A simple review of your financial affairs could make a big difference

As the end of the year approaches, investors should revisit their existing investments, estate documents and beneficiary designations.

“Challenge yourself to get your arms around your investment assets,” says Scott J. Swain, CPA, CFA, CFP®, a partner at Skoda Minotti. “Ensure you’re taking advantage of year-end tax opportunities, and check beneficiary designations and the progress of your investment strategies.”

Smart Business spoke with Swain about what investors should check for in a year-end review.

What should investors know about their existing investments as the year closes?

Investors may have unrealized capital losses that can be harvested before year’s end to offset realized capital gains earned during the year, or it may make more sense to wait to take those losses in January. Review your tax situation and see if you can execute a portfolio strategy to save some taxes.

Investors over the age of 70 should make sure they’ve made the required minimum distributions for any IRAs or retirement plans. And consider applying a portion of any year-end bonuses to a 401(k) or 403(b) plan to take full advantage of any match.

Anyone making sizable charitable contributions, anything over $5,000, should consider gifting appreciated stocks and bonds rather than cash. Gifting publicly traded positions with unrealized long-term gains is a way to avoid the associated tax and get the full value of the position in terms of a charitable deduction. And the charity won’t have to pay tax on those gains.

How are current IRS provisions affecting gifting to family members? Is that expected to change in the coming year?

A person can gift up to $14,000 to any one person. That can take the form of any kind of asset — cash, real estate, anything. Married couples could gift $28,000 to each child under these rules and avoid filing a gift tax return. Going above the $28,000 threshold eats into the lifetime gifting exemption, which is $5.45 million per person for 2016.

New IRS regulations will impact gifting of privately held businesses as the IRS attempts to eliminate the ‘discount’ from full market value that has been available in the past. Those considering gifting a business in the near future should contact their tax advisers as soon as possible to discuss the impact of these new regulations further.

Why should investors re-examine their estate documents?

An annual review of estate documents is a good habit to get into. The goal in estate planning is to ensure assets are passed on to your heirs as intended. On average, people update their estate documents every 20 years, and within that time, thoughts about how you’d like your assets to pass could have changed.

Besides wills and trusts, many people have also established a financial power of attorney, and have a living will and a health care power of attorney as part of their estate plan. All of those documents need to be updated more frequently to avoid problems when someone goes to use them. For example, if a person’s health care power of attorney hasn’t been updated in 20 years, health care providers will almost certainly balk at accepting it.

What should investors look for when reviewing asset titling and beneficiary designations?

These documents bypass a person’s will and estate documents based on these designations. Most list a spouse and children as beneficiaries. If that has changed, because of divorce, for instance, it’s important to make changes before you forget about it. Ensure beneficiary designations are current on 401(k)s, 403(b)s, IRAs, life insurance policies, annuities, deferred compensation, payable on death accounts, etc.

What might it be costing someone who doesn’t work with an adviser to manage his or her assets?

While people today are more empowered to manage their retirement, they tend to neglect their portfolios, often because no one is holding them accountable for it. Having an adviser forces an investor to stay active. Also, people who do it themselves often can be too extreme in their portfolio allocations. A 20 to 30 percent loss in a portfolio due to an overaggressive allocation is devastating if it happens near or during retirement. A financial adviser can help investors hone in on meeting long-term cash flow needs while reducing risk to appropriate levels.

Financial and estate planning is an ongoing process. Spend the time needed each year to get the most out of it.

Insights Accounting & Consulting is brought to you by Skoda Minotti

The missing piece to building employee bench strength might be you

If your company has trouble hiring, developing and deploying talent — building bench strength — the problem might lie with you, the business owner. So, before you point fingers and lament about the talent shortage, look in the mirror.

“In an ideal world, the business owner is fully engaged in designing, developing and nurturing a strategic talent management system,” says Stacy Feiner, business psychologist and management consultant at BDO USA, LLP.

Business owners need to know their people as well as they know their numbers. They have a responsibility and the privilege to define the core expectations they want in their employees’ behavior and performance.

