June 2016

Take the Lead on Safety Issues

Posted on June 29, 2016 by Debra Barcuch

Safety First

“Safety First” should be your corporate mantra. Focusing on the safety of your products as you make them can help avoid complaints and litigation, give you a marketing edge and raise the bar for other manufacturers, according to the Consumer Product Safety Commission.

10 Quick Manufacturing Safety Tips

1. Build safety into product design.

2. Test products for all foreseeable hazards.

3. Stay up to date on manufacturing safety developments.

4. Educate consumers about product safety.

5. Track and address your product’s safety performance.

6. Fully investigate safety incidents.

7. Report product defects promptly.

8. If a defect occurs, quickly start a recall.

9. Work with the Consumer Product Safety Commission on any recall.

10. Learn from your mistakes — and others.

The two companies took a proactive approach rather than waiting for an industry standard to address the problem. They developed a method to “pinch-proof” the hinged joints between the doors’ panels. Their leadership challenged other manufacturers to meet the same high standards.You don’t have to be a huge corporation to come up with safety innovations. For example, Martin Door Mfg., a small Salt Lake City firm, and Wayne-Dalton, a larger company in Mt. Hope, OH, were both confronted with a safety issue in the garage doors they made — a large number of crushed or amputated fingers were reported after using their products.

Taking the lead is the key to improving manufacturing safety. There are several steps you can take — even before a problem develops:

Investigate your customer base. Who will use your product? For example, will a ladder hold a 300-pound person painting a house? How about a 350-pound person? If the ladder could collapse under a certain amount of weight, warn the consumer.

Study how customers will use your product. Back to the ladder. Although it may be intended as a means to climb, some people are apt to use two ladders and a plank for makeshift scaffolding. Warn the consumer if a product isn’t safe when it is used in ways you didn’t intend.

Stay informed about product safety developments. For example, stronger materials may become available for the ladder.

Keep up with safety regulations, as well as safety precautions taken by other companies. When the garage door manufacturers realized they had a problem, there were no state or federal regulations regarding it. But both firms recognized that safety made good business sense.

Fully investigate reports of injuries and accidents. A problem could stem from unintended use, but it could also result from a manufacturing or design flaw. An inquiry can help you determine the cause, guide you toward fixing any defect, and let you know whether a product recall of the lot or the entire line is necessary. If a recall is needed, the Consumer Product and Safety Commission will work with you to ensure the plan is effective.

An added benefit: Consumers and the media tend to go easier on companies that police themselves and promptly deal with problems. The media can also get safety warnings out quickly, helping you to avoid future incidents and potential lawsuits.

Seven PATH Act Tax Breaks for Contractors

Posted on June 24, 2016 by Debra Barcuch

Congress 1200px Late last year, Congress passed the Protecting Americans from Tax Hikes (PATH) Act, reviving and extending several key provisions that directly or indirectly affect construction businesses.

The changes help bring more certainty and permanency to year-end income tax planning. They also provide more opportunities to use credits and incentives to ease your company’s tax burden. Here’s an overview of seven PATH breaks to consider:

Section 179 expensing. Under this provision of the Internal Revenue Code, you can choose to currently deduct the cost of qualified property placed in service during the year. For 2016, a generous maximum deduction of $500,000 is permanently preserved and will be indexed for inflation in later years.

When the total cost of the property exceeds $2 million, however, the deduction is phased out on a dollar-for-dollar basis. The $2 million threshold will also be indexed after 2016. Also, the deduction can’t exceed your business income for the year.

This provision gives contractors plenty of leeway. It doesn’t matter when during the year you place qualified new or used equipment or machinery into service. You can wait until late in the year and still benefit from the full year deduction.

Bonus depreciation. The law also provides a complementary tax break for the cost of acquiring business property. For qualified new — but not used — property placed in service during 2016, you can claim a 50% bonus depreciation for any cost remaining after the Section 179 election. Unlike the Section 179 provision, however, bonus depreciation isn’t permanent. It will be phased out under the following schedule:

50% through 2017,
40% in 2018, and
30% in 2019.

After 2019, bonus depreciation will expire, unless it’s extended again.

The PATH Act also enhances bonus depreciation by accelerating the use of alternative minimum tax (AMT) credits that may be claimed in place of bonus depreciation. This increases the amount of unused AMT credits that may be used; modifies the rules to include qualified investment property; and permits bonus depreciation for certain trees, vines and plants bearing fruits or nuts. As with the Sec. 179 deduction, property may be placed in service at year end.

Building improvements. Usually it takes 39 years to recoup the cost of business building improvements, though deductions may be front-loaded under complicated rules. The PATH Act makes permanent a faster straight-line write-off period of 15 years for:

Qualified leasehold improvement property — any improvement to an interior portion of a nonresidential building made more than three years after the building was placed in service,
Qualified restaurant property — any Section 1250 property that’s a building (new or existing) or improvement to a building if more than 50% of the square footage is devoted to the preparation of, and seating for on-premises consumption of, prepared meals, and
Qualified retail improvement — any improvements to an interior portion of nonresidential real estate more than three years after the building was placed in service, as long as it’s a retail establishment where goods are sold to the public.

