How do you source your copy paper?

Yesterday I had to print some handouts for the course I taught on Sustainability for CPAs. Our office is primarily paperless so buying copy paper isn't something we do very often but I purchased three reams for us to have on hand.

And here is the cool part. The paper we purchased was FSC-certified made from 100% post-consumer waste. It was manufactured using Green-e 100% Certified Renewable Energy (from biomass), and processed chlorine free. This paper is made without cutting down any trees or creating any additional green house gases.

And guess what? The manufacturer is Gray's Harbor Paper manufactured right here in the northwest (Hoquiam, WA). This is a locally owned company that closes the recycling loop by taking our local paper waste and turning it back into paper. I think everyone in the northwest should be buying their paper. Here is a great story about the company and their impact on the community.

Too much of the paper we recycle in the northwest is shipped across the ocean to China where it recycled using dirty coal-fired plants like the one pictured above then shipped back to us at enormous environmental costs. Harbor 100 should be the paper of choice for any northwest firm interested in sustainable economies.

More Than Money

I was at BGI this weekend where I help teach accounting and finance. Mark Albion, the former Harvard Business School professor, best selling author, and founder of Net Impact was there. I had met Mark before and found his book True to Yourself — Leading a Values-Based Business, and personal life story, inspiring as I ventured out into the real world with my MBA.

Mark's new book is called More Than Money: Questions Every MBA Needs to Answer and he was again talking about the importance of a creating a life of meaning. As an MBA, I have a lucky lottery ticket and the question is, what should I do with my lucky ticket? The cultural expectation is to cash it in for money and status, but is that really fulfilling? To me the answer is no.

Mark told the story of how he used his MBA skills to help a small scale fisherman. You can see that story here in a 3-minute video I hope will prompt some discussion and thought about sustainability, business and life.

Bullish on Sustainable Business

Our accounting firm is in the process of adding staff which means we are growing. As a new firm, it would be hard to get any smaller but still, I remain bullish on the market sectors and business organizations committed to sustainability.

Why in the face of continued negative economic forecasts am I hopeful? Because I know that humans have and will always have an economy and that the green economy is the economy of the future and will continue to grow accordingly.

While the old economy is changing, the leading green edge is vibrant. For example, here is a recent report showing LEED building starts are up five fold. Here is another story about a research report showing that 2009 will be a good year for green IT. I also suspect part of Barack Obama's economic plan will include a huge capital infusion towards building the green economy of tomorrow.

I meet every day with business owners and entrepreneurs. All of them are concerned about the economy while simultaneously excited about the future. Our job, as business leaders, is to remain hopeful and to build the types of triple-bottom line organizations we will need in the emerging economy.

Sustainable Networking

I have been a member of a couple networking groups and have visited numerous different ones over the years. These networking groups can be an important marketing and sales element of a business plan for small to medium size organizations. These groups usually allow just one representative from each industry who then provide leads to each other.

One problem with most of these groups is the dearth of like-minded green businesses, since this is not a criterion for membership. Fortunately, that is starting to change and I’m hoping this post will encourage others to start green business networks in their communities.

First, a little background. I helped start a “green” networking group here in Portland back in 2002. I was selling B2B in the progressive community and saw a real need for values based businesses to connect efficiently and economically. Informally, with folks from the ReDirect Guide and others, we started our own green networking group to make it easier for like minded folks to connect.

Our group was informal, with minimal dues (we asked everyone to throw in a few bucks each meeting) and met every other week at a locally-owned progressive restaurant. Everyone present got a chance to give a 30-60 second introduction and promo for their business before we’d feature a 10-minute in depth talk by one of our members. This group successfully served its function of helping all of us obtain more business.

That group has since dissolved but I recently joined a similar group here in Portland called Bridges, a green business networking group. Bridges is a bit more formal and structured but the key here is that the group uses sustainability as the primary screening tool for every member. Besides myself, Bridges has a green financial planner, physician, acupuncturist, builder, insurance broker, mortgage broker, real estate agent, graphic designer, marketing consultant, life coach, computer tech, geologist, and a real estate appraiser. This group is vibrant and growing.

It is really easy to start a networking group and I would encourage green business leaders to get one started in their area. Feel free to contact me if you need any help and/or post ideas and suggestions here to help others get started.

Business networking groups are a great way to learn, share and grow as a community. There should be green business networking groups across the country.

Health, Happiness and Sustainable Business

BGI Founder and President Emeritus Gifford Pinchot will be giving an address at the Green Festival in San Francisco next week entitled "Health, Happiness and Sustainable Business: The Happo/Dammo Ratio." I bring this up because Gifford's Happo/Dammo ratio is onto an important aspect of sustainability. Here is what Gif has to say:

The purpose of the economy is to support our health, well being and happiness. Unless we find ways to produce substantially more happiness with far less stuff and damage, our civilization is doomed. But this is a happy task, a joint project of sustainability experts, entrepreneurs, consumers, citizens, corporate innovators, academics, legislators and policy wonks. Given that most happiness comes from relationships and most of our consumption uses stuff symbolically rather than for its intrinsic value, it won’t be hard to make 1,000 fold improvements in the ratio of happiness to stuff. These innovations will often be very popular, cost-effective and profitable. In this direction lies hope and true prosperity.

