When Should You Update Your Estate Plan?

Many people think of estate planning as a “one-and-done” task — something you complete and file away. But an estate plan should evolve as your life and finances and relevant laws change. An outdated plan can create confusion, unintended tax consequences or outcomes that no longer reflect your wishes.

The higher federal gift and estate tax exemption that was made permanent by last year’s One Big Beautiful Bill Act is one reason to review your estate plan now. But you should also review your plan whenever something significant changes in your life. Let’s take a look at common situations that signal the need to revisit your will, trusts, powers of attorney or other estate planning documents.

Major life events

Life transitions are the most common reasons estate plans need attention. Marriage or remarriage is a big one, especially if you have children from a prior relationship. Divorce is equally important. Failing to update your documents could leave an ex-spouse in control of your assets or medical decisions.

The birth or adoption of a child or grandchild should also trigger a review. You’ll want to name a guardian or adjust beneficiary designations to reflect your growing family. Similarly, the death or incapacity of a spouse, beneficiary, trustee or executor means your plan may no longer function as intended.

Financial changes matter, too

Your estate plan should reflect your current financial situation. If your net worth has increased significantly — through business growth, inheritance, real estate appreciation or investment success — your existing plan may not adequately address tax planning or asset protection.

Starting, buying or selling a business is another major reason to update your estate plan. Business ownership often requires specific provisions for succession planning, valuation and continuity. Retirement also can prompt changes, as income sources shift and distribution strategies evolve.

Don’t forget supporting documents

Updating an estate plan isn’t just about your will or trusts. Beneficiary designations on retirement accounts and life insurance policies should be reviewed regularly, as they generally override what’s stated in your will.

Powers of attorney and health care directives are also critical to review. Make sure they continue to reflect your wishes and that those you’re providing with decision-making authority are still people you trust and who are able to serve.

The bottom line

An estate plan is only effective if it reflects your current wishes and circumstances, as well as current law. Regular reviews help ensure your assets are distributed as intended, your loved ones are protected, and unnecessary taxes or legal complications are avoided.

Because estate planning intersects with taxes, financial planning and your long-term goals, it’s wise to review your plan with qualified professionals. FMD can help you identify when updates may be needed and coordinate with your legal and financial advisors to keep your plan on track.

Where Should You Hold Your Company Retreat?

As remote and hybrid work have become more common, corporate retreats have surged in recent years. Some or all of your employees may now work from home and experience little in-person interaction with coworkers. A retreat can foster collegial relationships and, ultimately, greater productivity. But the first decision you’ll likely need to make is whether your retreat will be a smaller-scale affair held in your office or an off-site retreat. There are ways to make either one affordable.

Your office

Staying on your company’s premises can keep out-of-pocket costs in check. The most obvious is that you won’t need to rent meeting rooms. And, assuming employees live in the area, you won’t have transportation and lodging expenses. You’ll also likely spend less on food and beverages. A local restaurant can cater your meals and snacks, and you could buy beverages in bulk.

On the downside, employees tend to view on-site retreats as just another day at the office. This can hamper creative thinking and team building and limit possible activities. Worse, employees may be distracted if they can frequently run back to their desks to check email and voicemail.

Off-site locations

In general, workers are better able to focus on a retreat agenda at an off-site location. They’re in a new, “special” environment with no visual cues to trigger workday routines. So, even though you’ll incur greater costs than if you’d stayed in your office, you may get a better return on investment.

The fact is, hotels and other facilities that host company retreats need and want your business! Many things may be negotiable, and you might be able to snag discounts by booking or paying early. Get several quotes and compare prices and services. You’ll have more leverage if you avoid scheduling your retreat during seasonal peaks when local venues tend to be busy with weddings, trade shows and industry conferences.

Hotels earn their biggest margins on food, beverages and meeting setup fees, so they may be willing to provide complimentary or discounted rooms for guest speakers and out-of-town employees. Also, try to negotiate a flat food-and-beverage price for the entire retreat, rather than a per-person or per-event rate.

Possible tax relief

Here’s another way to save: Some of your company retreat expenses may be tax-deductible. They need to meet IRS criteria as “ordinary and necessary” business expenses and can’t be extravagant or include expenditures for employees’ spouses. In general, business meals are only 50% deductible, and entertainment costs are nondeductible. Contact FMD to learn more about tax-deductible costs and the IRS’s documentation requirements.

Beware: Accounting Missteps can Trip up New Businesses

Launching a start-up comes with no shortage of big decisions and fast-moving priorities. In the rush to grow, financial fundamentals can sometimes take a back seat — often with costly consequences. Some common accounting missteps that new business owners should avoid include:

Overlooking day-to-day spending. Starting a new business is exciting, and it’s natural to focus on generating revenue and building business relationships. But it’s essential to keep detailed, timely records of expenses, including receipts and invoices. This will help you properly allocate costs, price products and services, assess and improve financial performance, and claim tax deductions.

Skipping regular account reviews. Reconciling accounts involves comparing your records to your bank and credit card statements to identify and correct any discrepancies. Account reconciliation helps ensure your business pays close attention to expenses and available cash. It can also help prevent and detect fraud by third parties and employees.

Blurring the line between personal and company finances. When you own a business, you need to keep personal and business matters separate for financial reporting, tax and legal purposes. Maintaining separate bank and credit card accounts and clearly distinguishing between personal and business activities will help avoid confusion. These practices also make it easier to track business expenses and support accurate budgeting and forecasting.

Getting worker status wrong. How much control do you exercise over the people who work for your business? Are your workers an integral part of your operations? Misclassifying employees as independent contractors can have serious legal and financial consequences. Make sure you understand the differences between employees and contractors and categorize them appropriately. If you don’t follow the rules, the IRS, the U.S. Department of Labor and a state tax agency might challenge the status of your workers. Some state rules may be stricter than the federal ones.

Being unprepared for tax obligations. Because many start-ups run at a loss, at least initially, some owners forget to set aside money for taxes. This can lead to cash shortages and other financial difficulties when tax time rolls around. Failure to make timely federal and state tax payments can result in penalties and interest charges. And don’t forget about payroll, sales and property tax obligations. Even if your business operates at a loss, these taxes may still be due.

Neglecting formal accounting systems and controls. Entrepreneurs must select and consistently apply an accounting method that best fits their business needs. Many fledgling businesses start off using cash- or tax-basis accounting, then graduate to accrual-basis reporting as they mature. But lenders, franchisors and investors sometimes require accrual-basis financial reporting from the get-go. Working with an experienced accountant can help you evaluate these requirements, select affordable, user-friendly bookkeeping software and establish consistent processes for recording business transactions.

It also pays to invest upfront in simple internal controls — such as locks on file cabinets, regular software updates, network backups and antivirus programs — to help prevent theft and fraud. Start-ups with valuable intellectual property, such as patents, secret recipes and proprietary software, should consider protecting these assets by implementing network security policies, filing appropriate legal protections, and requiring employees and contractors to sign noncompete agreements, where legally permitted. Additional internal control measures can be implemented as your business matures.

