Episode Summary
This episode is sponsored by Canopy. Learn more at https://www.getcanopy.com/
Paul Hamann, the founder of RC Reports, joins Dawn to talk in-depth about reasonable compensation and how his business can help firms present accurate reasonable compensation figures to their clients.
Listen now to learn why Paul started RC Reports, the consequences of incorrect reporting, and how RC Reports can be an educational resource for you and your firm!
Episode Notes
RC Reports and their “Entity Planner”
Paul Hamann is the founder of RC Reports, a service that allows firms to give their clients reasonable compensation figures. Paul shares that he developed RC Reports because he struggled to find an efficient and accurate way to determine reasonable compensation, and wanted to solve the pain point for himself. Paul then sought to develop a solution for this problem and launched RC Reports in 2012
Dawn and Paul talk about RC Reports and their “entity planner”; a tool that practitioners can use to offer trusted advisor services. Dawn shares that she recently used this tool to discern whether or not one of her clients should classify their business as an S-Corp.
Consequences for Ignoring Reasonable Compensation
Paul also shares that when businesses get audited, they may be asked to prove how they achieved their reasonable compensation figures, especially if the IRS has flagged the amount you reported as above or below average. Paul also shared that the IRS just introduced the Compliance Initiative Project, which was formed specifically to check S-Corps and their reasonable compensation.
It’s also important for the practitioners to remain compliant, and Paul talks about the penalties firms can receive if they don’t. Paul shares a frightening story about a practitioner who was fined $130,000 in paid preparer penalties due to reasonable compensation errors.
Paul reiterates how important it is to properly determine reasonable compensation, and if your number was pulled out of thin air, it makes it much more difficult to prove and fight for.
Education Offerings from RC Reports
Paul also shares that RC Reports offers a wide range of education to help firms and practitioners understand reasonable compensation better. He shares that their core class is a two-hour deep dive into the basics of reasonable compensation, and helps to resolve many of the main points practitioners are struggling with.
He also shares that they dive into fact vs myth, and that many practitioners believe incorrect information that could be hurting them and their clients.
What Next Steps Should Firms Take?
Paul says that reasonable compensation should be revisited once a year. If an audit comes your way, you will be able to give the IRS a recent and accurate report of how you determined reasonable compensation for your client.
Learn more about RC Reports!
Visit their website: https://rcreports.com/
Check out their classes: https://rcreports.com/classes/
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Dawn Brolin
Hi, everyone, my name is Dawn Brolin. I’m a certified public accountant Certified Fraud Examiner, the president of powerful accounting Inc, and the author of the designated motivator for accounting professionals. I’m here today to talk to you about canopy canopy is an awesome tool. If you’re doing tax returns or tax representation either way, what it allows you to do is pull transcripts from the IRS, they have an integration certified by the IRS to pull transcripts, what I love about it is I log in one time, I connect my E services account, and I can go into canopy and pull transcripts, I don’t have to continue to log into the E services, put in my password, get my code and get in. And finally just get through E services. It’s so cumbersome. So I use canopy it’s a one time connection. Let me give you a couple of tips. Number one, I like to pull transcripts for some of my clients who make estimated tax payments, maybe they don’t provide me a copy of the estimated tax payment. I want to make sure I know the correct dates of those estimated payments, okay, so I will go into canopy pulled an account transcript for my client and be able to see what dates they made their estimated payments just solves for a lot of problems. There’s no notices maybe I thought they did four or $5,000 estimated payments, when really, they only did three, they told me they did four, they only did three. And notice comes in because they didn’t pay enough in tax. And now they’re saying you do the tax return wrong. That happens all the time. So to eliminate that pain of that process, and that, you know, customer integration or customer experience, right? We want to eliminate notices and all costs. So that’s one really key thing. The second one is when you’re not sure, if the client is giving you all of their documents, maybe there’s a 1099 R that they had from the year before. And for whatever reason, they don’t think they can find it, I can pull a trace a wage and income transcript, pull down all that information. So at least I had the federal information on that 1099 If it’s applicable if they received one for that year. And it eliminates again, the whole concept of notices. So I find it really important as I’m preparing tax returns to have this tool in place. And so I love using it. So as a tax preparer, those are a couple of tips how you can use canopy in your practice. Thanks for listening.