Our current economy is driven by a take, make, waste consumption cycle and as long as we stay in this paradigm the future looks bleak. However, as Gifford correctly points out, we have an incredible opportunity to expand our economy by figuring out how to increase happiness while decreasing stuff. We have an unlimited and endless supply to provide comfort, joy, laughs, smiles and support. These have no environmental or social costs.

The cycle of giving support/getting support/giving support is an endless human cycle that has been around as long as humans have walked the earth. It was the basis for tribal economies. Maybe we can learn something valuable from an economic system that has been around for 100,000 years.

My bank is making loans

Last week I mentioned that I was applying for a bank loan (The Green CPA: Local Banks Still Making Loans) and that I would report back on my results.

I stopped by my bank this morning and found out my new business was approved for a VISA card as well as a $10,000 3 to 5-year fixed rate loan to acquire equipment. The loan fee was 1% with a 10 percent rate. This feels a bit steep but there you have it.

I'm sure I could have gotten approved for more but I'm not likely to use this loan since I have access to cheaper sources of money. The point of the story remains the same - local banks with whom you have a relationship are making loans, even in this uncertain market.

BGI Pride

Kevin Maas, a Bainbridge Graduate Institute colleague, and his brother Daryl, are the founders of Farm Power Northwest. Tomorrow they break ground for an anaerobic digester (shit composter) up in the Skagit Valley. The digester creates energy from manure by burning the methane and thus preventing the release of this dangerous greenhouse gas. It also reduces runoff and odor usually associated with dairy farming “waste.” This particular digester will handle the waste from two farms.

Some of the dignitaries on hand for the groundbreaking include Congressman Rick Larsen and representatives from the US Department of Agriculture to present a $500,000 federal grant; state senator Mary Margaret Haugen and "First Husband" Mike Gregoire will present a $500,000 state grant (joined by representatives of Skagit County and the Washington Department of Community, Trade, and Economic Development). Shorebank Pacific is their lender.

Kevin developed his business plan while attending BGI and I just wanted to give he and Daryl a huge thumbs up for their continued success and for the achievement of this important milestone.

Tax breaks for the green community

The latest tax bill has some nice benefits for the sustainability community to help us green our economy. For instance, starting in 2009, employers can give bicycle commuters a tax free fringe benefit of up to $20 per month to cover the cost of pedaling to work including repairs, storage, accessories and even the cost of a bike. Employers and employees should act now to put this in place starting January 1st.

Also, the credit for residential energy saving improvements will return in 2009. The 10% tax credit has been expanded to include biomass fuel stoves as well. You may want to delay the installation of skylights, windows, outside doors and high-efficiency furnaces, water heaters and central a/c units until next year in order to claim the credit. This credit will be on the books through 2017 so you can use it in 2010 and beyond if you don’t get your project done next year.

One of the challenges for the alternative energy market is financing, and tax policies can make or break projects. Trying to determine long-term cash flows with unpredictable tax policies makes the challenge even harder so it is good news that many existing energy tax breaks have been extended:

• Coal and wind energy credits as well as the biodiesel credit have been extended through 2009.
• Energy credits for biomass and landfills lapse after 2010, as will a new credit for energy from waves and tides.
• The 30% solar energy and fuel cell credits however get a long-term extension through 2016. 
• The residential solar credit also lasts through 2016, and the $2,000 cap is repealed. 
• The law that allows commercial realty to expense energy saving improvements will run through 2013.

Credit Crunch tips

The professionals at Grant Thornton have released an excellent report providing guidance on how to survive the credit crunch.

The 36-page guide was a quick read and offered 10 practical steps to survival. It also gave a nice overview of the causes of the current crisis.

While most of the tips are simply good business practices, they become super important during a downturn.

A few of the important reminders:

1. Cash is King!!!
2. Get closer to your bank
3. Evaluate your customers and suppliers

The guide goes into additional detail. I recommend it for anyone with CFO responsibilities.

Local Banks Still Making Loans

I attended a Sustainable Business Network of Portland luncheon this week and the speakers were Dave Williams from Shorebank Pacific and Margo McCoy from Albina Community Bank. While they both talked about the causes and ramifications of the banking crisis (Insert macroeconomic lecture here), they also made it clear that their banks and many other banks had money to loan.

What has changed is some of the lending ratios (50-70% of equity rather than 90%) and collateral valuations. Due to declining asset values, firms that at one time borrowed 80% of an asset's value may actually be upside down due to market declines.

