February, 2016 | RKL LLP
Posted on: February 16th, 2016

How to Develop a Strategic Capital Plan for Your Nonprofit

Strategic Capital Planning for NonprofitsNot-for-profit leaders face the challenge of growing their organizations through capital acquisition while maintaining financial stability. It is a delicate balance – one that many organizations strike by retreating to tried and true methods. To achieve truly sustainable financial results, however, it is just as important to look ahead as it is to look back. Not-for-profits can use strategic capital planning to invest not only in the current state of their organization, but also to lay the groundwork for a solid financial future.

Strategic capital planning focuses specifically on linking an organization’s capital needs to its strategic and operational plans. It is a process that works best when an organization’s key stakeholders are willing to support it and participate as needed. Through development and ongoing evaluation of a strategic capital plan, your not-for-profit will become more flexible, responsive and adaptable to future opportunities and challenges. Let’s examine the four main steps to the strategic capital planning process.

Establish a financial baseline. Gain a thorough understanding of your not-for-profit’s current financial situation. This is the lens through which all strategies will be evaluated during the process. At this point, you need to identify, understand and define the following factors:

  • Existing debt and capital capacity
  • Current and target credit profile
  • Required level of cash reserves
  • Estimated future capital capacity (using sensitivity analysis)

Define affordable capital capacity. This is the amount of money expected to be available for financing capital projects. It is the sum of existing cash reserves, contributions, cash generated from activities and funds available through debt financing. Once calculated, this figure will help your organization better understand the capital implications of the targets, milestones and strategies you create out of this process.

Hold interactive planning sessions. Gather your strategic capital planning team and work together to conduct real-time modeling and evaluate strategic options. Group members can provide input as they see the planning scenarios unfold. This step should also include consideration of:

  • Market-related issues, such as demand, competition and program life cycle
  • Projected growth of operations
  • Identification of financing options (contributions, debt financing, operational cash flows), and evaluation based on cost, risk and effectiveness of meeting specific needs
  • Management-influenced actions, such as cost savings initiatives and revenue enhancements

Review the plan. Once modeling is complete, you will have a plan ready for a thorough examination. This is the time to kick the plan’s tires, so to speak, to ensure it is ready for implementation to meet your strategic objectives. At this step, it is important to determine whether the plan’s underlying assumptions are sound, and if there are any financial constraints to address with external financing goals like debt financing, capital campaigns or fundraising initiatives. Finally, build in accountability measures for management and board members to progress towards the plan’s goals.

Strategic capital planning is a vehicle to help not-for-profits anticipate future challenges and seize potential opportunities. Continual evaluation and adaptation of the plan helps organizations formalize their financial organizational goals, which strengthens the group’s commitment to long-term success.

Need help implementing a strategic capital plan for your not-for-profit? RKL has a deep bench of professionals focused on serving the financially oriented needs of community benefit organizations. Contact one of our local offices today.

Sally E. Stewart, CPAContributed by Sally E. Stewart, CPA, Principal in RKL’s Audit Services Group. Sally provides audit services for not-for-profit organizations and government entities.



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Posted on: February 10th, 2016

What Gov. Wolf’s Proposed Budget Means for Taxes in Pennsylvania

RKL PA Budget Recap 2016-17Pennsylvania Governor Tom Wolf presented his 2016-2017 budget yesterday, but those expecting to hear his plans for the upcoming fiscal year in Pennsylvania were disappointed. Instead, the Governor’s main topic was the lack of a completed budget from the prior fiscal year. Any hope for uniting the General Assembly behind a fiscal plan for the Commonwealth seemed distant as both jeers and cheers erupted during the budget address, and post-address interviews with Democratic and Republican leaders underscored a deep rift between the two parties.

Upon further review, the details of the proposed budget look very similar to last year’s proposed budget. To resolve the state’s structural budget deficit, state leaders are faced with two options: fiscally responsible spending and revenue enhancers (translation: taxes). Let’s take a closer look at what the proposed tax changes could mean for Pennsylvanians.

Personal Income Tax

The first item that jumped out from the Governor’s proposed budget is one that will catch the attention of most citizens: an increase in the personal income tax rate. The proposed tax rate would increase from 3.07 to 3.4 percent and this increase could possibly be enacted retroactively. The increased personal income tax rate would result in approximately $1.3 billion of additional revenue for Pennsylvania per year. This increased tax rate would amount to approximately $248 of additional tax over a year or under $5 a week in tax liability for a family with $75,000 of taxable Pennsylvania income.

Sales and Use Tax

Another area of revenue enhancement (a.k.a. tax increase) is the expansion of the sales and use tax base. This would result in over $414 million of additional revenue over the prior year’s sales tax collection. The idea of sales tax expansion should be reviewed further to ensure a complete understanding of what the expansion is tied to, but revisiting how Pennsylvania’s outdated sales and use tax is structured makes sense, especially in our changing economy.

