Get a Leg Up On 2022

  • Private equity
  • 1/26/2022

By almost every measure 2021 was a record year in the private equity industry. From fundraising, to investing to exits records were set. Now it is time to put 2021 n...


By almost every measure 2021 was a record year in the private equity industry. From fundraising, to investing to exits records were set. Now it is time to put 2021 next to 2020 in our rear view mirror. No better way to do that than have a blog to discuss some critical matters.

So, we turn to 2022, we’re reflecting on past lessons that can help create opportunities for the future. At CLA we see 10 critical items for your consideration.

1. New legislation


American Rescue Plan Act of 2021 (ARPA)


ARPA was signed into law on March 11, 2021. The $1.9 trillion package expanded existing COVID-19 relief programs and provided additional funding to state and local governments. As ARPA relief funding continues to be used today, companies and organizations are navigating compliance requirements such as single audits and other forms of engagement.

If you received ARPA funding, consider an ARPA application and management platform to help you properly manage the use of your funds. Seek council to navigate single audit or compliance requirements and find recommendations for avoiding noncompliance or audit findings.

Infrastructure Investment and Jobs Act (IIJA)


IIJA was signed into law on November 15, 2021. The $1.2 trillion package renewed numerous infrastructure and transportation programs and includes $550 billion of new federal spending over the next five years. This package impacts all industries, from revitalizing and improving national supply chain infrastructure to expanding cybersecurity and broadband services across the United States. As related funding begins to find its way to companies and organizations like yours, keep alert for any tax impact or compliance requirements.

2. Compliance with COVID-19 relief funds


Beginning in March 2020, trillions of dollars have been pushed out from the federal government under various COVID-19 relief packages. Various stimulus programs and funding streams were made available to business, nonprofits, health care providers, educational organizations, state and local governments, and more. Among others, programs included:

Provider Relief Funds (PRF)
Coronavirus Relief Funds
Coronavirus State and Local Government Fiscal Recovery Funds
Shuttered Venue Operators Grant
Many of these funds have ongoing compliance requirements, which are complex and may be unfamiliar territory for those receiving this type of assistance for the first time.

For example, consider PRF. Close to $200 billion in PRF has been designated for health care providers — hospitals, physicians, dentists, nursing homes, and more. While the first required round of reporting closed in late 2021, there are still at least three (likely four) additional rounds of reporting that could be required. On top of that, single audit requirements are applicable for both nonprofit and for-profit entities.

Did you know CLA performs more single audits than any other professional services firm in the country? We can help you navigate single audit or other compliance requirements for all of your COVID-19 funds. Reach out today.


3. Employee Retention Credit (ERC)


The ERC is a refundable payroll tax credit initially created through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in 2020. Its importance increased throughout 2021.

The ERC has been a valuable opportunity for employers impacted by COVID-19. Eligible employers — organizations who have either experienced a significant decline in gross receipts or were fully or partially suspended by a government order — have three years to amend payroll tax returns for refunds of up to $7,000 per employee per quarter in each of the first three quarters of 2021 — and up to $5,000 per employee in 2020.

Assess your eligibility each quarter. We’ve found there is more applicability than many of our clients expected, helping companies and organizations claim hundreds of millions of dollars in tax credits. Seek help to evaluate your eligibility and then structure the credit with additional COVID-19 relief funding to enhance your potential.

4. Labor market disruption


Saying today’s labor market is competitive is an understatement. Employers of all types and sizes are vying to attract the best talent in the face of a significant number of retirements, as well as many professionals moving to jobs that can provide better compensation and benefits.

As you navigate these labor market challenges, it’s natural to wrestle with how to fill vacancies. You could choose to dissolve positions and cross-utilize employees, promote from within, and/or bring in new or outsourced talent. We see many organizations completing compensation studies, thoroughly examining their diversity, equity, and inclusion efforts, and creating enticing benefit packages that include flexible and remote work arrangements and employee assistance programs that help address burnout and mental health concerns.

Transforming your internal talent or searching for the right addition can have a lasting impact for years to come. Consider organizational assessments, training, and coaching to help you develop strong leaders at all levels — to help you hire the right person as opposed to the only person you can find.

