News + Resources

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3 areas of focus for companies looking to control costs

Controlling costs is fundamental for every business. But where and how to address this challenge can change over time based on various economic and logistical factors. Earlier this year, global consultancy Boston Consulting Group published a report entitled The CEO’s Guide to Costs and Growth. Within it were the results of a survey of 600 C-suite executives that found, among other things, cost management was a top priority for respondents heading into 2024. According to the survey, three of the top categories for cost-cutting initiatives were:

1. Supply chain / manufacturing. Not every company incurs manufacturing costs, but most have a supply chain. Costs and delays in this area soared during the pandemic because of global disruptions and backups. Since then, some sense of normalcy has returned, though that doesn’t mean managing supply chain costs has become easy. Many companies find that most of their spending is done with just a few vendors. By identifying these vendors and consolidating spending with them, you may be able to put yourself in a stronger position to negotiate volume discounts. Consolidating your supplier base also tends to streamline the administrative work associated with purchasing. It also pays to really know your suppliers. One way to gather an abundance of relevant information is to conduct a supplier audit. This is a formal process for collecting key data regarding each supplier’s performance to manage quality control and ensure you’re getting an acceptable return on investment.

2. Labor/nonlabor overhead. Controlling labor costs is tricky in today’s environment. Many industries are facing skilled labor shortages, meaning businesses would love to spend more on labor if they could find people to fill those positions. Nevertheless, with payroll being such a dominant expense category for most companies, it’s critical to monitor these costs and prevent overspending. A logical first step in managing labor costs is to know how much you’re spending. And the answer isn’t as simple as looking at the total gross wages you pay out every month or year. You need to know the actual and total amount of these costs. Fortunately, there’s a metric for that. Labor burden rate reflects the additional costs that companies incur beyond gross wages. These generally include expenses such as payroll taxes, workers’ compensation insurance and fringe benefits. Knowing your labor burden rate can enable you to truly “right-size” your workforce. Beyond that, outsourcing remains an option for mitigating labor costs — especially given the vast pool of independent contractors now available. Although you’ll obviously incur costs when outsourcing, the time and labor cost that it saves you could end up a net gain. Carefully chosen and implemented technology upgrades can provide similar results.

3. Marketing/sales. Much like labor, strong marketing and sales are critical to most businesses operating today. So, skimping on their related costs typically isn’t going to pay off. But, of course, you also need to ensure a strong return on investment. Again, choosing and monitoring the right metrics can prove useful here. The optimal ones tend to vary by industry and company type, but some of the most widely used for marketing purposes include lead conversion rate, click-through rate for online ads and cost per lead. Popular sales metrics include total revenue, year-over-year growth and average customer lifetime value. Whether it’s sales metrics, labor burden rate or supply chain management, getting objective, professional advice can help you and your leadership team obtain an accurate picture of what’s going on with your costs and target feasible solutions. Please consider our firm for assistance.
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Could a 412(e)(3) retirement plan suit your business?

When companies reach the point where they’re ready to sponsor a qualified retirement plan, the first one that may come to mind is the 401(k). But there are other, lesser-used options that could suit the distinctive needs of some business owners. Case in point: the 412(e)(3) plan. Nuts and bolts Unlike 401(k)s, which are defined contribution plans, 412(e)(3) plans are defined benefit plans. This means they provide fixed benefits under a formula based on factors such as each participant’s compensation, age and years of service.

For 2024, the annual benefit provided by 412(e)(3)s can’t exceed the lesser of 100% of a participant’s highest three-year average compensation or $275,000. As with other defined benefit plans, 412(e)(3)s are funded only by employers. They don’t accept participant contributions. But unlike other defined benefit plans, which are funded through a variety of investments, 412(e)(3)s are funded with annuity contracts and insurance. In fact, the IRS refers to them as “fully insured” plans. The name “412(e)(3)” refers to Section 412(e)(3) of the Internal Revenue Code, which authorizes the plan type’s qualified status.

Under Sec. 412(e)(3), defined benefit plans funded with annuity contracts and insurance aren’t subject to minimum funding requirements — so long as certain conditions are met. Companies sponsoring these plans don’t have to make annual actuarial calculations or mandatory contributions. However, they risk penalties if a plan’s insurer doesn’t satisfy certain obligations. In other words, the plan needs to be safely insured. Potential benefits Some experts advise relatively older business owners who want to maximize retirement savings in a short period to consider 412(e)(3)s because of the way defined benefit plans differ from defined contribution plans.

That is, business owners who sponsor and participate in defined benefit plans can take a bigger share of the pie — particularly if they have few, if any, highly compensated employees. Meanwhile, they can also enjoy substantial tax deductions for plan contributions. In addition, 412(e)(3)s may be more attractive than other defined benefit plans for some small business owners. Although they tend to sacrifice potentially higher investment returns, these plans offer greater flexibility by using potentially lower-risk and easy-to-administer annuity contracts and insurance. They might also appeal to closely held business owners who want to maximize tax-deductible contributions to a retirement plan in the early years of ownership. As is the case with all defined benefit plans, however, sponsors must have the financial stability to support their plans indefinitely.

So, 412(e)(3)s usually aren’t appropriate for start-ups. Administrative requirements Tax-favored treatment for 412(e)(3)s isn’t automatic. These plans must meet various requirements as spelled out in the tax code. For example, as mentioned, 412(e)(3)s must be funded exclusively by the purchase of annuity contracts or a combination of annuity contracts and insurance. Sponsors must buy the contracts and/or insurance from insurers licensed by at least one of the 50 states or the District of Columbia. Also, the contracts must provide for level annual (or more frequent) premium payments starting on the date each participant joins the plan. Premium payments need to end no later than the normal retirement age of a participant — or by the date the individual ceases participation in the plan, if earlier.

These are just a couple examples of the rules involved. It’s critical to fully understand all the requirements before sponsoring a plan. An intriguing possibility A 412(e)(3) plan may be an under-the-radar choice for some businesses under the right circumstances. For help choosing the best plan for your company, contact us.
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Even a lower-cost benefits menu can help you attract talent

Some job candidates assume that not-for-profit organizations offer lower compensation than for-profit companies do. If your nonprofit has open positions, this can be a difficult hurdle to overcome — particularly if you don’t have the budget to compete with for-profit businesses. However, you may be able to offer fringe benefits that won’t take a big bite out of your budget. Review your benefits me nu to see if it could use some enhancements. Competitive advantage A comprehensive fringe benefits package can be worth its weight in gold. In fact, a survey by workplace review site Glassdoor found that 80% of employees prefer additional benefits to comparable pay hikes, and 60% say benefits played a big role in accepting a job. Workers indicate they favor better benefits because they provide greater flexibility and job satisfaction in the long run. Your benefits may also enable you to distinguish your organization from nonprofits with similar missions. An applicant inclined to work for an organization that supports a worthy cause may opt to accept one nonprofit over another if it furnishes more benefits and more flexibility to use them. Saving on traditional benefits When asked to name a common employee benefit, most people probably would name health insurance.

This benefit is also typically the most expensive for employers to offer. You can help defray your organization’s costs by asking staffers to pay a greater share of the premiums, but then help make up for it by offering greater wellness benefits, such as discounted gym membership and cash incentives for healthy living. These tend to be affordable add-ons to health care plans. Retirement savings plans can also be costly to sponsor. However, nonprofits are no longer limited to offering 403(b) plans, they can also adopt 401(k) plans. Traditionally provided by for-profit entities, 401(k) plans tend to have lower expenses and fees for both employers and employees. One of the most cost-effective plans is the Safe Harbor 401(k), which has lower administrative burdens.

Talk to a benefits expert to learn more. Alternative offerings According to data-analysis nonprofit Candid, almost 70% of nonprofit staffers are female. Because women are more likely than men to be tasked with child and elder care, consider offering a dependent care FSA (if you don’t already). This pre-tax account allows employees to save for dependent care expenses. Also think about offering parental and adoption leave, and short-term disability insurance. These can help staffers and their families maintain financial stability during stressful times. And you might want to consider training and education reimbursement programs and other career advancement initiatives.

Finally, don’t overlook time off incentives. Many employees rank work/life balance as their top priority. Your organization may want to grant employees extra time off to handle personal matters or simply to enjoy R&R. Such benefits usually can be offered as paid time off, personal time, sick leave or vacation time. No magic formula The “magic” formula that enables you to land and retain the best talent can be elusive. Some workers simply want higher compensation, and there’s probably nothing you can do about it. But if you spiff up your benefits menu (keeping an eye on costs) and highlight it when recruiting staffers, you’re more likely to attract the attention of job candidates. Contact us for more information.
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Why private foundations need to avoid self-dealing

If you are a leader of a private foundation, you are probably aware of the prohibition against self-dealing transactions between foundations and “disqualified persons.” But what constitutes self-dealing? And who exactly counts as disqualified in this context? It is important for you to know because financial repercussions for violating the rules can be severe. Who is disqualified?

The IRS defines disqualified persons as substantial contributors (generally, large donors), foundation managers, owners of more than 20% of certain organizations that are substantial contributors and family members of any of these. Also disqualified are corporations or partnerships in which any of the previously listed parties hold more than 35% voting power and trusts or estates in which they hold more than a 35% beneficial interest. In addition, persons effectively in control of a foundation are disqualified, as are government officials. What are they prohibited from doing?

In general, a disqualified person cannot participate in acts of “self-dealing.” According to the IRS, these include selling, exchanging, or leasing the foundation’s property. Lending money or extending credit to the foundation as well as furnishing it with goods, services or facilities are also off-limits. Foundations are not allowed to pay compensation or expenses to a disqualified person. Nor can they allow the transfer or use of the foundation’s income or assets by or for the benefit of disqualified persons. Certain payments to government officials and transactions between organizations controlled by a private foundation may also be taxable self-dealing. What happens if the rules are violated? Internal Revenue Code Section 4941 imposes a minimum 10% excise tax on most disqualified persons on the amount involved in each self-dealing transaction. Foundation managers — officers, directors, or trustees — who knowingly participate in acts of self-dealing face a 5% tax on the amount involved.

Notably, participation on the part of foundation managers includes not only affirmative acts, but also silence or inaction where they have a duty to speak or act. If a violation is not corrected, the tax on a self-dealing transaction on disqualified persons other than foundation managers soars to 200%. When this extra tax is imposed, an excise tax of 50% of the amount involved is also imposed on any foundation manager who refuses to agree to part or all of the correction of the self-dealing act. Are there exceptions? There are some exceptions to these rules. For example, compensation paid to disqualified persons is not an act of self-dealing if the payments are for reasonable and necessary services to carry on the foundation’s exempt purposes. However, you should not count on self-dealing to be allowed or forgiven.

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How family businesses can solve the compensation puzzle

Every type of company needs to devise a philosophy, strategy, and various policies regarding compensation. Family businesses, however, face additional challenges — largely because they employ both family and nonfamily staff. If your company is family-owned, you have probably encountered some puzzling difficulties in this area. The good news is solutions can be found.

Perspectives to consider: Compensation issues in family businesses are often two-pronged because they can arise both 1) within the family and 2) between family and nonfamily employees. Salary inequities among siblings, for example, can breed resentment and fighting. However, simply paying them all the same salary can also create problems if one works harder and contributes more than the others. Second, family business owners may feel it is their prerogative to pay working family members more than their nonfamily counterparts — even if they are performing the same job.

Although owners naturally have the best interests of their loved ones at heart, these decisions may inadvertently lower morale among essential nonfamily employees and risk losing them. Nonfamily staff may tolerate some preferential treatment for family employees, but they could become disgruntled over untenable differences. For instance, nonfamily employees often reach a breaking point when they feel working family members are underperforming and getting away with it, or when they believe family employees are behaving counterproductively or unethically. Ideas to ponder Effectively addressing compensation in a family business calls for a clear, objective understanding of the company’s distinctive traits, culture, and strategic goals. A healthy dash of creativity helps, too. There is no one right way of handling the matter. But there are some commonly used strategies that may be helpful in determining compensation for the two major groups involved. When it comes to family employees, think beyond salary. Many family businesses intentionally keep salaries for these individuals low and make up the difference in equity. Because working family members are generally in the company for the long haul, they will receive increasing benefits as their equity shares grow in value. But you also must ensure their compensation is adequate to meet their lifestyle needs and keep up with inflation. Incentives are usually a key motivator for family employees. You might consider a combination of short-term rewards paid annually to encourage ongoing accomplishments and long-term rewards to keep them driving the business forward.

On the other hand, nonfamily employees typically recognize that their opportunities for advancement and ownership are generally more limited in a family business. So, higher salaries and a strong benefits package can be important to attracting and retaining top talent. Another way to keep key nonfamily staff satisfied is by giving them significant financial benefits for staying with the company long term. There are various arrangements to consider, including phantom stock or nonqualified deferred compensation plans. You can do it If your family business has been operating for a while, overhauling its approach to compensation may seem overwhelming. Just know that there are ways to tackle the challenges objectively and analytically to arrive at an overall strategy that is reasonable and equitable for everyone. Our firm can help you identify and quantify all the factors involved.
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4 ways businesses can better control cash flow

From the minute they open their doors, business owners are urged to keep a close eye on cash flow. And for good reason — even companies with booming sales can get into serious trouble if they lack the liquidity to compensate employees and pay their bills. Here are four ways businesses can better control cash flow.

1. Stick with the budget Although creating and maintaining a detailed annual budget can be tedious and contentious, it’s fundamental to good cash flow management. Items in your budget should align with your stated strategic goals for the year. If you can’t effectively argue how an item enables a particular goal, question its merit. Doing so will help you avoid unnecessary spending and keep funds available for valid business needs. Also bear in mind that, for analytical purposes, a budget is useful only if you update it regularly to accurately reflect actual spending. For example, you may have overbudgeted or underbudgeted on some items and, thus, spent more or less than anticipated.

2. Check your statement of cash flows Most companies should generate financial statements, preferably those that conform to Generally Accepted Accounting Principles (GAAP). Financial statements that comply with GAAP typically have three major parts: The income statement, The balance sheet, and the statement of cash flows. Naturally, when monitoring cash flow, you’ll want to focus on that last one. The purpose of this document is to report your business’s net increase or decrease in cash. The statement factors in the cash inflows and outflows of daily operations, asset purchases, sale proceeds, and financing activities. Because it excludes noncash accounting items, you can use it to catch potential cash flow problems. If you want to get the most from your statement of cash flows, generate one monthly. But quarterly or, at the very least, annual statements can be useful for identifying cash flow trends.

3. Exercise expense management Maintaining accurate, up-to-date expense records will keep you in a strong position to effectively manage cash flow and strive for profitability. As you review the data, look for ways to reduce day-to-day operating expenses. For example, you may save money by outsourcing areas of the business such as human resources, payroll and benefits management, or information technology support. If you have inventory, reconsider your approach to its management. Under the “just-in-time” approach, for instance, businesses buy items or materials only when necessary. As a result, your carrying costs for storage, insurance, interest payments and other factors are lowered. This approach isn’t feasible for every company. But if logistical support in your market has improved in recent years, it may be a beneficial option.