The ability to claim faster write-offs may spur property owners into contracting with construction companies.

Energy-efficient buildings. The PATH Act extends several incentives for energy improvements. One tax break that may indirectly benefit contractors is the deduction for energy-efficient buildings, which was extended through 2016.

A tax deduction of $1.80 per square foot is available to owners of new or existing buildings who make energy-based improvements either to the HVAC, hot water or interior lighting systems, or the building’s envelope. The modifications must trim the building’s total energy and power cost by 50% or more when compared to certain minimum standards.

In addition, a deduction of $0.60 per square foot may be claimed by building owners where individual lighting, building envelope or heating and cooling systems meet levels that would reasonably contribute to an overall building savings of 50% if additional systems were installed.

The deduction is available mainly to building owners, though tenants may be eligible. This may turn into a good selling point to prospective clients who can claim the tax benefits. But keep in mind that the deduction is currently scheduled to expire after this year.

Work Opportunity Tax Credit (WOTC). A construction company may qualify for a tax credit for hiring workers from several target groups. Technically, the WOTC expired after 2014, but it was reinstated for 2015 and extended through 2019. The PATH Act also added a new target group of long-term unemployment beneficiaries, beginning in 2016.

Generally, the maximum WOTC is $2,400 for each full-time worker from a target group. In addition, if your business needs extra help during the summer, it may qualify for a special maximum credit of $750 per worker for hiring certain youths from empowerment zones or enterprise communities.

Now is a good time to hire workers who will qualify for either the regular credit or the special summertime credit. What’s more, transitional rules allow you to claim the WOTC for qualified workers for 2015. But you must act fast: The deadline is June 30, 2016.

Research credit. This credit generally equals 20% of the excess of qualified research expenses for the year over a base amount. Your construction business may claim a simplified credit equal to 14% of the amount by which qualified expenses exceed 50% of the average for the three preceding tax years.

The PATH Act permanently preserves the research credit with a couple of important enhancements that take effect in 2016:

A qualified small business (one with $50 million or less in gross receipts) may claim the credit against AMT liability, and
A qualified startup (one with less than $5 million in gross receipts) may claim the credit against up to $250,000 in FICA taxes annually for up to five years.

The credit is especially valuable to construction companies that also do design work. Check with your tax adviser to see whether your costs will qualify.

Qualified small business stock. If you invest in qualified small business stock (QSBS) in your company, the tax law allows you to exclude 100% of any gain from the sale of the QSBS after five years as long as certain other requirements are met. This now-permanent tax break is a powerful incentive for contractors to invest in their own businesses. It may also be an advantageous method of securing more working capital from outside investors. (The QSBS tax break isn’t limited to business owners.)

For more information on how your firm can benefit from these tax breaks, consult with your advisers.

Federal Tax News – June 2016 Update

Posted on June 21, 2016July 22, 2024 by Debra Barcuch

1. You can roll over funds from one IRA to another tax-free as long as you complete the rollover within 60 days. But what if you miss the deadline? You may owe tax and an early distribution penalty if you’re under age 59 1/2. The IRS may waive the penalty if there are extenuating circumstances. In one recent private letter ruling (PLR 201617016), the IRS waived the 60-day requirement after a taxpayer failed to roll over the proceeds received from his IRA on time because he was the primary caregiver for his mother. He needed to attend to her daily medical needs and financial affairs. Waivers were also granted to two other taxpayers. In PLR 201621020, the deadline was missed due to mistakes made by the taxpayer’s employer. In PLR 201621022, errors by a financial institution caused the missed deadline.

2. You must PROVE your child is a dependent to claim him or her on your tax return. In one case, the U.S. Tax Court denied a married couple’s dependency exemption deductions for a son who earned very little and lived at home. They didn’t show his age, if he was student, whether he lived with them, if they provided over half of his support during the years at issue, or otherwise establish that he met the tax code’s “qualifying child” tests. The couple also failed to prove that the husband’s father was a “qualifying relative” and could be claimed as a dependent. Although they offered evidence that the father stayed with them, the taxpayers didn’t show they provided more than half of his support or prove that his gross income was below the applicable exemption amount. (Ogamba, TC Memo 2016-105)

3. Attention fit workplaces: Does your business provide extra inducements to encourage employees to participate in a wellness program? Cash awards for partaking in wellness programs must be included in an employee’s gross income. In guidance from the Office of Chief Counsel (CCA 201622031), the IRS stated that an employer’s payments of gym memberships must also be included. And so must the reimbursement of an employee’s cafeteria plan pretax salary reduction used to pay for participation in such a program. (Benefits defined as medical care or other “de minimis” benefits, such as T-shirts, can be excluded.)

