Articles and Letters

The Big Ask: Why Your Financials Are Critical

4/25/2016

If you’re in the construction business, you know that sometimes all that stands in the way of you and a big project is a little cash flow. Our construction clients often ask us if their companies are decent candidates for bank loans, especially if they’re looking to finish big projects and need cash.

“People often think the worst because they’ve been unprepared in the past, are out of money and don’t have their paperwork prepared to respond to bank requests in a timely manner,” says Partner and Construction Team Lead Ian Grimbleby.

Clients who are very organized and prepared are attractive candidates for bank loans, Ian cautions that timing is the bigger challenge — often, when you need a loan, it’s because you’re in a bind, and you might not have the proper information at hand.

At Grimbleby Coleman, we’ve helped many construction clients put their best foot forward before applying for a loan. Here are our top tips.

Get up to date. Be prepared — your bank may hit you with requests that require up-to-date information, and they will need it quickly. Make sure you have your most current financial statements before you head to the bank. Ian cautions, “Would you bid a job unprepared? Treat the bank like a new customer or job, because that is what you are to them and they are going to evaluate you.”

You should always have relevant financial information on hand, including information from the past 6-12 months. A tax return won’t be enough information for financing, even if you’re simply looking for cash to purchase equipment for an upcoming job.

Know what’s important. The bank will evaluate key performance indicators (KPIs) such as working capital, interest coverage, profit margins and return on assets compared to the industry benchmarks. Of course, it is good, sound protocol to keep these financials current even if you aren’t looking for a loan. However, your bank definitely will want to see a list of assets that can serve as collateral. “If you have current assets (receivables and inventory) and equipment, but you’re just cash poor, you’re probably a good bank loan candidate,” Ian says. “If all your assets or equipment is financed and there is little equity in the business (for whatever reason such as losses or you pulled cash out), the conversation with the bank is going to be tough.”

Don’t be afraid to ask for help. It takes discipline to maintain good quarterly financial statements. Make sure your company’s financial statements are intact each month, and take the time to analyze and reconcile your financials. Go the extra step to make sure more than just your cash, accounts payable and receivables are accurate. You will need to understand the health of the entire balance sheet including fixed assets, payroll liabilities and notes payable. If you or your bookkeeper are falling behind or need assistance, our team is here to help get you back on track. Please give a member of our Construction team a call before your next loan meeting.

Tax Options Benefitting Young Farmers and Parents

Our ag clients are typically multi-generational, and most of them came into the business as youngsters, often helping grandparents and parents with odd jobs. Farm life offers children many benefits: a strong work ethic, the opportunity for teamwork, important skills — even another language!

 “We encourage our clients to take their children’s involvement a step further by properly compensating them and planning ahead for their futures, which can be extraordinarily helpful from both the taxation and college financing perspectives,” mentions Chad Van Houten, Senior Manager and CPA. “The work you do now could help set up generations of success.”

PAY YOUR CHILDREN

Be sure you pay your children an actual wage so that you can shift some of your business income to a lower tax bracket. Depending on your business structure, you may be exempt from payroll taxes when paying your children under the age of 18. We often recommend that our clients pay their children just below the filing requirement, or be really creative and pay their children higher than a nominal amount – but with a catch! This money should be used to contribute to a savings plan, such as an IRA (including Roth IRA), or to contribute to a 529 college savings plan. Keep in mind Roth IRA and 529 contributions are not pre-tax, which can be tricky. You still want to claim your child as a dependent, so it’s critical to work with your financial advisor to strategically explore other types of education or retirement plans.

HEALTH SAVINGS ACCOUNT (HSA) PLAN

Enrolling in an HSA plan, with a higher deductible, makes good financial sense for young farmers. The HSA acts as a pre-tax savings account for people who are enrolled in a high-deductible health plan. Funds contributed to an HSA account are excluded from wages or deducted from income and can even be made after year-end for additional planning opportunities. Often times, younger people opt for higher-deducible health plans, but can still find themselves paying a significant amount of money out of pocket due to the higher co-pays and deductibles. This is where HSA accounts come in handy and are especially helpful for a large one-time medical expense in the year, such as the birth of a baby.

AVOID THE “KIDDIE” TAX

Be sure to work with a member of our accounting team when planning your children’s fair wages to avoid unknowingly creating a filing requirement. You want to be sure and avoid the “kiddie tax,” which according to the IRS occurs “If the child's interest, dividends, and other unearned income total more than $2,100, part of that income may be subject to tax at the parent’s tax rate instead of the child’s tax rate.”

PLAN AHEAD!

You may want to consider term life or disability insurance policies to cover the period of time when the kids may be too young to farm and earn an income if something were to happen to the parents.

 Also, it is almost never too early to start thinking about your trust and estate plan. Creating a living trust to own the farm real estate may help avoid the public governmental probate process in the unfortunate case of the parents passing.

BE RESOURCEFUL!

Remember, there are many grants and educational resources available through the USDA. Be sure to take advantage of all your options! Specifically, be sure to check out Special financing for new farmers through to the extended Farm Bill. The renewed farm bill allows down payment assistance up to $300,000 at a 1.5% interest rate if you qualify as a new farmer.

