Jonathan Strack and Eric Cooley, Strack, Inc., and Chris Smith, CB Smith & Associates (ProfitSense with Bill McDermott, Episode 47)
On this edition of ProfitSense with Bill McDermott, Jonathan Strack and Eric Cooley from Strack, Inc., and Chris Smith, CB Smith & Associates, joined host Bill McDermott for a discussion on building their respective businesses and adapting to the digital age. Jonathan and Eric talked about cultivating a company culture, getting outside their comfort zone to recruit talent and market their business, growing the skills of their people, and more. Chris discussed the ways his firm is leveraging technology and AI, how they support their clients through tax planning, new tax laws, and more.
Bill concluded the episode with comments on the one liquidity rule every business owner should know.
Jonathan Strack and Eric Cooley, Strack, Inc.
Founded in 1948, Strack, Inc. is a heavy civil contractor focused on delivering value-driven project solutions, advanced industry training, and workforce development in the Southeast. Strack provides grading & excavation, pipeline construction, trenchless boring, design build, railroad construction and drilling and blasting services.
With a focus on the residential, municipal, industrial, and commercial markets, Strack is committed to delivering quality infrastructure built by an equipped and empowered team of nearly 600 employees. At Strack, they foster a relationship-driven culture and are driven by living out their core values of Better Every Day, Mindful in Everything, Humble Hearts Open Hands, and Everyone Matters in everything they do.
Jonathan Strack is CEO and President of Strack, Inc. He is a 3rd generation Strack, who has led the way for growth and provided vision for the future of Strack Inc., unlike anyone else. Under his leadership, Strack has more than quintupled in revenue all while expanding into new market segments and construction disciplines. Jonathan was awarded Construction Equipment’s ‘Under 40 in Construction Equipment Award’ for 2020.
Eric Cooley joined Strack as Chief Financial Officer in June 2019. Eric has more than two decades of experience serving in construction financial management roles. Over his career, Eric has had the privilege of building and developing many successful teams in the areas of finance, accounting, HR, IT, project management, training, and recruiting.
He holds a BS in Business Administration from Longwood University and an MBA from Campbell University. He is also a Certified Construction Industry Financial Professional (CCIFP) and IMA Certified Management Accountant (CMA). During his career, Eric has gained a mix of public, private, and private equity experience with company revenues from $100 million to $4 billion. Eric enjoys working collaboratively across the organization to strategically solve business problems, create structure, and develop systems.
CB Smith & Associates
CB Smith & Associates is a Georgia-based business advisory and CPA firm that delivers big-firm expertise and acumen with small-town thoughtfulness and warmth. We help bring to light the stories that numbers tell — about the health of your business, the soundness of your financial or tax plan, and the options that can lead you to a path of success. We believe that awareness makes opportunity visible.
Chris Smith, President, CB Smith & Associates
With over 30 years of financial experience, Chris Smith is passionate about his work. Since founding the accounting firm in 2003, he has led the firm’s growth from one to three office locations in Georgia to include 35 employees with a solid team of certified public accountants and other tax professionals.
CB Smith & Associates is a business advisory and full-service accounting firm that works in tandem with its sister company, Reliance Payroll LLC, a full-service payroll and human resources outsourcing firm.
Prior to starting his own firm, Chris was a corporate controller. He earned a degree in accounting from Georgia State University’s J. Mack Robinson College of Business, is active in local community groups such as the Rotary Club and numerous CPA groups.
About ProfitSense and Your Host, Bill McDermott
ProfitSense with Bill McDermott dives into the stories behind some of Atlanta’s successful businesses and business owners and the professionals that advise them. This show helps local business leaders get the word out about the important work they’re doing to serve their market, their community, and their profession. The show is presented by McDermott Financial Solutions. McDermott Financial helps business owners improve cash flow and profitability, find financing, break through barriers to expansion, and financially prepare to exit their business. The show archive can be found at profitsenseradio.com.
Bill McDermott is the Founder and CEO of McDermott Financial Solutions. When business owners want to increase their profitability, they don’t have the expertise to know where to start or what to do. Bill leverages his knowledge and relationships from 32 years as a banker to identify the hurdles getting in the way and create a plan to deliver profitability they never thought possible.
Bill currently serves as Treasurer for the Atlanta Executive Forum and has held previous positions as a board member for the Kennesaw State University Entrepreneurship Center and Gwinnett Habitat for Humanity and Treasurer for CEO NetWeavers. Bill is a graduate of Wake Forest University and he and his wife, Martha have called Atlanta home for over 40 years. Outside of work, Bill enjoys golf, traveling, and gardening.
Intro: [00:00:03] Broadcasting from the Business RadioX Studio in Alpharetta, it’s Time for ProfitSense with Bill McDermott.
