SS&G Solutions Winter 2014

Winter 2014

The Riverside Co.’s Stewart Kohl discusses

trends in the private equity space

breaking downDigital donations

get to knowAlexis Becker

focus onCaptive insurance

growthpartner

rightFinding the

2 ss&g solutions winter 2014

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What’s your black swan?The world we live in is constantly offering up surprises and

changes, and in an era filled with these fast-paced changes,

business owners and executives need to be more alert to

the risks related to their industries. Everyone should fear

the black swans that may be swimming their way.

“The details will vary from company to company, but

every business needs to spend time thinking about how to

achieve greater flexibility in their strategy and operations,”

economic reporter Bill Conerly wrote in an article for Forbes.

Conerly states that businesses should be dialed in to the

uncertainty in today’s world and utilize a more enterprising form of risk management

to protect against the truly unexpected, inconceivable events that can throw a

business off its track — a black swan.

This concept was popularized by Nassim Taleb in his 2007 book “The Black Swan.”

He defined the term as an event that is outside the realm of regular expectations,

carries an extreme impact, and, after the fact, seems explainable and predictable.

The 2010 BP oil spill is a prime example. The scale of the disaster was unexpected, yet

afterward it seemed preventable, and the environmental and economic consequences

of the spill are still being dealt with today along the Gulf Coast.

A black swan event isn’t always the result of a manmade or natural disaster; it can

also come as a result of the failure to innovate, such as with BlackBerry and Kodak.

Having a rough idea of how your company would fare if a competitor came out with a

newer, better product, for example, could mean the difference between surviving and

closing your doors for good.

“You can’t know everything, but you can anticipate your company’s risks and plan

to neutralize or manage them,” says author Gary Patterson in his book “Million-Dollar

Blind Spots.” Being prepared for both the expected and unexpected is important when

it comes to designing an overall risk management philosophy because, as Patterson

says, “It’s always better to react swiftly, surely and correctly than to flounder about in

confusion and let others frame your problem.”

Conerly suggests business take a flexible stance to be resilient in the face of the

unforeseen. “Keep debt low and equity high,” he writes. “Have a good cash cushion

and a good line of credit” to survive if faced with a black swan event.

Staying on the cutting edge of all aspects of your industry may also mitigate a

black swan effect.

In the upcoming year, make sure risk is front and center in the discussions in your

boardroom, in management meetings, and with your trusted advisers. By taking an

active approach to analyzing your weak spots and turning them into future strengths,

you can not only turn your black swan away but reach new heights in your industry.

Mark Goldfarb, CPA

Senior Managing Director

IRS Treasury Regulations require us to inform you that any tax advice contained in the body of this communication was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

3winter 2014 ss&g solutions

first person

When I was growing up, I wanted to be: a successful businesswoman. I didn’t have a particular profession in mind, but I knew I wanted to be involved in the business world somehow. One thing I used to do was collect home plans and play ‘real estate agent.’ Not your typical childhood game, but I had a lot of fun.

My first job: I was a babysitter when I was 13.

The word that best describes me: Loyal

The best part about my job: Every day provides a new challenge. I get to work with a great team of people and service hospitable clients who value our services.

My business philosophy: Don’t do anything you wouldn’t want to end up on the front page of the Wall Street Journal. Operate with integrity, and the rough spots will work themselves out.

The people I admire most: My parents. They raised my brother, sister, and I to be independent, successful adults with strong values.

My greatest achievement so far in life: Building a career, while at the same time building a family. I love my job, my colleagues, and the clients I serve, and I am grateful to be at a firm that lets me do what I do and still spend plenty of time with my family.

At least once in their life, I think everyone should: Visit Alaska. The views are stunning, and it is truly America’s last frontier.

One thing people might find surprising about me is: I am not tech savvy. I just made my first iTunes purchase this year.

If I weren’t doing this, I would: I really can’t imagine myself doing anything else.

