Accounting for modern business complexity
Jeff Gutsch has been in accounting since 1990, first at Pisenti & Brinker for a half dozen years and then 19 years at Moss Adams, LLP. He became partner in 2002 and has been partner in charge of the Santa Rosa and Napa offices and is a national practice leader in wineries and vineyards.
Gutsch talked with the Business Journal
about his recent shift from managing about 85 employees in the two offices, back to client work that continues to grow more complex.
You are back to doing consulting and accounting work after serving as partner in charge?
Jeff Gutsch: I haven’t changed much what I’m doing. The partner in charge gets to go to more rubber-chicken dinners and talk to people who are having problems. I just transitioned that role to Chris Paris.
How do you make money in accounting beyond auditing and tax preparation?
Jeff Gutsch: That’s the bread-and-butter of an accounting practice, what keeps the lights on. We are constantly looking for ways to add value in general business.
A lot of our consulting is on the tax side, helping people structure transactions, setting up new businesses, looking for angles to save taxes, helping people run their businesses better. Those are the more fun parts of the job. Financial statements and tax preparation can be commodities.
How does Moss Adams stand out as a firm in business transactions, mergers and acquisitions?
Gutsch: We work either on the buyer’s side or the seller’s side. I have some clients that do a lot of acquisitions and others that want out of their business and decide to sell. There is buy-side or sell-side due diligence, representing a buyer who is looking at a potential seller, or representing a seller who is looking at a potential buyer to see if it’s a good fit.
When you are on the buyer’s side, you analyze the seller’s records to determine if they are true?
Gutsch: That’s a part of it. Another part is looking at other aspects of the business. Let’s say a company is operating in a bunch of different states but only files tax returns in California. There’s a potential liability. We’re looking at that too. What’s out there that we don’t know about that might pop up and bite us later?
The business might owe a tax liability in the other states in which it operates?
Gutsch: Right. Also there could be potential legal claims, taxes, anything that potentially damages the value that our client is paying for that business.
Is that work intended to avert surprises later or to create bargaining power on the acquisition price?
Gutsch: Both. Let’s say there is a potential $5 million liability out there. Our client wants to - at a minimum - be aware of that. And our client wants to have it factored into the value of the business. You have this thing that we think is likely going to come back and bite us.
It makes sense to drop the purchase price for the business to account for that risk?
Gutsch: Yes. It becomes a negotiating point. They may say that the chances of it, such a potential tax liability, becoming a problem are only 10 percent. So how about we take $300,000 off the purchase price? Or the seller could indemnify us against that risk. There are all sorts of different ways to handle it. We are making sure our client is fully aware of everything out there that is a potential problem.
Is that arena of work fun - analyzing a business so potential surprises become apparent?
Gutsch: Yes. On the seller’s side, we look at potential buyers to see if the value makes sense and it’s a fit. We’ll do our own diligence on the potential seller.
For example, I have a client right now in the wine supply business. We are helping to analyze their fixed assets - things that a buyer would be looking at. We want to make sure the buyer doesn’t have an excuse to negotiate the price. We are trying to get a bunch of stuff cleaned up before potential buyers come in, so buyers are looking at a business that is as clean as possible. When they send their diligence team in, they don’t find much.
It’s a form of anticipatory due diligence?
Gutsch: Right. If there’s enough stuff out there that the buyer’s due diligence team finds that is questionable, the more questions they have and the less reliable the information they’re getting appears. Whereas, if it looks pretty clean, chances are they’re not going to dig as deep as they would otherwise.
It’s a bit like an IRS audit. When the IRS comes in and they start finding a bunch of problems, they’re going to assume that there’s more to find and they will start digging.
What they find whets their appetite, and the whole transaction becomes questionable?