Bill McDermott: [00:00:16] Good morning. Welcome to ProfitSense. This podcast dives into the stories behind some of Atlanta’s successful businesses, and business owners, and the professionals that advise them. We help local business leaders get the word out about the important work they’re doing to serve their market, their community, and their profession, as well as discuss current issues that business owners are facing today across a wide variety of industries.
Bill McDermott: [00:00:43] I’m your host, Bill McDermott. And this show is presented by The Profitability Coach. When business owners want to increase their profitability, they often don’t have the expertise to know where to start or what to do. I leverage my knowledge and relationships from 32 years in banking to identify the hurdles getting in the way and create a plan to deliver profitability they never thought possible.
Bill McDermott: [00:01:07] We have three great guests on the show today and I just want to welcome each one of them. Jonathan Strack with Strack, Inc. Jonathan, welcome to ProfitSense.
Jonathan Strack: [00:01:17] Thank you very much.
Bill McDermott: [00:01:18] And Eric Cooley also with Strack. Eric, welcome to ProfitSense today.
Eric Cooley: [00:01:23] Thank you, Bill.
Bill McDermott: [00:01:24] And then, Chris Smith. Chris, welcome to ProfitSense. So glad you’re here.
Chris Smith: [00:01:28] Yeah. Thank you, Bill. Thanks for having me.
Bill McDermott: [00:01:30] So, Jonathan and Eric, I’m going to start with you. You know, we all know there’s a war for talent out there in the industry, especially in the construction industry. But I think across the board, it’s really hard to find great people. But you and your management team have done a fabulous job of building the business over a period of time. So, you know, I don’t want you to reveal any trade secrets here, but you’ve been in business for 75 years, how do you use that to attract top talent to the company? Jonathan?
Jonathan Strack: [00:02:08] Yeah. Just being in business for 75 years, you’ve got great relationships, you’ve got stability. We’ve got a really good long running reputation for quality, treating people well, doing a good job, and being fair. So, from that regard, it helps us sell ourselves.
Jonathan Strack: [00:02:27] But, you know, trying to find talent, you’re competing against everybody in a really saturated market. So, we really had to rethink how we went about attracting and retaining folks. We had to get used to being on social media and hire some additional staff we’ve never had before. So, that’s just part of an evolution of 75 years of business and changing times.
Bill McDermott: [00:02:53] Sure. And, Eric, I know there was a time, I want to say, maybe five or six years ago when you joined Strack, and I’m sure with your background and experience, you could probably go just about anywhere. What attracted you to Strack to become CFO there?
Eric Cooley: [00:03:10] For me, it was the longevity of the company, the reputation, and the marketplace. It’s the family feel. It really has a strong family culture. Again, we’ve doubled in size over the last three years. We’re nearly 600 employees at this point. But it’s just this feeling that you’re not just a number there. You mean something to the team no matter where you sit in the organization. So, just that culture, it’s hard to find that. I have a background in the corporate side. I’ve done some private equity. And so, just having this feeling of like a belonging there was important to me.
Bill McDermott: [00:03:44] Yeah. Yeah. I could understand why. And so, I know certainly there is a huge benefit of working for a privately held company. Core values typically come into play there. And so, I know, Jonathan, many employers do focus on their core values to be sure they find and retain the right people. So, how does Strack use that in their hiring process?
Jonathan Strack: [00:04:19] Well, we had to really sit down and define who we were as we grew. We had a set of well-known core values that were known by everybody that had been in the business, because that flowed from the family, we had long running employees. We were not typically a fast growing company, so it learned through osmosis or tribally, and it got handed down effectively well.
Jonathan Strack: [00:04:47] One of the things we figured out as we started to grow is how do you replicate you into all these folks that you’re bringing on board and make sure you’re still a special place to be. So, we sat down to find our core values so we’re better every day, mindful in everything, humble hearts, open hands, and everyone matters. Those are our core values. And trying to really teach the team right now to make every decision around that framework of those core values.
Jonathan Strack: [00:05:22] So, you know, it kind of went hand-in-hand with attraction or attracting and retaining talent and recruitment. And what we came up with was we decided we wanted to do our own management training, our own leadership training. We came up with our own leadership training program. We call it Frontline Leadership Training. It’s six days of training with cohorts of 20 to 30 people. And we’re going to put everybody in the business from pretty much a lead man up through a CEO. We’re all going to go through the training together.
Jonathan Strack: [00:06:03] And what it’s about is really two halves of the coin. It’s teaching what’s our standard professionally. We take a job from acquisition, we schedule it, we track it, we close it out. So, everybody in the business gets some appreciation for every other position in the company.