Well, hello, everybody. And welcome back to another episode of the DM Disruption with myself Dawn Brolin and I am joined by a new best friend, Paul Hamann with RC reports and this episode. I’m so excited about Paul say hello, tell us a little bit about yourself.
Paul Hamann
Thank you Dawn. As Dawn mentioned, my name is Paul Hamann. I’m a founder of a company called RC reports. And our software determines reasonable compensation for closely held business owners.
Dawn Brolin
Very exciting. And it’s something that I think at least for myself, as a practitioner haven’t really put it in the forefront of my mind. I feel like there’s so many other balls I have to keep in the air. This is one I would have dropped. This is one I would have dropped in thankfully, I found Abby again. And so Abby Dever, that that is amazing marketing human being who is with you guys. And I’ve worked with her for years with SmartVault. And so when I ever she ever reached out, I was like, Whoa, we mean, what is this reasonable cop? Now I’ve seen it, you know, you will look on Facebook and you see it or you look on various avenues, but you’re like, oh, reasonable calm. Yeah, I don’t have time for that. And then when you realize the implications, you go, Oh, no, I better learn about this. So tell us about the evolution of RC Reports. Obviously, we know major compliance issue that people really may not be paying attention to.
Paul Hamann
Yeah, absolutely. So you’re spot on when you said you know, it’s out there. But people don’t really necessarily understand how many parts of their business it touches and it touches all the way from the very beginning. should I even be an S-Corp to Hey, I am selling my business. I need to normalize my comp before this business goes on the market. And all all places in between retirement planning, family planning. Sometimes it comes up in divorce is different places. So it is sprinkled out throughout the lifespan of a company. But I ended up in this space because I was I was in compensation prior to getting into even more specifically into reasonable compensation. Most of my career, but it was in the late 2000s That I was pulled directly into reasonable comp because there was a spike in compliance. And so practitioners reached out to me saying, Hey, Paul, my clients getting audited, and we have no idea how to come up with this number, right? And so I got pulled into that space. And I gotta tell you, I was looking for us. Seriously, I’m like, I need to find us out there because I need to figure this out quickly and affordably. And there wasn’t anybody doing it. So I was doing these one off studies that took me about two days to do, they were two to 3000 bucks apiece, I don’t think your clients would be all that excited to pay $2,500 for, for report, and I gotta tell you, I was nervous about defending them, because some of the data wasn’t that great. Quick, fast forward through through a couple of years. But I got together with some folks that are way smarter than I am. That’s always a good idea, by the way, oh, my gosh, and it’s so easy to find, too. In programming in statistics and wages, and we sat down, and we started brainstorming, and what we came up with is RC reports. And we launched in 2012. So we’re 10 years now, this is our this is our big decadeanniversary.
Dawn Brolin
That’s awesome. Congratulations. That’s that’s, you know, there’s always no, those milestones are always awesome. Like, Hey, I’ve been in business now for 10 years. And, and I think that it’s interesting how a lot of times how people develop either a new software, or they develop some new platform or whatever. It’s around a pain point they had, that they’re like, Oh, I sat there, no one else is solving for this. Let’s figure it out. And, and it’s easy to go on Google, the call the Google, you go on the Google, and you’re like I need reasonable compensation for it, blah, blah, blah. And it’s like, no, that’s not gonna fly. And that’s something that I have done that before I’m googling reasonable comp or whatever. And I’m like, I just need something. And then I’m like, oh, shiny, shiny coin or something. Okay, I’m going over here. Now I’m gonna go do something, forget that. I’m gonna go move on to this over here, because that looks like it’s too complicated. And I don’t have a resource. So RC reports is doing that. So tell us about because obviously, reasonable comp for the closely held the s corps, the C Corp, things like that. And that’s really important. We could talk a little bit more in depth. But there’s a couple other tools. And you mentioned one about the valuation and normalizing the payroll, there’s also a quick report. So let’s talk a little bit more about a couple of those other pieces.
Paul Hamann
Sure. So reasonable compensation for most closely held business owners revolves around compliance, and that’s going to be s corpse. But there are other there are other reasons you may want to run it, such as your C corps, or if you need to normalize it for evaluation. But taking that number, and then also figuring out how it applies to your company. We have some different tools around that as well. And one is our entity planner, I think that’s where you’re headed.
Dawn Brolin
Yes. Yep. Exactly.
