Build Credibility with Audited Financial Statements

A financial statement audit can give lenders, investors and other stakeholders greater confidence in your business’s financial reporting. But not every private business needs an audit — and you must weigh the potential benefits against the cost and time involved.

Understand what an audit provides

Most businesses maintain an in-house accounting system to manage their financial records. The documents your staff prepares through this system are called “internally prepared financial statements.”

Depending on your business’s needs, internally prepared financial statements may follow U.S. Generally Accepted Accounting Principles (GAAP), a tax basis, a cash basis or another financial reporting framework. However, internal statements may not include all the adjustments, disclosures and other elements required under the applicable framework.

During an external audit, an independent CPA performs risk assessment procedures and obtains evidence about amounts and disclosures in your financial statements. The goal is to obtain reasonable assurance that the statements are free from material misstatement, whether caused by error or fraud. Management remains responsible for preparing the financial statements and maintaining appropriate internal controls.

If the auditor issues an “unmodified” opinion — sometimes called an “unqualified” opinion — the auditor has concluded that the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.

A qualified opinion means the statements are presented fairly except for a specific material matter. It may result from a material departure from the applicable reporting framework or the auditor’s inability to obtain sufficient appropriate evidence about a particular issue. Depending on the circumstances, material and pervasive issues could lead to an adverse opinion or a disclaimer of opinion.

Balance the benefits and costs

U.S. public companies generally must issue audited annual financial statements. External stakeholders often influence a private business’s decision to prepare audited financial statements. For instance, lenders and investors might ask for audited financial statements before providing financing. Similarly, audited financial statements may be a prerequisite for obtaining surety bonds or bidding on certain government contracts.

Even when an audit isn’t required, audited statements may strengthen the credibility of your financial reporting and help stakeholders evaluate your business. For example, audited financial statements can help you prepare for a business sale, merger or initial public offering.

From an internal perspective, an audit may also identify needed accounting adjustments, disclosure issues or weaknesses in internal controls that deserve management’s attention. Auditors use risk-based procedures, which may include inspecting records, confirming information with third parties, observing certain activities and testing selected transactions. However, an audit doesn’t examine every transaction or guarantee it will detect all errors or fraud.

Despite these potential benefits, your business shouldn’t pursue an audit without careful consideration. An outside audit requires a financial investment and substantial time and effort from you and your employees. You’ll need to gather and provide extensive documentation and respond to the auditor’s questions and requests for evidence.

Ready, set, audit

Whether an audit is required or voluntary, early preparation can make the process more efficient. Audit planning often begins months before fieldwork starts. If your business operates on a calendar year, now is a good time to review your accounting records, reconcile key accounts, gather supporting documentation and address accounting or internal control issues that could complicate the audit process. Contact FMD to discuss your upcoming audit and identify steps you can take to get your books and records audit-ready.

When Your Will Needs an Update, Follow the Formalities

Laws governing the execution of a valid will vary by state, but they generally require certain formalities. For example, a will typically must be signed by the person making it — known as the testator — and witnessed according to state law. Some estate planning documents may also require or benefit from notarization.

Following these requirements is critical. If a will isn’t properly executed, a court could later determine that all or part of it is invalid. But what happens if your will has been executed and you later need to make a change? Perhaps you’ve welcomed a new child or grandchild, experienced a marriage or divorce, acquired significant property, or simply changed your mind about how your assets should be distributed.

Handwritten revisions can cause trouble

It may seem easy to pull your will out of the file cabinet, cross out an outdated provision, write in the desired change and add your initials. But altering an executed will by hand is generally a bad idea.

For one thing, handwritten revisions may raise questions about when and why you made them. Beneficiaries or other interested parties might challenge the changes, alleging that you lacked testamentary capacity or were subject to undue influence. Even if the revisions accurately reflect your wishes, resolving such disputes can consume time and money and potentially damage family relationships.

More important, a handwritten change may not be legally valid. The requirements depend heavily on your state’s laws.

Holographic wills add another wrinkle

Some states recognize “holographic” wills, which are wills written primarily or entirely in the testator’s handwriting. Depending on state law, these wills may be valid without the witnesses normally required for a typewritten will, provided they satisfy certain requirements.

But the fact that your state recognizes holographic wills doesn’t necessarily mean you can safely make handwritten changes to an existing typewritten will. State laws differ significantly regarding whether such modifications are enforceable and what formalities must be followed.

Attempting a do-it-yourself revision can therefore create ambiguity. In some cases, the original provision might remain effective despite your handwritten change. In others, an alteration could complicate the will’s interpretation or validity.

Use a codicil or consider a new will

A safer approach is to work with your attorney. For a relatively minor change, an attorney may recommend a codicil — a separate legal document that amends specific provisions of an existing will. A codicil generally must be executed with the same formalities required for a will.

For more extensive changes, creating and properly executing a new will may be preferable. This can reduce confusion by putting your current wishes in one document rather than requiring your executor and beneficiaries to reconcile multiple amendments.

Make changes the right way

Your will is intended to distribute your property according to your wishes. Don’t jeopardize the execution of those wishes for the sake of convenience. If circumstances have changed since you executed your will, contact your estate planning attorney to help ensure that any necessary revisions comply with applicable law.

Maintaining Customer Relationships After an Acquisition

When a business is acquired, its customers don’t necessarily transfer their loyalty to the buyer. Customers may worry about future pricing, service, product quality and whether the business’s new owner understands what they value. If their concerns go unanswered, competitors may see and exploit an opening. If you’re anticipating making an acquisition, plan how you’ll protect new customer relationships.

Why they may leave

Some customers have strong ties to a former owner, salesperson or service representative and may not immediately trust your team. The acquisition process can also strain relationships. Employees may leave, systems may change, and ordering, billing or fulfillment processes may temporarily struggle.

Silence and conflicting messages only create more uncertainty. In fact, customers generally handle M&A-related change better when you clearly tell them what to expect. As soon as feasible, communicate information about new customer contacts, contract terms, products or services, technology, and prices.

Make retention a central goal

You probably won’t retain every customer, but a plan that identifies integration retention risks and assigns specific individuals to address them is critical. Prioritize customers based on revenue, profitability, growth potential, strategic importance and likelihood of departure. When appropriate, ask your acquisition’s owner or the business’s account representatives to introduce customers to your team.

Once you can publicly disclose your pending transaction, communicate with customers. They’re likely to care less about the deal’s financial rationale than about how it affects them. Be ready to address questions such as:

• What’s going to change?

• How will it benefit us?

• Do we need to transfer our current account or establish a new one?

• Who’s our service contact during and after the acquisition?

Avoid making promises you aren’t sure you can deliver. After your transaction closes, monitor complaints, declining orders, slower renewals and other signs that relationships may be at risk. Early intervention can help prevent customers from leaving.

Retaining trust

Customer and employee retention go hand in hand. If key salespeople, account managers or service employees leave after an acquisition, customer relationships and institutional knowledge may go with them. Identify your acquisition’s essential employees before the deal closes and offer incentives for them to remain. Compensation and retention bonuses can help, but employees also typically value career opportunities and stability. Explain as early — and clearly — as possible how the transaction could affect their jobs, supervisors, benefits and workplaces.

You may also want to use confidentiality, nonsolicitation and noncompete agreements to preserve employee relationships and proprietary information. Note, however, that enforceability of such contracts varies significantly by state, so you’ll need to work with your legal counsel.