As your staffing changes, think about the tax impact it can have on your business in 2022. There are tax opportunities still available that may be beneficial. For example, the Work Opportunity Tax Credit (WOTC) has proven to be a relatively simple tax credit for employers and has broadened to include new federal empowerment zones. Some employers have found that 25% of their incoming workforce are qualifying for and generating significant tax credits to offset federal income tax liability.

5. Operational changes and workforce strategy


Employment challenges are forcing many leaders to rethink their corporate structure and operations to remain efficient while not sacrificing important checks and balances that could increase fraudulent opportunities. They are leveraging automation and technology where feasible and practical to do so, in hopes of increasing operational accuracy and timing while removing wasted time and effort on mundane, repetitive back-office support functions.

As technology continues to evolve and more sales and transactions move toward online mediums, a strong digital presence to capture market potential is critical. Equally as important is leveraging data analytics to track key performance indicators (i.e., department or product line output and margins, community impact, and employee and customer satisfaction) so that real-time, informed decisions can be made.

Getting creative in midst of the labor shortage can come in many forms and will depend on the long-term goals and priorities of your organization.

If you are struggling to find the right talent, consider outsourcing. Outsourcing back-office functions like information technology, human resources, payroll, or accounting can often be more affordable than hiring internally, while allowing employers flexibility to scale to their needs.
If you are in a creative rut and need a new perspective on operational efficiency and effectiveness, leveraging a business opportunity assessment may be the way to go.
If you are struggling with key performance indicator implementation or want to elevate your digital presence, turn to data analytics and digital professionals to offer insight and direction.
If you are looking for a permanent hire for a key position, look to a talent professional for help.
Watch our livestream recording: overcoming workforce challenges

6. Financial implications of a remote workforce


Due to the pandemic, working remotely has, out of health and wellness necessity, spread rapidly throughout the United States. Talent shortages and employees’ personal living preferences have required employers to incorporate virtual offices and remote workforces into their business models. This is likely to continue into the foreseeable future — and perhaps beyond the pandemic years.

Even as offices reopen, employees are requesting the flexibility of permanently working from home. With technology such as email/instant messaging, cloud-based networks, and virtual meetings, employees believe they do not necessarily have to be in the office or even in the same state as their employer to be productive and be able to collaborate with colleagues or customers/clients. Employers are also realizing the value of harnessing specific talent and skills that complement their workforce, but may be a thousand miles away.

State tax authorities are aware of the remote work phenomenon and are eager to enforce their legacy laws to capture additional revenue for the residents of their state. Become familiar with state taxation terms such as nexus, apportionment, sales-sourcing, and the telecommuter rule. You may be surprised to learn that although there is a benefit to having a remote workforce, it may come with the cost of paying additional state and local taxes and incurring time and expenses to comply. Be mindful of employments laws, business registration requirements, and other non-tax regulations that may apply in the state or country in which you have virtual employees.

Although the concept seems straightforward, there is no strict definition of what constitutes a “virtual office.” A company employing a multistate or multinational virtual workforce invariably begs the question of whether it has tax payment and reporting obligations (e.g., income tax, sales tax, payroll tax, etc.) to the local revenue authorities where their virtual employees sit. Each tax jurisdiction applies a different standard when determining what constitutes a “taxable presence.” For example, many U.S. states apply an economic nexus standard that often relies on a certain number of transactions with customers in a given state, whereas countries that have a treaty with the United States typically apply a permanent establishment standard, which is akin to a fixed place of business or physical presence test.

Seek help to navigate the complexities presented by a virtual office and remote workforce arrangement. Understanding the federal, state, local, and foreign country tax implications of adopting a virtual office model enables sound strategy and potential approaches to achieve tax efficiency.

7. Succession planning


As our society continues to mature in the midst of an ongoing pandemic, owners and key business leaders are starting to make challenging and life-changing decisions about the companies and organizations they service. Succession planning, in some ways, has been expedited by the ongoing pandemic and continues to expand, whether it is transitioning a family-owned business, cultivating the next leadership team, or planning the transfer of multi-generational wealth.