Paul Hamann
So business owners are great about networking with one another, and then hearing that, hey, I should become an s corp because you’re absolutely gonna save money on taxes. Right? I will absolutely is one of those words I tend to stray away from you may see, probably, maybe let’s take a look. It depends. And that’s where they need to contact Dawn, right? They need to talk to you and say, Hey, Dawn, I’m either starting a business I’ve been in business for a while, I’ve heard I can save money. If I become a S Corp. Is that true? Right? Easy enough to do. But you do need to know what your reasonable comp is. Because that is one of the key components that plays into that piece. And so we do have a tool, our entity planning tool that you can plug that number into, along with some other pieces of information. And it’ll produce a nice one page layout, you can hand to your client that says, hey, look, you know what, it’s not quite time at least from a payroll tax standpoint, right. There’s other considerations, and we don’t want to get into the legal ones today. But from a strictly dollar standpoint, it’ll give you a very clear indication as to whether that makes sense.
Dawn Brolin
So that tool for me, has been very exciting. And the reason for that is people do they’ll call and they’ll say, and I had a call with somebody just a few weeks ago, and he was like, hey, so should I move to an S corp? And historically, my answer would have been? Oh, well, we usually recommend that once you get to the 90 to $100,000 in profit. Now we can, you know, let’s just say we paid you like 65 or 70,000, we can save you X number of dollars on self employment tax, right. That’s been the the general answer we give people because we didn’t have a tool. But now with a tool. Having that conversation with him was very different. It was like, listen, it’s not my opinion anymore, necessarily. It’s now I’ve got some factual data to show you where we’re at with that process. And I think that having that tool gives us a better ability to even if it’s, even if it’s a not, hey, it’s time for you to move to an S corp. Even if you did that analysis and said, Hey, but I think maybe next year, what are we looking at what are our projections and we’re starting to have that conversation to say, remember, we have January till March 15 To make that election, we know what’s happened so far this year, it wouldn’t have made sense for 22 or 23, whatever. Now, it’s a conversation to say, Hey, this is something we might want to think about, what do you think? What do we look at the first couple of months and then decide, like last minute, like be prepared. So those are helping us with factual information to have these conversations, which is so different.
Paul Hamann
Absolutely. And having that conversation with an S corp and saying, or a potential S corp and saying, You know what, you’re not quite there yet. We can certainly go that direction if you want. But it’s not going to save you the taxes that you may have heard about or or seen on, as you call it, when you consult the Google,
Dawn Brolin
The Google or I love this one. Hey, I talked to a friend. And I’m like, punch your friend in the face for giving you bad advice. Like, you know, it’s so funny that you say that, because this is one of the things I don’t know how many times I’ve said this before, but so I tell my husband, he’ll say to me, Oh, the car’s broken, I think it’s going to cost five grand. So we should just go buy a new car, which we know that’s a ridiculous statement in and of itself.
Paul Hamann
Yeah. But if you want a new car, it’s not. Well, that’s true.
Dawn Brolin
If you’re fighting, if you’re trying to negotiate for a new car, I get it. And I’m like, have, I didn’t realize we’ve been married for 25 years, I didn’t realize you own a mechanic store, whether you work there because I’ve never seen you go to the shop. And he’s like, What are you talking about? And I’m like, so you’re telling me that you’re you as the mechanic is assuming there’s gonna be five grand? How about you go down and get an estimate on paper and bring that back to me. So we can actually have some facts to talk about. It’s the same thing. It’s no different. And so having those facts is so critical. And then obviously, and this is important that we talked about this, let’s talk about reasonable compensation, and the consequences for ignoring it, or not addressing it.
Paul Hamann
Yeah, so we’re all familiar with examinations and audits. Reasonable comp, can get challenged in a number of different ways. Traditionally, most people think of it through just your general S-corp audit where it comes up. And as part of the audit of the entire S-Corp, the examiner may say, Hey, by the way, how did you come up with your reasonable comp figure? Right? Or this looks high or low to me, we would not typically talk about high. It has come up more now that we have 199 Cafe. And that’s probably more detailed discussion where we want to have today but we have seen it go both directions. Okay. We both know Eric Green real well, he’s the three bears guy, right? Not too high. Not too low. Just right. Yep. So when those audits come, they can come traditionally, they can also come through the employment tax compliance program. If you’re familiar with that. That’s the one nine, that’s the that I pay my people correctly. 1099 or w two, specialty workstream in there. If it’s an S-Corp they’ll challenge it. Okay. So that’s another way you could see that coming with that you may not see that coming. And all of a sudden, it’s like, Wait, we were looking at, I paid myself wt, why are you looking at my salary? Right, because within that they built a specialty workstream. And then last, they did put a new CIP in place last year compliance initiative project just to go after reasonable competence S-Corps. So it’s heading, it can it can hit an S corp owner from those three different directions, and you just need to be prepared.