 Please be sure to give Chad Van Houten or another member of our Ag team a call to discuss any of these suggestions!  

How to Avoid Identity Theft This Tax Season

When it comes to identity fraud during tax season, we have good news and bad news.

The good is that we can quickly identify and anticipate when it has happened and jump into “damage control” action. The bad news — well, it happens. Increasingly, clients are experiencing this devastating crime. During tax season, thieves will try to snatch your refund. And, unfortunately, it’s a long and rocky road to repair the problem.

 How do you know if you’ve been hit with identity fraud?

 We usually discover identity fraud when we try to file a return for a client. We’ll receive a message that alerts us that someone has already used the client’s Social Security Number to file; since only one social can be used per filing, this is a huge red flag.  “Unfortunately, identity fraud is discovered when we file tax returns,” says Linda Bossard. “In fact, several of our clients have had this challenge. It is difficult to work through, but we do it.”

 Earned income credits that have been filed because of a fake W-2 are another tricky issue. If you file and can claim earned income that you didn’t actually earn, scammers have figured out how to reroute your refund. The IRS now requires employers to file W-2 information sooner so they can begin matching W-2 information with claims.

 Tips to avoiding Identity Fraud:

  • Protect your Social Security Number.
  • Don’t give in to email phishing scams by email or phone.
  • Remember that the IRS will never call you or email you! If you do receive a call or email, it’s most likely a scam, particularly if the person sounds hostile.
  • Protect yourself! Lock your credit card, check your credit regularly, and use a Social Security protection site such as LifeLock
  • Contact the three national credit bureaus (TransUnion, Equifax and Experian) to secure/lock your credit.

 What to do if you are the victim of fraud:

 Immediately contact the Identity Protection Specialized Unit (IPSU) of the IRS. If it has been a year or longer since you filed and you have not received your refund, the IPSU can help you. Our team can manage this if you grant us Power of Attorney (POA) privileges.

  • Download the Identity Theft Affidavit (Form 14039) from the IRS and fill it out. 
  • Contact credit reporting agencies.
  • File by paper (otherwise the IRS will think you’re filing twice) and explain that you are a victim of identity theft.  (You will then be issued a PIN to use for the next year.)

 The IRS is working to improve Electronic Fraud Detection Systems (EFDS) data to determine true social security number owners, eliminating time-consuming research and making the process more efficient. Also, rumors are circulating that the IRS may be thankfully starting a new program called “The Identity Theft Commission” to help avoid these fraudulent crimes.

 If you are concerned you may be a victim of tax-related identity theft, Linda Bossard or one of our accounting team-members will be able to help out. Contact us at 209-527-4220. Stay safe this tax season!

How Construction Project Managers and Bookkeepers are Saving Time and Money with "the Cloud"

 February 18, 2016

How Construction Project Managers and Bookkeepers are Saving Time and Money with "the Cloud"

The construction industry is constantly changing due to regulations, labor requirements, insurance requirements, and competition. With so many parts in flux, it can be daunting to stay on top of estimates, permits, labor, sub-contractors, payroll and accounting details. Fortunately, the cloud is making those tasks easier.
 
More than ever, construction managers use apps for accurate labor management, estimating, and project management. With great data, project managers and bookkeeping teams can work closely together to maintain profitability and positive cash flow from the job site to the office.
 
"Due to increased labor costs alone, the construction industry needs to realize that if you're trying to manage a project with pen and pencil, or even Microsoft Excel, the room for error is enormous," says Ian Grimbleby, Partner and Construction Team lead. "They can quickly throw an entire budget."

One of our clients, CDC Construction, has adopted a mobile friendly strategy to manage time card processing using Edifica, a cloud-based project management software tool. Owner Seth Cheek mentions, "I am always thinking about how we can make the business more efficient and productive. Our industry is moving towards being more mobile, and we are too. With a little time and consistency, mobile management will become second nature, just like wearing a hard hat!"
Construction team-members Ian Grimbleby, Adriane Reams and Javier Padilla (L-R)

Edifica is just one of many cloud management and accounting software programs. Please give our Construction team a call for help determining which cloud tool is best for your company.  

Please keep in mind that our Cloud Accounting Team is always here to help you with your accounting and financial management needs, including transferring your Excel files or desktop Quickbooks to Quickbooks Online.

 

New Case Study: An Ag Family Succession Story

February 4, 2016

AG CASE STUDY:  Succession & Business Planning 
"The facts vary such that no two situations are ever the same."  - Jeff Bowman, CPA, Partner and Ag Team Lead

SITUATION:
A first-generation farmer in Stanislaus County wanted to pass on his individually owned business to his adult children. The second generation planned to maintain and enlarge the operation, which included farming and ag processing. Important to note, not all of the farmer's children were employed on the ranch.
 
