Kutchins Robbins & Diamond: CPA and CFP, Chicago, IL- Newsletter

When Pablo Enriquez, 48, started his own Mexican produce importing and distributing business in 1988, he didn't have to look any further than his own family for employees. His son, Pablo Jr. (now 2 1), joined his father almost immediately; His sister, Angelica Torres, agreed to handle the bookkeeping; his brother, Jose Hugo Enriquez, became the head of the sales division here in Chicago; and another brother, Jose Luis Enriquez, assumed the role as the company's buyer in Mexico, where he lives.

Today, there are three more brothers and one sister still living at home and as soon as the youngest starts school (he is five years old), Pablo's wife, Augustina, probably will get more involved in the family business, most likely assisting with the accounting and recordkeeping.

Two other people who have been instrumental in the phenomenal growth of the company (annual revenues are projected at $ 1 OM in 1999) are certified public accountant David Diamond of KRD and David's associate, Martin Delgadillo, who acts as a translator and assists with all computer matters including software implementation and training, ongoing support and troubleshooting.

David Diamond and subsequently KRD have been part of the company's management team since 1996 when Enriquez Produce was referred by a tax client. Initially, David successfully negotiated an IRS audit matter for Enriquez Produce for tax year 1994. He now advises in the areas of cash management, customer credit and collection, and negotiates bank financing terms and pricing.

In 1999, he advised and helped implement an employee retirement plan for the company and has been integrally involved with various life insurance and estate planning matters for Pablo Enriquez personally including setting up irrevocable trusts to minimize potential estate tax liabilities.

Christine Wells is another member of KRD's management team. Christine works closely with Angelica on all daily accounting and payroll tax matters including handling notices from different taxing authorities. But the accounting end of the Enriquez family business didn't always run as smoothly as it does today.

Computers Save the Day
"The first time I worked in the office at Enriquez Produce, I noticed that practically everything was being done by hand‑the invoicing, billing and writing of checks, "says Martin Delgadillo. "It was antiquated. Nobody does that anymore, especially a business with the kind of volume they had. The first order of business on our side was to get the company computerized."

Implementing an accounting software program and getting it up and running took about four months, according to Martin. "Computerizing the accounts receivable, payable and other accounting functions has saved the company immeasurable time and money," he says.

"When we first began the business, all the recordkeeping was done on paper," acknowledges Pablo Jr. "David got us involved with computers and that was very helpful for our company. He gives us good service and good advice. Before we worked with David, we had experiences with other accountants that were not very good, but David is a true professional and always prepares our work on time."

New Distribution Center
In 1998, Pablo Enriquez Jr. (who is secretary/treasurer) set up an affiliated company called Enriquez Trucking Co. Inc., which provides freight services to both Enriquez Produce as well as to unrelated customers in the Chicago area.

Pablo Jr. also is in the process of opening a distribution center in McAllen, Texas, which he will personally oversee. The distribution center will more easily facilitate the movement of freight between Mexico City and Chicago. Recently, he and his family relocated to Texas.

"My uncle, who is our buyer in Mexico City, used to purchase fresh produce and send it to Reynosa, a small town located on the border between Mexico City and the United States," he explains. "Now, produce will be transported to the McAllen facility. From there, it will be shipped directly to Chicago."

A Chile Is a Chile Is a Chile.
Enriquez Produce imports nearly two dozen different kinds of fresh and dry chile peppers from Mexico, which the company then distributes to the South Water Market in Chicago. Other products that the company brings in from Mexico, California, Arizona, Texas, Georgia and Florida include avocados, mangos, limes, papaya, jicama, cebollitas, corn, green tomatillos, cactus leaves, sugar cane and beans. Among customers for these fruits and vegetables are well‑known Chicago area Mexican restaurant and supermarket chains such as Los Comales and Las Chiquitas.

Looking ahead, the owners would like to one day sell in New York. A more immediate goal is to build a reputation for the family business in Texas and develop sales markets in San Antonio, Houston and Dallas. No doubt, Enriquez Produce will accomplish these goals and more!

