Case Study | Rodney, CFO
BaCo Tech via BaCo Group Case Study
Rodney Schonefeld, CFO/Controller | Commercial Construction Industry
Rodney met the accountants at the BaCo Group in 2017 when he took on the CFO/Controller job at a large agricultural construction company that operated out of Texas but managed projects throughout the country.
Rodney explained, “We were essentially a remotely managed company with a legacy desktop accounting solution that sat on a computer network in our office. Project cost management and reporting was a lot of my job and we used QuickBooks at the time to manage that and our payroll. In addition to our business, we had real estate, a management company, an equipment holding company, and other investments that we maintained. Getting all of that information consolidated and then shared with ownership was something that had not been done effectively or efficiently in the past.”
Rodney’s problem is one experienced in many other businesses that have multiple different operating entities. The limitations in the accounting platform made consolidating reports so time-consuming that he never had a chance to prepare them, let alone analyze any trends until the financial statements were reviewed each year. That is when the team at the BaCo Group approached him about using a tool they had created that would combine the entities into one combined report and deliver them to him and his ownership group in an efficient manner, eventually all online. It would also do something else that no other CPA or online financial reporting platform offered, it would help make the year-end process of getting tax returns completed and filed more efficient by integrating that directly into their CPA firm’s workflow.
Rodney was, of course, very interested and began working with the team at BaCo Group. Beginning in 2019, Rodney was routinely delivering combined financial statements to the owners of the company thanks to the technology the firm utilized through BaCo Tech, their sister technology company. He worked directly with BaCo Tech’s CTO, David Knedlik, to create reports, like a trailing 12, that helped him close out each month and as it transitioned online, he started to see alerts that informed him his intercompany activity was out of balance, while telling the accounting firm that there were new fixed asset additions. Most importantly, by year-end, he could see reports that indicated what his taxable income was, before year-end, not at the deadline.
Rodney explained, “That was incredible. We had to work with it to get some items addressed but this was an enormous achievement. We were talking about our actual 2019 taxable income in 2019.”
Ford Baker is the founder of the BaCo Group and the primary innovator behind the patented technology from their sister technology company, BaCo Tech. Ford said, “The difficulty most firms have is many clients report on an accrual basis and file returns on a cash or tax basis, with accelerated depreciation, etc. A year that may be bad on an accrual basis may be profitable on a cash basis, so before the year is over, there is a need to spend some of the reserves for next year, in December rather than January. For many businesses, they don’t find that out until the taxes are due in April and it is too late to spend.”
Baker went on to explain why, “It is hard on CPAs because we spend most of our time putting last year’s numbers on last year’s forms and we don’t have time to work on estimates and plans. It wasn’t an enormous achievement just for Rodney, it was the proof we needed to show what we were doing was not only possible, but that it worked, and it was the kind of service businesses were eager to receive.”
It was possible because The BaCo Group had constantly updated access to all the reports and details for the entities Rodney managed. Additionally, it came directly into a workflow that allowed them to teach their side of the technology what adjustments needed to be made for tax purposes, real-time. And the most important thing for Rodney was that “I didn’t have to do a thing.” Rodney explained, “BaCo Tech completely automated the task of transferring the data to my CPA and it did it throughout the year, so the questions I used to get asked after year-end from activity that took place last year, had already been handled as the activity happened. It wasn’t just that I didn’t have to send things after year-end, it was that it enabled me to address the problems and questions when they needed to be addressed, as they occurred.”
The company managed projects in 14 states which required them to make quarterly estimated payments on a federal and state basis. Rodney questioned the necessity of these large estimated payments to states where the activity was not as high as it had been in the past. They looked at the process they used after the year ended to apportion the income across the 14 states they operated in and then brought in CTO, David Knedlik. They demonstrated for him how they could identify and source activity by state and how to prepare an apportionment schedule by state during the year, instead of after year-end. In short order a schedule was prepared, and an apportionment schedule was being updated real-time, so at year-end the work would already be done and the data was available during the year to help determine what payments should be made to what state.