4. More scrutiny for museums? Many private museums do “good work,” Sen. Orrin Hatch wrote in a letter to the IRS Commissioner, but the ability for them to receive tax-exempt status may be “ripe for exploitation.” Hatch, chairman of the Senate Finance Committee, said some museums aren’t readily accessible to the public, are often closed and require reservations weeks or months in advance. In addition, their collections mainly come from one donor or family and some museums sit on land owned by the founding donor or are adjacent to the donor’s private residence. These factors alone aren’t cause for revoking tax-exempt status or imposing tax on self-dealing, but Hatch wrote that they raise questions about the donor-museum relationship that “perhaps merit further scrutiny.”

5. Potentially costly ruling for financial services firms. The IRS has ruled that the Financial Industry Regulatory Authority (FINRA) is a “corporation or other entity serving as an agency or instrumentality” of the government. In other words, FINRA is effectively a government agency when enforcing securities regulations. Thus, if FINRA imposes a fine on one of its members for violating securities laws and regulations, it isn’t deductible as an ordinary and necessary business expense. Reason: Tax law bars deductions for fines or similar penalties paid to the government for violating laws. FINRA is a registered self-regulatory organization under the Securities Exchange Act of 1934. It has the authority to create and enforce rules for its members in order to provide regulatory oversight of securities firms that do business with the public. (CCA 201623006)

Heavy Vehicle Purchases Offer Significant Business Tax Breaks…For Now

Posted on June 21, 2016 by Debra Barcuch

Heavy Vehicle Business Tax Breaks

Favorable depreciation rules for business use of “heavy” SUVs, pickups and vans were locked in by the Protecting Americans from Tax Hikes (PATH) Act of 2015. By taking advantage of these rules, you may be able to write off the entire business-use portion of a heavy vehicle’s cost in the first year. Here’s how it works.

Depreciation Deductions for Lighter Vehicles

The PATH Act extended 50% bonus depreciation for 2016 and 2017, thereby increasing the maximum first-year deduction for new (not used) vehicles with GVWRs of 6,000 pounds or less. Even so, the deductions for lighter vehicles are much less than those for heavy vehicles. Here are the maximum annual depreciation deductions for lighter vehicles used 100% for business. (Deductions for less-than-100% business use are proportionately reduced.)

New Cars Placed in Service in 2016

Year 1	$11,160 (including $8,000 bonus depreciation)
Year 2	$5,100
Year 3	$3,050
Year 4 and beyond	$1,875 (until full cost is recovered)

Used Cars Placed in Service in 2016

Year 1	$3,160 (no bonus depreciation allowed)
Year 2	$5,100
Year 3	$3,050
Year 4 and beyond	$1,875 (until full cost is recovered)

New Light Trucks and Vans Placed in Service in 2016

Year 1	$11,560 (including $8,000 bonus depreciation)
Year 2	$5,700
Year 3	$3,350
Year 4 and beyond	$2,075 (until full cost is recovered)

Used Light Trucks and Vans Placed in Service in 2016

Year 1	$3,560 (no bonus depreciation allowed)
Year 2	$5,700
Year 3	$3,350
Year 4 and beyond	$2,075 (until full cost is recovered)

Heavy Vehicle Depreciation Business Tax Breaks in a Nutshell

The business portion of the cost of your heavy vehicle is first reduced by the Section 179 deduction. If the vehicle is classified as an SUV under the tax rules, the Sec. 179 deduction is limited to $25,000.

Heavy non-SUVs — such as long-bed pickups and vans — are unaffected by the $25,000 limit. For those vehicles, you can often write off the entire business-use portion of the cost in the first year under the Sec. 179 deduction privilege. Importantly, pickups with cargo beds that are at least six feet in interior length aren’t classified as SUVs. (Pickups with shorter beds are treated as SUVs, however.)

Second, you can claim the first-year 50% bonus depreciation deduction, which is allowed only for new (not used) vehicles. Finally, the business-use portion of the remaining cost (if any) is depreciated under the “regular” depreciation rules. In the first year, the regular depreciation rate is usually at 20% for vehicles.

Important note: The generous first-year depreciation deduction rules explained in this article are available only for vehicles used more than 50% for business.

Case in Point

Here are a couple of examples to show how these favorable tax breaks can add up.

First, suppose you buy a new $50,000 heavy SUV before year end. It’s used 100% in your sole proprietorship business. Because the vehicle is an SUV, the Sec. 179 deduction is limited to $25,000. So, the first-year depreciation would be a whopping $40,000, including the following elements:

1. $25,000 Sec. 179 deduction,

2. $12,500 bonus depreciation (half of the remaining purchase price after the Sec. 179 deduction), and

3. $2,500 regular depreciation (20% of the remaining purchase price after the above two deductions).

The first-year deduction of $40,000 will reduce both your federal income tax bill and your self-employment tax bill. In some (but not all) states, you also may be eligible for a generous state income tax deduction.