Fortunately, these common accounting missteps are preventable if you take proactive measures to avoid them. Building a strong financial foundation begins with seeking guidance from experienced bookkeeping and accounting professionals. In addition to helping you design and implement sound financial systems and controls, FMD offer interim CFO and bookkeeping services to support your business while you recruit and onboard the right talent for your finance and accounting department. Contact us to learn more.

Increase Estate Planning Flexibility by Decanting an Irrevocable Trust

Irrevocable trusts provide various estate planning benefits, such as reducing estate taxes and helping to ensure assets are distributed as you wish. But estate planning isn’t a “set it and forget it” process. Families, tax laws and financial circumstances can change. A major downside of irrevocable trusts is that they’re difficult to update once they’ve been signed and funded. That’s where trust decanting can help.

What does it mean to “decant” a trust?

The term decanting comes from pouring wine from one bottle to another. In estate planning, it means transferring assets from an existing trust to a new trust that can better achieve your goals.

Depending on the trust’s language and the provisions of applicable state law, decanting may allow a trustee to:

• Correct errors or clarify trust language,

• Move the trust to a state with more favorable tax or asset protection laws,

• Take advantage of new tax laws,

• Remove beneficiaries,

• Change the number of trustees or alter their powers,

• Add or enhance spendthrift language to protect the trust assets from creditors’ claims, or

• Move funds to a special needs trust for a disabled beneficiary.

Unlike assets transferred at death, assets that are transferred to a trust don’t receive a step-up in basis. As a result, they can subject the beneficiaries to capital gains tax on any appreciation in value. One potential solution is to use decanting.

Decanting can authorize the trustee to confer a general power of appointment over the assets to the trust’s grantor. This would cause the assets to be included in the grantor’s estate and, therefore, to be eligible for a step-up in basis. Depending on the size of the estate, this might make sense given today’s high gift and estate tax exemption ($15 million in 2026).

Beware of your state’s laws

Many states have decanting statutes, and in some states, decanting is authorized by common law. Either way, it’s critical to understand your state’s requirements. For example, in certain states, the trustee must notify the beneficiaries or even obtain their consent to decant.

Even if decanting is permitted, there may be limitations on its uses. Some states, for example, prohibit the use of decanting to eliminate beneficiaries or add a power of appointment. And most states won’t allow the addition of a new beneficiary. If your state doesn’t authorize decanting, or if its decanting laws don’t allow you to accomplish your objectives, it may be possible to move the trust to a state whose laws meet your needs.

Don’t forget about potential tax implications

One of the risks associated with decanting is uncertainty over its tax implications. For example, let’s say a beneficiary’s interest is reduced. Has he or she made a taxable gift? Does it depend on whether the beneficiary has consented to the decanting? If the trust’s language authorizes decanting, must it be treated as a grantor trust? Does such language jeopardize the trust’s eligibility for the marital deduction? Does distribution of assets from one trust to another trigger capital gains or other income tax consequences to the trust or its beneficiaries?

If you have tax-related questions, please contact FMD. We’d be pleased to help you better understand the pros and cons of decanting a trust.

How to get Inventory Under Control

Uncertainty regarding inflation, demand and foreign tariffs has made inventory management even harder for businesses than it was previously. Although there are many unknowns right now, one thing is generally certain: Carrying excess inventory is expensive. If you’d like to trim your buffer stock and maximize profitability, there are effective ways to do it without risking customer service.

Count and compare

Inventory management starts with a physical inventory count. Accuracy is essential for knowing your cost of goods sold and for identifying and resolving discrepancies between your physical count and perpetual inventory records. An external accountant can bring objectivity to the counting process and help minimize errors.

The next step is to compare your inventory costs to those of your peers. Trade associations often publish benchmarks for gross margin [(revenue - cost of sales) / revenue], net profit margin (net income / revenue) and days in inventory (average inventory / annual cost of goods sold × 365 days).

Your company should strive to meet — or beat — industry standards. For a retailer or wholesaler, inventory is simply purchased from the manufacturer. But the inventory account is more complicated for manufacturers and construction firms where it’s a function of raw materials, labor and overhead costs.

Guide to cutting

The composition of your company’s cost of goods will guide you on where to cut. You may be able to reduce inventory expenses by renegotiating prices with your suppliers or seeking new vendors. And don’t forget the carrying costs of inventory, such as storage, insurance, obsolescence and pilferage. Brainstorm ways to mitigate such threats and improve margins. For example, you might negotiate a net lease for your warehouse, install antitheft devices or opt for less expensive insurance coverage.

To lower your days-in-inventory ratio, compute product-by-product margins. You might stock more products with high margins and high demand — and less of everything else. Whenever possible, return excess supplies of slow-moving materials or products to your suppliers.

To help prevent lost sales due to lean inventory, make sure your product mix is sufficiently broad and in tune with consumer needs. Before cutting back on inventory, negotiate speedier delivery from suppliers or consider giving suppliers access to your perpetual inventory system.

Reality check

Right now, many businesses are sitting on strategic stockpiles they purchased to combat marketplace uncertainty. If this is true of your business and you haven’t been able to move goods fast enough, you may want to consider new inventory management methods. FMD can advise you on such challenges as using software to accurately forecast inventory needs, pricing goods to increase profitability without alienating customers, and modeling the cost impacts of tariffs and other economic variables.

Remote Auditing is Here to Stay: How it’s Changing the Audit Process

Once considered a temporary workaround, remote auditing is now a permanent part of how audits are planned and performed. Technological advances and evolving workforce expectations have pushed audit firms to rethink traditional, fully on-site approaches. The question isn’t whether remote auditing will continue (it will), but how firms and clients can use it effectively while maintaining audit quality.

How remote auditing gained momentum

The concept of remote auditing didn’t emerge overnight. Even before remote work became commonplace during the COVID-19 pandemic, accounting firms were gradually expanding the use of off-site audit procedures. Many firms invested in staff training and technology — such as cloud computing, secure remote access and videoconferencing tools — to work off-site. Moreover, advanced analytics software and continuous auditing tools enabled real-time testing, reducing reliance on certain traditional manual testing procedures.

These efforts were driven largely by a desire to reduce business disruptions and costs while improving flexibility for both auditors and clients. The pandemic served as a catalyst for the widespread adoption of remote auditing techniques. As firms became more comfortable with these tools, they found that some procedures could be completed just as effectively, if not more so, outside the traditional on-site model.

Why hybrid audits are the new standard

Even with well-established remote capabilities, certain audit areas still benefit significantly from being conducted in person. Auditing standards emphasize that auditors must obtain sufficient appropriate evidence, whether collected on-site or off-site. Your auditor’s risk assessment dictates how and where procedures are performed.

