No doubt, uncertainties stemming from the impact of inflation, supply chain issues, labor shortages, and more have you focusing on every aspect of your business, from overall strategy and pricing to contracts, inventory, purchasing, and more. The last thing you need are mistakes related to your financial reporting and forecasting. Making adjustments to reporting and forecasting to reflect how macroeconomic factors are affecting your business is important. Following are considerations to help you think through the factors that may impact reporting and forecasting compliance.

General Considerations

• Are your business cost structures changing? Will this continue in the future?
• Is the impact of uncertainties short- or long-term? How does that affect related accounting estimates?
• How are your forecasts impacting accounting estimates for goodwill and other long-lived assets for impairments? Are valuation allowances for the recovery of deferred tax asset balances needed? Are your liquidity and going-concern presumptions affected?
• Are you meeting U.S. GAAP and/or SEC disclosure requirements?

Inflation

• With inflation increasing costs to acquire goods, inventory, packaging materials, and even employee pay, should you consider passing on increases to customers via price increases?
• If your company has long-term revenue contracts impacted by increased costs that you may not be able to pass on to customers, your business may experience a profitability decrease or loss. How will this impact accounting for the contract? Which period do you record the loss?
• If you are renegotiating long-term contracts like leases or supply agreements, do you need to reassess their classification and measurement?
• Are interest rate increases and fixed-rate financial asset decreases impacting estimated credit and loan loss reserves?
• Are you changing your company’s investment strategy and any related accounting and reporting requirements?
• Are you using the right discount rate for pension-related liabilities? While pension liabilities and related employer contributions may be lower due to higher interest rates, are they offset by higher employee wages?

Labor

• Are your labor costs increasing? What are the accounting implications? Can you offset higher labor costs with price increases?
• Has your company increased hourly wages, bonuses, incentive, or stock compensation or benefits? Do you know the implications on your accounting practices? For example, which period should you recognize retention bonuses? Do compensation structure and workforce changes warrant changes to assumptions used for pension liability?
• Is the labor shortage requiring you to operate at a reduced capacity? If so, are there costs capitalized into inventory that should be expensed now (i.e., rent or depreciation)?
• Do you have the right people with the right skills monitoring your internal controls, including those related to IT?

Supply Chain

• Are supply chain costs significantly increasing and included in inventory? Should you adjust the cost of inventory based on its expected net realizable value? Should you consider using different materials, other suppliers, and/or a price increase to manage supply chain increases?
• How are you reporting raw materials, finished goods, and supplies on your balance sheet? What is the actual point in time that you take ownership of each? Do your accounting processes and internal controls accurately capture inventories?
• Do your cutoff procedures accurately help you recognize revenue in the right period?
• If you are adjusting manufacturing processes or using different materials to manufacture products, does this affect warranties – including terms and conditions, product life cycle, or expected claims – and related accounting?

If you need a partner to help guide you through accounting, tax, and bookkeeping during uncertain times, call RBT CPAs. We’re here to help and provide you with peace of mind related to your accounting, reporting and forecasting, so you can focus on all of the other things you need to do to survive and thrive in 2022 and beyond.

If you’re looking around your operations and thinking maybe it’s time for a garage sale, think again. Your company may benefit from an investment recovery program.

An investment recovery program enables you to recoup some of the initial investment you made in materials or equipment that are obsolete, extra, or no longer needed. You can use it to sell, trade, or donate anything from spare parts, returned investment, raw materials, and piles of scrape to obsolete equipment, furniture, and machinery.

Not only can it help keep your facilities clutter free and make better use of your business’ facilities, but an investment recovery program can boost your profits.

According to the Investment Recovery Association, a trade group for managers of idle and surplus assets, 70% up to 90% of every dollar that comes from investment recovery directly contributes to a company’s bottom line as profit. In fact, most association members save an average of $8 million a year and some save as much as $150 million (of course, most members are Fortune 1000 companies, but even recouping a portion of the savings they realize is worth it.)

Before you start hanging the garage sale signs, it’s important to note that inventory recovery is a serious business.

Your goal should be to get back as much of your capital investment as possible, rather than getting whatever you can for idle assets. To do this, you’ll need a formal investment recovery program that becomes a regular, ongoing part of your operations.