Eric Khor, CPA, moved from one of the most prestigious national firms in Manhattan to the BaCo Group in January of 2020. He joined the BaCo team because they were addressing a problem the industry had tolerated for years by innovating through technology. “It is not what we are doing that is different, it is how and when we are doing it. Under my previous firm, this project would have started with the attestation group where financial statements are prepared, then it would move to my group for the federal tax filing, and finally move to the state compliance group that handled the state filings. A project of this size would have easily been one of the projects worked on all the way up until the extended deadline, which you would start and stop working on multiple times. Instead, we can do the same tasks but before year-end, so the returns are completely ready to push into the tax software as soon as our clients close the books at year-end. The difference is that the BaCo Group operates under a touch it once philosophy and they provided me with the tool to do it.”
Baker explains how this is all possible; “ours is a patented process that works a lot like online banking, a process we describe as a transaction-based workflow. The efficiency and effectiveness of online banking is not that they e-mail you a statement with a balance on it at the end of the month, it is that the accounting software and your bank talk to each other during the month, exchanging and creating transactions, automatically. Our transaction-based workflow does the same thing for our clients and our firm. Transactions are delivered to us automatically and our technology allows us to teach our workflow how to identify transactions that have year-end significance and alert us when they occur. We can then act and either set up a process that the program will repeat on future transactions with the same characteristics or it will allow us to do something as client-focused as notifying a client because they used a word in a memo that the IRS may not like in an audit and coaching them on alternatives. It allows us to be proactive, instead of reactive and that really makes a difference in how we operate.”
BaCo Group’s new Director of Tax and Client Services, Joe Abesamis, has a similar story to the one Eric Khor shared. He and his wife moved from Los Angeles where he was a Senior Tax Manager with a large local firm where he was next in line to be partner. He moved to BaCo Group because of this technology and what he saw the platform could do. It did not take long for him to see it in action.Joe explains, “I started in January and I will never forget huddling around a computer in the tech area after Rodney called in February and said his books were closed. We started the nightly update and all the activity, including Rodney’s final accruals, were brought into BaCo Tech where the rules set up the year before were followed, and an adjusted tax balance was prepared. We then pushed 4 different entities’ activity into three different tax returns, because one of the S Corps had a subsidiary, effortlessly. We finished a return in February that most CPA firms would not be able to start until March. We even had a state apportionment schedule, so the return could be reviewed and processed. It was the first time that had ever been done in our industry. That does not include the fact that the intercompany eliminations and combined financial statements consolidating workpapers were done. All we had to do was wait on our attestation group to finish the review.”
Rodney noted, “Within a month of that time, COVID-19 shut things down and we all were looking at PPP Loan applications. The idea that all the difficult tax compliance work I managed was done, and my CPA was available to talk about loans and had already automated a trailing 12 report made dealing with that a little bit easier. Amidst it all, you do not get to think about it much but if my accountant had been peppering me with questions about last year and last-minute tax payments due, it would have added undue stress to an already stressful season for our business. Unlike any other year, my CPA and I were on the same page, what do we do about this year, this year?”
The Chief Technology Officer of BaCo Tech, David Knedlik, had this to add, “One of my favorite things is to help develop something that will positively impact its users and working with Rodney is a real joy, because I could connect and see how this impacted him and how it will impact others. I share the company’s touch it once vision, so when we take on a task like the trailing 12 or apportionment of state income task we did for Rodney, we built it with the idea that it had to be able to work for clients with different data and circumstances. His insights impacted every business that BaCo Tech will work with and that is the kind of result every developer wants to hear.”
It may happen sooner than they expect. What Rodney and BaCo were able to accomplish has attracted the attention of other companies who want to get the same results. What Rodney knows now is that when it comes to coordinating and working with his CPA, “we can’t do that” will not be an acceptable answer any longer, he can just call someone that can, someone that implements ideas and innovation like BaCo Group.