Dawn Brolin
And so on top of that, thinking about, obviously, our small business owners, we want to protect them from any kind of compliance, you know, penalties and all this stuff. But what I don’t think people may know is that the practitioner is subject to penalties as well, is that correct?
Paul Hamann
That is correct. So two places, I’ve heard this happened now. So one is that specialty work stream that I just described. They were instructed if they make a change to reasonable comp, to assess a pay prepare a penalty, and they’re right around $5,000. And we’ve talked to a couple of practitioners that had that happen. But Eric Green, just shared a situation he’s working through currently, where this happened to a practitioner has been doing this. You can please tell me if you haven’t heard this, but I know you have. I’ve been doing this for 35 years. It’s never been a problem. I’ve always done it this way. So it must be right. Well, it wasn’t right. And he had a number of clients who weren’t taking reasonable comp or enough reasonable comp and he had one of his clients, challenged, they re characterize they hit him with a $5,000 preparer penalty. And then they worked through his other s corpse. And I want to say like something like maybe 10 or 15 of them, but then they hit them for two years. So long story short, he ended up with a $5,000 preparer penalty on each of those clients twice. Wow. And so he ended up with $130,000 in paid preparer penalties that Eric’s helping him with. So yeah, and plus he has a whole book of business. That’s mad at him, right?
Dawn Brolin
Yeah, people are not happy because they’ve got penalized as well. So…
Paul Hamann
Oh, absolutely. And that’s about two and a half times the original tax, that would be Oh, just from a payroll tax standpoint. So if you would have owed $10,000, in taxes, you’re probably going to owe about $25,000 total, by the time you pay your taxes, penalty and interest.
Dawn Brolin
That if that is not frightening enough for anyone who’s listening, I don’t know what is, you know, it’s funny, because you say a lot of times, we as practitioners are like, I definitely feel this way, like I worked so hard for my three letters of the end of my name, I am not willing to do anything to jeopardize those. But sometimes we don’t think of it even at a softer level like that’s, that’s like, you really have to do something bad to lose your letters. But even even that point of the reputation that you have, that this has happened, is is way bigger than $130,000. Right? So now you’ve got reputation issues, you’ve got clients that are going away revenue, got lost revenue, and now acquiring new clients, hoping they didn’t hear about what you didn’t do, not what you did what you didn’t do. That fear of the unknown has to be i It’s part of my soul. I was up at five o’clock this morning worried about all kinds of stuff, you know?
Paul Hamann
Absolutely. Yeah. Well, as you said, the three letters at the end of your name. And so let’s see if I sometimes I forget the exact name of the offices is that OPR? Yep. So when you get that prepare penalty, guess where you get referred to? Yeah. And so there’s, there’s, that’s happening, too. Now you’re distracted from How to know how many different directions, including losing those three letters at the end of your name. So it’s a it’s a big deal. And we have a saying around RC reports, the first with a fact based figure wins. So if you aren’t showing up with a number pulled out of thin air, which a lot of folks are, it makes it so much easier for the other side to say, No, this is what we think the numbers should be. And then the fight begins.
Dawn Brolin
So now let me ask you this question. So obviously, like for me, this is a big part of November in December for my for my firm, we’re doing reasonable comp analysis, so we can make sure people are paid by the end of the year bonuses if necessary, whatever it may be. So I’m just thinking as we’re going through this process, are you are you seeing that people are starting to pay attention more? Are they are they starting to become more aware? You know, as far as like, because I think the the problem is, and I think that’s why this is really great that we’re doing a podcast, we’ve got webinars, and we’ll talk about where they can go for that. But we’ve got to get this into the forefront of the of the people who it is an unknown right now. And how can we get to them this information so quickly, and that’s what RC reports has been doing. You’ve been out there, you’re educating. And I know you have like a two hour webinar that really digs into the details. So can you tell us a little bit more about that?