KRD ACCOUNTING AND AUDITING Audit Manager Chris Cameron oversees the accounting and auditing department at KRD. Chris, who earned a degree in accounting from Loyola University in 1991 and received his CPA certification in the same year, is a member of the American Institute of Certified Public Accountants and the Illinois CPA Society. He is very active in LeTip, a national leads networking group with 500 chapters across the nation.

As Audit Manager, Chris is responsible for the supervision and development of the audit practice and the financial reporting function. KRD's accounting and auditing personnel assist in developing and interpreting financial information clients require to make intelligent business decisions. Services provided by the accounting and auditing department include, but aren't limited to, compilations, reviews and audits; investigative accounting; financial budgets, projections and forecasts; review and testing of internal controls and reporting systems; and business planning.

"Our audit and accounting services include more than the preparation of financial statements," says Chris. "We work with clients to try and find ways to save them both time and money." For example, Chris points out that the firm generally suggests most clients utilize an outside service to process their company's payroll. For many businesses, payroll services offer an attractive and valuable alternative to in‑house processing and may eliminate the headaches associated with payroll tax filings.

Reviews, Compilations and Audits
The lowest level of reporting service is called a 'compilation.' A compilation is limited to presenting in the form of financial statements information that is the representation of management. KRD, or any other CPA firm for that matter, does not audit or review these financial statements nor do they express an opinion or any other form of assurance on them, explains Chris.

The next level is called a 'review.' A review goes a little further by offering 'negative assurance,' which is not an opinion, but rather a statement that the firm has not noticed anything materially incorrect in its examination of the company's financial statements.

Finally, an audit is the formal process of examining and testing and/or verifying financial records. "In an audit, we provide an opinion that the company's financial statements are not materially misstated," explains Chris.

Before an audit is undertaken, however, Chris or a partner meets with the client and determines whether an audit is actually needed. "We don't want to charge a client for an audit, if it isn't really necessary," points out Chris. "Occasionally, it happens that a client presumes they need an audit, perhaps as a requirement for an existing bank loan. But banks differ in their requirements for an audit. In cases where an audit is not required, we can usually provide a client with other services that provide nearly the same level of information at a lesser cost."

Advance Preparation Saves Time and Money
So your company is about to begin an audit and the audit staff is due on Monday. If you and your employees have properly prepared, you have nothing to worry about. "The best way to prepare for an audit," says Chris, "is to have all the necessary documents and schedules (such as receivable aging as of the end of the period and debt confirmation requests) prepared well in advance of the audit start date. That ensures the best use of our staff time and takes the pressure off your employees."

Cooperation between the audit staff and the client is important and almost always results in the job getting done more quickly. "The audit staff usually has many questions, sooner a client is able to respond to these, the sooner we can complete the work," says Chris. There are two types of requests: verbal requests for easily obtainable information such as copies of bank statements, and written requests for more complex information.

"If we are testing inventory, for example, we may need a list of 10 or 12 items and that is best communicated in a memo," he adds. "Again, a quick response eliminates any lag in the work flow. We don't want to disrupt the operations of a business any longer than we have to."

On the topic of counting inventory during an audit, Chris recalls this story relayed to him by a professor at Loyola:

It seems that the professor was involved in auditing a cattle company. The problem was counting the herds of continually moving cattle which were spread over some 500 acres of land. What the auditors finally did was arrange to have aerial photos taken of the land. Then, using a pin, they poked holes in the photographs wherever a cow appeared. "I thought that was really creative thinking on the part of the auditors," says Chris.

One audit that Chris is involved in for KRD involves counting pounds of resin pellets used in the manufacture of plastic bags. To test count the stored pellets, he and his assistants must do a bit of climbing and maneuvering as they look down into silos and railcars. (By the way, Chris says he doesn't wear a business suit on those days.)

In his leisure time, Chris participates in snorkeling, scuba diving and sky diving. He is an avid Chicago Bear's football fan and has a 20‑pound cat named Frank. But most of all, he enjoys the profession he has chosen to work in.