While there are problems with the banking industry and many banks have temporarily stopped loaning to each other, banks make money by making good loans and companies seeking funds shouldn’t give up. Having a solid banking relationship is important for every business both in good times and in bad.

I’m actually filling out a bank loan application today to buy some computer equipment for my new firm. I am hoping for a response early next week. I’ll keep you posted.

Sustainable money

Did you know that 45% of all bills in circulation are $1 bills and their average lifespan is 21 months? (wwww.http://www.moneyfactory.gov/document.cfm/18/2041). I believe these bills are made from a combination of linen, cotton and paper but I couldn't locate this exact information.

Compare that to the Life Cycle of $1 coins that the US Mint are now promoting (http://www.usmint.gov/mint_programs/$1coin/index.cfm). The average life of a coin is closer to 20 years and they are completely recyclable into new coins at the end of their life. This is a good example of closed loop manufacturing system. Not only is this good for the environment, but it is also good for the Treasury which hopes to save millions annually due to the durability and cost advantages of coins.

Like most ecological choices, the best option usually saves money and ecological resources when measured over time. I just picked up my first $25 roll of the coins and plan to begin using them as often as I can.

A trillion here, a trillion there

While Congress debates the $700 billion Wall Street bailout, I've heard nothing in the press reminding us that this is coming on the heals of a $300 billion housing bill signed by the President back on July 30th. That is a staggering $1 trillion spent on this fiasco. Add to that the nearly $1 trillion we've spent in Iraq and it is no wonder our standard of living is declining.

I currently oppose the bailout for the following reasons:

1. It is being rushed through with little discussion, debate or analysis of alternatives. This is the Bush/Paulson plan.

2. It contains no reforms and simply gives the money to the same players who created the crisis.

3. It provides not a single dime to homeowners or want to be homeowners. What would $700 billion do for the economy if we targeted this money towards the housing needs of citizens?

4. I don't trust President Bush or his administration. I hate to say it but I'm also skeptical of both McCain and Obama here as well. Both are being advised by Wall Street insiders who will benefit from this bailout.

5. The negotiations have been secretive.

I've just been reading the latest news and the House is going to debate this massive bailout for a total of 3 hours before they vote.

I would love to see our country invest $700 billion in a green economy. That type of investment would go a long ways toward creating a post-carbon economy. Instead, I'm worried that we are doing nothing but temporarily propping up a decaying system.

CPE class on sustainability for CPAs

I am proud to announce that I'll be teaching a Continuing Professional Education (CPE) class for CPAs entitled "Sustainability: What it means for the profession, you and your clients."

The class is scheduled in Vancouver, Washington on December 10th from 1-5pm. It will qualify for 4 hours of CPE credit.

This may be the first CPE class for CPAs to focus on sustainability and what it means for the profession and their clients. I'm currently working on the outline but here are some of the points I intend to cover:

** Get up to speed on sustainability and what it means for business
** Understand the business case for sustainability
** Get an Introduction to triple-bottom line accounting
** Discover the opportunities and risks in this rapidly emerging paradigm
** Discover resources to help your clients
** Look at evolving metrics
** Look at changing reporting requirements and initiatives

Why I don't trust corporate media

Last night CBS Evening news did a story that purported to compare the impact of Obama’s and McCain’s tax plans on three separate Ohio families.

If I recall, all three families had three children. The story discussed some of the details of each candidate’s plan (special credits, deductions, rate changes, etc.), then used an Ohio CPA to crunch the actual numbers of these three families.

The first family had an income of $32,000, the second family had an income of $64,000 and the third family had an income of $213,000.

The CPA determined that the first family would see no change in their taxes under McCain’s plan but would get a refund of $2,200 under Obama’s. The second family would save $225 under McCain’s plan and $500 under Obama’s.

Unfortunately, we never found out how the plan would impact the third family. Instead, rather than provide a specific answer as they did with the first two people, the story focused in on Obama’s plan to raise the top two marginal rates from 33% to 36% and from 35% to 39.6%, respectively. Due to deductions and exemptions, these top rates would only apply to people with income of $225,000 or more. It should also be noted that these are marginal rates and not effective tax rates, meaning the higher rate only applies to the income earned above the $225,000 threshold. All the income below that threshold would be taxed just as it is now.

Rather than give us the actual numbers, the CBS Evening News story pointed out that the third family was nearing the line where the new marginal rates on Obama would kick in. “If this business owner were to make more next year, they could find themselves in the 33% bracket which under Obama will become the 36% brackets” said the reporter. They then cut to the taxpayer who says he’d be hurt if his taxes went up 8% (from 28% to 36%).

This is dishonest and deceitful reporting for a couple reasons. First, why didn’t they compare apples to apples and just tell us how the plans would effect the three families? Additionally, as I pointed out above, the rate increase Obama support is at the margin, so the third family’s taxes wouldn’t be going up by 8% even if they got that $12,000 bump in income.

