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Case Study: Social Fulcrum

SmartBooks helps Social Fulcrum save $280K through proactive tax planning

Founded by Andrew Krebs-Smith in 2010, Social Fulcrum is a digital marketing agency that specializes in customer acquisition and content marketing, inbound, SEO, and social. Bootstrapped, the company has experienced immense growth over the past few years and was recently named to the Inc. 500 list of the fastest growing companies for the second year in a row.

Challenges

By understanding Social Fulcrum’s unique business situation, SmartBooks recommended following an accrual basis for maintaining Social Fulcrum’s books and records while following a cash method of accounting for tax purposes. The cash method provides flexibility to manage taxable income. For example, one common tactic is to pay any outstanding payables prior to year-end in an effort to accelerate the expense into the current tax year. Another common tactic is to invoice clients later in the month in order to defer income to the following tax year. Media companies, like Social Fulcrum, frequently receive upfront payments from clients to cover any social media advertising expenses. Unfortunately, if not timed right, this could result in income being recognized in one year and the corresponding expense being recognized in the following year. On a large scale, this can result in an inflated revenue number on the cash basis.

“As a professional services startup we need to move fast and make sound decisions. SmartBooks provides us with current and accurate financials to do so.”

Andrew Krebs-Smith Founder

How SmartBooks Helped

The SmartBooks accounting and tax teams worked in tandem to prepare a detailed tax plan to understand how Social Fulcrum’s income would be affected by this year’s accrual to cash adjustment. Based on current estimates, this included an inflated revenue number of approximately $752,000. While reviewing the balance sheet, SmartBooks also noticed that there was a large cash balance in Social Fulcrum’s bank account that was a result of prepayment from a client for media expenses. This analysis revealed that the pass-through income for shareholders in this scenario would be approximately $1.1M. Through this annual tax planning process, the SmartBooks tax and accounting teams were able to work with Social Fulcrum to devise a strategy to prepay a large vendor account and as a result more closely match the income and expenses in the same year.

“SmartBooks has been very responsive and available to hop on the phone and answer questions as they arose and frequently provides guidance without ever requesting a price increase or putting a limit on the work done.”

Andrew Krebs-Smith Founder

Outcome

SmartBooks proactive tax planning revealed a large accrual to cash adjustment in the current tax year that would have negatively impacted the shareholders. In response to this, SmartBooks helped Social Fulcrum pull expenses into the correct tax year, reducing their ordinary income by $752,000 which resulted in a tax savings of approximately $280,000.