When an owner is detached from talent management — defining the expectations and thus the processes to get to those expectations met — the culture may unwittingly become a reflection of their worst traits, Feiner says. Long-standing distraction from shaping your culture can lead to neglect, and neglected environments will result in a slow decline, at best, or create organizational injustices like ignoring internal conflicts or undermining employee attempts to add value.

Smart Business spoke with Feiner about the mistakes business owners make and how they can overcome those to strategically build bench strength.

Where do business owners falter when it comes to talent management?

Many business owners see talent management processes and capabilities in isolation. They look at recruiting as a transaction, a cost and sometimes as a necessary evil. In contrast, succession planning is viewed as a strategic initiative that is supported with a budget and encouraged by the board. But really, succession planning and recruiting are different sides of the same coin.

Just think about professional sports teams — they don’t outsource recruiting because it’s a critical capability. Ultimately, people drive the numbers. That’s where your focus should be, even though human dynamics are challenging and not all business owners are interested or good at managing them.

Another concern is when business owners don’t have a mechanism to evaluate talent across their enterprise. This intelligence is already there; you just need to gather, package and translate it for employee development and succession planning. Think about how much easier it is to build bench strength with a clear picture of your current talent’s skills, potential, tendencies and temperament. People, generally, change jobs 14 times throughout their career, so why shouldn’t you leverage those changes? If your company is growing, the natural indication is to look out, rather than at top performers inside the business.

Also, once you’ve evaluated your talent, there needs to be a method for providing honest feedback on performance.

How can business owners recognize if they’re detached from their talent management practices?

The signs of detachment are pretty straightforward: not having a budget for talent management; holding a view that the activities of human resources and talent are an expense; and pushing talent management off to HR, without giving enough vision, insight or instruction.

What other critical elements help your company build bench strength?

It’s a mindset. Part of a business owner’s job is to shape the culture that in turn nurtures talent. It’s not HR’s responsibility to manage talent; HR must facilitate the owner’s talent initiatives and directives. It is HR’s job to partner with managers, so that together they can manage and meet employee expectations.

In the early 1980s, General Electric’s Jack Welch popularized the concept of talent management, and a disciplined system, that trickled down to the middle market. The middle market, however, wasn’t nearly as successful at developing culture and adaptive talent. What got lost in translation is that it wasn’t Welch’s system that created the success; it was that he used his philosophy.

Each business owner must define his or her own philosophy about people, in order to create the mechanisms and an integrated process to accomplish and achieve those expectations. You must be involved. And once you become engaged, it will create its own momentum.

Insights Accounting & Consulting is brought to you by BDO USA, LLP

A proactive approach is best when considering your company’s future

It’s not a question of if a business owner will exit his or her business, but more a question of when, says Mark Metzler, a director and Certified Exit Planning Adviser (CEPA) at Kreischer Miller. A recent Exit Planning Institute (EPI) survey indicates 76 percent of business owners plan to transition over the next 10 years, and 48 percent in the next five years.

These projections are driven by the fact that the first baby boomers turned 65 in 2011 and 10,000 more boomers turn 65 every day, with the youngest members of this group now in their early 50s.

This generation owns 63 percent of the private businesses in the United States, and their businesses represent 80 to 90 percent of their personal net worth. Soon, however, they’ll need to consider the next step for their respective businesses.

Smart Business spoke with Metzler about the value of developing an exit strategy for this inevitable outcome.

If an owner isn’t looking to sell, why is an exit strategy important?
Every business will ultimately face the issue of the owner’s exit. It is therefore critical to have an effective transition or liquidity plan in place.

Exit planning is a business strategy for owners to maximize enterprise value while enabling the conversion of ownership into personal freedom and peace of mind. In Peter Christman’s book, “The Master Plan,” he compares a successful exit strategy to a three-legged stool. Each leg is critically important.

The first leg is maximizing the value of the business; the second leg ensures that the business owner is personally and financially prepared; and the third leg ensures that the owner has planned for life after the business.

What are the exit options available to a business owner?
There are two general categories for private ownership transition: An inside transition or an outside exit.