4. Mind your timing at the end of the day, cash flow is all about the timing of revenue coming in and payments going out. Look for ways to stabilize the two. For instance, conduct credit and reference checks on new customers to validate their payment histories and minimize collection risks. Also, prevent invoicing errors and costly collection delays by maintaining current and accurate customer account data. Send invoices promptly, using electronic billing methods as much as possible. Establish sound, methodical procedures for following up on past-due accounts. Don’t wait until they’re 60 or 90 days late. Watch your payables, too.

Generally, you shouldn’t pay invoices earlier than required unless offered a discount. As feasible, use your buying power for large-volume or frequent purchases as leverage to negotiate discounts, free or low-cost financing, or extended payment terms. Go with the flow Effective cash flow management is something many small to midsize businesses struggle with. But there are ways to put and keep the odds in your favor. For help succeeding at this mission-critical task, contact us.
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Thinking ahead to your next Form 990

The deadline for most not-for-profits to file Form 990 with the IRS (May 15, 2024) has come and gone. Assuming your organization operates on a calendar-year tax basis and filed its Form 990 on time, you probably don’t want to think about tax reporting again until next spring. However, it’s important to keep your future Form 990 in mind as your organization carries out its programs and events this year. 4 overlooked issues You’re probably already alert to issues such as unrelated business income and the risks potentially posed by political participation, excess benefit transactions and excessive compensation (and the need to report some of them). But you may not be paying as much attention to the following four:

1. Fundraising expenses. Your not-for-profit must report its income from fundraising activities, as well as its expenses, on Schedule G of Form 990. The IRS is always on the lookout for events that produce a relatively small amount of income compared with claimed expenses. In such situations, make sure you keep good records to withstand any potential IRS challenge.

2. Operations abroad. Nonprofits are permitted to operate outside the United States without penalty. But your organization is required to answer questions on Form 990 relating to foreign bank accounts, activities in foreign countries and grants by foreign entities. The IRS will likely ratchet up its scrutiny if it finds inconsistencies or evidence of activities that don’t measure up to U.S. standards. If you operate abroad, professional tax advice is essential.

3. Diverted assets. Form 990 asks whether there has been any “diversion” of assets during the past year. Essentially, “diversion” means that funds have been misappropriated for personal reasons. If you answer “yes” to this question, you’ll need to provide a detailed explanation of the diversion and its resolution. However, even if you’ve provided a plausible explanation, a “yes” answer to this question may lead to an IRS audit. If you fail to attach an explanation, your audit exposure increases exponentially. To avoid the issue altogether, take every step (including implementing robust internal controls) to prevent fraud and other illegal asset diversions.

4. Loans to disqualified persons. Generally, loans from a tax-exempt organization to a disqualified person are prohibited on the state level. Form 990 asks if your nonprofit has made such loans. In the event your nonprofit has made a prohibited loan, your Form 990 will need to reflect a declining balance. Otherwise, it may look as though the loan isn’t being paid off in time — a certain red flag for the IRS. Again, if you don’t allow this activity, you won’t have anything to report.

Of course, if you engage a professional tax advisor to prepare your Form 990, your advisor will ask about all these subjects to ensure your organization properly reports its activities. But you can help your nonprofit minimize audit risk by keeping possible pitfalls top of mind.
Be sure to stay current with tax deadlines and ever changing tax information. 

Click here for additional tax resources.
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Disaster relief charities: Know the rules before providing aid

The United States is entering the most natural-disaster-prone time of the year. Tornadoes are most likely to occur in May, and the Atlantic hurricane season starts on June 1. Not-for-profits that provide aid to disaster victims — whether it’s medical care, food, clothing, shelter, cash or rebuilding assistance — are gearing up for potential emergencies. But if your organization operates in this space, know that when dispensing aid you must observe certain IRS rules.

Defining charitable activities Disaster relief organizations are allowed to provide short-term emergency assistance and long-term aid to help ensure victims have necessities. Relief may also come in the form of cash grants or vouchers. Providing such relief to individuals qualifies as a charitable activity because it aims to relieve human suffering. However, your nonprofit must assist a “charitable class.”

A charitable class should be either large enough that the potential beneficiaries can’t be individually identified or sufficiently indefinite that the community as a whole, rather than a pre-selected group of people, benefits. In addition, you must apply needs-based tests, meaning you can’t distribute aid to individuals just because they’re disaster victims. Decisions about how funds will be distributed must be based on an objective evaluation of needs at the time grants are made. But practicality and sympathy for victims’ immediate plight can be considered. For example, take a charity that distributes blankets and hot meals to natural disaster victims. In the immediate aftermath of a storm, the charity doesn’t ask victims for proof of financial need.

However, as time goes on and victims and their community begin to recover, it may be appropriate to conduct individual financial needs assessments. Aiding businesses In addition to helping individuals, your charity generally can provide disaster aid to businesses, so long as two conditions are met: 1. Assistance must be reasonably related to the accomplishment of a tax-exempt purpose. Businesses aren’t members of a charitable class and can’t, therefore, be appropriate charitable objects. However, distributing aid to them can achieve charitable purposes, such as preventing community deterioration or reducing the burden on local government. 2. Any private benefit to businesses must be incidental. An eligible business might not have adequate resources, conventional financing or insurance coverage that would enable it to recover from a disaster. Disaster aid organizations also need to determine that businesses they assist wouldn’t be able to remain in the community without their intervention.

Maintaining records To prove your organization’s compliance with IRS rules, maintain good records. Document amounts paid, the purpose of payments and evidence that payments were made to meet charitable purposes and victims’ needs. In addition, document: Your organization’s objective criteria for disbursing assistance, How specific recipients were selected, Names and addresses of recipients and the amounts supplied to them, Any relationship between recipients and your charity’s officers, directors, key employees or substantial donors, and The composition of the selection committee approving assistance.

Note an exception: Organizations distributing short-term emergency assistance aren’t expected to record the names, addresses and amounts provided. Instead, document the date, place and estimated number of victims assisted. Other rules may apply There are other IRS rules that might apply to your nonprofit’s situation. Contact us if you have questions about complying with rules for tax-exempt organizations. 
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Timelines: 3 ways business owners should look at succession planning

Business owners are rightly urged to develop succession plans so their companies will pass on to the next generation, or another iteration of ownership, in a manner that best ensures continued success. Ideally, the succession plan you develop for your company will play out over a long period that allows everyone plenty of time to adjust to the changes involved. But, as many business owners learned during the pandemic, life comes at you fast. That’s why succession planning should best be viewed from three separate but parallel timelines:

1. Long term. If you have many years to work with, use this gift of time to identify one or more talented individuals who share your values and have the aptitude to successfully run the company. This is especially important for keeping a family-owned business in the family. As soon as you’ve identified a successor, and that person is ready, you can begin mentoring the incoming leader to competently run the company and preserve your legacy. Meanwhile, you can carefully determine how to best fund your retirement and structure your estate plan.

2. Short term. Many business owners wake up one day and realize that they’re almost ready to retire, or move on to another professional endeavor, but they’ve spent little or no time putting together a succession plan. In such a case, you may still be able to choose and train a successor. However, you’ll likely also want to explore alternatives such as selling the company to a competitor or other buyer. Sometimes, even a planned liquidation is the optimal move financially. In any case, the objective here is less about maintaining the strategic direction of the company and more about ensuring you receive an equitable payout for your ownership share. If you’re a co-owner, drafting a buy-sell agreement is highly advisable. It’s also critical to set a firm departure date and work with a qualified team of professional advisors.

3. In case of emergency. As mentioned, the pandemic brought renewed attention to emergency succession planning. True to its name, this approach emphasizes enabling businesses to maintain operations immediately after unforeseen events such as an owner’s death or disability. If your company doesn’t yet have an emergency succession plan, you should probably create one before you move on to a longer-term plan. Name someone who can take on a credible leadership role if you become seriously ill or injured. Formulate a plan for communicating and delegating duties during a crisis.

Make sure everyone knows about the emergency succession plan and how it will affect day-to-day operations, if executed. As with any important task, the more time you give yourself to create a succession plan, the fewer mistakes or oversights you’re likely to make. Our firm can help you create or refine a plan that suits your financial needs, personal wishes and vision for your company. 
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Nonprofits: Act thoroughly on audit findings

External audits can help assure your not-for-profit’s stakeholders that your financial statements are fairly presented according to U.S. Generally Accepted Accounting Principles. They can also help prevent occupational fraud. Often, audit reports contain recommendations for organizations to act on. And if you fail to make changes that respond to risks or concerns discovered in an audit, it could threaten your nonprofit’s future.

Discuss the report when auditors complete an engagement, they typically present a draft report to their subject’s audit committee, executive director and senior financial staff. Those individuals need to review the draft before it’s presented to their full board of directors. Your audit committee and management should meet with auditors before their board presentation. Often auditors provide a management letter highlighting operational areas and controls that need improvement. Your team should explain how your organization plans to improve operations and controls, and this explanation can be included in the report’s final management letter. Your audit committee also can use the meeting to ensure the audit is properly comprehensive.

Auditors will provide a governance letter, which should confirm cooperation from your nonprofit’s staff and whether the auditors received all requested documentation. The letter also will disclose any difficulties or limitations encountered during the process, accounting adjustments required, and significant audit plan changes (and the reasons for such changes).

Finally, the auditors will list any unresolved matters. Your audit committee should determine whether there were any conflicts of interest between the auditors and your team and how they might have affected the audit’s scope. Taking next steps the final audit report will state whether your organization’s financial statements are fairly presented in accordance with U.S. Generally Accepted Accounting Principles. The statements must be presented without any material — meaning significant — inaccuracies or misrepresentation. As noted above, the auditors also may identify, in a separate management letter, specific concerns about material internal control issues.

Adequate internal controls are critical for preventing, catching and remedying misstatements that could compromise the integrity of financial statements, whether due to error or fraud. If the auditors find your internal controls weak, your organization must promptly shore them up. You could, for instance, set up new controls, such as segregating financial duties or implementing new accounting practices or software. These measures can reduce the odds of fraud, improve the accuracy of your financial statements and help reduce future audit costs.

Make your audit effective Audit reports are only as effective as their reception — and the action subject organizations take in response to their findings. Contact us for help implementing new internal controls and addressing other issues. 
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Businesses must face the reality of cyberattacks and continue fighting back

With each passing year, as networked technology becomes more and more integral to how companies do business, a simple yet grim reality comes further into focus: The cyberattacks will continue. In fact, many experts are now urging business owners and their leadership teams to view malicious cyberactivity as more of a certainty than a possibility. Why? Because it seems to be happening to just about every company in one way or another.

A 2023 study by U.K.-based software and hardware company Sophos found that, of 3,000 business leaders surveyed across 14 countries (including 500 in the United States), a whopping 94% reported experiencing a cyberattack within the preceding year. Creating a comprehensive strategy What can your small-to-midsize business do to protect itself? First and foremost, you need a comprehensive cybersecurity strategy that accounts for not only your technology, but also your people, processes and as many known external threats as possible.

Some of the primary elements of a comprehensive cybersecurity strategy are: Clearly written and widely distributed cybersecurity policies, A cybersecurity program framework that lays out how your company: 1) identifies risks, 2) implements safeguards, 3) monitors its systems to detect incidents, 4) responds to incidents, and 5) recovers data and restores operations after incidents, Employee training, upskilling, testing and regular reminders about cybersecurity, Cyberinsurance suited to your company’s size, operations and risk level, and A business continuity plan that addresses what you’ll do if you’re hit by a major cyberattack. That last point should include deciding, in consultation with an attorney, how you’ll communicate with customers and vendors about incidents.

Getting help All of that may sound a bit overwhelming if you’re starting from scratch or working off a largely improvised set of cybersecurity practices developed over time. The good news is there’s plenty of help available. For businesses looking for cost-effective starting points, cybersecurity policy templates are available from organizations such as the SANS Institute. Meanwhile, there are established, widely accessible cybersecurity program frameworks such as the: National Institute of Standards and Technology’s Cybersecurity Framework, Center for Internet Security’s Critical Security Controls, and Information Systems Audit and Control Association’s Control Objectives for Information and Related Technologies. Plug any of those terms into your favorite search engine and you should be able to get started. Of course, free help will only get you so far.

For customized assistance, businesses always have the option of engaging a cybersecurity consultant for an assessment and help implementing any elements of a comprehensive cybersecurity strategy. Naturally, you’ll need to vet providers carefully, set a feasible budget, and be prepared to dedicate the time and resources to get the most out of the relationship. Investing in safety If your business decides to invest further in cybersecurity, you won’t be alone.

Tech researcher Gartner has projected global spending on cybersecurity and risk management to reach $210 billion this year, a 13% increase from last year. It may be a competitive necessity to allocate more dollars to keeping your company safe. For help organizing, analyzing and budgeting for all your technology costs, including for cybersecurity, contact us. 
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Health care self-insurance and stop-loss coverage: What business owners need to know

For businesses, cost-effectively sponsoring a health insurance plan for employees is an ongoing battle. In the broadest sense, you have two options: fully insured or self-funded. A fully insured plan is simply one you buy from an insurer. Doing so limits your financial risk while offering the most predictable costs.

The other option is what’s commonly known as “self-insurance.” Under this approach h, your company funds and manages the plan, usually with the help of a third-party administrator. If you’re tired of dealing with big insurers, and you’re prepared to design your own plan and handle the claims process, self-insurance may be for you. However, bear in mind that your business will incur the full financial risk of a self-funded plan — and health care costs can be unpredictable and potentially catastrophic. That’s why, if you’re seriously considering self-insurance, you’ll also need to familiarize yourself with stop-loss coverage.

Basic features Stop-loss coverage is essentially insurance for your health insurance. These high-deductible policies help protect against unpredictably high or catastrophic losses. More specifically, stop-loss coverage kicks in once an individual claim and, if the self-insured policy is so designed, annual aggregate claims reach a contracted threshold known as the “attachment point.” Some stop-loss policies cover only individual claims — known as “specific” coverage — instead of providing both specific and aggregate claims protection. Typically, the larger and more profitable the business, the higher the stop-loss deductible and attachment point. This is because larger companies are usually less financially vulnerable to an occasionally catastrophic medical claim.

Self-insurance generally isn’t economically advantageous for companies with fewer than about 75 employees. Claims and coverage Aggregate claims protection typically works like this: You and your broker or claims administrator agree on an estimate of what total claims will be in the upcoming year, based on your recent claims experience. Let’s say it’s $1 million. The aggregate attachment point generally will be set at 125% of that amount — that is, claims will be covered when you have already paid out $1.25 million. There can be a complicating factor, however, known as a “laser.” A stop-loss carrier, or you, might decide that an employee with a high medical risk profile needs to be “lasered” out of the terms that apply to other employees covered by the stop-loss policy. Instead, you’ll remain on the hook for a much higher amount before stop-loss protection kicks in. You might request a laser to lower your premium, or the stop-loss carrier might demand it to manage its risk. What’s a typical specific coverage amount? As with the decision of whether to include an aggregate claims limit on your stop-loss coverage, the answer generally varies according to business size. Many stop-loss buyers pick an attachment point for individual claims at below $250,000, with some businesses setting the limit below $75,000.

