news archives: architects & Engineers
Strategic Planning, A Must-DoStrategic planning has evolved significantly from a trendy buzzword in the early 1980s to a must-do process that helps companies prepare for long-term goals and increase profitability. In A Down Economy, Think Long TermAs architects and engineers deal with the impact of the economic downturn, a natural reaction may be to hunker down and wait out the financial storm. But it’s during adverse economic times that firms have the opportunity to take stock and strengthen their internal functions. Let’s look at strategies you can use to make the best of a difficult situation and put your firm in a strong position when things improve. How to Keep Your Key Clients and What to Do When One Still Walks Out the Door “We’ve decided to take our business elsewhere.” These aren’t the words you want to hear from a client — especially a major client that’s brought in 20% of your firm’s revenues for the past few years. Whether it’s because of client dissatisfaction, a merger, recession, consolidation of services or another reason, losing a major client can be financially devastating. Fortunately, there are steps you can take to help prevent it or at least soften the blow when you can’t. Share Your Trade Secrets: Giving New Principals the "Skinny" on How to Succeed You’ve helped groom your practice’s star associates for years and now you’re ready to reward them for their hard work and commitment by naming them principal. But you know it’s only the beginning. New principals have many adjustments to make if they’re going to successfully transition from associate to principal. This article explains how practices can help new principals by encouraging them to set goals, develop skills, bring in new business and measure their own progress. Grabbing the Cross-Selling Bull by the Horns In theory, cross-selling is simple. When your clients need additional services, you refer them to another associate in the practice who can effectively provide them. In practice, things aren’t so simple. Clients may not be able to effectively communicate their needs or confidently turn over their business to a new associate, or may feel more comfortable in keeping that aspect of their business with the practice that’s been handling it for years. There are also internal issues of conflict: Principals dislike sharing their clients, and some aren’t comfortable with selling. This article explores how to train associates and principals for cross-selling success and rewarding their achievements. MHD Audit Operations has adopted the AASHTO publication of the Uniform / Audit and Accounting guide. This guide can be found at http://www.audit.trasportation.org and www.mass.gov/mhd. MHD has also applied additional requirements beyond those published by AASHTO. How to Keep Firm Finances in the Forefront It’s easy to keep firm finances on the back burner and stay focused on client matters. It’s even easier to do so if your firm has no assigned principal, office administrator or lead accountant in charge of this area. But no matter the size or age of your firm, effective financial management is essential to building and maintaining success. This article looks at key monitoring tools, hidden revenue and client budgets. Cover Your Bases: Succession Planning for Your A/E Firm Transitioning leadership from one generation or principal to the next takes more time than most companies realize, especially if principals will be retiring in a short period — a situation many firms are beginning to face as baby boomers start entering their 60s. A succession plan is important to ensuring your firm continues to operate as seamlessly as possible. Without such a plan your firm’s future is open to question, forcing you to make last-minute decisions. This article addresses key elements of a succession plan: leadership, client retention, compensation agreements and business development. You Really Do Need Internal Controls, Here's Why Many scoff at the idea that a firm made up of collegial professionals needs internal controls — or any strict, by-the-book policies, for that matter. But a firm is a business, and internal controls ensure the integrity of its financial transactions. This article discusses the internal controls firms need to help protect their assets, create reliable financial reports and promote compliance with laws and regulations. Financial executives and their boards of directors have an added concern in the mix of regulations and practices they must navigate. The American Institute of Certified Public Accountants (AICPA) issued 10 auditing standards effective in fiscal years ending after December 15, 2006. While compliance with these standards will be the job of your auditors, the standards will have a direct and immediate impact on your organization's audit. Revisiting Unallowable Costs versus Employee Discontent Some say it’s the little things that go a long way. For years, companies provided tickets to local sporting events, held holiday parties and sponsored awarded ceremonies to say “thank you” to their employees. Until 1995, the cost of such events were generally allowable and recoverable as “indirect costs” under the Federal Acquisition Register (FAR) cost principles, provided they met the test of reasonableness. It's All in the Details- Postmerger Planning Most of the time and energy expended during a merger’s negotiation and due diligence periods revolve around partner compensation, client control and whose name is going to wind up on the door. But the real work starts when it’s time to integrate the two firms into one. This article offers some tips on how to ensure the integration planning process cements the new firm instead of destroying it. Start Budget Planning Now to Improve Profitability and Motivate Staff An annual budget of both revenues and expenses is the linchpin of management for almost every type of organization. It enables CEO’s and management committees to plan their activities, set goals and measure actual performance. Without a developed budget, you’re