Protect what you paid for

To keep customers on board, plan acquisition integration as early as possible. Assess your acquisition’s customer concentration, retention risks and any potential financial impact of customer losses. FMD can help crunch the numbers and isolate threats so you’re better equipped to preserve transaction synergies and realize your return on investment.

Understanding Deferred Taxes: Why Book Income and Taxable Income Don’t Always Match

Deferred taxes remain one of the more misunderstood areas of financial reporting. Deferred tax assets and liabilities generally reflect temporary differences between when items are recognized for book and tax purposes. Here’s a practical overview of how deferred taxes work and why they matter.

Who must report deferred taxes?

Not every business reports deferred taxes. The accounting rules for deferred taxes generally apply to businesses subject to entity-level income taxes that prepare financial statements under U.S. Generally Accepted Accounting Principles (GAAP). Many S corporations, partnerships and other pass-through entities don’t record federal income taxes at the entity level, though exceptions may apply. Small businesses that use the cash or tax basis of accounting don’t usually report deferred taxes either.

C corporations and other businesses subject to entity-level income taxes pay tax on “taxable income” as determined under applicable tax law. However, for GAAP purposes, total income tax expense generally includes 1) current tax expense or benefit, reflecting taxes payable or refundable for the current year, and 2)  deferred tax expense or benefit for changes in deferred tax assets and liabilities.

Where do deferred taxes come from?

Each year, taxable income and pretax book income may differ. A common reason for a temporary difference is depreciation expense. For federal income tax purposes, businesses may be able to use accelerated depreciation methods to reduce taxable income in the early years of an asset’s useful life. Some businesses also may elect to claim Section 179 deductions and bonus depreciation in the year an asset is placed in service.

For GAAP reporting purposes, businesses frequently use straight-line depreciation. Early in an asset’s useful life, this divergent treatment usually makes taxable income significantly lower than accounting pretax income. However, as the asset ages, the temporary difference in depreciation expense reverses itself.

Using different depreciation methods for book and tax purposes typically causes a business to report a deferred tax liability. In effect, the business pays less tax today because it claims larger depreciation deductions upfront. However, those deductions won't be available later, resulting in higher taxable income in future years.

Depreciation is just one type of accounting event that may give rise to deferred tax items. Other common examples include certain loss contingencies, charitable contribution carryforwards and accounting estimates (such as warranty costs and allowances for credit losses).

It’s important to distinguish temporary differences from permanent differences. Temporary differences reverse over time and create deferred taxes. Permanent differences, such as certain nondeductible expenses or tax-exempt income, may affect the business’s effective tax rate but don’t result in deferred tax assets or liabilities.

How are deferred taxes reported on the balance sheet?

When temporary differences exist between taxable income and accounting pretax income, your business generally must record deferred tax assets, deferred tax liabilities or both on its balance sheet. You must record deferred tax assets for expected future tax benefits from deductible temporary differences and from carryforwards related to capital losses, net operating losses or tax credits. Conversely, you must record deferred tax liabilities for the additional future amounts your business will owe.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply when the related temporary differences reverse, or carryforwards are used. Because deferred taxes reflect future tax consequences, changes in tax law or tax rates can affect their reported amounts, with the impact generally recognized in income from continuing operations in the period of enactment.

Under GAAP, deferred tax assets and liabilities are generally presented as noncurrent items on the balance sheet. They may be netted only when they relate to the same tax-paying component and tax jurisdiction.

Deferred taxes also aren’t discounted for the time value of money. Instead, they’re recorded based on the applicable tax rate and the expected future tax effects of temporary differences.

Deferred tax assets may be reduced by a valuation allowance that reflects the possibility they’ll expire before the business can use them. Management must evaluate all available positive and negative evidence when determining whether a valuation allowance is necessary. Deciding how much deferred tax valuation allowance to book requires significant judgment and is often one of the more challenging aspects of income tax accounting. Changes in the allowance generally flow through to the income statement.

Look beyond today’s tax bill

The rules surrounding deferred taxes can be complex, but understanding them is important for maintaining accurate financial statements. Because deferred tax balances may affect both the income statement and balance sheet, they may also impact ratios that lenders and other external stakeholders use to evaluate your business’ financial results. FMD can help you account for deferred taxes and explain what they mean for your business. Contact us to learn more.

How Should Life Insurance Fit into Your Estate Plan?

Life insurance can provide critical financial protection for the people who depend on you or help you achieve other estate planning goals. But to serve its intended purpose, the coverage amount, policy type, ownership structure and beneficiary designations must all be carefully considered.

Determine how much coverage you need

There’s no universal formula for calculating the appropriate amount of life insurance. Your needs depend on your income, debts, family responsibilities, assets and long-term objectives. Begin by estimating the financial obligations that might remain after your death. These may include:

• Funeral and other final expenses,

• Mortgage balances and other debts,

• Income replacement for a surviving spouse or partner,

• Child care and education costs,

• Support for a dependent with special needs, and

• A desired inheritance or charitable gift.

Next, subtract resources available to meet those obligations, such as savings, investments, retirement benefits and existing insurance policies. The difference can provide a starting point for determining how much additional coverage you need.

Warning: Don’t assume employer-provided insurance is sufficient. Group coverage is often limited to a multiple of salary and may end when you leave your job.

Select coverage that matches your objectives

Term life insurance generally provides coverage for a specified period and may be appropriate for temporary needs, such as replacing income during your working years or paying off a mortgage. It typically costs less initially than permanent coverage.

Permanent insurance, such as whole life and universal life, is designed to remain in force for life as long as the required premiums are paid. It may also accumulate cash value. This type of policy can be useful when the need for coverage is expected to continue indefinitely, such as providing estate liquidity, supporting a lifelong dependent or funding a legacy.

Affordability matters. A policy offers little protection if rising premiums or changing circumstances may make it difficult to keep the coverage in force. Review policy guarantees, projected values, fees and premium requirements carefully before you buy.

Coordinate life insurance with your estate plan

Life insurance can replace income, equalize assets among children active and inactive in a family business, provide cash to pay estate tax, or serve as a vehicle for passing leveraged funds free of estate tax.

Policy proceeds generally aren’t subject to income tax. But if you own the policy, the proceeds will be included in your taxable estate. If your estate is large enough that estate taxes are a concern, some or all of the proceeds could be subject to estate tax.

Ownership depends on several factors, including who has the right to name the beneficiaries of the proceeds. Generally, to reap maximum tax benefits, you must sacrifice some control and flexibility as well as some ease and cost of administration.

Determining who should own the life insurance policy is a complex task because there are many possible owners, including you or your spouse, your children, your business, or an irrevocable life insurance trust (ILIT).

An ILIT can own one or more policies on your life, and it manages and distributes policy proceeds according to the terms you establish when you set up the trust. The trust keeps insurance proceeds, which could otherwise be subject to estate tax, out of your estate (and possibly your spouse’s). You can’t retain any powers over the policy, such as the right to change the beneficiary. The trust can be designed to make a loan to your estate to meet liquidity needs, such as paying estate tax.

To choose the best owner, consider why you want the insurance, such as to replace income, to provide liquidity or to transfer wealth to your heirs. You must also determine the importance of tax implications, control, flexibility, and ease and cost of administration.