However, some set higher limits as well. Basically, it’s a question of how much financial protection you’re willing to pay for. Going with a higher attachment gets you lower premiums. For example, a premium per covered employee with a $100,000 deductible might be around twice as high as it would be for one with a $200,000 deductible, and more than five times as high as one with a $500,000 attachment point.

Many challenges as you can see, self-insurance has many challenges — starting with stop-loss coverage, which is a necessity. Nevertheless, it can be an effective approach under the right circumstances. We can help you assess the costs, risks and potential advantages of self-insuring vs. fully insuring.
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Weighing potential risks and returns of alternative investments

Alternative investments may appeal to your not-for-profit because they often offer higher long-term performance than traditional securities do. But these investments can come with tax liabilities. They also typically are riskier, which may not be appropriate for your organization.

Here’s what you need to know. No easily ascertained value Alternative investments generally are defined in contrast to more traditional securities, such as stocks, bonds and mutual funds. They generally don’t have an easily ascertained fair market value. Examples include hedge funds, private equity, real estate, venture capital and cryptocurrency investments.

Alternative investments may provide investors with access to high-growth companies in cutting-edge industries. However, because alternative investments may be illiquid, investors typically can’t easily cash out or shift their allocations. This can be a substantial risk to nonprofits without other sources of available operating capital. The complex nature of such assets also increases risk to the investor, which is why returns may be higher. Pay attention to fees Alternative investment funds generally are formed as partnerships or limited liability companies (LLCs). Both are types of pass-through entities, meaning the income and the tax liability pass through to investors, who are considered partners or members.

Manager selection is crucial — you want someone with a proven track record and access to the best investments. Pay attention to management fees. In addition to a base management fee (generally about 1.5% to 2% of the fund’s capital or net asset value), managers generally charge performance-based fees known as carried interest. These fees can reach as high as 20% or more of an alternative investment’s profits. Unrelated business income Although investment income (for example, dividends, gains and interest) typically is excluded from taxable unrelated business income (UBI), investors in partnerships or LLCs are treated as though they’re conducting that entity’s business. As a result, distributions of income may be treated as taxable UBI.

In addition, UBI includes unrelated debt-financed income from investment property in proportion to the debt acquired to purchase it. The IRS defines debt-financed property as any property held to produce income (including gain from its disposition) for which there’s an acquisition indebtedness. If you use financing to invest in a fund — or, if the fund has financed the purchase of an income-producing asset — some of the associated income may be taxable. Pass-through entities report each partner’s or member’s share of income, dividends, losses, deductions and credits on IRS Schedule K-1.

Nonprofits can use the schedule to determine if they’ve received UBI income that must be reported. State taxes may also apply. Right for your organization? We can help you decide whether alternative investments might be right for your organization. If you choose to adopt this investment strategy, we can also help you determine any tax liability.
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B2B businesses need a cohesive strategy for collections

If your company operates in the business-to-business (B2B) marketplace, you’ve probably experienced some collections challenges.

Every company, whether buyer or seller, is trying to manage cash flow. That means customers will often push off payments as long as possible to retain those dollars. Meanwhile, your business, as the seller, needs the money to meet its revenue and cash flow goals.

There’s no easy solution, of course. But you can “grease the wheels,” so to speak, by strategically devising and continuously improving a methodical collections process.

Payment terms
Getting paid promptly depends, at least in part, on the terms you set forth and customers agree to. Be sure payment terms for your company’s products or services are written in unambiguous language that includes specific due dates, payment methods and late-payment penalties. To the extent feasible, use contracts or signed payment agreements to ensure both parties understand their obligations.

If your business operates on a project basis, try to negotiate installment payments for completion of specific stages of the work. This approach may not be necessary for shorter jobs but, for longer ones, it helps assure you’ll at least receive some revenue if the customer runs into financial trouble or a dispute arises before completion.

Effective invoicing
Invoice promptly and accurately. This may seem obvious, but invoicing procedures can break down gradually over time, or even suddenly, when a company gets very busy or goes through staffing changes. Monitor relevant metrics such as days sales outstanding, revenue leakage and average days delinquent. Act immediately when collections fall below acceptable levels.

Also, don’t let the essential details of invoicing fall by the wayside. Ensure that you’re sending invoices to the right people at the right addresses. If a customer requires a purchase order number to issue payment, be sure that this requirement is built into your invoicing process.

In today’s world of high-tech money transfers, offering multiple payment options on invoices is critical as well. Customers may pay more quickly when they can use their optimal method.

Reminders and follow-ups
Once you’ve sent an invoice, your company should have a step-by-step process for reminders and follow-ups. A simple “Thank you for your business!” email sent before payment is due can reiterate the due date with customers. From there, automated reminders sent via accounts receivable (AR) or customer relationship management (CRM) software can be helpful.

If you notice that a payment is late, contact the customer right away. Again, you can now automate this to begin with texts or emails or even prerecorded phone calls. Should the problem persist, the next logical step would be a call from someone on your staff. If that person is unable to get a satisfactory response, elevate the matter to a manager.

These steps should all occur according to an established timeline. What’s more, each step should be documented in your AR or CRM software so you can measure and improve your company’s late-payment collections efforts.

Typically, the absolute last step is to send an outstanding invoice to a collection agency or a law firm that handles debt collection. However, doing so will usually lower the amount you’re able to collect and typically ends the business relationship. So, it’s best viewed as a last resort.

What works for you
If your B2B company has been operational for a while, you no doubt know that collections aren’t always as simple as “send invoice, receive payment.” It often involves interpersonal relationships with customers and being able to exercise flexibility at times and assertiveness at others. For help analyzing your collections process, identifying key metrics and measuring all the costs involved, contact us.
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Why some businesses choose to execute a pivot strategy

When you encounter the word “pivot,” you may think of a politician changing course on a certain issue or perhaps a group of friends trying to move a couch down a steep flight of stairs. But businesses sometimes choose to pivot, too.
Under a formal pivot strategy, a company consciously changes its strategic focus in a series of carefully considered and executed moves. Obviously, this is an endeavor that should never be undertaken lightly or suddenly. But there’s no harm in keeping it in mind and even exploring the feasibility of a pivot strategy under certain circumstances.

5 common situations
For many businesses, five common situations often prompt a pivot:

1. Financial distress. When revenue streams dwindle and cash flow slows, it’s critical to pinpoint the cause(s) as soon as possible. In some cases, you may be able to blame temporary market conditions or a seasonal decline. But, in others, you may be looking at the irrevocable loss of a “unique selling proposition.”

In the latter case, a pivot strategy may be in order. This is one reason why companies are well-advised to regularly generate proper financial statements and projections. Only with the right data in hand can you make a sound decision on whether to pivot.

2. Lack of identity. Does your business offer a wide variety of products or services but have only one that clearly stands out? If so, you may want to pivot to focus primarily on that product or service — or even make it your sole offering.
Doing so typically involves cost-cutting and streamlining of processes to boost efficiency. In a best-case scenario, you might end up having to invest less in the business and get more out of it.

3. Weak demand. Sometimes the market tells you to pivot. If demand for your products or services has been steadily declining, it may be time to reimagine your strategic goals and pivot to something that will generate more dependable revenue.
Pivoting doesn’t always mean going all the way back to square one and completely rewriting your business plan. More often, it calls for targeted changes to production, pricing and marketing. For example, you might redefine your target audience and position your products or services as no hassle, budget-friendly alternatives. Or you could take the opposite approach and position yourself as a high-end “boutique” option.

4. Tougher competition. Many industries have seen “disrupters” emerge that upend the playing field. There’s also the age-old threat of a large company rolling in and simply being too big to beat.
A pivot can help set you apart from the dominant forces in your market. For example, you might seek to compete in a completely different niche. Or you may be able to pivot to exploit the weaknesses of your competitors — perhaps providing more personalized service or quicker delivery or response times.

5. Change of heart. In some cases, a pivot strategy may originate inside you. Maybe you’ve experienced a shift in your values or perspective. Or perhaps you have a new vision for your business that you feel passionate about and simply must pursue.
This type of pivot tends to involve considerable risk — especially if your company has been profitable. You should also think about the contributions and well-being of your employees. Nevertheless, one benefit of owning your own business is the freedom to call the shots.

Never a whim
Again, a pivot strategy should never be a whim. It must be carefully researched, discussed and implemented. For help applying thorough financial analyses to any strategic planning move you’re considering, contact us.
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Don’t be surprised by a sudden influx of support

When a Category 5 hurricane struck a coastal community, its most prominent health and human services charity was prepared to act with rescue plans, supplies, emergency shelters and well-trained staffers. What the not-for-profit wasn’t prepared for was a sudden influx of support, including donations.

Too much support may not sound like a problem, but for nonprofits that aren’t prepared for a flood of attention and new funds, it can be difficult to handle. Right now, when you aren’t contending with an emergency, consider what your organization would do if the status quo were upended.

Keep your site online
Disaster-relief charities, such as the Red Cross, have long dealt with periodic spikes in attention and donation inflows. For example, during major natural disasters in recent years, some inundated nonprofit websites have gone offline because so many users were visiting them.

To prevent this from potentially happening to your nonprofit, know your system’s (particularly your donation app’s) ultimate capacity and create an IT contingency plan you can enact should it approach critical mass. While your nonprofit is in a period of relative calm, track website hits, as well as phone, text and email inquiries, to set a baseline. That way, you’ll be able to recognize a surge of interest if it begins and be ready to quickly enact your contingency plan if needed.

Establish a notification process
Having an early warning system for your website is only one part of being prepared. You also need to be able to mobilize your troops in a hurry. Do you know how to reach all of your board members at any time? Make sure you have an up-to-date contact list. You also can benefit from having a process, such as a phone tree or group text distribution list, to communicate with your board quickly and efficiently, should they need to vote on critical decisions.

Also assign a volunteer coordinator to take charge in an emergency. The coordinator should be able to contact and quickly train new volunteers to deploy where they’ll be most needed.

Build long-term support
A surge in donor and volunteer interest could mean a surge in media attention. Although it might be tempting to say, “not now, we’re busy,” don’t pass up the opportunity to publicize your organization’s mission and the work that’s garnering all the attention.

In most cases, the surge of interest eventually wanes. Before that happens, start to build lasting relationships with new donors, volunteers and media contacts. Inform them about the work your organization does under normal circumstances and suggest ways to get them involved long-term.

Use donations wisely
Finally, know how you’ll put new funds to work. Most donors will probably want their contributions to be used for immediate needs, so give them an option to earmark them for the current challenge. However, if supporters don’t specify how their donations should be used, you may want to place them in a fund for capital improvements and other initiatives. Contact us to discuss donation management.
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7 common payroll risks for small to midsize businesses

If your company has been in business for a while, you may not pay much attention to your payroll system so long as it’s running smoothly. But don’t get too complacent. Major payroll errors can pop up unexpectedly — creating huge disruptions costing time and money to fix, and, perhaps worst of all, compromising the trust of your employees.

For these reasons, businesses are well-advised to conduct payroll audits at least once annually to guard against the many risks inherent to payroll management. Here are seven such risks to be aware of:

1. Inaccurate recordkeeping.
If you don’t keep detailed and accurate records, it will probably come back to haunt you. For example, the Fair Labor Standards Act (FLSA) requires businesses to maintain records of employees’ earnings for at least three years. Violations of the FLSA can trigger severe penalties. Be sure you and your staff know what records to keep and have sound policies and procedures in place for keeping them.

2. Employee misclassification.
Given the widespread use of “gig workers” in today’s economy, companies are at high risk for employee misclassification. This occurs when a business engages independent contractors but, in the view of federal authorities, the company treats them like employees. Violating the applicable rules can leave you owing back taxes and penalties, plus you may have to restore expensive fringe benefits.

3. Manual processes.
More than likely, if your business prepares its own payroll, it uses some form of payroll software. That’s good. Today’s products are widely available, relatively inexpensive and generally easy to use. However, some companies — particularly small ones — may still rely on manual processes to record or input critical data. Be careful about this, as it’s a major source of errors. To the extent feasible, automate as much as you can.

4. Privacy violations.
You generally can’t manage payroll without data such as Social Security numbers, home addresses, birth dates and bank account numbers. Unfortunately, possessing such information puts you squarely in the sights of hackers and those pernicious purveyors of ransomware. Invest thoroughly in proper cybersecurity measures and regularly update these safeguards.

5. Internal fraud.
Occupational (or internal) fraud remains a major threat to businesses. Schemes can range from “cheating” on timesheets by rank-and-file workers to embezzlement by those higher on the organizational chart. Among the most fundamental ways to protect your payroll function from fraud is to require segregation of duties. In other words, one employee, no matter how trusted, should never completely control the process. If you don’t have enough employees to segregate duties, consider outsourcing.

6. Legal compliance.
As a business owner, you’re probably not an expert on the latest regulatory payroll developments affecting your industry. That’s OK; laws and regulations are constantly evolving. However, failing to comply with the current rules could cost you money and hurt your company’s reputation. So, be sure to have a trustworthy attorney on speed dial that you can turn to for assistance when necessary.

7. Tax compliance.
Employers are responsible for calculating tax withholding on employee wages. In addition to deducting federal payroll tax from paychecks, your organization must contribute its own share of payroll tax. If you get it wrong, the IRS could investigate and potentially assess additional tax liability and penalties. That’s where we come in. For help conducting a payroll audit, reviewing your payroll costs and, of course, managing your tax obligations, contact us.
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Business owners, your financial statements are trying to tell you something

Business owners are commonly and rightfully urged to regularly generate financial statements in compliance with Generally Accepted Accounting Principles (GAAP). One reason why is external users of financial statements, such as lenders and investors, place greater trust in financial reporting done under the rigorous standards of GAAP.

But that’s not the only reason. GAAP-compliant financial statements can reveal details of your company’s financial performance that you and your leadership team may otherwise not notice until a major problem has developed.

Earnings are only the beginning

Let’s begin with the income statement (also known as the profit and loss statement). It provides an overview of revenue, expenses and earnings over a given period.

Many business owners focus only on earnings in the income statement, which is understandable. You presumably went into business to make money. However, though revenue and profit trends are certainly important, they aren’t the only metrics that matter.

For example, high-growth companies may report healthy top and bottom lines but not have enough cash on hand to pay their bills. So, be sure to look beyond your income statement.

A snapshot is just that
The second key part of GAAP-compliant financial statements is the balance sheet (also known as the statement of financial position). It provides a snapshot of your company’s financial health by tallying assets, liabilities and equity.

For instance, intangible assets — such as patents, customer lists and goodwill — can provide significant value to businesses. But internally developed intangibles aren’t reported on the balance sheet. Intangible assets are reported only when they’ve been acquired externally.

Similarly, owners’ equity (or net worth) is the extent to which the book value of assets exceeds liabilities. If liabilities exceed assets, net worth will be negative. However, book value may not necessarily reflect market value. Some companies provide the details of owners’ equity in a separate statement called the statement of retained earnings. It covers sales or repurchases of stock, dividend payments, and changes caused by reported profits or losses.

Ultimately, your balance sheet can tell you a lot about what you’ve got, what you owe and how much equity you truly have in your company. But it doesn’t tell you everything, so it’s important to read the balance sheet in the context of the other two parts of your financial statements.

