Business HSAs

2023 limits for businesses that have HSAs — or want to establish them

No one needs to remind business owners that the cost of employee health care benefits keeps going up. One way to provide some of these benefits is through an employer-sponsored Health Savings Account (HSA). For eligible individuals, an HSA offers a tax-advantaged way to set aside funds (or have their employers do so) to meet future medical needs. Here are the key tax benefits:

  • Contributions that participants make to an HSA are deductible, within limits.
  • Contributions that employers make aren’t taxed to participants.
  • Earnings on the funds in an HSA aren’t taxed, so the money can accumulate tax-free year after year.
  • Distributions from HSAs to cover qualified medical expenses aren’t taxed.
  • Employers don’t have to pay payroll taxes on HSA contributions made by employees through payroll deductions.

Eligibility and 2023 contribution limits

To be eligible for an HSA, an individual must be covered by a “high deductible health plan.” For 2023, a “high deductible health plan” will be one with an annual deductible of at least $1,500 for self-only coverage, or at least $3,000 for family coverage. (These amounts in 2022 were $1,400 and $2,800, respectively.) For self-only coverage, the 2023 limit on deductible contributions will be $3,850 (up from $3,650 in 2022). For family coverage, the 2023 limit on deductible contributions will be $7,750 (up from $7,300 in 2022). Additionally, annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits for 2023 will not be able to exceed $7,500 for self-only coverage or $15,000 for family coverage (up from $7,050 and $14,100, respectively, in 2022).

An individual (and the individual’s covered spouse, as well) who has reached age 55 before the close of the tax year (and is an eligible HSA contributor) may make additional “catch-up” contributions for 2023 of up to $1,000 (unchanged from the 2022 amount).

Employer contributions

If an employer contributes to the HSA of an eligible individual, the employer’s contribution is treated as employer-provided coverage for medical expenses under an accident or health plan. It’s also excludable from an employee’s gross income up to the deduction limitation. Funds can be built up for years because there’s no “use-it-or-lose-it” provision. An employer that decides to make contributions on its employees’ behalf must generally make comparable contributions to the HSAs of all comparable participating employees for that calendar year. If the employer doesn’t make comparable contributions, the employer is subject to a 35% tax on the aggregate amount contributed by the employer to HSAs for that period.

Making withdrawals

HSA withdrawals (or distributions) can be made to pay for qualified medical expenses, which generally means expenses that would qualify for the medical expense itemized deduction. Among these expenses are doctors’ visits, prescriptions, chiropractic care and premiums for long-term care insurance.

If funds are withdrawn from the HSA for other reasons, the withdrawal is taxable. Additionally, an extra 20% tax will apply to the withdrawal, unless it’s made after reaching age 65, or in the event of death or disability.

HSAs offer a flexible option for providing health care coverage and they may be an attractive benefit for your business. But the rules are somewhat complex. Contact us if you have questions or would like to discuss offering HSAs to your employees.


Cybersecurity Defense

Reinforce your cybersecurity defenses regularly

If you’ve been in business for any amount of time, you probably don’t need anyone to tell you about the importance of cybersecurity. However, unlike the lock to a physical door, which generally lasts a good long time, measures you take to protect your company from hackers and malware need to be updated and reinforced much more regularly.

Two common categories

Most of today’s business cyberattacks fall into two main categories: ransomware and social engineering.

In a ransomware attack, hackers infiltrate a company’s computer network, encrypt or freeze critical data, and hold that data hostage until their ransom demands are met. It’s become a highly common form of cybercrime. Just one example, which occurred in October 2022, involved a major healthcare system that had recently executed a major M&A deal.

On the other hand, social engineering attacks use manipulation and pressure to trick employees into granting cybercriminals access to internal systems or bank accounts. The two most common forms of social engineering are phishing and business email compromise (BEC).

In a typical phishing scam, cyber thieves send fake, but often real-looking, emails to employees to entice them into downloading attachments that contain malware. Or they try to get employees to click on links that automatically download the malware.

In either case, once installed on an employee’s computer, the malware can give hackers remote access to a company’s computer network — including customer data and bank accounts. (Also, beware of “smishing,” which is when fraudsters use text messages for the same purpose.)

