December 2016

When a Product Must Be Recalled

Posted on December 29, 2016 by Debra Barcuch

By law, all manufacturers, importers, distributors and retailers must notify the Consumer Product Safety Commission (CSPC) if they obtain information that reasonably supports the conclusion that a product:

Fails to meet mandatory consumer product safety standards.
Contains a defect that could create a substantial hazard to consumers.
Creates an unreasonable risk of serious injury or death.

Under the Consumer Product Safety Act, companies must immediately contact the CPSC if they have such information. How does the government define “immediately?” As a general rule, you file a report within 24 hours.

When hazards are discovered, the most common remedy involves a product recall. This can take the form of a repair, a refund or a replacement of the dangerous product. Regardless of the remedy, companies need to be aware of the four major steps involved in the recall process:

1. Investigating the potential risk.

Once a report is filed, the CSPC investigates to determine if the defect poses a substantial product hazard. However, the agency also has a “Fast Track Product Recall Program,” that can be used if a company implements a satisfactory consumer-level voluntary recall within 20 days. Consult with legal advisers about the best route to take.

2. Halting production and notifying retailers.

While each recall is different, manufacturers must generally identify defects, stop production of the defective items and isolate any existing inventory that needs to be recalled. Once this is accomplished, it is necessary to determine an appropriate remedy after consulting with CPSC staff. Manufacturers must also notify retailers and supply adequate information to make it easy for them to isolate the items in their inventories and stop sales in their stores.

3. Implementing the recall.

Retailers bear much of the burden of implementing the actual recall since they are generally the primary link between the manufacturer and the consumer. Manufacturers must provide support so that retailers can accurately and completely track the recalled items and ensure that no more sales are made. In addition, retailers are often called upon to help track down consumers of recalled products and provide refunds, repairs or replacements.

4. Getting the word out to the public.

This is perhaps the most important aspect of a recall. Depending on the circumstances, the CPSC may require a number of notification methods. For example, setting up toll-free phone numbers for customers, sending out press releases and video news releases, arranging in-store displays and posting website warnings. No matter how consumers are informed, the warnings must be clear and unambiguous.

Which healthcare technologies can support compliance as well as practice management?

Posted on December 27, 2016July 23, 2024 by Debra Barcuch

Of course, medical practices are also in business to provide a living for the doctors and staff. Small practices are especially burdened by administration and compliance reporting. It’s important to look for solutions that streamline data collection, but also methods to automate or outsource analysis and reporting.

What we typically see in smaller independent medical practices — on average with 20 or fewer practitioners — is no different than what occurs in other small businesses. The physicians wear many hats to oversee the business and to serve patients. They will hire part-time staff in scheduling and bookkeeping to book-end the practice delivery. A patient gets scheduled, treated and sent a bill.

Well, it used to be that easy.

Federal law and insurance companies have made the business of physician compensation very complex. In order to get paid, practices must jump through many hoops to be considered a preferred provider, agreeing to reduced fees for service, adopting specific systems to monitor patient outcomes and reporting on those outcomes. One of the more recent laws, the Medicare Access and CHIP Reauthorization Act (MACRA), has analysts questioning whether the requirements will lead to more small medical practices selling to large hospital systems in the coming years.

The Centers for Medicare & Medicaid Services (CMS) has been fairly responsive to easing the transition of small practices into the system by 2018. Their vision, however, is for as many as 125,000 physicians to participate in Alternative Payment Models (APMs) by 2018. Medical groups that have half-heartedly adopted EHRs or used them inconsistently to report on quality measures may be challenged to adjust to certified EHRs and updated quality measures.

The bottom line is that practices can no longer rely on a few staff internally to run their practices efficiently and comply with external forces. Practice management systems can help to streamline insurance submissions, accounting, billing, payroll and reporting. There are many practice management software solutions available to practices today, and it’s important that these systems are cost-effective, user friendly and compatible with other systems in the practice.

Several back office functions can also be outsourced to professionals who specialize in them, including human resources, payroll administration, performance management and even recruitment. Also, there is IT support, legal expertise and medical billing. The right vendors will be efficient and pass along savings through fewer errors, a third-party perspective on best practices and healthier accounts receivables.

Take payroll. Keeping up with changes in payroll compliance and customized employee elections can be a time-consuming and costly undertaking in-house. The best outsource payroll providers will identify opportunities for greater security and efficiency such as employee self-serve online portals to download pay stubs or personal tax information.

Perform a cost-benefit analysis of any function you are considering for outsourcing. Tally up the salary and benefits of a full-time equivalent employee to do the job correctly as well as the cost of system upgrades, training, supplies and office space. Then look at the percentage a vendor will charge to do the function for you. A good billing company, for example, can reduce accounts receivable of more than three months old below national benchmarks provided by the Medical Group Management Association. Compare accounts receivable in your practice now to national benchmarks to determine if outsourced bookkeeping could be a hidden source of cash flow — especially if the billing company chosen uses certified medical coders to appropriately code the practice’s work.

What other technologies increase health practice productivity?

Although it’s not usually what most practitioners prefer to focus on, the business bottom line is a huge concern — whether practices remain independent or have M&A as part of their growth or succession plans.

The right key performance indicators (KPIs) may vary by practice, but in general a dashboard program that outlines KPIs can be very effective for practice owners to get a baseline of health for their practice and to discuss areas for improvement.

The best dashboards offer:

12-24 critical core performance indicators that match top organizational goals
Information organized for quick and easy comprehension
Integration with daily practice management and culture, so that individual physicians get into the habit of monitoring KPIs.

According to a presentation by QHR Learning Institute, one of the biggest sources of practice loss is productivity levels vs. compensation — accounting for 59% of practice losses.

