Donald Sauder, CPA

Preface: Lancaster County business history – A famous venue in Lancaster County, Shady Maple provides a shopping and dining experience that is not soon to be forgotten. How did it all start, and what is it today? Continue reading…. Shady Maple Shady Maple began with a roadside produce stand in East Earl, Lancaster County. In 1970 Marvin and Miriam Weaver built a 4,200 square foot store to sell produce, and included an IGA with a grocery department. The building included garage doors to keep the farm market feel, with a large porch for selling fresh Lancaster County produce. Since two cash registers and a few employees in the early days, Shady Maple has experienced huge success in 45 years.   With in two years of opening the IGA, Shady Maple Farm Market employed 25 people and made its first of sixteen building expansions. In six years Shady Maple Farm Market was at 45,000 square feet with ten cash registers and 130 employees. In September of 2000, the Weavers opened the new and nationally famous smorgasbord seating 1,200 people with space for special occasions and meetings. Today spacious banquet facilities accommodate larger groups and seats up to 1,000 people. The smorgasbord serves more than 1,000,000 guests a year. It’s the biggest smorgasbord you’ve ever seen. Highlights of this famous venue: a free meal on your birthday, they can serve 1,900 guests at one time, guests average 7 plates per visit, and the smorgasbord serves 1,000,000 doughnuts per year. That’s enough for 1 in every 300 Americans.   Marvin still believes in the time tested motto: Give the customer quality food and service and you will have a customer for life. Employing 800 employees today, we would need say this motto works.   Ancillary businesses at the Shady Maple Complex include Shady Maple Online Store, Shady…

Preface: Tenants-in-common. What’s with the signature?     Tenants-in-Common Real Estate   As with any real estate decision, the right advice before committing your cash can be the difference between a gain, or loss, on sale. In tenant in common real estate holdings, this is particularly true. Before you sign on a tenant-in-common purchase of real estate, consult with your attorney or CPA. It’s important to think through the structuring of the deal and your risks with an expert. Here are a few items to prepare you for that conversation.   A tenant in common ownership is an undivided interest in property. The deed shows only the ownership percentages. A few disadvantages of tenants in common ownership: say one owner decides they will not pay their share of property expenses for the year, the other tenants in common are required to pay up and cover that gap. If a majority owner becomes disgruntled, you could be required to pay additional expenses on tenant in common property. At any time a tenant in common can sell their share of property without consent of the other owners. This could lead to you sharing your investment with someone you don’t know. Each tenant in common owner is responsible for their share of the property including mortgage(s), taxes, insurance, and maintenance costs. If the tenant in common investment is yourself and a friend, the structure is not complicated. Yet, the more investors involved in your tenant in common investment, the more chance for a financial hurricane.   Plan your exit strategy beforehand. Think how you would like to exit your interest should want to redeploy your cash. You need to understand how you can, or will, sell your ownership position in the future. If you’re buying with friends, how liquid is your interest? What…

Preface: Grouping activities is a way to reduce net investment income taxes. This blog shows practical ways grouping can lead to perennially lower tax costs.   Grouping Passive and NonPassive Activities   Taxpayers can merge one or more trade or business activities, or rental activities, into a single activity if those activities qualify as an appropriate economic unit for measuring gain or loss under the passive activity rules measuring tax attributes.   The benefit of grouping activities, such as two business activities into one economic unit for tax purposes, is that you only need show material participation as a whole, and not individual interests to avoid suspension of losses or net investment income tax.   Appropriate economic units take into consideration all the tax characteristics of the activities. These grouping characteristics include:   Similarities and differences in the types of trades of businesses The extent of common control Extent of common ownership Geographical location Interdependence between or among activities, i.e. buy or sell goods between or among themselves involve products or services that are provided together same customers same employees single set of financial books Disadvantages of grouping interests on the other hand are evident in that disposition of one interest, when grouped, your activities are only disposed in part, and loss may be suspended.   The benefit of grouping activities for 2015 is that if you reach Net Investment Income Tax (NIIT) thresholds for the tax year with your businesses, you can group activities to avoid the addition 3.8% net investment tax on investment income. Grouping can adjust this income from a passive activity to a non passive activity.   For example: Let’s say Lancaster Foods is an S corporation and Lancaster Holdings is a partnership and owns the real estate rented to Lancaster Foods. David holds equal ownership…

