Case Study: Social Fulcrum Tax

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

Social Fulcrum is a digital advertising agency based in Boston, MA, focused on large-scale Facebook and Instagram direct-response media campaigns for retail and B2C ecommerce brands. Social Fulcrum is also a Facebook API software developer and certified Facebook Marketing Partner. Using their extensive in-house data, proprietary software tools, and deep Facebook platform expertise, Social Fulcrum is able to rapidly scale campaigns for clients.

The company has experienced immense growth over the past few years and has been named to the Inc. 500 list of fastest growing companies two years in a row. In addition, Social Fulcrum was recently named a Top 15 Facebook Advertising Company by Clutch and a Top 20 Social Media Marketing Agency by Agency Spotter.

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.”

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 this plan, revenue was disproportionately higher in comparison to the related expenses. While reviewing the balance sheet, SmartBooks also noticed that there was a large cash balance in Social Fulcrum’s bank account due to a prepayment from a client for media expenses. This analysis revealed that the pass-through income for shareholders in this scenario would have been significantly overstated. 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.

Social Fulcrum saved approximately 15 hours per week and over $100K of both direct and indirect costs associated with doing their bookkeeping and accounting in the first year alone. SmartBooks freed up a lot of Andrew’s time that he could then use to focus on growth and managing the business. With SmartBooks, Social Fulcrum was able to look at capacity per employee and other metrics which were important to optimizing their business and profitability. Having accurate information and reporting has enabled rapid decision making and supported the company’s growth.