An inside transition comprises the following types:

  An intergenerational transfer is a transfer of business stock to direct heirs, usually children. Approximately 50 percent of business owners want to exercise this option, but in reality, only about 30 percent do so. This option is often an issue of estate planning rather than structuring a transaction. An advantage to this option is business legacy preservation.

  In a management buyout, the owner sells all or part of the business to its management team. Management uses the assets of the business to finance a significant portion of the purchase price, with the owner often providing additional financing. This option provides for management continuity, but it also introduces financing risk to the seller.

  A sale to existing partners is typically less disruptive, but the success of the transition is closely linked to the existence and quality of a buy-sell agreement.

■  A sale to employees may be accomplished through an ESOP, where the company uses borrowed funds to acquire shares from the owner.

Conversely, an outside exit may entail:

  A sale to a third party, where the owner sells the business to a strategic buyer, a financial buyer or private equity group through a negotiated sale, controlled auction or unsolicited offer. This is typically a long process, but may result in the highest price.

  A recapitalization or refinance involves finding new ways to fund the company’s balance sheet. A new lender or equity investor (minority or majority position) is brought in as a partner. This may permit the owner a partial exit, while providing growth capital.

  An initial public offering or the expression “going public” involves the registration and sale of company securities (common or preferred stock or bonds) to the general public — a costly option not practicable for the majority of privately owned businesses.

  In an orderly liquidation, the asset value is greater than the value of the business as a going concern. The business is shut down and its assets are sold.

An effective exit strategy begins long before an actual exit, as maximum value is optimized when an exit is proactive rather than reactive. Early planning provides knowledge that the business owner, not the potential buyer, will drive the exit process to achieve personal goals and objectives.

Insights Accounting & Consulting is brought to you by Kreischer Miller

Congress has permanently extended a number of popular tax breaks

For many years, business tax planning has been a frustrating exercise as a number of popular tax breaks commonly known as “extenders” would expire, only to be retroactively extended in December of the subsequent year.

Businesses would go the entire year not knowing whether Congress would extend these tax breaks or not. As you can imagine, it becomes very difficult to do any tax planning with this kind of uncertainty.

But to everyone’s surprise in December 2015, Congress permanently extended a number of these popular tax breaks while others were extended for two to four years. With the uncertainty gone, tax planning in 2016 is now much easier.

Smart Business spoke with Richard J. Nelson, Director, Tax Strategies at Kreischer Miller about the tax planning opportunities that are available to businesses in 2016.

How will these tax breaks help businesses?
One of the permanently extended provisions was the Research and Development (R&D) credit. The R&D credit is a popular tax break used to encourage businesses to research and develop new products, methodologies and in some cases, the development of computer software.

In addition to the extension, Congress also included two new provisions allowing eligible small businesses with $50 million or less in average gross receipts to apply the credit against the alternative minimum tax, while startup companies with less than $5 million of gross receipts can elect to use the credit against payroll taxes.

Another permanent extension was the Section 179 expense deduction. The 179 expense was enacted to encourage businesses to invest in equipment. The deduction allows taxpayers to immediately expense up to $500,000 in equipment purchases. This amount begins to phase out once equipment purchases for the year exceed $2.01 million.

Along those same lines, another important provision was the extension of bonus depreciation. For 2016, taxpayers can deduct up to 50 percent of the adjusted basis of qualified property in the first year it is placed in service.

Qualified property includes new property, off-the-shelf computer software and qualified leasehold improvements. Other depreciation provisions allow a 15-year, straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements and qualified retail improvements.

The use of the Section 179 deduction, the 50 percent first-year bonus depreciation and regular depreciation can provide significant tax savings to any business with taxable income.

For 2016, the work opportunity credit has been extended and expanded. The credit is equal to 40 percent of the first $6,000 of qualified first-year wages of employees who are members of a targeted group. There are a number of targeted groups, with the most common being veterans and ex-felons. The targeted groups were expanded in 2016 to include qualified individuals who have been unemployed for 27 or more weeks.

