Every machine on your factory floor represents not just production capacity, but a potential entry point for cybercriminals. As manufacturing evolves from human-powered to technology-driven, businesses face an invisible threat that can halt production, compromise proprietary designs, and damage hard-earned reputations—all with a single click. The financial toll? Potentially catastrophic.

Technology has revolutionized the manufacturing industry over the past few decades.  With labor shortages and rising costs, businesses have had to replace human workers with computers and robots.  With such an increase in the use of technology comes the increasing likelihood of cybersecurity attacks.  These attacks can be detrimental to businesses and can lead to substantial financial losses, customer attrition, damaged reputation, and on some occasions can lead to business closures.

Three types of common cybersecurity attacks for manufacturers include:

1. Ransomware – This is where an attacker infiltrates a computer system and can encrypt their production plan and machine control settings.  This could lead to the company being locked out of their operations and facing the possibility of having to pay a ransom to restore access.
2. Insider Threats – Employees are subject to phishing attacks which can lead to pertinent company information becoming compromised.  It only takes one employee to click on a hyperlink in a suspicious email for them to become a victim.  There are also instances where key employees who have access to sensitive information can intentionally or unintentionally leak, sell, or misuse that information.
3. Supply Chain Attacks – Manufacturers rely of a network of suppliers, partners, and vendors to deliver their raw materials, component parts and finished products.  Cybercriminals can gain access through someone in the supply chain through phishing emails which can lead to them accessing private networks and stealing sensitive information.

Does your business have the proper policies in place that outline clear guidelines for protecting your sensitive information?

Three ways your business can help with reducing your cybersecurity risk include:

1. Employee Training – Businesses should conduct employee training at least once a year, or as frequent as every four to six months.  This training should be tailored to real-life scenarios, including quizzes and simulations.  An ongoing way to conduct training would be to send out periodic phishing tests to identify any weak areas.
2. Password Management – It is not ideal for users to have the same passwords for multiple logins.  Require employees to use a mixture of letters (both upper and lower case), numbers and symbols.  The more complex the password or passphrase the harder it is for it to be deciphered and compromised.
3. Incident Response Plan – This is a structured procedure with a set of guidelines to help respond to a data breach, malware attack, or disruption.  It involves having a well-designed data backup and recovery plan.  Businesses should implement a strong data backup strategy to enable them to bring their system back online in a controlled manner with limited delays.

With the ever-increasing dependency on technology in the manufacturing industry, it is of the utmost importance to be aware of cybersecurity threats.  Most businesses come to a standstill if they have a data breach and do not have the proper procedures in place.  There are many steps manufacturers can take to prevent a cybersecurity breach.

For more information about cybersecurity for manufacturers, contact a member of HBK Manufacturing Solutions at 330-758-8613 or manufacturing@hbkcpa.com. 

Florida offers a range of tax incentives designed to promote economic growth and attract manufacturing businesses. These incentives are valuable tools for both large and small manufacturers across industries such as aerospace, automotive, food processing, and technology. Below is a detailed overview of Florida’s manufacturing tax incentives, tailored for business owners and stakeholders seeking to maximize financial benefits with strategic tax planning. It is important to remember that Florida is an income tax free state except for C corporations that are required to file and pay an income tax (5.5% on taxable income above a $50,000 exemption) to the State. However, not all these incentives deal with income tax savings opportunities.

Florida’s Manufacturing Sales Tax Exemption

One of Florida’s most significant tax advantages for manufacturers is the Sales and Use Tax Exemption on machinery and equipment used in the manufacturing process. This exemption can substantially lower operational costs by allowing manufacturers to purchase qualifying items without paying state sales tax.

Eligible items include:

• Machinery used directly in production, such as assembly line equipment.
• Equipment for testing, quality control, and research and development (R&D).
• Essential parts and accessories integral to the manufacturing process.

This exemption is particularly advantageous for manufacturers planning capital investments in new equipment or facility upgrades, as it reduces the upfront costs associated with modernization.