Review your coverage

Life insurance shouldn’t be a “set it and forget it” decision. Many factors affect your need for life insurance, and these factors change over time. To make sure you’re not over- or underinsured, review your insurance needs periodically — especially when your life circumstances change. FMD can help you assess whether you have sufficient life insurance coverage for your needs and goals.

Inter Vivos and Testamentary Trusts can help You Achieve Different Estate Planning Goals

Trusts can serve many purposes in an estate plan, from managing assets during your lifetime to controlling how property passes to beneficiaries after your death. Two broad categories are inter vivos trusts and testamentary trusts. Although both can help manage assets, they differ in when they’re funded and take effect and how they’re used in estate planning.

Inter vivos trusts operate during your lifetime

An inter vivos trust is created while you’re alive. You transfer assets to the trust, and a trustee manages them according to the trust agreement.

Inter vivos trusts can be either revocable or irrevocable. With a revocable trust, you generally retain the ability to change or terminate the trust during your lifetime. You may also serve as trustee, allowing you to continue managing assets after you’ve transferred them to the trust. One of the biggest benefits is that, if you become incapacitated, a successor trustee can step in and manage the assets on your behalf.

A properly funded revocable living trust can also help assets avoid probate after your death. Instead of the assets going through probate and being distributed according to your will, the successor trustee distributes the assets or continues managing them according to the trust’s terms. This can potentially save time, increase privacy and simplify administration, particularly if you own real estate in more than one state.

Irrevocable inter vivos trusts serve different purposes. Depending on their design, they may be used for gift and estate tax planning, asset protection, charitable giving, life insurance planning, or other objectives. Because transferring property to an irrevocable trust can have significant tax and legal consequences, careful planning is essential.

Testamentary trusts begin after death

A testamentary trust, by contrast, is established through your will and generally comes into existence after you die and the will is admitted to probate. Your will specifies which assets you want to fund the trust, identifies the trustee and establishes the terms governing distributions.

Testamentary trusts can be especially useful when beneficiaries shouldn’t receive an inheritance outright. For example, a testamentary trust might hold assets for minor children until they reach specified ages. It can also provide a trustee with discretion to make distributions for education, health care and other needs.

Testamentary trusts may also be useful when beneficiaries have difficulty managing money or when you want to provide longer-term oversight of inherited wealth. However, because the trust is created under a will, the assets used to fund it generally must pass through probate first.

Different tools for different goals

Because of the differences between inter vivos and testamentary trusts, both types may have a place in your estate plan. Your assets, family circumstances and goals are key considerations. Trust provisions can also have important income, gift and estate tax consequences. FMD can help you evaluate the tax considerations and work with your estate planning attorney to determine what best fits your situation.

Take Control of Working Capital

A profitable business can still run short of cash. Receivables may take time to collect, inventory can tie up funds and bills may come due before customers pay. Effective working capital management can help your business maintain liquidity and remain prepared for growth opportunities or unexpected challenges.

What are the components of working capital?

Working capital is calculated by subtracting current liabilities from current assets. The math is simple, but the result requires context. Start by identifying the specific components that drive the calculation.

Current assets generally include assets expected to be converted to cash, sold or consumed within one year (or the business’s normal operating cycle, if longer). Common examples are:

• Cash and cash equivalents,

• Accounts receivable,

• Inventory,

• Certain short-term investments, and

• Prepaid expenses.

Not every asset that could eventually be sold or converted to cash qualifies as current. Classification depends on the asset’s nature and when the business expects to realize or use it.

Current liabilities generally include obligations due within the same timeframe. Examples include:

• Accounts payable,

• Accrued expenses,

• Short-term loans, and

• The current portion of long-term debt.

An outstanding balance on a line of credit may also be classified as current, depending on the arrangement’s terms and the business’s ability to defer repayment.

How can you manage it more effectively?

Although many items affect working capital, the following three levers often provide the greatest opportunities for improvement:

1. Receivables. Strong collection practices are critical. Review accounts receivable aging reports regularly, address disputed or overdue invoices promptly, and establish credit limits and payment terms based on customer risk. Early payment discounts may accelerate collections, but weigh the cash flow benefit against the cost of the discount.

You also can improve the collection process by issuing invoices quickly, offering electronic payment options, automating payment reminders and requesting deposits or milestone payments when appropriate. A bank lockbox may speed processing for businesses that still receive a significant volume of paper checks. Monitor customer concentration and recurring late payments, because receivables contribute little to liquidity if they can’t be collected on time.

2. Inventory. Excess or obsolete inventory can consume cash and generate unnecessary storage, security, insurance and handling costs. But reducing inventory too aggressively can lead to stockouts, production delays and lost sales. The goal should be to maintain enough inventory to meet expected demand while limiting slow-moving and obsolete items.

Regularly review inventory turnover and demand forecasts. Modern inventory systems can help identify purchasing trends and automate reorder points. When appropriate, sharing forecasts and other data with key customers and suppliers may improve planning and reduce supply chain disruptions.

3. Payables. Businesses often try to preserve cash by delaying payments, but consistently paying late can damage vendor relationships and lead to less favorable terms. Use the full payment period available under your agreements without exceeding the due date. Also evaluate whether early payment discounts provide a worthwhile return.

Prepare short-term cash forecasts so upcoming obligations don’t come as a surprise. If existing terms create liquidity pressure, consider negotiating longer payment periods, installment arrangements or other terms with vendors before balances become past due.

Are your improvements sustainable?

To maximize the benefits of your improvement efforts, adjustments to these three levers must be sustainable over the long run. This requires management’s ongoing attention. Include working capital in strategic planning and review relevant measures at regular management meetings. Common metrics include:

• The current ratio, calculated as current assets divided by current liabilities,

• Days inventory outstanding (DIO), the average number of days inventory is held before being sold,

• Days sales outstanding (DSO), the average number of days it takes to collect payment from customers, and

• Days payables outstanding (DPO), the average number of days a business takes to pay its suppliers.

The cash conversion cycle (DIO + DSO − DPO) estimates how long cash is tied up in your operating cycle. Your accountant can help you calculate these metrics, determine what’s most relevant for your operations and evaluate your results over time or against industry benchmarks.

At smaller businesses, the owner may need to lead the effort. At midsize businesses, working capital management should involve finance, sales, purchasing, operations and other functions that influence customer terms, inventory levels and vendor payments. Assigning clear responsibility can help prevent one department’s decisions from creating cash flow problems elsewhere.

Reliable technology is also important. Rather than assuming every business needs a full enterprise resource planning (ERP) system, evaluate whether your existing accounting platform and integrated receivables, payables and inventory tools provide timely, accurate information. More complex businesses may benefit from an ERP system, but the appropriate solution should reflect your business’s size, operations and reporting needs.

In addition, technology — such as electronic invoicing, customer payment portals, automated reminders and integrated payment processing — may shorten collection times and reduce manual data entry. Appropriate user permissions, approval controls, data backups and cybersecurity protocols can help safeguard these processes.

Keep liquidity in view

It’s common for business owners to focus on growing the top and bottom lines of their income statements, but the balance sheet deserves attention, too. Regularly monitoring the components of working capital can help reveal operational issues, such as slow-paying customers, obsolete inventory and unfavorable payment terms, before they become larger cash-flow problems. Contact FMD for help evaluating your existing processes and identifying strategies to strengthen your working capital management.