What about the provision affecting C Corporations that have converted to S Corporations?
A significant change is the reduction of the built-in gain period from 10 years to five years. Generally, the built-in gains tax is a corporate level tax on the gains inherent in the assets at the time of the conversion. If you can manage your profit through those first five years and you do not sell the assets during that period, you may escape paying the corporate level tax on the inherent gain.

If you are a business owner and your company has a 401(k) plan, it is a good idea to maximize your plan contributions to get the deduction and the income deferral. If your plan does not contain provisions for a Roth 401(k), you should consider changing your plan.

The main difference between the regular and Roth 401(k) is the deductibility of the contributions and the taxation of the distributions. With a regular 401(k), contributions are tax deductible and distributions (both contributions and any income earned) are taxed as ordinary income. With a Roth 401(k), contributions are not tax deductible.

But all distributions, including the income earned, are not taxed. You would need to speak with your plan advisor about a Roth 401(k).

Insights Accounting & Consulting is brought to you by Kreischer Miller.

Often overlooked, TPR can offer significant savings for business owners

The IRS issued the Tangible Property Regulations (TPR) in 2013 and many taxpayers overlooked or didn’t pay much attention to them. Now businesses are catching up, realizing TPR offers significant savings if used properly. The regulations provide taxpayer-friendly rules to immediately deduct certain costs versus capitalizing and depreciating.

“These regulations cover a wide variety of topics, such as materials and supplies, repairs and maintenance, capital expenditures and amounts paid for the acquisition of tangible property,” says Dennis Murphy Jr., CPA, CCA, a senior manager at Skoda Minotti. “It’s important to be familiar with these regulations and the recent updates as we’ve seen them affect most companies we work with — large and small, public and private, even individual owners of rental properties.”

Smart Business spoke with Murphy about TPR and what business owners should know.

What has changed with TPR that business owners should know about?   

TPR allows taxpayers to immediately deduct the payments made for tangible property under a certain monetary threshold, called the de minimis safe harbor. The IRS deduction limit was $500 when TPR first debuted, but for the tax years beginning January 2016, the limit has increased to $2,500 for those taxpayers without a financial statement audit.

The de minimis safe harbor is an election and must be made each year on your tax return. It is applied per item, so if you buy 150 computers at $2,000 each, you can deduct each computer.

Although the IRS safe harbor covers items up to $2,500 in value without a financial statement audit, companies must set their own threshold through a written capitalization policy.

Public companies may take a hit on earnings per share, so they might want to keep their capitalization lower than the safe harbor amounts. Another reason to keep this low would be to meet certain bank covenants or various ratios that must be reported, if applicable.

The dollar threshold for taxpayers that have an audit performed remains at $5,000, which has been unchanged since 2013.

What is the importance of cost segregation and why is it especially important for those that own a building?

Cost segregation studies, performed by a certified engineer, benefit taxpayers that own their own buildings. A cost segregation study breaks down the building into multiple structural components to understand their individual values, which is important under TPR. On new construction or new purchases, the study breaks components into asset classes. Depending on the asset class, the depreciation life could be shorter than the typical 39 year life for a commercial building.  This shortens the tax life, which means tax savings and increased cash flow. When constructing a new building, look to see if cost segregation makes sense. In most cases it does, especially for buildings that cost more than $500,000.

There can be tax savings on buildings purchased years ago since there’s some catching up on depreciation. Cost segregations aren’t inherited when a building is purchased. They’re based on the purchase price, so a new one will be needed.

How can an adviser help with tangible property regulations?

These regulations affect nearly every business in some way. Unless you own a small business — assets less than $10 million and average annual gross receipts for the last three years less than $10 million — companies are required to file Form 3115 with their tax return to be in compliance.

Tax advisers can help taxpayers stay compliant with TPR and take advantage of all available savings. The regulations are complex and can be cumbersome to follow, but they offer significant benefits so they shouldn’t be overlooked.

Insights Accounting & Consulting is brought to you by Skoda Minotti

What accelerated filing dates mean for employers in 2017

As the year winds down and business owners focus on year-end tax planning, it’s time to mark the new deadlines on your 2017 calendars.

