Is the NJ brain drain dooming your organization’s future workforce?

by

Sure, the taxes may be high, but by and large the Garden State is an opportunity-filled place to live and work — especially for NJ-based companies that require a wide range of skill sets across their workforce.

But when we’re the only state losing 20,000+ students annually to out-of-state colleges, what’s the impact on future hiring? This so-called “brain drain” — high school students heading across state lines for their higher education — has been going on for decades. Combine that with the mass exodus of more than 500,000 millennials, and you don’t have to be an economist to predict the looming impact on the state’s labor pool — talent shortages, skilled positions going unfilled and costly retention issues as employees realize who’s in the driver’s seat.

This phenomenon is also expensive from a tax standpoint. New Jersey spends roughly $19,000 per student on K-12 education, landing it at the top of the list for per-pupil spending. That’s a steep investment in a future workforce that’s not guaranteed to stick around.

Why are so many students choosing to attend college elsewhere?
One reason is proximity, according to Joyce Strawser, Ph.D., dean of the Stillman School of Business at Seton Hall University. She says, “It’s so easy for a NJ high school graduate to enroll in a great university located within a two- to two-and-a-half-hour drive. That student may likely feel that he or she has the best of both worlds — the exciting opportunity to live and learn in another state, while maintaining the safety net of being a short drive or train ride from home.”

On the positive side, Strawser feels that the issue speaks to the quality of graduates the state produces. “Our high school students are academically competitive — attractive candidates who are heavily recruited by nearby colleges and universities.”

Shifting the tide to in-state higher education
In-state colleges are the first line of defense in attempting to reverse the talent exodus. And many, including Seton Hall, are getting creative in raising their profiles among high school students, moving beyond the typical “Open House” and hosting high-interest programs that bring these students to campus.For example, Strawser’s Stillman School hosts a half-day visit for Bridgewater-Raritan High School students twice a year — and has seen enrollments from that school district increase significantly as a result. Stillman also presents an annual “Strictly Business” program, a half-day immersive introduction to programs, faculty and students, during the New Jersey Education Association Convention.  “Because many of our high schools do not hold classes during the NJEA event,” she says, “it’s a convenient time for NJ students to visit our campus.”

Future-proofing your NJ workforce
If you’re planning on remaining an NJ-based company, now’s the time to think proactively about the future of your workforce. Though you can’t control where students choose to attend college, you can take steps like these:

  • Benchmarking —Examining both industry-specific and general market data can help you ensure your compensation and benefit packages are competitive or better.
  • Succession planning — Identify mission-critical roles across your organization and the skills necessary to succeed in them, then map out (or recruit, if you don’t find any) potential candidates to develop.
  • Organizational soul searching — What would it take to become known as an employer of choice? Whether that’s reinforcing your commitment to social responsibility, improving organizational culture or raising your profile by engaging a strategic PR firm, these tactics don’t yield results overnight. Start now so you’re positioned for success.

With so much home-grown talent and potential, it’s a tough loss to see other states — and their business communities — reap the benefits of NJ’s educational system. Our state is a difficult enough place to do business without the added stress of a workforce lacking the skills we need to remain competitive.

 

 

 

Seeking a digital transformation? CFOs believe it’s worth the investment

by

The role of the CFO has evolved considerably in the last decade. Thanks to the continuing intersection of most finance and IT departments, today’s CFOs have digital technology on their minds — in a more strategic sense. Many are finding themselves in a unique position to leverage digital technology to accelerate organizational initiatives and facilitate change across many areas of the business. And as a result, we’re seeing CFOs take a greater interest in technology investments and OK’ing the necessary spending to make them happen.

It’s not about keeping pace; it’s about staying ahead
Last year’s CFO Insights on New Technologies from Grant Thornton and CFO Research finds that 69% of CFOs plan to increase the money spent on technology investments that accelerate business change. As the study suggests, the adoption of new technology correlates with the immediate value it can bring to an organization — including better data quality, more streamlined reporting, optimized processes and reduced costs.

While the near-term objective is to optimize business processes, the ultimate goal for any technology investment is to improve the customer experience — with services that set your organization apart from the competition. So it makes sense that 41% of CFOs now say their companies’ upcoming digital investments are meant to help them overtake their competition through differentiation.

CFO analytics anxiety
Despite their plans to adopt new technology, the study also pinpoints one major concern: overall readiness. Almost 90% of CFOs feel they’re lacking much-needed skills in data analytics, and three quarters recognize their need to improve, while also securing leadership talent and finding adequate staff to fill day-to-day finance functions.

When it comes to staff readiness, CFOs are also considering the future once automation technology becomes common practice. Fifty-two percent would prefer to retrain existing staff, compared to 20% who would recruit new talent or 17% who would opt to outsource the work.

Outsourcing can offer CFOs a competitive edge — giving companies more time to focus on their strengths and high-value strategic tasks rather than the day-to-day number crunching. From bookkeeping, payroll and bill paying to audit assistance, a third-party team can handle finance-related tasks at every level, providing the technology and processes so CFOs can focus on bigger goals. Whether outsourced or in-house, the consensus is clear: new technology can support smarter decisions and drive more strategic efforts for the greater good of a company.