My favorite movie: Double Jeopardy

My next personal goal is: I want to make time to sit down and read an entire book for fun.

On weekends, I look forward to: Spending time with my husband, daughter, and our two Old English sheepdogs

My favorite place in the world is: Kiawah Island, S.C. The beach is pristine, never crowded, and it is easy to relax in the quiet of the island.

When I get discouraged, I: Force myself to stop and think about all the positives, then come up with a new game plan to change course and solve the issues at hand.

My attitude toward change is: Without it, we would all be bored. It is inevitable and keeps life interesting.

Success is: Being happy with your life. Life is short and we should all spend time doing things we are passionate about and love to do. When you do what you love, success follows. j

Alexis BeckerTitle: Director, Assurance Services

Degree(s)/College(s): Bachelor of Science in business administration, John Carroll University; MBA, Miami University

Hometown: Born and raised in Lockport, N.Y. Currently reside in West Chester, Ohio

Year I joined SS&G: 2004


industry

For one day in November 2013, PlayStation gamers

around the world came together for a worthy cause

— to raise funds for Children’s Miracle Network

Hospitals. By participating in a global virtual game-a-thon,

hosted by Extra Life gaming network, supporters raised

more than $4 million for the hospitals in just 25 hours

through DonorDrive® Social Fundraising software.

Digital fundraising campaigns such as these are

becoming increasingly common among nonprofit

organizations due to their ability to reach a wider and

more diverse audience.

“With social fundraising, a nonprofit can tap into the

network of someone with 1,000 friends or followers,” says

The rise of the digital donorTechnology can help companies raise their online fundraising profile

DonorDrive motivates donors to maximize giving

Five years ago, Global Cloud saw an opportunity to empower nonprofits through digital fundraising. Its solution: DonorDrive® Social Fundraising Software.

“We saw a need for a platform that could host many nonprofits to leverage new trends in fundraising,” says Todd Levy, co-founder and CEO at GlobalCloud.

DonorDrive gives nonprofits the opportunity to fundraise for signature events, capital campaigns, ticketed events, personal campaigns, community fundraisers, and endurance events through one source, and entirely through their supporters. Once participants create their personal donation page, they are prompted to take actions such as emailing their entire address book or posting about their involvement on Facebook, Twitter, LinkedIn, and Google+. This allows organizations to tap into the vast social networks of their supporters to generate money, enthusiasm, awareness, and further donations.

Its built-in support tools for donors are one reason DonorDrive® is so effective in online fundraising. Much like LinkedIn, the platform utilizes a fundraising motivation engine that coaches participants through filling out their profile and setting up their donation page.

The smart notification system also lets people know what actions they can take to be a more successful fundraiser, encouraging them in a continuum of giving.

“We discovered that you have to make your software beyond easy,” Levy says. “The supporter will be a better fundraiser if they never have to ask, ‘Now what?’”

“With social fundraising, a nonprofit can tap into the network of someone with 1,000 friends or followers.”

— Paul Ghiz, co-founder of GlobalCloud and creator of DonorDrive

5

Paul Ghiz, co-founder of GlobalCloud, a Cincinnati-based

digital branding firm and maker of DonorDrive. “When

that fundraiser sends an update about their participation

in the cause, the nonprofit gets donations and awareness

much larger than its current supporter base.”

Leveraging the personal networks of your organization’s

donor base is easier than ever thanks to today’s online

platforms for peer-to-peer fundraising. Instead of emailing

supporters to ask for donations, you can provide them

with tools to set up their own personalized donation

webpage and they can fundraise on your behalf.

“People can drop in photos, add video and create

a personal message for their page, all with zero

programming skills,” says Todd Levy, co-founder and

CEO of GlobalCloud. “It’s as simple as point and click.”

These technologies are effective for fundraising

because, ultimately, people are more likely to give to

people they know.