“With some deadlines moving up, it will catch people off guard,” says Michelle Mahle, office managing partner of tax services at BDO USA, LLP.

In fact, Mahle herself recently realized the full implementations of these accelerated filing deadlines, and she’s concerned that employers will be scrambling.

“A best practice for saving on your taxes is knowing, by year end, what to expect so you can plan for it, she says. “However, business owners are certainly going to have less time to react to things, with some of these deadlines.”

Smart Business spoke with Mahle about tax due date changes and year-end tax planning practices.

What key due dates have been moved up?

There is a new filing deadline for both Form W-2 and Form 1099-MISC with amounts reported in Box 7. Previously, these forms were due to recipients by Jan. 31, but weren’t due to the Social Security Administration (SSA) until Feb. 28. If you e-filed with the IRS, you had until March 31.

For the 2016 tax year, both the recipient copies and submission to the SSA/IRS of these forms are due by Jan. 31 — for paper and e-file. The IRS has also eliminated all automatic 30-day extensions of time to file Form W-2 for the tax year 2016. This change consolidates what typically was prepared and submitted over a three-month period of time into 30 days.

With W-2s and 1099s, businesses should already have the information upfront. In reality, many employers are still collecting employer identification numbers or current addresses at the 11th hour. If employers expect to get these filed on time, they need to gather the necessary information much sooner, by year-end.

The focus on getting everything in and filed by Jan. 31 is probably because there’s such rampant tax identity fraud. The government is trying to pin down the information reporting to make sure it has everything in its system correctly, so that the IRS is in a better position to deal with that.

In addition, businesses that file partnership tax returns (Form 1065) will have less time in 2017. Businesses filing Form 1065 for the tax year ending Dec. 31, 2016 now have a due date of March 15, 2017, as opposed to April 15. However, they can still file for an extension, which remains Sept. 15, 2017.

Essentially the due dates for partnership tax returns (Form 1065) and C Corporation tax returns have swapped. It is intended to help individuals involved in pass-through entities receive the information they need to prepare their individual returns in a more timely fashion.

The due date for foreign bank reporting has moved up two months. Taxpayers required to file a FinCEN 114, Report of Foreign Bank and Financial Account (aka FBAR) for 2016 will have a due date of April 15, 2017, as opposed to June 30. Filers may still obtain an automatic six-month extension to file until Oct. 15.

Finally, with health insurance, the Form 1095 (proof of insurance coverage) filing deadline has moved up to Jan. 31, so employees will get this at the same time they get their W-2. Other health care forms, including Forms 1094B and 1095A-B-C will be due Feb. 28, or March 31 if filed electronically.

What actions should employers be taking in the final quarter to make their upcoming filing smoother?

Based on the accelerated filing deadlines, business owners need to be informed and prepared. They must start gathering information now for vendors and verifying employee addresses and Social Security numbers. This will ensure they have what is needed to file their information reporting timely. Penalties for late and/or incomplete filings can add up quickly.

Knowing that the 2016 partnership tax return is due 30 days earlier will require business owners to send information to their tax preparers much sooner than they are accustomed to doing. Reviewing fixed asset additions and disposals in the last quarter could accelerate the year-end closing.

Additionally, if an audited or reviewed statement is required for the business, having the assurance team come in and do testing that is permitted before year end can be beneficial all around.

Insights Accounting & Consulting is brought to you by BDO USA, LLP

Medicare coverage and what you need to know before enrollment

There are many misconceptions surrounding Medicare coverage, specifically regarding the coverage it provides and the costs those insured by Medicare are responsible for. This can greatly affect the ability of Medicare-eligible individuals to make the best decision regarding their health care coverage.

“Many people do not realize that original Medicare does not have a maximum limit on out-of-pocket spending,” says Charris Nelson, a Medicare specialist at Skoda Minotti. “In order for an individual insured through Medicare to have a cap on his or her out-of-pocket expenses, that person needs another strategy. And that strategy needs to be examined closely to avoid costly mistakes.”