Surround yourself with advisors who take a goals-oriented approach to succession planning and understand available options. This can be a sensitive and very personal journey. Tap advisors you trust to come alongside you and your management team to provide guidance that helps meet expectations and achieve desired outcomes.

8. Inflation and strategic investment planning


Higher prices, as reflected in recent inflation data, remain a key focus area for business owners, economists, and investors — exacerbated by the combination of an economic recovery and supply chain constraints. A recent inflation print for consumer prices (CPI) showed a 7% year-over-year increase — the largest jump in four decades. While many tend to exclude more volatile energy and food prices, this “core ex-food, ex-energy” index is still elevated at 5.5%. Producer led inflation (PPI) is also elevated at 9.7%.

High inflation drives even higher inflation expectations, which can become unhinged without a direct policy response.

Policy makers have been focused on combatting high inflation. The Federal Reserve is watching inflation closely and Chairman Jerome Powell has reiterated it is the Central Bank’s key priority. In recent speeches, Fed governors conditioned the financial markets to expect four interest rate hikes to quell inflation — one more than previously seen — in 2022, and more aggressive interest rate increases in 2023 and 2024. Additionally, we expect higher inflation prints to diminish year-on-year since it is difficult to mathematically increase given the already high base numbers.

For investors, inflation can be thought of as an additional tax that reduces your future purchasing ability. Experienced wealth advisors focus on helping clients achieve their goals — even after the inflation tax is taken out. Here are three popular strategies:

In public markets, use a diversified blue-chip portfolio that can weather short-term volatility but also generate sustainable yield.


In private markets, real estate should be a core holding for qualified clients, as investment returns may be higher due to the favorable impact of depreciation.


Estate planning can help transfer wealth to future generations and invest proceeds into growth strategies that can exceed the rate of inflation in the long-term.


Develop a robust financial plan that can model out your spending and saving patterns as you age to help determine whether you have enough liquidity to achieve your goals.

9. Cybersecurity


Kaseya, FireEye, SolarWinds, and Colonial Pipeline were some notable cyberattack headlines in 2021. Unfortunately, they were not alone. Cybercrime continues to remain an industry-agnostic concern, growing rapidly in sophistication and frequency. Companies and organizations are quickly identifying vulnerabilities and improving their IT infrastructure and data security to help mitigate risk or exposure.

It is a matter of when — not if — companies and organizations get their turn at facing cyber criminals. Cybersecurity professionals have a deep understanding of the threats you face, and how to help keep things safe and secure. Security boils down to protecting your business as comprehensively as possible, from confidentiality to integrity to availability. Protect your systems and data with a strong cybersecurity plan.

10. Lease accounting changes


The new lease accounting standards, ASC 842 and GASB 87, are now effective for private companies and organizations with fiscal years beginning after December 15, 2021, and June 15, 2021, respectively. These standards help increase the transparency around lease relationships and the comparability among all companies and organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about lease relationships.

Learning from early adopters and public companies, adoption of these standards can be time-consuming, complex, and expensive. However, it doesn’t have to be. Take a proactive approach to learning and adopting these standards. Begin evaluating the technical accounting challenges and resources needed for implementation now. Assess the standards’ impact beyond general accounting and financial reporting, and then walk through readiness assessment, software selection and analysis, and implementation.

A turnkey lease accounting option can include:

Assistance to identify and analyze leases that are subject to the standard
Delivery of leased asset schedules, journal entries, and comprehensive footnote disclosures
Updated and revised information at future interim or annual periods based on your needs


How we can help


2022 opportunities


As challenges and opportunities continue to evolve and unfold, CLA is here to help. Whether you’re uncertain how to approach COVID relief compliance, looking for help to navigate the current and long-term tax implications, seeking meaningful guidance on workforce or cyber issues, have an eye on your investment strategy, or simply need an advisor to help you focus and prioritize, count on us. Access upcoming webinars, recorded events, and articles that can address these challenges head on. Stay connected with industry-specific content via our CLA industry blogs and email subscriptions.

This blog contains general information and does not constitute the rendering of legal, accounting, investment, tax, or other professional services. Consult with your advisors regarding the applicability of this content to your specific circumstances.

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