“Now it’s not the big checkbook that matters,” Levy

says. “It’s the big network. It’s a much more authentic ask

when you ask your friend or family member to donate to

a cause than if they get a letter in the mail or a call from

someone they don’t know.”

Peer-to-peer fundraising platforms are also an ideal

way to reach millennial donors, who have larger social

networks and tend to be more participative in their giving.

“You need to go to where your constituents are,” Levy

says. “Twitter. Facebook. Mobile. That’s where the action

is and where people are communicating with each other.”

To get the most benefit out of digital fundraising tools,

make sure that you choose software and platforms that

offer financial transparency, low fees, and standardized

branding tools for users. Crowd funding sites, for instance,

are almost entirely controlled by participants and can

limit a nonprofit’s control over branding and donations.

Also make sure that the technology you use is flexible

enough to handle a variety of events and campaigns

and that it can integrate seamlessly with social media

and mobile, which are becoming the immediate and

preferred ways to donate.

Remember that the easier you make online

fundraising, the more likely people are to do it, and the

more successful you will be.

“By giving the tools to the fundraiser, you gain the

capacity to focus on the people who are really raising the

money and help them raise more,” Levy says. j

“It’s the big network. It’s a much more authentic ask when you ask your friend or family member to donate to a cause than if they get a letter in the mail or a call from someone they don’t know.”— Todd Levy, co-founder and CEO, GlobalCloud

winter 2014 j ss&g solutions 5

Digital deductions

Online contributions to nonprofit organizations may be tax deductible, but there are few things to keep in mind before you click send. Director Teri Schaffer, head of SS&G’s nonprofit practice, offers this advice to those looking to write-off their charitable contributions.

Be sure the organization soliciting contributions is a recognized 501(c)3 in the eyes of the IRS, and know that contributions made to specific individuals or political organizations and candidates are not tax deductible. To ensure that the organization you are contributing to is a legitimate 501(c)3, consult the IRS database at www.IRS.gov.

Digital contributions need to be sustained for deductibility. Retain documentation of the transaction, particularly the receipt for the contribution which is typically given at the conclusion of an online transaction. Many organizations request that the credit card processing fee is paid by the donor, so be careful to only deduct the charitable portion of the gift and not the related fee as well.

If you receive any type of benefit for your digital donation, such as a ticket to an event, you can only deduct the amount of the contribution in excess of the benefit you directly receive.

case study

6 ss&g solutions j winter 2014

P rivate equity is still a relatively young investment

market, with a history that dates back only to the

1960s. And although it has experienced peaks and

troughs like any market, showing particular resiliency in

bouncing back from the recent recession, private equity

has become an increasingly popular strategy for business

owners to generate growth capital and other types of

liquidity.

“The market has had some fluctuations, which isn’t

surprising due to the nature of economic cycles,” says

Stewart Kohl, co-CEO of The Riverside Co., a global private

equity firm based in downtown Cleveland. “It had a peak

in 2007 and ’08, and then, with the recession, a pretty

significant trough in 2009 and ’10. But even so, it’s bounced

back pretty quickly.”

The Riverside Co. has been in the private equity space

for 25 years. Kohl has helped lead the firm for 20 of those

years, and as a result he has had a front-row seat to the

growth cycles of the market. Based on what he has seen,

Kohl believes that private equity will remain a substantial

option for companies looking for an infusion of capital to

aid in both organic and external expansion efforts, and for

business owners looking for a selling or retirement option.

“If you own a business and you want to sell it because

you’re retiring or just want to get out, private equity

continues to represent a good alternative to finding

a buyer,” Kohl says. “And if you’re at the other end of

Phot

os: J

esse

Kra

mer

The Riverside Co.’s Stewart Kohl discusses trends in the private equity space

rightFinding

the

growth partner

winter 2014 j ss&g solutions 7


your business life cycle, with a small, entrepreneurial

company with ambitious growth goals, private equity

represents a good source of capital for expansion or

acquiring a competitor.”

