Philadelphia Passes Tax Cuts and Breaks for Businesses and Residents

Date June 29, 2022
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Philadelphia’s 2023 budget, passed by the City Council on June 23, will include tax cuts on business income and wages. The city’s business income and receipts tax rate will be reduced from 6.2 percent to 5.99 percent. Taxes on wages are being reduced as of July 1, 2022, for residents from 3.8398 percent to 3.79 percent, and for non-residents from 3.4481 to 3.44 percent. Mayor Jim Kenney heralded the changes to wage taxes, considered among the highest in the nation, as being reduced to their lowest levels in more than 50 years.

In a related move, the Council passed an ordinance designed to move the city toward market-based sourcing for business income and receipts taxes on sales of intangibles and services by providing exclusions for receipts on intangibles used outside the city limits.

Market-based sourcing generally taxes services based on where the benefit of the service is received. In moving toward market-based sourcing, service businesses in Philadelphia will only be required to pay business income and receipts tax on sales delivered to customers located within the city. Market-based sourcing is the trend in state and local taxation. The transition to market-based sourcing should help level the playing field for Philadelphia-based service providers with companies located outside of Philadelphia.

For more information on how rulings and legislation related to state and local taxes might impact your business, contact us at hbksalt@hbkcpa.com or visit our website here.

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Estimating and Bidding: It’s All About the Numbers

Date December 16, 2020
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Just as all jobs are not built the same, construction companies differ in their costs. Contractors need to win jobs to stay busy, but the real trick is making enough profit to cover your costs and have something leftover. Having a customized estimating strategy is crucial and requires a thorough understanding of your business’ unique cost structure.

While your previous year’s numbers might be a good starting point for considering the overhead you need to recover this year, you also need to consider changes you have made that will impact your costs:

  • Have you hired office personnel, such as additional estimators, accounting personnel, or secretaries?
  • Have you purchased additional trucks for construction supervisors?
  • Has there been a significant increase in employee benefits?
  • Have you increased your office space by renting an additional facility or adding to your existing office space?
  • Do you warranty a portion of your work? Do you have a lag summary to estimate the amount of future claims you might need to cover?

Once you have a budget for your overhead, consider how you will allocate the dollars among your projects. Are all of your projects performed similarly? Are some more labor-intensive while others are more equipment-intensive? An estimating strategy that allocates overhead appropriately will more accurately portray the profit on your jobs and help you submit more competitive bids. No estimating strategy is perfect, nor is it a “one and done” process. You will want to re-evaluate periodically and no less than annually—assuming no major changes in your overhead in the interim.

You can use job estimates for more than winning work. You can compare your estimates during open projects to real-time data to ensure jobs are on track. If something looks awry then investigate. Is something going wrong on the job that’s causing additional work or overruns? Is there a change order or claim that needs to be submitted? Can you make corrections and get the project back on track? Was something missed during the bidding process, and if so, how can you prevent that from happening in the future?

If you find your company consistently losing out in your bidding, consider a bid analysis:

  • Are you losing out on one type of job but winning bids in other areas? Is it because your overhead isn’t allocated appropriately? Is your overhead top-heavy and you need to find ways to reduce it?
  • Do you have a team of estimators with some hitting bids but others falling short? Do you need to conduct cascade training?
  • Are you losing consistently to the same competitors? What are the spread on the bids you lose and they win?
  • On the other hand, if you are consistently winning bids, build analysis to determine if you are leaving money on the table.

A CPA expert in your industry can help you analyze your business’ unique cost structure to determine where you can afford to make cuts in either your costs or your bids. An industry-savvy CPA can help you find niches in types or sizes of jobs where you can win bids and maximize your profits, and even provide training to your team to get everyone estimating more effectively.

Understanding your cost structure is imperative to helping you attain the profit you require to grow your company and your personal wealth. A CPA focused on the construction industry can be a trusted advisor and provide invaluable support.

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Manufacturers, Is Your Budget the Power Tool It Needs to Be?

Date January 3, 2020
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A budget—or a proforma, forecast, or projection—is a financial prediction of what might happen over a given time period. As such, manufacturing businesses use budgets to prepare for the year ahead. Executives, managers, and financial professionals employ budgets to aid in their decision-making and to ensure their company is on the right path toward meeting its financial goals.

Think of budgeting as a short-term financial planning process for your business. While a budget itself doesn’t serve to increase profits, it can help you gain the visibility needed to make the kind of decisions that increase profitability, improve cash flow, and otherwise better your company’s financial position. A budget can also help you identify red flags and allow you to take quick action to either mitigate or prevent an issue from having negative financial consequences.

Budget for More Than Your Profit
Preparing budgets takes time and insight, likely from many areas of your business: prior year trends, sales forecasts, internal projects, changes in your industry. Also, be sure to include all areas of your financial performance in your budgeting considerations. Some manufacturers only focus their budgeting efforts on their profit or loss, but other areas can be just as important to your future. For instance:

  1. Is your business planning to invest in new equipment? If so, you could encounter a cash outlay that is not reflected on a proforma income statement. A cash forecast can help you plan for a major purchase while ensuring that you do not affect the business’s daily operations.
  2. Are your sales increasing? Will you need to hire new employees? Understanding your compensation and training costs at a detailed level can help you make good decisions as you grow, such as the right timing for adding new hires.
  3. Does your lender require you to meet covenants? Review your covenant agreements and consider preparing forecasts for these financial metrics so that you understand how to remain in good standing.

Prepare for Change
No matter how much time and effort you spend on a budget, it’s not likely to be perfect. Change is constant. So when conditions change, or when you find yourself outperforming or not meeting your budget, what should you do?

The worst thing to do is discard your budget. Even imperfect budgets have great value. Determine why your results differ from your projections. Can you learn from past budget flaws to become more precise in the future?

Consider making changes to your budget or creating a rolling budget. A rolling budget predicts a full year ahead, for example, as opposed to a calendar or fiscal year. Rolling budgets help you project financial performance on an ongoing basis.

For questions or to discuss budgeting options for your company, contact a member of the HBK CPAs & Consultants’ Manufacturing Team at 330-758-8613.

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