BEC attacks are similar. Here, cyber thieves send fake emails mainly to accounting employees saying the company’s bank accounts have been frozen because of fraud. The emails instruct employees to reply with account usernames and passwords to supposedly resolve the problem. With this information, thieves can wreak financial havoc — including initiating unauthorized wire transfers — which can be difficult, if not impossible, to reverse.

Preventative measures

Here are a few things you can do to guard against cyberattacks:

Continually train employees. Conduct mandatory training sessions at regular intervals to ensure your employees are familiar with your cybersecurity policies and can recognize the many possible forms of a cyberattack.

Maintain IT infrastructure. Instruct and remind employees to download software updates when they’re available. Enforce a strict policy of regular password changes. If two-factor authentication is feasible, set it up. This is particularly important with remote employees.

Encrypt and back up data. All company data should be encrypted and regularly backed up on a separate off-site server. In the event of a ransomware attack, you’ll still be able to access that data without paying the ransom.

Restrict access to your Wi-Fi network. First and foremost, it should be password-protected. Also, move your router to a secure location and install multiple firewalls. If you offer free Wi-Fi to customers, use a separate network for that purpose.

Consider insurance coverage. Insurers now sell policies that will help pay costs associated with data breaches while also covering some legal fees associated with cyberattacks. However, you’ll need to shop carefully, set a reasonable budget and read the fine print.

Defend your data

None of the measures mentioned above are one-time activities. On a regular basis, businesses need to determine what new training employees need and whether there are better ways to secure IT infrastructure and sensitive data. Let us help you assess, measure and track the costs associated with preserving your company’s cybersecurity.


Manageable Growth

Manageable growth should be a strategic planning focus

When a company’s leadership engages in strategic planning, growing the business is typically at the top of the agenda. This is as it should be — ambition is part and parcel of being a successful business owner. What’s more, in many industries, failing to grow could leave the company at the mercy of competitors.

However, unbridled growth can be a dangerous thing. A business that expands too quickly can soon run out of working capital. And the very leaders who pushed the business to grow beyond its means might find themselves spread too thin and burned out.

That’s why, as your company lays out its strategic plans for the coming year(s), it’s important to focus on manageable growth.

A common scenario

Among the biggest challenges that many “high-growth” businesses face is finding enough financing for their expansion plans. Their owners often think, “If we want to double sales, we’ve got to double assets.” Buying equipment, hardware, software, raw materials and other assets usually requires debt or equity financing — which can be good for a lender but perilous for a borrower.

Overzealous asset acquisition strategies can cause repayment problems if cash flow projections fall short. There’s often a delay between:

  • When a growing company buys inventory, makes products or provides services, and pays employees (cash outflows), and
  • When it receives customer payments (cash inflows).

The faster the growth, the bigger the gap. Businesses typically fund the shortfall with a credit line. And as they take on more and more debt, loan repayments can eventually consume most or even all the company’s cash flows.

Warning signs

It’s easy to get swept up in the whirlwind of rapid growth, but it’s not inevitable. You and your leadership team can watch for common warning signs that you may be at risk of becoming a victim of your own success. These include:

An increasing debt-to-equity ratio. High-growth businesses tend to burn through cash at an alarming rate, if given the opportunity. If your strategic plan will likely drive you to consume an entire credit line, and then ask for more, watch out. Closely monitor your ratio of debt to equity. A consistent upward trend is cause for concern — even if it’s within loan restrictions.

Quickly declining profit margins. Leadership teams overly obsessed with growth tend to focus on the top line and lose sight of expenses. Low prices and an undisciplined approach to taking on any and every customer can further erode profits.

Rising complaints. High-growth companies are often inclined to overlook quality control and fall short on backend obligations, such as warranties and customer service. This typically leads to customer complaints. Meanwhile, cash shortfalls may lead to delayed payments to vendors and lenders. At some point, these parties will likely start complaining as well.

Do the managing

Make no mistake: growing your business is an important and, in many cases, necessary goal. But if you don’t manage that growth, it could manage you — into a crisis. Contact us for help building reasonable financial objectives into your strategic planning process.