just wondering how your firm will function and what you’ll earn. To Merge or Not to Merge? Good Question! Merging is on the minds of many engineers and architect firms these days. Merging can help the different parties achieve a competitive advantage and find a quick fix to a perceived need. But the process is often difficult, risky and expensive. Expanded Section 170 Break Lives On If you’ve discussed year end tax planning with your CPA, you may have heard about the Section 179 expensing deduction. It allows you to expense (rather than depreciate) the cost of depreciable assets (within certain limits) in the year you place them in service. The federal government has recently announced cost of living adjustments applicable to dollar limitations for pension plans and other items for 2008. The increase in the cost-of-living index met the statutory thresholds which triggered the increase in the indexed amounts. However, some amounts will remain unchanged for 2008. For instance, the amount of employee elective deferrals under a 401k plan remains at $15,500 and catch-up contributions for those aged 50 and over remains at $5,000 for 2008. Internal Controls - Why Negligence, Ignorance, and Outdated Policies Could be Affecting Your Bottom LineInternal controls are the policies and procedures that protect your firm’s assets, create reliable financial reporting, promote compliance with laws and regulations and achieve effective and efficient operations. They include firm procedures for handling the funds you receive and disburse in your normal business operations, preparing financial statements for the executive committee and directors, evaluating internal operations, and implementing personnel and conflict-of-interest policies. Your auditor, when looking at your company, needs to verify that the proper controls are in place. Domestic Production Activities Deduction (DPAD) Regulations FinalizedTaxpayers may claim a deduction to offset income from certain construction, architectural, and engineering services. Create Effective Leadership For a Forward-Looking Firm Without effective leaders, architect and engineering (A/E) firms cannot achieve their full potential and may eventually fail altogether. Leadership is especially important now, when the engineering climate is changing at such a fast pace. Why? Leaders strive to meet the needs of tomorrow’s clients, not just today’s — leaders are visionaries who can turn problems into opportunities. Plan Now for Tax Savings Later! When it comes to taxes, 2006 is already off to a fast start—we have already seen one Tax Act and it looks likely that there will be more before the year’s end. All this is right on the heels of 2005, where we saw four major Tax Acts. What does all this mean to you? Despite the tax rules being in a seemingly endless state of flux, the current tax environment is about as good as it is going to get. If you wait until the tax laws settle down before doing any serious planning, you may miss out on some great opportunities to reduce your overall tax burden. Use the following ideas as a starting point to identify specific actions you can take while there is still time to take action. Ensure the Future of Your Firm with a Succession Plan Without a succession plan, A/E firms cannot guarantee they will have qualified architects and engineers to move up and take over when the current generation of directors retires. Succession plans should include strategies for developing future leaders and rainmakers. They should also outline transition schedules that will minimize client service disruptions and prevent hard feelings among retiring and remaining principals. Lack of Firm Vision Dogging You? Why strategic planning is the smart thing to do Say the words “strategic planning,” and many engineers will head for the nearest door. But committed firms that can make it through the process will be laying the groundwork for a sound firm vision and plan for the future. Too Much Income for a Roth IRA? Starting in January 2006 There is Another Alternative. Roth 401(K) will be available in 2006, allowing individual to designate all or a portion of their 401(k) contribution into a Roth. This option will also be available to 403(b) participants. Prior to this law change, contributions to a 401(k) were tax deductible when made and taxable when withdrawn. Deduction for Qualified Domestic Production Activities Starting in 2005 the phased-in deduction for qualified domestic production income that was enacted last year as part of the American Jobs Creation Act of 2004 takes effect. The deduction is effective for taxable years beginning after December 31, 2004, and currently allows a 3% deduction from taxable income for certain types of businesses. The deduction provides tax relief to businesses to correct perceived disadvantages of the United States tax system and applies to a broad group of activities that include architects and engineers. The American Jobs Creation Act of 2004 allows a Section 179 deduction for all or part of the cost of certain property in the year it is placed in service, instead of over a specified recovery period. The deduction will benefit small-business owners by allowing immediate expensing of critical investments. However, there are limits on the amount that may be deducted in a year and on the types of properties that qualify.Standard Mileage Rates Increased for Final Four Months of 2005 The IRS has increased the mileage rate for the business use of a car, to 48.5 cents per mile, effective September 1, from the 40.5 cents per mile set back on November 17, 2004 (Rev. Proc. 2004-64). This 20% increase pales in comparison to the 60% increase in the retail price of a gallon of gasoline (regular grade) from $1.91 to today's $2.89. Jobs Act Makes Sweeping Changes to NQDC Plans Last fall, a new law was enacted that has brought sweeping changes to the rules governing how nonqualified deferred compensation (NQDC) plans are taxed. The new law includes significant changes to the elections and distributions of NQDC plans. It also affects bonus