Preface: Choosing the right business entity structure is a complex task. Work with knowledgeable advisors when forming or restructuring your business   Business Structure   Your businesses legal structures is the most important tax decision your business will make. Reorganization is complex. Whether you are starting a business or buying an interest, make sure your business is appropriately advised with choosing legal structure.   The most common legal structures for business are: Sole proprietorship Limited Liability Company (LLC) Partnership Corporation   Sole Proprietorships   A sole proprietorship is the simplest business structure to setup and to liquidate. A sole proprietorship reports it tax on the Schedule C with the proprietors personal 1040 tax filing. Sole proprietorships do not have the liability protection afforded to LLC’s or corporations. So with a proprietorship, you have unlimited risk for both debts and liabilities incurred with business activity. Proprietorships while maybe functional for a roadside stand are not advisable for businesses with operation risks, i.e. the trades, or services businesses. Why? Simply because there is a lack of liability protection. Sole proprietorships will have the lowest cost tax compliance costs of any business structure, but also the most risk.   Partnerships   A partnership is business structure with two or more partners. General partnerships are similar to sole proprietorships, but the tax attributes are divided among the partnership. Limited partnerships (LP) provide limited liability, defined as partnership equity, to the limited partners. General partners have unlimited risk. Often limited partnerships are applicable to investment real estate businesses or other passive, low risk investments. Partnerships allocate i) how management decisions will be made, e.g. general partner; ii) profit, loss, capital sharing; and iii) partner interests bought or sold. Partnerships have a partnership agreement outlining these agreed to terms. Partnership taxes pass-through from the partnership tax return on…

Preface: Wholesaling inventory often has additional costs and additional benefits. This blog outlines some of the typical areas of thought on gearing-up revenue with the wholesale option.   Wholesaling inventory   So you’re thinking maybe your business should wholesale inventory? Businesses with large inventory capacity and market presence can often develop a profitable niche in wholesaling inventory. Inventory wholesaling of product can lead to greater to volume and increased inventory turnover. Wholesaling gives higher visibility in the marketplace, and draws more customers to your business. While these advantages are explicit, the implicit risks of maintaining an adequate inventory level for proper service of the marketplace without high inventory obsolescence costs, and the additional overhead of general and administrative costs such as costs of capital to store inventory and employees to service the wholesaling component are important factors to consider.   Wholesaling requires advertising, cataloging, and tracking significant volumes of inventory. Yet, only exceptional service, competitive pricing, and high volume will result in success in wholesaling business. Exceptional service is the goal of every business, but it must be consistent. You must train your wholesale staff on providing service on hundreds, or maybe thousands of parts in inventory. Maintaining a warehouse catalog or online presence with inventory is not inexpensive, and requires well planned logistical product visibility. The future is in digital warehousing, i.e. inventory management, and you will need to compete against other vendors who may have a competitive advantage in scalability.   Service also involves delivery. Can you deliver the inventory to customers in a timely and price competitive manner? Do you have a network in the geographical region your wholesale business is (or plans on) servicing?   Competitive advantage   You must understand your competitive advantage in wholesaling. You can have the greatest warehouse, but does your inventory…

Preface: Lancaster County Business History – Lancaster General Health (LGH). The Healthcare industry has improved dramatically in the past 100 years. Here’s one business that has developed along with it.   LGH Lancaster General Hospital in Lancaster, PA, began in 1893 in a small home on 322 North Queen Street. Today the primary hospital is on 555 North Duke Street with a flagship 590-bed facility. Timeline history:   1896 the hospital relocated to a private mansion on 530-532 North Lime Street. 1903 Lancaster General formed a formal nurses training program, graduating its first students in 1905. 1913 LGH starting using its first motorized ambulance. 1938 LGH purchased its first iron lung. 1943 LGH celebrated 50 years in business. As Lancaster Country grew, so did LGH. In the early 1950’s the LGH Department of Physical Therapy was established. 1952 LGH built a new wing with 156 new beds, a heart clinic, chapel, intern quarters, library, cafeteria, and employee lounge. 1983, 90 year in business, LGH performs its first open heart surgery with Lawrence I Bonchek, head of the cardiac surgery team. 1987 LGH’s trauma center receives accreditation. 1990 the first laparoscopic surgery on a gall bladder was performed at the hospital. 1994 LGH finished construction on the major Suburban Outpatient Pavilion. 2000 Women and Babies Hospital opens adjacent to the Suburban Outpatient Pavilion. 2010 LG Health began implementing a $100m electronic medical record system to be used by its physicians and clinician health system. 2015 LGH embarks on a $60m expansion of the flagship property LG Hospital.   Today, LGH, a nonprofit, has revenues near $1 billion, operating income of near $50 million. LGH is one of Lancaster’s biggest economic entities, and the biggest employer in Lancaster County with more than 4,000 full-time employees, and 3,000 part-time employees in it health…

Preface: Successful distressed business turnarounds are achievable. Read further to see the steps in a turnaround and learn the importance of monitoring key performance financial indicators often in your business to avoid a situation of financial stress or distress in your business.    A Business in Distress Requires Decisive Action   Prevention or amelioration of a distressed business situation(s), requires decisive action. The longer you wait to take action, the lower the probability of turnaround. Most business owners know when they are in severe financial trouble. Most however, wait to long to take action or initiating a turnaround plan. The more severe the financial and operational stress, the lower the probability of a successful turnaround; and the fewer options available to those managing the turnaround situation.   The manifestation of business distress begins most often with inadequate working capital. Sometimes a business has a viable working model, but the working capital is drained entirely from the pond, and all but the small fish are gone. The fish are your businesses financial resources. It most often begins with an increase in liabilities. Say accounts payables increase, vendors begin to limit terms on purchases, and this begins to crimp the businesses ability to operate. Accounts payable increases are not the only sign your business needs a turnaround. Trouble with making payroll taxes payments, payroll and/or loan payments are all indicators your business is beginning atrophy. A failed loan covenant, or inability to refinance, combined with the financial over-leverage from ballooning liabilities will create additional stress, and prohibit sound decisions. Some times financial distress appears slowly, sometimes quickly. One of the key factors in distressed situations is departure or lack of key employee resources in the business. Egress from a distressed business situation will not be obtained from the same practices that commenced the situation.   An ounce…

