October, 2015 | RKL LLP
Posted on: October 28th, 2015

What Makes Your Business Valuable, Part 1: Value Drivers

Female business ownerFor many entrepreneurs, their business represents their largest financial asset. Business owners may not have a sense of the factors that underpin their company’s worth. It’s critical to understand what drives this value and what could be draining it from your business, so in this two-part blog series, we take a closer look at these factors.

Tangible vs. Intangible Assets

To identify what drives value in your business, it’s important to understand the two sides of value: tangible and intangible.

The tangible portion of a business’ value is comprised of assets like cash, accounts receivable, inventory or fixed assets.

The intangible portion of a business’ value is comprised of assets like brand name, supplier relationships; or proprietary formulas, technology or products.

The nature of the business or industry will dictate whether it has more tangible or intangible value. For example, most service businesses will have greater intangible value while asset-intensive businesses will have greater tangible value. Keep the nature of your business in mind as we look at some key value drivers.

1. Effective management

The unique assemblage of individual assets is what comprises a business as a whole, but the efficient and effective employment of both tangible and intangible assets is a driving force in the value of a business. Like a well-oiled machine, a valuable business will operate most efficiently when all its individual components work synergistically.

A company’s interconnectedness means that effective management in one area of the business can have positive effects on the other areas. This is why the management of a business – whether by the owner or a trusted, experienced individual or management team – is one of its most valuable assets. For example, management can implement effective controls, which reduces the possibility of fraudulent activity or poor product quality or service. This in turn can maintain or enhance brand name or reputation and help keep an effective workforce in place.

2. Cash flow

As with any other type of investment, the value of a business is measured by its ability or expectation to generate earnings. “Cash is king” is especially true in the valuation world. A business’s cash flow is the most fundamental determinant of value, and a business with stable and predictable cash flow is a valuable asset to the investor. Of course, quantifying that steady cash flow is just as important, which can only be done through the tracking and maintenance of reliable financial information.

3. Differentiators

Determining more specific value drivers may take some work and, as noted above, may depend on the type of business. A thorough and honest assessment of your business via SWOT analysis will give you an idea of what strengths to maintain and what opportunities to target, along with the weaknesses and threats we discuss in part two of this blog series.

Factors such as customer loyalty, sales or supply agreements and proprietary machinery or equipment can all be strong value drivers for your business. Don’t overlook the external factors, such as location, regulatory and legal landscape or industry trends and changes, which could also impact your business value. Evaluating both internal and external factors and understanding how they strengthen your business can be a daunting and time-consuming task, but identifying these differentiators is an investment that will certainly pay off in the long run.

Once you recognize your business’ value drivers, you will be able to evaluate them as part of your strategic planning or key decision-making processes. A business with strong value drivers has more marketability, which in valuation terms refers to the liquidity of an investment, or the ease and expediency in which a particular investment can be sold. Business owners who establish effective management, maintain strong and stable cash flow, and possess an accurate grasp of factors affecting their organizations will likely own valuable investments.

If you’d like to get a sense of what drives your business’ value, RKL boasts Central and Eastern Pennsylvania’s largest team of credentialed valuation specialists. To enlist the guidance of an RKL expert, contact one of our local offices.

Hartland, Matt_2014Contributed by Matthew Hartland, CPA/ABV, a manager in RKL’s Business Consulting Services Group, who specializes in providing business valuation and litigation support services. Matt also has experience in financial analysis, forensic accounting, budgets and projections, assistance with acquisition and sale of closely-held businesses, and ad hoc analysis.

 

 

Don’t miss the latest RKL business analysis and insights. Sign up for the monthly Working Capital e-news.

 

Working Capital blog disclaimer

Posted on: October 19th, 2015

Why You Can’t Afford to Ignore Estate Planning

Financial Advisor Talking to Senior CoupleMention estate planning to the average individual and you will likely hear one of these common refrains:

  • “I’m too young to think about this.”
  • “I don’t have enough assets to worry about a will.”
  • “I took care of my will decades ago so I’m all set.”

Statistics from the National Association of Estate Planners and Councils bear out this disinterest, showing that 56 percent of Americans do not have an up-to-date estate plan. Without such a plan in place, families and individuals can experience a variety of hardships – from financial to emotional to legal. The good news, however, is that with some advancing planning, the risk of these hardships can be diminished significantly.