Start by finding a certified investment recovery manager or appraiser who knows or can find out the fair market value of what you are selling and knows the best channels for making those sales. Experienced investment recovery specialists know how to use a variety of strategies to recover a portion of the cost of an asset. These include returning an item to the manufacturer or distributor, selling it, or trading it for something else. Potential customers can be found:

• Inside your company. While your Maintenance Department may be done with a forklift purchased for a special project years ago, your Inventory team may be able to put it to good use today.
• Among your employees. Especially when it comes to office equipment and supplies like cabinets, computers, desks, and tools, employees may be interested in getting a deal and taking them off your hands. Not only do you benefit from the money, but you build good will among your employees.
• Charity. Nonprofit organizations always welcome donations – especially in the form of equipment and furniture. Build your business’ reputation as a good corporate citizen while getting a charitable tax write-off by donating equipment, furniture, and supplies you no longer need or use.
• On online auction sites. There are sites dedicated to selling just about anything (they can also be a great place to turn if you’re looking to make purchases).

Is investment recovery worth the time and effort?

According to the Investment Recovery Association, it would take $20 in sales to achieve the same net effect on profit for every dollar generated by investment recoupment. So, yes, it’s worth it.

To learn more about how investment recovery could affect your accounting processes or taxes, RBT CPAs is always here to help — give us a call.

The Hudson Valley enters 2022 with strong economic growth prospects, considering the increasing number of companies expanding manufacturing, fulfillment, and distribution operations, and opening new ones in the region. While the potential positives resulting are many, growth also poses challenges, especially when it comes to attracting and retaining skilled talent in an already-tight labor market.

Here’s a glimpse of the expansion underway… IBM’s footprint is growing in Poughkeepsie. RBW Studio moved its headquarters and is building factory in Ulster, and is being joined by Mio Marino Men’s Clothing Brand.  Amazon is opening a warehouse in Hawthorne and fulfillment centers in Montgomery and East Fishkill. Regeneron is planning a $1.8 billion expansion at its Tarrytown campus. Green Thumb Industries cultivation and manufacturing site is in Warwick. The Food Bank of the Hudson Valley’s new distribution center will be in Montgomery, while Frito Lay’s will be in East Fishkill.

There’s more to come, with Governor Kathy Hochul announcing a proposed $500 million investment for offshore wind ports, manufacturing, and supply chain infrastructure.

According to The Council of Industry, the U.S. is the world’s largest manufacturing economy, with 12.1 million employees and 21% of products worldwide. New York manufacturers employ 4.55% of the workforce (or 400,000 employees in 2020) and account for 4.01% of the state’s output (source: National Association of Manufacturing). While business conditions may be more favorable in other states, there’s still a resurgence taking place in the Hudson Valley, and business activity is growing swiftly.

Now for the kicker: as of December 2021, the Hudson Valley’s 2.7 percent unemployment rate is its lowest in over a decade. It’s lower than the U.S. unemployment rate (3.7 percent) and New York State’s (5 percent). That’s leading to significant challenges finding talent to take advantage of new opportunities and keeping existing talent safe from poachers. It can lengthen the time it takes to hire new employees, and up the ante in terms of what employees may be looking for from their employers.

With employees in the drivers’ seat when it comes to jobs, what can an employer do? The solution may rest with creating a multi-pronged strategy that addresses the challenge from several angles:

• Digitalize operations Increase efficiency and eliminate non- or low-value activities, so you can focus limited pools of talent on what’s most meaningful. Consider how AI, robotics, the IoT, and cloud computing can help streamline operations and take over low-value repetitive tasks.
• Engage your employees Hold focus groups with current employees and/or conduct a survey to gauge what’s working (and what’s not) in terms of your value proposition, from benefits and pay to promotion opportunities, development, culture, and more. Share results; develop a plan to address employee input; and communicate what the company is doing to better meet employees’ needs and reward their commitment and contributions.
• Promote your employment brand and employee value proposition What distinguishes your workplace from others? Is it a great place to work? What percent of employees stay their entire careers? What percent advance on the career ladder? What unique benefits and perks do you offer? How do your pay and benefits compare to other employers’ in the area? Let prospects know by promoting this on your website and via social media.
• Enhance recruiting Expand your presence and recruiting activities online. Take a more diverse view of the prospective employee population by reaching out to groups where you may find untapped talent (i.e., Veterans, disabled individuals, and others). Consider adding an employee referral program.
• Streamline hiring. Replace the paper application with a mobile app. Forget about bringing a prospect back and forth to your organization for interview after interview, and instead use Zoom and standardized candidate selection processes. At hiring events, have staff scan resumes and connect virtually with those in the office for on-the-spot interviews. Have templates for job offers ready and digitalize hiring and payroll paperwork.
• Foster relationships to build a talent pipeline. Check out the Council of Industry’s Hudson Valley Consortium Training; the New York State Manufacturers Intermediary Apprenticeship Program (MIAP); and Westchester’s Office of Economic Development pre-apprenticeship program.