I believe CBS Evening News has enough resources to get this story right and that this was a blatant attempt to distort the information and change the impression on viewers. There can be no other explanation other than media bias.

I’m not a member of the Democratic Party or an Obama partisan, but I believe we need accurate and truthful information to make good decisions. I was particularly interested in this story so I could learn something relevant to my profession, unfortunately, CBS let me and the rest of America down.

Domestic Partner Tax Filing in Oregon

The Oregon Dept. of Revenue (ODR) is preparing forms and special instructions to accommodate domestic partners in 2008 due to the new law finally recognizing these relationships.

Two new “statuses” have been added: Registered domestic partner filing jointly and Registered domestic partner filing separately. For ODR tax purposes, if domestic partners register in an Oregon county, they will be able to file as registered domestic partners. If the domestic partners are registered outside of Oregon, they will need to register in an Oregon county.

Because the federal government does not recognize domestic partners, it gets a little convoluted going from federal Form 1040 to the state return.

The partners will need to file their single federal returns and then prepare another federal return “As-if” a combined federal return were allowed for domestic partners. This “As-if” return will drive the amounts on the state return except for one major difference. The federal tax subtraction shown on the Oregon return will be the amount of the actual federal tax liabilities, less any economic stimulus rebates received.

While this solution isn't perfect, it should help many couples save money by filing together.

Wouldn't it be nice if the federal government would move into the 21st century and allow consenting adults to marry and/or partner up in anyway they so choose?

Systems

Back in May I wrote about accounting systems (What Accounting System Should I Choose?) where I talked about accounting systems for startups.

I can't stress enough about the value and importance of getting the right software and creating appropriate systems.

Yesterday I was at a new client's office helping them set up some industry specific software to interface with QuickBooks. They called me because of my QuickBooks expertise and to see if I could help them with the integration. I went to help despite no previous knowledge of this specific third party application.

Prior to me setting up their new system, they spent hours, upon hours writing up invoices, POs, and work orders to run their business. Now they can do these same tasks in minutes and have better records and a far more professional appearance to their customer using their new software.

The business owner was also spending at least a day/month reconciling his VISA/MC deposits, while being completely frustrated at the process. I also got him set up with QuickBooks merchant services so these tasks can be automated in the future. This change will probably cost him an additional $25/month but he will free up an entire day and eliminate a major source of frustration. A poorly designed system had him pulling his hair out.

The industry software he acquired (Mitchell 1) costs about $250/month but it allows him to go from being an amateur to working like a professional overnight. I'll bet this software has an off the chart ROI for him as he goes forward. It was clear that his business was severely hamstrung trying to operate on QuickBooks as he fought to make his system function. Now he has an elegant system that works for him and will give him the information he needs to run his business.

While these additional costs are significant to a startup, a good business must invest money to make money and his investment in the proper systems should pay huge dividends.

Residential Energy Tax Credits Set to Expire

Hurry!! At the end of 2008, without Congressional action, the only remaining federal residential energy tax incentives available for homeowners will expire. You must act soon if you want to take advantage of the following tax credits:

FUEL CELL POWER PLANT – A credit of 30 percent, to a maximum of $500 per ½ kilowatts of electricity generated by electrochemical means from a qualified fuel cell plant installed in the taxpayer’s primary home located in the United States.

SOLAR ELECTRIC AND/OR SOLAR WATER HEATING SYSTEMS - The credit is 30 percent of the cost, with a maximum cap of $2000, for the installation of a qualified system in the taxpayer’s primary or secondary home located in the United States.

These credits are nonrefundable and can only be used to offset your income tax in the current year. Any unused credit can be carried forward to future years. No credit is allowed for expenditures related to hot tubs or swimming pools. You may lose part or all of the credit if you are taxed by the alternative minimum tax.

The House passed H.R. 5351 (Renewable Energy and Energy Conservation Tax Act of 2008) back in February 2008, which would have extended these credits as well as others to 2009 and beyond. Unfortunately, the bill is stuck in the Senate and faces a threatened veto so it looks unlikely to pass this year. The cost of the extended credits would have been funded by reducing subsidies to the oil and gas industry. Hmmm, I wonder if that has anything to do with the hangup?

What inspires you?

I love this question.

What have you been doing?
What is working well?
Give me a highlight of your day?
What do you want?
Tell me a story when the team was at its best.

These and countless other questions are the foundation of Appreciative Inquiry (AI).

We studied AI at the Bainbridge Graduate Institute but that was just a little taste. Last week I attended a 5-day morning seminar learning more about the practice.

AI is an approach to facilitate change. The theory is that by changing the questions we ask we change the world by discovering what is and by bringing the "best" of the past consciously into the future.

Change the questions.....Change the world.