Today, most auditors use a hybrid approach. By combining off-site and in-person procedures, they can balance efficiency with effectiveness. Some examples include:

Internal control testing. Auditors must evaluate whether controls are properly designed and implemented, and if they’re operating effectively. Gaining a full understanding of a company’s control environment can be challenging through virtual meetings alone. In addition, auditors often need to reassess how transactions are processed when employees work remotely or in hybrid settings. Controls that were effective in prior periods may need to be updated or supplemented, and in-person observation can provide critical context.

Fraud-related inquiries. Auditing standards emphasize that inquiries of management and those charged with governance regarding fraud are most effective when conducted face-to-face. On-site discussions allow auditors to observe body language, assess tone and evaluate interpersonal dynamics — insights that are harder to capture through a screen.

Inventory observations. Auditors are required to obtain sufficient appropriate evidence that inventory exists and is in good condition. While technology, such as live video feeds, drones and security cameras, can support this process, these tools have limitations. Observing inventory counts in person, at least for a sample of locations, often remains necessary to verify accuracy and completeness.

Companies that are unwilling to allow in-person procedures in these areas may raise concerns about audit risk. And when auditors decide to use remote procedures, they must apply heightened professional skepticism and be well-trained in using technology effectively.

Remote auditing, together

The future of auditing is flexible, adaptable and often remote. However, maintaining audit quality requires using the right tools in the right situations. The optimal mix of remote and on-site procedures will vary based on a company’s size, industry, systems and risk profile. Contact FMD to discuss what makes sense for your organization. We’ll work closely with your internal finance and accounting team to design an audit approach that streamlines the process while upholding audit quality.

Owning Real Estate in Multiple States can Negatively Affect Beneficiaries

A vacation home, rental property or future retirement residence may play an important role in your long-term plans. However, if you hold properties across multiple states, it can create estate planning issues that can be easily overlooked. If not addressed properly, these issues can have consequences for your heirs.

Multiple properties can result in multiple probate proceedings

Probate is a court-supervised administration of your estate. If real estate is titled in your name, that property generally must go through probate in the state where it’s located.

If probate proceedings are required in multiple states, the process can become expensive. For example, your representative will need to engage a probate lawyer in each state, file certain documents in each state and comply with other redundant administrative requirements.

Beyond cost and inconvenience, multiple probate proceedings can slow the transfer of property. This can create uncertainty for beneficiaries who need access to or control over the real estate.

A revocable trust can help avoid probate

A common strategy to avoid probate — especially for individuals with property in multiple states — is to transfer property to a revocable trust (sometimes called a “living trust”). When it comes to real estate, this generally involves preparing a deed transferring each property to the trust and recording the deed in the county where the property is located.

Property held in a revocable trust generally doesn’t have to go through probate. The reason is that the trust owns the property, not you. Your trustee manages or distributes the property according to the terms of the trust, without court involvement. A single revocable trust can hold real estate located in multiple states, potentially eliminating the need for separate probate proceedings in each jurisdiction.

Planning ahead makes a difference

While a revocable trust can be an effective solution, it must be structured and maintained correctly to achieve the intended results. Titling, state-specific rules and coordination with the rest of your estate plan all matter.

For example, will transferring a residence to a trust affect your eligibility for homestead exemptions from property taxes or other tax breaks? Will the transfer affect any mortgages on the property? Will it be subject to any real property transfer taxes? It’s also important to consider whether transferring title to property will affect the extent to which it’s shielded from the claims of creditors.

Review your properties and your estate plan

If you own — or are considering purchasing — real estate in another state, be sure to review how that property fits into your overall estate plan. FMD can assess the financial and tax implications and work with your legal advisors to help ensure your plan supports your long-term goals and protects your family.

Advisory Boards Provide Family Businesses with Independent Perspectives

Does your family business keep its strategic decisions within the family? It’s common for family businesses to assign relatives to positions of authority and require other employees to defer to them. But “common” doesn’t necessarily mean “good.” Not only is outside input recommended, but it can help reduce the risk of certain problems (such as unaccountability and fraud) and promote long-term financial health. Here’s how your family business might benefit from an advisory board made up primarily of nonfamily members.

A consulting body

An advisory board serves only in a consulting capacity. So it doesn’t carry the fiduciary responsibilities or legal authority of a formal board of directors. Small business advisory boards generally are less formal and enjoy greater freedom to develop creative solutions and suggest new business opportunities.

Advisory boards can also act as mediators. Board members may provide perspective and potential solutions for family disagreements over:

• Your company’s strategic direction,

• Growth and expansion opportunities,

• Mergers and acquisitions,

• Loans and other financing initiatives,

• Compensation and promotion decisions,

• Interpersonal conflicts, and

• Succession plans.

Depending on your board’s composition, it may also be qualified to offer opinions on legal, regulatory and complicated financial issues.

Building the base

You’ll want a mix of professionals from varying fields, demographics and backgrounds on your board. One effective way to recruit advisory board members is to network with business, industry, community, academic and philanthropic organizations. You may also want to involve professional advisors, such as your CPA, banker, insurance agent, estate planner or legal counsel. These advisors will likely already be familiar with your company’s goals, issues and operations.

Specify the mix of traits and qualifications — leadership skills, experience, competencies, education, affiliations and achievements — needed in members to fulfill your board’s purpose. Ensure these individuals are willing to make candid observations and provide constructive advice. They must also maintain confidentiality and exercise discretion regarding sensitive business and family matters.

It may be practical for you or another family member to serve as the advisory board’s chair. But as your business grows in size and complexity and the demands on your time increase, consider delegating this responsibility to a board member.

Nail down the details

Other details to work out include the frequency of advisory board meetings. Meeting at least monthly initially will help the group build rapport and become relevant to your business. Once the board is established, quarterly meetings may suffice. However, emergency meetings scheduled on short notice may become necessary at certain points.

Your business should cover advisory board members’ travel costs and pay them for their time. Cash compensation makes sense for family businesses that intend to remain closely held. However, companies planning to go public often issue stock or equity-based compensation (subject to legal and tax considerations).

Impartial perspectives

If your family business doesn’t already have one, consider creating an independent advisory board to provide impartial perspectives on your company’s pressing challenges and opportunities. Contact FMD to discuss how we can help you design an effective advisory board — or participate as an independent financial advisor to support governance and long-term planning.

Preparing Your F&A Team for Leadership Changes

At the start of the new year, your finance and accounting (F&A) department is under a microscope. Budgets, forecasts and strategic plans are top of mind, and internal staff may be working with your CPA to finalize year-end financial statements. This heightened attention often raises an important question: What would happen if your CFO suddenly left?

For many organizations, leadership change in the F&A department would be highly disruptive. Proactively planning for a CFO’s departure — whether expected or unexpected — can help stabilize your team and reduce key-person risk. It also creates a valuable opportunity to reassess your organization’s financial reporting and strategic planning needs. Here are four practical steps to consider as you plan for 2026.

