Author: Maria T. Rollins

Maria T. Rollins, CPA, MST

Accounting Concerns for Legal Marijuana Business Operations

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Accounting Concerns for Legal Marijuana Business OperationsAccounting for the growing cannabis industry is unique. Here’s why.

The goal of any accounting system is to ensure that accurate financial information is available timely to users. An appropriate system will include processes and procedures for collecting, recording and classifying data and will assist in preventing and detecting waste or, even worse, fraud.

So why is accounting for the growing cannabis industry so unique?

Management, investors and other financial statement users require the same accurate financial information as any other industry. However, in this growing industry, businesses must comply with strict state and federal regulations to avoid substantial penalties or even the risk of losing their business.

Cannabusiness accounting and compliance

Proper and adequate accounting systems and controls are even more critical in a cannabis business where the business “touches the plant.” Growers, processors and distributors have unique accounting and compliance needs unlike any other industry. The potential for large cash transactions and banking restrictions common in the industry further emphasize the need for proper accounting controls and procedures.

As states begin to legalize marijuana for medical and recreational use, businesses will need to consider the unique challenges the industry faces at the onset. The federal government considers business operations in this space to be “trafficking in controlled substances.” As such, proper accounting and reporting should incorporate the nuances of Internal Revenue Code Sec. 280E and 471 relating to cost accounting and inventory. In addition, state regulations require industry tracking and reporting of “seed to sale.” Most states with legalized marijuana industry require businesses to have inventory control and reporting systems in place as well as an interface with state mandated tracking systems. Therefore, the accounting system must provide reports and analysis to support compliance with federal and local regulations.

In this highly regulated environment, the business can be audited at any moment. All records must be available and in order to prove compliance with state and federal regulations. Furthermore, the accounting for businesses in this industry will need to provide for transactions to and from related entities, segment or separate “lines of business” reporting and consolidation. Business structures often include related entity relationships and investments. These advanced accounting issues are uncommon for most young or start-up businesses in other industries.

While many businesses entering the Cannabusiness space are new businesses, they cannot approach their accounting and bookkeeping in a manner often seen with new business start-ups. It’s common for a start-up to lack a proper accounting system and accounting controls before the business is up and running. A Cannabusiness business must have their system and controls in place well before they start operations.

We’ve got your back

Cannabusiness is a developing industry with many complicated factors. If you’re starting a business in this space, don’t go it alone! Contact Managing Partner Maria Rollins at mrollins@krscpas.com or 201.655.7411 to discuss your situation.

How to Read and Understand the Balance Sheet

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How to Read and Understand the Balance SheetDetermine the health of a business by analyzing its Balance Sheet

The balance sheet is a standard financial report that is often included with a business’ financial statements.

It is easy for business owners to understand the profit and loss statement (P&L), which provides business revenues and expenses for a given period. The balance sheet, however, provides a snapshot of a company’s accounts, specifically assets, liabilities and equity, at a given time.

So why is understanding your balance sheet so important?

First, as mentioned above, it includes the company’s assets at a specific point in time (i.e., month-end, year-end, etc.). A classified balance sheet will list the assets by liquidity and show what can and should be converted to cash quickly to pay for liabilities, operating expenses, or to invest in new ventures. Conversely, the non-liquid assets will also be listed and tell readers what the company owns long-term.

The liabilities section of the balance will show any upcoming amounts due in the short-term as well as any long-term balances. Usually, a liability is considered short-term if it is due within 12 months of the balance sheet date.

When reviewing a company’s balance sheet, the reader will review current liabilities as well as the current assets and determine if the company has sufficient current assets to settle short-term liabilities.

If current liabilities exceed current assets, the reader may conclude that the company may not be able to settle current liabilities as they come due.

Long term assets and liabilities

The long-term assets and liabilities also tell a story about the company’s future. Long-term assets such as notes receivable will advise the reader that the company will convert the assets to cash in the future. The long-term liabilities will advise of the future commitments the company has and its ability to settle those future commitments.