People and organizations move in the direction of what is studied. Study problems and you get problems. Study success and you get success. Problem solving tends to narrow the thought repertoire while AI expands it by engaging enthusiasm, dreaming and creativity. Problem solving tends to be backward looking while AI is about projecting forward. Both approaches have the same goal --> moving a person or organization from the current situation to a preferred situation. The difference is in approach, and I would add effectiveness.

You can learn more about AI by visiting the AI Commons.

Ask some positive questions today and see how people respond. AI offers great promise in our efforts to change the world.

The high cost of not following the rules

A client of mine is out of business. They were struggling for the past two years operating in the construction industry and the economic downturn hit them hard. While the economy played a part, the truth is they were poorly managed.

I won't go into all the details but they didn't take advice from me or their other advisers and failed to deal with the details and realities of their situation. They acted as if little were wrong despite the fact they weren't paying their payroll taxes (This is a ominous warning sign). People responsible for payroll decisions can be held personally responsible for the payroll trust fund taxes.

While I was working with her to settle past tax problems, I recommended that she obey the first rule of holes (When you are in a hole, stop digging) and that she should seriously consider closing shop if she couldn't meet her payroll tax obligations.

I subsequently met with the owner and a team of mentors and advisers about a year ago to help them understand some of the accounting and business issues they faced. All the advisers agreed with my advice and that closing would at least stop the bleeding.

Needless to say she pushed on and continued to rack up debt. She closed the business last month and now owes over $100,000 in trust fund taxes. The IRS will lien her home.

The ultimate kicker however is that she also failed to renew her corporate license, let it lapse and is now personally liable for many debts that would otherwise have stayed inside the corporate entity.

I feel bad that she has all these problems but leading a business requires attention to detail and making sure you follow the rules.

IRS issues warning on scammers and other security issues

The IRS issued a warning to taxpayers on July 10th regarding the activity of identity theives who use e-mail, faxes and other means to gather personal information from taxpayers while pretending to be from the IRS. I think it should be obvious but take note that the IRS will never send an unsolicited e-mail requesting information.

Which brings me to another security issue. I attended a class for CPAs yesterday and learned that many states now have laws making it illegal to send driver's license, social security and bank account numbers through the internet either in the body of an e-mail or in an attachment. Seems there are people in other countries writing progrms that monitor e-mail traffic just looking for bits of personal information. E-mails and their attachments are not secure.

The solutions (I'm not a techie but this is what was recommended) were either encryption, FTP transfers or portals. Portals are direct links, similiar to online banking, between a secure server and the two parties. For instance, instead of sending the tax return as a PDF attachment, we now place a document through a portal on to a secure server which can only be accessed by the client. They can go to the portal and pick it up whenever they want.

I also learned that the top two ways identity theives get information:

1. Voluntary disclosure
2. Theft of hardware that contains personal data

Make sure you encrypt and/or secure all data that resides on portable devices.

********************************

Within 10 minutes of posting this blog entry I rec'd an official looking IRS e-mail claiming I was due $863.80, and that I'd receive it in 6-9 days if I just "clicked here" and gave them some personal information. I quickly forwarded that e-mail to phishing@irs.gov .

Yet another reason to go green and be proactive

Fines and penalties paid to the government for legal violations are not deductible for taxes. This applies to fines for environmental damage as well. The public policy doctrine and IRC Section 162(f) provide the basis to disallow tax benefits inconsistent with articulated public policy.

Over the years, many companies have had fines reduced by agreeing to perform a Supplemental Environmental Project (SEP) or similar project to settle a matter with the state or federal government. As a general rule, violators pay a smaller fine when they agree to a SEP or other remedial project.

In a recently released IRS Coordinated Issue Directive (http://preview.tinyurl.com/6m9z6l), the IRS says it will deny deductions for these projects because in their view, the cost is a nondeductible fine if the work is done to settle government charges of pollution. This includes wildlife habitat restoration and wetlands purchases.

Hopefully, this position won’t discourage the government and polluters from agreeing to mutually beneficial SEPs. Ideally, this provides yet another incentive to be proactive, go green and avoid the expensive and now non-deductible cost of remediation.

Greenwashing and environmental claims

I was recently drinking from a disposable cup that claimed to be “biodegradable”. While it may in fact be biodegradable, the question that arises is by when and under what conditions? I’m not a scientist but I suspect everything is biodegradable given enough time. Therefore, the biodegradable claim provides no useful information and may in fact be misleading if the cup is simply tossed in the garbage and ultimately buried in a landfill without sunlight and oxygen.

The point I’d like to discuss today is the importance of accurate environmental claims and to point readers towards a new guide published by our friendly neighbors to the north.

On June 25th, Canada’s The Competition Bureau, in collaboration with the Canadian Standards Association released guidelines for the business community to ensure that green marketing was not misleading, while providing consumers with greater assurance about the accuracy of environmental claims. The 72-page report addresses a number of commonly used green claims and provides examples of best practices on how such claims can be used by businesses to comply with the false or misleading provisions of Canadian laws.