1. Update the job description

During the current CFO’s tenure, your organization’s needs may have changed. Take time to review the existing job description and assess whether it still reflects the skills and experience your organization requires today.

For example, if you’ve recently taken on debt and must comply with lending covenants, make sure those responsibilities are clearly defined in the job description. Also, if you’ve expanded substantially, you may have outgrown the current role’s scope or structure. For instance, you might need to replace a bookkeeper with a CPA who has the experience and skills to manage a larger F&A team.

2. Evaluate your department’s performance

The F&A department is critical to your success. It should provide accurate, relevant financial information on a timely basis. Objectively assess whether reporting delays, recurring errors or limited financial insight have been holding your business back.

If your organization’s goals demand a higher level of performance, this may signal a need for structural improvements — such as enhanced training, new team members, clearer accountability, and more formalized policies and procedures. Strong internal controls help reduce fraud risk and lessen reliance on any single individual.

3. Ensure your accounting technology is keeping pace

Leveraging modern accounting software can help your F&A team operate more efficiently, reduce manual data entry and minimize errors that often arise from spreadsheet-driven processes. Well-configured systems can also improve consistency in reporting, strengthen internal controls and create clearer audit trails.

In addition, automation can free up internal staff to focus on higher-level activities, such as financial analysis, forecasting and strategic decision-making. As part of your planning, assess whether your current system is up to date, industry-appropriate and properly configured to support your organization’s size, complexity and growth plans. If the system relies heavily on manual workarounds or undocumented processes, it may expose your organization to unnecessary risk during a leadership transition.

Also consider whether you’re maximizing the functionality of your current accounting software. Set up a meeting with a vendor rep to discuss what’s working and what’s not, and see how they respond. A worthy provider will address issues, provide training and offer ongoing customer support. If your vendor doesn’t provide adequate support, we can conduct a comprehensive assessment of the effectiveness of your accounting system and how you’re using it.

4. Plan for change

In-house personnel will need to manage new challenges as your organization grows and evolves. For example, if you’re dealing with a complex matter — such as a merger, restructuring or private equity transaction — your CFO should have sufficient knowledge to support the effort.

Thinking in terms of succession, scalability and adaptability can help ensure your finance function remains effective over time. Streamlined processes and documented procedures also make transitions smoother when change does occur.

Be proactive, not reactive

A CFO’s departure doesn’t have to derail your organization’s momentum. With a clear action plan in place, you can turn a potential disruption into a strategic reset. Taking these steps before a transition occurs can help ensure your F&A team remains stable, effective and aligned with your organization’s goals in 2026 and beyond. Contact FMD for more information.

Are You and Your Spouse Considering Splitting Gifts?

The gift tax annual exclusion allows you to transfer up to $19,000 (for 2026) per beneficiary gift-tax-free, without tapping your $15 million (for 2026) lifetime gift and estate tax exemption. You can double the exclusion amount if you elect to split the gifts with your spouse.

Gift-splitting in a nutshell

Gift-splitting allows married couples to treat a gift made by one spouse as if it were made equally by both spouses. This election can reduce future estate tax exposure and provide greater flexibility in passing wealth to the next generation.

For example, let’s say that you have two adult children and four grandchildren. You can gift each family member up to $19,000 tax-free by year end, for a total of $114,000 ($19,000 × 6). If you’re married and your spouse consents to a joint gift (or a “split gift”), the exclusion amount is effectively doubled to $38,000 per recipient, for a total of $228,000.

Avoid common mistakes

It’s important to understand the rules surrounding gift-splitting to avoid these common mistakes:

Misunderstanding IRS reporting responsibilities. Split gifts and large gifts trigger IRS reporting responsibilities. A gift tax return is required if you exceed the annual exclusion amount or give joint gifts with your spouse. Unfortunately, you can’t file a “joint” gift tax return. In other words, each spouse must file an individual gift tax return for the year in which you both make gifts.

Gift-splitting with a noncitizen spouse. To be eligible for gift-splitting, both spouses must be U.S. citizens.

Divorcing and remarrying. To split gifts, you must be married at the time of the gift. You’re ineligible for gift-splitting if you divorce and either spouse remarries during the calendar year in which the gift was made.

Gifting a future interest. Only present-interest gifts qualify for the annual exclusion. So gift-splitting can be used only for present interests. A gift in trust qualifies only if the beneficiary receives a present interest — for example, by providing the beneficiary with so-called Crummeywithdrawal rights.

Benefiting your spouse. Gift-splitting is ineffective if you make the gift to your spouse, rather than a third party; if you give your spouse a general power of appointment over the gifted property; or if your spouse is a potential beneficiary of the gift. For example, if you make a gift to a trust of which your spouse is a beneficiary, gift-splitting is prohibited unless the chances your spouse will benefit are extremely remote.

Be aware that, if you die within three years of splitting a gift, some of the tax benefits may be lost.

Proper planning required

Whether gift-splitting is right for you and your spouse depends on your estate size and long-term objectives, among other factors. Because the election involves technical requirements and potential implications for future planning, it’s important to carefully evaluate the strategy. FMD can help ensure that your split gifts comply with federal tax laws.

Is Your Business Vulnerable to Payroll Fraud?

Payroll fraud schemes can be costly — and for small businesses, devastating. The Association of Certified Fraud Examiners (ACFE) has found that the median loss from payroll fraud schemes is $50,000. However, some long-term payroll frauds, particularly when perpetrated by upper management, have produced losses in the millions of dollars. Can your company afford that? Probably not.

Payroll fraud incidents can also result in bad publicity, weakened employee morale and, potentially, an IRS investigation. It’s critical that your business take steps to protect its payroll function.

Illegal self-enrichment

There are several ways for fraud perpetrators to illegally manipulate payroll to enrich themselves. For example, cybercriminals often target payroll functions. They might use phishing emails to trick your workers into providing sensitive information, such as bank login credentials. This becomes a form of payroll fraud if they divert payroll direct deposits to accounts they control. Criminals might also target you and accounting department managers by sending fake emails from “employees” requesting changes to their direct deposit instructions.

Also watch out for occupational payroll fraud. In the absence of appropriate internal controls, crooked accounting staffers could add invented “ghost” employees to the payroll. The wages of those ghost employees might then be deposited in accounts controlled by the fraudsters.

And any employee who files for expense reimbursement may inflate expenses, submit multiple receipts for the same expense or claim fictitious expenses. This is considered payroll fraud because reimbursements are often added to paychecks. By the same token, workers eligible for overtime who artificially inflate their work hours are also generally considered payroll fraud perpetrators.

Effective internal controls

To prevent payroll fraud — and uncover it quickly if it occurs — implement and enforce strong internal controls. For instance, require two or more employees to make payroll changes, such as increasing pay rates or adding or removing employees. Payroll staffers should be alert for excessive or unusual pay rates, hours or expenses. And if they receive a request to change an employee’s direct deposit information, they should verify the request with the worker before proceeding.