QOE Report

M&A on the way? Consider a QOE report

Whether you’re considering selling your business or acquiring another one, due diligence is a must. In many mergers and acquisitions (M&A), prospective buyers obtain a quality of earnings (QOE) report to evaluate the accuracy and sustainability of the seller’s reported earnings. Sometimes sellers get their own QOE reports to spot potential problems that might derail a transaction and identify ways to preserve or even increase the company’s value. Here’s what you should know about this critical document.

Different from an audit

QOE reports are not the same as audits. An audit yields an opinion on whether the financial statements of a business fairly present its financial position in accordance with Generally Accepted Accounting Principles (GAAP). It’s based on historical results as of the company’s fiscal year-end.

In contrast, a QoE report determines whether a business’s earnings are accurate and sustainable, and whether its forecasts of future performance are achievable. It typically evaluates performance over the most recent interim 12-month period.

EBITDA effects

Generally, the starting point for a QOE report is the company’s earnings before interest, taxes, depreciation and amortization (EBITDA). Many buyers and sellers believe this metric provides a better indicator of a business’s ability to generate cash flow than net income does. In addition, EBITDA helps filter out the effects of capital structure, tax status, accounting policies and other strategic decisions that may vary depending on who’s managing the company.

The next step is to “normalize” EBITDA by:

  • Eliminating certain nonrecurring revenues and expenses,
  • Adjusting owners’ compensation to market rates, and
  • Adding back other discretionary expenses.

Additional adjustments are sometimes needed to reflect industry-based accounting conventions. Examples include valuing inventory using the first-in, first-out (FIFO) method rather than the last-in, first-out (LIFO) method, or recognizing revenue based on the percentage-of-completion method rather than the completed-contract method.

Continued viability

A QOE report identifies factors that bear on the business’s continued viability as a going concern, such as operating cash flow, working capital adequacy, related-party transactions, customer concentrations, management quality and supply chain stability. It’s also critical to scrutinize trends to determine whether they reflect improvements in earnings quality or potential red flags.

For example, an upward trend in EBITDA could be caused by a positive indicator of future growth, such as increasing sales, or a sign of fiscally responsible management, such as effective cost-cutting. Alternatively, higher earnings could be the result of deferred spending on plant and equipment, a sign that the company isn’t reinvesting in its future capacity. In some cases, changes in accounting methods can give the appearance of higher earnings when no real financial improvements were made.

A powerful tool

If an M&A transaction is on your agenda, a QOE report can be a powerful tool no matter which side of the table you’re on. When done right, it goes beyond financials to provide insights into the factors that really drive value. Let us help you explore the feasibility of a deal.


Work Opportunity Tax Credit

Work Opportunity Tax Credit provides help to employers

In today’s tough job market and economy, the Work Opportunity Tax Credit (WOTC) may help employers. Many business owners are hiring and should be aware that the WOTC is available to employers that hire workers from targeted groups who face significant barriers to employment. The credit is worth as much as $2,400 for each eligible employee ($4,800, $5,600 and $9,600 for certain veterans and $9,000 for “long-term family assistance recipients”). It’s generally limited to eligible employees who begin work for the employer before January 1, 2026.

The IRS recently issued some updated information on the pre-screening and certification processes. To satisfy a requirement to pre-screen a job applicant, a pre-screening notice must be completed by the job applicant and the employer on or before the day a job offer is made. This is done by filing Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit.

Which new hires qualify?

An employer is eligible for the credit only for qualified wages paid to members of a targeted group. These groups are:

  1. Qualified members of families receiving assistance under the Temporary Assistance for Needy Families (TANF) program,
  2. Qualified veterans,
  3. Qualified ex-felons,
  4. Designated community residents,
  5. Vocational rehabilitation referrals,
  6. Qualified summer youth employees,
  7. Qualified members of families in the Supplemental Nutritional Assistance Program (SNAP),
  8. Qualified Supplemental Security Income recipients,
  9. Long-term family assistance recipients, and
  10. Long-term unemployed individuals.

Other rules and requirements

There are a number of requirements to qualify for the credit. For example, there’s a minimum requirement that each employee must have completed at least 120 hours of service for the employer. Also, the credit isn’t available for certain employees who are related to or who previously worked for the employer.