Jonathan Strack: [00:06:23] Like, our first one we did, we did a bid wedding. So, we had guys that they may run a Finnish crew, they may run a skid steer and a dozer and a couple of guys, and they’re having to bid on a job all of a sudden. So, they get a lot of appreciation for what the guys in the office have to do and disseminate a whole lot in a hurry.
Jonathan Strack: [00:06:45] But the other half of the coin is the personal side, the soft skill side. We want to relate to some household budget. You know, if your household finances at home are in disarray, how do we expect you to take care of our dollars? We want to do some career coaching, some goal setting, teach folks about how to properly communicate on the job, written, spoken, how to do an interview. Definitely, we’ve got a culture that is not typical. And we want to make sure that gets reflected by all our leadership. So, it’s really six days of teaching who we are and what’s our standard from professional standard attitude and ethics.
Bill McDermott: [00:07:33] Eric, from your perspective, similar question, how do you find that you, as CFO, are embodying those core values that Jonathan mentioned in your hiring process?
Eric Cooley: [00:07:48] Yeah. I mean, a lot of this obviously, as Jonathan said, we use that as a filter as we’re looking to hire folks. I think there’s always some of the professional stuff you can teach, but finding the right person with that character that shares those values with you is really important. And so, you know, if I evaluate talent on my team, that’s something we look at and try to coach around. And I try to embody those things to the best of my ability on an every day. And it’s just about being intentional about it and trying to recognize it.
Eric Cooley: [00:08:17] One thing I do talk to my team about is that we’re not an accounting company that also does construction. We’re really here to serve the construction business. So, we’re a construction company. We happen to be a piece of the wheel. And I think just recognizing where you fit in the organization is important. You know, looking at mindful and everything, that’s talking about, not just worrying about what’s going on in accounting, but think about these folks have other responsibilities they have to look at and serve, and so just working through that.
Bill McDermott: [00:08:46] And I think I’ve found, Eric, once you start sharing those core values in the interviewing process, a lot of times you find people that just don’t feel a fit and they’ll self-select out as well. Has that been your experience as well?
Eric Cooley: [00:09:01] That has been some, historically, yes. So, I think it’s important if you kind of talk about, “Hey. These are the things we’re doing,” then you get someone else talking about, “Hey. I really want to advance quickly or I really want money,” then it pretty much doesn’t line up. We’re not just about making money at Strack. It’s about the culture, about the fit.
Bill McDermott: [00:09:19] Sure. Sure. Excellent points. Jonathan, as you have built the organization, are there any particular hiring methods that seem to work well at Strack, Inc.?
Jonathan Strack: [00:09:33] Well, as we started growing six or seven years ago, pretty heavily, one of the things I had to get used to was social media. Typically, in our industry, my view was stay off social media because you don’t want to attract any needless attention to what you’re doing. It’s already a risky business. But, really, anything that’s on a social media platform, that’s your best attraction and retention tool. And that really legitimizes what you’re doing now.
Jonathan Strack: [00:10:05] We’ve gotten business based off our social media presence, you know, especially when we started grading. We’d been primarily a pipe contractor most of my life. And as we started doing earthwork, that was a definite change in perception for the industry.
Jonathan Strack: [00:10:22] And as we were trying to win some work, I’d have conversations with really large clients that said, “Hey, we see what you’re doing on social media. You look like you know what you’re doing. We trust you. You’ve been in business 70 something years and we’ve worked with you before in other places. So, hey, come on, we’re willing to give you a shot.” And that really perked me up and surprised me. So, I’ve become a lot more open to exposing ourselves to what we do.
Jonathan Strack: [00:10:51] And I mean, the other piece is you’ve got to be willing to accept some failure and learn from it. We’ve definitely had some of that along the way.
Bill McDermott: [00:11:00] Growing up in an era where there were no mobile phones, no internet, let alone no social media, like you, I have my own stories about social media. And thank goodness I’ve got one or two people that are in their 30s and can guide me in those processes. But like you, I struggled with Instagram and all the things that have to do with social media.
Jonathan Strack: [00:11:34] Yeah. And I think, you know, for construction, just changing our perception of who we are and what we are is a big deal. I mean, we’re not well-thought of by the public. I mean, when you think of construction, a lot of people think about the home remodeling guy that ran off with the work half done with all their money. And that’s not us.
Jonathan Strack: [00:11:55] And trying to really expose ourselves to high school students, college students, even middle and elementary school students and explain, “Hey. You know, we’ve got marketing folks, we’ve got accounting folks, we’ve got surveying folks. Any other legitimate business that has all these positions, we have them, too.”
Jonathan Strack: [00:12:17] I mean, I had a young man, he runs our lube truck and he’s 22 or 23, and he just was not feeling it. He says, “Look, you know, I don’t know where my path is.” But he has this passion for photography. I said, “Well, we spend a lot of money every year paying for a photographer to come out and document our stuff, make social media content for us, you obviously know what you’re doing. What do you want? Make me a wish list. I’ll buy the equipment and let’s work you into a full time position. I already paid for it anyway. You’re here. You love it. You know us. You represent us well. You and your brother work for us. Come on, let’s do it.”