Qualified Target Industry (QTI) Tax Refund

The Qualified Target Industry (QTI) Tax Refund Program incentivizes manufacturers to create high-wage jobs in targeted industries. This program is structured to attract and retain businesses that contribute significantly to Florida’s economy.

Eligibility requirements include:

• Operating within an industry deemed eligible by the Florida Department of Economic Opportunity (DEO).
• Creating a minimum of 10 full-time jobs.
• Offering wages above the state or county average.

Refund amounts are based on the number of jobs created and the wages paid, providing manufacturers with substantial cost offsets for relocation or expansion efforts.

Manufacturing Business Development Tax Credit (MBDTC)

The Manufacturing Business Development Tax Credit supports manufacturers expanding or establishing operations in Florida. This program offers corporate income tax credits to businesses that:

• Expand existing manufacturing facilities.
• Build new facilities within the state.

Eligibility requires significant job creation within a specified timeframe, making it ideal for businesses planning large-scale expansions. The credits can directly reduce Florida corporate income tax liabilities, enhancing cash flow and profitability.

Florida Enterprise Zone Program

Although the Enterprise Zone Program was phased out in 2015, businesses previously located in designated enterprise zones may still benefit from grandfathered incentives. These include:

• Sales and use tax exemptions on equipment and machinery.
• Property tax exemptions for qualifying business property.
• Job tax credits for creating positions within the enterprise zone.

Manufacturers should review historical qualifications to determine eligibility for these legacy benefits.

Research and Development (R&D) Tax Credits

Manufacturers engaging in R&D activities can benefit from Florida’s Research and Development Tax Credit, designed to incentivize innovation and technological advancement.

Eligible businesses can apply for a corporate income tax credit based on qualifying R&D expenditures. To qualify, manufacturers must meet spending thresholds defined by state guidelines. This credit reduces the tax burden for businesses investing in the development of new products, processes, or services.

Corporate Income Tax Exemption for New and Expanding Manufacturers

Florida provides corporate income tax exemptions to new and expanding manufacturers that meet specific job creation and capital investment criteria. These exemptions are often:

• Negotiated individually based on the scale of the project.
• Linked to the construction of new facilities or the significant expansion of existing ones.

This incentive is ideal for manufacturers planning long-term investments in Florida’s economy.

Florida Job Growth Grant Fund

The Job Growth Grant Fund offers financial assistance for infrastructure improvements and job training programs that support manufacturing expansions. Eligible projects include:

• Construction or renovation of manufacturing facilities.
• Workforce training programs tailored to new hires or skill upgrades.
• Infrastructure enhancements, such as roads and utilities.

Applicants must demonstrate job creation potential and alignment with Florida’s economic development objectives.

Local Tax Incentives and Benefits

Many Florida counties and municipalities offer additional incentives to manufacturing businesses, such as:

• Property tax abatements or exemptions.
• Local grants for job creation.
• Sales tax rebates for large-scale projects.

Manufacturers should collaborate with local economic development agencies to identify and leverage these localized benefits.

Capital Investment Tax Credit

The Capital Investment Tax Credit (CITC) supports manufacturers making substantial investments in Florida. This program offers tax credits for:

• New facility construction.
• Equipment purchases.Technological upgrades.

By offsetting capital expenditure costs, the CITC encourages manufacturers to establish or grow their operations within the state.

Conclusion

Florida’s extensive tax incentives provide manufacturers with unique opportunities to reduce costs and increase profitability while contributing to the state’s economic development. From sales tax exemptions to job creation refunds, these programs reward businesses that invest in growth and innovation.

HBK would recommend conducting a detailed eligibility analysis for each incentive and collaborating with Florida’s economic development agencies to maximize benefits. Strategic planning and compliance with program requirements are essential to realizing the full value of these incentives, ensuring a competitive edge in Florida’s thriving manufacturing sector.

To discuss these tax incentives or other tax planning opportunities, contact a member of HBK Manufacturing Solutions at 330-758-8613 or manufacturing@hbkcpa.com.

If you are a winery owner, you may have questions such as, “Do we need to hire more labor?” “Should we buy more equipment?”, “Do we have enough cash to buy equipment”, or “Should we take out a loan?”  To begin to answer these questions, winery owners should consider Key Performance Indicators (KPIs).