Therefore, it’s not a surprise that the majority of KPIs will fall into the revenue cycle. As measurable indicators, KPIs can include, but are not limited to:

Gross charges
Net charges
Gross/Net collection percentages

Work Relative Value Unit per provider (wRVU)
Charges per wRVU
Collections per wRVU

Accounts receivable aging overall and over120 days
Charge entry lag
Days in accounts receivable by payor
Denial rate by payor

Self pay balances
Bad debt write-off

Patient encounters per day
No show rates
New patients as a percentage of total visits

KPIs like these will ultimately answer the question: Is this a profitable practice? If the answer is no, there are certainly areas for improvement that can be monitored and measured through a focus on KPIs. For example, a focus on wRVUs per provider will show true work output of each provider and create an opportunity for setting productivity goals. It can also pinpoint real barriers to productivity. Without the baseline measurement, however, physicians won’t know if they need to boost productivity or if perhaps the practice is underpricing services.

Tracking wRVUs can also tie into appropriate physician compensation measured against national benchmarks, and if the practice needs to hire more staff.

KPIs can also bring to light operational inefficiencies that make a big difference on cash flow. Tracking “charge entry lag” can show how soon charges are entered into the system after the date of service. The management team will quickly see that a lag of 3 days can lead to a lag on A/R and cash flow over time.

Best practices dictate that KPIs are reviewed weekly to help practices make improvements over the short-term. This diligence avoids long-term impact on profits. By the time quarterly financial reports come out, it is too late to make adjustments and you have little more than a historical record to file under “missed opportunities.”

Physician Shortages Tied to Cost vs. Compensation

It is no secret that the cost and time to obtain a medical license is less attractive than it used to be. The guarantee of a healthy salary to offset college expenses just isn’t there anymore. The American Association of Medical Colleges projects a 17 percent increase in demand for physicians through 2025, despite higher use of non-physician clinicians, greater use of alternate care settings, delayed physician retirement and changes in payment and delivery systems. Addressing the shortage, AAMC advocated for greater use of technology and more efficient use of physicians and care teams.

Current and future physicians and dentists overall need to recognize the increasing impact of the business of medicine on their practice, but also on their own health and wellbeing. Alarming rates of physician burnout are only adding to the challenges in the industry. It doesn’t necessarily mean that medical students should add more business and finance courses to their demanding curriculum. Like any smart professional, they can leverage technological and outsourced support.

Cornwell Jackson’s Business Services Department offers a wide range of outsourced financial services to serve small medical and dental practices — including outsource payroll processing and solutions to improve cash flow and productivity. While you focus on care outcomes of your patients, we can address the business side of a healthy practice. Contact us for a consultation.

Scott Bates, CPA, is a partner in the audit practice and leads Cornwell Jackson’s Business Services Department, which includes a dedicated team for outsourced accounting, bookkeeping and payroll services. He provides consulting to clients in auto, healthcare, real estate, transportation, technology, service, retail and manufacturing and distribution. Contact Scott at scott.bates@cornwelljackson.com or 972-202-8000.

Weigh Three IRA Options

Posted on December 23, 2016 by Debra Barcuch

Choosing a retirement plan for your business can be complicated, particularly when one type of account may have several variations. But it’s the differences that help you decide which makes the best fit for your company.

Take Individual Retirement Accounts (IRAs) for example. A major advantage of IRAs is the ability to save for retirement while deferring taxes until the money is actually withdrawn. However, the plans carry a lot of restrictions, including stiff penalties if you withdraw funds before the age of 59 1/2 years.

Each type of IRA has its own tax implications and eligibility requirements. This article will deal with three of the possibilities: the SIMPLE-IRA, the Simplified Employee Pension (SEP) plan and the Payroll Deduction IRA (see right-hand box).

A No-Cost Benefit

No matter how big or small your business is, your employees can participate in a Payroll Deduction IRA, at virtually no cost to you. Here’s how it works: Employees who want to participate set up a traditional or Roth IRA with their banks and authorize you, the employer, to make payroll deductions. You forward the deductions to the banks. Your only other responsibility is to make the plan available to all employees. You have no contribution or filing requirements. Participants cannot borrow from the plan or use assets as collateral. They also must pay income tax and a 10 percent penalty for withdrawals made before they turn 59 1/2 years of age. If your business eventually decides to set up a retirement plan that includes employer contributions, your benefits adviser can help you discontinue the Payroll Deduction IRA and make the switch.

SIMPLE-IRA: The Fundamentals

If your business has no more than 100 employees, you can set up a SIMPLE-IRA. Self-employed individuals and one-employee corporations also often use these pension plans. Earnings on the account balance accumulate tax-free until withdrawals start. There is no limit on how much can be accumulated.

Contributions are generally broken down into two elements: elective deferrals made by the self-employed individual or company employee and matching contributions by the employer.

For 2017, the maximum employee contribution is the smaller of:

100% of your self-employment income or 100% of the salary from your corporation.
$12,500 (unchanged from 2016).

Employees can start making “catch-up” contributions in the year they reach age 50. For 2017, they can contribute an extra $3,000 a year (same as 2016).

Employers generally must make a matching contribution that is the smaller of:

Three percent of salary or self-employment income, or
100 percent of the elective deferral.

If you run your business as a sole proprietorship or a single-member LLC treated as a proprietorship for federal tax purposes, you are considered self-employed. So you make the elective deferral and the matching contribution, claiming deductions for both.

If you are employed by your own S or C corporation, the company makes the matching contribution and withholds the elective deferral contribution from your salary. The business gets a deduction for the contribution and your taxable salary is reduced by your contribution.

Simplified Employee Pensions: Stripped-Down Plans

SEPs are intended primarily for self-employed individuals, including sole proprietors, partners and LLC members, as well as small corporations.

