours?
- Can they hire for the company and who pays the hired individuals?

Financial Control:
- Who provides equipment needed to perform work?
- What expenses are incurred by the worker?
- Is the pay fixed or variable based on other factors?
- Does the firm carry workers compensation insurance for the individual?
- Who has economic or financial risk?

Relationship of the Worker and Firm:
- Does the worker receive benefits (i.e. Vacation, 401(K), etc)?
- Does the worker provide services for other employers?
- How does the firm represent the worker to customers?

There are often no bright lines in making your determination. For more guidance from the IRS, you can review the following link. If you wish to confirm a classification, you may request a free SS-8 determination letter from the IRS. If your company becomes the subject of an IRS audit, please contact us .

Since SOX was introduced in 2002, small public companies have experienced delays in the effective date of SOX 404(b), which requires auditors to attest to the design and operating effectiveness of internal controls. Each year we watched as the deadline for compliance extended for another year. When the House approved a version of its bill earlier this year, which included provisions to reverse 404(b) compliance for smaller reporting companies, we wrote our US Senators Boxer and Feinstein to support such provision to remove compliance with 404(b) for smaller reporting companies. Our position was contrary to our audit and accounting industry, its professionals and partners, as well as its powerful associations. Our position was contrary for various reasons, none of which took any consideration of the lost opportunity fees our industry would have enjoyed had 404(b) for smaller reporting companies not been repealed.

But don’t get too excited, SOX 404(a) is still in effect for all public companies. SOX 404(a) requires management to conduct a review of internal controls over financial reporting and document your processes and findings.

Here is a brief description of what you should consider based on your company size.

Management of public company with less than $75 million in market capitalization:
Continue to conduct internal review of controls, as you will need to conclude on the effectiveness of those controls in 10-K’s and 10-Q’s. Be aware of future growth of your company and its stock price through organic growth or M&A activity, and consider the fact that you may have to be compliant with SOX 404(b) at some point. If a material weakness is discovered by the auditor the company will still be required to report the deficiency in its quarterly and/or annual reports and their remediation plan for such.

Management of Public company with over $75 million in market capitalization:
Stay tuned to additional changes as studies are being conducted to determine the benefit of SOX 404(b) to companies with market caps between $75 and $250 million. Such studies could result in companies with higher market caps also being exempt.

Private companies looking to go public through mergers, acquisitions, or reverse mergers:
Consider what your market capitalization may be based on your IPO, reverse acquisition, etc. If you are planning on selling your company to a public company or taking it public, know that private companies with strong internal control framework are usually more valuable than those without it.

All Companies:
As part of an audit, an auditor is REQUIRED to conduct a walkthrough of your internal controls to assess where risks may be and to identify potential weaknesses in controls. If deficiencies are detected they are REQUIRED to inform you. Use this information to strengthen your company.

Don’t hesitate to give dbbmckennon a call or email today, to ask us about how SOX 404(a) and the exemption to 404(b) impacts your company, especially if you are considering a reverse merger, acquisition, or other entity altering transaction. We would be happy to help answer your questions or assist you in compliance in order to put your company on a path to success.

An S corporation is a form of business classified for federal income tax purposes as a corporation that has elected to be taxed as a pass-through entity, in a manner similar to a partnership or sole proprietor. Unlike a regular corporation, or C corporation, an S corporation (both names derive from sections of the Internal Revenue Code) generally is”not subject to federal income tax. Instead, its income is reported on the tax returns of its shareholders, and they have the responsibility for paying the tax. If there are losses suffered by the corporation, they also pass through and are reported on the shareholders’ income tax returns.

Because only the shareholders, and not the corporation, are taxed, S corporations avoid the problem of double taxation associated with C corporations. This is the biggest drawback for creating an S corporation, particularly for closely held corporations.

Shareholders in an S corporation, like shareholders in a C corporation, generally have limited liability arising from corporate matters, even though they pay taxes as if they were partners or sole proprietors. In addition, when the corporation eventually is sold, there can be reduced taxable gains, as compared with the sale of a business operating as a C corporation.

On the downside, the limitation on classes of stock in an S corporation provides less control over the company and the value of its stock. Potential outside investors likely will not be attracted by the pass-through tax characteristics of an S corporation, nor by the limit on the number of shareholders. Although corporate taxes are avoided, there is still a requirement for filing an informational tax return every year for a corporation with more than one owner. Finally, if avoiding formalities is an important consideration, it should be noted that, like any other corporation, an S corporation must follow the requirements for having regular meetings and keeping company minutes. The balancing of the advantages and drawbacks of S corporation status in any given case is sufficiently complex that it is advisable to seek professional advice before making this important choice.

A typical reverse acquisition, involves 100% of the private company’s stock or equivalent being acquired for a large equity stake in the public company, generally over 90% but can be as low as 40%. Generally, the public company is known as a “shell corporation” in which has limited or no operations. The two businesses are then merged using the private company’s products with a public company’s structure.

