About two years ago, Jay Woods’ Omega Accounting Solutions Inc. employed 24, and operated out of a 3,000-square-foot office in Laguna Niguel.
Then business exploded when Woods pivoted to a little-known government credit program. He expects his current headcount of 175 employees to grow to 300 by the end of this year.
Omega’s office space has expanded to 51,000 square feet in Irvine, with the accounting firm subleasing space from Broadcom at the FivePoint Gateway office complex.
“For us it’s a gold rush,” Woods told the Business Journal during an interview at the company’s office on Alton Parkway.
“It’s a little bit like the Wild West.”
Because of the pandemic, the federal government in 2021 began the Employee Retention Credit program or ERC, which provides a refundable tax credit up to $26,000 per employee for businesses that continued to pay employees while shut down due to COVID-19
The ERC program is open to almost all companies under 500 employees, even if they participated in the initial Paycheck Protection Program known as PPP.
Woods predicted sales at his firm will climb from under $80 million last year to $250 million this year. Omega ranked No. 1 on the Business Journal’s list last year for fastest growth among midsize private companies when it reported revenue climbed to $42.7 million for the year ended June 30, a 3,247% spurt from two years prior.
“I guarantee you that we’ll crush No. 1 this year,” he predicted.
Woods, born and raised in Laguna Hills, graduated from California State University, Long Beach with a degree in finance.
During college, he learned firsthand about fast-growing companies from an expert: Anthony Hsieh, who has founded three mortgage companies, including Irvine-based loanDepot Inc. (NYSE: LDI). Woods in 2000 went to work at one of Hsieh’s prior companies, loandirect.com, when it had 40 employees.
“Within 18 months we were 500 employees,” recalled Woods, who has copied Hsieh’s business style of being available to employees. “I’m pretty open door so people know they can come to me with things.”
After a few years working for small accounting firms, Woods took a job as a controller for a roofing contractor who needed help in a new business selling action sports apparel. The small business owner taught a lot to Woods.
“He wasn’t what I expected,” Woods recalled. “He was a very creative long-hair surfer with tattoos who had no business acumen. He was really just a gutsy guy.”
Woods installed an accounting system so that the apparel firm could grow from $500,000 in annual sales to $6 million run rate within 18 months. Then he organized the accounting at a small construction company.
“That’s when it really hit me that I could do this as a business model,” Woods recalled.
In 2007, he bootstrapped Omega Accounting with his own funds, specializing in providing fractional accounting for small business owners. He saw an opportunity between a company’s traditional bookkeeper and its outside CPA who would prepare the taxes. Woods would take deep dives between the top and bottom lines so he could inform the owners about issues like timing of payments.
“Our product was that was, ‘Hey we’re gonna make your accounting process more meaningful than just reconciling your books,’” Woods said. “We’re going to give you an honest reflection of what your business is and that information is meant to empower you make a decision.”
In Omega’s first decade, most clients were referrals with under $50 million in annual sales. Omega didn’t have a marketing plan nor even a website. Woods advised clients how to apply for government credits like research and development, a little-known area that can even small companies can take advantage of.
After Joe Biden became president, the CARES Act was enacted, Woods, who closely tracks government incentives, discovered the ERC incentive.
“I just had the sense to see this would be crazy,” Woods recalled. “Not very many people knew about it.”
Omega built “an assembly line” of employees to analyze whether firms could qualify or not. He charged 10% to 15% of the amount paid by the government, saying companies were happy to pay it because they didn’t know it existed.
“We just figured out how to scale it in a really intentional way.”
He was also one of the early buyers of the word ERC on Google’s search engine. Within 60 days, he went from paying Google $5,000 a month to $60,000 a month.
“What’s unbelievable is that a firm of our size could rank in the top three nationally” on Google, he said.
Nowadays, Omega is advertising in a variety of other areas, including sports-focused websites such as Barstool Sports and more traditional business spots like Bloomberg News.
Traditional accounting firms struggled to compete because they didn’t have employees who understood the application process, Woods said, adding that they would often send him referrals.
“They started referral share agreements where they wanted us to be their partner,” Woods recalled. “That was my first sort of inclination that this would be a huge opportunity.”
When the program ends next year, Woods plans to offer clients other services provided by his accounting firm, such as fractional accounting, R&D tax credit information and loans.
He’s grown from 100 to 5,000 clients and is expanding at a rate of 150 new clients a week.
Omega has signed a six-year lease for its office, last used by chipmaking giant Broadcom for its local operations.
“What happened to us was like a firehose,” Woods said. “Even though the tax credit is going away, we’re confident we can keep growing.”
Is ERC Legitimate?
Radio nowadays is full of advertisements touting the Employee Retention Credit as a way for employers to get up to $26,000 per employee.
The Employee Retention Credit “is not a scam,” Omega Accounting Solutions Inc. says on its website. “The ERC is a legitimate payroll tax credit still accepted by the IRS today.”
However, the website cautioned that there are “many illegitimate ‘ERC mills’ advising businesses to claim credits they may not be entitled to.”
“There are a lot of bad actors,” Omega founder and CEO Jay Woods told the Business Journal.
The way a fraud might work is a company calling itself an “ERC specialist” may collect a company’s documents such as tax records, conduct due diligence and make the calculations.
If the specialist finds a business ineligible for the ERC, that specialist has already invested significant hours for no payment in return.
“Unwilling to take the loss, fraudulent companies will instead claim that you do qualify, without providing the necessary evidence to the IRS,” Omega’s website explained.
Unaware that it really didn’t qualify, a business may get a sizable refund check with the ERC specialist collecting a percentage. However, if the IRS investigates the claim or the company is audited, it could be charged with ERC fraud.
“The IRS has already found a 10% fraud rate,” Woods said. “It’s a very open-ended credit where a company has to decide if it was really impacted by the shutdown orders and if you can you substantiate it to the IRS.”
—Peter J. Brennan