A good illustration of this is the concept of taxing music records versus digital downloads. When those of us with a little more gray in our hair bought a record or compact disc, sales tax was applied. However, a digital download of a song or album is not taxed. Both purchases are similar transactions, so it makes sense for Pennsylvania to examine if we are taxing the ultimate outcomes similarly.

Of course, expanding the sales and use tax to apply to essential tangible personal property needed by citizens or services for required compliance with state and federal government mandates should be met with greater resistance. Additional scrutiny should also be placed on the various exemptions currently offered for sales and use tax purposes in Pennsylvania. Certain exemptions and exclusions make sense and provide benefits, such as the manufacturing exemption, which leads directly to more manufacturing jobs coming into Pennsylvania and helps keep current manufacturing jobs within the Commonwealth. But certain exemptions are currently offered to such a small segment of Pennsylvania businesses, that it is safe to assume that the exemption could have its enactment tied to a strong lobbyist as opposed to being tied to making Pennsylvania a better place to live and work.

Corporate Net Income Tax

Perhaps the most striking aspect of this year’s budget proposal compared to the prior year’s budget is the fact that Pennsylvania’s Corporate Net Income Tax rate was not discussed at all. Pennsylvania had previously enacted add-back legislation to eliminate certain inter-company transactions that became effective January 1, 2015, but the thought process was that the elimination of these valid expenses was to be in conjunction with reducing the highest corporate net income flat tax rate in the country. The stigma of Pennsylvania’s 9.99 percent corporate tax rate is often cited by businesses outside of the state as a main deterrent to expanding or moving business operations here. Pennsylvania’s decision to remove business expenses previously taken, while also keeping the corporate tax rate the same, is an example of another attempt to “enhance revenues.”

As with all tax and budget proposals, the devil is in the details. This year, Pennsylvania’s leaders must contend with not only the budget for the upcoming fiscal year, but also the unresolved budget for the prior fiscal year. What we can say for sure is that there will be many “interesting” budget negotiations in the near future – or maybe based upon our experiences from last year, more of the status quo. Whatever the developments in the state capitol, RKL’s tax experts will monitor them for any tax impact and provide the latest updates and analysis.

Contributed by Jason C. Skrinak, CPA, State and Local Taxes (SALT) Practice Leader for RKL’s Tax Services Group. Highly regarded throughout the region for his deep knowledge and expertise in SALT consulting, Jason has significant experience representing taxpayers before Pennsylvania’s Board of Appeals and Board of Finance and Revenue.


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Posted on: February 2nd, 2016

Find the Right Accounting Method for Your Homebuilding Business

Selecting the right accounting method for your business is an important step in laying the groundwork for a profitable future. Residential homebuilders in particular have several options from which to choose, but there are a few factors to keep in mind when reviewing those options:

  • The length of the contract;
  • The completion status of the contract; and
  • The average annual gross receipts of your company.

Often, contractors will use two different methods of accounting – one for long-term contracts and one for the rest. Many contractors will try to use the cash method of accounting, but it is important to recognize the limitations of this method. It is only available for certain taxpayers, such as a C corporation or a partnership that has a C corporation as a partner. The cash method cannot be used if your company’s average gross receipts are in excess of $10 million or if your inventories constitute 10 to 15 percent of those gross receipts. If the cash method is not an option for your company due to these factors, the accrual method of accounting is your next option.

There are specific considerations for accounting in the residential homebuilding industry, so it’s important to ask three things:

  • Do you have home construction contracts or do you have general construction contracts? If you have general construction contracts, you must refer to your average gross receipts (remember the threshold of $10 million gross receipts discussed above) to determine if you are considered a large or small taxpayer.
  • Do you build custom homes on the builders land? These projects must be accounted for under the completed contract method.
  • Do you build custom homes on the buyer’s land? These projects can be accounted for under either the completed contract method or the accrual method.

If you’ve settled on an accounting method and ever wish to change it, remember that you must apply to make that change with the IRS by filing the correct paperwork.

Have questions about finding the right accounting method for your residential homebuilding business? Your RKL advisor can walk you through the consideration process to make sure you select the appropriate method for your company’s unique needs and operations. Visit our real estate development and construction page to learn more about our services tailored especially for this industry group.

Thomas E. Kauffman, CPAContributed by Thomas E. Kauffman, CPA, partner and department head of RKL’s Tax Services Group in the firm’s Reading Office. Tom brings over two decades of accounting experience to his work with tax planning and compliance for partnerships and corporations, including large manufacturing, multi-state and real estate clients. He also specializes in tax planning for mergers, acquisitions and sales of businesses.


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