If you’re self-employed, you can make an annual deductible contribution of up to 20% of self-employment income. Self-employment income generally equals the net profit shown on your Schedule C, E or F, minus the deduction for 50% of self-employment tax from page one of Form 1040.

If you’re employed by an S or C corporation, the company must set up the SEP. The business can then make a deductible contribution of as much as 25% of your salary. The maximum possible contribution is $54,000 for 2017 (up from $53,000 in 2016).

So how do these two plans compare? They are each simple to set up and identical in several ways, such as:

Requiring no annual filings with the federal government;
Allowing minimal or no contributions when cash is tight; and
Prohibiting borrowing.

In other ways, however, they stack up a little differently:

Employee Contributions

A SIMPLE-IRA can permit much larger annual deductible contributions if your business produces a modest income. But contribution limits can become a disadvantage as income grows. A SEP allows you to make more generous annual deductible contributions, an advantage if you have a large amount of self-employment income or salary. But, depending on your age and income, you might be allowed to make larger annual deductible contributions to other types of personal retirement accounts, such as a 401(k) or a defined benefit pension plan.

SIMPLE-IRAs allow you to make “catch-up” contributions; SEPs do not.

Employer Contributions

SIMPLE-IRA plans may require you to make matching contributions if your business has other employees. Matching contributions are 100 percent vested immediately. Your company must allow all employees to participate in a SIMPLE plan if they earned $5,000 or more in any two previous years (consecutive or not), and are reasonably expected to earn at least $5,000 in the current year.

With a SEP, if your business has employees, you would have to make deductible contributions for those who have worked for you during at least three of the past five years. Also, since all contributions to the accounts vest immediately, an employee can quit at any time without losing SEP money. That’s great for the employee. But if your business employs more than just a few trusted staff members, you may want to consider a different option.

Set-Up Dates

You must establish a SIMPLE-IRA by no later than October 1 of the year for which you want to make your initial contribution.

You can establish a SEP as late as the extended due date of the federal income tax return for the year when you make the initial contribution. Later contributions can be extended in the same way.

Conclusion: When your business generates a modest amount of self-employment income or salary and there are no other employees who must be covered, the SIMPLE-IRA is often the best choice. It doesn’t matter if you have additional income from other sources. This is especially true if you are 50 or older, because you can make additional “catch-up” contributions that further sweeten the deal.

On the other hand, if you want maximum simplicity, a SEP may be the best choice, assuming you don’t mind covering your employees. A SEP is your only choice if you want to make a deductible contribution for the preceding year when no plan actually existed at the end of that year.

With the vast array of retirement plans available, contact your benefits adviser to learn more about SIMPLE-IRAs, SEPs or alternatives.

Employee, Partner or Both? Recent Developments Help You Decide

Posted on December 22, 2016 by Debra Barcuch

Are you an employee, a partner, a partner who doesn’t know it — or a combination of these classifications? The answer can have serious tax implications. If you participate in a business that’s operated as a partnership or a limited liability company, here are some recent developments that you need to know.

Tax Court Rules on Unknown, Undistributed Partnership Income

A gossip blogger was involved in a recent Tax Court decision. The man was approached by an investor who recommended the formation of a partnership called “Dirty World.” The taxpayer agreed and received a 41% limited partnership interest. He functioned as the editor and received wages from a related entity.

For the tax year in question, the taxpayer failed to include his share of undistributed partnership income from Dirty World. He claimed he’d never received distributions or a Schedule K-1 from the partnership. After an audit, the IRS assessed a tax deficiency, and the taxpayer took his case to the Tax Court.

But the Tax Court agreed with the IRS that the taxpayer owed tax on his share of undistributed partnership income from Dirty World, regardless of whether he was aware of it or not. (Nik Lamas-Richie, TC Memo 2016-63.)

IRS Position on Dual Status

Longstanding IRS guidance in Revenue Ruling 69-184 states that a partner can’t also be an employee of the same partnership. However, this policy has recently come into question. Some tax experts have been prodding the IRS to allow dual employee/partner status in certain circumstances.

For example, it can be argued that dual status is appropriate when an employee of a partnership receives a small interest in the partnership as equity-oriented compensation. Continued status as an employee would allow the individual to continue to participate in tax-favored employee benefit programs sponsored by the partnership.

In a recently issued temporary regulation, the IRS stated that, until further notice, there’s no exception to the Revenue Ruling 69-184 stipulation that a partner in a partnership can’t also be an employee of the same partnership. So, for now, once an employee of a partnership receives an ownership interest in the partnership, that individual is treated as a partner — regardless of how small the partnership interest may be.

However, the IRS says it might consider changing this stance if it can be shown that allowing dual employee/partner status in certain cases is desirable and wouldn’t lead to abuse of tax rules.

Important note: These considerations apply equally to multimember LLCs that are treated as partnerships for tax purposes and their employees and members.

IRS Position on Partners in Partnerships that Own Disregarded SMLLCs

In a recently issued temporary regulation, the IRS clarified the federal employment tax treatment of partners in a partnership that also owns a disregarded single-member (one-owner) LLC (SMLLC). A disregarded SMLLC is generally ignored for federal tax purposes. So, a disregarded SMLLC that’s owned by a partnership is simply treated as an unincorporated branch or division of the partnership, and all of the SMLLC’s tax items are included in the partnership’s tax return.

The new temporary regulation says that partners in the parent partnership can’t also be treated as employees of the disregarded SMLLC. Therefore, these individuals may be subject to self-employment tax on income passed through from the disregarded entity and they’re prohibited from participating in certain tax-favored employee benefit programs sponsored by the disregarded SMLLC. The new temporary regulation is effective as of the later of:

August 1, 2016, or
The first day of the latest-starting plan year following May 4, 2016, of an affected employee benefit plan.