KPIs are assessments which can be used to provide insight into the health of a business. They can be quantitative or qualitative. Quantitative KPIs for wineries include labor-to-sales ratio, cash flow to capital expenditure ratio (CAPEX ratio), and the debt service coverage ratio. Qualitative KPIs include customer satisfaction and customer traffic.

Quantitative KPIs measure performance by the numbers, such as the labor-to-sales ratio. This ratio is calculated by dividing the labor cost by the total sales within a period. The ratio shows how much labor dollars went into producing those sales, and the lower the ratio, the more efficient the labor. Determining what your winery labor-to-sales ratio should be requires judgement and consideration and depends upon the size and location of the winery. If your labor-to-sales ratio seems too high, some ways to improve it would be to make sure employees are receiving enough training, making sure employees are properly scheduled, and considering if you have enough employees so that you can help prevent burnout. Direct labor is a crucial part of total production costs, directly affecting metrics like the cost of goods sold (COGS) and overall profitability.

Wineries should also keep and maintain adequate equipment that laborers need to operate the winery. While making sure employees have the equipment they need, winery owners should consider the CAPEX ratio, which measures if the company has enough cash flow from operations to be able to purchase equipment. The ratio is calculated by the cash flows from operations divided by the amount of fixed assets purchased in a period. A ratio of less than 1.0 means the fixed asset purchases exceeded cash flow from operations. If the ratio is more than 1.0, the n all fixed asset purchases were able to be funded by cash flow from operations. Determining the acceptable CAPEX ratio depends on the goals of the winery owner. If the goal is to grow the company, then a lower ratio may be desired as equipment and assets are purchased to expand operations. On the other hand, if the owner desires to pay down debt and has enough assets to meet current operational demand, then a higher ratio would be appropriate. Paying down debt would also affect the debt service coverage ratio. The costs incurred in purchasing equipment significantly impact financial planning and should be carefully tracked.

The debt service coverage ratio divides earnings before interest, taxes, depreciation, and amortization (EBITDA) by current liabilities to measure if earnings were enough to cover current payment obligations. A ratio of 1.0 indicates the company has earned $1 for each $1 of current liabilities. If you have a low ratio, below 1.0, it may indicate you aren’t generating enough cash to cover current payment obligations, and it would probably be best to wait until the ratio increases to take on any additional debt. The ratio can be raised by increasing income or decreasing debt.

While it is easy to focus on the numbers such as the debt service coverage ratio, it is also important to focus on qualitative KPIs such as customer satisfaction and customer traffic. Having higher customer satisfaction would draw in more repeat customers and additional customers from word of mouth. Bringing in more repeat customers and additional customers would help improve the previously mentioned Quantitative KPIs. Hosting live music, entertainment, and events in a tasting room or on the winery property can draw in additional traffic and provide a better experience to customers. Customer satisfaction can be measured using short surveys provided to customers on site. To increase customer satisfaction and traffic, wineries should focus on service, the purchasing experience, and appearance.

The service a customer experiences depends heavily upon the person serving the customers. Having a server knowledgeable about the wine, food pairings, and all the offerings goes a long way in helping them interact with customers in a positive way. Make sure to identify the popular wines and offerings and have enough on hand to serve customers to ensure a positive purchasing experience. Customers won’t be as happy if you run out of their favorite wine. The appearance of the winery and tasing room also contributes to customer satisfaction. Most customers are at the winery to unwind, relax, and drink wine while socializing. The atmosphere of the tasting room should lend itself to these qualities.

KPIs can assist winery owners with operating their winery. They can help guide decision making by providing insight into the financial performance of the winery. Quantitative KPIs provide numerical measurements and can help make decisions related to employees, equipment, and loans. Qualitative KPIs focus on nonnumerical data such as building positive experiences with customers. If you are looking to improve the results of your winery, using KPIs such as these can guide you to achieve better performance.