Alternatively, suppose you buy a new $50,000 sedan and use it 100% for business. With this smaller vehicle, your first-year depreciation write-off would be only $11,160. For a new $50,000 light truck or light van, your first-year write-off would be only $11,560.

What if you purchase a used vehicle instead of a new one? You can still claim the $25,000 Sec. 179 deduction, but you’re not eligible for bonus depreciation. Regular depreciation would be $5,000 (20% of the remaining $25,000 of the purchase price after the Sec. 179 deduction). In this case, your total first-year depreciation deduction would be $30,000.

Now, let’s suppose you buy a heavy pickup with a long bed for $50,000. This vehicle isn’t subject to the $25,000 Sec. 179 deduction limitation. For federal income tax purposes, you can generally deduct the entire cost of this vehicle on this year’s tax return under Sec. 179. Moreover, the pickup can be either new or used.

In contrast, if you buy a used $50,000 sedan, your first-year depreciation write-off would be only $3,160. For a used $50,000 light truck or light van, your first-year depreciation write-off would be only $3,560.

Examples of Heavy Vehicles

The Sec. 179 deduction and bonus depreciation deals are available only for an SUV, pickup or van with a manufacturer’s gross vehicle weight rating (GVWR) above 6,000 pounds that’s purchased (not leased). Fortunately, quite a few vehicles qualify for the “heavy” SUV label, including:

Buick Enclave
Cadillac Escalade
Chevy Tahoe
Dodge Durango
Jeep Grand Cherokee

Most full-size pickups — including Nissan Titans, Toyota Tundras and Dodge Rams — also qualify. A vehicle’s GVWR can usually be found on a label on the inside edge of the driver’s side door. The IRS has confirmed that heavy SUVs qualify for the aforementioned depreciation tax breaks whether they are built on a truck chassis or an auto chassis. So, heavy cross-over vehicles also qualify for this favorable tax treatment.

Potential Caveats for these Business Tax Breaks

The favorable depreciation rules for heavy vehicles come with limits. Here are some common caveats you should be aware of:

1. The Sec. 179 deduction can’t exceed the taxpayer’s aggregate net business taxable income before the Sec. 179 write-off. If you operate your business as a sole proprietorship, or as a single-member LLC treated as a sole proprietorship for tax purposes, you can count any wages that you may earn as an employee as additional business income. If you’re married and file a joint return, you can also count your spouse’s earnings from employment as well as any self-employment income that he or she may earn.

2. Special rules apply if you operate your business as a partnership, multimember LLC or corporation. Consult your tax adviser about how to take full advantage of the depreciation breaks for heavy business vehicles in your situation.

3. In the five tax years following the year that you put your heavy vehicle into service, the business-use percentage must continue to exceed 50%. Otherwise, you run afoul of “recapture” rules that will force you to add back some previous depreciation write-offs into your taxable income. To fully cash in on the available depreciation breaks, you must commit to using the vehicle over 50% for business for the first six years.

4. For 2016, the maximum Sec. 179 deduction is $500,000, subject to a $2,010,000 phaseout threshold. These amounts are now permanent and subject to inflation indexing under the PATH Act.

Quick Action May Be Advisable

As things stand right now, the favorable business vehicle depreciation rules outlined in this article are “permanent” features of the Internal Revenue Code. But nothing is permanent when it comes to taxes. Depending on how the upcoming elections turn out, less favorable rules could apply in the future.

Additionally, under the PATH Act, bonus depreciation is scheduled to be reduced to 40% in 2018 and 30% in 2019 before it expires on December 31, 2019. So, it’s a limited time offer that will gradually decrease and expire, unless Congress takes further action.

For these reasons, it might make sense to buy your vehicle this year and place it in service before year end. That way, you can lock in the valuable first-year depreciation breaks. However, consult your tax adviser before signing the paperwork to make sure you’re not affected by the fine print in the tax code that can limit depreciation write-offs.

Minimize FMLA Abuse

Posted on June 20, 2016 by Debra Barcuch

FMLA Fraud, FMLA Abuse

The Family and Medical Leave Act (FMLA) protects jobs when employees need extended time off because of their own or a family member’s health problems.

Who Qualifies for FMLA Leave

Employees are eligible for FMLA leave if they worked for a covered employer for at least 12 months and at least 1,250 hours during that time. The months do not have to be consecutive, but work periods before a break in service of seven years or longer don’t have to be counted unless:

1. The break is to fulfill a National Guard or Reserve military obligation, or

2. There is a written agreement stating the employer’s intention to rehire the employee after the break.

There are restrictions on family leave when spouses work for the same employer. Leave is limited to a combined total of 12 weeks for the birth and care of a newborn child, placement of a child for adoption or foster care, or to care for a parent. Leave for a birth or placement must end within 12 months.

To help prevent such abuses, the law allows you, as an employer, to insist that employees supply medical certifications verifying the seriousness of their conditions. The Labor Department regulates both the process you must follow and the information you can request when asking for certification.The law allows employees as many as 12 weeks of unpaid medical leave in any 12-month period to take care of qualifying medical conditions. While in most instances these leaves are legitimate, there are employees who try to take advantage of the system.