An affected plan would include any employee benefit plan sponsored by the disregarded SMLLC that was adopted before and in effect as of May 4, 2016.

Important note: These considerations apply equally when a disregarded SMLLC is owned by a multimember LLC that is treated as a partnership for tax purposes.

Appeals Court Ruling on Oil and Gas Working Interest Income

The self employment (SE) tax is the government’s way of collecting Social Security and Medicare taxes on net income from self employment. What you may not know is that profits from passive investments in oil and gas working interests are subject to SE tax, according to a Tax Court decision that was recently affirmed by the 10th Circuit Court of Appeals. (Methvin v. Commissioner, 117 AFTR 2d 2016-2231, June 24, 2016.)

The taxpayer in this case owned small percentage working interests in several oil and gas properties. Owning a working interest entitles you to a percentage share of the net profits, if any, from an oil and gas property. The taxpayer had an agreement with the operator of the properties that allocated the taxpayer a share of the revenue and expenses from the properties. He had no right to be involved in the management or operation of the properties, and he had no expertise in oil and gas drilling or extraction. (His background was as a computer company executive.)

The taxpayer’s working interests represented no more than about a 2% to 3% interest in any single property, and they weren’t part of any formal business organization — such as a partnership, limited partnership, LLC or corporation — that was registered under applicable state law. Instead, the working interests were governed by a purchase and operation agreement entered into by the taxpayer, other working interest owners and the operator/manager of the properties.

Despite these informal arrangements, the oil and gas ventures that the taxpayer was involved in constituted partnerships for federal income tax purposes. However, the parties involved in the ventures exercised their right to be excluded from the partnership tax rules found in the section of the Internal Revenue Code that applies specifically to partnerships.

Consequently, there wasn’t a requirement to file annual partnership returns for the ventures. Instead, the operator provided the taxpayer with annual accounting summaries that showed the revenues and expenses allocated to the taxpayer’s working interests. The operator also issued an annual Form 1099-MISC to the taxpayer that showed his share of the net revenues from his working interests.

While the taxpayer reported the net revenue on his federal income tax returns, he didn’t pay any SE tax on the net revenue. After auditing his 2011 return, the IRS claimed that the taxpayer’s net profits from the oil and gas working interests were subject to SE tax because they constituted income from a business carried on by a partnership.

The taxpayer contended that he wasn’t engaged in the oil and gas business and wasn’t a partner in any oil and gas partnership. He argued that his minority working interests were merely investments in which he had no active involvement. Therefore, the taxpayer believed he didn’t owe SE tax on his working interest income, and he took his case to the U.S. Tax Court.

Court Decisions

The Tax Court noted that taxpayers who aren’t personally active in the management or operation of a business may nevertheless be liable for SE tax on their share of net SE income from the business if the business is carried on by a partnership in which the taxpayer is a member. In this case, the taxpayer and other parties involved in the oil and gas ventures elected out of the partnership federal income tax provisions. However, the election out applied only to tax provisions that are included in Subchapter K of the Internal Revenue Code (such as the requirement to file an annual partnership return on Form 1065). The SE tax provisions are not found in Subchapter K.

Therefore, the Tax Court ruled that the oil and gas ventures were still considered partnerships for SE tax purposes and that the taxpayer owed SE tax on his net income from his working interests.

On appeal, the 10th Circuit agreed, affirming that those working interests should be treated as partnership interests and that the profits from the investments were subject to SE tax.

Bottom Line

Business arrangements, including employment and compensation arrangements, can have surprising (and sometimes costly) tax consequences. For that reason, seeking advice from a tax professional before entering into arrangements is a smart idea. That way, there won’t be unpleasant surprises, and better tax results can often be achieved with some advance planning.

Are You Making the Most of Depreciation Deductions?

Posted on December 20, 2016 by Debra Barcuch

If you’re looking for a way to lower your tax bill and your dealership owns real estate, a cost segregation study may be the answer. Read on to see if you qualify.

What Is a Cost Segregation Study?

You may be eligible to retroactively save taxes through accelerated depreciation if you purchased real estate, built a new showroom, renovated your facilities or expanded your property anytime since 1987.

Traditionally, dealers depreciate nonresidential buildings and improvements over 39 years using the straight-line depreciation method. A cost segregation study, however, works differently. It identifies, segregates and reclassifies qualifying property into asset groups with shorter depreciable lives of five, seven or 15 years. These shorter lived personal assets are eligible for MACRS accelerated depreciation schedules, rather than straight-line depreciation.

Cost segregation studies are used for tax purposes only. Your GAAP financial statements won’t be affected by the study, unless your dealership uses tax depreciation methods for book purpose, too.

Which Assets Qualify?Take a look at what’s included in the value of your real estate. Chances are the gross amount will include such things as carpeting, window treatments, wiring, cabinetry, lighting, driveways, wall coverings and cubicles, landscaping and drainage. Soft costs such as architectural and engineering fees might also be lumped into the total. All of these items potentially can be carved out as personal property and depreciated more quickly than standard real estate.

For example, suppose a dealership purchased a new showroom for $5 million in 2003. In 2013, the dealership’s CPA conducts a cost segregation study and determines that the following assets can be reclassified:

Parking lot ($500,000);
Carpeting, blinds and wallpaper ($20,000);
Cabinetry ($25,000);
Lighting ($5,000);
Service equipment ($200,000); and
Landscaping and drainage ($50,000).

This study enables the dealer to reclassify and accelerate depreciation on $800,000 of its fixed assets. In 2013, the dealership can deduct all the depreciation it could have taken since the building was acquired 10 years before.

