Member of Russell Bedford International, a global network of independent professional service firms.
Member of Russell Bedford International, a global network of independent professional service firms.
Senior Tax Accountant
Each year, millions of people have their identities stolen in different ways, including theft of their tax information. Taxpayer identity theft is becoming more prevalent, but there are simple steps you can take to protect yourself.
Taxpayer identity theft happens when someone steals your personal information, like your social security number and uses it to file a fake tax return in your name so they can claim your refund. This is often done early in the filing season before you have even started your return. Most people are unaware until they try to file a return and discover that IRS has already received a return under their name and their return is either rejected or the IRS asks for additional information to sort out the mix-up.
While it is impossible to eliminate identity theft, there are ways to minimize the risks. Some steps for you to consider:
Be vigilant! Requesting an IP PIN ahead of time is one of the best ways to prevent a fraudulent return from being filed. Remember, the IRS and state government will never contact you by email, telephone, text message, or social media to ask for personal, financial, or IP PIN information. Also, the IRS and state governments will not accept payments using gift cards.
We hope this information is helpful. If you’d like to discuss this information or feel you have been a victim of identity theft and would like our assistance in working with the IRS, please contact us at (630) 953-4900.
We are proud to share that Cray Kaiser has once again been ranked among the top accounting firms in the country, coming in at #423 on INSIDE Public Accounting’s 2026 IPA 500.
This annual ranking recognizes the 500 largest accounting firms in the United States based on net revenue, using data submitted through the IPA Practice Management Survey. For us, this recognition reflects the relationships we’ve built along the way. Every client who has trusted us with their business, every challenge we’ve worked through together, and every bit of confidence you’ve placed in our team has helped get us here.
To our clients, thank you for continuing to choose Cray Kaiser. We don’t take that trust lightly and we’re grateful for the chance to keep showing up for you and your business, year after year.
To learn more about the IPA 500 and this year’s rankings, visit here.
In Cray Kaiser’s Employee Spotlight series, we highlight a member of the CK team. We couldn’t be prouder of the team we’ve grown and we’re excited for you to get to know them. This month, we’re shining our spotlight on Colt Adams.
Colt Adams is a Staff Accountant at Cray Kaiser, handling a broad caseload that spans individual, S-Corp, C-Corp, and partnership returns. He’s recently expanded into payroll and sales tax return preparation, adding another layer to his skill set. As for an area of expertise, Colt is enjoying his time learning across a broad mix of tasks, and he’s in no rush to narrow his focus. He’d rather build a wide foundation now and let his specialty reveal itself along the way.
Colt’s path into accounting started at Sauk Valley Community College, close to his hometown. He wasn’t sure what career direction to take, but a couple of accounting classes changed that. He carried that interest to Aurora University, where he earned his bachelor’s degree in accounting.
Colt joined CK as an intern in January of 2026. What stood out right away was the team around him.
“Everyone genuinely wanted to see me learn, grow, and succeed, and they were always willing to help in a supportive and encouraging way,” Colt shares. “I immediately felt welcomed and like I was part of the team.”
That welcome made the decision to stay after his internship ended an easy one. Colt saw firsthand how CK’s diverse client base translates into a diverse range of work, and he knew that kind of variety would push him to grow into a well-rounded accountant. He made the move official on June 1, 2026, joining the team full-time as a Staff Accountant.
Since coming on board, Colt has noticed a strong sense of unity across the team, with people genuinely invested in helping each other succeed rather than competing for the spotlight. “It feels like one big family,” he says, “and I think that’s a hard thing to find.”
Of CK’s core values, Care is the one that resonates most with Colt. “Knowing the work we do here at CK matters and helps people and businesses is an awesome feeling,” he says. “They come to us and trust us with very important matters, and that is not something to take for granted.”
Colt’s advice for anyone new to the field comes from experience: don’t be afraid to ask questions, and don’t be afraid to get something wrong. “You will not know everything and that’s okay. Also, be open to making mistakes, but when you make them, learn from them.”