Cash is (you guessed it) king
The third key part of GAAP-compliant financial statements is the statement of cash flows. True to the name, it shows all the cash flowing in and out of your business. Cash inflows aren’t necessarily limited to sales; they can also include loans and stock sales. Outflows typically result from paying expenses, investing in capital equipment and repaying debt.
Typically, statements of cash flow are organized in three categories: operating, investing and financing activities. The bottom of the statement shows the net change in cash during the period.
Read your statement of cash flows closely as soon it’s available. It’s essentially telling you how much liquidity your business had during the reporting period. A sudden slow down in cash flow can quickly lead to a crisis if you aren’t generating enough cash to pay creditors, vendors and employees.

Detailed picture
In the day-to-day commotion of running a company, it can be easy to think of your financial statements solely as paperwork for the purposes of obtaining loans or other capital infusions. But these documents paint a detailed picture of the financial performance of your business. Use them wisely. For help generating GAAP-compliant financial statements, or just understanding them better, contact us.
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Nonprofits: Take another look at Inflation Reduction Act tax breaks

When the Inflation Reduction Act (IRA) became law in late 2022, you might have assumed that the tax breaks it contained wouldn’t affect your tax-exempt organization. That’s not the case. One IRA provision could help reduce construction project costs if you use energy-efficient materials and qualified labor. Another could provide direct cash payouts of certain tax credits. It’s time to take a second look at the IRA.

All tax-exempt entities included

After the Consolidated Appropriations Act of 2021 made the IRC Section 179D tax deduction for energy-efficient buildings permanent, commercial property and certain residential property owners could use the deduction by assigning it to qualified “designers.” Eligible owners included some government entities, but not the vast majority of nonprofits.

With the IRA’s passage, all tax-exempt entities became entitled to allocate their building tax deductions to qualified designers. You may already prioritize energy efficiency because it aligns with your mission and values — or simply to cut future utility expenses. Now, the Sec. 179D deduction may help you reduce up-front costs on construction projects that incorporate sustainable materials.
Qualified designers create technical specifications for the installation of energy-efficient commercial building property. Installation, repair or maintenance of such property isn’t sufficient to qualify for the deduction. Designers may include architects, engineers, contractors, environmental consultants and energy services providers.

A look at the process
To see how the allocation process works, let’s look at an example. Say that your nonprofit plans to build a 40,000 square foot, LEED-certified building and that you have $200,000 in tax deductions to allocate to qualified architects, engineers and other construction professionals. You may allocate the entire Sec. 179D deduction to a single designer or make proportional allocations to multiple designers. This can help you negotiate a better overall price for the project.

The exact deduction amount will be determined through a Sec. 179D study obtained by the designer. The study is performed by a qualified contractor or professional engineer who will make a site visit to your property to confirm that it has met or will meet energy savings requirements. You’ll also need to sign an allocation letter that includes the cost of the energy-efficient property (including labor); the date the property is placed in service; the amount of the Sec. 179D deduction allocated to the designer; and a declaration that the information presented is true and complete.

Note that you’re prohibited from seeking or accepting payments from a designer in exchange for providing an allocation letter. And you can’t require a designer to pay you a portion of the deduction’s value.

Cash refunds for tax credits
In addition to expanding availability of the Sec. 179D tax deduction, the IRA allows eligible tax-exempt organizations to receive certain tax credits as cash payments from the IRS. Previously, most tax credits were of no use to nonprofits.
The “direct pay” provision allows organizations to participate in clean energy benefits related to such credits as the Investment Tax Credit, Production Tax Credit, Advanced Manufacturing Production Credit, Commercial Clean Vehicle Credit and Alternative Fuel Vehicle Refueling Property Credit. The IRS makes credit payments after an eligible nonprofit files its return for the applicable year.

Seek advice
Contact us for a full list of federal tax credits that can potentially allow your nonprofit to receive cash payouts. And if you’re contemplating a building project, ask us about qualifying for Sec. 179D deductions.
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Making the most of your nonprofit’s social media accounts

When’s the last time you evaluated your not-for-profit’s social media strategy? Are you using the right platforms in the most effective way, given your mission, audience and staffing resources? Do you have controls to protect your nonprofit from reputation-damaging content?
These are important questions — and it’s critical you review them regularly. At the very least, you need a social media policy that sets some ground rules.

Annual reviews
As you know, the social media landscape changes quickly. The platform that’s hot today may be decidedly not hot tomorrow. So review your online presence at least once a year to help ensure you’re dedicating resources to the right spaces. Most nonprofits maintain a presence on Facebook and LinkedIn because that’s where likely donors tend to be. But if you’re an arts nonprofit or visually oriented, Instagram may be a better venue. And if your constituents are teenagers or young adults, you’re most likely to find them on TikTok.

In general, fresher, frequently updated accounts get more traffic and engagement. So try not to overextend your organization by posting on multiple platforms with only limited staff resources. Determine where you’ll get the most bang for your buck by surveying supporters and observing where peer nonprofits post.

Content monitoring
Social media is 24/7, and incidents can escalate quickly. So closely monitor your accounts, as well as conversations that refer to your nonprofit. A “social listening” tool that scans the web for your nonprofit’s name can be extremely helpful.

But the best defense against reputation-busting events is a formal social media policy. Your policy should set clear boundaries about the types of material that are and aren’t permissible on your nonprofit’s official accounts and those of staffers.

For example, it should prohibit employees, board members and volunteers from discussing nonpublic information about your organization on their personal accounts. With organizational accounts, limit access to passwords and regularly check posts and comments. Content from your feeds can easily go viral and create controversy. Make sure your staff knows when to engage with visitors, particularly difficult ones, and maintains a zero-tolerance policy for offensive comments.

Crisis plan
Mistakes, or even intentionally damaging posts, can occur despite comprehensive policies. Create a formal response plan so you’ll be able to weather such events. The plan should assign responsibilities and include contact information for multiple spokespersons, such as your executive director and board president. Identify specific triggers and a menu of potential responses, such as issuing a press release or bringing in a crisis management expert. Be sure to include IP staffers or consultants on your list.

Hopefully, a crisis won’t occur. But if it does, you’ll want to sit down and review your plan’s effectiveness after the situation has been resolved.

Select and protect
These days, no nonprofit can afford to ignore social media. Just make sure you’re applying your time and effort to the right platforms and protecting your accounts from those who would harm your organization.
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How businesses can reinvigorate strategic planning

For businesses, and people for that matter, the beginning of the calendar year can be a bit of a grind. The holidays have passed, summer vacations are relatively far off and everyone is trying to build momentum for a strong, healthy year.
Amongst all the nose-to-the-grindstone stick-to-itiveness, however, you and your leadership team shouldn’t lose sight of strategic planning. Your competitors probably haven’t, and the business landscape is always shifting in ways large and small. If you’ve let strategic planning slide a bit recently, here are some ways to reinvigorate it.

Push back against procrastination
Ideally, most companies should engage in an active strategic planning initiative at least once a year. This would involve doing research and holding meetings that eventually result in actionable, measurable goals.

However, some businesses may get so caught up in day-to-day operations that strategic planning goes by the wayside. Sometimes, this is a positive sign. Perhaps the company is so busy and profitable that it must focus on maximizing the opportunities at hand.

But it can be dangerous as well. A sudden market shift or disruptive competitor may leave the business flat-footed. Generally, companies shouldn’t let more than three years pass without productively engaging in strategic planning.

Go to your happy place
Because strategic planning is all about the big picture rather than the day-to-day, the process tends to work best when you put the people involved in a fresh setting. This is why the company retreat has long been an iconic undertaking, often depicted in movies and TV shows.

Granted, there is the potential for excessive spending and counterproductive distractions when organizing and holding one of these events. But if planned carefully and undertaken mindfully, getting your strategic planning team out of the office, or away from their computer screens at home, may pay off.

Engage an outside facilitator
Intuitively, it may seem like a business owner or CEO should lead a strategic planning session. And this can certainly be a cost-effective approach. But the objectivity of an outside professional may be worth investing in.

First, a facilitator may be able to better create a “there are no bad ideas” environment. Team members are often more willing to speak freely when they’re not directly addressing the owner or chief executive of the company. Plus, experienced facilitators are usually good at “working the room” (making people feel at ease), as well as adhering to a productive agenda.

Devise an action plan
Strategic planning should never be all talk and no action. Typically, the first session will review the business’s mission (what it does), vision (where it’s going), current financial results, and perhaps some of its recent notable successes and setbacks. It’s critical, however, to be results oriented.

This means:
  • Setting several clearly worded goals,
  • Devising reasonable strategies for pursuing those goals, and
  • Identifying the specific objectives that will enable you to accomplish the goals.
One way to ease the pressure of strategic planning is to not try to do everything at once. If you can accomplish the three points above in one session, schedule a follow-up meeting to devise an action plan with a timeline and assigned responsibilities. That plan can then be formally approved by business ownership.

Helpful voices
One last point: Don’t restrict strategic planning to only internal voices. Your professional advisors can also lend their expertise to the process, whether by attending a session or reviewing an action plan. For help with the financial side of strategic planning, contact us.
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Making a nonprofit mission drift official

Mission drift is common in not-for-profit organizations, particularly if they’ve been active for a long time. Your local community probably has grown, the issues surrounding your mission may have evolved and new nonprofits may be addressing some of the same problems. In such circumstances, it makes sense to shift your focus and use your funds where they’ll do the most good. But don’t drift too far without formalizing the changes. You’ll need to notify your stakeholders, as well as the IRS, about a significant mission shift.

Taking a long, hard look
Sometimes organizations have no choice but to shift their mission. For example, perhaps you’ve championed a cause that has been successfully resolved. Or maybe the population you’ve served is no longer present in your community.

Other times, the decision isn’t as clear-cut. Your board should look at where you’ve been and where you’re heading. Members should ask whether the services you currently provide are still needed and, if your mission has drifted, whether it’s now focusing on what you consider the most critical issues. Your board may decide to expand, contract or modify your nonprofit’s existing mission.

Drawing up a new statement
It’s generally easy for 501(c)(3) organizations to change their mission statements without major disruption. You just need to make sure your new mission qualifies as tax-exempt.

Your board should develop a new mission statement following procedures similar to the ones used at inception. The statement should be descriptive, but not so detailed that it limits your nonprofit and its growth. Once the board approves the new mission statement, your bylaws and Articles of Incorporation should be amended according to your existing bylaws. Unless otherwise stated, bylaws may be amended by a vote of at least a two-thirds majority.

Notifying supporters and the IRS
You can notify the IRS immediately about a change in your organization’s mission or bylaws, but there’s no legal requirement to do so. You can instead wait until you file your annual Form 990. At that point, the IRS will contact you if it has any questions.
On the other hand, don’t delay notifying donors and grant makers. In general, nonprofits must use donations for the purpose specified by donors. If you’ve accepted a large donation intended for a program that’s discontinued after you change your mission, contact the donor immediately. After you explain the change, this supporter may allow you to use the donation for another purpose consistent with your new mission. If not, you’ll need to return the funds.

To get the word out to stakeholders and your community, use your website, newsletter and social media accounts. Large nonprofits with wide regional or national appeals generally distribute formal press releases. Smaller nonprofits may want to contact local media outlets. Finally, review and, potentially, revise all public communications to ensure they reflect your new mission statement.

Avoiding old attitudes
You’re not done yet! You’ll need to monitor your programs and initiatives to ensure they’re consistent with your new mission. To that end, you may want to provide retraining for staffers to help ensure they all understand the current focus and are carrying out your mission with a fresh attitude. 
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Applying for a commercial loan with confidence

Few and far between are businesses that can either launch or grow without an infusion of outside capital. In some cases, that capital comes in the form of a commercial loan from a bank or some other type of lender.

If you and your company’s leadership team believe a loan will soon be necessary, it’s important to approach the endeavor with confidence. That starts with having valid, well-considered strategic reasons for borrowing. From there, you need to engage your bank or a prospective lender with a strong air of professionalism and certainty.

Essential questions
First, familiarize yourself with how the process works. It’s essentially built on four basic questions: How much money do you want? How do you plan to use the loan proceeds? When do you need the funds? How soon can you repay the loan?
Your loan officer will also likely ask about your business’s previous sources of financing. So, be ready to explain how you’ve financed your company to date. Methods may include personal cash infusions, forgone salaries and sweat equity, as well as any equity contributions from friends, family members and outside investors.

Loan products
As you’re probably aware, banks and lenders offer a variety of commercial loan products. Another way of expressing confidence is to know what you want. Common options include:

Lines of credit. One of these gives you access to an agreed-upon amount of funds that you can draw on as needed. As is the case with a credit card, you pay interest only on the outstanding balance.

Traditional term loans. These are what most people likely envision when they see the term “commercial loan.” You receive a lump sum with repayment terms, which include a payment schedule and interest rate.

Asset-based loans. True to the name, asset-based loans typically fund equipment purchases or plant expansions. The length of the loan is usually tied to the life of the asset being financed, and that asset is usually pledged as collateral.

Supporting documents
No matter the product, banks and lenders want to work with serious borrowers who are deeply knowledgeable about the financial condition and projected performance of their businesses. To this end, don’t go into the initial meeting empty-handed. Prepare a comprehensive loan application package that includes:
  • A “statement of purpose” explaining your strategic plans for the funds,
  • Your business plan,
  • Three years of financial statements, if available,
  • Three years of business tax returns, if available,
  • Personal financial statements and tax returns for all owners,
  • Appraisals of any assets pledged as collateral, and
  • Carefully prepared, reasonable financial projections.
Remember that most loan officers have been around the block. They know how to critically evaluate financial documents and prospective borrowers’ underlying assumptions. As much as possible, support your case with market research and data. Be confident — but realistic — about your strengths and market opportunities, as well as forthcoming about the challenges you’ll likely face in accomplishing your strategic objectives.
If your bank or lender finds your business a viable borrower, your application will be given to an underwriting committee or department. Underwriters will have greater confidence in your financial statements if they’re prepared by a CPA and conform to U.S. Generally Accepted Accounting Principles. Professionally prepared financial projections are also recommended.

Shop around
Underwriters don’t approve every loan application, so don’t give up if a bank or lender turns you down. In fact, it’s a good idea to shop around. For help preparing to apply for a commercial loan and managing the approval process, contact us.
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Plan now to reimburse staffers, board members and volunteers

Even if your not-for-profit organization rarely needs to reimburse staffers, board members or volunteers, reimbursement requests almost certainly will occasionally appear. At that point, will you know how to pay stakeholders back for expenses related to your nonprofit’s operations? If you have a formal reimbursement policy, you will. Plus, you’ll be able to direct individuals with reimbursement questions to your formal document and minimize the risk of disagreements.

2 categories
In the eyes of the IRS, expense reimbursement plans generally fall into two main categories:

1. Accountable plans. Reimbursements under these plans generally aren’t taxable income for the employee, board member or volunteer. To secure this favorable tax treatment, accountable plans must satisfy three requirements: 1) Expenses must have a connection to your organization’s purpose; 2) claimants must adequately substantiate expenses within 60 days after they were paid or incurred; and 3) claimants must return any excess reimbursement or allowance within 120 days after expenses were paid or incurred.