Auto retailers tend to achieve some of the highest savings from cost segregation studies compared to other businesses. That’s because dealerships own significant fixed assets — including display areas, lift and repair equipment, showrooms, and other specialized mechanical systems — that can be mistakenly classified as real property.

When Will Tax Savings Happen?By reclassifying assets, dealers can maximize their depreciation deductions in the early years, improving cash flow sooner rather than later. Cost segregation studies adjust the timing of deductions, not the total deductions taken over an asset’s life.

Since 1996, dealers have been able to capture immediate retroactive savings from cost segregation studies. Before then, taxpayers had to spread depreciation savings over four years. Today, you can deduct the full amount as soon as your study is complete, thereby dramatically lowering your current tax bill. Of course, if you’re buying, building or renovating a dealership currently, this also is an ideal time to perform a study.

By lowering the value assigned to real property, a cost segregation study also can help you save on real estate, sales and use taxes.

Why Do I Need a Formal Study?

Formal cost segregation studies are required to support the deductions on your tax return in accordance with IRS guidelines. An experienced professional can analyze a dealership’s blueprints, engineering drawings and electrical plans to determine exactly which assets qualify as personal property. Bottom line: A formal cost segregation study will prove its worth if IRS auditors come knocking.

Savings Varies

Tax savings will vary depending on the value of your property, its age and your effective tax rates. But, it’s not uncommon to convert 20 to 40 percent of total building costs from real to personal property. Contact your Cornwell Jackson CPA to discuss how much you can expect to save from a cost segregation study.

The Brilliant Factory: An Idea Whose Time Has Come

Posted on December 19, 2016 by Debra Barcuch

First, there were smartphones and smart TVs. Now, there’s the smart factory.

So when does a factory become smart, or brilliant, as they are called? When it merges lean manufacturing methods, sensors, 3D printing and powerful software analytics in a way that enhances productivity.

General Electric (GE), the world’s leading industrial company, is at the forefront of the movement. The company opened its first brilliant factory near Pune, India, in 2015 and another is in the works (see box below). The multimodal Pune factory will produce diverse products, from jet engine parts to locomotive components, for four different GE businesses all under one roof.

Although there are initial expenditures, the “brilliant” changes are expected to reduce costs and increase profit margins drastically over time. So it turns out that, as the television commercials say, GE can be digital and industrial “like peanut butter and jelly.” And when GE streamlines its factories and processes, other manufacturers sit up and take notice.

Smart Manufacturing Background Information

Of course, what’s new often turns out to be old. Henry Ford, you’ll recall, surmised that complex tasks always become easier when they’re broken down into smaller pieces. And that is the GE idea. It’s breaking down the manufacturing processes into basic steps and then designing computer code to define how each task is performed.

The concept integrates teams from engineering design and manufacturing to work toward realistic solutions on the plant floor. Machines equipped with sensors collect data that monitors every step of the manufacturing process, allowing a manufacturer to make adjustments in real time to maximize production efficiency.

The brilliant factory concept may have major implications both here and abroad. Currently, advanced manufacturing industries accounts for 24 million American jobs, which is roughly 13% of all jobs in the United States. Each of those jobs supports another 3.5 jobs throughout the supply chain. The impact is even more significant when you consider the global economy and the trickle-down effect that innovations tend to have.

Four Pillars

There are four main driving forces behind the brilliant smart manufacturing movement:

1. Lean production. The roots of the brilliant factory concept can be traced back to the advent of lean manufacturing, a philosophy derived mainly from the Toyota assembly lines. Companies both here and abroad have embraced this concept and it has spread to such sectors as oil and gas, retail clothing, computer chips and construction.

Lean manufacturing principles have resulted in faster assembly times, less material waste and greater volume. Changes focus on customer satisfaction and meeting evolving marketplace needs.

2. Technological advances. Just as technology has made huge inroads into virtually every aspect of society, so it has had a profound effect on manufacturing. Improvements range from automation to laser-based tools to robotics, cobotics (robots designed to collaborate with humans) and exoskeletons (wearable mobile machines that allow for increased strength). It’s not just humans doing the work these days. As a result, the brilliant factory may look more like the set of a sci-fi movie than your granddaddy’s plant.

Brilliant manufacturing integrates technology-based tools, such as lasers, that have been used for years by consumers. Use of these applications has expanded gradually to the manufacturing sector. In particular, investments in robotics and other automated “non-human” apparatus are improving internal controls within the workplace.

3. 3D printing. The growth of another key component, 3D printing — also known as additive manufacturing — has soared during the past decade. Essentially, the printer makes solid three-dimensional objects from a digital file by laying down (adding) successive layers of just the right amount of material. Each layer is a thinly sliced cross-section of the eventual object.

This process lets manufacturing firms operate precisely and efficiently. Notably, it can create parts that couldn’t be produced before, while reducing waste by using only the raw materials needed.

4. Digital thread. This is the name given to the communication framework that connects traditionally siloed elements in manufacturing processes. It provides an integrated view of the product throughout the manufacturing life cycle. Using a digital thread requires firms to weave data-driven decisions into the manufacturing culture.

Most manufacturers don’t have anywhere near the resources that GE has at its disposal. But that doesn’t mean your smaller firm can’t use brilliant manufacturing if it adopts and adapts some of these practices. Using available technology to help streamline processes and build on the foundation of the four pillars can help lead your company into a brilliant future.

GE Breaks Ground on New Facility

Following up quickly on the brilliant factory in India, GE recently announced the groundbreaking of a similar facility in Canada.

The new factory is being built in Welland, a Canadian transportation hub known for a canal linking Lake Ontario and Lake Erie with railways, just across the border from Buffalo, New York.