Paul Hamann
Yes, so our one of our we do a lot of education, we’re very education forward. But our core class is a two hour deep dive on reasonable compensation. And we start off with the basics. But we go into some very detailed areas, we also go into areas that give a lot of practitioners, headaches and questions and we resolve help you resolve those questions and issues. We also go into the facts versus myths. There’s so many myths about reasonable compensation, they’ve been out there for so long. A lot of practitioners like the one Eric Green was working at working with, they’ve adopted those as facts they believe them to be true, right. And so finding out that they’re not is a wake up call, and this is the perfect time to talk to your client. At a I have a great friend who’s a CPA, he says I have this entire toolkit that I get to use up until December 31 to help you and on January 1, I have a screwdriver. So let’s talk.
Dawn Brolin
Exactly and so when you’re like so your your CPA friend, or even just me as you’re saying, Okay, listen, like right now I’m so pumped, I’m jazzed about this. And because I’m I found another way to protect myself. That’s the way I look at it. It’s another way one that I can protect myself from doing things incorrectly, because you don’t know what you don’t know, which is the fear. But you also are helping protect your client, which is also super important. So I’m here I’m doing my analysis November in December, I’m working through my clients. When is the next time I should be doing another analysis because obviously wages change, inflation, deflation, whatever it may be. So what does RC reports just recommend? Obviously, this is not legal advice. But disclaimer.
Paul Hamann
Yeah. So once a year is what is minimum because you throw that in your file. And if an audit comes your way, you’re flipping from defense to offense. Your IRS is like, hey, we don’t like that number or how did you get that number here. This is how I did it. Yep. Right. And now the tables are turned in. And the IRS is like, Oh, do we really want to fight this? Right? They actually know, they actually have an answer to this. Nobody usually does, right. But this time of year is perfect. Reconcile the year, did we pay enough do we overpay, we have some time to make those adjustments before year end. Right. Plus, it gives us a starting number for next year. So we get into next year, we know what we’re going to be doing through the first three or four months. We all take our two weeks after April 15, we get our sanity back. And in May in June, we start doing our consulting or reaching out to our clients to see where they are, sometime in that timeframe, say has anything significantly changed in what you do how you’re spending your time, maybe you want to do it, make another adjustment there, maybe everything’s going fine. So at least one once a year, but if something major changes, and you want to make those adjustments and payroll, run another one, right, run as many as you need to.
Dawn Brolin
Yeah, and I love that becausethinking about, you just put something in my head that I don’t think I thought about before was the fact that their roles may change. Like I don’t even I never even like let that cross my mind till this moment. You know, again, you don’t know what you don’t know. But I was more thinking of okay, I need to make sure that w two is right at the end of the year. And I need to make sure when I’m doing a tax return, this is another little tip for people as you’re planning for your next tax season. And you’re just maybe hearing this as maybe you didn’t have a chance to do this in 2022. And now you’re in already in 2023. It’s not too late to start implementing the system and 2023. Right. And so thinking about not just what the inflation, deflation, whatever the market is bearing for salaries at this point, or whatever is determined, but rather what they’re doing, which is so true. Because I just went through this with a client a couple of weeks ago, we sat down, we went through all that. What do you do? What do you do this partner that partner? So we got to figure out exactly what everyone’s doing. And then what’s that reasonable comp look like? When six months from now, my I have a guy who they own an oil company that they deliver oil and one that they do cold cooling and heating? Well, this partner has kind of been the one doing all the oil stuff, but also doing this but what if he’s now 100% oil, very different being an oil delivery guy and running an oil company that it is heating and cooling. So that is so interesting, it’s like okay, as their roles are changing in their job descriptions, if you will, are changing responsibilities. That’s a great time to then hey, let’s recalculate this. And it’s not complicated. It’s a matter of having that discussion. And I think that that is so important. As we are moving to this advisory conversation. That’s what this is, this is advisory, and being able to say and tax planning, and kind of a little bit of everything, but being able to say to them, Listen, this is something that we need to do regularly as listen, if you start doing you feel like you’re doing things differently, as your role in the business, we can talk. But us being more proactive towards them, I think is what’s the important message here. We need to be the proactive professional that says, hey, this is important. We need to do it. Now. I don’t know if the people who are listening with their clients do but typically obrolan is calling you and telling you need to do something you better do it like it’s it’s like a parent child relationship when when you’re in charge that right?