National Estate Planning Week was designed to draw attention to the need for this important aspect of financial planning, and encourage Americans to start developing their estate plans. While no one enjoys thinking ahead to the end of life, estate planning allows you to develop a strategy to maintain your financial security throughout your lifetime as well as ensure the intended transfer of your property and assets at death. Knowing you have established a plan to create and maintain your financial legacy and provide for your surviving loved ones can offer tremendous peace of mind.

In the past, the main focus of estate planning was federal transfer taxes, which applied to estates with assets of $1 million or more. Exemption amounts for 2016 increased to $5.45 million per person and $10.9 million combined. In recent years, federal legislation made portability permanent, which changed the landscape for estate planning since many families fall well under the combined estate threshold.

As a result, the estate planning process now places a greater emphasis on nontax considerations, like:

Instead of thinking of estate planning as a chore to be put off to another day, take the time now to visit with a trusted financial advisor or tax professional who can help you take stock of your financial situation and start making decisions about what kind of financial legacy you want to leave.

RKL has a group of professionals who specialize in estate planning for individuals and their families. Contact one of our local offices today to start the conversation.

Scott Myers, RKL Tax ManagerContributed by G. Scott Myers, CPA, CSEP, a Manager in RKL’s Tax Services Group. Scott’s area of emphasis is providing individual and fiduciary tax services for high net worth individuals and their families.  He also serves many closely-held businesses in a wide variety of industries providing advisory services and compliance solutions.

 

 

Working Capital blog disclaimer

Posted on: October 14th, 2015

Get Your IT House in Order This Cyber Security Month

locked network

Check out our team’s tips to improve your online business operations during Cyber Security Month.

Although cyber security is a constant buzzword in headlines and news reports on a near daily basis, many small business owners are not taking steps to secure their e-commerce or online business operations. A 2012 study found that 87% of U.S. small businesses do not have a formal written Internet security policy for employees, and nearly 60% do not have a contingency plan outlining procedures for responding and reporting data breach losses.

These are grave statistics that can cost business owners dearly – both in terms of financial impact and consumer confidence in their companies. To put a figure on it, the British insurance company Lloyd’s estimates that cyber attacks cost businesses as much as $400 billion a year! Business leaders can literally no longer afford to postpone integrating cyber security into their workplace culture and daily operations.

National Cyber Security Month, commemorated annually in October, is the perfect opportunity to take stock of your company’s online and network risk exposure. It may seem like a daunting task to get started, but there are small and measurable ways you can start to make large improvements to your company’s cyber security. Here are a few ways to get started:

  • Develop clear policies and procedures: Every office needs to outline what constitutes “acceptable use” for all office technology (computers, mobile devices, networks and personal devices). Don’t forget to cover remote access and connectivity, as many employees are working from home or on the go. Setting limitations to the type of business conducted remotely and requiring adjusted device settings can help mitigate the risk.
  • Empower employees: It is not enough to simply get employee sign-off on the IT policies you develop; business owners must enlist employees as partners in the fight against cyber attacks. Cyber Security Month is a great time to get started, but make it a year-round effort to keep your employees up to date and educated on ways they can help keep the workplace secure, such as not clicking suspicious emails and keeping passwords strong and confidential.
  • Defend your equipment: There are millions of viruses and threats clawing at the doors of your network every day. Bolster your perimeter by installing anti-virus software that will protect your machines from malware, viruses and infections. Keep this software current by automating updates, but don’t forget to check in occasionally to make sure everything is working as it should.
  • Secure vendor relationships: Whether on a large or small scale, chances are your company’s information winds up on the hands of an outside vendor at some point. Don’t overlook this aspect of your operations when working to secure your data. Take an active role in ensuring your vendors and partners are as committed to security as you are. One of the easiest ways to do this with new vendors is to incorporate it into contract negotiations. For existing partners, however, it is important to have an honest, detailed discussion of their policies to ensure you are on the same page.

With proper planning, teamwork and execution, your business can become more secure against cyber threats. RKL’s information technology subsidiary, RKL eSolutions, helps clients in a wide range of industries implement network and information systems infrastructure with an eye to security and accuracy. Contact RKL eSolutions today to find out how they can help your business tackle its IT challenges.

Contributed by Walt Goodfield, Vice President of Sales and Marketing for RKL eSolutions. Walt is responsible for driving revenue growth through customer acquisition and strategic business partner alliances. He has over 20 years’ experience selling, implementing and supporting ERP software.