There are different rules and credit amounts for certain employees. The maximum credit available for the first-year wages is $2,400 for each employee, $4,000 for long-term family assistance recipients, and $4,800, $5,600 or $9,600 for certain veterans. Additionally, for long-term family assistance recipients, there’s a 50% credit for up to $10,000 of second-year wages, resulting in a total maximum credit of $9,000 over two years.

For summer youth employees, the wages must be paid for services performed during any 90-day period between May 1 and September 15. The maximum WOTC credit available for summer youth employees is $1,200 per employee.

A beneficial credit

In some cases, employers may elect not to claim the WOTC. And in limited circumstances, the rules may prohibit the credit or require an allocation of it. However, for most employers hiring from targeted groups, the credit can be beneficial. Contact us with questions or for more information about your situation.


Fraud Investigation

How to handle evidence in a fraud investigation at your business

Every business owner should establish strong policies, procedures and internal controls to prevent fraud. But don’t stop there. Also be prepared to act if indications arise that, despite your best efforts, wrongdoing has taken place at your company.

How you handle the evidence obtained could determine whether you’ll be able to prove the charges brought against the alleged perpetrator and win the case in court.

Protect the chain

Handling paper documents is relatively easy as long as you approach the task with care. Place any hard copies related to the possible fraud in a secure location. The fewer people who touch them, the better.

Don’t make notes on the relevant paper documents. Instead, write notations about when and where they were found, and how you preserved them, in a separate log. You can copy anything you need to continue operations and turn the originals over to your professional advisors or law enforcement for fingerprinting, handwriting analysis or other forensic testing.

Remember, a court case can be derailed if you don’t preserve the chain of evidence and can’t prove to a judge’s satisfaction that documents haven’t been tampered with.

Train IT staff

Digital evidence generally presents more challenges — especially if your IT staff isn’t trained to react to fraud incidents. Even if these employees are highly skilled at setting up and troubleshooting hardware and software, they’re unlikely to be fully aware of the legal ramifications of dealing with a computer or mobile device used to commit fraud.

To avoid the inadvertent destruction or alteration of evidence, arrange for specialized training that teaches IT employees to respond appropriately when fraud is suspected. They should be instructed to stop any routine data destruction immediately. If your system periodically deletes certain information, including emails, IT staff should suspend the process upon notification that something is amiss.

In many cases, it’s wise for businesses to engage a qualified computer forensics expert to assist in the investigation. These professionals can identify and restore:

  • Deleted and altered records,
  • Digital forgeries, and
  • Intentionally corrupted files.

They also can access many password-protected files and pinpoint unauthorized system access.

Act immediately

According to the Association of Certified Fraud Examiners’ “Occupational Fraud 2022: A Report to the Nations,” a typical scam goes on for 12 months before detection, and the median loss amounts to $112,000.

The message is clear: Fraud can have a severe financial impact on your business and take a long time to recover from. Be sure you’re ready to act immediately if evidence arises. Let us help you set up defenses against fraud and assist you in any investigations that come up.


Brand audit

Make marketing better with a brand audit

Make marketing better with a brand audit

Mention the word “audit” to a business owner and you’ll probably get an anxious look. But not all audits are of the tax, financial statement or retirement plan variety. You can audit many areas of your company to help you better manage those functions. Take your brand, for example.

Your business brand is more than just a logo. It’s a distinctive combination of identifiers that represents who you are, what you do and how you operate. As such, a brand can be audited to help you improve your marketing strategies.

Analyze info

There are many ways to conduct a brand audit. The specific steps will depend on factors such as your industry, the size of your company and the popularity of your brand. But most audits have certain things in common.

For starters, they generally rely on information you probably already have on hand or could easily generate. This includes:

Sales data. There are so many ways to track sales; it’s easy to get overwhelmed by the numbers. Nonetheless, a function of your brand audit should be to identify sales-related key performance indicators and trends that relate to branding. Essentially, if sales have slumped, is your brand partly to blame? And if so, why?

Website analytics. Determine whether site traffic is trending upward or downward. Investigate how much time visitors spend on your site and on which pages. Where are they coming from? A strong brand will draw consistent visitors who tend to stick around. A weaker one will often attract accidental visitors who leave quickly.