A cultural matchIf you’re a business owner looking for a private equity

investor, you should closely examine the state of your

company and learn as much as you can about the

present state of the private equity landscape before

heading out to shake hands and talk dollars.

In addition to being subject to market fluctuations

that could impact the type of investment partner you

seek, the private equity space is full of investment firms

with specializations and subspecializations. In the end,

money is money, but the type of partner you find, and the

circumstances under which you enter into an agreement,

can greatly impact the success of your relationship — and

subsequently, the long-term success of your business.

“Find a company that wants to be in your space and

that has experience investing in companies like yours,”

Kohl says. “Does it tend to invest in troubled companies,

fast-growth companies, or something else? Is it going to

be an advantageous match in terms of geography and

industry? Does it have experience investing in companies

your size? A manufacturing company might be looking for

investors that are different in nature from, say, a service

company.”

Those are the objective areas in which you need

to find puzzle-piece fits between your company and a

private equity investment partner. But there is a softer,

more subjective side to finding a match, and it is as

important — if not more important — than finding the

right tangible fit.

“You have to make sure there is a good cultural fit,

which you only figure out by really getting to know

potential investment partners before you enter into an

agreement,” Kohl says. “Get to know what your would-be

partner values in terms of culture and ethical practices.

You’ll be more or less married to this investor, because

you’ll be forming a very close business partnership.

You’ll see a lot of them, and you’d better realize whether

or not you like them before you sign on any dotted lines.”

Kohl says you don’t have to necessarily be best friends

with a private equity investor, but you have to agree with

how the firm does business, and you have to find the

values, ethics, and personalities of the firm tolerable, at

the very least.

“You can find a good window into the firm’s culture

by looking at how it’s conducted past deals,” Kohl says.

“Find references that will give you the straight scoop on

how it does business.”

A good cultural match is critical for business owners

who are used to having complete control, because any

investment partners you bring in are going to want a say

in how things are run.

“That’s why, if you don’t find a good cultural match,

there could be problems,” he says.

What’s next?The private equity space will likely continue to maintain

a high level of popularity as an option for attaining capital

among business owners. In addition to its relative stability

in the face of market fluctuations, Kohl says the popularity

of private equity is also rooted in its flexible nature.

“Banks are constrained as lenders in many ways

that private capital firms are not,” he says. “Banks can

certainly fund businesses, but they can only do so much.

From the investor’s perspective, private equity has

historically delivered good returns to investors. If you

“From the investor’s perspective, private equity has historically delivered good returns to investors. If you provide good returns, you’ll have more investors wanting to enter the space, which means yet more businesses looking to private equity as an investment option. It keeps growing from there.”

— Stewart Kohl, co-CEO, The Riverside Co.


provide good returns, you’ll have more investors wanting

to enter the space, which means yet more businesses

looking to private equity as an investment option. It

keeps growing from there.”

Strong working relationships are the DNA of the

private equity space. If used and managed responsibly

by company leaders and private investors who are

fully committed to making relationships work, private

equity will continue to grow. If you’re not committed

to building and maintaining those relationships, you

may want to look elsewhere for capital or investment

opportunities.

“The No. 1 piece of advice I’d give would be to sit

down with a number of private equity firms and ask as

many questions as you can,” Kohl says. “Really come to

understand how they work and what their objectives

are. Make sure you can work with them, develop a strong

relationship and make sure it’s a good fit. Money is the

reason deals happen, but those relationships are the

engine that drives the process.”

The team behind the teamKohl’s experience in his role with The Riverside Co.

also has driven home the importance of support

services to any private equity firm. Without good

accounting and tax advisory services, in addition to

other professional services, a private equity firm can’t

function properly and can’t help drive the success of its

investment partners.

For The Riverside Co., SS&G has been an important

accounting and tax services provider, which is critical

because no two investment opportunities are alike.