Having enough employees with the right skills and in the right place may very well become one of the largest competitive differentiators in the coming decade. Position your organization to compete and win. Give RBT CPAs a call to partner with you on all tax and accounting matters, so you’re free to focus on creating and executing a winning talent acquisition strategy.

What’s your New Year’s resolution?

Want to get in shape, or maybe get more organized? How about taking care of some annual business tasks that you may be putting off, like cleaning up your contracts? It’s the perfect time of year to knock this often neglected item off your to-do list.

Many manufacturers fail to annually review and revise contracts – but the reality is you really can’t afford to skip this step.

The ongoing supply chain dilemma is largely consumer-driven, and manufacturers worldwide have been wholly unprepared to handle the pandemic’s perfect storm of increased demand coupled with resource reduction. While some analysts anticipate a return to normality in late 2022, others say the economic turbulence could last for another 24-36 months. Can contract reviews be tedious? Yes. Are carefully crafted contracts also central to your financial success in the New Year? Absolutely. Below, we’ll outline some critical steps your manufacturing team should consider taking as we ring in 2022, to ensure your customers are satisfied, and your contracts are working for you.

Rising materials prices make it crucial for manufacturers to limit risk in their client agreements.

Bottlenecks, delays, equipment shortages, and shutdowns have created disruptions across the board leaving some manufacturers in precarious positions. At this point, we can all agree that pandemic clauses are necessary, not only due to COVID-19 but also to protect from future pandemics and similar situations. To avoid being tied up in unrealistic contracts and producing for a loss because of mounting material costs, carving out changing cost clauses will be essential in 2022 and beyond. Cost structure changes are necessary during these tumultuous times. Manufacturers should typically hold prices for a specified number of days but should have a clause in the agreement stating that if the contract is not released for production in a set number of days, then a price adjustment can be made by the manufacturer.

In response to increased price volatility in the current market, it’s wise to insert extremely open-ended language in the contract itself and/or in the manufacturer’s clarifications exhibit attached to the contract, which entitles the manufacturer to a change order for any increase in materials pricing throughout the manufacturing process. As these provisions shift 100% of the risk to the client, manufacturers should be prepared for clients to try to tailor the contract to share the risk. Some clients may include a contingency line item to address certain unforeseen costs that arise during manufacturing, including materials price increases.

Another approach some may take is to set a threshold percentage above which the client covers price increases and below which the manufacturer bears the risk. Here, the client and manufacturer would agree that the client covers the amount of increased cost if the cost incurred is 10% above the line-item amount shown in the schedule of values. If, for example, the cost of lumber increases by only 9%, then the manufacturer is responsible for all of the increased cost. However, if the cost of lumber increases by 15%, then the manufacturer is responsible for 10% of the increased cost, and the client must cover the remaining 5% of the increased cost. This approach sets a clear standard for addressing price increases and may provide enough flexibility to allow the price volatility to subside.

The time is now to ask yourself, is your team operating as cost-effectively as you can be?

The start of a New Year signals fresh opportunities to recharge, reinvigorate, and reinvent your practices. Dedicate some valuable time to examine your process and determine what’s working, and what’s not. Of course, there’s no one size fits all approach for your operation, and each client relationship is unique. Regardless of how you approach current and future contracts, the most important thing to remember is to address the uncertainty of material price escalation clearly. The information contained in this article is provided for informational purposes only and should not be construed as legal advice on any subject matter. We highly recommend you contact your attorney to thoroughly review all contract language. If you have any questions for our team of financial and tax professionals or would like help evaluating what effect increasing materials prices may have upon your latest project, please do not hesitate to contact our dedicated team.

Source: NYSHEX

If you’re like most manufacturers, you don’t track order processing. Yet focusing on this performance metric can identify operational inefficiencies that are cost-cutting opportunities. Another major advantage? Continued monitoring lets you keep those costs in check and predict future outlays. If you haven’t already, your company needs to develop a blueprint that delineates the tasks to be measured.

Tracking begins with a specialized enterprise resource planning (ERP) system or online workflow management program that can capture the workflow transactions involved in order processing. This is done in much the same way as you’d measure non-linear workflow in the production setting. As orders move from one person or terminal to another, they are automatically time-stamped and the number of times an order “changes hands” is recorded. Consider using a system that manages data about customer buying behaviors along with tracking order processing to create customer profiles and order histories. This will enable you to develop sales strategies based on demand and forecast opportunities to cross-sell and up-sell.