Social media interactions. The impact of social media on marketing and branding has been enormous. Of course, it can be tough to keep content fresh. But each social media account should provide a wealth of interaction data. Track and analyze this info, if you aren’t already. You can use it to, among other things, assess the strength of your brand.

Ask around

Most brand audits also involve gathering the thoughts and opinions of two major constituencies: customers and employees.

Customers, of course, represent the richest source of insight into brand strength. You could design a survey that posits various questions to customers and prospects about your brand. The data you receive will play a key role in your brand audit. Naturally, customer surveys are tricky. You’ve got to keep it short, clear and easy to complete. Most are now conducted online.

Employees can also tell you things about your brand that you might not know or haven’t thought about. Your sales staff, for instance, could be getting feedback — positive or negative — from customers and prospects. So, an employee survey focused on brand-related issues can be a useful part of an audit.

Two ways to go

With enough research and training, some companies’ marketing departments can devise an in-house brand audit process, execute it and present their recommended actions to leadership. However, it might be quicker and more cost-efficient to engage a marketing consultant to do the audit — if dollars are available, the price is right and you genuinely intend to act on what you learn. Let us help you weigh the costs, risks and advantages of a brand audit.

© 2022


Financial Forecasting

Want to see into the future? Delve deeper into forecasting

For a company to be truly successful, its ownership needs to attempt the impossible: see into the future. Forecasting key metrics — such as sales demand, receivables, payables and working capital — can help you manage overhead, offer competitive prices and keep your business on firm financial footing.

Although financial statements are often the starting point for forecasts, you’ll need to do more than just multiply last year’s numbers by a projected growth rate in today’s uncertain marketplace. Here are some tips to consider.

Pick your time frame 

Forecasting is generally more accurate in the short term. The longer the period, the more likely it is that customer demand or market trends will change.

Quantitative methods, which rely on historical data, are typically the most accurate. However, they don’t work well for long-term predictions. If you’re planning to forecast over several years, try qualitative forecasting methods, which rely on expert opinions instead of company-specific data.

Define your demand 

Weather, sales promotions, safety concerns and other factors can cause sales to fluctuate. For example, if you sell ski supplies and apparel, chances are good your sales tend to dip in the summer.

If demand for your products or services varies, consider forecasting with a quantitative method. One example is “time-series decomposition,” which examines historical data and allows you to adjust for market trends, seasonal trends and business cycles.

You also might want to invest in forecasting software. These solutions allow you to plug other variables into the equation, such as the short-term buying plans of key customers.

Assess your data 

Quantitative forecasting techniques require varying amounts of historical information. For instance, you’ll need about three years of data to use “exponential smoothing,” a simple yet fairly accurate method that compares historical averages with current demand.

If you want to forecast for something you don’t have data for, such as a new product or service, you might use qualitative forecasting. Alternatively, you could base your forecast on historical data for a similar product or service in your lineup.

Get intensive for inventory

If you operate a business with extensive inventory, forecasting is particularly critical. As you’ve likely learned over time, you’ve got to establish accurate methods of counting inventory and adjust levels as appropriate to best manage cash flow.

For peak accuracy, take the average of multiple forecasting methods. To optimize inventory levels, consider forecasting demand by individual products as well as by geographic location.

Craft your crystal ball

The optimal forecasting approach for any business will depend on multiple factors, such as its industry and customer base. Contact us to discuss the forecasting practices that make the most sense for your company.

© 2022


When hiring, don’t overlook older workers

Is your business hiring? Many companies are — in fact, an employment report released by the U.S. Department of Labor earlier this month revealed that nonfarm payrolls increased by 390,000 in May, and the unemployment rate held steady at 3.6%.

As the job market continues to feel the impact of “the Great Resignation,” the competition for talent remains fierce. One area of the hiring pool that many businesses overlook is older workers. If your company still has open positions, consider the possibility of filling them with workers age 55 and up.

Strengths to look for

Although it’s true that many Baby Boomers have retired, and a few members of Generation X might soon be joining them, plenty of older workers remain available to provide value to the right company.