Among other practices, the Guide states that:

• The use of vague claims implying general environmental improvement are insufficient and should be avoided.
• Environmental claims should be clear, specific, accurate and not misleading.
• Environmental claims should be verified and substantiated, prior to being made.

You can get a copy of the guide here: Environmental Claims: A Guide for Industry and Advertisers

One item I found particularly interesting was the entry on sustainability claims. Here is what the guide says:

The concepts involved in sustainability are highly complex and still under study. At this time there are no definitive methods for measuring sustainability or confirming its accomplishment. Therefore, no claim of achieving sustainability shall be made.
CAN/CSA-ISO 14021, Clause 5.5

In the spirit of honest advertising and useful information, I have to agree that a claim of achieving sustainability would be inappropriate within the systems thinking paradigm.

I haven’t had a chance to completely read the guide but based on a quick review, it looked like a responsible list of criteria we could all adopt as we go forward with our green business, working towards sustainability.

The value of a CPA

I may have saved a friend well over $50,000 in taxes this weekend.

I don’t want this to be a tax column and I haven’t researched this specific issue to speak with authority but I want to point out the value of professional advice, especially when you are going through life’s transitions (marriage, death, children, divorce, starting or closing a business, etc.) and dealing with non-routine transactions.

During a casual conversation, my friend mentioned that her elderly father wanted to leave his California home to her when he died. The house has over $500,000 of potential gain in it (Market price less tax basis). Dad had or was going to simply add her name to the title with right of survivorship.

While this would get the house to her upon death, my concern here is that dad has made an Inter vivos transfer as opposed to a testamentary transfer. This difference can have significant tax implications since the beneficiary of a testamentary transfer gets a step up in basis while the recipient of an Inter vivos transfer doesn’t.

My advice to her was to talk with an attorney and her CPA to make sure they were doing this transaction correctly from both a legal and tax perspective. While it will cost some money for the professional services, I think it is better to be safe then sorry when engaged in transactions with significant financial implications.

As a CPA, I really, really like it when my clients call me for advice BEFORE these situations arise since it provides us the best opportunity to accomplish their goals and to avoid nasty surprises.

Accounting's role in sustainability

My accounting professor at Bainbridge Graduate Institute (http://www.bgiedu.org/), Dr. Kate Lancaster, PhD, CPA has written a paper with two of her colleagues urging the development of sustainable curriculum for university finance and accounting students, and outlined some specific courses or curriculum modules that need to be created.

Kate asked me if I would write a few sentences about why it is important to include sustainability in finance and accounting curriculum. Here is what I wrote:

"The shift towards sustainability will be a significant business driver over the foreseeable future. An emerging and evolving set of metrics beyond traditional financial measurements will provide guidance, scoring, comparability and accountability for sustainable business practices.

Who better to measure, report, analyze and interpret the data than accountants? It is vital that students learn the thinking and tools they'll need for jobs in the 21st century."

Sustainability offers significant opportunities and challenges for both internal and external reporting. In a sustainable economy, everyone will be on board. It is a hopeful sign when even traditionally conservative professions like accounting begin to see the light.

Transparency and reporting

I have been super busy wrapping up the end of school but really wanted to follow up on my last blog entry. While doing a GHG inventory is the first step towards climate and emissions sustainability, the obvious question is what's next for the business owner?

As a reminder, at one level, the process looks like this:

1. Measure your GHG emissions (conduct a footprint analysis)
2. Take steps to reduce your GHG emissions
3. Purchase carbon credits to offset the remainder

While that is a high level overview, their is another equally important aspect of this process: Reporting and transparency.

As we move towards sustainability, transparency is vital to the success of the journey and reporting is part of this effort. By reporting your results, you build trust and credibility with your stakeholders and you allow yourself to be benchmarked for comparison.

Just as a public company reports financial results, the information gleaned from a triple-bottom line reporting needs to be communicated to help stakeholders make decisions.

A GHG footprint is your baseline measurement

I was speaking with the owner of a successful progressive business. His company is environmentally conscious and plays an active role in the sustainable community here in Portland. Founded in 2001, they have been steadily building their business. Our discussion turned to triple-bottom line accounting and he acknowledged their business didn’t have many, if any, non-financial measurements. Like most individuals and organizations, they didn’t know their greenhouse gas (GHG) emissions footprint.

A GHG footprint analysis is a measurement of an organization’s direct and indirect GHG emissions. Greenhouse gases contribute to global warming through the greenhouse effect. They include carbon dioxide, methane, nitrous oxide, ozone, CFCs and water vapor. A GHG report will measure an entity’s direct and indirect emissions of the various gases, and then convert the data to CO2 equivalents. The final result is the tons of CO2 equivalents released over the year. This is a number to be managed.