Bill McDermott: [00:13:02] Wow. Wow. That’s a great story. I do know construction has a reputation. I can so relate because I come from a banking background, and bankers are challenged. There are some great bankers out there, but also banking in general is just kind of a hard process to go through.
Bill McDermott: [00:13:28] Eric, it’s one thing to attract top talent, but how, in your view, does Strack retain that talent in the company?
Eric Cooley: [00:13:37] Yeah. So, retention has been tough just in this market, particularly in the field. I think a lot of construction has high turnover and we’re not that different as it comes to that. And that’s one thing we really focused on, as we’ve tried to grow, we’ve also had to replace. But I think the key things we look at is, you know, we start training from day one.
Eric Cooley: [00:13:58] So, a lot of folks from an orientation perspective, they may come in, have you just sign some papers. We’re running a four day orientation program right now. You come in. You learn the standard operating procedures for the company. You get safety training. You have an opportunity to go through. We’ve got equipment simulators to get familiarization with the equipment. And so, you know, really making that investment starting in day one.
Eric Cooley: [00:14:21] And I think living out our core values, that’s something that’s key to trying to retain them. If we’ve sold them on something, it’s important that we live that out and they’re able to see that demonstrated to hold on to them.
Eric Cooley: [00:14:33] I think Jonathan touched a little bit on the training. So, we’ve got this frontline leadership training program we’ve built. We’re also building an Operator Training Program, where we’ve promoted four guys from inside the business and they’re going to go out and help on the job sites to help train and really bring up the level of experience and understanding to some of the newer employees. Because part of this, you know, attracting new talent means we might be looking at folks from other industries. And so, part of that’s just trying to help increase the knowledge base out there.
Eric Cooley: [00:15:06] And then, you know, some other things we’ve done is we’ve got Marketplace Chaplains. So, we have a chaplain service to really demonstrate the care. And at this point, Jonathan’s not able to talk to every employer. Historically, he could take calls consistently. But at this point, it’s making sure that that message is out there, we care and how can we help you there.
Bill McDermott: [00:15:25] We had that at a bank that I worked at, too, and that made a world of difference because there was a point in time when I had lost my father and was going through a grieving process. And so, that is wonderful.
Eric Cooley: [00:15:37] And I think something else that is kind of unique here is we have a charitable gift matching. So, any employee, any charitable gift giving they make, the company will match that. And there is a limit set for just normal charities. As it comes to tithing, it’s unlimited. So, just really pushing further on the values and demonstrating from our actions that we’re going to live those out.
Bill McDermott: [00:15:58] Yeah, that’s awesome. We’re talking today with Jonathan Strack and Eric Cooley with Strack Inc. Founded in 1948, Strack Inc. is a heavy civil contractor focused on delivering value driven project solutions, advanced industry training and workforce development in the southeast. They provide grading and excavation, pipeline construction, trenchless boring, and many other things. They’re committed to delivering quality infrastructure built by and equipped and empowered team of nearly 600 employees.
Bill McDermott: [00:16:31] And, Jonathan, what a great legacy that you’re continuing to leave and will do into future generations. But I’m curious, how, in your view, have your hiring and retention processes evolved through the years?
Jonathan Strack: [00:16:49] Well, most of your hiring in years past was either referral, and you still have a fair bit of that. But it used to be you’d have guys walk in your front door, want to fill out an application. It was a very organic process. You might put an ad out in the local newspaper or in the Atlanta Journal Constitution.
Jonathan Strack: [00:17:10] But, now, you get very few people that way. And if they’re coming in the front door, those are probably not the guys you want to hire, honestly, in today’s environment. I’m not saying that doesn’t ever happen, but by and large like I talked about earlier, you’ve got social media platforms, you do paid ads. We actually have a human resources software now that helps us post some of our jobs. We’ve gotten a lot of traction that way. We have a full time recruiter on staff, full time that calls and vets folks before we really ever get into an interview.
Jonathan Strack: [00:17:53] And the team itself, they pretty well supply the needs to the recruiter. And between HR and recruitment, they disseminate the needs back out to the guys as they do interviews. We’ve got paid billboard advertisements right now. I mean, we’re trying things we’ve never tried before just to get some attention to us. I mean, we’ve got three or four billboards at the I-85 Corridor right now.
Eric Cooley: [00:18:22] We do. Yes.
Jonathan Strack: [00:18:22] I’ve never, never thought I would do that. I never liked talking about us. You know, we’re pretty humble as a whole. And that always used to appear arrogant to me. But now, it’s out of necessity. I’ve got to try whatever I can, regardless of what I may or may not be comfortable with, because we don’t know what works right now. We’re having to learn.