Arrangements where you advance money to an employee or volunteer meet the third requirement only if the advance is reasonably calculated not to exceed the amount of anticipated expenses. You must make the advance within 30 days of the time the recipient pays or incurs the expense.

2. Nonaccountable plans. These don’t fulfill the above requirements. Reimbursements made under nonaccountable plans are treated as taxable wages.

Policy items
Your reimbursement policy should make it clear which types of expenses are reimbursable and which aren’t. Be sure to include any restrictions. For example, you might set a limit on the nightly cost for lodging or exclude alcoholic beverages from reimbursable meals.

Also be sure to require substantiation of travel, mileage and other reimbursable expenses within 60 days. The documentation should include items such as a statement of expenses, receipts (showing the date, vendor, and items or services purchased), and account book or calendar. Note that the IRS does allow some limited exceptions to its documentation requirements. Specifically, no receipts are necessary for:
  • A per diem allowance for out-of-town travel,
  • Non-lodging expenses less than $75, or
  • Transportation expenses for which a receipt isn’t readily available.
Your policy should require the timely (within 120 days) return of any amounts you pay that are more than the substantiated expenses.

Standard rate vs. actual costs
Finally, address mileage reimbursement, including the method you’ll use. You can reimburse employees for vehicle use at the federal standard mileage rate of 67 cents per mile for 2024, and volunteers at the charity rate of 14 cents per mile. Unlike employees, however, volunteers can be reimbursed for commuting mileage.

Alternatively, you can reimburse employees and volunteers for the actual costs of using their vehicles for your nonprofit’s purposes. For employees, you might reimburse gas, lease payments or depreciation, repairs, insurance, and registration fees. For volunteers, the only allowable actual expenses are gas and oil.

What makes sense
You don’t need to craft a reimbursement policy on your own. We can help ensure you include the elements that make sense given your nonprofit’s size, mission and activities and update it as your organization grows and evolves.
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Is it time to upgrade your business’s accounting software?

By now, just about every company uses some kind of accounting software to track, manage and report its financial transactions. Many businesses end up using several different types of software to handle different accounting-related functions. Others either immediately or eventually opt for a comprehensive solution that addresses all their needs.
Although there’s some truth to the old expression “if it ain’t broke, don’t fix it,” companies often soldier on for years with inefficient or outdated accounting software. How do you know when it’s time to upgrade? Look for certain telltale signs..

It’s slowing us down

Accounting software is intended to make your and your employees’ lives easier. Among its primary purposes are to automate repetitive tasks, save time and provide quicker access to financial insights. If you or your staff are spending an inordinate amount of time wrestling with your current software to garner such benefits, an upgrade may be in order.
There’s also the issue of whether and how your business has grown recently. While some software developers market their products as “scalable” — that is, able to expand functionality right along with users’ needs — your mileage may vary. Keep a running list of the accounting functions your company needs and use it to assess the viability of your software.
Some lack of functionality can be relatively obvious. For example, many employees today need mobile access to accounting data, whether because they’re working remotely or traveling for the business. If your software makes this difficult — or, more dangerously, lacks trustworthy cybersecurity — it may be time to upgrade.

In addition, think about integration. As mentioned, some companies wind up using several different kinds of accounting-related software, and these various products may not “play well” together. In such cases, upgrading to a broader solution is worth considering.
There are various products specifically designed for small businesses. Growing midsize companies might be ready for enterprise resource planning (ERP) software, which integrates accounting with other functions such as inventory, sales and marketing, and human resources.

It’s getting us in trouble

The accounting software needs of most businesses tend to gradually evolve over time, making it tough to decide when to invest in an upgrade. However, there are some glaring red flags that can make the decision much easier — though they can also pressure companies into making a rushed purchase of new technology.
For instance, though privately owned companies aren’t required to follow the same accounting standards as publicly held ones, they still need sound financial reporting for tax purposes and possibly to comply with state or local regulations. If you’ve run into trouble with tax authorities or other agencies because of accounting mistakes or inconsistencies, an upgrade could help.

And, of course, financial reporting isn’t only about taxes and compliance, it plays a huge role in obtaining loans, attracting investors, and perhaps winning bids or arranging joint ventures. If you and your leadership team believe you’re being outcompeted because you can’t make the right strategic moves, investing in better accounting software may be one of the steps you need to take.

Last but not least, we mentioned cybersecurity above, but it bears repeating: Any indication that your accounting software is vulnerable to hackers or internal fraud should be regarded as an immediate call to action. Fortify your existing software or find a more secure product.

Business imperative

Long gone are the days when companies could rely on a dusty ledger and ink to record their financial transactions. The right accounting software is a business imperative. We’d be happy to help you assess your current needs and decide whether now’s the time to upgrade.
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Small businesses can help employees save for retirement, too

Many small business owners run their companies as leanly as possible. This often means not offering what are considered standard fringe benefits for midsize or larger companies, such as a retirement plan.

If this is the case for your small business, don’t give up on the idea of helping your employees save for retirement in a tax-advantaged manner. When you’re ready, there are a couple account-based options that are relatively simple and inexpensive to launch and administrate.


Simplified Employee Pension IRAs (SEP IRAs) are individual accounts that small businesses establish on behalf of each participant. (Self-employed individuals can also establish SEP IRAs.) Participants own their accounts, so they’re immediately 100% vested. If a participant decides to leave your company, the account balance goes with them — most people roll it over into a new employer’s qualified plan or traditional IRA.

What are the advantages for you? SEP IRAs don’t require annual employer contributions. That means you can choose to contribute only when cash flow allows.
In addition, there are typically no setup fees for SEP IRAs, though participants generally must pay trading commissions and fund expense ratios (a fee typically set as a percentage of the fund’s average net assets). In 2024, the contribution limit is $69,000 (up from $66,000 in 2023) or up to 25% of a participant’s compensation. That amount is much higher than the 2024 limit for 401(k)s, which is $23,000 (up from $22,500 in 2023).

What’s more, employer contributions are tax-deductible. Meanwhile, participants won’t pay taxes on their SEP IRA funds until they’re withdrawn.

There are some disadvantages to consider. Although participants own their accounts, only employers can make SEP IRA contributions. And if you contribute sparsely or sporadically, participants may see little value in the accounts. Also, unlike many other qualified plans, SEP IRAs don’t permit participants age 50 or over to make additional “catch-up” contributions.


Another strategy is to offer employees SIMPLE IRAs. (“SIMPLE” stands for “Savings Incentive Match Plan for Employees.”) As is the case with SEP IRAs, your business creates a SIMPLE IRA for each participant, who’s immediately 100% vested in the account. Unlike SEP IRAs, SIMPLE IRAs allow participants to contribute to their accounts if they so choose.

SIMPLE IRAs are indeed relatively simple to set up and administer. They don’t require the sponsoring business to file IRS Form 5500, “Annual Return/Report of Employee Benefit Plan.” Nor must you submit the plan to nondiscrimination testing, which is generally required for 401(k)s.

Meanwhile, participants face no setup fees and enjoy tax-deferred growth on their account funds. Best of all, they can contribute more to a SIMPLE IRA than they can to a self-owned traditional or Roth IRA. The 2024 contribution limit for SIMPLE IRAs is $16,000 (up from $15,500 in 2023), and participants age 50 or over can make catch-up contributions to the tune of $3,500 this year (unchanged from last year).

On the downside, that contribution limit is lower than the limit for 401(k)s. Also, because contributions are made pretax, participants can’t deduct them, nor can they take out plan loans. Then again, making pretax contributions does lower their taxable income.

Perhaps most important is that employer contributions to SIMPLE IRAs are mandatory — you can’t skip them if cash flow gets tight. However, generally, you may deduct contributions as a business expense.

Is now the time?
Overall, the job market remains somewhat tight and, in some industries, the competition for skilled labor is fierce. Offering one of these IRA types may enable you to attract and retain quality employees more readily. Some small businesses may even qualify for a tax credit if they start a SEP IRA, SIMPLE IRA or other eligible plan. We can help you decide whether now is the right time to do so.
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3 tips for making the financial statement auditing process smoother

Not-for-profits aren’t required to produce audited financial statements. But audited statements are more likely to reassure big donors and grant makers about your financial stability and generally will be required if your organization applies for a bank loan. When you hire a CPA to audit your statements, the auditor is responsible for expressing an opinion on them and obtaining reasonable assurance that they’re free of material misstatements.

Here are three tips for making the process as smooth as possible.

1. Understand roles

You’ll need to prepare estimates (such as an allowance for bad debts), adopt sound accounting policies, and establish, maintain and monitor internal controls. Auditors may make suggestions about these items, but it isn’t their responsibility to implement them.

Your auditor is required to evaluate whether internal controls, accounting policies and estimates are adequate to prevent or detect errors or fraud that could result in material misstatements. But remember, all decision making is strictly your nonprofit’s responsibility.

2. Involve your board

Sometimes nonprofits overlook their board’s role in annual financial statement preparation. That’s a mistake. Your board should have a strategic and oversight role in the process, which is part of its overall fiduciary duty. The board also can be a good resource for certain technical matters, depending on the members’ professional backgrounds.

3. Understand statement formats

Financial statement items — such as debt ratios, program vs. administrative expense ratios and restricted vs. unrestricted resources — can help tell you how your nonprofit is doing. So when your organization’s financial team is preparing them, make sure statements are as user-friendly as possible.

One of the best ways to see the big financial picture is to compare your budget, your year-end internally generated financial statements and the financial statements generated during an annual audit. This task can be completed more easily if the format of your annual audited statements is similar to that of your internal financial statements and budgets. If audited financial statements are formatted differently than internally generated reports, you may need to develop a bridge between them, perhaps in the form of an internal memo.

When reviewing internal vs. audited statements, look for any large differences in individual accounts resulting from audit correcting adjustments. These often are an indication of an internal accounting deficiency. You’ll also be able to spot any significant discrepancies between what was budgeted for the year and the actual outcome.

First timers

If you’re engaging an auditor to prepare financial statements for the first time, don’t be anxious. Just provide your auditor with every requested document and keep the lines of communication open. Your auditor will let you know if there’s anything you should be concerned about.
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Perform an operational review to see how well your business is running

In the wide, wide world of mergers and acquisitions (M&A), most business buyers conduct thorough due diligence before closing their deals. This usually involves carefully investigating the target company’s financial, legal and operational positions.

But why let them have all the fun? As a business owner, you can perform these same types of reviews of your own company to glean critical insights.
Now you can take a deep dive into your financial or legal standing — and certainly should if you think something is amiss. But assuming all’s well, the start of a new year is a good time to perform an operational review.

Why to do it

An operational review is essentially a reality check into whether, from the standpoint of day-to-day operations, your company is running smoothly and fully capable of accomplishing its strategic objectives.

For example, let’s say a business relies on superior transportation logistics as a competitive advantage. Such a company would need to continuously ensure that it has the right people, vehicles and technology in place to remain a major player. The point is, you don’t want to fall behind the times, which can happen all too easily in today’s environment of disruptors and rapid technological change.
Before getting into specifics, gather your leadership team and ask yourselves some big-picture questions such as:
  • Are our IT systems up to date and secure, or will they soon need substantial upgrades to keep our data safe and our business competitive?
  • Are our production facilities capable of handling the output we intend to work toward in the coming year?
  • Are staffing levels across our various departments appropriate, or will we likely need to expand, contract or reallocate our workforce this year?
By listening to members of your leadership team, and perhaps even some key employees on the front line, you can gain a sense of your staff’s operational confidence. If they have concerns, better to address them sooner rather than later.

What to look at
Getting back to M&A, when business buyers perform operational due diligence, they tend to evaluate at least three primary areas of a target company. As mentioned, you can do the same. The areas are:

1. Production/operations. Buyers scrutinize mission-critical functions such as technological obsolescence, supply chain operations, procurement processes, customer response times, and product or service distribution speed. They may even visit production facilities and interview certain employees. Their goal, and yours, is to spot performance gaps, identify cost-cutting opportunities and determine ways to improve productivity.

2. Selling, general & administrative (SG&A). This is a financial term that summarizes a company’s sales-related expenses (including sales staff compensation and advertising costs) along with its administrative costs (such as executive compensation and certain other general expenses). A SG&A analysis is a way for business buyers — or you, the business owner — to assess whether the company’s operational expenses are too high or too low.

3. Human resources (HR). Buyers typically review a target business’s organizational charts, staffing levels, compensation and benefits, and employee bonus or incentive plans. They also look at the tone, quality and substance of communications between HR and staff. Their goal — and yours too — is to determine the reasonability and sustainability of each of these things.

A funny question
Would you buy your company if you didn’t already own it? It may seem like a funny question, but an operational review can tell you, objectively, just how efficiently and impressively your business is running. We’d be happy to help you gather and analyze the pertinent information involved.
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Businesses: Know who your privileged users are … and aren’t

Given the pervasiveness of technology in the business world today, most companies are sitting on treasure troves of sensitive data that could be abducted, exploited, corrupted or destroyed. Of course, there’s the clear and present danger of external parties hacking into your network to do it harm. But there are also internal risks — namely, your “privileged users.”

Simply defined, privileged users are people with elevated cybersecurity access to your business’s enterprise systems and sensitive data. They typically include members of the IT department, who need to be able to reach every nook and cranny of your network to install upgrades and fix problems. However, privileged users also may include those in leadership positions, accounting and financial staff, and even independent contractors brought in to help you with technology-related issues.

What could go wrong?

Assuming your company follows a careful hiring process, most of your privileged users are likely hardworking employees who take their cybersecurity clearances seriously.

Unfortunately, sometimes disgruntled or unethical employees or contractors use their access to perpetrate fraud, intellectual property theft or sabotage. And they don’t always act alone. Third parties, such as competitors, could try to recruit privileged users to steal trade secrets. Or employees could collude with hackers to compromise a company’s network in a ransomware scheme.

How can you protect yourself?

To best protect your business, you may want to implement a formal privileged user policy. This is essentially a set of rules and procedures governing who gets to be a privileged user, precisely what kind of access each such user is allowed, and how your company tracks and revokes privileged-user status.

When developing and enforcing the policy, you’ll first need to identify who your privileged users are and what specific security clearances each one needs. A good way to start is to list the privileges required for every position and then compare that list to a separate record of privileges that each employee currently has. What makes sense? What doesn’t? When in doubt whether someone needs a certain type of access, it’s generally best to err on the side of caution.

Also, establish an “upgrading” process under the policy. Only trusted and qualified managers or supervisors should have the power to upgrade or reinstate an employee’s privileges, perhaps in consultation with the leadership team.

Use technology to help standardize and track requests and approvals. For sensitive systems and applications, such as those that store customer and financial data, consider requiring two levels of approval to elevate a user’s privileges.

In addition, your privileged user policy should include stipulations to carefully monitor user activity. Observe and track how employees use their privileges. Let’s say a salesperson repeatedly accesses customer data for a region that the person isn’t responsible for. Have the sales manager inquire why. Subtly reminding employees that the company is aware of their tech-related activities is a good way to help deter fraud and unethical behavior.