As the old saying goes, “What gets measured get’s managed”. The GHG reduction process is a 1, 2, 3 process beginning with measuring emissions, then reducing and finally, offsetting the GHG emissions that can’t be eliminated. The first step in this process is the measurement. Every business should begin this measurement process now. Businesses can download free tools to get started at http://www.ghgprotocol.org/. Individuals might want to start here: www.nature.org/initiatives/climatechange/calculator.

Performing a GHG inventory will allow you to understand the source of your emissions. I was on a team who performed the first GHG inventory for the Bainbridge Graduate Institute (http://www.bgiedu.org/) and it was eye opening to see that well over half the annual emissions was from air travel by a small percentage of students, faculty and staff. We wouldn’t have known this without performing the footprint analysis.

For a great list of the Top 10 things businesses can do to reduce their emissions you can start here: http://www.carbonconcierge.com/act/top-10-things-businesses-can-do.

Individuals can start here for a similar list: http://www.carbonconcierge.com/act/top-10-things-businesses-can-do.

Having done a GHG inventory, I can assure you they aren’t that hard. There are experts who can help if you don’t have the time or skills. I actually offer reduced rates for this type of work because I want to help.

The process will engage your employees and could help you develop a competitive advantage. Customers, especially in the green community, will increasingly be asking about your footprint. I predict it won’t be long before a business that doesn’t know its footprint will be in the same boat as a company that doesn’t recycle – unattractive to customers, employees, regulators and the community.

What accounting system should I choose?

One of my MBA classmates asked me if I might be able to create a matrix relating accounting packages to size and industry. In her two paragraph inquiry she mentioned seven different software packages. The reality is that there are likely a thousand or more accounting programs on the market, each with their own set of advantages and disadvantages. What might work great for one company could be a disaster for another.

Choosing the right software is a critical business decision. Get it right and you’ll be extremely pleased. Get it wrong and you’ll spend countless hours doing workarounds and other labor intensive work to get the information and control a good system should provide.

Because there are so many choices in the market, it would be impossible for me to know all of them. As a Certified QuickBooks™ ProAdvisor, I am somewhat biased towards them and often recommend that solution. However, QuickBooks is a terrible program for many businesses.

I tend to recommend QuickBooks because it is inexpensive to purchase, easy to use, offers great customer support, is expandable within limits, and offers a variety of industry specific packages. The industry specific packages cost more to purchase but offer many great features for certain companies.

Being the most widely used makes it easy to find bookkeepers and staff who are trained and familiar with the software which can significantly reduce current and future training costs. There are also a number of third-party vendor options to enhance the package that can be purchased separately.

On the other hand, QuickBooks can only handle average cost inventory pricing. If you need LIFO, FIFO, specific identification or some other inventory pricing system, QuickBooks will not work for you. QuickBooks has other limitations as well but those are for another discussion.

Since there is no one size fits all accounting system, I recommend business owners start by evaluating any industry specific programs on the market. Industry specific software helps address business processes typical to an industry without adding extra customization costs.

I was involved in start-up bakery which selected QuickBooks prior to my arrival on the team. While I was trying to determine how to make QuickBooks cost a loaf of bread and then differentiate that from a sliced loaf of bread, I did some research and found specialized bakery software. The bakery software was admittedly more expensive (approximately $5,000 to buy and another $5,000 to set up) but infinitely more useful. The bakery software provided so many additional benefits that the added cost was more than worth it. The specialized software helped the start-up bakery operate at an entirely different level than what would have been possible with QuickBooks alone.

Sometimes it makes sense to use QuickBoooks for A/R, A/P, G/L and financial reporting while using a different package for inventory, costing, billing, or other specialized tasks. It just depends.

The total cost of the system will include the purchase price, setup, training, operating costs, advisory and support costs as well as future upgrades. All of these costs need to be considered when making a choice and compared to the anticipated benefits of the systems under consideration.

Here is where I recommend the value of a CPA knowledgeable in systems design. Armed with knowledge about your business, goals, plans, operations, processes, transaction flows and critical information requirements, a CPA can help you find and select the software that will be a strategic fit for your company.

How important are good records?

I was reading a story from the New York Times this morning regarding the declining value of small businesses during this economic downturn. Not surprisingly, there are a lot more sellers than buyers which is driving down prices.


While it did not surprise me that small business valuations were falling, what I found most interesting and valuable was this little bit of information from the end of the story:


"... an unpleasant truth is that many, if not most, businesses do not sell. For decades, the conventional wisdom was that brokers sold about one out of five businesses they listed. But a new study by Louis O. Vescio, owner of Sunbelt Business Brokers in Melbourne, Fla., found that the percentage was only 10.5 percent.


The main reason, Mr. Vescio and others said, was that 'most small business owners keep bad records,' so buyers cannot get an accurate financial picture."


As I wrote in my blog last week, a good accounting system is extremely valuable to a small business. I see too many business owners who fail to adequately invest in their accounting and information systems because they don't see the value and they don't have the knowledge or expertise. This approach is ultimately costly when the entrepreneur creates a potentially valuable asset that can't be sold.