For their part, department managers must closely monitor employee expense reimbursement requests. They should ask employees to explain discrepancies, such as totals that don’t add up or expense claims that lack receipts.

Other effective controls include:

Audits. Regularly conduct payroll audits to detect anomalies. Also audit automatic payroll withdrawals to confirm proper transfers are made.

Training. Educate employees about payroll schemes, phishing attacks and the importance of not sharing sensitive information.

Confidential hotlines. Offer an anonymous hotline or web portal to employees, customers and vendors to report fraud suspicions. Be sure to investigate every report.

Tax responsibilities

Finally, a scheme that’s most often perpetrated by business owners and executives is deliberately failing to pay required payroll tax. Ensure that upper management and payroll department employees understand their tax responsibilities and that no one individual has the ability to divert funds intended for payroll tax to a personal account. Contact FMD for more information and assistance with internal controls.

How Auditors Evaluate Accounting Estimates

Financial statements aren’t built solely on fixed numbers and historical facts. Many reported amounts rely on accounting estimates — management’s best judgments about uncertain future outcomes. Estimates are inherently subjective and can significantly affect reported results. How do external auditors evaluate whether amounts reported on financial statements seem reasonable?

Understanding management’s assumptions and data

External auditors pay close attention to accounting estimates during audit fieldwork. They review the methods and models used to create estimates, along with supporting documentation, to ensure they’re appropriate for the specific accounting requirements. In addition, auditors examine the company’s internal controls over the estimation process to ensure they’re robust and designed to prevent errors or manipulation.

For instance, they may inquire about the underlying assumptions (or inputs) used to make estimates to determine whether the inputs seem complete, accurate and relevant. Estimates based on objective inputs, such as published interest rates or percentages observed in previous reporting periods, are generally less susceptible to bias than those based on speculative, unobservable inputs. This is especially true if management lacks experience making similar estimates.

Challenging estimates and assessing bias

When testing inputs, auditors assess the accuracy, reliability and relevance of the data used. Whenever possible, auditors try to recreate management’s estimate using the same assumptions (or their own). If an auditor’s independent estimate differs substantially from what’s reported on the financial statements, the auditor will ask management to explain the discrepancy. In some cases, an external specialist, such as an appraiser or engineer, may be called in to estimate complex items.

Auditors also may conduct a “sensitivity analysis” to see if management’s estimate is reasonable. A sensitivity analysis shows how changes in key assumptions affect an estimate, helping to evaluate the risk of material misstatement.

In addition, auditors watch for signs of management bias, such as overly optimistic or conservative assumptions that could distort the financial statements. They also consider the objectivity of those involved in the estimation process, ensuring there’s no undue influence or pressure that could affect the estimate’s outcome.

Auditors also may compare past estimates to what happened after the financial statement date. The outcome of an estimate is often different from management’s preliminary estimate. Possible explanations include errors, unforeseeable subsequent events and management bias. If management’s estimates are consistently similar to actual outcomes, it adds credibility to management’s prior estimates. But if significant differences are found, the auditor may be more skeptical of management’s current estimates, necessitating the use of additional audit procedures.

Why estimates matter

Accounting estimates are a key focus area for auditors because small changes in management’s assumptions can have material effects on a company’s financial statements. Through rigorous testing, professional skepticism and independent analysis, auditors can help promote accurate, reliable financial reporting.

As audit season gets underway for calendar-year businesses, now’s a good time to review significant accounting estimates and address gaps in documentation. Taking these proactive measures can help streamline the audit process and reduce the risk of unnecessary delays. Contact FMD with questions or for assistance preparing for your audit.

Take Steps to Help Ensure Your Estate Plan Won’t be Challenged after Your Death

It’s not uncommon for family members to contest a loved one’s will or challenge other estate planning documents. But you can take steps now to minimize the likelihood of such challenges after your death and protect both your wishes and your legacy.

Family disputes often arise not from legal flaws, but from confusion, surprise or perceived unfairness. By preparing a well-structured estate plan and clearly communicating your intentions to loved ones, you can reduce the risk of misunderstandings that can lead to challenges. There are also specific steps you can take to help fortify your plan against challenges.

Demonstrate a lack of undue influence

Family members might challenge your will by claiming that someone asserted undue influence over you. This essentially means the person influenced you to make estate planning decisions that would benefit him or her but that were inconsistent with your true wishes.

A certain level of influence over your final decisions is permissible. For example, there’s generally nothing wrong with a daughter encouraging her father to leave her the family vacation home. But if the father is in a vulnerable position — perhaps he’s ill or frail and the daughter is his caregiver — a court might find that he was susceptible to the daughter improperly influencing him to change his will.

There are many techniques you can use to demonstrate the lack of any undue influence over your estate planning decisions, including:

Choosing reliable witnesses. These should be people you expect to be available and willing to attest to your testamentary capacity and freedom from undue influence years or even decades down the road.

Videotaping the execution of your will. This provides an opportunity to explain the reasoning for any atypical aspects of your estate plan and can help refute claims of undue influence (or lack of testamentary capacity). Be aware, however, that this technique can backfire if your discomfort with the recording process is mistaken for duress or confusion.

In addition, it can be to your benefit to have a medical practitioner conduct a mental examination or attest to your competence at or near the time you execute your will.

Follow the law for proper execution

Never open the door for someone to contest your will on the grounds that it wasn’t executed properly. Be sure to follow applicable state laws to the letter.

Typically, that means signing your will in front of two witnesses and having your signature notarized. Be aware that laws vary from state to state, and an increasing number of states are permitting electronic wills.

Consider a no-contest clause

If your net worth is high, a no-contest clause can act as a deterrent against an estate plan challenge. Most, but not all, states permit the use of no-contest clauses.

In a nutshell, a no-contest clause will essentially disinherit any beneficiary who unsuccessfully challenges your will. For this strategy to be effective, you must leave heirs an inheritance that’s large enough that forfeiting it would be a disincentive to bringing a challenge. An heir who receives nothing has nothing to lose by challenging your plan.

Be proactive now to avoid challenges later

Other aspects of your estate plan, such as trusts and beneficiary designations for retirement plans and life insurance, could also be challenged. Taking steps now to minimize the risk of successful challenges to any of your estate planning documents can help protect your legacy and provide clarity and peace of mind for your loved ones. FMD can help you draft an estate plan that will meet legal requirements and accurately reflect your intentions, reducing the risk of challenges.

What to Look for on Your Balance Sheet — and How to Strengthen It

The balance sheet shows your company’s financial condition — its assets vs. liabilities — at a specific point in time. However, the balance sheet is more than a static report. It can also serve as a diagnostic tool for managers and other stakeholders to analyze historical performance and plan for future growth. Taking your balance sheet to the next level requires context, judgment and forward-looking analysis.