In much the same way that a business and a private

equity firm need to find common cultural ground, the

leaders at The Riverside Co. value cultural cohesion

with their support-service providers. That is another

reason why the firm has been able to form a strong and

longstanding partnership with SS&G.

“We see a lot of company cultures, and it becomes

very apparent that when you get a culture right, it can be

very reinforcing to a company,” Kohl says.

Culture is a separator in business, and that is true

whether you’re searching for investment opportunities

in the private equity space or searching for a financial-

services partner.

“You really have to look at the soft stuff, in addition

to the hard numbers,” Kohl says. “The right culture can

make a huge difference. It is a major indicator of whether

you have the right fit.” j

If you own a company, the questions of when and how to sell it will eventually arise. In some cases, you may be blindsided by an accident or other sudden departure and the decision will have to be made sooner rather than later. Private equity can provide a good alternative to finding a corporate buyer, but whichever route you choose, it is critical to have everything in order for a potential sale while you still have a firm grasp on the controls of your business.

Stewart Kohl, co-CEO of The Riverside Co., a Cleveland-based private equity firm, has been overseeing private equity deals for 20 years as head of the company. He says that, too often, companies are not properly prepared when they begin their search for a private equity buyer, but there are several steps business owners should take to properly position their company for a sale.

j Put your advisers in place. This can include accountants, lawyers and operations specialists. Your accountants and lawyers will become your close partners during the sales process, advising you on how to provide answers to the extensive list of questions that potential buyers will present.

“The process the buyer puts a company through is a very invasive process,” Kohl says. “They’ll want to look in every nook and cranny of your company, and you’ll want to be well advised on how to answer those questions.”

j Don’t fall in love too quickly. Just as you wouldn’t marry someone after the first date, don’t rush into a sale without adequate time to get to know your buyer.

“At first blush, a buyer might seem very attractive, but once you really get to know them, it could go in a number of directions,” Kohl says. “You want to be realistic about the risks involved with your company, and you want the buyer to be forthright about how they do business.”

j Put the right management team in place. Make sure you have qualified people in every leadership position, and that they have the proper and current accreditations, approvals and licenses.

“It will help the process go more smoothly,” Kohl says. “It will also send the buyer a signal of whether this is an excellent company that will be a pleasure to invest in, or whether there could be a lot of bad surprises in store.” j

Closing the deal

focus onExploring captive insuranceA look at what it is and who should consider it

without a corresponding recognition of income on the

part of the captive for the premiums paid.

“The difference is that you’re not taking all the risk in

house, but it does still allow you to self insure for gaps

that you’re not buying on the market,” Squires says.

Microcaptives have extended some of the benefits

of captive insurance to Fortune 1000 companies and

beyond — even those with revenue as low as $10 million.

“You do still have to have a minimum level of revenue

as a company, or group of companies, for a captive to

be a realistic option,” Squires says. “That is probably

$10 million and up, and the benefits really start to get

fruitful around $20 million and up. At that point, it is

probably worth it to consult with a company that sets up

captive insurance plans.”

Within that range, smaller manufacturers, doctor’s

practices, restaurant groups, and other companies of a

similar size could realistically look at captive insurance

as an option.

If you do decide to consider captive insurance, consult

with a company that has extensive experience specific

to the captive space. Many insurance providers and

planners dabble in a number of areas of the insurance

market, but captive insurance is a unique, specific, and

complex space. The more of a focus your adviser has on

the captive space, the better off your company will be.

“The advising company would typically come in and

take a good, long look at what your current insurance

covers and what gaps you have in your coverage and

price out the premiums for the gaps you currently have,”

Squires says. “If you’re over $20 million, there is a good

chance your company has enough complexity that the

gaps will be substantial enough to get a benefit from the

tax deductions.”

When shopping for someone to set up a captive

insurance company, make sure you are forthcoming

regarding every aspect of your current insurance coverage.