Another important aspect of the policy is how you revoke privileges and remove dormant accounts. When employees leave the company, or independent contractors end their engagements, privileged access should be revoked immediately. Keep clear records of such actions. If a previously deactivated account somehow shows signs of activity, block access right away and investigate how and why it’s come back to life.

Do you know?

Every business should be able to definitively say who is a privileged user and who isn’t. If there’s any gray area or uncertainty regarding current or former employees or other workers, the security of your data could be severely compromised. And the ramifications, both financially and for your company’s reputation, are potentially very serious.
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Got independent contractors? Get to know Form W-9

If your not-for-profit is perpetually shorthanded, you may have decided to engage independent contractors or freelancers to pick up some of the slack. Just make sure you’re collecting the right information from these individuals and filing it with the IRS. Clean paperwork now can save you a lot of headaches — including tax penalties — later.

W-9 rules

When engaging an independent contractor, obtain that person’s individual or business Taxpayer Identification Number (TIN). For individuals, this generally is the contractor’s Social Security number. Use the number to complete IRS Form W-9, “Request for Taxpayer Identification Number and Certification.”

If a contractor doesn’t provide a correct TIN or doesn’t sign the certification in Part III of Form W-9, you’re generally required to “backup withhold” on reportable amounts. In other words, you must withhold and pay to the IRS 24% tax from future payments. If you fail to do so, the IRS may hold your organization liable for any uncollected amount.

The IRS will send you a backup withholding notice if a worker’s name and TIN on a Form W-9 don’t match its records. If you receive a notice, you may have to send what’s called a “B” notice to the contractor to solicit another TIN.

Collection and reporting

Several best practices can help you collect and report information about independent contractors:

Make W-9 completion part of the onboarding process. If contractors drag their feet on submitting Form W-9s, make clear that they can’t begin working for you until you have the completed and signed form in hand.

Review every form. When you do receive a Form W-9, take the time to review it. If you need additional information, request it from the contractor immediately to help preempt IRS penalties. Note that sole proprietors must furnish their individual names, not only a business name or “Doing Business As.”

Use the IRS’s TIN Matching service. You can find this free tool on the IRS website (search “e-services” at, rather than simply waiting to see if the IRS sends you a notice about a Form W-9. The IRS allows payers and their authorized agents to match TIN and name combinations with IRS records before submitting forms so they can follow up with the individual if there’s a discrepancy.

Send annual notices to independent contractors. The notices should remind them to keep their forms with you up to date. If they’ve undergone a change — such as a change in entity type or owner — they need to provide a new form.

Retain records. Keep W-9 forms for at least three years after the last tax year for which you filed a Form 1099-NEC for the contractor. The IRS usually limits its audits to returns filed in the previous three years.

Filing 1099-NECs
You’ll use Form W-9 to report any payments for services by nonemployees you’ve paid at least $600 to during the tax year. Issue a 1099-NEC, “Nonemployee Compensation,” to each worker and file it with the IRS. If you need help, please contact us.
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Did your business buy the wrong software?

No one likes to make a mistake. This is especially true in business, where a wrong decision can cost money, time and resources. According to the results of a recent survey, one of the primary ways that many companies are committing costly foibles is buying the wrong software.

The report in question is the 2024 Tech Trends Survey. It was conducted and published by Capterra, a company that helps businesses choose software by compiling reviews and offering guidance. The study focuses on the responses of 700 U.S.-based companies. Of those, about two-thirds regretted at least one of their software purchases made in the previous 12 to 18 months. And more than half of those suffering regret described the financial fallout of the bad decision as “significant” or “monumental.”

Yikes! Clearly, it’s in every business’s best interest — both financially and operationally — to go slow when it comes to buying software.

Inquiring minds

The next time you think your company might need new software, begin the decision-making process with a series of inquiries. That is, sit down with your leadership team and ask questions such as:
  • What functionalities do we need?
  • Are we talking about an entirely new platform or an upgrade within an existing platform?
  • Who will use the software?
  • Are these users motivated to use a new type of software?
Compatibility is an issue, too. If you’re using an older operating system, new software could be buggy or flat-out incompatible. In either case, you could incur substantial additional costs to update or replace your operating system, which might involve new hardware and impact other software.

When deciding whether and what to buy, get input from appropriate staff members. For example, your accounting personnel should be able to tell you what types of reports they need from upgraded financial management software. From there, you can differentiate “must haves” from “nice to haves” from “needless bells and whistles.”

If you’re considering changes to “front-facing” software, you might want to first survey customers to determine whether the upgrade would really improve their experience.

Prequalified vendors
When buying software, businesses often focus more on price and less on from whom they’re buying the product. Think of a vendor as a business partner — that is, an entity who won’t only sell you the product, but also help you implement and maintain it.

Look for providers that have been operational for at least five to 10 years, have a track record of successful implementations and can provide references from satisfied customers. This doesn’t mean you shouldn’t buy from a newer vendor, but you’ll need to look much more closely at its background and history.

For each provider, find out what kind of technical support is included with your purchase. Buying top-of-the-line software only to find out that the vendor provides poor customer service is usually a quick path to regret. Also, is training part of the package? If not, you’ll likely need to send one or more IT staffers out for training or engage a third-party trainer, either of which will cost you additional dollars.
Your goal is to create a list of prequalified software vendors. With it in hand, you can focus on comparing their products and prices. And you can use the list in the future as your software needs evolve.

No remorse
“Regrets, I’ve had a few,” goes the famous Sinatra song. Buying the wrong software doesn’t have to be one of them for your business. We can help you identify all the costs involved with a software purchase and assist you in ensuring a positive return on investment.
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3 types of internal benchmarking reports for businesses

As each year winds to a close, owners of established businesses can count on having plenty of at least one thing: information. That is, they have another full calendar year of financial results to peruse, parse and ponder over.

Indeed, you shouldn’t let this valuable data go to waste. Within your company’s financial statements lies a treasure trove of insights that can help you spot trends, both positive and negative.

That’s where benchmarking comes in. It can take several forms, but let’s focus on three types of internal benchmarking reports that can be particularly useful.

1. Horizontal analysis
A relatively easy starting point is to put two of your company’s financial statements side by side and compare them. In accounting, a comparison of two or more years of financial data is known as horizontal analysis. Differences between the years are typically shown in dollar amounts or percentages.

Naturally, what you’re hoping to find is growth. For instance, if accounts receivable increased from $1 million in 2022 to $1.2 million in 2023, that’s a difference of $200,000 or 20%. Horizontal analysis helps identify such trends. It’s then up to you and your leadership team to explain what caused them and, in the case of this example, keep that trendline moving in a positive direction.

You can also use horizontal analysis to sharpen your understanding of your business’s profitability. While public companies usually focus on earnings per share, private companies generally want to look at profit margin and gross margin. Rather than analyze only the top and bottom of the income statement (revenue and profits), you may want to drill down and compare individual line items such as the cost of materials, rent, utilities and payroll.

2. Vertical analysis
Vertical analysis works its magic within one year’s financial statements. Essentially, each line item in that set of financial statements is converted to a percentage of another item — often revenue or total assets. Accountants typically refer to financial statements that have been subject to vertical analysis as “common-size” financial statements.

For example, a common-size income statement that shows each line item as a percentage of revenue would explain how each dollar of revenue is distributed between expenses and profits.

Alternatively, from a profitability standpoint, vertical analysis could show the various expense line items in the income statement as a percentage of sales. This would show whether and how these line items are contributing to your profit margin.

3. Ratio analysis
Ratios also depict relationships between various items on a company’s financial statements. For instance, profit margin equals net income divided by revenue. Ratios are typically used to benchmark a business against its competitors or industry averages. But you can use ratios internally as well.

Within a single set of financial statements, for example, you might calculate total asset turnover (revenue divided by total assets). This ratio estimates how many dollars in revenue the business generated for every dollar it invested in assets. Generally, the more dollars earned, the better. You can also, of course, compare ratios from one year to the next or over longer periods.

Know your options
Many companies use a combination of horizontal, vertical and ratio analyses over time to highlight positive trends and catch operating inefficiencies. What’s important is knowing your benchmarking options and maximizing the value that your financial statements can provide.

Joining forces with another nonprofit

A merger may seem like something that happens in the corporate world, where companies often combine to expand sales territory, gain competitive advantages and boost profits. But, in fact, mergers between not-for-profit organizations can offer similar advantages, including greater financial resilience and lower expenses.
Over the past several years — particularly since the beginning of the COVID-19 pandemic — many nonprofit hospitals and institutions of higher learning have explored and executed mergers. But even smaller nonprofits can benefit from the right combination.

Signs of success
Successful mergers are based on a foundation of solid motivations. You might decide to merge to establish the stability that will make it easier to pursue your mission. Such a union could lead to a stronger organization that’s better able to survive difficult times. You also might want to merge to reduce competition for funding.

A merger can help nonprofits achieve economies of scale that will make the merged organization more efficient, too. This might come, for example, from combining infrastructures — everything from staffing and board leadership to administration, information systems, human resources and accounting. A merger could also give you access to a wider network, as well as more perspectives and experiences to base decisions on. And it might enable you to provide more programming or add physical locations.

The best mergers usually occur when the two organizations share similar missions, values and work cultures. That doesn’t mean you and a potential merger partner must offer duplicative services, but you should at least complement each other. It’s also important to have clearly defined goals for the combination and to make prompt decisions to facilitate a swift integration.

Potential pitfalls
For all of the worthwhile reasons to consider a merger, it’s important to remember that mergers do sometimes fail. One common reason is that the merger itself, as well as the new organization, can cost much more than expected. In the short term, for example, you’ll need to finance transactional and integration costs.

Arrangements intended to rescue a failing organization are another red flag. In this scenario, you usually see a larger, more stable nonprofit swoop in to save a smaller counterpart that, despite its weaknesses, has something to offer. But a merger isn’t likely to solve problems such as poor leadership. The better approach in such a situation is for the larger nonprofit to acquire assets, or viable pieces, of the smaller organization.

Common factor
One critical factor in the success of any merger — for- or not-for-profit — is the assistance of knowledgeable, experienced advisors. Contact us to discuss your organization’s plans and we can help you assess whether a merger makes sense.
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Using the personal touch for last-minute fundraising

As 2023 hurtles toward Dec. 31, your not-for-profit probably is fully engrossed in last-minute fundraising. After all, taxpayers who itemize will be able to deduct qualified charitable contributions on their 2023 tax returns.

As you make last-minute pitches, don’t forget to deploy the personal touch. Many studies have shown that people are more willing to donate if a friend, family member or coworker is doing the asking. At this time — and into the new year — rely on board members to reach out to their networks.

Passionate advocates
All of your organization’s stakeholders can promote your nonprofit and request support from their contacts. But development staffers aside, board members generally make the most effective fundraisers because they’re knowledgeable about your organization, passionate about your mission and typically have a wide range of contacts in business and philanthropic circles.

Support their efforts by making sure they have the proper information and training. Equip them with a wish list of specific items or services your nonprofit needs. Keep in mind that not all of their contacts may be in a position to make a monetary donation. However, some people may be able to contribute in-kind goods or services.

In-person meetings
When making a personal appeal to prospective donors, your board members should, when possible, meet in person. Email can save time, but face-to-face appeals are more effective. Personal appeals can also be effective if your nonprofit offers donors something, such as coffee or lunch, in exchange for their attention.

When board members meet with prospective donors, they must humanize your cause. Say that your nonprofit raises money for cancer treatment. If board members have been affected by the disease, they might relate their personal experiences as a means of illustrating why they support your organization’s work.
Even when appealing to potential donors’ philanthropic instincts, it’s critical to mention other possible benefits. For example, if your nonprofit is trying to encourage business owners to buy ad space in your newsletter, board members could explain that your supporters are a desirable demographic, both in terms of spending power and an eagerness to “buy local.”

Into the new year
The clock is winding down on 2023, but you should plan to use these fundraising strategies in the new year. Start planning more small gatherings where board members can interact with major donors. In the meantime, contact us to discuss your nonprofit’s financial health and ways to boost it.
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Reinvigorating your company’s sales efforts heading into the new year

Business owners, with the year just about over, you and your leadership team presumably have a pretty good idea of where you want your company to go in 2024. The question is: Can you get there?
When it comes to success, the driving force behind most businesses is sales. If products or services aren’t moving off the shelves, literally or figuratively, you’ll likely fall short of your financial objectives. Here are some big-picture ways to reinvigorate your company’s sales efforts heading into the new year.

Review territories and customers
A good way to start is by reassessing your sales territories. The pandemic suddenly and severely curtailed business travel — so much so that some experts believe it will never return to pre-pandemic levels.
If your company has changed its approach to and budget for business travel in recent years, review the geographic routes that your sales staff used to physically traverse. You may see efficiency gains by creating a strategic sales territory plan that’s less focused on travel and more aimed at aligning salespeople with regions or markets that contain their most winnable prospects.

Also, as always, nurture your top-tier customers. If purchases from them have slowed recently, find out why and prioritize reversing this trend. For your sales staff, this may mean shifting focus from winning new business to tending to these important accounts. See whether you can craft a customized plan aimed at meeting a legacy customer’s long-term needs. It might include discounts, premiums and/or extended warranties.

Explore technological upgrades
Too much paperwork used to be a common gripe among salespeople. More often than not, “paperwork” is a figurative term these days, as most businesses have implemented technology to track leads, document sales efforts and record closings. Nevertheless, outdated or overly complicated software can slow sales momentum.

You might conduct a survey to gather feedback on whether your current customer relationship management or sales management software is helping or hindering the efforts of your sales team. Based on the results, you can then make a sensible decision about whether to upgrade or change your systems.

Incentivize staff
One thing about sales that will likely never change is the need to occasionally or regularly incentivize salespeople to go above and beyond. After all, what allows a business to grow is not only retaining top customers, but also creating organic sales growth from new products or services.
Consider creating a sales challenge that will motivate staff to achieve the specific financial results you’re looking for. One facet of such a challenge may be to replace across-the-board commission rates with higher commissions on new products or “tough sells.”

Investigate other ways to incentivize your team as well. Examples include boosted commissions or bonuses based on:
  • Actual customer payments rather than billable orders,
  • Increased sales to current customers,
  • Number of prospects converted, or
  • Number of customers who agree to prepay.
Ultimately, be sure to align commissions or other sales compensation methods with your company’s carefully projected and clearly communicated financial objectives.

Ring in the new year
Here’s hoping your business rings in the new year with sales on an upward trajectory and a sales staff fully equipped and motivated to be as productive as possible. We can help you generate or assess realistic sales projections and identify optimal, obtainable financial objectives.
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Businesses: Know who your privileged users are … and aren’t

Given the pervasiveness of technology in the business world today, most companies are sitting on treasure troves of sensitive data that could be abducted, exploited, corrupted or destroyed. Of course, there’s the clear and present danger of external parties hacking into your network to do it harm. But there are also internal risks — namely, your “privileged users.”

Simply defined, privileged users are people with elevated cybersecurity access to your business’s enterprise systems and sensitive data. They typically include members of the IT department, who need to be able to reach every nook and cranny of your network to install upgrades and fix problems. However, privileged users also may include those in leadership positions, accounting and financial staff, and even independent contractors brought in to help you with technology-related issues.