Asset Acquisition: Section 179 Deduction
Planning to purchase some new computers or other equipment for your business? There's still plenty of time left to buy them this year and take an immediate tax write‑off. Section 179 allows eligible businesses to expense up to $19,000 of the full cost of qualified assets (not real estate) placed in service during to, )99. This is in lieu of depreciation. If you've already spent close to $19,000, you may want to postpone any major purchases until January 2000, when limit you can write off increases to $20,000. The expense allowance continues to increase annually until the year 2003, when it reaches $25,000.

A partial deduction is allowable for business purchases that exceed $200,000, but are less than $219,000. You can't take the deduction if you've spent more than $219,000. Also, you can't expense more than the taxable income from your trade or business. Of course, you may still elect to depreciate the cost of an acquired business asset over time. Determining which alternative gives the best results is part of year‑end tax planning. Call us with any questions. Q

Ten Secrets to Success Investor’s Business Daily says it has spent years analyzing leaders and successful people in all walks of life. Most have 10 traits that, when combined, can turn dreams into reality. The following are IBD's 10 secrets to success: 1. How You THINK Is EVERTHING: Always be positive. Think success, not failure. Beware of a negative environment. 2. DECIDE UPON YOUR TRUE DREAMS AND GOALS: Write down your specific goals and develop a plan to reach them. 3. TAKE ACTION: Goals are nothing without action. Don't be afraid to get started now. Just do it! 4. NEVER STOP LEARNING: Go back to school or read books. 13et training and acquire skills. 5. BE PERSISTENT AND WORK HARD: Success is a marathon, not a sprint. Never give up. 6. LEARN To ANALYZE DETAILS: Get all the facts, all the input. Learn from your mistakes. 7. Focus YOUR TIME AND MONEY: Don't let other people or things distract you. 8. DON'T BE AFRAID TO INNOVATE; BE DIFFERENT: Following the herd is a sure way to mediocrity. 9. DEAL AND COMMUNICATE WITH PEOPLE EFFECTIVELY: No person is an island. Learn to understand and motivate others. 10. BE HONEST AND DEPENDABLE; TAKE RESPONSIBILITY: Otherwise, numbers 1‑9 won't matter.

Turn Excess Inventory into a Tax Deduction
Now is the perfect time for companies with a December 31 fiscal year end to do a check on their inventory levels. If you find some excess or slow‑moving merchandise, you can earn a federal income tax deduction when you donate it to charity. The National Association for the Exchange of Industrial Resources (NAEIR) is a specialized nonprofit, tax‑exempt organization qualified to receive tax deductible contributions. The organization, which is based in Galesburg, Illinois, collects and redistributes the items to schools and other nonprofits across the United States.

To claim a deduction in 1999, you must commit to the donation in writing before the end of your company's fiscal year, explains Jack Zavada, director of communications for NAEIR. Donors then have 75 days to transmit the product to the recipient. Companies interested in the tax deduction can apply this formula: Regular (C) corporations may deduct the cost of the inventory donated, plus half the difference between cost and fair market value. Deductions may be up to twice cost. Partnerships, sole proprietorships and S corporations earn a straight cost deduction. Donating excess items also frees up needed warehouse space. Within 14 days after receiving your inventory, NAEIR will send you the documentation you need to claim this tax deduction. For a free information packet on the deduction and donation process, call 1‑800‑289‑4551.JR

Greenspan's fear about Y2K: Fear Itself
Franklin Delano Roosevelt may have expressed it best when he said: "The only thing we have to fear is fear itself " Federal Reserve chairman Alan Greenspan expanded on this theme in comments he made recently at a Chicago banking conference, in response to a question about the Year 2000 computer bug. The Federal Reserve chairman said he is "increasingly less concerned" about massive computer disruptions that could bring down the world's financial markets. But, Greenspan said, he is worried that irrational anxieties, fanned by media hype, will create a problem where none should exist. "I am concerned about people's reactions to the fear that something momentous is going to happen as 1999 gives way to 2000," he said. "The safest thing you can do is keep your money in the bank"‑and away from opportunistic thieves.'