Look beyond what’s reported

Under U.S. Generally Accepted Accounting Principles (GAAP), not everything that creates value or risk for a business appears on the balance sheet. For example, internally generated intangible assets (such as brands, proprietary processes or customer relationships) are often critical to business operations. But they’re generally excluded on a GAAP-basis balance sheet unless acquired from third parties.

Likewise, accounting for potential obligations — such as pending litigation, governmental investigations and other contingent losses — depends on the circumstances. These “contingencies” may be reported on the balance sheet as an accrued liability, disclosed in the footnotes or omitted from the financial statements, depending on how they’re classified under GAAP. Accounting Standards Codification (ASC) Topic 450, Contingencies, requires companies to classify contingent losses as “probable” (likely to occur), “remote” (chances that a loss will occur are slight), or “reasonably possible” (falling somewhere between remote and probable). These determinations rely heavily on professional judgment.

Identify what matters most

Once you understand the limitations of reported numbers, the next step is determining which balance sheet items matter most to your business model. A “common-sized” balance sheet — where each line item is expressed as a percentage of total assets — can help highlight concentrations and priorities.

Items with the largest percentages often warrant the most attention, both from an operational and risk perspective. For example, inventory may dominate a retailer’s balance sheet, while accounts receivable may be more critical for professional services firms.

Use ratios to assess strength

Ratios compare line items on your company’s financial statements. They may be grouped into four categories: 1) profitability, 2) liquidity, 3) asset management and 4) leverage. While profitability ratios focus on the income statement, the others compare items on the balance sheet. Common examples include:

• The current ratio (current assets ÷ current liabilities), a short-term liquidity measure that helps assess whether your company has enough current assets to meet current obligations,

• The days-in-receivables ratio (accounts receivable ÷ annual sales × 365), which measures collection efficiency, and

• The debt-to-equity ratio (interest-bearing debt ÷ equity), which reflects the use of debt vs. equity to finance growth.

Tracking these ratios over time — and against industry benchmarks — can reveal emerging issues before they become problems.

Set goals and forecast the impact

After identifying key metrics, establish realistic targets based on your strategy and risk tolerance. For instance, you may aim to increase cash reserves, improve liquidity or reduce your debt-to-equity ratio.

Importantly, forecast how these changes will flow through the financial statements. Strengthening one area often constrains another — for example, building up cash reserves may limit debt reduction. Forecasting helps test whether goals are achievable and highlights trade-offs early in the process.

A clearer, stronger financial picture

Reinforcing your balance sheet isn’t just about increasing assets or reducing liabilities. It’s about understanding what’s missing, evaluating risk with informed judgment and proactively managing key drivers. With thoughtful analysis and planning, your balance sheet can become a powerful tool for resilience. Contact FMD to learn more.

Leverage Your Gift Tax Annual Exclusion using a Crummey Trust

A Crummey trust provides a key tax benefit of an outright gift without some of the downsides. Although the mechanics can seem technical, the concept is straightforward. And the benefits can be significant for families looking to reduce estate taxes and provide long-term financial security.

How does a Crummey trust work?

A Crummey trust (named after the 1968 court case that first authorized its use) is a special type of trust that allows gifts to it to qualify for the gift tax annual exclusion. Yet unlike with an outright gift, you still determine, through the trust terms, how the assets will be managed and when they’ll  ultimately be distributed to beneficiaries.

Generally, assets placed in a trust are treated as future interests and, therefore, don’t qualify for the annual exclusion ($19,000 per beneficiary in 2026). So you normally would have to use some of your lifetime gift and estate tax exemption ($15 million for 2026) to make tax-free gifts to a trust. However, a Crummey trust overcomes this limitation by granting beneficiaries a temporary right to withdraw contributions made to it.

Here’s how it works: Each time you contribute assets to the trust, the trustee must send a Crummey notice to the trust’s beneficiaries. This notice informs them that they have a limited window — typically 30 to 60 days — to withdraw their shares of the contribution. Because the beneficiaries technically have immediate access to the funds, the IRS treats the gift as a present interest, allowing it to qualify for the annual exclusion.

After the withdrawal period expires, the funds remain in the trust (assuming the beneficiaries didn’t exercise their withdrawal rights) and are managed and eventually distributed according to the trust terms, such as when beneficiaries reach specific ages or to fund certain types of expenses.

A Crummey trust is an irrevocable trust, meaning once assets are transferred into it, you, the grantor, generally can’t reclaim them. You determine the trust terms when you set up the trust. But, with limited exceptions, you can’t change them after the trust is initially funded. Because the trust is irrevocable, the trust assets won’t be included in your taxable estate, provided all applicable rules are met. This also effectively removes future appreciation on those assets from your taxable estate.

When can they be particularly beneficial?

Crummey trusts are often used in conjunction with irrevocable life insurance trusts (ILITs). An ILIT owns one or more policies on your life, and it manages and distributes policy proceeds according to your wishes. An ILIT keeps insurance proceeds, which could otherwise be subject to estate tax, out of your estate (and possibly your spouse’s).

You aren’t allowed to retain any powers over the policy, such as the right to change the beneficiaries. But the trust can be structured to make a loan to your estate for liquidity needs, such as paying estate tax.

Structuring ILITs as Crummey trusts allows annual exclusion gifts to fund the ILIT’s payment of insurance premiums. There’s an incentive for beneficiaries not to exercise their withdrawal rights so that the premiums can be paid to maintain the policy. The trust can potentially provide beneficiaries with a much larger payout later from the life insurance death benefit.

Any tax traps?

Before using a Crummey trust, it’s important to consider potential tax traps. One involves inadvertent taxable gifts from one beneficiary to another. Suppose, for example, that you set up a trust that provides income for your spouse for life, with any remaining assets passing to your daughter. To take advantage of the annual exclusion, you provide your spouse with Crummey withdrawal rights. Each time your spouse allows these rights to lapse without exercising them, he or she in effect has made a gift to your daughter by increasing the value of her future interest in the trust.

There are a couple of ways to avoid this result. One is to rely on the IRS’s “5&5” rule, which doesn’t count lapsing rights as a taxable gift as long as the withdrawal right doesn’t exceed the greater of $5,000 or 5% of the trust’s principal. So long as the trust principal is at least $380,000, you’ll be able to make $19,000 annual gifts without violating the 5&5 rule. Another option is to make the holder of Crummey withdrawal rights the sole beneficiary of the trust, which eliminates the gift tax concern.

Need help?

While a Crummey trust can be a powerful estate planning tool, it must be properly drafted and administered, including timely notices of withdrawal and careful recordkeeping. If you’re considering a Crummey trust, contact FMD. We can help ensure this trust type aligns with your broader financial and estate goals.