Which Products Really Drive Your Business’s Profits?

Robust sales don’t always translate into strong profits. A popular product could produce disappointing returns when you account for discounts, shipping, returns and support costs. At the same time, a lower-volume product could quietly generate an attractive profit margin.

How can you tell what’s working? The solution may be product-level analysis that shows where you’re generating profit and where strong revenue might be masking weak performance. This holds true whether your business manufactures, distributes or sells products through sales reps, online channels or brick-and-mortar stores.

Calculating the full cost

Start by identifying each of your product’s direct costs, such as materials, inventory purchases, production labor and packaging. Then consider expenses that might be easier to overlook, including:

• Freight, warehousing and inventory carrying costs,

• Sales commissions,

• Payment-processing charges,

• Promotions and discounts,

• Returns, spoilage and shrinkage, and

• Customer service and technical support.

Overhead expenses — including rent, insurance, technology and administrative salaries — also affect product profitability. However, allocating them solely by sales volume can distort results.

A product that requires, for example, customized packaging or extensive customer support should receive a greater share of those costs. Activity-based costing can provide a more realistic view by assigning expenses according to the activities that generate them.

Beyond gross margin

No single measurement tells the whole story. Gross margin shows how much revenue remains after covering cost of goods sold. Meanwhile, contribution margin subtracts variable costs from revenue. A positive contribution margin generally means a product helps cover fixed expenses and generate profit.

So if a product appears unprofitable after allocated overhead, don’t automatically discontinue it. Because many fixed costs will remain, eliminating the product could reduce your business’s overall profit. Instead, consider whether the product attracts new customers or supports sales of more profitable items.

Also evaluate product profitability by sales channel and customer segment. The same item may be profitable in a store but lose money through an online marketplace because of commissions, fulfillment expenses and returns. In a similar vein, a large customer’s discounts could erase the benefit of high sales volume.

Turn findings into action

Reliable product data can support better pricing, purchasing, marketing and inventory decisions. It can also help you negotiate supplier terms, adjust sales and distribution channels, and evaluate new products.

Product-level analysis shouldn’t be a one-time exercise. Market and economic conditions often change, so you should review margins regularly and investigate major variances. Also contact FMD. We can help you develop a practical approach to turning product data into profitable decisions.

Worker Misclassification Can Carry Serious Consequences

Hiring independent contractors provides your business with valuable flexibility, particularly when you require specialized expertise or help with a short-term project. But calling someone an independent contractor doesn’t automatically make them one. Worker status depends on your actual working relationship. And getting it wrong can expose your business to tax liabilities and other consequences.

What’s in a name?

Businesses generally must withhold federal income, Social Security and Medicare taxes for employees and pay the employer’s share of Social Security and Medicare taxes, as well as federal unemployment tax. These obligations typically don’t apply when you engage an independent contractor. So if you misclassify an employee as an independent contractor, your business could become responsible for unpaid employment taxes, penalties and interest. Depending on the circumstances, you may also be liable for unpaid payroll taxes.

Consequences can extend beyond taxes. Misclassified employees may be able to claim unpaid minimum wages, overtime pay and other workplace protections. State laws could impose additional requirements involving unemployment and workers’ compensation insurance, paid time off, and other benefits. All of these could lead to legal costs and other unplanned expenditures.

Working relationship

For federal employment tax purposes, the IRS looks at the entire relationship between a business and worker. No single factor determines classification. Instead, relevant facts generally fall into three categories.

The first is behavioral control, which concerns whether your business can direct what a worker does and how the work is performed. Instructions about when, where and how to work, as well as training your business provides, may point to the worker being an employee.

Second is financial control. This focuses on the business aspects of the relationship. Relevant considerations include:

• How you pay the worker,

• Whether you reimburse the individual’s expenses,

• Which party supplies tools and equipment,

• Whether the person offers services to other businesses, and

• The worker’s opportunity for profit or risk of loss.

Finally, the type of relationship matters. Employee status may be supported if you provide certain benefits to the worker or the person handles ongoing responsibilities that are central to your operations. A written agreement identifying someone as an independent contractor can be relevant, but it doesn’t override the facts of the relationship.

Remote work doesn’t change these basic principles. Someone who works from home or another location other than your business’s primary workplace isn’t automatically an independent contractor. The question remains how much control and independence exist in the actual working arrangement.

Different laws, different tests

Worker classification has become an especially important area to monitor because different laws can apply different tests. The IRS uses a common-law framework for federal employment taxes. Meanwhile, the U.S. Department of Labor proposed new independent-contractor regulations in February 2026 for federal wage-and-hour law purposes. The proposal would replace the agency’s 2024 rule with a streamlined “economic reality” test. As of this writing, the proposal hasn’t been finalized.

State tax, wage-and-hour and employment laws may apply their own standards as well. As a result, a classification that seems appropriate under one law may not be so under another. But this doesn’t mean you should wait for an audit, complaint or tax notice before reviewing your worker classifications.

Before problems arise

FMD can help you evaluate worker relationships under current rules and determine whether you need to reclassify anyone working for you. Addressing questions early can be far less costly than correcting them after a government agency or worker raises the issue.

Protect Your Business — and Your Estate — with a Buy-Sell Agreement

Do you hold an interest in a business that’s closely held or family owned? If so, a buy-sell agreement should be a component of your estate plan. It establishes how your ownership interest (and those of other owners) will be handled following certain triggering events, including death, disability, divorce, retirement, termination of employment or withdrawal from the business. But that’s not all.

Determining an ownership interest’s worth

Depending on its terms, a buy-sell agreement may give the business or the remaining owners the option — or obligation — to purchase the departing owner’s interest. Life insurance is often used to provide funding when an owner dies.

One of the most important provisions in a buy-sell agreement is the method used to determine what an ownership interest is worth. An outdated or poorly designed valuation provision can create financial problems — and potentially disputes — precisely when the agreement is needed most.

Buy-sell agreements generally use one or more of the following approaches:

Independent appraisal. A qualified business valuation professional determines the value of the ownership interest when a triggering event occurs.

A predetermined formula. The agreement calculates value using measures such as book value, revenue or a multiple of earnings.

A negotiated price. The owners agree on the value of the business or the departing owner’s interest.

An independent appraisal can provide a valuation based on the company’s circumstances at the time of the triggering event. A formula may be simpler, but it can become outdated as the business evolves. Changes in profitability, assets, industry conditions and other factors can cause a formula to produce a price that no longer reflects economic reality.

Negotiation offers flexibility, but it also carries risk. Reaching an agreement may be difficult after an owner’s death or during a contentious departure. One alternative is to allow the parties to negotiate first and require an independent appraisal if they can’t agree within a specified period.

2 buy-sell agreement types

The type of buy-sell agreement you use can have significant tax and estate planning implications. Two common options are redemption agreements and cross-purchase agreements. A redemption agreement permits or requires the company to purchase a departing owner’s interest, while a cross-purchase agreement permits or requires the remaining owners to purchase the interest.

A disadvantage of cross-purchase agreements is that they can be cumbersome, especially if there are many owners. For example, if life insurance is used to fund the purchase of a departing owner’s shares, each owner will have to purchase an insurance policy on the lives of each of the other owners. But redemption agreements may trigger a variety of unwelcome tax consequences.