Analyzing a company’s balance sheet from one period to another will also provide information regarding the business health. For example, reviewing the trend in accounts receivable from one period to another can identify issues such as slow collections and uncollectible debts.

The equity section of the balance sheet is made up of the initial investment in the company and any accumulated profits or losses retained in the business at the balance sheet date. This balance is what the owners would expect if the company was liquidated. If equity is negative, the company would not have sufficient assets to settle its debts if the assets were liquidated at the balance sheet value.

For the balance sheet to be an effective tool for business owners in analyzing the strengths of their business, it should be kept on the accrual basis. In fact, financial statements prepared on the GAAP basis (Generally Accepted Accounting Principles) are usually accrual basis. An accrual basis balance sheet will include all accounts receivables and accounts payables, thus providing an accurate snap shot of the company’s assets and liabilities at a specific date.

Conversely, cash basis balance sheets will not include the receivables and payables and, if these items are material to the business, the reader will not know what collections are expected in the short-term and what liabilities will need cash in the immediate future.

If you are a small business owner take a moment to review your balance sheet. Understanding how to improve specific account balances can help you grow a financially secure business.

We’ve got your back

At KRS, our CPAs can help you review your balance sheet and put together a plan for improving your company’s financial situation. Give us a call at 201.655.7411 or email me at mrollins@krscpas.com.

 

The New Tax Law’s Impact on Law Firms

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New tax rules that apply to law firms are complicated

Lakeland Bank Breakfast presentation
Breakfast with Lakeland Bank: The Impact of the Tax Cuts and Jobs Act on Law Firms. Neil Gordon and Ottilia Stura from Lakeland Bank, with Maria Rollins and Jerry Shanker

KRS partner Jerry Shanker and I discussed the impact of the Tax Cuts and Jobs Act on law firms at a Breakfast with Lakeland Bank on June 12.

From working with our law firm clients and associates, we realized that many firms are still scrambling to come to grips with the tax code changes and develop tax planning strategies around them. The attendees at our Lakeland Bank talk had similar concerns.

While many businesses stand to benefit from the tax code overhaul, when it comes to the Act’s impact on law firms and their partners and associates – it can get complicated.

These key provisions of the Act affect law firms and their members:

  • Reduction in individual and corporate income tax rates
  • $10,000 annual limit on deduction of state and local income taxes (SALT). This includes deduction for real estate taxes
  • No deduction for miscellaneous itemized deductions Increased standard deductions
  • Introduction of new Code Section 199A, which provides for a tax deduction of 20% of qualified business income, subject to limitations and exclusions

Free Guide for Law Firms

We’ve summarized several other key changes in the tax code that impact law firms in a downloadable guide, “The Tax Cuts and Jobs Act of 2017 – Considerations for Law Firms.”

TCJA Considerations for Attorneys
Law firms need to develop new tax planning strategies so they don’t pay more tax than necessary under the new tax laws.

If you are a managing partner or executive at your law firm, understanding the factors covered in the Guide will help you and your firm determine the best strategy for optimizing your firm’s and your partners’ tax positions. By downloading this guide, you will learn:

  • How the choice of business entity – C-Corp, S-Corp, or pass-throughs – is impacted by the updated code
  • New rules for specified service businesses
  • Changes that impact entertainment and fringe benefit expenses
  • Code Section 179 changes that impact expense deductions
  • New limitations on business interest and excess business loss
  • Key changes to Section 199A deductions that impact individual W-2 wage earners.

Download the Guide

We’ve got your back

At KRS, we’re working to help our clients understand and navigate the new tax law changes – and those affecting law firms are particularly complicated. Because each law firm’s and individuals’ taxable income and deductions are unique, each individual set of facts and circumstances must be reviewed.  We’re happy to help you with yours. Contact me at mrollins@krscpas.com or 201.655.7411 for an initial consultation.