Generally speaking, a health care provider must attest that the employee or a qualifying family member has an illness, injury, impairment or physical or mental condition that involves one of these two conditions:

A period of incapacity or treatment that requires overnight stays in a hospital or residential medical care facility, or

Continuing treatment that causes incapacity, such as:

A treatment and recovery lasting more than three consecutive days. There must either be two or more treatments or one treatment followed by a regimen such as prescription medications or physical therapy.When there is more than one treatment, the first must occur within seven days of the day the employee becomes incapacitated. When there are two treatments, both must occur within 30 days of the incapacitation.
Pregnancy or prenatal care (a visit to a health care provider is not necessary for each absence).
A chronic health condition that continues over an extended period and requires at least two visits a year to a health care provider. This may include such episodic conditions as asthma or epilepsy and does not require a visit to a health care provider for each absence.
Permanent or long-term conditions for which treatment may not work and that require supervision by a healthcare professional. This includes such conditions as terminal cancer, Alzheimer’s disease or a stroke.
Restorative surgery after an accident or injury, or conditions that would likely result in incapacitation for more than three days if not treated, such as radiation or chemotherapy for cancer or dialysis for kidney disease.

The Certification Process

If you require certification, employees must provide it within 15 days. As an employer, you must:

Use either the Labor Department’s WH 380 Certification of Health Care Provider forms or devise your own. If you use your own, you cannot ask for more information than the government forms require.
Ask for certification within five business days after the leave request or after the start of the leave if it was unforeseen.
Tell employees that you can deny FMLA leave if the certification is incomplete, insufficient or unclear.
Give employees a written notice of the problems with the certification and allow seven calendar days to fix them.

In some cases, the employee’s medical condition may be considered a disability under the Americans with Disabilities Act (ADA). In such situations, information obtained through ADA procedures may be used in the FMLA leave determination.

You can directly contact the employee’s medical provider for clarification through a health care provider, human resources professional, leave administrator or management official. The employee’s direct supervisor, however, cannot contact the provider for clarification.

You may require annual certifications if an employee’s need for FMLA leave lasts longer than a year. And you may ask for certification at a later date if you doubt the appropriateness or duration of the leave.

FMLA leave is an entitlement, but it can be abused. Talk to a professional about these and other procedures that can help prevent misuse of the law and cut the unnecessary costs and workplace disruptions that can stem from illegal, lengthy absences.

Enhanced MEP Program May Offer More Help to Your Business

Posted on June 17, 2016 by Debra Barcuch

MD Blog Pic Manufacturers may get an additional boost from a beneficial program that helps small and medium-sized companies.

The Hollings Manufacturing Extension Partnership (MEP), a program run by the U.S. Department of Commerce, would be expanded and strengthened by the MEP Improvement Act. This legislation was recently introduced in Congress and is widely thought to have a good shot of enactment. If passed, the bipartisan act would:

Permanently adjust the federal MEP cost share to one-to-one,
Strengthen and clarify the review process MEP centers use,
Authorize centers to support the development of manufacturing-related apprenticeships, internships and industry-recognized certification programs,
Increase the program’s funding level to $260 million a year through 2020, and
Require the program to develop open-access resources describing best practices for small manufacturers.

Top Shelf Endorsements

The bill has been endorsed by some high-visibility entities, including:

Information Technology and Innovation Foundation
American Small Manufacturers Coalition
Alliance for American Manufacturing
Honda North America
Association for Manufacturing Technology
National Council for Advanced Manufacturing
Manufacturing Skill Standards Council.

MEP is built on a nationwide system of service centers that are partnerships between the federal government and a variety of public or private entities, including state, university and not-for-profit organizations.Since its inception in 1988, MEP has focused on strengthening the U.S. manufacturing sector. The program’s power lies in its partnerships. Through collaborations with federal, state and local entities, it puts manufacturers in position to develop products and customers, expand globally and adopt new technology.

Return on Investment

Although MEP’s strategic objective is to create value for all manufacturers, it concentrates on small and mid-sized enterprises (SMEs). These account for nearly 99% of manufacturing firms in the United States.

The program has delivered a high return on investment (ROI) to taxpayers. For every dollar of federal investment, MEP generates $17 in new sales growth and $24 in new client investment, according to the program’s website.

MEP’s partnerships are expanding in response to rapidly changing global dynamics. The program has established relationships with diverse organizations. MEP centers also increasingly support government initiatives launched to strengthen U.S. manufacturing. Some of the program’s specific objectives are:

Educate local and regional partners on SME needs and causes of behavior,
Connect manufacturers to other programs and services offered by partner organization,
Identify firms that are interested in a particular technology, as well as informing information technology developers about manufacturer’s technology needs, and
Support workforce development programs.