Miscellaneous benefits

A carefully structured buy-sell agreement does more than establish what happens when an owner leaves the business. It can also help prevent ownership from unexpectedly passing to outsiders, provide a market for an ownership interest that might otherwise be difficult to sell and create liquidity for an owner’s estate.

For a family business, these provisions can be especially valuable. A buy-sell agreement may help keep control in the hands of family members or other intended owners while providing cash to an estate or beneficiaries who won’t participate in the business.

Under certain circumstances, an agreement may also affect how an ownership interest is valued for federal estate tax purposes. Because the tax rules governing these arrangements are complex, the agreement should be coordinated with the owner’s broader estate and tax planning.

Review your agreement regularly

Even a carefully drafted buy-sell agreement can lose its effectiveness as circumstances change. A business may grow significantly, new owners may join, existing owners may leave, insurance coverage may become inadequate or the owners’ estate planning goals may evolve.

So regular reviews are essential. FMD can help you develop a buy-sell agreement in conjunction with your estate plan or evaluate whether your existing agreement’s provisions still fit your business and estate planning objectives.

Give Executive Fraud Risk Your Full Attention

Occupational fraud can occur at any level of an organization. But misconduct by owners and senior executives can be particularly costly because they usually have greater authority and can override internal controls.

According to the Association of Certified Fraud Examiners’ (ACFE’s) Occupational Fraud 2026: A Report to the Nations, owners and executives account for 16% of all occupational fraud perpetrators. Yet they cause nine times the median loss associated with nonmanagerial fraudsters. Even if you trust your leadership team, strong safeguards can help protect your business and its reputation.

Why it happens

Forensic accountants commonly use the “fraud triangle” to understand occupational fraud. It focuses on three factors that generally need to be in place for people to steal from their employers: pressure, opportunity and rationalization.

Pressure can be personal or professional. An executive facing financial difficulties or aggressive performance targets may be tempted to manipulate financial results. The ACFE found that perpetrators experiencing excessive organizational pressure are associated with a median fraud loss of $532,000 — the highest among the behavioral warning signs identified.

Opportunity exists when someone has the access or authority to commit and conceal wrongdoing. Executives pose an elevated threat because they may approve transactions, influence employees, or override established procedures. More than half of the ACFE report’s cases involve either inadequate or overridden controls.

Rationalization occurs when perpetrators can justify their dishonest behavior. Executives might, for example, believe they’re entitled to steal because their compensation is inadequate or that manipulating results is acceptable because it will eventually benefit the business.

You can help reduce fraud risk by keeping this triangle in mind and promoting an antifraud culture. For instance, try to set realistic, achievable performance goals and intervene if executives seem excessively entitled or secretive.

Strengthen safeguards at the top

Internal controls that protect key functions — such as your accounting, and shipping and receiving departments — are also essential. But preventing executive fraud may require additional measures. For example:

• Establish clear rules for overriding controls, including requiring a second approval and documentation explaining why the exception is necessary,

• Mandate fraud awareness training for employees, including executives,

• Conduct management reviews, surprise audits and financial monitoring activities, and

• Offer tiplines or web portals that enable employees to anonymously report suspected wrongdoing.

Reporting systems are especially important because tips remain the most common way to detect occupational fraud. The 2026 ACFE study found that 43% of cases are uncovered through tips, and employees provide more than half of them (other tips come primarily from vendors and customers). Because of the risks of retribution, confidentiality is critical if you want workers to blow the whistle on crooked executives.

Allegations involving a senior executive or other influential individual may warrant engaging an independent fraud specialist to help ensure an objective investigation, including evidence gathering and witness interviews. If fraud is confirmed, your organization should respond based on the circumstances, applicable laws and its own policies, not the perpetrator’s position.

Promote accountability

Executive fraud may never be completely preventable, but you can make it harder to commit and easier to detect. To promote accountability, implement strong controls, effective employee training and confidential reporting mechanisms. Contact FMD for help assessing fraud risks and strengthening the safeguards that will protect your business.

A Closer Look at Shareholder Advances

Shareholders sometimes provide funds to their businesses outside of their initial investment or regular capital contributions. These transfers — commonly referred to as shareholder advances — raise an important accounting question: Under U.S. Generally Accepted Accounting Principles (GAAP), should the business report the advance as a liability or as equity?

The term “shareholder” technically refers to an owner of a corporation. However, the same basic accounting issue can arise when an owner of a partnership, limited liability company or other noncorporate entity advances funds to the business. For simplicity, this article uses the terms “shareholder” and “shareholder advance” broadly to include owners and owner advances regardless of the entity’s legal structure.

Look beyond the label

When evaluating a shareholder advance, it’s important to consider the substance of the arrangement rather than relying solely on how the transaction is labeled. To determine the appropriate classification under GAAP, the facts and circumstances of the arrangement should support whether the advance represents an obligation to repay the owner (a bona fide debt) or an equity contribution. Relevant considerations may include:

Intent to repay. Open-ended understandings between related parties about repayment may indicate that an advance is an equity contribution rather than a loan to the business. For example, a lack of repayment activity or evidence that repayment wasn’t expected may weigh against debt classification.

Terms of the advance. Debt classification may be more appropriate when the parties have signed a written promissory note that bears reasonable interest, has a fixed maturity date and establishes repayment terms. A history of repayments consistent with those terms may provide additional support for debt treatment. Subordination to bank debt or other creditors may also be relevant to the analysis, but that alone doesn’t warrant equity classification for an advance.

Ability to repay. Relevant factors include the business’s historical and future debt-service capacity, credit standing and ability to secure other forms of financing. The business’s ability to meet the stated repayment terms may also provide evidence about the substance of the arrangement. However, financial difficulty alone doesn’t necessarily mean an advance should be classified as equity.

How an advance is treated in tax filings and other records may provide additional evidence about the parties’ intentions. However, tax treatment doesn’t determine the appropriate classification for financial reporting purposes.

Deciding whether to classify advances as debt or equity matters for financial reporting purposes. It may affect your debt-to-equity ratio and other metrics that outside lenders and investors use to evaluate your business’s financial condition.

Be transparent

Detailed footnote disclosures can help stakeholders better understand the nature of shareholder advances. Accounting Standards Codification (ASC) Topic 850, Related Party Disclosures, generally requires disclosure of material related-party transactions. Depending on the circumstances, disclosures may include:

• The nature of the relationship,

• A description and dollar amount of the transactions, and

• Amounts due to or from related parties, including settlement terms when they aren’t otherwise apparent.

If your business engages in numerous related-party transactions, a tabular format may make the disclosures easier to understand.

Changes to an advance can introduce additional accounting complexity. Shareholders sometimes forgive loans or convert them to equity. The accounting for forgiveness, conversion or other restructuring depends on the specific facts and terms of the transaction, including the shareholder’s relationship to the business and the nature of the instruments involved. These transactions may require different accounting from the original advance and appropriate disclosure to help financial statement users understand their effects.

Document from the start

Shareholder advances can look straightforward when the cash changes hands, but their accounting treatment may not be so simple. Clear documentation of the parties’ intentions and the terms of the arrangement at the time funds are advanced can help support the appropriate treatment and avoid uncertainty later. Contact FMD for help documenting and classifying shareholder advances and preparing any required disclosures.