 

Working Capital blog disclaimer

Posted on: October 8th, 2015

RKL Names Eisenhart to Partnership

Kevin Eisenhart, CPA

Kevin Eisenhart, CPA

PRESS RELEASE

YORK, PA (October 8, 2015) – Reinsel Kuntz Lesher LLP (RKL), Certified Public Accountants and Consultants, today announced that Kevin Eisenhart, CPA, will be admitted to the firm’s partnership, effective January 1, 2016. Eisenhart’s promotion to partner is a recognition of his instrumental role in the continued growth and success of RKL’s York office and the firm as a whole.

Previously a manager in RKL’s Tax Services Group, Eisenhart provides tax planning and compliance solutions for businesses and individuals, with a specialized focus on multi-state taxation and consolidated returns. He joined RKL in 2012, bringing extensive experience working with clients in the architectural and engineering, construction, real estate, and manufacturing industries.

Eisenhart received his B.S. in Accounting and Masters in Business Administration from York College of Pennsylvania. He also holds a Masters in Taxation from Villanova University. Eisenhart is active in a variety of community and civic organizations, such as the York County Economic Alliance Economics Club, the National Eagle Scout Association and the York County Society for Prevention of Cruelty to Animals. He also serves as an adjunct instructor for the York College MBA Program. Eisenhart resides in York with his wife and their two children. 

###

Posted on: October 6th, 2015

How Will a Cost Segregation Study Benefit Your Company? [VIDEO]

Watch the video

Run-time: 02:11 Get a helpful overview of the how’s and why’s of cost segregation studies, a powerful tax savings strategy that could increase cash flow for your business.

Accelerated tax deductions and increased cash flow are two things all businesses would like to achieve, but there are companies that have not yet considered cost segregation analysis as a way of attaining these goals.

How Does a Cost Segregation Study Work?

The first question many ask about this process is: how does it work? Cost segregation studies analyze the cost associated with a building to identify the portion of that cost that can be considered “personal property” or a “land improvement,” which are depreciated over a shorter life for tax purposes. Keep in mind that what we call a “building” has a long tax depreciation life – a commercial building is depreciated over a 39-year period, and residential buildings have a 27 ½-year depreciable life.

This reclassification results in accelerated tax depreciation in the earlier years of the building, which means reduced taxable income and increased cash flow. Cost segregations are applicable to:

  • Construction of a new building
  • Renovation or expansion of current facility
  • Purchase of a building
  • Renovations made to a leased building
  • A building already owned

What if You Purchased a Building Years Ago?

There are apparent tax benefits to conducting a cost segregation during the early stages of a property’s life. But what if you have already owned your facility for several years? Have you completely missed out on valuable tax deductions? No. Cost segregation analysis can be applied to past projects as well as current ones.

If you’re not performing a cost segregation study today on a building that you have already owned for some time, favorable IRS rules allow taxpayers to change their accounting method to recognize these changes to shorter asset lives without amending past tax returns. In that case, all of the prior “missed” depreciation can be claimed in the year that the study is performed, and the accounting method change application is filed with the IRS.

What is the Real Benefit of Cost Segregation?

Some of you might be wondering: what is the real benefit to a cost segregation study? After all, you are still going to get the same tax depreciation deduction over time whether or not you use the cost segregation approach.

The question is one of timing. You can take a portion of your building cost and have it depreciated over these shorter tax asset lives of five, seven or 15 years instead of the typical 39 or 27½ years. Getting  accelerated depreciation deductions means you pay less tax in the earlier years of your building project. Who couldn’t use that additional cash flow to pay down some debt or reinvest in their company?

Interested in finding out how a cost segregation study can benefit your business? RKL is unique in Central and Eastern Pennsylvania for our depth of knowledge and experience with this tax-saving tool. Our team of specialists can provide you with an initial analysis of potential tax savings to help you make an informed decision. Contact Rob Gratalo, Tax Services Group Partner, at 717.843.3804 or rgratalo@rklcpa.com to learn more.

Deb Rock, CPAContributed by Deborah S. Rock, CPA, manager in RKL’s Tax Services Group. With over two decades of public and private accounting experience, Deb is an expert in the area of cost segregation studies. She also has extensive experience in state tax consulting including nexus studies, sales tax consulting, tax advantage restructuring, and process improvement.

 

 

Working Capital blog disclaimer

css.php