According to GE, the factory will produce massive gas engines and other components for GE businesses, employing about 220 skilled workers. GE says it expects the facility to go on stream in 2018. Others are on their drawing boards.

Clouds Over Manufacturing Appear to Be Clearing

Posted on December 14, 2016July 23, 2024 by Debra Barcuch

The tide in the manufacturing sector may be turning — at least for larger companies. According to the third quarter Manufacturing Outlook Survey from the National Association of Manufacturing (NAM), large firms (those with 500 or more employees) are more upbeat about their outlook this quarter.

However, small manufacturers (those with fewer than 50 employees) and medium-sized ones (between 50 and 499 employees) experienced declines. Optimistic views are less common among the smallest firms, with just 48.7% having a positive outlook, down from 56.1% in the previous quarter.

Sentiments expressed by respondents have generally stabilized after several quarters of pessimism. What’s more, the data appears to back that assessment, albeit with some caveats, especially as to concerns over rising health care costs and modest growth rates expected in 2017. Overall, the current economic outlook of manufacturers could be characterized as “cautiously optimistic.”

Prime Considerations

In total, 338 manufacturers from all parts of the country participated in NAM’s third quarter study, including a wide variety of sectors and size classifications. Based on the latest data (collected during August), 61% of manufacturers are either “somewhat” or “very” positive about their company’s outlook, down slightly from 61.7% in the June report. Nevertheless, this outlook remains stronger than it was at the end of 2015 and the beginning of 2016.

At the same time, this is the fifth consecutive quarter when positive responses about the outlook have fallen below the historic average of 73%. The index has been below 50 over that timeframe, dipping from 42.3 in June to 41.8 in the recent survey.

Sales and Production

Size differences also are reflected in sales and production expectations. Small firms anticipate sales growth of 1.3% over the next 12 months, but medium and large firms expect an average increase of 2.1%. For production growth, the anticipated difference is 1.6% for small manufacturers as opposed to 2.2% for medium and large companies.

With all firms, sales and production are expected to grow by 1.9% (small) and 2.1% (medium and large) over the next 12 months, up from 1.6% and 1.5%, respectively, from the second quarter. Most importantly, the percentage of respondents expecting sales declines dropped from 23% in the previous report to 16.2% in the recent report.

In addition, plans for capital investments tend to vary according to size. Small manufacturers expect capital spending to decline 0.3% in the next year, while medium and large manufacturers expect capital investment to grow 0.8% and 1.5%, respectively.

Hiring Plans

The survey reports that many firms plan to hire additional workers to meet their cautiously optimistic growth expectations. Full-time employment levels are expected to grow 0.4% over the next year, an improvement of 0.2% from the previous survey.

Many manufacturers (28.5%) expect to hire new workers over the next 12 months, but 52.1% expect no growth in their workforce. Despite lackluster sales and production growth expectations, small and medium-sized manufacturers plan to be more proactive about hiring (anticipating a median increase of 0.6%) than their larger counterparts (who anticipate a median decrease of 0.1%).

The amount that manufacturers invest in stocking their warehouses with materials and finished goods can be an indicator of whether management is stockpiling for an anticipated increase in revenue — or it’s cutting back to conserve working capital during an expected slowdown.

The survey found that, overall, manufacturers plan to decrease inventories by 0.7% over the next 12 months, the sixth consecutive quarterly decline. A closer look at the responses show that about one-third of respondents (34.1%) plan to reduce their inventories, but 20% plan to invest more money in inventories.

Top Challenges

Nearly three-quarters of manufacturers surveyed cite rising health insurance costs as their top business challenge. They see costs increasing 8.5% over the next 12 months, up from 8.3% in the previous survey. Specifically, 75.2% expect an average increase in premiums of at least 5% next year, with 40.3% predicting average costs to jump by at least 10%. Small and medium firms anticipate greater increases (9.4%) than large manufacturers (6.3%).

Respondents also list an unfavorable business climate as a major concern: 73.6% placed it as the primary challenge behind health care costs. Furthermore, manufacturers continue to be frustrated with the lack of comprehensive tax reform and a perceived regulatory assault on business. (See “Cutting through the Red Tape” at right.) Just over three-quarters (76.6%) think the United States is on the wrong track, with only 6.8% saying they feel we’re heading in the right direction. The remaining respondents are uncertain about the industry’s current course.

Coming Soon

NAM publishes its Manufacturing Outlook Survey at the end of each quarter. The next survey, for the fourth quarter of 2016, is expected to be released on December 7.

Cutting Through the Red Tape

The Manufacturing Outlook Survey addresses the issue of regulatory challenges. Most respondents (88.8%) either somewhat or strongly disagree that the federal government carefully considers interests of small business owners when it imposes new regulations

Among other drawbacks, the manufacturers surveyed believe that government regulation:

Stifles economic growth (69%),
Disproportionately hurts small businesses (39.2%),
Creates bureaucratic red tape (34.3%),
Slows innovation (18.5%), and
Costs taxpayers money (15.2%).

Most manufacturers recognize that the government needs to implement rules to help protect the environment, provide a safe workplace and ensure fairness in competition. Yet, many believe that the cumulative costs of ever-increasing regulations outweigh the perceived benefits.

Being Green Is Becoming Increasingly Status Quo

Posted on December 13, 2016July 23, 2024 by Debra Barcuch

“Green building” is no longer a fringe movement among environmentally conscious contractors. Nor can it be dismissed as a pie-in-the-sky aspiration.

It appears that green building is here, at long last, and likely to stay in vogue for the foreseeable future. There was ample evidence of this at the recent 2016 Greenbuild International Conference & Expo in Los Angeles. The same was expected at the gathering in Boston on November 8-10.