Find out how Magone & Company can help your organization operate more efficiently with the right technology, data and controls. Give us a call today at (973) 301-2300.

 

 

 

 

Can Client Accounting Services lead to increased efficiencies?

by

 From increased visibility to enhanced financial controls, Magone & Company’s Client Accounting Services (CAS) were created to streamline your company’s accounting and finance functions and help you operate more efficiently.

But don’t take our word for it! Respondents to Bill.com’s 2018 Client Accounting Services Report say that CAS delivers measurable benefits.
 


What’s more, these benefits lead to hard-dollar CAS outcomes, such as increased profit (28%) and improved revenue (23%). 

Your financial needs are a moving target. So why lock into a hire who may not be able to keep pace? Our CAS team has the expertise to handle finance-related tasks at every level — for less than the cost of hiring a full-charge bookkeeper or staff accountant. 

With four levels of service — from bookkeeping and accounting to more strategic controller and CFO-level tasks — Magone & Company’s CAS services provide the financial skills, services and systems you need, without having to invest in expensive staff and technology infrastructure.

Is CAS right for you? Learn more or  call (973) 301-2300 for details.

Choosing the right entity for your small business

by

If you’re thinking of starting a business, kudos to you! Starting a business can be an overwhelming experience in the beginning, but well worth it in the end.

Of all the decisions you’re going to make, one of the most important decisions that should not be taken lightly, will be the type of legal structure you will choose for your company, whether it may be a sole proprietorship, partnership, or corporate entity. This decision will definitely have an impact on your tax obligations, it will affect the amount of paperwork your business will be required to complete and process. It also has ramifications for your personal liability.

Before we get into the various business types, there are some considerations which lead to one business form over another regardless of tax advantages. For example, do you have foreign partners or investors, will you operate in various states, will you seek venture capital (if so, how soon)? These are but a handful of considerations that need to be considered. Let’s now look at the various business forms.

Types of business entities

Sole proprietorship is the most common form of business organization and easiest to operate. It is very simple to form often requiring only registering a Doing Business As (DBA) with the county courthouse. A mistake many owners make since this form of business is so easy to form and operate is they are lax in maintaining adequate books and records and frequently commingle business and personal expenses in the checkbook.

Tip – Open a separate checking account and pay yourself a draw. Pay business expenses from the business account and personal expenses from your personal checkbook.

Another consideration is this type of entity makes the owner personally liable for any and all financial obligations pertaining to the business. Think bankruptcy or liability from acts of your employees, such as an auto accident. I’m not referring to professional liability such as doctors, professionals are always held personally liable. Thought must be given to the nature of your business and potential for liability before selecting this form of entity.

Finally, adequate and accurate books and records are required, but the owner does not take a salary. The owner takes a draw and pays the federal, social security and state taxes assuming no employees via quarterly estimated tax payments. Keep in mind your draw is your “gross” pay check. This means you’ll need to estimate a reserve for income and social security taxes from each draw, no different than you would withhold taxes for an employee.

Tip –Establish a separate bank account for your tax liability and transfer the estimated amount for taxes to this account to establish a delineation between funds available for operations versus those earmarked for taxes.

A partnership consists of two or more people who agree to share in the profits and losses of a business. Similar to a sole proprietor, partners do not take salaries, but rather take guaranteed payments. The guaranteed payments are deducted from the net income, but included as partner’s compensation and subject to income and social security taxes.

Depending on whether a partner is a general partner or a limited partner, they may be held personally liable for the financial obligations of the business, absent personal guarantees. Many individuals form partnerships to avoid double taxation such as is the case with C-Corporations. Partnership tax law is one of the most complex areas of the tax code due to the flow-through nature of income, expenses, gains and losses. However, it’s useful when partners want flexibility in partner sharing percentages for income and losses.

Tip –Make sure you have a partnership agreement in place from the start. This can help you avoid heartache and expensive litigation if the partnership ever goes sour.

A corporation is a legal entity incorporated within a state. Many corporations are formed in Delaware, since most attorneys are trained in Delaware law and the law of their home state. The corporation is a separate entity, subject to federal and state taxation. Like a person, the corporation can be taxed and can be held legally liable for its actions.

Most venture capitalists require a corporate structure to facilitate investment and eventual sale, or public offering. In addition, there is the possibility certain officer fringe benefits and those of other shareholders will not be subject to tax as is the case with partnerships or S-corporations.

Tip –The key benefit of corporate status is the avoidance of personal liability, so long as the corporate veil is not pierced. Bes sure to work with a knowledgeable advisor to make sure you have the right documents and processes in place to take full advantage of corporate status.

The primary disadvantage is the cost to form a corporation and the extensive record-keeping (minutes, resolutions, etc). While double taxation is sometimes mentioned as a drawback to incorporation, the S corporation (or Subchapter S-corporation, a popular variation of the regular C-corporation) avoids this situation by allowing income or losses to be passed through on individual tax returns, similar to a partnership. Similar to the partnership tax laws, those applying to the Subchapter S-corporation are often quite complicated due to the flow-through nature of the income and expenses.