Examples of Success

Here are two examples of how MEP has worked in action:

The exporter. One family-owned business in Wisconsin made standard products for metal fabricators and produced custom products, primarily for handrails. The organization exported some of its products and was able to increase export sales by connecting with the local MEP center and participating in three monthly training sessions, as well as coaching and assistance between the sessions.

Through this program, the exporter joined a group of noncompeting firms that worked together to create an exporting strategy to tap into new markets. The company was able to increase export sales 40% a year and expanded its reach from two to 16 countries.

The device maker. A North Carolina company designed and made high-performance radio frequency systems and solutions for applications that drive wireless and broadband communications. It enlisted the help of an MEP center to provide onsite training on Six Sigma and lean manufacturing principles. Participants were given real-world projects to continue working on after training was complete. The training helped management improve inventory controls and final product test efficiency, resulting in multi-million dollar cost savings.

Continued Challenges

Manufacturers face constant pressure to cut costs, improve quality, meet environmental and international standards, and “go to market” faster with new and improved products. At the same time, new opportunities are constantly beckoning.

As you try to keep pace with accelerating and emerging changes, consider taking advantage of the valuable resources MEP offers. If the MEP Improvement Act passes, the program’s role in the American manufacturing sector is likely to become even more critical.

A Strategic Plan Should Also Include a Succession Plan

Posted on June 13, 2016 by Debra Barcuch

Succession Planning and Strategic Planning

Many small businesses prepare — and regularly update — a strategic plan, but many overlook this important task.

Whether your business falls into the “have” or a “have-not” category, a strategic plan can be an invaluable resource to help your company accomplish its ultimate objectives. And part of this process involves having a succession or exit plan.

The Anatomy of a Strategic Plan

First, let’s review some basics about strategic planning. Fundamentally, it is an activity that helps:

Set priorities;
Focus energy and resources;
Strengthen operations;
Ensure that employees and management work toward common goals;
Establish agreement around intended outcomes; and
Adjust direction as the business environment changes.

The best way to start is to skip to the ultimate goal: What do you want your business to accomplish? This amounts to your company’s mission statement. Once that is clear, flip the process around to the beginning and ask: What steps will help my company achieve its goal(s)?

You don’t need a large number of goals in a strategic plan. You could have ten or more, but you also may have only four or five. For a strategic plan to have the most impact, the goals should be clear and concise. Setting goals outlines the course your business will take. If the goals miss the mark, other efforts will probably be useless.

Once you set the goals and management is on board, you must set objectives for reaching each goal. Objectives are rather broad in nature and should be concise. They guide employees toward making decisions that are in line with helping your business achieve its goals.

Under each objective list a series of action steps. These are more specific than the objectives they support and should note who is responsible for the action and when it should be completed.

The final step is to regularly evaluate the status of each action step, noting:

When it is completed;
Whether it resulted in reaching the objective; and
If the cumulative completion of objectives resulted in reaching the goal.

There are many variations to this scheme, but this is a common format in strategic planning. Keep in mind that goals are likely to change over time to account for the economy, the industry and other factors involved with the business.

A Road Map for Succession

Developing a succession plan should be a part of your strategic plan. Successful succession is one of the most important goals for any business. Other goals might deal with profitability, expansion or operational issues, but none is more important than succession. Think about it — is any other goal genuinely valid without a road map for succession?

A succession plan or exit strategy typically begins by establishing a team to focus on it. While the team will deal with the broad issues of the strategic plan, it will not be involved with how that plan is accomplished. Instead it focuses on the steps needed to position you and your partners for the ultimate succession. This may include assessing health issues — especially related to senior managers.

In effect, the business will get its marching orders from the succession planning or exit strategy team. That is where the business and its managers take the ball and kick it across the goal line. All existing goals should be reviewed to ensure they support the overarching succession or exit goal.

It is often helpful to have a facilitator. Your CPA is likely to be on the succession planning team and is often a good choice to play this role.

Small Business Recordkeeping

Posted on June 9, 2016July 23, 2024 by Debra Barcuch

When starting a small business, taking the time to set up your recordkeeping system properly, right from the beginning, will save you time and money down the road — and could make the difference between success and failure.

Certified public accountants (CPAs) are experts in small business finance including taxes, financial reporting, business advisory, personal financial planning as well as bookkeeping and payroll processing.

According to CPAs, good recordkeeping preparation and planning can:

Make tax preparation easier. Back-up documentation may save you taxes, interest charges and penalties if the Internal Revenue Service (IRS) ever questions your return.
Allow you to comply with multi-state taxes, such as sales taxes (including internet sales) and payroll taxes.
Give you a better handle on your overall financial position, how your business is performing and help your CPA identify financial and tax planning opportunities.
Create efficiencies throughout the business by spending less time locating documents and information.
Provide your successor with a roadmap to your financial affairs if you die or become incapacitated.

BASIC CONSIDERATIONS

One of the first things you will need to determine is whether to use a traditional paper filing system, an electronic filing system or a combination of the two. You should carefully consider the pros and cons of each type of system in light of your business needs and resources.