Background Information

Green building — also known as green construction or sustainable building — refers to practices and procedures that are environmentally sensitive and make efficient use of resources. It encompasses the entire life cycle of a building, from design and construction through operation and maintenance to renovation and, if necessary, demolition.

This type of construction requires firms to find the proper balance between traditional considerations such as quality, functionality and affordability with sustainability. And green building isn’t limited to just new construction, it can be applied to all buildings.

Among the technologies and materials you might use if you are constructing a green building are:

Natural paints, which are void of the volatile organic compounds typically found in their traditional counterparts, eliminate indoor pollution and decompose naturally without contaminating the earth.
Zero-energy designs that use solar cells and panels, wind turbines, and biofuels, among others, to provide electricity and HVAC needs.
Water recycling, which reuses treated wastewater for agricultural and landscape irrigation, industrial processes, toilet flushing, and replenishing a groundwater basin.
Low-emittance windows coated with metallic oxide to block the sun’s harsh rays during summer and keep the heat inside in the winter. They significantly bring down HVAC costs.

Although the ground rules and technology continue to evolve, the main shared objective of green building remains protecting the environment. This may be accomplished through such elements as:

More efficient use of energy, water and other resources,
Improved productivity,
Reduced waste, pollution and general deterioration of the environment, and
Sustainability.

Data Collection and Analysis Trends

Previously, green building relied primarily on anecdotal evidence or limited instances documented on a case-by-case basis. Now, with support from certification organizations (see box below), improvements in data collection and analysis are furthering green building initiatives.

Data collection is only now moving to the forefront of the construction process. This may transform how buildings are designed, constructed and operated.

Specifically, it’s now possible to track data sets during the operations and maintenance stages, including:

Air quality,
Lighting,
Utility and leading data,
Thermal comfort, HVAC and weather,
Waste recycling,
Security, and
Occupancy.

Gathering this information and then acting on it can have a profound impact, especially when technology is used, and it may result in greater energy efficiency and cost reduction.

A potential stumbling block is the complexity of varying software tracking methods. This is being overcome by advances in technology that make it easier to quantify and apply the data. With programs like GRESB, companies can track the continuing performance of their buildings and make improvements when necessary.

Furthermore, innovators using this approach are being recognized as leaders in their industries, generating greater interest from investors, while attracting and retaining top-notch talent. This happy confluence of events creates even more momentum for the green building movement.

Investors and other interested parties have also sparked green building activity by trumpeting the need for reducing the world’s carbon imprint. Naturally, the investors are interested in protecting their assets, but they are also addressing environmental concerns and promoting the type of sustainability that will benefit them in the long run. Finally, environmentalists in certain other fields (notably, the manufacturing sector) have rushed to join the cause.

Outlook for More Greening

Now that the steps of data collection and analysis are being implemented, proponents of green building hope to move forward through innovation and sensitivity to environmental issues. But certifications and adopting different approaches for utilizing data to improve building performance shouldn’t be the final goal. It’s important for green building to become integral to the construction process.

Expect technology to facilitate the next phase. Stakeholders in the industry, including construction firms of all shapes and sizes, should learn from others and then “pay it forward” by sharing information and new developments with peers.

Those who don’t jump on the bandwagon now run the risk of being left in the dust.

Seven Top Shelf Products

At the 2016 Expo, BuildingGreen Inc., a green resource center based in Vermont, presented its annual selection of green products that have the potential to change construction processes and procedures.

They ranged from products that conserve electricity to those that reduce construction waste to replacements of traditional materials with healthier alternatives. Here are seven of them:

Accoya Acetylated Wood, which is stable, insect repellent and moisture resistant.
Securock ExoAir 430, a weather barrier that allows for faster installation and reduces jobsite waste.
Aquion Low Toxicity Battery, which uses non-hazardous sodium sulfate electrolyte instead of the common lithium ion or lead acid found in typical batteries.
Nextek Power Hub Driver, an all-in-one AC to DC power converter that uses solar energy, batteries, and other renewable energy sources to convert power currents.
HyperPure Water Piping, a flexible potable water pipe made from bi-modal polyethylene.
Designtex Textiles, a database that allows search through more than 8,000 certified sustainable textile materials based on criteria ranging from specific certifications, to chemicals, logistics and optimized chemistry.
The d-Rain Joint Rainwater Filter Drain that is a low-cost system to manage water runoff.

Being Certified

Supporting the green construction movement are standards, certifications and rating systems aimed at mitigating the impact of buildings on the natural environment through sustainable design.

The Building Research Establishment’s Environmental Assessment Method (BREEAM) is the first green building rating system in the U.K. It is the oldest rating system, created in 1990.

In 2000, the U.S. Green Building Council (USGBC) followed suit and developed and released criteria also aimed at improving the environmental performance of buildings through its Leadership in Energy and Environmental Design (LEED) rating system for new construction. The U.S. Green Building Council developed it.

Various other efforts stimulating green building have been championed by the World Green Building Council and World Bank. Netherlands-based Global Real Estate Sustainability Benchmark (GRESB), a for-profit organization specializing in assessing real estate properties, has also been a valuable contributor.

Traditional BHPH Income Opportunities

Posted on December 12, 2016 by Debra Barcuch

For dealers who want to keep control of their portfolio but also increase profitability long term, they need to focus on customer longevity.

To keep their customers in a vehicle longer, more BHPH dealers are offering some kind of warranty. Many more have optional service contracts available. Offering mechanical protection up front with the car sale increases the chances that a customer will contact the dealer if the car breaks down. Some warranties include an option for free towing; this gets the car — and customer — back to the dealership to resolve any issues.

With warranties and service contracts, of course, you need a well-run service department. The service department staff needs to focus on a good customer experience, not just keeping a car running. Staff also should understand exactly what is covered under the warranty or service contract in order to communicate with the customer and handle proper repairs.