The Importance of a ‘Paycheck Checkup’

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The Importance of a Paycheck CheckupThe Internal Revenue Service is urging taxpayers to do a “paycheck checkup.”

To help understand the implications of the Tax Cuts and Jobs Act, the IRS unveiled several new features to navigate the issues affecting withholding in their paychecks. The effort includes a new series of plain language Tax Tips which detail the importance of reviewing withholding as soon as possible.

The new tax law could affect how much tax you should have your employer withhold from your paycheck. To help with this, taxpayers can use the IRS’ Withholding Calculator. The Withholding Calculator can help prevent you from having too little or too much tax withheld from their paycheck. Having too little tax withheld can mean an unexpected tax bill or potentially a penalty at tax time next year. With the average refund topping $2,800, some taxpayers might prefer less tax withheld up front and receive more in their paychecks.

Individuals can use the Withholding Calculator to estimate their 2018 income tax. The Withholding Calculator compares that estimate to your current tax withholding and can help you decide if you need to change your withholding with your employer.  When using the calculator, it’s helpful to have a completed 2017 tax return available.

Those who need to adjust their withholding must submit a new Form W-4 to their employer. If you need to adjust your withholding, doing so as quickly as possible means there’s more time for tax withholding to take place evenly during the rest of the year. If you wait until later in the year, it could have a bigger impact on each paycheck and your 2018 return.

The Tax Cuts and Jobs Act increased the standard deduction, removed personal exemptions, increased the child tax credit, limited or discontinued certain deductions, and changed the tax rates and brackets. Those who should especially check their withholding are:

  • Two-income families
  • People working two or more jobs or who only work for part of the year
  • People with children who claim credits such as the Child Tax Credit
  • People with older dependents, including children age 17 or older
  • People who itemized deductions in 2017
  • People with high incomes and more complex tax returns
  • People with large tax refunds or large tax bills for 2017

We’ve got your back

At KRS, we’re working to help our clients understand and navigate these tax law changes. We strongly encourage all taxpayers to do a paycheck checkup to ensure they’re having the right amount of tax withheld for their unique personal situation. Contact managing partner Maria Rollins at mrollins@krscpas.com or 201.655.7411 for a complimentary initial consultation.

2018 Pension Plan Limitations Not Affected by Tax Cuts and Jobs Act

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2018 Pension Plan Limitations Not Affected by Tax Cuts and Jobs Act

The Internal Revenue Service announced that the Tax Cuts and Jobs Act of 2017 does not affect the tax year 2018 dollar limitations for retirement plans announced in IR 2017-177 and detailed in Notice 2017-64.

The tax law provides dollar limitations on benefits and contributions under qualified retirement plans, and it requires the Treasury Department to annually adjust these limits for cost of living increases. Those adjustments are to be made using procedures that are similar to those used to adjust benefit amounts under the Social Security Act.

As the recently enacted tax legislation made no changes to the section of the tax law limiting benefits and contributions for retirement plans, the qualified retirement plan limitations for tax year 2018 previously announced in the news release and detailed in guidance remain unchanged. This is good news for individuals contributing to their qualified retirement plans.

Cost of living adjustments

The tax law also specifies that contribution limits for IRAs, as well as the income thresholds related to IRAs and the saver’s credit, are to be adjusted for changes in the cost of living using procedures that are used to make cost-of-living adjustments that apply to many of the basic income tax parameters.

Although the new law made changes to how these cost of living adjustments are made, after taking the applicable rounding rules into account, the amounts for 2018 in the news release and the guidance remain unchanged.

We’ve got your back on the new tax code

The new tax code is complex and every taxpayer’s situation is different – so don’t go it alone! Check out the New Tax Law Explained! For Individuals page, then contact KRS managing partner Maria Rollins at mrollins@krscpas.com or 201.655.7411 to discuss your situation.