What could go wrong?
Assuming your company follows a careful hiring process, most of your privileged users are likely hardworking employees who take their cybersecurity clearances seriously.

Unfortunately, sometimes disgruntled or unethical employees or contractors use their access to perpetrate fraud, intellectual property theft or sabotage. And they don’t always act alone. Third parties, such as competitors, could try to recruit privileged users to steal trade secrets. Or employees could collude with hackers to compromise a company’s network in a ransomware scheme.

How can you protect yourself?
To best protect your business, you may want to implement a formal privileged user policy. This is essentially a set of rules and procedures governing who gets to be a privileged user, precisely what kind of access each such user is allowed, and how your company tracks and revokes privileged-user status.

When developing and enforcing the policy, you’ll first need to identify who your privileged users are and what specific security clearances each one needs. A good way to start is to list the privileges required for every position and then compare that list to a separate record of privileges that each employee currently has. What makes sense? What doesn’t? When in doubt whether someone needs a certain type of access, it’s generally best to err on the side of caution.

Also, establish an “upgrading” process under the policy. Only trusted and qualified managers or supervisors should have the power to upgrade or reinstate an employee’s privileges, perhaps in consultation with the leadership team. Use technology to help standardize and track requests and approvals. For sensitive systems and applications, such as those that store customer and financial data, consider requiring two levels of approval to elevate a user’s privileges.

In addition, your privileged user policy should include stipulations to carefully monitor user activity. Observe and track how employees use their privileges. Let’s say a salesperson repeatedly accesses customer data for a region that the person isn’t responsible for. Have the sales manager inquire why. Subtly reminding employees that the company is aware of their tech-related activities is a good way to help deter fraud and unethical behavior.
Another important aspect of the policy is how you revoke privileges and remove dormant accounts. When employees leave the company, or independent contractors end their engagements, privileged access should be revoked immediately. Keep clear records of such actions. If a previously deactivated account somehow shows signs of activity, block access right away and investigate how and why it’s come back to life.

Do you know?
Every business should be able to definitively say who is a privileged user and who isn’t. If there’s any gray area or uncertainty regarding current or former employees or other workers, the security of your data could be severely compromised. And the ramifications, both financially and for your company’s reputation, are potentially very serious.
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Consider these 2 issues before searching for new staffers

Despite many predictions to the contrary, U.S. employers have continued to add workers to their payrolls and the unemployment rate has remained low — at 3.7% as of November 2023, according to the Bureau of Labor Statistics. Is your not-for-profit among the employers that need fresh staffers? The new year is a good time to start looking, but make sure you consider a couple of issues before you place any ads.

1. Your workforce
First, do you really need to hire? Even if you plan to expand services and introduce new programs, volunteers may be capable of picking up the slack. Or current staffers may be underused on projects that are stagnating or winding down. Carefully review your nonprofit’s priorities and consider eliminating programs that aren’t meeting expectations so you can redeploy human resources.

If staffers have been working from home since the start of the COVID-19 pandemic, you may want to call them back to the office before making the decision to hire. It’s possible some staffers will refuse to return to the office full time. In that case, you’ll need to decide whether to keep them working from home and on the payroll or start searching for new employees. Just keep in mind that you could have trouble finding new workers at compensation levels your organization can afford to offer.

2. Your finances
The second major consideration, of course, is money. Thanks to generous donors and grant-makers, some nonprofits have bounced back and even expanded in the post-pandemic period. Others have been forced to pinch pennies just to maintain the existing programs. Wherever your nonprofit falls on this spectrum, ensure you can fit new staffers into your budget before hiring.

Remember that when you hire full-time employees, the expense isn’t limited to salaries or hourly wages — you’ll also be paying employment taxes and benefits. In many cases, it’s cheaper to outsource functions, particularly accounting, IT and human resources work. Outsourcing offers the additional benefit of being temporary if you aren’t happy with the service.

Finally, even if you can afford to hire or outsource, the fact remains that nonprofits are obligated to be careful financial stewards. Donors, watchdog groups and the media demand it. So consider how you’ll make the most of any new staffing budget before you spend it.

Making the decision
The economy in the U.S. remains relatively strong, making it a good time to hire for many employers. However, this situation could change. Ultimately, the decision to hire depends on your organization’s staffing needs and financial resources. We can help by reviewing your budget and suggesting ways to free up cash.

Is your business underestimating the value of older workers?

The job market remains relatively tight for businesses looking to fill open positions or simply add top talent when the fit is right. That means it’s still important for companies to continuously reassess where they’re looking for applicants and which job candidates they’re focusing on.
In October, global employment nonprofit Generation, in partnership with the Organization for Economic Co-operation and Development (OECD), released a report entitled The Midcareer Opportunity: Meeting the Challenges of an Ageing Workforce. Its results are based on OECD data along with a survey of thousands of employers, job candidates and employees in the United States and Europe.
Among the eye-opening findings of the report is that responding hiring managers disclosed a strong preference for candidates between the ages of 30 and 44. Applicants between the ages of 45 and 64 were favored least.

Positive attributes
There’s no denying that many Baby Boomers (generally, those born between 1946 and 1964) have retired. And some older members of Generation X (generally, those born between 1965 and 1980) may soon be joining them. Nonetheless, a large contingent of older workers remain active in the workforce. Underestimating the value of these individuals when hiring could represent a costly blind spot for your business.

Older workers tend to share many positive attributes. For starters, they’ve lived and worked through many economic ups and downs, so these workers are usually budget-savvy. In addition, many are well-connected in their fields and can reach out or point to helpful resources your company may be unaware of. Seasoned workers are often self-motivated and need less direct supervision, too.

Onboarding and performance management
Many businesses currently feature workforces largely comprised of Gen Xers, Millennials (generally, those born between 1981 and 1996) and members of Generation Z (generally, those born between 1997 and 2012). Adding older workers to the mix can present challenges to company culture, so adjusting your onboarding process and approach to performance management may be necessary.

First, ensure internal communications emphasize inclusivity. If you’re concerned that your existing culture might hinder the onboarding process for older workers, begin addressing the potential obstacles before hiring anyone. Emphasize your company’s commitment to an equitable approach to hiring and professional development under which everyone’s contributions are valued and career path is empowered.

Second, consider involving other staff members in the hiring process. For example, you could ask those who will work directly with a new hire to sit in on the initial job interviews. You’ll likely experience less resistance if an older employee’s co-workers are involved from the beginning. Just be sure that every participant understands proper interviewing techniques to avoid legal problems.

Third, as appropriate and feasible, offer training to managers who might suddenly find themselves supervising employees with many more years of work experience. Learning to listen to an older worker’s suggestions while sticking to the company’s strategic objectives and operational procedures isn’t always easy.
Finally, consider a mentorship program. Bringing in new employees of a different age group is an opportune time to investigate the potential benefits of mentoring. By pairing newly hired older workers with younger staff members, you could see both groups learn from each other — and the business benefit as a result.

A deep pool
On a more positive note, the Generation/OECD report found that about 89% of responding employers indicated that their midcareer and older workers performed just as well, if not better than, younger hires. The message is clear: If your business is hiring, don’t overlook the depths of this particular hiring pool. For help identifying and analyzing your company’s employment costs, contact us.
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Solving the riddles of succession planning for family businesses

Every established company will encounter challenges when confronting the thorny issue of succession planning. Family-owned businesses, however, often face particularly complex issues. After all, their owners may have to consider both family members who work for the company and those who do not.

If yours is a family business, you may run into some confounding riddles as you develop your succession plan. As difficult as it may seem, always bear in mind that there are solutions to be found.

Divergent financial needs
One tough quandary for many family businesses is that the financial needs of older and younger generations conflict. For instance, the business owner is counting on the sale of the company to serve as a de facto retirement fund while the owner’s family wants to take over the business without a significant investment.
Fortunately, several strategies are available to generate cash flow for the owner while minimizing the burden on the next generation. For example, an installment sale of the business to children or other family members can provide liquidity for owners while easing the burden on children and grandchildren. An installment sale may also increase the chance that cash flows from the business can fund the purchase. Plus, so long as the price and terms are comparable to arm’s-length transactions between unrelated parties, the sale shouldn’t trigger gift or estate taxes.

Trust alternatives
Alternatively, owners may transfer business interests to a grantor retained annuity trust (GRAT) to obtain a variety of gift and estate tax benefits, provided they survive the trust term. They’ll also enjoy a fixed income stream for a period of years. At the end of the term, the business is transferred to the owner’s beneficiaries. GRATs are typically designed to be gift-tax-free.

Similarly, a properly structured installment sale to an intentionally defective grantor trust (IDGT) allows an owner to sell the business on a tax-advantaged basis while enjoying an income stream and retaining control during the trust term. Once installment payments are complete, the business passes to the owner’s beneficiaries free of gift taxes.

The answers are out there
There’s no doubt that every family business is a little bit different. Nevertheless, there are probably answers out there to your distinctive questions. We can help you put together a succession plan that’s right for you and your family.
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Some businesses may have an easier path to financial statements

There’s no getting around the fact that accurate financial statements are imperative for every business. Publicly held companies are required to not only issue them, but also have them audited by an independent CPA. Audited financial statements provide the highest level of assurance to third-party users that the documents in question are free of material misstatements.

The good news for privately held companies — particularly small businesses — is you may not need to incur the cost or undertake the effort that goes with formally audited financial statements. There are other less expensive and less arduous paths to follow.

The most basic: Preparations

True to its name, a financial statement preparation is simply the product of an accountant preparing a set of financial statements in accordance with an acceptable financial reporting framework. It’s usually done as part of bookkeeping or tax-related work.

A preparation provides no assurance of the accuracy and completeness of the financial statements in question. And assurance is typically critical if you plan to share the financial statements with third parties such as lenders and investors.
That said, some lenders may accept preparations in support of small lending arrangements. However, more often than not, preparations are used only for internal purposes to provide a business’s leadership with information on the company’s current financial condition and as a basis of comparison against future accounting periods. In fact, professional standards don’t even require a CPA to be independent of a business to perform a preparation.

To avoid misleading any third parties who might eventually receive a preparation, each page of the financial statements should include a disclaimer or legend stating that no CPA provides any assurance on the accuracy of the documents. In addition, a preparation must adequately refer to or describe the applicable financial reporting framework that’s used and disclose any known departures from that framework.

The next step up: Compilations
If you want to fortify the trust of potential third-party financial statement users a little more, consider a compilation. Like a preparation, a compilation is simply a set of financial statements generated in accordance with an acceptable financial reporting framework that provides no assurance of the documents’ accuracy and completeness.

The primary difference is a compilation includes a formal report by a CPA attesting that this professional has fully read the financial statements and evaluated whether they’re free from obvious material errors. If the CPA isn’t independent of the business, this fact must be disclosed in the report as well.
The use of a compilation can extend beyond the business’s leadership to third parties such as lenders, investors and collaborative partners who may view the input of a CPA as reassuring. However, many third parties might still insist on some level of formal assurance to accept your company’s financial statements.

The right level

We’d be remiss if we didn’t mention there’s another level in between audit (highest assurance) and preparation and compilation (no assurance). That would be a financial statement review. A review is performed by an independent CPA, who provides limited assurance that no material modifications should be made to the financial statements in question. If you need help deciding which level of financial statement services is right for your business, please contact us.

Help donors help your nonprofit with a planned gift

Most established not-for-profits are already equipped to solicit and accept planned gifts. But if your nonprofit is new to planned giving and doesn’t yet understand the long-term advantages of deferred gifts, it’s a good time to get up to speed. You’ll likely need to educate donors about the advantages — for them and your organization — of this form of support.

Planned gifts typically are made using one of three methods:

Direct gifts and bequests. These are made from a donor or a donor’s estate directly to your nonprofit. Generally, the bigger the donation, the bigger the tax benefit. Direct gifts provide donors with a current income tax deduction if they itemize, subject to annual limits. In addition, donated assets are removed from the donor’s taxable estate, which can reduce any estate tax due. Direct bequests don’t generate an income tax deduction, but they usually are 100% deductible for  estate tax purposes.

- Charitable gift annuities. These allow donors to gift substantial assets during their lifetimes. Annuities can be structured to minimize current income tax and future estate tax while providing donors with a consistent income stream during their lifetimes.

- Charitable trusts. With a charitable lead trust, the donor contributes assets to a trust, which pays income to your charity for a set number of years. Then the property reverts to the donor or another beneficiary. With a charitable remainder trust, the donor or another beneficiary receives income from the donated assets for a specified period or for life, and the remainder goes to your nonprofit. Depending on the structure of a trust, donors may enjoy income and estate tax savings.

Other options that might be appropriate for charitable gift- and tax-planning objectives are donor-advised funds, supporting organizations or foundations.

Choose what you’ll accept
Of course, your nonprofit doesn’t have to accept planned gifts in all forms. If, for example, your organization is going to accept endowments (gifts that permanently restrict the principal) or contributions that temporarily restrict use, you’ll need an infrastructure that handles them.

If you haven’t already, decide what type of gifts you’ll accept. Do you want to accept donations of appreciated securities (which typically provide donors with a greater tax benefit)? If so, establish a policy for them, such as whether you’ll liquidate these assets in a certain period of time. Then, adjust your investment policy on restricted gifts and get board approval. Also make sure your accounting system is set up to receive these types of gifts.

Getting the word out
You might start seeking planned gifts among your nonprofit’s board members. Even if they don’t make planned gifts themselves, they can be effective evangelists for your nonprofit’s mission and the benefits of planned giving.
Next, you may want to target outside resources such as financial advisors. Meet with prominent advisors in your community and explain your needs and willingness to enter into planned giving arrangements. Also develop strong relationships with local community foundations. These entities can act as intermediaries between your organization and potential donors, helping you to reduce or eliminate internal investment and infrastructure costs.

Long-term thinking
To take advantage of planned gifts, your staff and board members should be prepared to discuss them when opportunities arise. Provide training on how they work and how your organization’s policies affect what you accept. Contact us with questions.
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Why your nonprofit’s board needs to be diverse

Ideally, a not-for-profit’s board of directors should mirror that of its community and clientele. Does yours? Identifying that your board needs more diversity is the easy part, though. Figuring out what to do about it can be more difficult. But it’s important because it can affect your funding and program effectiveness.

Striking a healthy balance
In its infancy, your nonprofit probably just wanted to get the word out about its mission. So you may have recruited family members, friends and friends of friends for your board. As time passes, however, your not-for-profit might find that it’s represented solely by one race, sex, religion or economic class. And such lack of diversity can signal a disconnect from your community.

What’s considered “healthy” diversity will vary from board to board. But think of it like this: The more diverse your board is in attributes, the more diverse it will be in thoughts and ideas. This diversity can come in many forms — physical, societal and economic.

If your bylaws limit the number of board members you can have at any given time, you might consider amending them to accommodate your nonprofit’s commitment to board diversity. Be careful, though, that the size of your board doesn’t become unwieldy.

Start with what you have
The first step to a great mix is to ask board members to write their own profiles. In the instructions you give — or on the form you provide — include the attributes you consider important, such as skill sets and particular demographics. From this information, you’ll be able to see what the board may lack.