One of the biggest factors in considering whether or not you have a reverse acquisition is who controls the public company after the transaction. In cases where the private company’s shareholders own less than 50% of the public company, analysis of operational control, board control or other factors impacting control must be conducted. We have experienced reverse acquisitions where private company shareholders control 40% of the public company stock, and the board is controlled or evenly controlled by the private company’s management. Thus, control is maintained by the private company.

A reverse acquisition, with a public company will cause a change in reporting entity which, in effect, causes the financial statements of the public company to be eliminated and replaced with those of the private company for all previously reported periods which are included in future filings with the SEC; no previously filed reports of the public company are required to be amended and re-filed. A change in reporting entity is generally a preferable reporting requirement because the readers of the financial statements can see comparable amounts in the interim and annual reporting by the public company. Alternatively, in a forward acquisition, the private company’s financial statements and results are included only from the date of the acquisition forward.

One of the key requirements to a reverse acquisition is that an 8-K, commonly known as a Super 8-K, needs to be filed within four (4) business days of the acquisition date. The 8-K will include information similar to that of a standard 10-K, including audited and reviewed financial statements of the private company. All future public filings will present the historical financial statements of the private company as if they acquired the public company.

If you are considering a reverse acquisition it is extremely important that you obtain proper guidance from a securities attorney and an experienced auditor. One of the major delays in closing a reverse acquisition is obtaining the required audits and the completed 8-K. At dbbmckennon we have conducted numerous audits in connection with reverse acquisitions. If you are contemplating a reverse acquisition to take your private company public, please contact us to discuss if this is the right method for you.

• The corporate exception is ending and, with few exceptions, all corporations will need to be reported on Form 1099-Misc for payments made after December 31, 2011.
• Payments for property (goods) will need to be reported on the 1099-MISC if at or above the familiar $600 annual payment threshold. These changes are effective for all payments made after December 31, 2011.
• Establishment of Form 1099-K which aims targets currently hard-to-track payment stream: credit cards. Starting in 2011, financial firms that process credit or debit card payments will be required to send their clients, and the IRS, an annual form documenting the year’s transactions.

So how large of an impact will this have on small businesses? No one currently knows; however, the accumulation of payee data will be the area where companies will need to devote additional time to comply. Assuming the $600 threshold is met, all vendors will have to provide their name and taxpayer identification number, generally on Form W-9. Currently, many companies required such information and report payments made for services. The new law includes reporting for amounts paid for goods. For instance, a 1099 will be required to be issued if you purchased a computer at a local retailer. However, there appear to be benefits of the change due to the $600 “bright line” for all payments. Another key change is that financial firms that process credit or debit card transaction will now be required to provide that information on Form 1009-K. What does this mean? All payment processors, including Paypal, eBay, Amazon, etc that service individuals and very small businesses will be providing information to the IRS regarding processed transactions. The goal of the new regulations is to capture income that is unreported to the IRS. This requirement has the potential to cause significant tax issues for various individuals and small businesses who conduct ecommerce transactions without reporting the income. Could the impact be as big as recent Foreign Disclosure (UBS, etc.) rules? Only time will tell.

Please note that final regulations are still be interpreted by the IRS and will likely not appear until next year. However, we have been guiding our clients at dbbmckennon to be aware as the reporting requirements will affect substantially all businesses in the US and doing business in the US. Please contact us if you have any questions.

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All other contact information including phones and email will remain the same.

Our new building provides for our future growth, and enables us to incorporate the latest technologies and space efficiency to achieve cost effectiveness. For more information, contact dbbmckennon at 949-203-3010 or info@dbbmckennon.com.

dbbmckennon is a full service public accounting firm in which was established to provide tax, attestation and consulting services to individuals and businesses through our two offices located in Southern California. Our partners have represented hundreds of small businesses and audited over a hundred smaller reporting public companies in the United States and abroad. We deliver high-quality professional services, in a timely manner, and focus on providing value to our clients. Our technical skills rival those offered by our strongest competitors, which enable our clients comply with the rules and regulations of our profession. We take every engagement seriously with the expectation that our clients will be completely satisfied with our performance. In addition, the firm has a highly competitive fee structure for the Southern California market. We take every engagement seriously with the expectation that our clients will be completely satisfied with our performance and fees. Our rate structure is intended to be the most competitive in light of the current economic conditions.

The CPAB is Canada’s version of the Public Company Accounting Oversight Board (“PCAOB”) here in the United States. The CPAB was formed in 2003 and oversees auditors of Canadian reporting issuers. Generally their jurisdiction covers all companies that have raised funds from the Canadian investing public and who, for that reason, must file financial statements with one or more provincial securities commissions.

dbbmckennon is a full service public accounting firm in which was established to provide tax, attestation and consulting services to individuals and businesses through our two offices located in Southern California. To contact dbbmckennon click here.