What motto do you live by?
A motto that I try to live by is that it is completely free to be kind. You never know what someone else is going through so being kind could really impact their day in a positive way.
Do you have a special/hidden talent or hobby?
Golf. I started playing during COVID when there weren’t many other things to do, and I’ve gotten pretty good at it since. It can be a very humbling game, but I really enjoy it.
What’s your favorite vacation spot or what’s on your list?
Rather than one specific trip, I’d love to spend time traveling to different National Parks. I enjoy hiking and being outdoors, so it would be a fun way to see parts of the country I haven’t experienced yet.
What’s your favorite movie or TV show?
My favorite movie is Forrest Gump, and my favorite show is Peaky Blinders.
What’s on your music playlist?
I let the Spotify DJ play a wide variety of songs from different genres throughout the day. My favorite type of music is country, and when I want a specific artist, I go with Tyler Childers.
In-Charge Staff Accountant | CPA
Governor J.B. Pritzker recently signed a new state budget bill into law for the state of Illinois. There are numerous changes that could impact you and your business. Some of the most notable changes include limiting the Net Operating Loss (NOL) deduction, a change in the entity level tax election (PTET), disallowance of the federal Qualified Small Business Stock gain exclusion, and a reduced sales tax holiday for roughly a week in August 2026.
If your business loses money in one year, you can normally use that loss to reduce your taxes in future years. Illinois limits how much of that loss you can use each year and is changing that limit.
What’s changing:
Bottom line: Corporations with large prior-year losses will continue to face restrictions on how quickly they can use those losses to offset current taxes, though the cap gradually loosens over time.
PTET lets partnerships pay Illinois state tax at the business level instead of passing that tax burden on to individual partners. This helps partners get around the federal limits on deducting state taxes personally. Illinois is now giving partnerships two ways to calculate this tax. For tax years ending on or after December 31, 2026, partnerships making the Illinois entity-level tax election may choose between two annual tax-base methods: the full distributive share method or the Illinois-sourced income method. The elected method is irrevocable for that taxable year. Current guidance applies this new method to partnerships and does not clearly extend to S corporations:
Bottom line: Partnerships with a mix of resident and nonresident partners should evaluate both methods before making the election, since the right choice can meaningfully change the amount of taxes paid.
Under Federal tax law (Section 1202) certain gains on the sale of qualified small business stock can be excluded from taxable income. Illinois is joining California and decoupling from this code section.
What’s changing:
To end with some good news, for the first time since 2022, Illinois is providing a reduced sales tax rate in August for back-to-school season for certain tangible goods. The Illinois sales tax holiday runs from August 7, 2026, through August 16, 2026, applies to eligible clothing items under $125 and school supplies. Taxes on those items will be 1.25% instead of the general rate. City and local taxes will still apply.
These changes affect different businesses in different ways depending on your entity type, income and whether you’re carrying forward prior losses. If you have questions about how any of these changes apply to your or your business, please contact the trusted advisors at CK. You can call us at (630) 953-4900 or fill out this form.
CPA | Tax Manager
Beginning August 1, 2026, local sales tax rates in some Illinois counties will increase by 0.25%. Retailers and servicepersons making taxable sales in Cook, DuPage, Kane, Lake, McHenry, or Will counties must increase their local sales tax rate by 0.25%. The increase is to the Northern Illinois Transit Authority (NITA) portion of sales tax collected in these counties.
The new rate will appear on your Illinois sales/use tax Form ST-1 when your business electronically files on MyTax Illinois. You may also find your updated rate using the MyTax Illinois Tax Rate Finder. Select “August 2026” rates to look up the exact rate for your business address.
To stay compliant and avoid under-collecting sales tax, businesses in the affected counties should complete these steps before the effective date:
If a sale was made prior to August 1, 2026, and was properly taxed at the prior (lower) rate, report it on Line 8a of Form ST-1 or ST-2. Note – line 8a may only be used for sales properly subject to a different rate.