If Your Spouse Died This Year, Should You File a Joint Federal Tax Return Next April?

The death of a spouse brings significant personal and financial changes, including important tax considerations. One question surviving spouses face is how to file their federal income tax returns for the year of death.

In many cases, a surviving spouse can file a joint return with the deceased spouse for that year, potentially preserving lower tax rates and other benefits. However, special rules apply, and understanding the filing requirements can help avoid complications and ensure available tax benefits aren’t overlooked.

Filing a final return

When a person dies, his or her executor (called a “personal representative” in some states) must file an income tax return for the year of death (as well as any unfiled returns for previous years). For purposes of the final return, the tax year generally begins on January 1 and ends on the date of death. The return is due on April 15 of the following calendar year unless the executor requests a six-month filing extension.

Income that’s included on the final return is determined according to the deceased’s tax accounting method. Individuals usually use the cash method, in which case the income tax return will report only income actually or constructively received before death and deduct only expenses paid before death. Income and expenses after death are reported on an estate tax return.

Filing a joint return

The surviving spouse is generally treated as married for the tax year his or her spouse died, unless he or she qualifies as unmarried under special rules. So filing as single or head of household usually isn’t an option. The surviving spouse does have the option to file a joint return with the deceased spouse — if the executor agrees. And the surviving spouse alone can elect to file a joint return if an executor hasn’t yet been appointed by the filing due date. (However, a court-appointed executor may later revoke that election.)

A joint return generally includes the deceased spouse’s income and deductions through the date of death, along with the surviving spouse’s income and deductions for the entire tax year. Filing jointly can be advantageous because joint filers typically have access to more favorable tax brackets and may qualify for deductions and credits that are reduced or unavailable to married taxpayers filing separately.

When filing separately may make sense

There may be disadvantages to filing jointly. For example, higher adjusted gross income (AGI) may reduce the tax benefits of expenses, such as medical bills, that are deductible only to the extent they exceed a certain percentage of AGI. In this case, filing separately may provide more tax savings. Similarly, filing separately sometimes may produce a better result because of the couple’s particular mix of income, deductions and other tax attributes.

Filing a separate return may also be appropriate when the surviving spouse has concerns about the accuracy of the deceased spouse’s tax information or about previously undisclosed income, questionable deductions, unpaid taxes or other potential tax problems. In some situations, filing separately may help limit the surviving spouse’s exposure to liabilities associated with items reported (or not reported) on the deceased spouse’s return, though the extent of that protection depends on the facts and circumstances.

Look beyond the final joint return

The year of death may not be the end of the potential benefits of joint filing. Under certain conditions, a surviving spouse with a dependent child may qualify to use qualifying surviving spouse status for the two tax years following the year of death. This status generally provides the same tax brackets and standard deduction available to married couples filing jointly.

There are many factors to consider when deciding whether to file jointly or separately after a spouse’s death. FMD can compare the alternatives, explain the potential risks and benefits, and help ensure that required returns are filed properly during a difficult time.

How a Lockbox (or Other) Service Can Benefit Accounts Receivable

For decades, businesses have used bank lockbox services to speed up collections and reduce administrative work involved in processing customer checks. Today, the basic idea remains the same, but modern lockbox services can automate your accounts receivable processes. Automated clearing house (ACH), credit card and instant-payment services can also provide efficient collections. So the question is: With multiple tools available, which service will best save your employees time, improve cash flow and strengthen payment controls?

Traditional vs. contemporary

With a traditional lockbox arrangement, customers send payments to a designated address controlled by a business’s bank or another service provider. The provider collects payments, deposits checks and sends payment information electronically to the business.

Contemporary systems can capture information from checks and accompanying remittance documents, including customer and invoice numbers. That data generally is transmitted to your accounting or enterprise resource planning system to help automate the process of matching payments with outstanding invoices. The result can be faster processing and less manual work for your workers. Instead of opening envelopes, recording payments and depositing checks, your staff can focus on exceptions and other higher-value tasks.

Don’t overlook fraud risk

Security, particularly of paper checks, is another factor that favors lockbox services. According to the Association for Financial Professionals’ 2025 Payments Fraud and Control Survey, 63% of organizations experienced attempted or actual check fraud the previous year. Although lockboxes don’t eliminate check fraud, moving receipt and check processing away from your workplace can reduce payment handling and allow for more controlled procedures.

ACH and other electronic payment methods typically offer lower processing costs and also eliminate some of the fraud risks associated with paper checks. Instant payments are another option. Participating financial institutions can provide payments that settle within seconds, 24 hours a day, seven days a week.

Checking the math

Lockbox pricing varies by financial institution and service level and may include recurring and transaction-based charges. To determine whether the service makes financial sense, compare those fees with what you’re spending internally to process payments. Weigh factors such as:

• The number of paper checks you receive,

• Time spent processing and reconciling payments,

• How quickly payments are currently deposited,

• The value of accelerating access to cash,

• Ease of integration with your accounting system, and

• Fraud prevention benefits.

If your business receives a large volume of checks, a lockbox may make sense. But if your volume is relatively low, you may reap greater benefits by encouraging customers to use electronic payment methods.

Discuss your options

Talk to your bank about available lockbox and electronic receivables services and their costs. Also contact FMD. We can help quantify your current payment-processing costs, evaluate potential cash-flow and control benefits, and determine whether a lockbox (or other option) may be right for your business.

A QPRT may be the Right “Home” for Your Primary or Secondary Residence

As property values continue to rise, homeowners with large estates may be looking for ways to preserve family wealth while minimizing future estate tax exposure. One strategy that may help accomplish these goals is a qualified personal residence trust (QPRT).

QPRT specifics

A QPRT is an irrevocable trust that allows you to transfer ownership of your primary residence or a secondary residence (such as a vacation home) to it while retaining the right to live in (or personally use) the home for a specified number of years. At the end of that term, ownership of the home typically transfers to the QPRT beneficiaries.

When you transfer a home to a QPRT, it’s generally removed from your taxable estate. But the transfer of the remainder interest going to the beneficiaries is a taxable gift.

The IRS Section 7520 rate, which is updated monthly, is used to calculate the value of the gift for gift tax purposes. The lower the Sec. 7520 rate, the smaller the remainder interest and the lower the gift tax liability. If the appreciation on the home during the term outperforms the Sec. 7520 rate and you survive the term, the excess value will be transferred to the beneficiaries gift- and estate-tax-free. For August 2026, the rate is 5.2%.

You can apply a portion of your available lifetime gift and estate tax exemption to the transfer. For 2026, the exemption is $15 million, reduced by any exemption you already have used during your life.

You must appoint a trustee to manage the QPRT. Commonly, the trust grantor (which would be you) will act as the trustee. Alternatively, you can name another family member, friend or professional advisor.

While you live in the home, you must continue to pay the monthly bills, such as property taxes, maintenance and repair costs, and insurance. Because the QPRT is a grantor trust, as the grantor, you’re entitled to deduct qualified expenses on your income tax return, within the usual limits.

What if you want to sell the home during the term? You generally can do so as long as you reinvest the proceeds in another home that will be owned by the QPRT and subject to the same trust provisions.

Be aware of the risks

A QPRT isn’t without drawbacks. Because the trust is irrevocable, you can’t simply change your mind and reclaim ownership of the home after the transfer. However, you can continue to live in the home after the term ends if the beneficiaries agree and you pay fair-market rent to them.