“There are a lot of requirements of a captive insurance

company because this is a regulated industry,” Squires

says. “It still needs to be set up as a legitimate insurance

company that funds real risk. And that goes back to

finding a well-versed expert who can pilot you through

the process.” j

It used to be that if you ran a mid-sized or small

business, you could go your entire career and not

think once about captive insurance companies.

That’s because, until recently, the captive insurance

market was made up almost entirely of large

corporations that had the resources and clout to bring

insurance risk in house.

“Fortune 500 companies have been doing this for years,”

says Trisha Squires, a tax director in SS&G’s Chicago office.

“Companies that large can self insure and have enough

people, clout, and income to fund premiums.”

Captive insurance companies are entities set up

and run internally by businesses to self fund risk that

would otherwise be handed off to an external insurance

company or left uninsured. Large companies have often

used captives because it allows them to insure risk

that would be difficult to insure on the open market,

including natural disaster or terrorism coverage.

Captives can also allow companies to fund a surplus

that can act as a cushion against future risk, provided

that premiums outpace claims over an extended period.

There are tax benefits to captives, as well, such as

deductions on premiums paid into the plan.

With the advent of the microcaptive company,

outlined in Section 831(b) of the Internal Revenue Code,

some of the benefits of a captive insurance company are

now available to smaller businesses. One of the primary

benefits is a maximum deduction of $1.2 million

10 ss&g solutions j winter 2014


the last wordwith Bob Littman

“As a firm, we are constantly innovating and evolving, and we think you should, too.”

As we settle in to 2014, it is important to take

advantage of the chance to refocus our energies

and set new goals for ourselves.

Here at SS&G, one of our objectives is growth. We

opened the doors to our downtown Cleveland office last

November and are excited to be a part of the revitalization

of the downtown Cleveland community. SS&G is also

proud this month to be establishing a new office in New

York City that will be spearheaded by associate director

Dana Zukofsky, who we welcome to the SS&G team. With

these additions, SS&G has expanded our presence to

include 12 offices and more than 530 professionals.

Innovation goes hand-in-hand with growth. In the

upcoming year, we also plan to continuously look for

new ways of doing business that will improve our

efficiency in helping clients. Innovation means keeping

our professionals educated and updated on the latest

developments in tax laws and accounting standards, and

passing that knowledge on to our clients and colleagues.

It means expanding our offerings to include new

services, such as transaction advisory risk management,

and increasing our expertise in emerging industries such

as oil and gas. Innovation means combining traditional

accounting with advanced consulting so we can continue

to provide services of the highest quality and value that

enable our clients to thrive.

As a firm, we are constantly innovating and evolving,

and we think you should, too.

Make it a resolution this year to take more continuing

professional education classes and sign up for more

seminars or webinars. Do more brainstorming with your

Doing moreA new year brings new opportunities

colleagues and have more conversations about how to

improve customer service. Attend more networking

events and expand your circle of connections. Take every

opportunity you can to learn something new.

We will do our best through 2014 to offer value-added

services that help you keep your resolution to innovate.

Our professionals are already hard at work planning

mixers and events such as our 2014 Restaurant CFO

Bootcamp® and Nonprofit Seminar Series. Throughout

the year, SS&G will frequently retain industry experts for

CPE classes that clients are invited to free of charge, and

we offer a variety of educational seminars and webinars.

It is our goal to provide the greatest benefit possible to

our clients, and we look forward to helping you make 2014

a successful, innovative, and prosperous new year. j

32125 Solon Rd.

Cleveland, OH 44139

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PAIDCLEVELAND, OHPERMIT NO 1940

Not if you’re an audit report. Or a credit card statement. In fact, many financial records should never be disposed of. At SS&G, we have a record retention guide to help you figure out which documents you should keep and for how long. We provide helpful resources and solutions to your financial needs so that you can keep your resolution to clear the clutter. Visit SSandG.com/recordretention.

Out with the old?

new year

Documents

SS&G Solutions Winter 2014