While computer programs are essential for gathering data, analyzing complex processes, and providing routine monitoring, don’t overlook the human element. Make order-processing improvements a priority, and charge a team of stakeholders with streamlining the process. The visibility that tracking brings to order processing reveals costly patterns that provide a basis for planning and scheduling. Furthermore, in discussions of order processing, tracking offers objective data that puts everyone on the same page. An analysis of the workflow metrics is handled by a business intelligence program that gives a non-IT person, such as a COO, the ability to “slice and dice” the data into a meaningful report. As the system gathers data over time, you’ll have a performance and cost record that can be used to analyze and fix inefficiencies. This ongoing analysis becomes an important tool for continuous improvement and forecasting.

You can learn a great deal about your operation when you know the steps involved in entering a new order. How many departments and individuals handle the order? How many pieces of paper change hands? What happens when an order changes? This lets you determine where bottlenecks exist and what transactions need to be changed, eliminated, or added.

Customer order management means different things to different people. It may be limited to account processing and the activities involved in the entry, maintenance, and fulfillment of orders. Some of the tasks include pricing, managing customer credit, checking parts availability, inquiring about order status, invoicing, and processing accounts receivable. In other words, customer order management includes every process from order to payment receipt. Our Manufacturing Services Group works with businesses in diverse industries from building materials, to food processing, specialty sporting goods, commercial lighting, health, beauty, pharmaceuticals, and more. Whatever the size of your venture, we can help you meet your goals, now and in the future. Contact our RBT team of professionals for more details about how a cost segregation study could improve your situation. Additionally, if you would like to submit feedback or topic ideas for future articles our team produces, please feel free to contact us at TLideas@rbtcpas.com.

Sources: © 2021, Powered by Thomson Reuters Checkpoint

Manufacturing Day (MFG Day) is sneaking up on us.

Are you prepared to show students, parents, and prospective employees what modern manufacturing is all about at your company? If you haven’t considered celebrating this special day yet, mark your calendar and gather some company leaders to create a plan of action. We have some tips to help, too.

Each year, Manufacturing Day (MFG Day) is held on the first Friday in October in order to educate the public on how modern manufacturing practices are rapidly changing our world. It likely comes as no surprise to you that new advanced manufacturing technologies bring about whole new careers, requiring a skilled workforce interested in pursuing them. The issue? Attracting and retaining quality employees. A survey from the Institute for Supply Management (ISM) released in September noted that while U.S. manufacturing activity unexpectedly picked up in August amid strong order growth, a measure of factory employment dropped to a nine-month low, likely as workers remained scarce. The labor shortages led to a building up of the backlog of uncompleted work at factories in August.

This MFG Day, it’s important to stand out so your company can get noticed and attract talent. From bioengineers to data analysts to robotics technicians, and all of the operations in between, there is a place for everyone in manufacturing, but many are lacking the introduction they need to find their place within the field.

Use the hashtag #MFGDay21 or #CreatorsWanted on social media channels like LinkedIn, Facebook, Twitter, or Instagram to mark the event and tag @MFGDAY in your posts. Encourage current employees to share their career success stories on social channels to give prospective hires insight into your company culture. Together with the National Association of Manufacturers, The Manufacturing Institute, MEP Centers, and federal agency partners, your company can celebrate the manufacturers who make the products that keep us safe, enrich our lives, strengthen our economic and national security, and provide countless opportunities for our communities and workforce. Host or find an event and get involved. You can also check out this helpful resource page to find MFG Day marketing toolkits, surveys, and host information.

How can you stand out?

Develop a unique plan that you know your team will be on board with and follow through on. This means something actionable, that won’t pull resources away from current projects but will attract attention to your brand. To mark MFG Day in the past, some companies and educational institutions have opted to open their doors to students, parents, teachers, and community leaders to showcase modern manufacturing. Perhaps you can highlight how diverse initiatives help your company to stand out. Do you specifically support women, veterans, students or other workers through skills training programs, or community building opportunities? Focus on how your company is advancing manufacturing careers. Looking for statistics to share? The U.S. Census Bureau joined other agencies by posting important manufacturing content on the Manufacturing Day webpage throughout the week.

Use this day to empower your employees, and future hires.

As manufacturers seek to fill 4 million high-skill, high-tech, and high-paying jobs over the next decade, MFG Day empowers manufacturers to come together to address their collective challenges so they can help their communities and future generations thrive. This year, MFG Day also includes a strong emphasis on engaging digital and virtual events throughout the country. With manufacturing careers at the heart of some of the most impactful work being done in response to the pandemic, get excited about shining a spotlight on manufacturing careers.

Gearing up for this MFG Day and beyond, whatever the size of your venture, our dedicated RBT team can help you meet your goals, now and in the future. In addition to an array of financial reporting (Audit and Accounting Services) and tax compliance services (Tax Services), our Manufacturing Group offers personalized, innovative strategies to help clients increase profitability. Contact us today to learn more about how we can help your team to thrive for years to come.