CONVENIENCE AND FLEXIBILITY

To keep up with your recordkeeping, it’s important to build a system that is convenient. Electronic records are very easy to transport. You can move the equivalent of boxes of paper documents with the click of a mouse via encrypted email or a secure portal. When stored in the Cloud or a secure portal, you can work on them from home, the airport or the beach. CPAs work with both electronic and physical records, but your CPA will have specific recommendations due to the requirements for business recordkeeping in your state and/or within your industry. Be sure to consult with your CPA to find the recordkeeping system that best suits your needs.

RELIABILITY

Paper files are extremely reliable, provided you follow documented protocols for setting up and maintaining them. They are not susceptible to server failures or power outages. Nor are they dependent on the ongoing support of a systems vendor. Paper files, however, are susceptible to floods, fires and other natural disasters. It’s difficult and costly to maintain redundant backups of paper records. Although electronic media can also be easily damaged or destroyed, redundant backups are generally easily made and recovered.

SECURITY AND PRIVACY

Identity theft, fraud, privacy law violations and numerous other crimes have been enabled by electronic recordkeeping systems. Even some of the most sophisticated electronic security systems have been compromised. As a business owner you have a responsibility under multiple laws and regulatory bodies to protect the confidentiality and security of your customer’s records. Electronic records can be kept secure when proper measures are taken to protect privacy, but this is an entirely different process from keeping filing cabinets locked and installing an office security system. Because you are legally responsible for your data, you should NOT depend solely on your electronic recordkeeping systems vendor to ensure the security of your electronic records.

STORAGE

When it comes to storage, electronic files clearly have the advantage. The longer you’re in business and the more you grow, the more burdensome the space requirements for paper records. Many businesses resort to offsite records storage both to save space and to mitigate the risk of records being destroyed. At some point, paper records typically need to be shredded, which is labor intensive and costly.

COSTS

The cost of electronic record storage has become highly affordable compared to traditional paper-based systems. Some original documents should still be kept in paper copies, but the vast majority can be digitized.

FILE LOCATION AND ACCESS CONTROL

Although your filing system will need to be tailored to meet the needs of your specific business, the following elements can help you avoid common pitfalls.

STANDARD PROTOCOL

When it comes to filing, almost everyone has his or her own ideas about how they’d like to see the files organized. If left unchecked, one person’s innovation soon becomes another’s frustration. Set a standard protocol for every type of file, then teach, monitor and enforce it.

CENTRAL LOCATION For security and emergency purposes, keep all files in one central location that can easily be accessed without being dependent on a single person. The same principle applies to electronic files, which should be kept on a shared server or Cloud provider’s system rather than on an individual’s PC workstation.

LIMIT ACCESS

Access to files should be limited to only those who have a specific business purpose for doing so and security protocols should be set up accordingly. An advantage to most electronic recordkeeping systems is that a date and time stamp log is automatically generated each time a user accesses a file. If you implement an electronic system, you should periodically review access logs and follow-up on any unusual activity.

SAFE DEPOSIT BOX

Documents that are difficult or costly to replace should be kept in a safe deposit box. Your safe deposit box should hold any records of ownership such as deeds and titles and original business documents such as articles of incorporation, corporate resolutions, bylaws, partnership agreement, minutes from annual meetings, loan documents and so on. Because access to your safe deposit box could be delayed in emergency situations, keep copies in a clearly marked paper or electronic file. Additional copies should be held by your attorney.

FINANCIAL OVERVIEW

With your recordkeeping system in place, prepare a procedures manual explaining it for employee training purposes and in case someone outside the business needs access due to a long-term illness or other emergency. Be sure to include the location of important documents as well as insurance policy information. You should also list bank and investment accounts, as well as all credit accounts with account numbers. Also, you should list information on other debts, including mortgages and loan documents. Give a copy of this manual to trusted family members, your attorney, CPA and trustees, if any.

Setting Up Your Bookkeeping System

Your instinct may be to just set up bookkeeping system “from a box” of purchased software or from the Cloud. However, before you set up your system, you’ll want to talk to our team of CPAs about purchasing software that is right for your type of business and easy to use.

Your CJ CPA can help you design the proper chart of accounts that will give you key information on your business and will save you time in the long run. If you plan to manage your books in-house, making the investment in a system that works with that of your CPA could prove to be more strategic when seeking advice and easier when it comes to closing the year end, generating financial reports and filing income tax returns.

Guide to Small Business Recordkeeping

To download the Guide to Small Business Recordkeeping, which includes a list of what documents your business must keep and for how long, click here.

Keep Production Lines Efficient

Posted on June 7, 2016 by Debra Barcuch

conveyor line

It’s a build-to-order manufacturing environment and that means frequent changeovers in your production line. And each time you make changes to produce a new item, you suffer significant downtime. But there may be ways to shave time off those non-productive periods. These four suggestions have proven to buy manufacturers time and keep production lines efficient:

1. Measure setup time. It should be a key metric in batch-driven processes. If you’re not establishing goals and monitoring setup time, it can get away from you.