IRS 2018 Tax Myths

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With the 2018 filing season in full swing, the Internal Revenue Service offered taxpayers some basic tax and refund tips to clear up some common misbeliefs.

Myth 1: All Refunds Are Delayed

IRS 2018 Tax Myths
The IRS issues more than nine out of 10 refunds in less than 21 days. Eight in 10 taxpayers get their refunds faster by using e-file and direct deposit. It’s the safest, fastest way to receive a refund and is also easy to use.

While more than nine out of 10 federal tax refunds are issued in less than 21 days, some refunds may be delayed, but not all of them. By law, the IRS cannot issue refunds for tax returns claiming the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) before mid-February. The IRS began processing tax returns on Jan. 29.

Other returns may require additional review for a variety of reasons and take longer. For example, the IRS, along with its partners in the state’s and the nation’s tax industry, continue to strengthen security reviews to help protect against identity theft and refund fraud.

Myth 2: Delayed Refunds, those Claiming EITC and/or ACTC, will be Delivered on Feb. 15

By law, the IRS cannot issue EITC and ACTC refunds before mid-February. The IRS expects the earliest EITC/ACTC related refunds to be available in taxpayer bank accounts or debit cards starting Feb. 27, 2018, if these taxpayers chose direct deposit and there are no other issues with their tax return. The IRS must hold the entire refund, not just the part related to these credits. See the Refund Timing for Earned Income Tax Credit and Additional Child Tax Credit Filers page and the Refunds FAQs page for more information.

Myth 3: Ordering a Tax Transcript a “Secret Way” to Get a Refund Date

Ordering a tax transcript will not help taxpayers find out when they will get their refund. The IRS notes that the information on a transcript does not necessarily reflect the amount or timing of a refund. While taxpayers can use a transcript to validate past income and tax filing status for mortgage, student and small business loan applications, they should use “Where’s My Refund?” to check the status of their refund.

Myth 4: Calling the IRS or a Tax Professional Will Provide a Better Refund Date

Many people mistakenly think that talking to the IRS or calling their tax professional is the best way to find out when they will get their refund. In reality, the best way to check the status of a refund is online through the “Where’s My Refund?” tool or via the IRS2Go mobile app. The IRS updates the status of refunds once a day, usually overnight, so checking more than once a day will not produce new information. “Where’s My Refund?” has the same information available as IRS telephone assistors so there is no need to call unless requested to do so by the refund tool.

Myth 5: The IRS will Call or Email Taxpayers about Their Refund

The IRS doesn’t initiate contact with taxpayers by email, text messages or social media channels to request personal or financial information. Recognize the telltale signs of a scam. See also: How to know it’s really the IRS calling or knocking on your door.

The IRS will NEVER:

  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will first mail a bill if taxes are owed.
  • Threaten to immediately bring in local police or other law enforcement groups to have people arrested for not paying.
  • Demand that taxes be paid without giving the taxpayer opportunity to question or appeal the amount owed.
  • Ask for credit or debit card numbers over the phone.

For more information on tax scams see Tax Scams/Consumer Alerts. For more information on phishing scams see Suspicious e-Mails and Identity Theft.

We’ve Got Your Back

A trusted tax professional can provide helpful information and advice about the ever-changing tax code. Check out the New Tax Law Explained! For Individuals page and then contact managing partner Maria Rollins at mrollins@krscpas.com or 201.655.7411 for a complimentary initial consultation.

New Rules for Deducting Business Meals and Entertainment Under Tax Reform

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New Rules for Deducting Business Meals and Entertainment Under Tax Reform

Prior to the Tax Cuts and Job Acts, a business owner generally could deduct 50% of business related meals and entertainment expenses. Meals provided to an employee on the business premises for the convenience of the employer were generally 100% deductible.

These expenses are treated differently under the new tax law.

How will meals and entertainment expenses be affected?