Consider these Issues Before Providing (or Reimbursing) Mobile Phones

For many employees, mobile phones are no longer a perk — they’re an essential business tool. However, issuing company phones or reimbursing employees for use of their personal devices can create hidden security risks, unexpected tax consequences and productivity concerns for business owners. Here are some key issues to consider before rolling out or revising your company’s mobile phone policy.

Security risks

In general, the biggest security risk associated with mobile phones is that they may lack robust protections against phishing, malware and other cyberthreats. Hackers could use an employee’s phone to access your business’s IT network, leading to theft of customer payment details, payroll data, intellectual property and other sensitive information. An illicit entry could even result in a ransomware incident.

If you allow employees to use phones to access company data, use a mobile device management system that enforces strong security protocols. And instruct phone users to avoid using public Wi-Fi networks (such as those in airports) that could expose them to data interception and malware.

Tax rules for work-issued phones

Another consideration is taxes. Business use of an employer-provided phone typically is treated as a nontaxable working condition fringe benefit if it’s provided “primarily for noncompensatory business purposes.” For example, you may need to reach employees at any time for work-related emergencies.

If the noncompensatory business purposes test is met, the value of any personal use of an employer-provided smartphone will generally be treated as a nontaxable “de minimis” fringe benefit. However, these phones will trigger taxable income if they’re provided to replace compensation, attract new hires or boost staff morale.

Guidelines for employee-owned devices

The IRS has indicated that it analyzes expense reimbursement for employees’ personal phones similarly to how it treats employer-provided phones. So reimbursements generally won’t be considered additional income or wages if:

• You have substantial business reasons for requiring employees to use their personal phones and reimbursing them for doing so,

• Reimbursements are reasonably related to the needs of your operations and calculated not to exceed the expenses that employees typically incur in maintaining their phones, and

• Reimbursements aren’t made as a substitute for a portion of employees’ regular wages.

Employer reimbursements for employees’ actual expenses must usually be made under a so-called accountable plan (contact us for more information). Alternatively, you could provide employees with flat monthly stipends. But stipends that exceed reasonable amounts may be treated as taxable wages.

Formal usage policies

To protect productivity, it’s critical to create written phone-usage policies. Discourage employees from using company-owned phones or their personal devices to make long personal calls, access their social media accounts or stream non-work-related videos during work hours.

If you allow employees to use their own phones at work, be sure to establish a bring-your-own-device (BYOD) policy. In addition to proper usage, it should address such issues as security, data ownership, privacy (for example, your ability to view employee phone data) and proper use. Your BYOD policy might also detail procedures for wiping personal devices when employees leave your employment.

Pros and cons

Many positions call for the frequent use of mobile phones — your executives, salespeople and other “road warriors” are only a few who probably need them. Depending on the nature of your business, it may make sense to issue or reimburse the use of personal phones as a fringe benefit to other employees. FMD can help you review the pros and cons related to equipment costs, security, taxes and productivity.        

How Auditors Evaluate Key Person Risks

From technical know-how to charisma and innovation, the skills and personal attributes of a company’s leaders are often critical to its success. But those same traits can become a source of risk if the business relies too heavily on its founder or another top manager.

If a so-called “key person” becomes incapacitated, retires or unexpectedly leaves, it can disrupt day-to-day operations, unsettle customers and lenders, and strain working capital. As you plan for the new year, take a moment to consider whether your business faces key person risks — and, if so, how to think like an auditor to proactively manage them.

No organization is immune

Financial statement auditors are required to perform a risk assessment as part of audit planning and execution. One potential source of risk is overreliance on one or two individuals for leadership, revenue generation or institutional knowledge.

Key person risks are usually associated with small businesses, but they can also impact large multinationals. Consider the stock price fluctuations that Apple experienced following the death of innovator Steve Jobs. Fortunately for Apple and its investors, the company had a deep management bench, a strong pipeline of technology and sufficient working capital to bridge the transition period. However, many small businesses lack those buffers and may take years to recover from the sudden loss of a key leader.

Factors to consider

Does your business rely heavily on one or two individuals, or is your management team sufficiently decentralized? Key people typically:

• Handle broad duties,

• Possess specialized training or industry knowledge,

• Have extensive experience that isn’t formally documented, or

• Make significant contributions to annual sales or customer relationships.

Auditors also consider whether an individual has signed personal guarantees for business debts, as well as the depth and qualifications of other management team members. Generally, companies that sell products tend to be better positioned to withstand the loss of a key person than service-based businesses, where relationships and expertise are harder to transfer. That said, a product-based company that relies heavily on technology may be at risk if a key person possesses specialized technical knowledge.

Customer and supplier relationships are also important factors. When those relationships are concentrated in a single individual, the departure of that person can create instability and lost business. Companies are better able to retain relationships when they’re shared across multiple team members.

Mitigating your exposure

An audit risk assessment can help identify where key person risk may exist and prompt discussions about business continuity and resilience. While auditors don’t design succession plans or internal controls, the process often highlights vulnerabilities that management may want to address through training programs and succession planning options. Contact FMD to help assess key person risks and brainstorm practical solutions to strengthen your company’s long-term stability.

Address Your Elderly Parents in Your Estate Plan in 5 Steps

When creating or updating your estate plan, it’s important to address your elderly parents with both clarity and sensitivity. If you provide financial support, share housing or anticipate future caregiving responsibilities, your plan should reflect these realities.

Clearly documenting any ongoing assistance, loans or shared assets can help prevent misunderstandings among heirs later. In addition, if your parents have designated you to act on their behalf through powers of attorney or health care directives, your estate plan should align with those roles so there are no conflicting instructions or expectations.

5 steps

To incorporate your parents’ needs into your own estate plan, you first must understand their financial situation and any arrangements they’ve already made. Some may require tweaking. Here are five action steps:

1. List and value their assets. If you’re going to manage the financial affairs of your parents, having knowledge of their assets is vital. Compile and maintain a list of all their assets. These may include not only physical assets like their home and other real estate, vehicles, and any collectibles or artwork, but also investment holdings, retirement accounts and life insurance policies. You’ll need to know account numbers and current balances. Be sure to add in projections for Social Security benefits. When all is said and done, don’t be surprised if their net worth is higher or lower than what you (or they) initially thought. You can use this information to determine the appropriate planning techniques.

2. Identify key contacts. Compile the names and addresses of professionals important to your parents’ finances and medical conditions. This may include stockbrokers, financial advisors, attorneys, tax professionals, insurance agents and physicians.

3. Open the lines of communication. Before going any further, have a discussion with your parents, as well as other family members who may be involved, such as your siblings. Make sure you understand your parents’ wishes and explain the objectives you hope to accomplish.

4. Execute documents. Assuming you can agree on next steps, develop a plan that incorporates several legal documents. If your parents have already created one or more of these documents, they may need to be revised or coordinated with new ones. Some documents commonly included in an estate plan include:

• Wills. Your parents’ wills control the disposition of their assets and tie up other loose ends. (Of course, jointly owned property with rights of survivorship automatically passes to the survivor.) Notably, a will also appoints an executor for your parents’ estates. If you’re the one lending financial assistance, you’re probably the optimal choice.