Bill McDermott: [00:18:46] So, Eric, I think if you say it, sometimes it can be taken as bragging. But I’m sure if your employees are saying it, that’s testimony. And so, I’m wondering from your perspective, how do you maybe engage your workforce in looking for people just like them to send your way as well?
Eric Cooley: [00:19:13] Right. Yeah. A lot of that is giving our employee that experience so they do want to do the referrals. And then, we do have an Employee Referral Program to where the employees are rewarded for bringing new employees onboard.
Eric Cooley: [00:19:26] We’re working on an internal communications app. It’ll actually be an application on your phone. And I think given that connectivity, you know, the consistent message all the way throughout the organization will help the employees that may not get to see everything or be aware of everything to really make them more aware of what’s going on in the company, and then want to invite their friends or other other folks to join them. So, I think that communication is big. And, really, the encouragement to bring folks, more like yourself, to come to the company is how I see that.
Bill McDermott: [00:19:55] Sure. Sure. Absolutely. So, just in case we have any potential great employees who might be out there, let’s use the ProfitSense Podcast too. Jonathan, Eric, what’s the best way if there’s someone interested in coming to work for a great company like Strack, Inc., how should they get in touch with you?
Jonathan Strack: [00:20:14] I’ll take it. Yeah. I mean, the best way, you can get on the website and put an app in. You can always message us on any social media platform. That’s monitored full time by folks we have on staff. So, really, any public facing portal we have, whether it’s LinkedIn, Facebook, website, shoot us a message, put in an application, and we’ll call you back pretty promptly.
Bill McDermott: [00:20:42] And, Eric, what’s the website address for the company?
Eric Cooley: [00:20:45] It’s www.strackinc.com.
Bill McDermott: [00:20:49] Great. Jonathan and Eric, thanks so much for coming on ProfitSense today and sharing your experience and your expertise. And congratulations on building a company with an employee base of 600 people. That’s quite an accomplishment. Congratulations.
Eric Cooley: [00:21:05] Thank you for inviting us.
Jonathan Strack: [00:21:06] Thank you.
Bill McDermott: [00:21:09] And so, Chris Smith, Chris is with CB Smith & Associates. Chris, so glad to have you. For our listeners, tell us a little bit about CB Smith & Associates. You’ve got a headquarters in Alpharetta, but also Macon and the Lake Oconee area. As an accounting and business advisory firm, what do you do for businesses and individuals?
Jonathan Strack: [00:21:34] Yes. Thanks, Bill.
Chris Smith: [00:21:36] So, CB Smith is celebrating their 20th year being in business. I started CB Smith in the Cumming area back in 2003. And we’ve slowly grown over the years. Today, we’re a full service firm. I have a partner at the firm, his name is Tim Whittemore. And as you mentioned, we have offices in Macon and here in Alpharetta, and we have a satellite office in the Lake Oconee area. Today, we’re a full service firm. We do audit work. We do reviews. We do tax planning, business advisory services, and, of course, tax compliance work for our clients.
Chris Smith: [00:22:19] But one of the areas that we’ve really focused in – gosh – since 2007 timeframe is moving accounting into a paperless environment. And once accounting gets into a paperless environment, it’s all X’s and O’s. And then, you can do things like process automation, really automate processes, and improve collaboration amongst team members. And, hopefully, help to make a business more scalable.
Chris Smith: [00:22:51] From a philosophical standpoint, I’m a big believer in the things that got you out of Egypt are not the same things that will get you to the Promised Land.
Bill McDermott: [00:23:00] Well said.
Chris Smith: [00:23:03] We love working with businesses that are at that stage. They’ve hit a ceiling of complexity and they’re trying to figure out what are those things that will get us to the Promised Land. And so, we help them by implementing and retooling the accounting function. We’re a big believer that the accounting function shouldn’t be an anchor on the business. It should be a driver of growth. And so, we try to work with our clients from that standpoint.
Chris Smith: [00:23:29] So, we’ve got some young folks at the firm that are taking advantage of these no code, low code solutions that are out there, power apps, mostly for the Microsoft platform that takes those X’s and O’s or those ones and zeros, and, really, starts to build a better process for our clients and their business processes, improves internal controls in the business. And, hopefully, that leads to growth and that’s where we come in and help them from a tax planning standpoint.
Bill McDermott: [00:24:09] Now, you’re preaching to the choir here when you start talking about processes. One of the things that I found in working with my clients is rarely do I see processes in writing. And if they’re in writing, are they being followed? And so, when you started talking about business process automation, that’s like documented processes on steroids. But tell us a little bit more about that, because I think you’ve really carved a niche in the marketplace with business process automation, haven’t you?