They offer many benefits. For starters, they’ve lived and worked through many economic ups and downs, so the word “budget” tends to keenly resonate with them. In addition, many are well connected in their fields and can reach out to helpful resources right away. Seasoned workers tend to be self-motivated and need little supervision, too.

How to welcome them

Adding older employees to a workforce predominantly staffed by Gen Xers, Millennials and perhaps members of Generation Z (currently the youngest group) can present challenges to your company culture. However, there are ways to welcome older workers while easing the transition for everyone.

First, ensure internal communications emphasize inclusivity. If you’re concerned that your existing culture might hinder the onboarding process for older workers, begin addressing the potential obstacles before hiring anyone, if possible. Reassure current employees that you’ll continue to value their contributions and empower their career paths.

Second, consider involving other staff members in the hiring process. For example, you could ask those who will work directly with a new hire to sit in on the initial job interviews. You’ll likely experience less resistance if an older employee’s co-workers are involved from the beginning. Just be sure that every participant understands proper interviewing techniques to avoid legal problems.

Third, as appropriate and feasible, offer training to managers who might suddenly find themselves supervising employees with many more years of work experience. Learning to listen to an older worker’s suggestions while sticking to the company’s strategic objectives and operational procedures isn’t always easy.

Finally, consider a mentorship program. Bringing in new employees of a different age group is an opportune time to investigate the potential benefits of mentoring. By pairing newly hired older workers with younger staff members, you could see both groups learn from each other — and the business grow as a result.

A welcome addition

Older workers are often a welcome addition to many companies — and not just as full-time employees. They tend to fit in well as part- or flex-time workers as well. Need help? We can assist you in assessing this idea or other ways to improve the cost-effectiveness of your hiring efforts.

© 2022


Cybersecurity

Is your cloud provider still meeting your company’s needs?

Like many businesses, yours has probably jumped aboard the cloud computing bandwagon … or “skywagon” as the case may be. How’s that going? Some business owners pay little to no attention to a cloud provider once the service is in place. Others realize, perhaps years later, that they’re not particularly satisfied with the costs, features and cybersecurity measures of their cloud vendors.

Given the value of the data and documents that you store in the cloud, it’s a good idea to occasionally review your provider and determine whether you’re still making a good investment.

Are you getting these benefits?

As you’re likely aware, cloud computing providers offer a secure network of third-party servers that you, the customer, can access online. Thus, rather than relying on your own computers or servers, you can remotely store, process, manage and share documents and data. You might also have access to various software. Here are the benefits that you should be enjoying:

Lower costs. Cloud customers typically pay a monthly subscription fee or are billed based on actual usage. Reputable providers regularly upgrade their offerings and provide free security patches.

Scalability. You should be able to scale up or down as your data storage or processing needs change. For example, you might generate more data during seasonal peaks.

Convenience. Cloud services shouldn’t be limited to certain geographic areas or within restricted time frames. You should be able to access your documents and data from anywhere, anytime and on any device.

Many of today’s cloud providers also allow businesses to share documents and data with vendors to facilitate production and streamline workflow, as well as to provide some level of access to authorized advisors or other parties such as lenders.

How secure are you?

Serious concerns about cybersecurity in every industry have caused many business owners to “do a double take” when it comes to cloud computing. So, first and foremost, when evaluating your provider or shopping for a new one, verify basic security features. These include firewalls, authorization restrictions and data encryption. Also investigate:

  • How frequently the cloud is updated,
  • Whether data is backed up in multiple locations around the country,
  • Whether the service has experienced any data breaches recently,
  • How quickly the provider has responded to security threats, and
  • Whether you can retrieve your data in a nonproprietary format should the service go out of business.

Reputable providers offer continuous data backup and disaster recovery capabilities, so you shouldn’t have to worry about losing important records because of a physical server failure or a lost or broken hard drive. But, beware, the language of your service agreement might leave you ultimately responsible for any data breach. Consider negotiating restitution clauses into your contract.

Regular reassessment

Cloud services are just like any other technology investment — the features and security risks will evolve over time and call for regular reassessment. Let us assist you in weighing the costs, risks and advantages of your cloud provider.

© 2022