• Living trusts. A living trust can supplement a will by providing for the disposition of selected assets. Unlike a will, a living trust doesn’t have to go through probate, which can save time and money while avoiding public disclosure.

• Beneficiary designations. Your parents probably have filled out beneficiary designations for retirement accounts and life insurance policies. These designations supersede references in a will, so it’s important to keep them up to date.

• Powers of attorney. A power of attorney authorizes someone to legally act on behalf of another person, such as to handle financial matters or make health care decisions. With a durable power of attorney, the most common version, the authorization continues should the person become unable to make decisions for him- or herself. This enables you to better handle your parents’ affairs.

• Living wills or advance medical directives. These documents provide guidance for end-of-life decisions. Make sure your parents’ physicians have copies.

5. Make gifts. If you decide the best approach for helping your parents is to give them monetary gifts, it’s relatively easy to avoid gift tax liability. Under the gift tax annual exclusion, you can give each recipient up to $19,000 for 2026 without incurring gift tax, doubled to $38,000 per recipient if your spouse joins in the gift. If you give more, the excess may be transferred tax-free under your available lifetime gift and estate tax exemption ($15 million for 2026, less any exemption you’ve already used during your life).

Be wary, however, of giving gifts that may affect eligibility for certain government benefits. The availability of these benefits varies by state.

Plan for contingencies

Your estate plan should specify how you want to assist aging parents should they outlive you. For example, consider setting aside funds for their care or naming a trusted individual to manage those resources. Thoughtful provisions can reduce stress for your family and ensure your parents are treated with dignity and respect.

These situations often involve emotional and financial complexity. Contact FMD to help develop a comprehensive plan that addresses your family’s needs.

What Business Owners should Know about Debt Restructuring

Debt is inevitable for most small and midsize businesses. Loans are commonly used to help fund a company’s launch, expansion, equipment purchases and cash flow. When problems arise, it’s generally not because debt exists; it’s because the terms of that debt no longer match the operational realities of the business. In such instances, debt restructuring is worth considering.

Making debt more manageable

At its core, debt restructuring is the process of revisiting existing loan arrangements to make them more manageable for the company. It focuses on adjusting current obligations so they better align with the business’s projected cash flow and operating needs. This can be a more sustainable approach than, say, taking on new debt or ignoring the growing pressure.

For small and midsize businesses, debt restructuring is generally handled through direct negotiations with lenders. Options may include:

• Extending repayment periods,

• Modifying payment schedules in other ways,

• Adjusting interest rates, and

• Consolidating multiple loans.

The goal is to allow the business to continue operating normally while meeting its obligations.

Warning signs

If debt begins to consistently dictate operational decisions, step back and evaluate whether the structure of those obligations is a problem. Warning signs usually surface gradually. Monthly payments may start to limit the company’s ability to maintain adequate cash reserves, invest in growth or handle unexpected expenses. If you find yourself increasingly relying on short-term borrowing to cover routine costs or juggling payment due dates to stay current, it might be time to explore restructuring.

That said, many healthy businesses explore debt restructuring as a way to strengthen their overall financial positions. Changes in customer demand, economic conditions, interest rates and operating costs can all be valid reasons to consider it.

Timing and perspective

Among the most important aspects of debt restructuring are timing and perspective. From a timing standpoint, options are generally broader and more flexible when you address concerns early. Waiting until payments are missed or covenants are violated reduces your leverage with lenders.

Perspective matters just as much. Ideally, you should approach restructuring as a proactive strategic adjustment to financial obligations rather than a desperate last resort. Doing so will help you focus conversations with lenders on long-term sustainability rather than a short-term bailout.

However, be realistic. Although debt restructuring can ease cash flow pressure and create breathing room to reset strategic objectives, it can’t fix deeper operational or profitability issues. If your business model is no longer viable, restructuring may provide temporary relief but not a permanent solution. It tends to work best when paired with a clear understanding of a company’s financial position and future outlook.

Guidance is essential

If your business is facing increasing debt pressure, restructuring may be the right solution. But that doesn’t mean you should immediately pick up the phone and call your lender. Professional guidance is essential. FMD can help assess the implications of restructuring and whether better alternatives are available.

How Activity-based Costing Can Improve Business Performance

Your income statement indicates whether your business is profitable — but it doesn’t always explain why. For many small businesses, traditional cost accounting can mask where time and money are really being spent. Activity-based costing offers a practical way to understand the true cost of the work you perform, helping you make better decisions about pricing, profitability and operational efficiency.

How does activity-based costing work?

With activity-based costing, you assign costs to specific activities based on the resources they consume. Think of activities as the building blocks of your operations — such as setting up equipment, processing invoices, completing service calls or performing quality checks. Implementing activity-based costing generally involves four steps:

1. Identify activities. Create a list of tasks your company performs to deliver a product or service. Define each activity in such a way that there’s no overlap and everyone understands what’s included.

2. Allocate resources. For each activity, identify the resources used, such as materials, equipment time, labor hours and subcontracted services.

3. Calculate the per-unit cost of each resource. Choose a standard, measurable unit for each resource and calculate the cost per unit. For example, if a box of 100 screw anchors costs $30, the per-unit cost is 30 cents per anchor. For labor, the unit is typically an hourly wage or fully burdened labor rate.

4. Determine resource consumption and allocate indirect costs. Estimate how many units of each resource each activity consumes, then multiply by the per-unit cost. Indirect costs — such as rent, equipment leases, administrative salaries and software subscriptions — are allocated using reasonable cost drivers, such as square footage, machine hours or transaction volume, to arrive at the total cost of each activity.

What insights can activity-based costing provide?

Activity-based costing can provide meaningful insights into what’s working — and what’s not. For example, if a job or service line is consistently less profitable than expected, whether from excessive labor time, inefficient processes or underutilized equipment, it can help pinpoint where costs are accumulating. This approach can help management identify inefficiencies early and take corrective action before margins erode.

You may also uncover spending patterns that lead to better purchasing decisions and improved cost control. From a strategic standpoint, activity-based costing provides a clearer picture of which products, services and customers contribute most to profitability — and which may need to be repriced, redesigned or discontinued.

Estimating and pricing can also improve with activity-based costing. By breaking work into well-defined activities, businesses can build more accurate estimates and adjust them more easily when scope changes. Activities essentially become flexible line items that can be added, removed or refined as projects evolve.

Is it right for your business?

Activity-based costing is designed to supplement, not replace, your traditional accounting system. It works best for businesses with multiple offerings, significant overhead or processes with varying complexity. While the methodology can seem intimidating at first, modern accounting and project management software can significantly reduce your data burden. Contact FMD to discuss whether activity-based costing is a good fit for your business and how it can be implemented in a practical, scalable way based on your operations, goals and resources.