For example, a dealer may explain up front that the customer has a full or limited warranty on any mechanical repairs for a set period of time. This option is designed to keep in contact with the customer and make small repairs to avoid bigger ones. Frequently, a broken down car equals stopped payments. Instead, the dealer offers to make repairs, eliminates this common excuse for non-payment and stays in contact with more customers.

By staying in contact with customers, the dealer can offer more options to keep them happy and making payments:

Get the vehicle in and inspect it proactively/make repairs
Provide a discount
Add missed payments or big repairs on the end of the existing loan
Get customers into another vehicle through refinancing
Adjust the payment schedule to support changes in circumstances

Consider offering regular spot checks on the vehicle or letting customers upgrade to a nicer model while keeping payments the same. Extra service can sustain thousands in payments each month while reducing the need to sell as many cars per month.

One of our BHPH clients recently spoke to us about outsourced bookkeeping services to free up his time to spend on repairs. He calculated that time spent in service was more valuable than in the back office if it meant getting more cars back on the road and payments in the door. In this competitive environment, the industry is advocating decisions like this, focusing more on customer longevity and extra service options. Dealers who free up their time from the back office or sales can focus on service and collections practices, including:

Reviewing all existing customers weekly and identifying which customers are currently behind on payments.
Contacting customers and inviting them to the dealership to talk about getting current on payments.
Offering a list of options that can support up-to-date payments.
Training staff on a welcoming experience that demonstrates your interest in keeping the relationship.
Monitoring payment habits and communicating as soon as there is a change.

Ultimately, a customer-centric approach will help your dealership become self-sufficient — with enough cash flow to reinvest in the dealership operations and enough efficiency to focus on attracting new customers (possibly through referral) and new revenue streams. If your vision is also to provide a valuable service to the community for people who need a car and can’t get one any other way, then a customer-centric approach is certainly the right business model.

Cornwell Jackson works with BHPH dealers frequently to adopt new approaches to service, cash flow and profitability. Review our previous whitepapers for your industry or contact us for a consultation. We can even assist with audits, reviews and compilations specific to dealerships to help your dealership access traditional bank financing or working capital if needed. We can also consult on timing and requirements to establish a related finance company as part of BHPH auto financing and portfolio management.

Download the Whitepaper here: Finance Competitors BHPH Can’t Afford to Ignore

What defines a great patient experience?

Posted on December 12, 2016July 23, 2024 by Debra Barcuch

Everyone has an opinion on improvements in health care, but not everyone witnesses the day-to-day realities of running a health care practice. Particularly for independent practitioners, the vision is to provide a positive patient experience, comply with the newest outcome-based payment programs and leverage technology to reduce expenses. Although patient care may be their strong suit, practitioners who lack support on compliance and technology investments are the least likely to succeed. The future of independents may rest on this three-legged stool, but they don’t have to balance it alone. In this article, we’ll review the trends in patient experience, compliance and technology investments to help health care practices improve their overall business structure.

What is a great patient experience?

According to the International Consortium for Health Outcomes Measurement (ICHOM), there are three tiers of outcome measures that patients truly care about when rating their experience with any health care provider.

Health Status is Achieved or Maintained: Did the patient survive and sustain a degree of health and recovery?
Process of Recovery: How long was the duration of recovery or time to return to other activities? Were there errors, complications or adverse effects during recovery?
Sustainability of Health: Were there recurrences of illness or care-induced illnesses that affected long-term health?

When the outcomes that patients truly care about are reported back into the health care system and used to communicate potential outcomes with new patients, it results in a more informed patient experience as well as an opportunity for health care providers to support improvements in care, according to ICHOM.

Admittedly, these specified outcome measures are very individualized. A patient with diabetes is very different from a patient with poor oral health. However, both patients have the same expectations of recovery and sustained health. They also expect that the physicians they see are communicating with each other to integrate care. The best solution ties to data collection — tracking the patient experience from the start of the encounter through recovery and follow-up care.

Practitioners want the collection of data to be easy and efficient. A primary tool has been adoption of Electronic Health Records (EHR) systems. According to the Office of the National Coordinator for Health IT, adoption rates among physicians are progressing rapidly. That’s due in part to government incentives. However, dental practices have been slow to adopt due to less historic eligibility for cash incentives, cumbersome EHR options and no penalties.

Most EHR systems are not designed to fit dental practice models despite the fact that dentists are open to technology that can make their practices more efficient and profitable. But there are some champions of EHR for dentists such as vendors who are integrating popular electronic dental records systems with secure information transport services. These systems can allow dentists to securely send patient dental data electronically to other medical specialists.

Aside from investing in EHR, practices can implement other low-tech tools to measure the patient experience:

Bedside Manner – Ask questions such as, “Is there anything I didn’t ask that you’d like to talk about?” This dialogue helps patients feel more comfortable sharing other details about their health.
Surveys – Electronic or paper surveys can collect data on perceived quality of care, accessibility and courtesy of staff. Some of these surveys are provided for practices as part of affordable care organization models. A survey is only as good as its follow-up analysis and tracking of improved outcomes.
Phone Calls – Patient advocates or support staff can check in with patients for a quick interview on their experience and to identify any needs that require follow-up appointments.

Two of the main challenges of these tools are (1) to collect enough data to provide a representative sample of the patient population and (2) to analyze the data gathered into an accurate summary of satisfaction. At minimum, practices should explore some measure of patient satisfaction that can give practitioners and staff a guide to understand where they rank among other care providers and to make tangible improvements.

A great patient experience is a competitive advantage. Small medical groups can’t afford frequent no-shows or disputed bills. Patient satisfaction tools can improve communication between patients and other specialists while enhancing feedback to improve care.

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