Preface: The right Chief Financial Officer (CFO), often brings more value to a business, than the cost of the contract or additional payroll. A CFO is a trusted advisor in financial decision making and business strategy. This blog is written to provide clarity on the role of a CFO, and ways your business can benefit from a CFO. When does your business need a Chief Financial Officer (CFO) A Chief Financial Officer (CFO) is a strategic financial partner for your business. A CFO’s primary responsibility is oversight of the financial decision making of a business. This oversight includes: planning, reporting, strategizing and managing financial performance. A CFO reports to the CEO (Chief Executive Officer) and the board of directors. The role of a CFO has changed over the years, from solely financial management, to helping develop company plans, and being a strategic partner and advisor to the CEO. A Chief Financial Officer needs to understand not only financial concierge and managing volatility, but also the strategy of developing the business position in the marketplace. A CFO will help provide answers to questions such as: are the financials timely and accurate? What is driving profits? How do we manage key assets, i.e. receivables, cash, employees? How should we make decisions about capital expenditures? What are our measures of financial performance? What are the company’s overhead costs and break even points? Are revenues trending up, why? Where should we invest excess cash? Should we develop a strategic plan? What information do we need to assess market conditions and make decisive business decisions? How will we finance expansion of the business? How can we manage the business more efficiently? What are key performance indicators indicating? Are we meeting cash flow projections? What does the balance sheet show as a strength or weakness in the business? What does our business do…

Interpretive Business Analysis   Preface: The right analysis of the marketplace positioning of your business is vital its future. However, you need the right information to arrive at the right conclusion to the analysis. You need a system for the process of gathering that information, analyzing it, and making the right conclusion. This article is not designed to show you how to design that system; it’s to make you aware of the importance of that system.       Appropriate interpretive business analysis is probably the most effective methods of developing your key business metrics. This is simply discovering and doing more of the tasks that give your business an edge in marketplace, and fewer of the tasks that don’t. It is analysis of your true corporate competencies; and working on tasks that give you a competitive advantage, i.e. expertise, aptitude, or interest. It will improve your businesses value perception in the marketplace and forge a solid future. Interpretive business analysis in the context of this article, is the feedback from others, e.g. advisors, managements, front-line staff, to understand and then harness your true corporate competencies and competitive advantages. Sometimes you just haven’t yet acknowledged what your true business edge or competitive advantage is, e.g. talents. If you invest in appropriate interpretive business analysis, with time, you will improve not only financial performance, but also fulfillment in the day-to-day activities of your team. Interpretive business analysis will spotlight where you need improve or acquire additional expertise; or tasks you need to avoid entirely. It will also identify where your expertise and intellectual inventory is overlooked or understocked. Is anything inhibiting your business? Are you plateaued at $2m or $10m of revenue a year. In interpretive business analysis, observation and planning are only one piece of entrée. Practical implementation, teamwork and business environments are all parts to optimizing your business….

Preface: Lancaster business history — With headquarters in Lancaster, Pennsylvania, Armstrong World Industries is today a global business. Learn about one of Lancaster County’s business leaders.    In 1860, Mr. Armstrong launched a two man, one room, cork-cutting shop in the new frontier of western Pennsylvania, carving bottle stoppers. Mr. Armstrong was the son of a Scotch-Irish immigrant. Credited with obtaining success because he adhered to a family credo of hard work and faith, Mr. Armstrong worked with employees who held the same values, and who were dedicated to manufacturing quality products that upheld the Armstrong name. Mr. Armstrong was so conscientious in his business decision that he was among the first entrepreneurs to retire the old business maxim of entrepreneurial trail blazers “Caveat emptor” (“Let the buyer beware”). Instead Mr. Armstrong’s credo was “Let the buyer have faith”. As customer faith increased in the Armstrong brand, so did national sales. In 1891 the company was the largest cork supplier in the world. That year Armstrong was incorporated. In 1906, Mr. Armstrong’s market research and entrepreneurial insights had him strategizing the solid foundation of the businesses future in linoleum. In the same year, construction began on new factory in a cornfield at the edge of Lancaster, Pennsylvania. It wasn’t always easy. In 2006, Armstrong emerged from Chapter 11 bankruptcy. In 2014, Armstrong World Industries net sales were $2.5 billion, with operating net income of $60 million. Today Armstrong operated 32 plants in eight countries and has more than 8,500 employees worldwide. Mr. Armstrong’s formula for success? Keep to your core business values, but adapt to changing conditions as the market and your customer demand. A century later that business formula still works. “Let the buyer have faith” credo – watch and learn about one the stories here.