Smart Business spoke with Nelson about what consumers should know about Medicare coverage ahead of an enrollment period.

Considering that Medicare may not cover all costs and services a person needs, what options are available to someone with Medicare coverage that will help them cover the gaps?

There are a number of ways to get coverage to fill gaps in original Medicare or get assistance with Medicare costs. While individual circumstances dictate a person’s options, available to them may be employer coverage, retiree insurance, Veteran’s Administration Benefits or Medicaid. Traditionally though, it’s through supplemental insurance provided by private health insurance companies in the form of Medigap, Medicare Advantage Plans and stand-alone Medicare Part D drug coverage.

There are many options — benefits, provider networks, and premiums vary between insurance companies offering them. Each individual’s circumstance is unique, so a thorough comparison of your options is necessary to determine which is most suitable.

When is the annual enrollment period and what should those who intend to enroll understand before doing so?

For 2017 Medicare coverage, the annual enrollment period is Oct. 15, 2016, to Dec. 7, 2016.

During the annual enrollment a person can make changes to his or her Medicare coverage. It is important to stay up-to-date and carefully review the information made available by your health plan provider since it will outline changes for the upcoming year. When annual enrollment is underway, you can make the necessary changes to reflect your current health coverage needs. This may be the only opportunity during the year to do so.

What can be changed during the annual enrollment period?   

Enrollment opportunities are contingent on election periods, most common being the annual enrollment period. During this time, eligible individuals are making changes to their existing plans. This can be done by joining a new Medicare Advantage Plan or by joining a new stand-alone prescription drug plan. You can also switch to Original Medicare with or without a stand-alone drug plan from a Medicare Advantage Plan during this time. There are many combinations for people to consider and it can get confusing, which is why it’s a good idea to consult with an adviser.

What can an adviser offer in terms of assistance during Medicare enrollment periods?

Approaching a Medicare decision, and comparing and exploring options, is complicated and can be overwhelming. Those approaching eligibility, or who are on Medicare, are inundated with mailings of plan options from each insurance carrier. Consulting a specialist who will take the time to explain how Medicare works — Part A, B, C, D and Medigap plans — so there is a clear understanding before enrollment is crucial. These choices are complex and their ramifications can be long lasting. Working with an experienced professional who is knowledgeable about Medicare plans can save a great deal of time and money.

Too often beneficiaries rely on information and feedback they receive from another enrollee to make their decisions. Your needs differ from that of a co-worker, neighbor, relative or spouse. This is why it is important to know your options and seek advice in order to become well-informed.

Insights Accounting & Consulting is brought to you by Skoda Minotti

Minimize the risks of not properly managing your company’s benefit plan

A lack of compliance in your company’s retirement plan is easy to prevent with the right amount of planning. Plus, once you get everything set up with the right structure, it’s not time consuming or burdensome. The key is being proactive upfront, before you face unexpected pitfalls.

This isn’t a responsibility you can avoid, either. Even if you bring in others to help bear the burden — hire a co-fiduciary and co-trustee, usually an investment adviser, Employee Retirement Income Security Act (ERISA) attorney or CPA — a plan sponsor never fully gives up the fiduciary role, and the risks that come with that.

“If you feel overwhelmed or are unsure of where to find help, especially when you’re also dealing with other rules and regulations that are being put upon your organization, you’re not alone,” says Kimberly Flett, managing director of Compensation and Benefits at BDO USA, LLP. “Some employers get frustrated, saying, ‘This is too much work, too much cost to worry about, I just won’t have a retirement plan.’”

But there are ways to set up a structure to run the plan successfully.

Smart Business spoke with Flett about how to minimize your retirement plan risks.

What risks are associated with not properly managing your retirement plan?

The No. 1 risk is a lack of education. Your employees aren’t sure what to do, so the management is hit and miss and your organization makes knee jerk reactions to changes. This can lead to operational and compliance errors, where the plan doesn’t follow its plan documents and related requirements. You might miss enrollments. If there’s disconnect between your payroll company and your staff, you may not be withholding the right amounts or fulfilling a participant’s requests for deferral election changes in a timely manner. You may also be at risk for distribution errors.