Accordingly, I recommend that business owners make adequate investments in their accounting and record keeping systems. This aspect of a successful business is no less important than HR, marketing, sales, operations, banking, etc.

A good accounting system is efficient, fairly easy to maintain and provides a number of key functions like reporting, analysis, security and operational control.

Business deductions

I was meeting with a prospective client yesterday and they were talking about deductions. This person owned an upscale retail clothing store and a friend of theirs had told them they could write off almost everything as a small business owner.


Drive to work - write it off.
Laptop computer - write it off.
Cell phone - write it off.
Daily lunch with his business partner - write it off.
Fancy clothes - write it off.
Haircut - write if off.


The list was actually longer but I think you get the picture.


While all of these have some connection to the business activity, that doesn't necessarily make them deductible. While there are many specific rules regarding business deductions, the items noted above generally have a high degree of personal benefit, i.e. non-business, to them. Everyone has to eat, wear clothes, get their haircut and drive to work. These are generally personal expenses and therefore not deductible as business expenses.


Haircuts and clothing are almost never deductible. As a general rule, clothing is deductible only if it is a requirement of the job AND, cannot be worn as street clothes. My friend and his employees who dress nicely in their upscale clothing store cannot deduct their clothing as a business expense. It may be a requirement of the job but the clothes can also be worn outside of work and therefore can't be deducted. If it is any consolation, I can't deduct my suits, shoes and ties either.


Cell phones and laptops are considered listed property and an allocation between business and personal use is required. The business use portion is deductible while the personal portion isn't.


There are a number of ways to handle cell phone accounting and I recommend you do it right with professional help to review the tax implications of your plan. I see too many companies who don't handle this correctly and expose themselves to potential liabilities. The biggest mistake I see is where a company simply provides cell phones to employees and pays the monthly bill without any accounting by the cell phone user. This type of arrangement is allowed but the payment is considered W-2 compensation and should be handled accordingly.


Business meals have a their own set of specific rules but generally, the meal must be ordinary and necessary for your business and directly related to or associated with it as well. Having lunch with a co-worker will not pass the necessary test and is therefore not deductible. Most meals are considered personal unless, you are meeting with a client or perspective client AND discussing business.


The IRS has strict rules for substantiating meal and entertainment expenses. For each expense, you must show the date, place, amount, business purpose of the expense, and the business relationship of the person you entertained. Receipts are required for expenses of $75 or more.

The value of accounting

A classmate getting ready to launch a business (www.soupcycle.com), recently asked me about accounting systems. Specifically, what should they do and of course, what will it cost?

I recommended QuickBooks given their size, budget and sophistication. However, while QuickBooks will cost anywhere from $200-$450 for the software depending upon the version, this is really just a fraction of the total investment.

After opening the box and installing the software, the chart of accounts, terms, items, vendors, employees, customers and more must be created in QuickBooks. Transactional systems outside QuickBooks must be designed, tested and implemented so individual transactions ultimately get recorded and summarized properly in the financial statements and other accounting reports.

While all of this costs money, I prefer to think of this as an investment in the efficient operations of the business. A well created accounting system is a valuable intangible asset. It provides a significant level of the internal control environment for a small business. Your accounting system should provide timely and accurate financial reports to help you assess progress, problems and success. A quality financial reporting system should make you more attractive to lenders and investors, all other things being equal and it will save you money when it comes time to prepare your taxes since the data will be easier to work with.

Small business leaders have so many things to think about. Failing to recognize the value and importance of a quality financial reporting system is a costly mistake. You wouldn't start a business without a marketing plan. You shouldn't start a business without an equally robust accounting and financial reporting plan.

How much should you spend on accounting? I don't have a specific number or percentage but the number is larger than many start-ups suspect and is a valuable investment and component of a successful enterprise.

What are you doing with your rebate?

I have been receiving lots of requests from non-profits to donate all or a portion of my rebate check. While I routinely donate 100% of my Oregon kicker refund, I am not planning to do the same with this federal rebate. I may donate some but have yet to be convinced of the connection between my rebate and my charitable giving.

With the Oregon kicker I know that the money I get back comes directly from the state agencies that benefit Oregonians. I always donate my kicker to public schools.

The federal rebate is different. Half the money comes from the military budget and the other half from federal programs. However, given the federal spending and deficits, does this rebate really impact any agency? I don't think so.

I contribute approximately 10 percent of my income to charity and non-profit groups working to make the world a better place. I don't plan to donate more because of this rebate. Instead, I plan to use my rebate to pay down a loan.

What are you doing with your rebate?

The beginning

I met a business associate after work last night and she mentioned how she blogs at work. I love writing and had thought about blogging but never got around to getting started. Today I changed that.

I plan to write about accounting, business and sustainability. As a business advisor, I want to encourage my clients and now my readers (LOL) to be smart, successful and sustainable in all they do.