Eric Cooley: [00:24:41] Yeah. Yes. Certainly, we really love working with our clients from that standpoint and putting everything on its side. You know, the documents as an example, having an SOP document and all the binders and everything to that effect, we integrate it into the process. That documentation is the process. So, if someone gets to a form and how do I fill this out or what am I doing with this, you can have a Help Menu item that just shows up. And it is, “Here’s our policy. This is how this works.” So, we integrate it into the tools that are in place.
Chris Smith: [00:25:18] You know, historically speaking, you have your software and then you have your policy document. And so, now the software and the policy document become one. And with the low code and no code development that can be done just by accountants, you’re able to now integrate those things together. And it’s flexible. It’s agile. As the business changes, the environment for the business changes. You can change your policies and integrate it right into the app right at the same time.
Chris Smith: [00:25:49] It also eliminates so much human error that may be in place, especially if you do have a document. A lot of times they come in electronically as it is. But even if they’re scanned in, you can OCR. Artificial intelligence sometimes can be scary for folks but it’s here and leverage it.
Chris Smith: [00:26:07] And so, if you have an AI that can sit there and read a document and know it’s an invoice from a particular vendor, and knows where to go look on that invoice for the amount, when it’s due, so on and so forth, use the AI. And then, your people, instead of becoming data entry clerks, they’re reviewing what the AI does, make sure it’s good.
Chris Smith: [00:26:26] And once that’s in there and, again, ones and zeros, you don’t have any room for human error later on down the road. The integrity of your data really improves. And there’s a lot of benefits in terms of efficiency so the business can focus in on what it does and reduce its administrative costs accordingly.
Bill McDermott: [00:26:48] Yeah. I can really see the benefit of not only improving efficiency, but also improving effectiveness. I can’t talk to a CPA without talking about taxes. Taxes come up. And so, I’m going to insert a little personal bias here. So, businesses that have a tax strategy that minimizes taxable income make them very difficult to bank lending customers, coming from a banking background. So, that’s my bias there I have to get over.
Bill McDermott: [00:27:26] But I do know tax planning is a big part of your business. What do you see as tax planning? How do you do it? And then, why is it important for small businesses to do tax planning?
Chris Smith: [00:27:41] Our first philosophy is, first off, we’re going to be your advocate for our clients. Tax planning is important, but tax planning isn’t the end all, be all. Improving your wealth is the end all, be all. And so, we’re not going to implement or suggest a tax solution that isn’t necessarily in line with improving our client’s overall financial well-being. And so, that’s always secondary to financial well-being. But it’s a very important piece.
Chris Smith: [00:28:15] We’re in a segment. We’re not a large national firm, so we don’t have a lot of clients that are publicly traded or anything like that. Our clients don’t have investors to impress. They’ve got to impress the bank every once in a while. You know, so our focus is going to be on tax planning. It’s a heavy part of our relationships with our clients. And, you know, that is the business we’re in, by the way, is the relationship business. We may be accountants, but that’s what it is.
Chris Smith: [00:28:43] And so, we’re going to work with our clients to ensure their financial well-being is in place. And they’re doing it as a tax efficient manner as possible. And if they need a source of funding because of some sort of, you know, new business plan, new venture that they’re going to move into, then we’ll work with our clients and we’ll work with the bankers. And make sure the bankers understand these are things that we’re doing from a tax perspective, so let’s make some adjustments accordingly so you can get a better picture of what the cash flow would be for the organization, so you can make better lending decisions from that standpoint.
Bill McDermott: [00:29:25] Yeah, it makes perfect sense. So, the baby boomer generation business owners are retiring in droves. They’ve been successful. They’re wanting to exit. So, talk a little bit about how CB Smith & Associates helps business owners with succession planning.
Chris Smith: [00:29:45] Yeah, certainly. There is a time frame. Each business sits at a different life cycle and all businesses are different. We’re dealing with clients that are startups, that are on that front end stage, cash is really tight, they’re in a high growth environment. We’re trying to help them with business process automation to leverage the tools that are out there.
Chris Smith: [00:30:07] And then, we have clients that maybe are at that little more mature stage, but they’re ready to go another 10, 15 years. And so, that’s where tax planning comes into play. That’s where we’re thinking about, “Okay. How can we minimize your tax as much as possible?” So, that’s available cash to reinvest in the business or harvest from the business.
Chris Smith: [00:30:29] And then, we have clients that are very mature, you know, multi-generational businesses and they’re dealing with other issues where they’ve just got more pieces of the pie that they have to spread out, and so how do they manage growth from that standpoint.