Paul Hamann
Oh, absolutely. And I think businesses that, in my opinion, humble opinion, businesses want that guidance. If if Don says, hey, look, we need to look at reasonable comp, then we’re going to look at reasonable comp, you wouldn’t ask your client, if they should look at reasonable company more than you would ask your client if you think they should do a tax return this year. Right? That would just be a silly conversation. Absolutely. To go to for sure. So yeah, having those conversations and then using those conversations in and around your advisor role is a lot of fun, because you may look at the report, and something might jump out in your mind, which is, hey, look, have you ever thought about moving over to a payroll service? Because look how much of your time is spent? But I’ll tell you the really fun ones are when the client’s head just goes, Wow, I don’t I didn’t realize how much time I was wasting over here where I could be making money over here. Let’s salute. Let’s figure that out together.
Dawn Brolin
Yeah, that’s super important. So let me ask you this question is another I have so many questions for you, which I know we only have a certain amount of time on the podcast, but we’ve got we’re doing webinars, and we’re doing other things for education, but thinking along those lines of alerting them, if you will, of how much time they’re spending on certain things. So you have an awesome tool called a client. It’s like it’s called Client survey. Is that am I saying that right? Yes. Survey. And so is there a difference between me sitting down and kind of going through that survey with them and and helping guide them through it where I don’t actually send it to them? Is there any liability on that? Should I be should I always send the survey as opposed to sitting down and going over it? It’s almost like they’re signing off on what they’re doing or like what does that look like?
Paul Hamann
That’s really a good question, because I hear that question probably more often than you would think. And what I’ll say is it’s preference. So some advisors like to just fire off the email link and that their client go through it. And then have a conversation with them and say, hey, look, let’s talk a little bit about some of your responses on here. Did you really look at the job description for Chief Executive, there’s two people in your company, there’s multiple layers of management involved in being a CEO. I don’t think you have multiple layers of management and your reasonable comp is very, very high. If we make this adjustment, let’s look at the description, make sure it makes sense to you, oh, look, we’ve just dropped your reasonable comp by $20,000. I’ve now just saved you X dollars in payroll taxes and really showing that value. Right. So that’s one way another way is just to sit down and say, well, let’s kind of go through this. And as you’re going through this, talking with them about some of the different hats that they’re wearing. And different advisors have different styles. But depending on where you fit into their world, you may be able to help them and realize that some of these duties aren’t ones they either are particularly good at or wasting their time on. Let’s get out there and get you making money. And I
Dawn Brolin
love that piece. And that little nugget right there alone. I know for myself, I use use time a track time tracking tool, of course, we just use tee sheets, which was always like my favorite company ever. But you know, tracking that time I realized in 2000, I believe it was 2017, the fall of 17, where I have looked at my you know, what am I what am I doing on client work versus admin work. And I was at 6040 60%, administrative 40% actual getting work done. And I’m the highest billing person in the company. So I knew because of that evaluation, that analysis, if you will, I needed to hire an admin, I had no admin it was me and 10 employees, and I had no administrative person I was it. And I’m like, You’re an idiot, and you’re advising other people. So let’s just put that out there. I get it. And so I hired somebody. And that totally changed the financial future of my of my business, because I was allowing someone else to kind of take control over that. So being able to have that conversation and having them Oh, yeah, you know, what, I, I am mopping the floor, why am I mopping the floor, I can bring somebody else in here to do that, or whatever it may be. That’s an example. Right. And so I think that that’s another important conversation to have with your clients. So if you’re looking, I don’t know how to get into advisory, we’ve just given you like seven things to do, that you can put on your little checklist of these are the things I’m going to do as part of my advisory work.
Paul Hamann
And so we’re talking about just how they’re spending their time, we’ve even talked about their retirement, or their exit strategy. Right? Most people worry about the compliance piece, which they do need to worry about, don’t get me wrong, that is important. But the smiling, right, the client smiling, going, oh my gosh, I hadn’t thought about getting my retirement to where I need to get, or I do want to exit the business, let’s put that plan together. And let’s get reasonable comp figured out so that when we get an offer, and they’re normalizing those books that we get the valuation that we want.