A hybrid form of partnership, the limited liability company (LLC), is very popular among new business owners and the legal community. LLCs offer personal liability protection for the owners, but for income tax purposes they are treated as a sole proprietorship if there is one owner or a partnership if more than one.

Tip –An LLC can elect to be treated as a corporation, but this is seldom done unless there are extenuating circumstances, for example foreign owners.

The foregoing is meant to provide a broad overview of the types of business entities a new business owner may choose. Each choice carries with it its own advantages and disadvantages based on your goals, so be sure to consult your CPA or other  trusted business advisor before making any decisions.

Need help talking through your options? Magone & Co. CPAs can help you make the decision that’s right for your needs and goals.

Thinking of expanding? Not so fast

by

The driving force in many expansion plans is to generate higher sales, with the hope that profits, too, will rise.

But before making moves to buy new equipment, expand your plant or implement a new business idea, you need to grasp the profit angle.

In some cases, an expansion plan boosts sales but not profits. You wind up working longer and harder for nothing. You may think, “If we lose a little bit on each deal, we can make it up on volume.” That sounds good in theory, but may prove difficult in reality. To prevent problems, here’s a step-by-step guide.

  1. Fixed and variable costs. Break down your costs as either fixed or variable. Fixed costs don’t change over any reasonable time period while variable costs are related to sales. (The more sales, the more variable costs.)
  2. Contribution margin. This is what remains from sales after you deduct the variable costs. So if your product sells for $10 and your variable costs run $8, your contribution margin is $2. From that margin, you cover fixed costs and add to your profits.
  3. Breakeven. This is the amount of dollars and time it takes the contribution margin to match fixed costs. To calculate it, divide fixed costs by contribution margin. You don’t realize a profit until the contribution margin exceeds fixed costs. Until then, you’re in the red.

Once you calculate these factors, you’re ready to analyze the impact of expansion. Let’s say your company makes Belgian chocolates and sells them in quarter-pound boxes at $10 a piece. Your variable costs are $8, giving you a contribution margin of $2 on each box to cover fixed costs and provide a profit. Your fixed costs are $100,000, so you need to sell 50,000 boxes to break even.

If you expand, and fixed costs rise to $125,000, your contribution margin stays the same. Using the breakeven formula (fixed costs divided by contribution margin), you now have to sell 12,500 more boxes, or 62,500 total.

Have your numbers calculated? It’s a good idea to talk to your accountant about how cash flow, liquidity and profitability could change, depending on business conditions. But fundamentally, a solid grasp on these factors is critical to deciding whether you’re better off keeping the status quo or charging ahead with an expansion.

Why your business absolutely needs a budget

by

Most business owners view a budget with utter disdain. They’ll use any excuse to not prepare a budget. Some of the excuses I have heard over my career:

“Who has time for that?”

“Our annual earnings don’t really change from year to year.”

“Sales are flat, why bother?”

Most business owners run their business based on the business’ history and the owner’s experience. Sometimes this works well, other times not so much. Remember the credit crisis of 2008? Our business clients who weathered the storm were the ones who had transparency into their business via a budget. They could model the effect it would have on their profitability and cash flow using their existing budget and adjusting their expenses or payroll accordingly.

So, why prepare a budget? As previously discussed, transparency into the effects business conditions have on cash flow and profitability. Another reason is to plan for growth, organic or merger. Growth creates its own challenges such as the need for financing. A merger needs to be modeled to attract possible financing. Yet another reason to create a budget is to see how pricing changes affect profitability.

What is a budget?

A budget is simply your estimated income and expenses for your business year, a pro forma document, meaning you’re using your knowledge to estimate the how you will see the year.  A budget typically reflects how your company expects to spend money in the future.

Let me say it again, it is your spend, meaning you have built into the budget hiring for growth, a new or larger facility, etc.  It will change as you move through the year and must be updated. I like to update each month of the budget with actual results, so trends can be spotted and profit and cash flow projections more accurate with the known adjustments. This is especially useful when communicating with a bank or investors.

How do I prepare one?

Depending on the size of the business the budget process can begin as early as August or September. If your business has a sales team, it is imperative you start with them. Have each sales person develop their sales budget by month and by customer. Do not just accept the numbers provided challenge them based on your expectation of reality, against their previous sales and the current economic environment. This will form the foundation of the entire budget.

Next, review your historical gross margin, listen to your sales team as to pricing pressures and project the gross margin. Finally, estimate your general and administrative expenses such as administrative salaries (accounting, HR, executives) insurance, utilities, rent, travel and entertainment.

Here again, you’ll reference history and change in operations and possible hiring patterns to estimate the expenses by month.  This becomes your plan for the year and if sales are not being obtained, or margin is lower than obtained, then changes will need to be made in personnel or expenses.

Of course, if you are satisfied with the ultimate operating margin, maybe nothing needs to be changed. The important thing to remember is this will hold your employees accountable to the plan, if you hold yourself accountable to developing, monitoring and taking action against it.

Where to start? Your accountant is a great place. Don’t have one? Fix that now and call Magone & Company at (973) 301-2300.