To contact a member of HBK Manufacturing Solutions, please contact us at 330-758-8613 or manufacturing@hbkcpa.com

Welcome to the end of 2024! This year has been full of change; the stock market has trended upwards, a new Administration will soon take office, and business conditions have been mixed, due in part to continued labor shortages and increased costs. Despite these changes, one constant has generally been tax policy. Congress has taken no recent action to address many provisions that have affected manufacturers and wholesale distributors in the recent years. With the new Administration taking office in January, it is possible that changes are ahead, and it is critical for manufacturers, wholesale distributors and other small businesses to understand how they may be affected. Read ahead to learn how tax policy may affect planning for manufacturers and wholesale distributors for the current and near-term tax years.

Download the update.

China’s economy over the past few decades has grown to be one of the largest and most powerful in the world. Currently, China has the second-largest economy in the world behind the United States. Manufacturers worldwide currently source 2% of their industrial inputs from China. China has been able to take advantage of the following to assist in its domestic growth in the manufacturing sector:

• Overcapacity allows China to produce more manufactured products with a faster turnaround time.
• Low labor costs tend to result in more efficient and cost-effective manufactured products in China. The wages stay lower due to the oversupply of workers at their disposal as China is the home to over 1.41 billion people. The highest minimum wage is only $3.70 per hour in Shanghai compared to the federal minimum wage in the United States being $7.25 per hour.
• The supply chains in place in China entice international corporations to negotiate and operate businesses within their borders. They have been an all-inclusive one-stop shop that sources, distributes, and manufactures products.
• The lack of regulations regarding health, safety, employment, and environmental regulations is an incentive to manufacture products in China. Additionally, there are lower taxes and duties currently being assessed compared to the United States.
• China has competitive currency practices in place that allow them to manipulate currency value by depressing it, as determined necessary. This allows them to keep prices lower than their competitors.

The United States has some competitive advantages as well for their domestic manufacturing outputs, consisting of the following:

• A focus on developing and maintaining skilled workers in the workplace.  While China has an overcapacity issue, it relates more to unskilled type labor. The United States has shifted more towards advanced manufacturing, technology, and automation requiring this skilled labor.
• Ensure manufacturing standards are in place to produce reliable and durable products that fulfill quality standards. The United States has strict labor and manufacturing laws along with health and safety standards in place, which isn’t a guarantee with similar items produced internationally.
• Production of green products that avoid harm to human health and the environment compared to similar products produced. This is more prevalent in the United States as eco-labels and certifications are identified on manufactured product packaging and certain customers are loyal to purchasing these products.
• The protection of intellectual property through patents, trademarks, and copyrights along with continuously enforcing potential infringements.  The United States has clear protection of this property, and it is strongly enforced. China has improved in similar intellectual property protection, but businesses still need strong internal controls to protect their property.
• Customer service allows for better communication including faster response times due to closer geographic proximity. This allows for a better customer relationship with more personalized attention when dealing with a domestic manufacturer in the United States.

The impact of China on domestic manufacturing in the United States is far-reaching in the current global marketplace. To discuss these factors in further detail, contact a member of HBK Manufacturing Solutions at manufacturing@hbkcpa.com or 330-758-8613.

Watch On Demand here.

As we approach the end of the calendar year, manufacturers should consider revisiting your tax strategy and financial planning activities. Join HBK Manufacturing Solutions for a free tax planning webinar to discuss tax planning initiatives and other tools that can help manufacturers plan for a successful year. Our presenters, Jim Dascenzo, CPA and Nick Demetrios, CPA MBA, will present current and proposed tax changes, 2024 election results, and other key information that can affect manufacturers’ financial decisions both now and into the new year.

In an ever-changing and challenging economic and political environment, companies face a multitude of issues including, but not limited to, maximizing shareholder wealth, transferring stock ownership, minimizing taxes, managing cash flow, retaining and attracting employees, etc.  An Employee Stock Ownership Plan (ESOP) structure is an excellent avenue to explore to help navigate and manage these challenges.  An ESOP provides a structure where employees earn an interest in the ownership of the company over time.  This ownership interest serves as a valuable tool to align everyone at all levels within the company to drive overall performance and stock appreciation.

What is an ESOP structure?

