Before awarding credit, lenders demand detailed budgets, including cash flow forecasts. They want realistic projections, not unfounded profit and revenue estimates. Cash flow projections are an important element for lenders because they show how you plan to repay the money.

Even if your construction firm doesn’t need credit, a well thought-out budget, including cash flow projections, is important for the ongoing operation of your business. For some construction projections, surety companies look closely at budgets before issuing the bond needed. Additionally, by preparing an effective annual budget and comparing it to your actual financial performance, you can find certain situations that need to be addressed.

For example, a construction firm that expects $5 million in new projects in the first half of the year, but is awarded only half of that amount in contracts, need to review its bidding procedures. Perhaps the company needs to tighten up its bidding process, have someone review the work of the estimator before bids are submitted, and review other internal procedures to get more work.

Upon review of the actual performance, you may find expenses that are out of line and you want to look at instituting controls, safeguards — and perhaps even institute a bonus system for those responsible for controlling the job.

Effective budgeting requires knowledge of the technical aspects of the construction industry — as well as experience with projections, job costing, bonding and a host of related financial matters.

Contact us. We can help you develop a meaningful and reliable budget that will help your company now and in the future.

Sarasota, Fl. – HBK CPAs & Consultants is pleased to announce the recognition of Craig Steinhoff as one of the Sarasota Business Observer’s 2016 “40 Under 40” young leaders in the region.

He is the Principal in Charge of the firm’s Sarasota, Florida office.

Steinhoff has been with the firm since 2007 and became the lead Principal in HBK’s Sarasota office last year.

His nomination was announced October 13, 2016.

HBK salutes Steinhoff on this well-deserved honor.

*This article was originally published on 10/13/2016 and last updated on 01/31/2024

Pittsburgh, Pa. – HBK CPAs & Consultants announced today it has expanded its sponsorship relationship with the Pittsburgh Penguins to become the team’s “Official Accounting Firm” as the Penguins celebrate their 50^th anniversary as a National Hockey League franchise. HBK became a Penguins sponsor during the 2015 season as the team made its drive to capture the Stanley Cup.

“We’re proud to be part of the group of prestigious Pittsburgh organizations that count themselves as Penguin sponsors,” noted HBK CEO Christopher Allegretti. “As a firm with clients throughout western Pennsylvania and northeastern Ohio, this sponsorship is a natural for us, and as we continue to grow our business throughout these areas, a relationship with a major league sports franchise makes sense.”

HBK is a Top 100 (Top 50, today) U.S. accounting firm as ranked by Accounting Today magazine. HBK professionals have provided accounting, tax and consulting services to small business owners and their families in Pittsburgh and throughout the region for three decades.

HBK initiated its sponsorship of the Penguins during the NHL playoffs last year as Coach Mike Sullivan restructured one of his offensive lines as Carl Hagelin, Nick Bonino and Phil Kessel. The line proved one of the team’s most effective throughout the playoffs and became popularly known – and feared by opponents – as the “HBK line.”

“Of course the HBK name coincidence was too good to pass up,” said HBK Chief Marketing Officer Michael Baldovski, “as was the opportunity to be associated with such a revered and recognized brand, not to mention the Pens are the reigning world champions of their sport and it is their 50^th anniversary.”

“The Pittsburgh Penguins are one of the most adored and powerful sports brands,” Baldovski continued. “They are the No. 1 digital media engagement sports franchise in Pennsylvania. They lead the NHL in merchandise sales. And Pens fans have been ranked “Best Fans in the NHL” by Forbes Magazine for three years running.”

“I think our clients are as excited about this as we are,” Allegretti added. “We look forward to a great relationship with the team.”

HBK CPAs & Consultants (HBK) and affiliate HBKS Wealth Advisors offer the collective intelligence of hundreds of professionals in a wide range of tax, accounting, audit, business advisory, valuation, financial planning, wealth management and support services from 15 offices in Pennsylvania, Ohio, New Jersey, New York and Florida. The firm is ranked in both Accounting Today and Inside Public Accounting magazines’ Top 50, and supports clients globally as a member of BDO Alliance USA.

Do the math. Does your service department cost you more to operate than it bills? A key to dealership profitability is a service department where sales revenue outweighs expenses. And the keys to such performance are found in your labor rate and department efficiency.

How did you come to your current service labor rate? Most service managers tell me they started with an existing rate which they have increased gradually over the years, typically adding three percentage points and rounding up about every year or so (although a year or so often becomes two years or longer). An alternate approach involves raising labor rates in conjunction with raises for technicians, but technician wages are not the only departmental expense and such an approach can create big problems for the dealership over time.