1. Delegate – Being lazy isn’t always a bad thing.  You hire employees to do work, so let them earn their paycheck.  When looking to delegate, ask “can someone else do 60% of this project”?  If the answer is yes, then try delegating the project.  If you only need to be a part of 40% or less of the total project time, then it is likely going to be beneficial to delegate the work.  Make sure to build in time to check-in, answer questions, and review along the way.  In addition, require a deadline for delegated work that gives you enough of a buffer to correct anything that was done wrong before the actual deadline arrives.  This will ensure success and timeliness of any project delegated.
2. Consolidate – If you have multiple businesses you may have multiple professionals you consult with for each company.  Instead of using multiple lawyers, CPA’s, insurance agents, PR firms, etc… use the same for all companies you own.  Try to find professionals who have close relationships with each other.  If you lawyer needs a tax return, wouldn’t it be easier if they called or emailed your CPA directly?  If you have a good relationship with a professional, ask for references to professionals they know and trust.  Creating a close network of advisors will save you time and anxiety.
3. Automate – Let technology work for you.  Eliminate paper time cards and reports and implement an electronic time tracking system that your payroll manager can efficiently review.  Leverage your workforce to create templates that will streamline processes.  Download financial transaction from your credit card companies and banks into your financial reporting system.  Anything that will save your employees time, will allow you to shift more responsibility to them and off of you.
4. Outsource – Tired of being on the phone with your IT guy every week about terms you don’t understand?  Server crashed?  Virus infiltrated your employee’s computer causing your system to crash?  Having to pay for new servers and firewalls?  Why deal with this headache and ultimately the associated expense.  Look into cloud computing. By outsourcing much of your technologic needs, you can reduce risk to your business, save money, and increase efficiency.  No more lengthy calls to the IT guy is like Christmas in July.
5. Stay Organized – A little up-front work will save you time down the line.  Clean work areas correlate to organized minds.  Being able to find something quickly will reduce frustration and inefficiency.  Create a filing system that is easy for both you and the people who assist you.  Try to end each day by organizing your desk, paperwork, email, etc.  This will help you start the next day smoothly.

With these tips, make sure that your time away from work is equally as important as your time at work.  Allowing yourself a little time off at night or on the weekends will help you to focus on work when the time comes.

At DBBM, we work with many small business owners who benefit from a few of these tips.  As trusted friends and advisors, we want to make all of our clients’ lives easier.

12790 El Camino Real, Suite 130
San Diego, California 92130

Previously the San Diego office was based in Solana Beach. The new office is located in the heart of the Del Mar Business Park and will allow dbbmckennon to expand its staff and operations. The new office is centrally located amongst our clients and associates throughout San Diego County.

The term cloud is used as a metaphor for the Internet, based on how the Internet is depicted in computer network diagrams and is an abstraction of the underlying infrastructure it conceals. Typical cloud computing services provide common business applications online that are accessed from a web browser, while the software and data are stored on the servers.

These services are broadly divided into three categories: Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and Software as a Service (SaaS). The name cloud computing was inspired by the cloud symbol that is often used to represent the Internet in flow charts and diagrams.” (source wikipedia)

Why be in the Cloud?

The whole point of having a wireless enterprise infrastructure is to increase mobility, reliability, security, reduce hardware and IT consulting costs, and ultimately your software licensing costs. Yet for many enterprises, they use wireless LANs (WLANs) that require an on-site server(s) which occupy space, require field maintenance and repair, and can be stolen.

dbbmckennon and their preferred IT networking vendor is now aiming to change the wireless management paradigm with a new cloud-based Software-as-a-Service (SaaS) offering.  Can you imagine reducing your hardware costs by about 50% alone?  IT consulting costs too?  dbbmckennon will join this vendor to ensure client transitions seamlessly with integrity and security. 

Benefits of the Cloud!

• Improve company performance – Applications run real time and give your entire management team the ability to quickly view, understand and take action to respond to changing business conditions.  Improves effectiveness and efficiencies in the organization.
• Allows remote access – at high speed from anywhere in the world.
• Dramatically reduce IT and operating costs – Reduce your costs of servers and desktop computers, and probably printers.  You maintenance costs for computers and servers is substantially eliminated.  You will not need an air conditioned, dedicated server room once on the cloud.
• Reliability – In today’s data centers are extremely reliable.  These are the same data centers that fortune 100 companies utilize.  No more rebooting your company server and server downtime, as well as costly IT field maintenance.  A reliable internet connections can be found anywhere if your primary connection fails.  Back ups are imagined real time, thus no tape, disk or on-line back is needed.
• Security – Secure networks on offices are generally much more vulnerable to damage and theft. Redundant systems and data encryption protect data from loss and intruders.  The cloud greatly reduces documents sent via email, which are often not secure.  Netbooks, not  laptops, will be used by sales and field personnel; Netbooks have no confidential data stored on them if lost!
• Going Green – The cloud reduced paper, postage and handling costs.  Since you documents and files are maintained electronically, storage space is greatly reduced.

Please contact us if you have any questions or would like additional information.