In addition, the strategy works best if you survive the term. If you die before the term expires, the home is generally included in your taxable estate, largely eliminating the intended estate tax benefits.

The longer the trust term, the smaller the value of the remainder interest for tax purposes. But it’s generally better to choose a term that’s shorter than your life expectancy. Doing so will reduce the chance that you’ll die before the end of the term, causing the home to be included in your taxable estate.

There are also income tax considerations. Unlike property inherited at death, a home transferred through a QPRT generally doesn’t receive a step-up in basis when the trust term successfully ends. As a result, the beneficiaries could face larger (in some cases, much larger) capital gains taxes if they later sell the home than they would have had they inherited it. So it’s important to weigh potential estate tax savings against potential future income tax liability.

Is a QPRT right for your estate?

If you have a home that’s appreciating rapidly and a large enough estate that estate taxes are a concern, a QPRT is worth a look. However, because it involves complex tax rules, strict IRS requirements and long-term commitments, a QPRT should be executed only after a thorough review of your financial circumstances and estate planning objectives. FMD can help you determine if this type of trust is right for you.

Professional Valuations Provide Businesses with more than a Number

Are you selling your business, soliciting new investors, updating a buy-sell agreement, pursuing litigation or drafting an estate plan? An accurate business valuation prepared by a valuation professional is critical to the success of these and many other activities. Knowing some fundamentals about the process can help you understand your valuator’s conclusions, what drives business value and where to invest resources. Here are some basic concepts you should know.

Fair market and fair value

Although they sound similar, these two terms can have different meanings. Fair market value is the valuation standard used for tax, transaction and planning purposes. It represents the price at which a business or ownership interest would change hands between a hypothetical willing buyer and a hypothetical willing seller. It assumes that both parties are acting independently, have reasonable knowledge of the relevant facts and are under no pressure to complete the transaction.

Fair value, on the other hand, is a legal standard that generally depends on state law and court precedent. It’s commonly used in shareholder disputes, divorce proceedings and certain litigation. Fair market value can serve as a starting point for an appraisal, but fair value generally requires adjustments to reach an equitable outcome. For example, when minority shareholders are forced out of a business through a merger, courts often rely on the fair value standard because those shareholders are neither hypothetical nor willing participants.

Going concerns

Another essential concept is going concern value. This refers to the value of a business that’s expected to continue operating into the foreseeable future.

A going concern is typically worth more than the sum of its individual assets because it includes valuable intangible assets. These might include an experienced workforce, established customer relationships, proprietary processes, operating systems, licenses and a proven ability to generate earnings. In today’s economy, such intangible assets often account for a significant portion of a business’s value.

Premiums and discounts

Valuations aren’t simply based on the numbers contained in a business’s financial statements. Professional valuators also usually consider the ownership interests being appraised. For instance, a business may be more valuable because the owner can independently direct management decisions and influence the organization’s future. This additional value is known as a valuation premium (in this case, for control reasons).

Conversely, a valuation professional may apply a valuation discount when circumstances reduce the appeal of an ownership interest. One of the most common examples is a discount for lack of marketability. This reflects the difficulty of quickly selling an interest in a privately held business. Depending on the facts, other discounts, such as those related to minority ownership, may also be considered when appropriate.

Risks and opportunities

Even if you aren’t facing litigation or don’t plan to sell your business soon, consider obtaining a valuation. Professional valuations often review historical and projected financial performance, economic conditions, key-person risk, competitive position, and other qualitative and quantitative factors. Periodic valuations may alert you to potential threats and measure progress toward long-term goals. Contact FMD for help determining what your business is worth and identifying practical steps to enhance its value.

Making Smarter Capital Investment Decisions

Whether you’re buying equipment, automating processes, launching a new product line or expanding your facilities, capital investment decisions shouldn’t be based on intuition alone. Your management team may identify several promising growth opportunities. Which ones can your business realistically support today with available cash flow, financing and staffing — and which ones can wait?

A comprehensive financial analysis can help you compare alternatives and allocate resources where they’ll likely have the greatest long-term benefit.

Develop financial projections

Start by evaluating how a proposed investment is likely to affect your business’s financial results. Historical financial statements typically serve as a baseline for financial projections.

Use your most recent income statement to develop realistic assumptions about 1) how much additional revenue (or cost savings) the project is expected to generate, and 2) what incremental expenses it will incur. In some cases, qualifying property may be eligible for special tax savings — such as 100% bonus depreciation or Section 179 expensing — that should be factored into the decision.

A proposed investment may also affect your balance sheet and statement of cash flows. For example, a project may require additional working capital and fixed assets. Preparing comprehensive financial projections helps you determine how much cash the project will need each period and whether internal resources will be sufficient to finance it. Some projects will require the business to tap its line of credit or obtain additional loans or capital contributions.

Financial projections are only as reliable as their underlying assumptions. So consider how the projected results would change if implementation is delayed, costs exceed estimates or expected cash flows fall short. Comparing best-case, worst-case and most-likely scenarios can reveal which assumptions pose the greatest risk to the investment.

Evaluate competing opportunities

Once you’ve estimated the projected cash flows, it’s time to analyze the results and prioritize competing investment alternatives. For example, you might have $50,000 to invest in either a new machine or IT upgrades. Which option is better from a financial perspective?

Three common financial tools for evaluating such decisions are:

1. Payback period. This tells you how long it will take for a project to recoup its initial investment without considering the time value of money. For example, suppose a new machine that costs $48,000 is expected to generate $12,000 of incremental cash flow annually. Its payback period would be four years ($48,000 / $12,000).

2. Net present value (NPV). When calculating NPV, you discount each period’s projected cash flow to its present value. The sum of the present values for all the periods, including the cost of the initial investment, equals the project’s NPV. If NPV is greater than zero, the project is expected to create value and generally warrants further consideration. If not, the project may not be worthwhile. Typically, management uses the business’s cost of capital or a discount rate that reflects the project’s risk profile to discount projected cash flows.

3. Internal rate of return (IRR). This is the discount rate at which a project’s NPV equals zero. Management typically has a preset hurdle rate that a project must exceed to be considered. For example, if management sets its hurdle rate at 15%, any project with an IRR below 15% will be less likely to move forward.

When applying these financial tools, it’s also important to consider qualitative factors. For example, IT upgrades might strengthen cybersecurity, improve efficiency, enhance customer service and reduce business risk — benefits that may be difficult to quantify in financial projections.

Need help?

Strong investment decisions combine sound financial analysis with strategic objectives, operational considerations and risk management. Contact FMD to help you evaluate potential capital investment projects and identify which opportunities make the best use of your business’s resources.

Ideas for Negotiating Smarter, Not Harder

Business negotiations aren’t about squeezing every possible concession from the other side. Both parties should leave the table believing they’ve protected their interests and gained something of value. This approach not only supports the current transaction, but also lays the groundwork for future deals. The reason is simple: Business owners with a reputation for fairness tend to attract more opportunities.

Before the conversation begins

Every successful negotiation starts before anyone sits down to talk. First, define what success looks like for your business and identify the point at which a deal no longer makes financial or operational sense. Establishing your minimum acceptable terms ahead of time helps prevent emotion-based decisions.