Entertainment expenses are now completely nondeductible, regardless of whether they are directly related to, or associated with, the taxpayer’s business, unless an exception applies. One of those exceptions is for “expenses for recreation, social, or similar activities primarily for the benefit of the taxpayer’s employees, other than highly compensated employees.”

Under the new tax law:

  • Office holiday parties remains fully deductible.
  • Expenses for entertaining clients (including tickets for sporting, concert, and other events) were 50% deductible. The 50% deduction included the event tickets up to face value. Beginning January 1, 2018, these expenses are nondeductible.
  • Business meals and employee travel meal expenses remain 50% deductible.
  • Expenses for meals provided for the convenience of the employer generally were 100% deductible. Beginning 1/1/2018, they are 50% deductible. After 2025, they are nondeductible.

What should a business owner do to prepare for this change?

Update your general ledger to segregate expenses into accounts earmarked as 100%, 50%, or nondeductible. Having the expenses categorized at the time they are incurred will save a lot of effort come tax time. This practice will also allow your tax preparer to clearly identify which expenses are deductible and avoid errors in your tax filing.

We’ve got your back

At KRS, we’ve been tracking tax reform legislation closely and are ready to assist you in your tax planning and preparation so that you’re in compliance under the reformed tax law. Don’t lose sleep wondering what impact the new tax rules will have on you, your family, or your business. Contact me at 201.655.7411 or mrollins@krscpas.com.

Repeal of Miscellaneous Itemized Deductions – What Does This Mean for Employee Business Expenses?

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Repeal of Miscellaneous Itemized Deductions – What Does This Mean for Employee Business Expenses?Before the Tax Cuts and Jobs Act, individuals who itemized their deductions could deduct certain miscellaneous itemized deductions to the extent that those deductions exceed 2% of their adjusted gross income (AGI). These deductions included unreimbursed employee business expenses, such as  unreimbursed transportation, travel, business meals and entertainment, subscriptions to professional journals, union and professional dues, and professional uniforms.

Under the new law, miscellaneous itemized deductions are disallowed after December 31, 2017.

So what does this mean for those employees who incur these costs in performing services for their employer?

They may be out of luck.  Let’s say an employee earns $60,000 in wages and incurs $2,500 in business related expenses such as travel, insurance, and subscriptions. The employee is taxed on the full $60,000 and the $2,500 out of pocket expense is not deductible.

Reimbursement under an accountable plan

Employers who don’t reimburse employees for legitimate business expenses under an accountable plan should consider the effects of this practice. Employers can generally provide employees with the same real compensation and a lower taxable income if they provide some of the compensation in the form of reimbursement of business expenses under an accountable plan. So, if the employee in the example above was paid $2,500 less (making his earnings $57,500), but was separately reimbursed for his $2,500 of business expenses under an accountable plan, he would have a lower taxable income with the same actual compensation because his $2,500 of reimbursement wouldn’t be included in income.

If you incur significant employee business expenses, talk to your employer about establishing an accountable plan. Doing so can save the employee taxes with little impact to the employer.

We’ve got your back

At KRS, we’ve been tracking tax reform legislation closely and are ready to assist you in your tax planning and preparation now that the Tax Cut and Jobs Act is finally signed into law. Don’t lose sleep wondering what impact the new laws will have on you, your family, or your business. Check out the New Tax Law Explained! For Individuals page and then contact me at 201.655.7411 or mrollins@krscpas.com.

 

2017 Tax Legislation: What Individual Taxpayers Need to Know

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2017 Tax Legislation: What Individual Taxpayers Need to KnowThe new Tax Cuts and Jobs Act amends the Internal Revenue Code (IRC) to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. It is the most sweeping update to the U.S. tax code in more than 30 years, and from what we’re seeing, it impacts everyone’s tax situation a bit differently.

What works for one individual or family may not work for another, although their circumstances may appear to be similar on the surface.