If these pitfalls occur, you and your company run the risk that the plan will be funded incorrectly and distributions will be missed. This can trigger an audit and draw penalties from the IRS and the Department of Labor (DOL). You run the risk of losing your tax-qualified status. You run the risk of an employee suing because he or she feels the plan has been mismanaged. You run the risk of employee fraud.

What’s the best way to oversee a plan?

The employers that are the most successful at managing their retirement plans have identified the right internal team to monitor the plan. That team may include the CFO, the benefits coordinator and HR director, acting like a board of directors for your plan. Generally referred to as the 401(k) committee, this group should meet at least annually or semiannually and follow a timeline for the year’s tasks.

That committee then works in conjunction with an outside group, which might consist of your third-party administrator, ERISA attorney, CPA and investment adviser. These advisers can assist with plan operations, such as compliance and regulatory changes — basically telling you what you don’t know.

It comes down to planning, review, communication and education.

One way to improve employee education and communication is holding an annual town hall for the employees, where you explain what management is doing to administer the retirement plan and outside advisers are on hand to answer questions.

How do you foresee the new DOL fiduciary rule playing a part in 2017?

This DOL rule provides a higher legal standard for investment advisers. Their recommended funds must be in the best interest of their clients, which may not have been the case in the past. This will make it easier for employers to make sure the plan helps employees invest wisely and prudently.

What else do employers need to know?

It’s critical to disclose the existence of all plans to all of your advisers — whether that’s a retirement plan, employee stock ownership plan, 403(b), simple plan, health and welfare plan or non-qualified plan — because these plans interact with each other.

In addition, don’t forget to consider benefit plans when your company goes through a merger, acquisition, sale, shutdown or ownership structure change or redesign. The whole structure can be impacted if, for example, a new owner owns other companies. These changes must be looked at on a broad scope by experts.

Insights Accounting & Consulting is brought to you by BDO USA, LLP

Redefine what your customer is buying and create market differentiation

At some point in its lifecycle, every company eventually faces the pricing and margin pressure that results from increased competition. This is often a good opportunity to look at both your marketing strategy and value proposition and develop a more targeted message to present to your customers.

Smart Business spoke with Chris Meshginpoosh, Director at Kreischer Miller, about techniques companies can use to differentiate offerings, drive growth and increase profitability.

Why do companies struggle so much trying to find ways to differentiate?
In mature industries, factors that customers consider when making buying decisions are widely known. Companies tend to benchmark their offerings against their competitors, considering those widely-known factors. The result of this is that, over time, companies in an industry tend to all look the same. When you focus myopically on the same factors, it can be very challenging to drive real differentiation.

How do you break that cycle?
In “Blue Ocean Strategy,” W. Chan Kim and Renée Mauborgne introduced a framework that can help companies create uncontested space in the market. One of the first steps in the process is to try to redefine what the customer is buying.

For example, in the real estate industry, it would be easy to assume that most homebuyers are simply looking for help identifying and closing on the purchase of a house. However, the purchase of real estate is often only a small part of one of the most stressful life events: moving. Reframing the customer need in this manner might reveal opportunities to develop an offering that stands out from the crowd.

Once you identify a customer need, how do you make sure your offering is unique?
You need to step back and identify the common factors that customers and buyers always consider when making buying decisions. Once you have assembled that list, start thinking about factors you could completely eliminate.

For example, in our industry, most of our competitors provide audit services to both publicly and privately-held companies. We completely eliminated one factor – auditing publicly-traded companies – which immediately impacted every facet of our business, including the services we offer, the people we hire, the training we provide and our overall cost structure. As a result, we look much different to the market we serve.

Is eliminating factors the end of the process?
Not at all. Next, think about the reframed customer need that was identified in the first step. With that need in mind, try to identify factors that none of your competitors are currently offering. Going back to the real estate example, what if your customers were looking for assistance taking the stress out of finding, buying and moving into a new home?

