Search Results for: operations

When Uncertainty’s the Norm, Plan for the What ifs

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Uncontrollable factors can have a profound effect on business operations. Circumstances can change overnight, directly impacting your employees, your customers and your business decisions. When unforeseeable events occur — COVID-19, anyone? — what can you do to keep your business afloat financially and practically?

Risk or uncertainty: What’s the difference?
Business risk is when the odds of future events can be measured and factored into your plans. When you don’t know the probability that something may happen, you’re dealing with business uncertainty.

Unlike calculated risk, business uncertainly cannot be controlled, making it even harder to prepare for. For example, if a competitor sets up shop a few blocks away, do you have a strategy in place to retain your sales? If there’s another mass shutdown, can your business model adapt and carry on?

An astounding three out of every 10 U.S. small businesses report they likely won’t survive 2021 without additional government assistance — that’s nine million small businesses at risk of closing for good as a result of the pandemic. The past year has demonstrated the need for a flexible business plan that confronts all the what ifs. Forward-thinking businesses have a greater chance of growing and thriving in even the most uncertain environments.

What causes uncertainty — and what can you do about it?
Business disruptions can arise from anywhere, but they’re commonly attributed to the following:

  • Whether it’s the stomach bug making its rounds around the office or a global pandemic shutting the entire office down, unexpected illness can shake up your workforce productivity, deadlines, inventory and more.
  • Economic conditions. Sudden shifts in economic activity (good or bad) can have a huge effect on your sales, inventory and cash flow.
  • Consumer behavior. Anything that changes a customer’s needs or how they go about filling those needs can alter the way you do business.
  • From taxes to minimum wage to employee rights, the government can play a key role in who you hire, who you fire and everything in between.

While you can’t plan for everything, you can take steps to safeguard your business:

  • Strategize for various possibilities. Acknowledge the unknowns and be flexible. Think about how your business model would adapt if XYZ were to happen.
  • Develop worst-case scenarios. Face your biggest fears. How would your business work through them to come out on the other side?
  • Educate yourself on the state of the economy. The more you know about how your business can be adversely affected, the better you can brainstorm the potential risks and solutions.
  • Reevaluate your resources. Are you confident in your team, vendors and suppliers? Can your cash reserves carry you through an emergency? Build a strong defense before you actually need one.
  • Remain guided by your vision. Remember why you went into business in the first place. Ensure that your whole team’s goals and efforts are aligned to bring your organization success.

Start planning for tomorrow, today
Uncertainty affects businesses of all types and sizes. That’s why you need solid contingency plans to adapt to the changing variables. NJ CPA firm Magone & Company’s advisory services can help position your business ahead of the challenges to come. Contact us today at (973) 301-2300 to learn more.

Moving Up to Your Company’s C-suite? Here Are Some Tips for Success

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C-suite positions usually come with big paychecks and plenty of perks, but these benefits are frequently accompanied by huge accountability, mammoth stress and seemingly impossible time constraints.

To quote the Harvard Business Review: “…the skills that help you climb to the top won’t suffice once you get there.”

How can you prepare to manage your new position successfully? In this series of three posts, we’ll explore what you need to succeed at the top:

  • Essential skills of a successful chief executive
  • Importance of communication and collaboration
  • Significance of a global mindset

 Advanced C-suite skills by title
Executives find they must rely more on the understanding of business fundamentals than they did prior to occupying the C-suite. Top execs also find themselves in the position of providing input on key decisions.

According to the Harvard Business Review report mentioned above, C-suite occupants should strive to achieve the following:

  • Chief Financial Officer — Understand the meaning of risk and how to balance it with performance. A global rather than regional approach to finance is necessary, as is a firm grasp of the role of technology.
  • Chief Information Officer — Possess a universal understanding of the business. He or she must be comfortable with organizational design, be able to process information analytics and know how to use ROI to plan future departmental expenses.
  • Chief Marketing Officer — Know how to use new marketing channels as they emerge. He or she must be prepared to be the CEO’s contact point for marketing, sales and e-commerce.
  • General Counsel — More important today because of intensified attention to risk management. The GC should have the ability to negotiate with regulatory agencies and industry watchdogs and should have knowledge of environmental regulations.
  • Chief Human Resource Officer — Has evolved way beyond administrative functions. The CHRO must understand cultural differences and shifting demographics, excel in change management and take the lead in attracting and developing top talent.