Here are some of the key features of the tax reform legislation that you need to know about as an individual tax payer. (I’ll cover the impact on businesses in a separate post.)

Individual Tax Rates

There are still seven tax brackets, however the rates have dropped in all except the lowest bracket. The new maximum tax rate was reduced from 39.6% to 37%, which applies for those earning over $500,000 annually, if single, or $600,000 if married.

Here is a comparison of the old and new tax rates:

Comparison of new and old tax rates

While these changes are likely good for everyone, I do have some clients who are married, filing jointly and when I recalculated their taxes under the new law, the results were not what we expected. The husband and wife both work, and it turns out they’re only going to save $200 in taxes! So that’s why it’s important to work with your accountant and look at your situation individually.

Alternative Minimum Tax

The alternative minimum tax (AMT) is a supplemental income tax imposed by the United States federal government. AMT is a separate tax calculation that is run after the regular tax calculations are done. The taxpayer pays the higher of the two taxes. Although this was supposed to be a tax to ensure that everyone, including the wealthy, pay some tax, in the past it did hit many middle income wage earners.

Under the new law:

  • The amount exempt from AMT increases from $86,200 to $109,400, if married, and from $55,400 to $70,300 if single.
  • The phase-out of the exemption amount begins at $1,000,000 – instead of $164,100 – if married, and $500,000 – instead of $123,100 – if single.

So we expect we will be seeing fewer middle income wage earners subject to AMT.

Deductions, exemptions, and capital gains

The standard deductions have nearly doubled to $24,000 (married) and $12,000 (single), however there is no longer any personal exemptions allowed at any income level.

Individual deductions for state and local taxes (SALT) for income, sales, and property are limited in aggregate to $10,000 for married and single filers and $5,000 for married, filing separately. What this means in a high real estate tax state like New Jersey, where you’re probably paying more than $10,000 a year in real estate taxes, you’re going to be taking a hit starting in 2018.

Most miscellaneous itemized deductions – for example, tax preparation and investment expenses – that had been subject to the 2% of adjusted gross income (AGI) floor will no longer be allowed.

As far as capital gains, there were no changes to the tax rate. The maximum rate on long-term gains and qualified dividend income (before 3.8% net investment income tax) remains at 20%.

As the reform bill was being negotiated, there had been talk of doing away with the medical expense deduction completely, which would have hurt the elderly. Instead, they reduced the floor to 7.5% of AGI for tax years 2017 and 2018.

Fortunately, there were no changes to how securities are treated. You can continue to specify which stocks you’re selling, which means if have a lot of the same stock, you can pick your highest basis so that you have the lowest amount of capital gain.

The child tax credit increases from $1,000 per qualified child to $2,000, with $1,400 being refundable. Phase-out of the credit begins at $110,000 (single) and $400,000 (married).

You will no longer be penalized if you don’t have health insurance. Starting in 2019, the new legislation eliminates the Affordable Care Act’s individual mandate.

Mortgage interest and real estate

Before the tax law changed, you could deduct mortgage interest on mortgages up to $1 million, if you’re married, and $500,000 if you’re single. Interest on a Home Equity Line of Credit (HELOC) could be deducted up to $100,000. Under the new law, individuals are allowed an itemized deduction for interest on a principal residence and second residence up to a combined $750,000. Mortgages obtained before 12/16/17 are grandfathered and new purchase money mortgages may be grandfathered if the purchase contract is dated before 12/16/17.

Refinancing of grandfathered mortgages is grandfathered, but not beyond the original mortgage’s term and amount, with some exceptions for balloon mortgages. Interest on HELOCs is no longer deductible.

The rules for capital gain exclusion for a primary residence remain unchanged, which is good for the real estate market. When you sell your primary residence, you get to exclude $500,000 of gain. As the taxpayer, you must own and use the home as your primary residence for two out of the previous five years. This exemption can only be used once every two years.