The first problem with increasing labor rates periodically by some flat percentage is that service department expenses grow at different, higher rates. Your DMS system, health insurance, manufacturer training – such expenses need to be considered as you determine a labor rate. Most dealers expect a 70 percent gross profit margin; but, maybe your service department expenses are such that you need a higher gross margin to be profitable. So how do you go about setting your labor rate to both stay competitive and increase profits?

Steps for Setting an Effective Labor Rate

• First, review your financial reports to see the impact of expenses on your department’s bottom line – that is, do the math.
• Second, determine what labor rate the market will bear. Many dealers call around to find out both the effective and posted labor rates of other local dealers and independent shops, especially those with whom you compete for service business and those with a similar service offering. (Caution: don’t fall into the trap of just setting your rate based on some rate in the middle of your competitors. Do you know their expense structure? Do you know if they are even profitable?)
• Third, set a reasonable rate that leaves enough margin for the department to be profitable. But don’t stop there. What if the rate that you need to be profitable exceeds that which the market will bear? Use efficiencies and technician incentives to bridge the gaps.

A Scenario to Consider
For example: A technician earning $12 per clock hour with 50% of the technician’s time charged on work orders is really costing the shop $24 per charged hour, so to maintain a 70% gross margin, you find you need an $80 per hour posted rate. But what if the market will bear only $70?

First, look at your parts department. Increasing efficiency by having a ready inventory of parts to reduce technicians downtime is good for profitability and also good for customer satisfaction.

Second, look at your technician payplan. Providing productivity incentives, such as a bonus based on the technician increasing the percentage of chargeable hours will likely increase the technician’s pay while increasing the profitability of your service department.

Using the example above, if we can raise the productivity of the $12 per hour technician from 50% to 60% the effective cost of labor drops from $24 to $20 per hour and the $70 posted labor rate yields an acceptable gross profit margin slight above 71%.

So do the math. Find areas and ways to improve productivity. Then set your labor rates accordingly. The process will allow you to achieve your desired gross margin while staying competitive in your marketplace.

Credit card processors are fighting hard for your business these days. They’re of a mind to deal to get or keep your business. Often it’s as easy as calling your current provider and asking for lower or fewer fees.

Credit cards are a mixed blessing. On one hand, they allow customers to buy merchandise they might otherwise pass up. But you can also be subject to substantial fees when you take credit cards, fees that will certainly reduce your profit margin on a sale and sometimes virtually wipe it out. There is some good news though: lately independent service providers have been willing to negotiate their fees.

The odds are in your favor. With all the consolidation in our industry, there are fewer dealers, and therefore fewer customers for the credit card processing firms. Those consolidations also mean bigger dealerships so you’ve become a bigger and more powerful customer. So meaningful is your business that many dealers are getting sales calls from competing processors.

We consulted recently with a firm that through acquisitions had eight locations. While management and accounting had been centralized, one location still maintained an independent relationship with a processor and was paying fees well in excess of the rest of the firm. The dealer is now saving substantial dollars by cancelling that lone agreement and bringing that outlying location into a centralized processing agreement. It’s just one example of a lot of good luck we’ve had negotiating with competing processors, including in some cases maintaining current relationships at reduced fees.

Here are a few ideas that have worked to deliver savings:

• Buy instead of rent your card processing technology. You’ll recover the costs of the machine by eliminating the rental charges in a surprisingly small number of months.
• Some providers charge low processing fees but make it up in other fees. Since they have been burdened with data security compliance costs, they are looking to recover those costs with compliance charges of their own to you. That’s just one fee among many and an indication that you should look not just at the rate but at your fee structure holistically.
• Another commonly employed fee is an accounting charge for issuing 1099Ks. The IRS requires processors to do so; they would like you to pay for it. Many charge $5 to $10 monthly. This is doubly devilish as it costs them little or nothing to print and send you a 1099K. Combine that with the compliance fee and you’ve got additional costs of $20 or so monthly, a substantial cost that adds no value.
• Guard against fee creep. Long-term relationships are comfortable but also an opportunity for a processor to gradually increase or add fees. We’ve seen some dealers paying 6 percent or more of their charges in processing fees. A more acceptable range is 2 to 3 percent.
• A “cost-plus pricing” arrangement, which is based on a set price markup from current interchange processing rate, is almost always better than “tiered” pricing. Tiered allows for different rates for different types of charges and amounts. That can be confusing and the general rule is that if it is confusing it’s probably to the benefit of the processor. Cost-plus is typically reserved for large accounts, and today, more and more dealers are being looked at as just that.
• Another item to keep your pencil sharpened for is the charge-back policy. Some firms are more aggressive than others, assessing high charge-back fees to build a reserve that effectively eliminates their risk.
• Be cautious of high termination fees. Processors push for multi-year contracts, which can also contain automatic renewal and “evergreen” clauses. The only way out is paying a steep early termination fee, sometimes several hundred dollars. Or worse a contract that calls for liquidated damages at cancellation whereby the firm is entitled to collect the value of fees it would have collected over the life of the contract, which could be several thousand dollars. Your best bet is to keep your contracts to a year, and negotiate every year.
• On the positive side of things, request online reporting and integration with your dealer management system. That can save a lot of time and we all know the relationship between time and money.