Important skills for all C-suite occupants
If you’ve risen to the C-suite, chances are you’ve already mastered some of the essential executive skills. Now you have to adapt these skills to meet the more rigorous demands of a senior leader.  For example:

  • The ability to prioritize is one of the most important abilities a C-level executive must possess, especially in the face of colossal time demands. Only by prioritizing will you be able to focus and devote time to your most important tasks.
  • All C-suite executives must be able to lead transversally, or across the entire organization. This enables executives to accomplish company objectives in partnership with other teams.
  • C-suite leaders must be able and willing to adapt quickly to changing economic and customer environments.

Personal qualities for chief officers
In addition to the business skills needed to navigate the C-suite successfully, Forbes identifies the personal qualities essential to executive leadership roles:

  • Displaying genuine empathy decreases stress and increases morale
  • Listening in a way that invites others to share
  • Being motivated by what is right rather than what the market demands

In addition, communication skills are critical in the C-suite. According to the Wharton School of Business, “Persuasion and influence are powerful skills for any executives and should be reflected in all aspects of communication.”

That includes asking for help when you need it. Whether it’s coaching to improve your presentation skills, a crash course in the industry if you’re new to it or objective third-party advice on operational matters, remember: You’re expected to be smart, not superhuman.

Editor’s note: We discuss the importance of effective communication in more depth in Part 2 of this C-suite series.

Going Solar: Commercial Building Owners Could Save $1M-$7M Over the System’s Life

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If you’re like most New Jersey residential and business building owners, you’ve become accustomed to multimedia messages prodding you to switch to solar power. Maybe you haven’t acted because you think it’s too expensive. Or maybe you find the incentives confusing.

Interestingly, with some of the top incentives in the nation, New Jersey has become one of the most successful solar locations in the United States. According to SEIA, the national trade association for the US Solar Industry, New Jersey ranks seventh in the nation for cumulative solar electric capacity installed through Q3 2020.

This boom has been fueled by a federal tax credit, thriving state incentives and the decreasing cost of installing solar in comparison to the utility costs NJ building owners are used to.

This is especially true for building owners with large flat roofs and high electricity usage on site.  Aside from the obvious environmental benefits of solar power (reduced air pollution, decreased water usage, better control of climate change), these recent incentives make an investment in solar something that New Jersey building owners might want to consider.

What makes solar a good investment in New Jersey?

  • Thriving state incentive – The current program in place is the TREC (transition renewable energy certificates) program, paying $152 per MWh of solar produced for 15 years.
  • Energy savings – New Jersey has high utility rates above the national average. New Jersey has a “Net-Metering Program” where you get a full retail rate credit for the amount of electricity you send back into the grid with your solar array.
  • Federal tax credit – Currently you can get a 26% federal tax credit for the total cost of installing solar.

How much can I save?

  • Capital purchase – For commercial building owners with large flat roofs, we are seeing payback periods on a solar project between 2-4 years and can save $1,000,000-$7,000,000 over the life of the system. We have seen IRR between 10-20 percent for many of our customers.
  • Power Purchase Agreement (PPA) rate – For commercial building owners with large flat roofs, you can see PPA rates from 1-4 cents/kWh vs the 9-12 cents/kWh you are currently paying the utility. This can translate into $1,000,000-$4,000,000 in savings over the life of the system.

The size of the system, and ultimately the annual returns of a solar array, are highly dependent on how much space you have on your rooftop, parking lot and/or property, what you currently pay the utility, and how much electricity you use on an annual basis.

Right now, the returns are so lucrative,  if you need a roof replacement and/or repairs, these costs can be paid for and/or financed into the solar project.

So the time just might be right to invest in solar. It’s not as expensive as you may have thought (in fact, it’s likely to be a huge money saver). And the proper partner, such as Pfister Energy, can simplify the once-confusing incentives that make going solar an attractive alternative.

At no cost to you, Pfister Energy can help analyze your property by designing an array, analyzing your utility bill, and presenting you with a financial analysis on how much solar can save you over the next 15-25 years.