Look at the group as a whole and assess where the organization lies on the diversity continuum. Imagine a scale from “1” to “5,” with “5” displaying your nonprofit’s ideal diversity. Assess your members and give yourself a score. The diversity, or lack thereof, should be obvious. You may find, for example, that the board is underrepresented by women, persons of color, young adults or individuals with a financial background.

Find new members
Explain the need for diversity to your board — if members haven’t already vocalized the need themselves. Ask them to help find the right individuals in their own personal and professional networks. Also gather input from your community and the organizations that serve it. If your nonprofit lacks the perspective of younger people, for example, contact a local “young professionals” group in your area or recent college graduates.

If you’re having trouble finding qualified board members, try a board placement service. Some communities have board training programs for people interested in joining nonprofit boards. Professional associations also can be a good recruitment resource. Some state CPA organizations, for example, help match accountants with nonprofits that need volunteers with financial expertise.

Term limit option
If you’re reluctant to enlarge the size of your board, take every resignation to put in place an individual who will help you meet your diversity goals. But if this process ends up being too slow, you might want to consider implementing term limits for board members.
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5 tips for more easily obtaining cyberinsurance

Every business should dedicate time and resources to cybersecurity. Hackers are out there, in many cases far across the globe, and they’re on the prowl for vulnerable companies. These criminals typically strike at random — doing damage to not only a business’s ability to operate, but also its reputation.
One way to protect yourself, at least financially, is to invest in cyberinsurance. This type of coverage is designed to mitigate losses from a variety of incidents — including data breaches, business interruption and network damage. If you decide to buy a policy, here are five tips to help make the application process a little easier:

1. Be detail-oriented when filling out the paperwork. Insurers usually ask an applicant to complete a questionnaire to help them understand the risks facing the company in question. Answering the questionnaire fully and accurately may call for input from your leadership team, IT department and even third parties such as your cloud service provider. Take your time and be as thorough as possible. Missed questions or incomplete answers could result in denial of coverage or a longer-than-necessary approval time.

2. Establish (or fortify) a comprehensive cybersecurity program. Your business has a better chance of obtaining optimal coverage if you have a formal program that includes documented policies for best practices such as:
  • Installing software updates and patches,
  • Encrypting data,
  • Using multifactor authentication, and
  • Educating employees about ongoing cyberthreats.
Before applying for coverage, either establish such a program if you don’t have one or strengthen the one in place. Be sure to generate clear documentation about the program and all its features that you can show insurers.

3. Create and document a disaster recovery plan. An effective cybersecurity program can’t focus only on preventing negative incidents. It must also include a disaster recovery plan specifically focused on cyberthreats, so everyone knows what to do if something bad happens.
If your company has yet to create such a plan, establish and implement one before applying for cyberinsurance. Put it in writing so you can share it with insurers. Review your disaster recovery plan at least annually to ensure it’s up to date.

4. Prepare to be tested. Some insurers may want to test your company’s cyberdefenses with a “penetration test.” This is a simulated cyberattack on your systems designed to uncover weak points that hackers could exploit. Before applying for cyberinsurance, conduct a thorough assessment of your networks and, if necessary, train or upskill your employees to follow protocols and be wary of “phishing” schemes and other threats.

5. Consider a third-party assessment. To better uncover weaknesses that could result in a denial of coverage or unreasonably high premiums, you may want to engage a third-party consultant to assess your cybersecurity program, as well as your equipment, network and users. Doing so can be beneficial before applying for cyberinsurance because some IT security firms maintain relationships with insurers and can help streamline the application process.

Like most types of coverage, cyberinsurance is a risk-management measure worth exploring with your leadership team and professional advisors. Contact us for help determining whether buying a policy is the right move and, if so, for assistance analyzing the costs involved and developing a budget.
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Don’t let IRS compliance issues drag down your nonprofit

In recent years, the IRS has increased its scrutiny of tax-exempt organizations. Most not-for-profits that fail to file Form 990 for three consecutive years will have their exempt status revoked automatically. The IRS is also cracking down on nonprofits that don’t properly classify workers as employees, don’t report unrelated business income, participate in off-limits political activities or engage in financial transactions with insiders.

If you’re experiencing compliance issues, you may be hesitant to reach out to the IRS. But the agency is generally willing to work with struggling organizations (and their advisors) to help them maintain their nonprofit status.

Acknowledge errors
In addition to failing to file regularly or taking part in prohibited activities, nonprofits can trigger an IRS investigation with an innocent math or other filing preparation error. If you discover you’ve made a mistake, act quickly and get professional advice. The earlier you bring an error to the attention of your tax advisor, the easier it is to make right.
Also, make sure that you don’t brush off a potential compliance problem because you don’t understand it or don’t have time to deal with it. And don’t let embarrassment prevent you from taking the right steps. Innocent mistakes don’t have to reflect badly on your organization. Getting caught trying to sweep mistakes under the rug, however, can bring your judgment — not to mention your nonprofit’s reputation and funding — into question.

Consult your advisors
Tax advisors have experience working with the IRS, so listen carefully to your experts’ advice and follow their lead in amending any errors. These advisors can even accompany you if you need to meet with the IRS in person or by phone. Approach IRS meetings with an open mind and, once there, simply explain the facts. Don’t act defensive, assume the government is “out to get you” or engage in other hostile behavior.

By taking the proactive path and approaching the IRS before you receive a notice, you’ll find that the agency is likely to be more amenable to finding a solution. Taking the initiative can also speed up the process so that you can get back to running your organization.

Act immediately
Don’t put your organization at risk for interruptions, fines or censure. If you’re having trouble complying with IRS regulations, discover you’ve made a filing error or receive an IRS notice of audit or compliance check, contact us immediately. We can help you catch up, repair mistakes and, if necessary, apply for tax-exempt status
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Could value-based sales boost your company’s bottom line?

If your company sells products or services to other businesses, you’re probably familiar with the challenge of growing your sales numbers. At times, you might even struggle to maintain them. One way to put yourself in a better position to succeed is to diversify your approaches, so you’re not limited to a single method by which salespeople interact with customers.
Have you ever considered value-based sales? Under this method, sales reps act as sort of business consultants, working closely with customers or prospects to identify specific needs or solve certain problems. The objective is to provide as much value as possible from the sales that result. This approach has its risks but, under the right circumstances, it can pay off.

What is value?

Before embarking on a value-based sales initiative, you’ll need to identify what kinds of value you may be able to provide. This can’t be a fuzzy concept; sales reps should be able to put dollars and cents to their value-based sales propositions or at least build a compelling case. Value generally takes four forms: Dollars gained; your product or service will lead to an increase in revenue for the subject based on a reasonable financial projection, Dollars saved; your product or service will demonstrably save the customer or prospect money, Risk reduced; your product or service will address and help minimize one or more identifiable threats to the business in question, and Qualitative; if you can’t make a case for one of the other three value types, you may still be able to argue that your product or service improves the quality of the subject’s operations in some way.
At least one of these four types of value will be the ultimate objective when salespeople engage customers or prospects. However, to identify that objective, your sales team will need to put in considerable effort.

How does the process work?
Perhaps the biggest downside of a value-based sales approach is that it’s labor-intensive. As opposed to, say, making cold calls with a product or service list and a series of talking points, your salespeople will need to do a “deep dive” into targeted businesses. They’ll need to learn details such as each company’s mission, history, management structure, financial status, strengths and weaknesses.

Then, when interacting with customers or prospects, they’ll need to focus on education — both their own and the subject’s. In other words, a sales rep will need to ask the right questions to learn as much as possible about the customer’s or prospect’s business needs and challenges. Meanwhile, the salesperson will need to act much like a consultant, informing the subject about industry trends, potential solutions and perhaps how comparable companies have overcome similar issues.
As you can see, value-based sales is more about relationship building and knowledge sharing than straight selling. Because of this, it can be a gamble. Some sales reps may spend extensive time and effort with a customer or prospect, even helping that business in certain ways, only to reap little to no sales revenue. On the other hand, when the approach works well, your company may be able to build a dynamic, long-lasting relationship with a lucrative customer.

Are there such sales in your pipeline?
If value-based sales sounds like something that could benefit your business, discuss it with your leadership team and sales staff. You’ll likely want to review your sales pipeline and determine which customers or prospects would be good fits for the approach. Contact us for help tracking, organizing and analyzing your sales numbers.
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Private foundations: “Disqualified persons” must color within the lines

Although conflict-of-interest policies are essential for all not-for-profits, private foundations must be particularly careful about adhering to them. In general, stricter rules apply to foundations. For example, you might assume that transactions with insiders are acceptable so long as they benefit your foundation. Not true. Although such transactions might be permissible for 501(3)(c) nonprofits, they definitely aren’t for foundations. Specifically, transactions between private foundations and “disqualified persons,” such as certain insiders, are prohibited.

A wide net
The IRS casts a wide net when defining “disqualified persons.” Its definition includes substantial contributors, managers, officers, directors, trustees and people with large ownership interests in corporations or partnerships that make substantial contributions to the foundation. Their family members are disqualified, too. In addition, when a disqualified person owns more than 35% of a corporation or partnership, that business is considered disqualified.
Prohibited transactions can be hard to identify because there are many exceptions. But, in general, you should ensure that disqualified persons don’t engage in these activities with your foundation:
  • Selling, exchanging or leasing property,
  • Making or receiving loans,
  • Extending credit,
  • Providing or receiving goods, services or facilities, and
  • Receiving compensation or reimbursed expenses.
Disqualified persons also shouldn’t agree to pay money or give property to government officials on your behalf.

Possible penalties

What happens if you violate the rules? The disqualified person may be subject to an initial excise tax of 10% of the amount involved and, if the transaction isn’t corrected quickly, an additional tax of up to 200% of the amount. What’s more, an excise tax of 5% of the amount involved is imposed on a foundation manager who knowingly participates in an act of self-dealing, unless participation wasn’t willful and was due to reasonable cause. An additional tax of 50% is imposed if the manager refuses to agree to part or all of the correction of the self-dealing act.
Although liability is limited for foundation managers ($40,000 for any one act), self-dealing individuals enjoy no such limits. In some cases, private foundations that engage in self-dealing lose their tax-exempt status.

Go the extra mile
If you lead a private foundation, you must go the extra mile to avoid anything that might be perceived as self-dealing. Transactions between foundations and disqualified persons are firmly prohibited, and violating this rule can be costly. But it’s easy to get tripped up by IRS rules. So contact us to help ensure you’re coloring well within the lines.
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Do you have to return a donation when a donor requests it?

If a donor has never asked your not-for-profit to return a gift, it may only be a matter of time. Although uncommon, donors can change their minds. They may come to believe your organization is misusing or wasting donated funds or decide it’s no longer fulfilling its charitable mission. Although you’re probably inclined to cooperate with requests, doing so can be difficult if you’ve already spent the money or if other factors are in play. Let’s look at the problem — and a potential solution.

What the law says

In general, federal law doesn’t require nonprofits to return donations. Individual states have enacted various laws, but these generally are vague about returning contributions. They usually assume that a gift is no longer the property of a donor once a charity accepts it. And because nonprofits are expected to act in the public interest, state regulators may rule that returning a donation harms the public good.

However, to avoid potential lawsuits, some situations require you to return a donation. One such situation is the violation of a donation agreement. If, for example, a donor stipulates that money must go directly to hurricane relief and the funds are instead spent on mobile devices for staffers, the charity is legally obligated to return the donation. Another situation where donations should be returned is when a donor pays for a ticket to a fundraising or other event and the event is cancelled. At the very least, nonprofits should offer a refund for the canceled event, but can ask supporters to donate the amount.

As a gesture of goodwill, it’s usually best to return small donations when asked. Larger gifts may be harder to return. In such circumstances, talk to your attorney and financial advisor — and possibly your state’s nonprofit agency.

Heading off unwanted return requests
No nonprofit wants to return donated funds. Fortunately, you can head off unwanted return requests by adopting a written donation refund policy. State that most donations aren’t eligible for return and explicitly describe the circumstances under which a donation is eligible for return.

Also document large gifts using a standard agreement form that includes your return policy and consider including a “gift-over clause.” This permits a donor to request that a gift be transferred to another organization if the donor believes it has been misused. Finally, observe best fundraising practices. By adhering to the highest ethical standards, you may be able to avoid misunderstandings and conflicts that could result in refund requests.

Get to the bottom of it
Supporters can request the return of donations for many reasons. Try to get to the bottom of each case so you can prevent other donors from following suit. For instance, supporters may object to a recent decision or trend — or simply dislike how something was worded in your newsletter. In these circumstances, you may be able to smooth ruffled feathers and keep the donation. Just be certain you respond quickly to requests and enlist the help of advisors when there’s a threat of legal or financial repercussions.
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Business owners: Think carefully about fringe benefits related to smartphones

You’d be hard-pressed to find many employees these days who don’t use smartphones for some aspect of their jobs. Even someone who works behind a point-of-sale device may use a phone to interact with a supervisor or log work hours.

For business owners, this situation creates both problems and opportunities. On the downside, there are security and productivity issues to grapple with. However, on a more positive note, you could provide a fringe benefit related to smartphones or their usage. Employees will likely appreciate the gesture, but you’ll need to think carefully about the tax ramifications.

What if you provide the phone?
Let’s say you decide to provide employees with smartphones — for work purposes, of course. Business use of an employer-provided phone may be treated as a nontaxable working condition fringe benefit so long as it’s provided “primarily for noncompensatory business purposes.”

Examples of such purposes include a need to be accessible:
  • To the company at any time for work-related emergencies, and
  • To customers outside of normal business hours or when away from the office.
If the noncompensatory business purposes test is met, the value of any personal use of an employer-provided smartphone will generally be treated as a nontaxable “de minimis” fringe benefit. However, an employer-provided phone will fail the test — and trigger taxable income — if it’s provided as a substitute for compensation, or to attract new employees or boost staff morale.

What if you reimburse employees for their phones?
Instead of providing smartphones, you might consider reimbursing employees on a nontaxable basis for business use of their personal phones.

The IRS has indicated that it will analyze the reimbursement of employees’ expenses for their personal smartphones similarly to how they look at employer-provided phones. That is, reimbursements generally won’t be considered additional income or wages so long as three conditions are met: The employer has substantial business reasons for requiring employees to use their personal phones and reimbursing employees for doing so. The reimbursements are reasonably related to the needs of the employer’s operations and are reasonably calculated not to exceed the expenses that employees typically incur in maintaining their phones. The reimbursements aren’t a substitute for a portion of employees’ regular wages.

So, let’s say your company reimburses employees for a basic phone plan that charges a flat monthly rate for a specified number of minutes of domestic calls, and some of those minutes are used for personal calls. In such a case, the portion of the cost attributable to personal use can be deemed a nontaxable “de minimis” fringe benefit if all three requirements noted above are met.

Need help with the decision?
The IRS generally applies the rules described above to other “similar telecommunications equipment,” though it doesn’t define that phrase with absolute clarity. Nonetheless, tablet devices are presumably included. We can help you decide whether and how to address smartphones as part of your company’s fringe benefits.