CHALLENGES:
  • The farmer wanted to ensure the children inherited equitably.
  • All parties wanted to limit the liability exposure posed to the farmer as an individual owner and operator.
  • The father and his children wanted to limit taxable income and estate taxexposure for the older generation.
  • The operation needed to be positioned for future growth.
CONSIDERATIONS & TACTICS:
  • Limiting tax impact on contributing operations to new S Corp and Limited Partnerships
  • Considering the benefits and burdens of an IC-DISC entity
  • Determining how and through which entity owners should be compensated
  • Cash-basis methods available for farm activities 
  • Important factors for tax planning:
    • Farm income averaging and qualifying types of income
    • Net investment income tax
    • Active versus passive investor treatment
    • Maximizing the domestic production activity deduction
    • Optimizing income for IC-DISC commission purpose
FINAL RECOMMENDATION & FINAL OUTCOME:
Along with the farmer's attorney, we recommended forming a new operating entity and a separate entity for holding the real estate, reducing risk and providing flexibility. The new operating entity is used to maintain the business services, equipment ownership, and labor for the farming operation. By forming the realty entity, the father was able to conveniently introduce ownership to the second generation. In the end, our Ag team developed a fair, strong succession plan for our client by working with his attorney and taking into account the current and future needs of the operation.
OTHER CONSIDERATIONS:
Forming entities and limiting liability exposure require a high level of legal counsel. We worked closely with the client's attorney while analyzing succession options. The attorney's estate tax expertise ensured the plans were consistent with future gifting and estate transfer intentions, while mitigating risk. 
 
*FYI: The attorney filed state articles of formation, obtained a federal ID number for each entity, drafted the crop share lease and farm management services agreement, formed the IC-DISC, and drafted the commission agreement. The attorney also created a deed for transferring the land.

Featured Article

How to Avoid Identity Theft This Tax Season
When it comes to identity fraud during tax season, we have good news and bad news. The good is that we can quickly identify and anticipate when it has happened and jump into “damage control” action. The bad news — well, it happens. Increasingly, clients are experiencing this devastating crime. During tax season, thieves will try to snatch your refund. And, unfortunately, it’s a long and rocky road to repair the problem.  How do you know if you’ve been hit with identity fraud?  We usually discover identity fraud when we try to file a return for a client. We’ll receive a message that alerts us that someone has already used the client’s Social Security Number to file; since only one social can be used per filing, this is a huge red flag.  “Unfortunately, identity fraud is discovered when we file tax returns,” says Linda Bossard. “In fact, several of our clients have had this challenge. It is difficult to work through, but we do it.”  Earned income credits that have been filed because of a fake W-2 are another tricky issue. If you file and can claim earned income that you didn’t actually earn, scammers have figured out how to reroute your refund. The IRS now requires employers to file W-2 information sooner so they can begin matching W-2 information with claims.  Tips to avoiding Identity Fraud: Protect your Social Security Number. Don’t give in to email phishing scams by email or phone. Remember that the IRS will never call you or email you! If you do receive a call or email, it’s most likely a scam, particularly if the person sounds hostile. Protect yourself! Lock your credit card, check your credit regularly, and use a Social Security protection site such as LifeLock.  Contact the three national credit bureaus (TransUnion, Equifax and Experian) to secure/lock your credit.  What to do if you are the victim of fraud:  Immediately contact the Identity Protection Specialized Unit (IPSU) of the IRS. If it has been a year or longer since you filed and you have not received your refund, the IPSU can help you. Our team can manage this if you grant us Power of Attorney (POA) privileges. Download the Identity Theft Affidavit (Form 14039) from the IRS and fill it out.  Contact credit reporting agencies. File by paper (otherwise the IRS will think you’re filing twice) and explain that you are a victim of identity theft.  (You will then be issued a PIN to use for the next year.)  The IRS is working to improve Electronic Fraud Detection Systems (EFDS) data to determine true social security number owners, eliminating time-consuming research and making the process more efficient. Also, rumors are circulating that the IRS may be thankfully starting a new program called “The Identity Theft Commission” to help avoid these fraudulent crimes.  If you are concerned you may be a victim of tax-related identity theft, Linda Bossard or one of our accounting team-members will be able to help out. Contact us at 209-527-4220. Stay safe this tax season!

Featured Events

Valley Builders Exchange Golf Tournament

We are excited to participate in our 1st VBE Scholarship Golf Tournament! Valley Builders Exchange, Inc., a Non Profit Corporation established in 1947, is set up to provide services to its membership. Our association is comprised of dues paying members in all areas of construction. Membership in the Exchange provides various services and information that may be difficult to obtain on an individual basis.

Featured Staff

Karen helps the partners at Grimbleby Coleman with scheduling, coordinating client luncheons, and organizing special events. She's the one you'll want to butter up several weeks before your birthday.

When asked what she enjoys most about working with clients, Karen says, "Before I started working with Grimbleby Coleman, I was afraid of even the initials IRS. Now, I feel comfortable when clients are worried and scared. I can reassure them with confidence that we will assist them in whatever the issue might be."

She's active in several community programs and charities, including the Relay for Life Fundraiser and the children's ministry at First Baptist Church. She also loves swimming and working in her yard.

Karen's favorite number is 7. "For its significance of God's promise to us."

Karen Green Administrative Assistant read more

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