When put in this larger context, it becomes clear that customers could benefit from assistance with not only identification and closing on a real estate transaction, but also title insurance, financing and relocation services. A client of ours did this and built one of the largest real estate brokerages in the country.

Once you have identified factors to eliminate or add, what are the next steps?
The final step is to consider what other factors you could reduce or raise. For example, if all of your competitors are stressing a factor such as a wide range of products, one option might be to reduce the scope of your offerings.

Narrowing your focus might allow you to go deeper into an important category, as well as reduce costs throughout your supply chain. Many internet retailers have been wildly successful executing strategies like this.

Do you have any final words of advice?
The marketplace is always changing, so these principles should be part of a company’s ongoing strategic planning process. By systematically challenging your team to reframe customer needs and your offerings, you can find uncontested markets, and drive both growth and profitability. ●

Insights Accounting & Consulting is brought to you by Kresicher Miller

Budgeting, forecasting for a business and how it impacts personal finances

The personal lives of business owners, especially those with smaller companies, are intertwined with their business as long as it’s in existence. It’s a means of support for family expenses and their lifestyle. Good budgeting and forecasting for business owners and their companies are critical to achieving the goals of each.

“A lot goes in to budgeting and forecasting, but when the business fiscal year ends, it’s a brand new ball game. Questions need to be answered before it begins,” says Michael Van Himbergen, CFP®, a financial advisor at Skoda Minotti, and ProEquities, Inc.

“Review your financial situation and the financial situation of your business annually to make sure any obstacles — anticipated or otherwise — are handled before the end of the year so they don’t become roadblocks.”

Smart Business spoke with Van Himbergen about what to include in annual financial reviews and why they’re important.

What are the major considerations business owners should make as they budget and forecast?

Every goal needs a timeline, whether short- or long-term. Consider inflationary factors — the longer the timeline to achieve the goal, the greater the impact of inflation — and establish a target rate of return for each goal.

Make sure you’re paying yourself first out of business revenue. Calculate that as an expense and build it into the budget every year.

Establish a retirement plan for yourself and your employees if you haven’t already. There are a number of factors that determine what type of plan is best to implement, such as the number of employees, their average age, employer and/or employee contributions, to name a few.

If you want to cover college expenses for your children, the longer you wait the more it costs. Families need to save $500 to $600 per month per child from the time their child is born to get them through four years of an in-state public university. However, take care of yourself first to make sure you’re on track for retirement before funding a child’s education. Children will have their entire productive lives to pay back student loans. You can always help out down the road.

Also, don’t forget to plan for weddings, big vacations and any other major purchases, accordingly. And it’s always prudent to have three to six months of monthly living expenses to cover an emergency.

How frequently should business owners review their business and personal finances?

Every year. Is your plan doing what it’s supposed to? Review the company 401(k) with employees. Is participation low? If so, determine the reason they’re not participating and educate employees on the benefits of the plan.

Always review income projections. A cash flow analysis will show you whether income is stable or fluctuating.

Review personal investments at least annually unless there are significant changes that would affect longer-term planning. If that’s the case, talk to your financial adviser/accountant to determine how that life-altering event could affect your long-term financial goals.

What, generally, are some ways to adjust to the new financial realities that follow a life-changing event?

Changing jobs, death or disability, death or disability of a partner or a key employee, having children, getting married or divorced are common life-changing events. When these events happen, it’s important to determine how they impact your financial plan. Any of these can affect cost of living, the level and type of insurance protection that’s prudent, and how much money is available to save and spend. Regardless of what’s happened, it’s important to stick to a financial plan and make adjustments as needed, rather than stop saving altogether.

Unexpected aside, define your goals to determine the level of risk that’s prudent given your situation and the goal you’re trying to obtain. Review your circumstances at least annually with your financial adviser, both in terms of what’s going on in your life and in your finances, and you should have no trouble achieving your goals.

Advisory Services offered through Investment Advisors, a division of ProEquities, Inc., a Registered Investment Advisor. Securities offered through ProEquities, Inc., a Registered Broker-Dealer, Member, FINRA & SIPC. Skoda Minotti is independent of ProEquities, Inc.

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