As with all vendor relationships, due diligence is necessary when contracting with a credit card processor. Look at all the fees and consider the total cost, all the charges holistically. Get several bids. Then negotiate, negotiate, negotiate.

Overview
Earlier this month, the Financial Accounting Standards Board (FASB) issued its long-awaited new lease accounting standard.  In a significant change from existing practice, most leases will now be recognized on the balance sheet as a liability with a corresponding right-of-use asset.  Significant changes resulting from this standard are limited to the balance sheet and financial statement disclosures.  Lease expense recognition is not expected to significantly change from existing practice nor are the removal of existing bright line tests for lease classification expected to significantly impact current and future lease classification conclusions.

The effective date of this standard is the annual period beginning after December 15, 2019 (calendar year 2020).   Earlier adoption dates are required for public business entities and, in limited situations, not-for-profit or employee benefit plans with certain characteristics.  However, for those who issue comparative financial statements, presented prior years will be required to retrospectively reflect the new guidance.  No relief through the FASB Private Company Council from application of this standard is expected.

What is the Impact?
The new standard primarily changes accounting for operating leases.  Although prevalent as a critical business financing tool, these leases have not historically garnered significant attention in the financial reporting processes of a company as they were merely disclosure items.  The new standard will change this perspective and require greater focus be placed on balance sheet recognition for what were historically considered off-balance sheet arrangements.  Specifically, this change will have the following potential impacts on a company with significant leasing activities:

• Increased management decisions: The new standard requires the application of judgement and estimation.  Although conclusions are not expected to significantly change as a result of the elimination of the existing bright line tests and requirements to assess lease term and bargain purchase options, such judgements may receive increased scrutiny from stakeholders and auditors.
• Lease data collection and management: Determining the effects of this new standard on your company requires a complete understanding of your leasing activities; ensuring completeness and accuracy of lease data is paramount for an accurate implementation.  Determining the appropriate lease liability requires collecting and evaluating various lease components including variable payments, lease term options, purchase options and non-lease operating costs.  Many companies do not have sophisticated, centralized leasing functions therefore significant time and effort could be required to manually gather and summarize relevant lease information.
• Financial statement metrics: Because of the impact on the balance sheet, deterioration of debt ratios and return on assets could occur resulting in changes in the way stakeholders view the company’s financial performance.  Debt covenants and compensation arrangements could also be impacted negatively by the effects of the new standard.  Companies may be required to negotiate with their creditors for changes in existing financial covenants or agree to continue the use of existing lease accounting methods in calculating covenants.  Similarly, key metrics underlying compensation arrangements may need re-evaluated.
• Lease negotiation: While companies should not make business decisions based on accounting results, they should be aware of the accounting consequences.  Shortening of lease terms or higher proportions of variable payments may result in smaller lease liabilities, but do not provide security of long-term use of the asset.  Companies will need to balance these considerations along with options to simply purchase the asset.
• Income taxes: Adoption of the new standard will result in additional tax-related impacts.  These include impacts on deferred tax assets, property apportionment factors, and state franchise tax factors.

How You Can Prepare
Although the effective date seems to be far in the future, implementation of this standard will generally be overlapping with the implementation of FASB’s new revenue recognition standard.  Because of this, companies should begin responding to this new standard sooner rather than later through the following methodology:

1. Understand the new standard and monitor changes in interpretation that are naturally expected to occur.
2. Create a cross-functional implementation team (e.g. finance, legal, operations, human resources, I.T.) and plan to implement the new standard.
3. Identify and communicate with stakeholders regarding the potential impacts to financial metrics, covenants, and other agreements (e.g. compensation).
4. Populate lease data and establish required judgments, estimates and accounting policy elections.

How HBK Can Help
HBK’s multidisciplinary team of accounting, tax and valuation professionals are available to assist in assessing how the new leases standard will impact you.   Existing attest clients will receive training services on the technical aspects of the new standard as well as advice on project management and planning.  Further assessment and implementation services are available to non-attest clients.