Sean Quin is Vice President, Strategy & Business Development for Pfister Energy, Inc. Founded in 2005, Pfister Energy is an industry leader in solar project development, construction and operations.  Pfister Energy has more than 225MW of solar electric power installed in the U.S.

Entity Type Selection: Structuring for Long-Term Success

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A question we frequently hear from entrepreneurs and business owners is, “How should I structure my business for tax efficiency and business operations?” But one size does not fit all. The answer is dependent mostly on your goals for the company.

There are essentially four options to structure your business:

  • A traditional C-Corporation
  • An S-Corporation
  • A Partnership/LLC
  • A Sole Proprietor

Each entity has its own advantages and disadvantages regarding tax efficiency, types of owners and vulnerability of personal assets to creditors. Here’s a short rundown:

Sole Proprietorship
This is one of the simplest forms of business, but subjects you to the most risk. Owners have direct and sole control in the business making decisions. There is no separation of personal and business affairs. Raising capital may be difficult as banks typically depend on prior-year income to dictate the conditions of any loans, becoming stricter for businesses just getting started.

The tax return is filed with the business owner’s own personal return with a form Schedule C, mitigating the financial burden of filing a separate tax return for the business. Income is subject to the taxpayer’s ordinary income tax rates, with an additional 15.3% for self-employment tax (Social Security and Medicare) on the net business income. One-half of the self-employment tax is deducted to arrive at adjusted gross income on the personal income tax return.

Partnership/LLC
Partnerships can be as simple as a handshake between two entrepreneurs. A General Partnership gives all partners unlimited liabilities. A limited partnership requires at least one partner to manage the day-to-day activities, known as the General Partner, making them susceptible to unlimited liability. The remaining partners are passive investors with no part in management. Limited Partners still receive certain rights, such as voting about important issues.

An LLC requires more paperwork. You must file Articles of Incorporation and pay a fee with the state. LLCs must also file annual reports disclosing any changes in location, ownership or operations. LLCs are similar to a Limited Partnership as all partners receive limited liability.

If a member of an LLC dies or files bankruptcy, the LLC will dissolve. An advantage of a Limited Partnership is that a majority of remaining partners could vote to keep the business alive rather than terminate. Be aware that not all 50 states have a uniform treatment of an LLC. For example, some states limit the type of entities that may register as such, which can cause confusion for multi-state operations.

The form 1065 tax return is filed and partners receive form K-1 dictating their share of income or losses based on ownership percentages. Partners are provided guaranteed payments for services rendered or capital contributed rather than wages. Income is flowed through and taxed at the individual level at ordinary income tax rates.

For members active in day-to-day operations, the guaranteed payments and income from the partnership are subject to self-employment tax. General partners can use losses to offset other ordinary income. Any limited partner’s income will not be subject to self-employment tax, but is treated as passive. Passive losses may only offset passive income for tax purposes. Shareholders may take distributions in any manner partners agree.

S-Corporation
Incorporating as an S-Corporation becomes a bit more formal. Owners are required to file incorporation documents with their respective state, but not every state recognizes S-Corporation status. These states will tax the entity as a C-Corporation, meaning there will be double taxation. Shareholders are limited to 100 and they may only be U.S. citizens, U.S. residents and certain types of trusts.

S-Corporations are flow-through entities with income taxed at the individual level, but income retained by the corporation is not subject to the 15.3% self-employment tax like a sole proprietorship or partnership. Owners are required to take a “reasonable” salary based on the industry’s norm, with 2% shareholders being susceptible to taxability of various fringe benefits such as health insurance.

S-Corporations give shareholders limited liability, but also allows all shareholders to actively participate in the business. Owners are only liable for the capital they contributed into the corporation. It is important to separate personal and business assets so as to not “pierce the corporate veil” subjecting business debts to personal liability. Shareholders receive a form K-1 for their respective share of income and losses. Distributions, to the extent there are any, must be in proportion to ownership percentage to avoid termination of the S-corporation election.

C-Corporation
C-Corporations are similar to S-Corporations as the incorporation needs to be filed with their respective jurisdiction. Unlike other entities, owners’ personal assets are completely segregated from the assets of the corporation. Owners will typically take a salary as a form of payment. Form 1120 is filed and income is currently taxed at a flat 21% at the corporate level. Distributions are allocated to owners as taxable dividends. These dividends are taxed a second time at the individual level (double taxation). The tax rate depends on whether they are deemed ordinary or qualified; the maximum rate is 37% for ordinary and 20% for qualified.