Dawn Brolin
You know, I think that’s a such a super important point, because people are people are looking to sell their business we’ve had clients contact us about they’re ready to sell their business and we we you know, go through a process, I usually just outsource it, I don’t necessarily get heavy deep in that. But if I can at least do some groundwork to balance that reasonable comp and be able to to make that work that piece of it work for them. And the the buyer is going to be so much more attractive, the buyer will be attracted more attractive to the business to buy it. If there’s facts. So glad to say I’m looking to buy this company, here’s a copy of a tax return and I look at it says self prepared. So first thing I say hey, listen, this returns a self prepared, I don’t know if it was actually ever filed like this could be just a made up return. You know, so those kind of little things. Same thing with reasonable view, we’re looking at an S corp, you’re buying an S corp, or you’re you’re buying a partnership, if you’re looking even at an S corp, you’re saying, what was the officer salary on that line? And then you look at Oh, well, it’s a partnership. So well, what were the guaranteed payments? Are these people even paying themselves? And it’s like, well, we know they don’t wanna pay themselves too much, because they don’t want to pay taxes. And, Jeff, definitely partnerships, they don’t want to pay self employment tax, they certainly don’t want to take guarantee payments. So those are just some hints to a buyer, when there may be some irregularities or something that’s wrong, but when you can say listen, this officers compensation was based on calculations on what they did. And guess what, here are the things that this business owner did. You may not want to do the same things as this business owner, you may say, You know what, I don’t want to schedule calls. I would never do that. Okay, great. Now, you know, you need to hire somebody, but now you’re seeing what those owners were doing, not just what they were getting paid. What is a value you add to that business?
Paul Hamann
Absolutely. And if you’ve ever had a client come to you say, Don, I think I’m about buying this business. We look at the books. Yeah, and it’s like Hey, Paul just person’s only paying themselves $24,000 a year, they should be paying themselves about 100 and a quarter, right? That’s, that’s $100,000 difference, and you’re looking at a 10 multiplier, we’re gonna knock about a million dollars off your pie.
Dawn Brolin
Exactly. So those are those are just some of the things. And I think obviously, this is just a, this is a podcast where we’re at least, you know, getting some information out there. But there’s so much more that people can go to RC reports.com, and there’ll be a link in the podcast, you’ll be able to have a link right to their education platform that will you know, the on demand webinars that they can watch at any time. And just to get yourself more familiar with this super important concept, or, or actually two requirements, compliance related matter that we need to be paying attention to. And thankfully, Paul and his team at RC reports are giving us tools that we can just go and use and not have to use the Google which isn’t gonna give you bullet proof reports anyway. But and to think of it more, I think my message to people is to think of it more than just reasonable, just reasonable compensation, which, at $5,000, a client, I don’t want to take those chances. But it’s more than that. It’s a tool you can use in your advisory role with your clients to say, Hey, listen, let’s take a look at what you’re paying your manager for this restaurant. And, you know, is it is it what, you know, what’s the range out there from your location and those kinds of things? There’s so much more that we can that we can do with this tool. And it’s really, it’s one place with many tools, essentially, that we should be think about any last thoughts, Paul?
Paul Hamann
The only last thought I’ll share with you because when we started this, and it’s kind of a full circle conversation now how we went from, you know, having this be my own problem to helping it create, RSC reports is this. For the do it yourselfers out there, I get that that’s how I started out. It’s a two day process. This is now a five to 15 minute process, it will save you a tremendous amount of time if you need to figure this number out. And so from that perspective, I think that that’s where I come from, I love the fact that it’s used for all these other reasons and all these other things. But time is the only thing we don’t get any more of ever.
Dawn Brolin
Absolutely. I think there’s always the ability to make money, but to make time is really tough. So with that, thank you, Paul, so much, Paul, with RC reports. This has been an amazing discovery is what I would say, for my practice and what I’m able to do for my clients, it’s so important to me to help them in whatever way I can. And this is just an easy, by the way, super affordable tool, which I don’t want to say that Pollux I don’t want you to increase prices. But I can say with confidence that I was like, this is like a godsend for me and my firm and my clients. So I thank you for having pain points that caused you to move in the direction of giving us this tool that is going to be so helpful for all of us. But thank you again for coming on the DM disruption. We’ll talk to you next time in our next episode. Very excited to for those of you who are listening, and I hope you’re getting so much knowledge out of this and education. So with that, Paul, thank you again so much and we’ll see Miandad Absolutely. We’ll see everybody next time. Thanks again.