Chris Smith: [00:30:46] But then, we have folks that they’re not ready to pass it on to the next generation. They’re looking for some sort of a succession plan. And the key to them is planning ahead of schedule. It’s a five year look. That’s where we change our strategy. We’re not necessarily interested in maximizing the tax benefits that they may be receiving, but we’re interested in making sure that business looks like a nice rose on the bush and it’s ready to be plucked off.
Chris Smith: [00:31:16] So, we’re going to help our clients from that standpoint. We’re going to make sure that maybe we don’t take those deductions as benefits that you have been taking in the past. Let’s see what we can do to improve the cash flow from the business to the owners. We often refer to it as EBITDA.
Chris Smith: [00:31:35] And sometimes it’s different. It depends on the business. It could be a heavy asset business, got a lot of assets to it, or it could be a business that doesn’t have much of a balance sheet at all and it’s more of a service business. So, we’re going to look at those aspects and make sure that that business is in a good position so they can maximize value out of it.
Chris Smith: [00:31:53] What are they doing from a management standpoint? Bill, you know this really well. What are they doing from a management standpoint so the business is not defined by the owner. It’s defined by the team. And so, that really enhances value of that business from that standpoint. And that’s a philosophy you should have even if you’re not looking to sell the business. Make the business work for you. You not work for the business. But we’re going to work with them and make sure that they have the right mindset in terms of what they’re doing.
Chris Smith: [00:32:27] And then, we’ll have conversations with them, they are going to cash it. How do you handle that? What’s the estate going to look like? What are we looking at in terms of the value of the estate and how is that going to go? How are those assets going to get passed on? How is it going to get taxed when you die? Having some conversations on that.
Chris Smith: [00:32:49] Also, having conversations of do you want to sell it to a competitor or do you want to sell it to your employees. We’re working with a company right now. It’s a civil engineering firm. And we’re working with them to potentially have a tax free sale through an ESOP. And so, we’re going to have those conversations with the clients, here are the benefits, this is how much of a squeeze you need to make to get the juice out of the fruit, per se. This is what’s going to be involved administratively to be able to get those benefits.
Chris Smith: [00:33:22] We had another client that was in the chemical business that they’re getting ready to be bought out by a competitor right now. And there was a big discussion as to whether it was going to be a stock sale or an asset sale. And an asset sale was going to cost them about an additional $800,000 in tax. And so, that’s an important conversation to have with your client in saying, “Hey, we need to have an understanding of this.” And that may be a renegotiation that you have with the buyer that says, not only do we have $800,000 in tax associated with an asset sale, but we also have capital gains on that $800,000. So, we probably need to have close to $1 million of additional compensation from the sale of the business. And, fortunately, it was a nice business, so the buyer agreed to that.
Bill McDermott: [00:34:12] Yeah. That’s great. We’re talking today with Chris Smith, who’s president of CB Smith & Associates. Chris has over 30 years of financial experience, passionate about his work since founding the accounting firm in 2003. He’s led the firm’s growth from one to three offices in Georgia to include 35 employees with a solid team. CB Smith & Associates is a business advisory and full service accounting firm that works in tandem with its sister company, Reliance Payroll, which is a full service payroll and human resources outsourcing firm.
Bill McDermott: [00:34:48] Chris, last question. Today, what are some tax law changes in Georgia that individuals or businesses need to know this year?
Chris Smith: [00:35:00] Certainly. Thanks for asking that question. There have been some recent tax law changes here in Georgia. And, you know, we just had a little internal, we have a First Friday Program with all of our staff. The first Friday of every month, everyone gets together and we talk about recent changes.
Chris Smith: [00:35:19] So, we, literally, just last Friday had a conversation about some tax law changes here in Georgia. So, it’s kind of still somewhat fresh in my head. The big piece that we have – there’s a couple pieces – one is, last year, Georgia passed what was called a Pass-Through Entity Election Law that allowed for S-corporations, in particular, and some partnerships to elect to be treated as a C-corporation for Georgia tax purposes.
Chris Smith: [00:35:51] And the benefit to that has to do with the S-corporation and partnership owners’ personal tax returns, because state taxes, when you itemize your deductions on the federal return, state taxes are limited to $10,000. And so, if you have a business of any worthiness that you can quickly exceed that, especially if you own a house and you’ve got property taxes of $5,000, $6,000, before you know it, you’ve hit that $10,000 threshold.
Chris Smith: [00:36:20] So, what this election does is it allows the Georgia income to be taxed at the entity level and it becomes a deduction for trade and business purposes purposes. And it eliminates it from your itemized deductions. And, of course, the income on your personal Georgia return that was taxed at the entity level is excluded from your income on your personal return. So, there’s a lot of benefits to that.