deferrals and partnership interests received for services and several aggressive funding mechanisms. And it redefines NQDC plans to include arrangements such as supplemental executive retirement plans (SERPs), restricted stock units, stock appreciation rights (SARs) plans and, in some cases, severance agreements. Mid-Year Tax Planning Strategies for Individuals and Businesses As you probably know, two major tax laws were enacted at the end of 2004. You may be familiar with some of the new tax rules, but now is a good time to see if there were any goodies for you, and, if so, what you need to be doing to take advantage of them. In addition to changes made by the new laws, other planning actions may be beneficial. While the end of 2005 seems a long way off, it’s always a good idea to take a look at your tax situation while there is still time to take action. Some planning ideas need to be implemented before year-end to be effective for this year. An Overview of Fringe Benefits and Their Tax Impact At one time, most employers regarded fringe benefits as little extras that were nice but hardly necessary to attract and retain employees. Nowadays, these little things count more than ever — especially as the cost of recruiting and training staff remains high. You may well know some of the more popular employer- provided fringe benefits available. But what you may not be familiar with is their tax impact. And there may be some benefits you’ve yet to consider. Benchmarking: Stepping Stone to Excellence No Architects/Engineers/Construction Firm, regardless of its success, can afford to ignore benchmarking if it wants to maintain or improve its competitive position. To remain competitive, a firm needs to be receptive to new ideas. Benchmarking provides a way to compare a firm’s strategies with those of the industry’s leaders. Benchmarking simply means looking inside and outside your firm to evaluate common business functions and practices, often referred to as metrics. It is an ongoing analytical process of measuring the business practices of companies recognized as the best in the class for the purpose of improving your own firm. By comparing your firm’s functions and practices with those of established firms, you can add to your overall problem-solving process and keep aware of the latest trends and state-of-the-art practices. You can also use benchmarking for strategic planning, forecasting, developing new ideas, and goal setting. The benchmarking process, however, must begin with a clear objective. New Massachusetts Independent Contractor Law On July 19, 2004, a change in the Massachusetts definition of "independent contractor" was enacted. This law change is part of "An Act Further Regulating Public Construction in the Commonwealth" that was signed by Governor Romney on that date. The law sets forth the presumption that a worker is an employee unless each of the following factors are present: the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and the service is performed outside the usual course of business of the employer; and, the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed. Understanding the New Overtime Rules The U.S. Department of Labor (DOL) has issued new revisions to the Fair Labor Standards Act (FLSA), which took effect on Aug. 23. And these revised rules could change the way construction businesses apply the FLSA and compensate their workers. This article describes the changes and offers some suggested implementation strategies. Generally, variable interest entities (VIEs) are standalone companies that either don't have equity investors with voting rights or whose equity investors don't provide sufficient financial resources to support the VIE's activities. Under a new accounting rule, VIEs are no longer considered separate business units and must be consolidated into the financial statements of their primary beneficiaries. This article explains why this new rule may significantly affect contractors' bank covenants and bonding capacity. Supplemental Wage Withholding Rate Supplemental wages can include items such as bonuses and commissions, but may also include option income and other forms of ordinary income arising from equity compensation or nonqualified deferred compensation. Effective January 1, 2005, employers making "large" payments must use a supplemental withholding rate of 35%. Please refer to the full article for more information. The American Jobs Creation Act of 2004 allows a deduction of up to nine percent of the lesser of taxable income or qualified production activities income. The deduction cannot exceed 50% of the company's W-2 wages, but is allowed for both regular and alternative minimum tax purposes. For more information, visit the full article. Visit the full article for more detail regarding depreciation updates that pertain to the following:
Massachusetts Electronic Filing Requirements - November 2004 A business filing entity must register for the E-file program. There is a penalty for failure to file, report or pay electronically. Failure to use the electronic method will be deemed a failure to file. Read the full article to find out your Electronic Filing Requirements. Changes in Treatment of Nonqualified Deferred Compensation Plans - November 2004 The American Jobs Creation Act of 2004 made changes to the treatment of nonqualified deferred compensation (NQDC) plans that may result in the inclusion of deferred compensation in gross income. It is important that you review all of your deferred compensation plans to determine whether any amendments or other action to your plans are necessary. December is the month for our business clients to determine their employees' additional income for payroll purposes. These additions may be reported to the payroll service before year end. Find out how our expertise in accounting for architects & engineers can add value to your business. Email us or call us at 1 (888) 875-9770. related linksComprehensive Management Leads to Greater Profitability |
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