This structure is the most common way for employees to earn and retain ownership in a company.  An ESOP is like a traditional 401(k) plan in that it is a qualified retirement plan.  Under an ESOP, the company’s shares are transferred into a trust administered by trustees for the benefit of the employees.  The value of the stock held by the ESOP is determined annually by an independent appraiser based on the company’s financial health and overall performance.

What can an ESOP structure be used for?

ESOPs are a powerful tool for current ownership looking to move on from the company and transfer ownership to the next generation.  Owners of privately held companies can use an ESOP to create a ready market for their shares.  Under this approach, the company can make tax-deductible cash contributions to the ESOP to purchase an owner’s shares, or it can have the ESOP borrow money to buy the shares.  An ESOP has the ability to borrow cash, which can be utilized to buy company shares or shares of existing owners.  The company then makes tax-deductible contributions to the ESOP to repay the loan.  Alternatively, the company can simply issue new shares or treasury shares to an ESOP, deducting their value (for up to 25% of covered pay) from taxable income.  The company may also contribute cash to buy shares from the existing owners.

What are the major tax benefits of an ESOP structure?

The contributions of stock and cash to an ESOP are deductible.  The issuance of new shares or the release of shares from treasury to the ESOP results in a tax-deductible contribution.  However, this will result in the dilution of ownership.  Companies are also able to contribute cash on a discretionary basis.  This cash can be used to buy shares, or it can be retained for future use by the ESOP.

Also, contributions to the plan that are utilized to repay a loan the ESOP incurs to buy shares are deductible.

The employees that own the stock in an ESOP pay no tax on the contributions made by the company and the value of the stock grows tax deferred.  The employees can roll over their share of ESOP shares into a qualifying retirement plan (like an IRA) tax free.

In S-Corporations, the percentage of ownership held by the ESOP is not subject to income tax at the federal level (and usually the state level as well).  The ESOP is essentially a tax-exempt owner.  For example, if the ESOP owns 30% of the S-Corporation, there is no income tax on 30% its profits. An S-Corporation wholly owned by its ESOP will not be subject to income tax.  in the partial ESOP ownership of the S-Corporation example, the ESOP would receive a pro-rata share of any distributions the company makes.  The cash from these distributions will enable the ESOP to fund stock purchases, pay down debt, etc.

In the case of a C-Corporation structure, the owners selling stock to the ESOP can get a tax deferral by exchanging the C-Corporation stock in their company for shares of another C corporation.  The seller can also choose to reinvest the proceeds of the sale in other qualifying securities and defer any tax on the gain.  This type of transaction falls under Section 1042 of the Internal Revenue Code.  A Section 1042 transaction requires a C-Corporation structure and the owner to sell at least 30% of the company’s stock to the ESOP.  After the transaction, the owner must identify qualified replacement stock within a 15-month period.

How can an ESOP impact employee motivation and productivity?

As the employees gain stock ownership within the ESOP, the employees gain a vested interest in the success of the company.  The employees have a direct stake in the company’s performance aligning the interests of all levels of company ownership with the common goal of enhancing value.  The vested interest in the company’s performance leads to improved company culture.  Also, employees participating in an ESOP can foster greater levels of innovation and are typically more motivated to advance the company’s value.  The ESOP structure also increases retention amongst the employees due to them having a vested interest and corresponding retirement benefit.  The retirement benefit provides a great sense of security to the employees especially if the company also provides a traditional retirement plan, such as a 401(k).  This use of an ESOP structure paired with a traditional plan offers employees two retirement plans to ensure their efforts are incentivized and will be available for a transition into their next phase of life.

How can HBK help?

HBK CPAs & Consultants has advised and consulted in a wide range of ESOP transactions.  If you are looking to transition ownership and provide for employee retention, an ESOP structure can be a powerful tool.  A corresponding benefit of the ESOP structure is the substantial tax benefits.  Given the political uncertainty, rising U.S. deficits and the potential for increasing tax rates, the ESOP structure can serve as a potential safety net.  Please contact HBK Manufacturing Solutions at manufacturing@hbkcpa.com or 330-758-8613 to start the discussion.