2. Mimic NASCAR. One company occasionally stops production to hold a contest, putting together “pit crews” to see who can set up a machine the fastest. The winning team’s time becomes the new goal. Winners get bragging rights.

3. Think Japanese. Manufacturers in Japan are known for their efficiency and ability to make quick changes. One of the techniques they use is Kaizen. Assemble a team that cuts across disciplines and spend three to five days tackling a process improvement problem. For example, one company had a team reconfigure work and storage areas. It reduced setup time from 6 hours to 40 minutes.

Several factors contribute to Kaizen success:

Holding the event elevates the problem to priority level.
Include people on the team who have no production experience, along with those who do. This improves the problem-solving process.
Follow the Kaizen event outline.
Set the expectation that the team will make a major achievement in a very short time.

4. Consider another Japanese method.Japanese industrial engineer Shigeo Shingo developed the “Single Minute Exchange of Dies” process for Toyota as an essential component of just-in-time manufacturing. He maintained that most approaches to reducing setup time limit their success by focusing on improving employee skills rather than on making changes in the process that lower the skills needed. Shingo describes how to implement SMED in his book, A Revolution in Manufacturing:

Analyze the production system thoroughly and the role setup plays in that system.
Study the internal setup, or those processes that can be carried out only when the machine is idle, for example, changing dies.
Study external setup, or those processes that can be carried out while the machine is running, such as transporting dies or checking availability of materials.
Determine how internal setup can be converted to external setup, thus streamlining the entire process.

Lean Material Stocking

Instead of trying to trim retooling time, try eliminating it with a lean material stocking system.

An established principle of time management is to handle each piece of paper just once. It’s rare to achieve that efficiency, but aiming for it makes you think about unnecessary steps. Applying that principle to parts and maintenance, compare these two scenarios of the typical route from delivery to production:

Before the lean method:

Shipment arrives.
Parts are stocked until needed for production.
Parts are assembled into kits and sent to production.
The parts are ready for production when needed.

After the lean method:

Shipment arrives.
Parts are sorted and sent to carts holding bins labeled for each part number.
When production is ready, the cart is moved to the job.

What the lean material stock system does:

Eliminates the labor-intensive steps of storing, locating and retrieving materials and assembling kits.
Provides visual inventory control, because by looking at a bin, you can see if a part is in short supply.
Offers just-in-time capabilities. Almost as soon as materials are received, they are ready to be used in production.

The best changeover is no changeover. Look at ways products can be redesigned to share more of the same parts. Moreover, if you’re running small batches of similar products, you might be able to avoid changeover by taking some processes offline.

Builder’s Risk Insurance: What You Need to Know

Posted on June 2, 2016 by Debra Barcuch

Builder's Risk Insurance:

Builder’s risk insurance provides protection for a structure that is damaged during construction. These policies are usually broad. In fact, the coverage is generally extensive enough to include construction equipment and machinery, as well as materials, fixtures and appliances – all vital parts of a completed structure. It can also cover temporary structures, such as office trailers, on a project site.

If a loss occurs, the insurance company will pay to repair the damaged property. However, keep in mind that the coverage is limited to losses that are clearly specified. Claims must fall within the policy’s definition of “covered property.”

Here are some basic features of a typical builder’s risk insurance policy:

Most buildings can be underwritten including condominiums, dwellings, warehouses, office buildings, shopping centers and farm structures.
A policy can be issued to the building owner, the contractor, or the owner and contractor jointly.
The coverage continues until the insured party’s interest in the property ends, the building is sold, or the policy expires, whichever happens first.
For an additional premium, some policies extend coverage beyond the expiration date. However, the general rule is that unless the policy expressly states otherwise, coverage ends when the building is either wholly or partially occupied, it has been put to its intended use, or 90 days after construction is completed.

This type of extensive coverage can be expensive, but there are factors that can mitigate the premiums. Here is a rundown of how the rate for a project is typically determined:

The carrier begins with the type and quality of the construction. Although any kind of building can be covered, those made of concrete and steel receive a lower rate because they have greater resistance to damage.
The carrier considers the type of materials the builder intends to use and the overall quality of the final product. These factors are matched against computerized rate tables to determine the premiums.

Your company can qualify for further discounts by providing security measures such as good lighting and fences around construction sites. If the property is in a particularly high crime area, the carrier may require that your company provide a security guard and possibly a guard dog before a policy is issued.

Premiums can also be affected by whether there are sprinklers in the building and there is sufficient access for fire fighting equipment to reach the site. The insurer may even look at adjoining properties: Do they pose a risk to your structure? And are there natural risks involved, such as high wind or brush close to the building?

Although a great deal of consideration is placed on tangible factors, such as those listed above, there are also intangible concerns that can affect how an insurer determines premiums. The experience, training and supervision of personnel, the builder’s expertise, and the subcontractors might be taken into account, especially when the policy is for a large-scale construction project.

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