Chris Smith: [00:36:46] One problem we had with this is that it was limited. The partnerships that could participate in that was limited. You had to have certain qualifications in order to be able to do that. And so, Georgia has amended that law, I think it’s House Bill 415 that did that. So, they have amended House Bill 415 to allow all partnerships to participate in that election beginning in 2023, the 2023 tax year. So, that’s a big benefit for some of those businesses that were out there that there was a partnership arrangement they couldn’t do it. We had a couple of clients that just couldn’t do it from that standpoint, just due to the nature of the partners or in their partnership.
Chris Smith: [00:37:29] The other change that was been made and, of course, this is good news if you are one that likes paying less tax to the state of Georgia. House Bill 454 was just passed. And with that, the individual rate is going down. In prior years, the Georgia tax rate for both corporations and individuals was 5.75 percent. And Georgia’s individual rate is going to go down to 5.49 percent in 2024. And then, every year after that, it will go down another 10th of a point and it will rest in 2029 at 4.99 percent. So, that’s a good benefit for a lot of individuals.
Chris Smith: [00:38:16] The other things that changed for individuals is the Georgia Standard Deduction for filing married, filing jointly individuals has gone to $24,000. And the standard deduction for all others filing single, married, single head of household has moved over to $12,000. So, those are some of the changes that, just in the last legislative session, have been passed. And so, we’re going to see some benefits from that going forward.
Bill McDermott: [00:38:47] Yeah. Wow. Tax rates actually going down a little bit. What a concept. Chris, if someone has accounting questions or needs to get in touch with you for some accounting advice, what’s the best way for them to get in touch with you?
Chris Smith: [00:39:01] Yeah. So, website is a great place to go to. You can be a very small business just getting started, you’re trying to conserve every dollar you can, go to our website, sign up for a newsletter. We send out articles. We do blog posts monthly on various topics. A lot of great articles on our website about starting a business.
Chris Smith: [00:39:26] If you’re at a different stage in your business and tax is becoming a problem, business is growing, you know, feel free to reach out to us. There’s a couple links on the website to inquire with us and one of our senior level tax managers will call you up and have a conversation about how we can help you and how we can build a relationship with you from that standpoint.
Bill McDermott: [00:39:50] That’s great. And that web address is?
Chris Smith: [00:39:52] Yes. It’s CB Smith and Associates, so it is www.cbsmithcpa.com. That’s our website. And, of course, as your previous guests here had mentioned, we are also looking for talent in the area. And we work with a lot of the universities and schools, but we’re also looking for senior level talent as well that would help fuel our growth.
Chris Smith: [00:40:19] We’re a big believer that the players bring the fans. And so, the quality of our employees bringing clients and help us with growth. And so, we encourage anyone that may be interested in joining the team to go out to our website as well. You can go to About Us, and there’s a link there for joining the team, and we’d love to have an opportunity to speak with you.
Bill McDermott: [00:40:38] That’s great. Chris, thanks so much for coming on ProfitSense today.
Chris Smith: [00:40:42] Thank you.
Bill McDermott: [00:40:45] I want to take a minute to talk a little bit about liquidity. You’ve heard the idea that cash is king, and there is one liquidity rule that I think every business owner should know. Every business owner understands that cash is critical to running a business. But knowing how much cash is needed leaves many business owners confused and frustrated.
Bill McDermott: [00:41:08] I worked with a professional services firm that has a practice with three locations. Their revenue came from professional services that were reimbursed by insurance – insurance companies, as we all know, are notoriously slow in this practice – found themselves with at least half of their receivables over 90 days. No one was accountable for collections and they were forced to borrow from very expensive lending sources just to fund payroll.
Bill McDermott: [00:41:34] Quickly, we put the internal accountant in charge of collections. She blocked time on her calendar daily to make collection calls. In the next six weeks, the amount of over 90 day receivables was reduced to about 10 percent of the total, that was $100,000 cash impact to that firm. And the firm’s cash balance doubled because of it. They no longer had to borrow and saved a significant amount of interest expense.
Bill McDermott: [00:41:59] Now, the firm who works in the manufacturing space was able to increase their cash balance simply by requiring a 50 percent deposit for their product upfront. That way, they weren’t fronting all of their costs.
Bill McDermott: [00:42:14] No matter how you achieve it, my recommendation is that 15 to 20 days sales is a good number. Take your annual sales, divide it by 360, then divide that number into your cash balance. So, if you have $5 million in revenue, that’s about $14,000 a day to have 15 days sales and cash, your cash balance would need to average about $210,000. If you’re struggling with liquidity, work with your finance person to find out how to improve your cash balance and take action.
Bill McDermott: [00:42:49] If you want to keep up with the latest in pro business news, follow us on LinkedIn and Instagram at The Profitability Coach. If you want to listen to past or future ProfitSense episodes, you can find us on profitsenseradio.com. This is ProfitSense with Bill McDermott signing off. Make it a great day.