With the incoming Biden administration, a new tax code change may be in the works. If implemented, the corporate tax rate of 21% will increase to a flat 28%. A minimum tax on corporations with book income over $100 million would also be incorporated. It would be structured similarly to an alternative minimum tax. This may make incorporating as an S-Corporation more favorable tax-wise depending on the threshold of income that would flow through to owners. The maximum individual tax rate would increase from 37% to 39.6%.

Weighing your options
A partnership must have at least two partners. A general partnership gives all partners unlimited liability, a limited partnership provides limited liability to all except at least one partner, and an LLC offers limited liability to all. Partnership entity type will be contingent on what capacity all partners are to be involved. Partnerships are more favorable for situations where you may not make consistent revenue, allowing you to take distributions as needed.

S-Corporations are more advantageous when revenue is more consistent. It gives owners the capability to take an annual salary, with distributions complementing any additional funds needed by the owners. A corporation provides the most division of personal and business assets as courts are able to “pierce the corporate veil” of S-Corporation, leaving shareholders susceptible to some type of limited liability.

Your choice of entity depends on your individual situation and plans moving forward. I would argue that most businesses begin as a sole proprietor — they have an idea and turn it into a profitable situation. Once they start buying assets and investing more into the business, it may be a good idea to incorporate as an S-Corporation. Soon enough, the company will be electing C-Corporation status and will be taken public with an Initial Public Offering.

All things being equal, it is important to have trusted advisors behind you at every stage of your business. At Magone & Company, our advisory services can help you select the best alternative based on your goals. We can also assist in implementing strategies to make the most tax-efficient choices.

PPP News: Stimulus Package Approved by Congress

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On December 20, 2020, Congress agreed on a $900 billion stimulus package. The President is expected to sign this legislation into law before Christmas.

What does this mean for you?
The uncertainty has finally been resolved! Businesses that received a Paycheck Protection Program (PPP) loan and had it forgiven would now be entitled to a tax deduction for costs covered by the loan. The COVID-19 relief bill clarifies that “no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided” by Section 1106 of the CARES Act (which has been redesignated as Section 7A of the Small Business Act). This provision applies to loans under both the original PPP and subsequent PPP loans.

The COVID-19 relief bill creates a simplified forgiveness application process for loans of $150,000 or less.  Specifically, borrowers who received less than $150K would now be eligible to submit a simplified, one-page forgiveness application.

There will also be a new round of PPP loans available to businesses that are determined to be “eligible entities.” Businesses would need to demonstrate that the loan would be “necessary to support the on-going operations of the business.”

It appears that an “eligible entity” would be one with fewer than 300 employees that experienced at least a 25% reduction in revenue compared with the prior year or compared with the first quarter of 2020 for new businesses.

Stay tuned…

 

Maintaining Corporation Status: To Reap the Benefits, Follow the Rules

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Businesses often choose to structure as a corporation, because it offers owners the strongest protection from personal liability by treating it as a separate legal entity. But if you’re not operating your business like a corporation, you risk losing the liability security that you count on.

Getting back to the basics
No matter how long you’ve been in business, there are some elemental rules of thumb that corporations should follow to maintain their status:

  • Include the corporation’s name on all company letterhead, checks and invoices
  • Make checks out in the corporation’s name, not yours or another individual’s
  • Avoid mixing personal affairs with corporate business
  • Maintain separate bank accounts and credit cards, and keep careful records of corporate transactions
  • File tax returns and pay any corporate taxes on time

Document everything
In addition, shareholder and director meetings should be held on a regular schedule, with official minutes on the proceedings. Corporate minutes should provide documentation of key financial and legal decisions, such as:

  • Authorization for a substantial loan to or from the corporation
  • Adoption of a retirement plan or approval to make a contribution to an existing plan (for example, a profit-sharing contribution)
  • Issuance of stock
  • Purchase of property or approval of a long-term lease

By observing these formalities, you’ll have solid records on hand if the IRS, a creditor or a company insider challenges critical decisions.

Questions?
Contact Magone & Company today at (973) 301-2300 to learn how we can help you keep your corporate operations on the right track.