You will still be able to do a like-kind exchange on real estate, but no longer on personal property. This type of exchange allows for the disposal of an asset and the acquisition of another replacement asset without generating a current tax liability from the gain on the sale of the first asset.

College savings plans, estates and gifts

If you have a Section 529 plan, you can now pay up to $10,000 a year per student for high school education. This had always been limited to college, but now if you are paying public, private or religious high school tuition, you can use some of your 529 here.

Under the new tax law, the estate, gift and generation skipping transfer (GST) tax exemptions are doubled to $11.2 million per US domiciliary.  These exemptions sunset after 2025 and revert back to the law in effect for 2017 with inflation adjustments. There’s a possibility for “clawback” at death if the law is not changed.

Pass-through and charitable deductions

If you own a business that is set up as a partnership, S-corporation, or sole proprietorship, income was passed through to your individual tax returns, where it was taxed as ordinary income. There is now a new 20% deduction for qualified business income from a partnership, S-corp, or sole proprietorship. There are some income limitations to this deduction, so be sure you consult your tax advisor on this one.

We still have deductions for charitable contributions. Under the new law, a contribution made to public charities is deductible, as long as it doesn’t exceed 60% of the taxpayer’s AGI – this is up from 50% of AGI.

We’ve got your back

At KRS, we’ve been tracking tax reform legislation closely and are ready to assist you in your tax planning and preparation now that it is finally signed into law. Don’t lose sleep wondering what impact the new law will have on you and your family. Contact me at 201.655.7411 or mrollins@krscpas.com.

 

Food for Thought from NJBIZ FoodBizNJ Conference

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Having recently attended the FoodBizNJ conference, “Setting the Table for Growth”, I would like to share some “food for thought” I took away from the conference.

Food for Thought from NJBIZ FoodBizNJ ConferenceNew Jersey is home to many food manufacturers, distributors, retailers, restaurants, farms, and the service providers to those companies. However, the industry does face challenges that are not specific to New Jersey.

Some key concerns are:

Managing the workforce

As many food manufacturing jobs do not require a college degree, it is possible to have a career in the food industry without a college education. If necessary, advanced education can come later, however, “soft-skills” training is necessary and most likely will need to be provided by the employer.

As stated by Donna Schaffner, Associate Director: Food Safety, Quality Assurance & Training, Rutgers Food Innovation, it is expected that individuals entering the workforce today will have 22 different jobs in their lifetime. Having a strategy for training and retaining these individuals is critical. Training time and dollars must be well spent in an effort to retain those trained employees.

Understand your margins

It is critical to have a handle on your production costs and gross margin. The first step to setting prices is to understand your cost structure. This is not an exercise that is performed only once; costs change and require constant monitoring. Costs can change materially over time. Costs that are too high and prices set too low can result in disaster. If changes are not monitored and quickly acted upon, the business may experience significant losses.

Specific challenges for family food businesses

A very low percentage of family food businesses make it to the 4th generation. Many of those that do have a “family first” mantra that extends the definition of “family” to long-time employees. Many successful multi-generational family businesses get each succeeding generation involved as early as possible and strive to teach them the business from the ground up. It is perfectly acceptable if some family members choose a different career path but retain ownership interests in the business.  The most successful multi-generational businesses employ family members in active roles, and each generation enthusiastically attempts to contribute to the business’s successful continuation.

What is one challenge that KRS has seen in multi-generational food businesses?

In our practice, we frequently encounter family businesses struggling with under-performing family members involved  in the business. It is often a difficult subject to approach when “family first” is your mantra.  A good executive training program as well as holding family members to the same standards as other employees is a good first step in avoiding the problem early on. Utilizing a performance-based evaluation and compensation program may also help alleviate any discontent within the generations.

This is one of the many challenges we have seen in multi-generational family businesses. If you are in a family food business and you have a unique challenge contact KRS CPAs as we can offer a fresh, independent evaluation of your business.