Price often dominates business negotiations. But bear in mind that other factors may matter just as much, including delivery schedules, payment terms, warranties, service levels and future opportunities. Occasionally, something with little value to your organization may be highly valuable to the other party. For example, discounted excess inventory could help solve a customer’s problem while reducing your carrying costs.

When appropriate, establish basic ground rules before negotiations begin. This can be especially helpful when dealing with language barriers, cultural differences or potentially contentious situations where expectations need to be clearly defined.

Making strategic concessions

Once negotiations begin, don’t immediately agree when a concession is requested and try to avoid making the first one. Taking time to consider requests demonstrates that what you’re giving up has real value.

The concessions you do make should be relatively small and deliberate. Large early compromises may signal that your original position wasn’t realistic and encourage the other side to push for more. Also remember that several small concessions can add up, so monitor the cumulative impact throughout the discussion.

Perhaps the most important principle is to never concede something without receiving something in return. Effective negotiations rely on balanced exchanges rather than one-sided compromises. Instead of responding with a simple “yes,” consider saying, “I’d be willing to do this if you can help us by…” This approach keeps negotiations collaborative while protecting your interests.

Protect the relationship

After receiving a concession, resist the temptation to immediately ask for more on the same issue. Overreaching can quickly erode trust and jeopardize an otherwise favorable agreement. Also, be careful about stating potentially unreasonable demands or ultimatums. Maintain a positive tone by focusing on what you can do for the other party instead of simply rejecting proposals.

If negotiations seem to be deteriorating, be prepared to walk away. Assuming you want to preserve the relationship, suggest returning to the discussion another day.

Stronger future deals

Whether you’re negotiating with customers, suppliers, lenders or strategic partners, a positive outcome depends on preparing well before the meeting and keeping a cool head during it. Remember that negotiations should establish trust, credibility and a foundation for future business. FMD can help you get ready for negotiations by identifying reasonable financial parameters and integrating them into your negotiating strategies.

As a Single Parent, You Need an Estate Plan that Achieves these Key Objectives

According to a 2026 Worldmetrics report, there are between 14.5 and 15 million single-parent households in the United States. If your family falls into this category, it’s critical that your estate plan:

Appoints a guardian. Your plan must designate a suitable, willing guardian to care for your children if the other parent is unavailable to take custody of them in the event you become incapacitated or die suddenly.

Choose the best person for the job and designate an alternate if that person can’t fulfill the duties. Frequently, a single parent will name a married couple who are relatives or close friends. If you take this approach, ensure that both spouses have legal authority to act on the child’s behalf. Also, select someone who has the necessary time and resources for this immense responsibility.

Establishes a trust. Trust planning is one of the most effective ways to provide for your children. Trust assets are managed by a trusted individual or corporate trustee for the benefit of your children.

If your trust will provide for your children into adulthood, consider an incentive trust. By linking asset distribution to specific goals or behaviors, it can encourage your heirs to live responsibly while ensuring your estate is managed according to your wishes. An incentive trust can promote financial responsibility, encourage education or career development, discourage harmful behaviors and support charitable values.

Addresses incapacity. It’s important for your estate plan to include documents that specify your health care preferences if you become incapacitated and designate someone to make medical decisions on your behalf. You should also have a revocable living trust or durable power of attorney to manage your finances if you’re unable to do so.

Implements a gifting strategy. If your estate is large enough that gift and estate taxes are an issue, it’s important to begin tax planning as early as possible. As a single parent, you won’t enjoy the benefit of the unlimited marital estate tax deduction, so you’ll need to rely more heavily on other tax-reduction strategies.

For example, you might take advantage of the $19,000 per recipient (for 2026) gift tax annual exclusion to regularly make tax-free gifts to your children or to a trust for their benefit. By using the gift tax annual exclusion judiciously, you can transfer assets to your children and other family members and reduce the size of your taxable estate without eroding your federal gift and estate tax exemption. Be aware that each year you need to use your annual exclusion by December 31. The exclusion doesn’t carry over from year to year.

Creating a comprehensive estate plan is one of the most important steps you can take as a single parent to protect your young children. Unlike households with two parents, there may be no automatic backup decision-maker, financial provider or caregiver if the unexpected happens. If you have questions regarding your estate plan, don’t hesitate to contact us. FMD would be pleased to review your plan and help make any necessary updates.

Accounting Teams Need More Than Number Skills

In addition to mastering accounting and tax rules, today’s accounting professionals must work through financial decisions with customers, vendors, lenders, business partners and internal stakeholders. Topics may range from payment terms and budgets to technology investments and contract renewals.

Developing strong negotiation skills can help your accounting team resolve billing issues and achieve favorable pricing and contract terms. Over time, these skills can add real value by strengthening business relationships and improving your business’s overall financial performance. Here’s how to help your internal accounting team become confident, effective negotiators.

Start by earning trust

The first step in any negotiation is establishing rapport with the other party. Although difficult to measure, rapport is the trust-based connection that enables people to communicate openly and work toward common goals. Ways to establish and maintain it include:

• Asking open-ended questions and avoiding interruptions,

• Restating key points to demonstrate interest in what the other party said,

• Paying close attention to your tone of voice and word usage, and

• Maintaining eye contact, smiling and being mindful of body language, such as crossed arms, that may send subtle yet noticeable signals about your level of engagement.

If you want someone to trust you, that person must feel like they’re being heard and not judged or looked down upon. While building rapport, it can also help to communicate your commitment to fairness and transparency. Setting an ethical tone signals integrity and helps lay the foundation for a more productive exchange.

For example, rapport building remains critical when following up on overdue customer invoices. Automated payment reminders and online customer payment portals can often resolve routine issues. If additional outreach is needed, your accounting staff should begin with a calm, friendly phone call or video conversation that acknowledges the customer’s situation while reviewing the invoice amount and payment status. If the customer remains unresponsive after your normal collection timeline has passed, the employee should follow your company’s escalation policy for involving management, document all outreach and get approval before changing terms or pursuing additional collection steps.

If your business doesn’t already have a formal escalation policy, now is a good time to draft one. Your staff should operate within clear approval limits and know when to involve management and outside advisors.

Focus on shared objectives

When negotiating, it’s easy to view the exercise as a win-lose proposition, meaning one person’s gain comes at the other's expense. While some negotiations can produce just one winner, in many cases, it’s possible to collaborate and reach a mutually beneficial outcome. A win-win scenario is more likely when both parties openly discuss their priorities and constraints.

For instance, when discussing a long-term agreement with a supplier, primary considerations are price, payment terms and contract length. But vendor negotiations often extend beyond cost. Additional issues to consider include service expectations, delivery performance, technology integration, cybersecurity responsibilities and communication protocols. Sharing appropriate forecasting or inventory data can also help suppliers improve planning and minimize disruptions. Businesses that build collaborative relationships with key vendors may be better positioned to negotiate favorable pricing and receive priority service.

Invest in your team

Business owners play a critical role in developing employee skills. By modeling strong communication skills, emphasizing collaboration and practicing ethical negotiation techniques, you can show your accounting team firsthand how these skills translate into stronger business relationships and better financial outcomes.

Building “people” skills doesn’t happen overnight, but the payoffs from nurturing and mentoring your team may include lower costs, stronger cash flow and a more empowered team. Contact FMD for guidance on strengthening your accounting team's negotiation skills so they can handle key business discussions more effectively.