Getting ahead of this update now ensures your business collects the correct sales tax from day one. The new tax will be in effect August 1, regardless of whether your business makes the change in your system. Cray Kaiser is here to help if you have any questions about how this change affects your business or need assistance updating your systems.
Choosing the right business structure can make or break your bottom line as an entrepreneur. The decision to become an LLC or an S corporation can be confusing. In this episode of CK Small Business Focus, CK Tax Manager Eric Challenger breaks down how these two popular structures differ when it comes to taxes, liability protection and administrative complexity. Whether you’re just starting out or your business has grown past the point where self-employment taxes are eating into your profits, this episode will help you understand the pros, cons and key considerations of each option. Then you can decide which structure fits your business today and when it might be time to make a change.
Transcript:
Welcome everyone to another edition of the CK Small Business Focus. My name is Eric Challenger and I’m a Tax Manager at Cray Kaiser. Today we are going to be analyzing which structure, LLC or S corp, is best suited for your business.
Starting a new business comes with a long list of important decisions and one of the most crucial is selecting the right entity type. The two most common structures for small businesses are the limited liability company and the S corporation. Each offering unique benefits and drawbacks, understanding how these entities differ in terms of taxes, legal treatment, and administrative complexity can help you make the right decision as your business grows.
Let’s start with the LLC, the flexible starting point. An LLC is often the go-to legal structure for new entrepreneurs. It offers limited liability protection, meaning your personal assets are typically shielded from business debts and lawsuits. and allows for flexibility in ownership and income allocation. For tax purposes, the IRS doesn’t recognize an LLC as a distinct tax entity. Instead, a single-member LLC is treated as a disregarded entity with all activity reported on the owner’s individual tax return on Form Schedule C. A multi-member LLC is taxed as a partnership unless it elects to be treated as a corporation.
Simple tax filings for SM LLCs. Just report on your individual return. Flexible ownership and income allocations make it easy for you to allocate income to specific members.
Low administrative burden. Ideal for startups and low-profit operations. However, active owners of an LLC must pay self-employment taxes on the entire net income, which can be costly as the business grows.
Now let’s talk about S corporations. An S corporation isn’t a legal entity. It’s a tax election that an LLC or a C corporation can make with the IRS. Once elected, it changes how the business is taxed and allows owners to reduce their SE tax burden by splitting income into salary and distributions.
Payroll tax savings. Unlike the LLC, S corp owners can pay themselves a quote-unquote reasonable salary and take the rest of their income as distributions exempt from SE tax. Maximize qualified business income deduction. If structured correctly, you can take full advantage of the 20% QBI deduction introduced by the Tax Cuts and Jobs Act.
Lower audit risk. S-corporations file separate business tax returns reducing audit visibility compared to Schedule C filers.
Increased compliance. You’ll need to file payroll, issue W-2s, and submit a separate business return.
Reasonable compensation. Reasonable compensation is required, and the IRS scrutinizes this closely. State recognition varies. Some states may not recognize S corporation election and may impose additional tax filings, or you may have to file as a C corporation.
Electing S corp status makes the most sense when your business is generating net income significantly above your reasonable salary. While “reasonable” is subjective, many practitioners suggest considering an S corporation once your annual income exceeds $150,000. The tax savings from reduced SE taxes can often outweigh the added compliance costs from becoming an S corporation. But not every business is ready for that transition. If your income is modest or irregular, or if you value operational flexibility and minimal paperwork, the LLC structure may still be a better fit.
So the bottom line, your choice of business entity will shape your tax obligations, personal liability, even your ability to raise funds. While most businesses start as LLCs for simplicity, making the S corporation election can be a smart strategic move once you’re generating higher profits. Still unsure which path is right for you? The entity that suits your business today may not be the best option tomorrow. If you’re a single member LLC or a partnership looking to explore the tax benefits of electing S corporation status, reach out to the tax experts at CK for tailored advice at www.craykaiser.com or call us at 630-953-4900.
For more information, download our white paper.
CPA | Manager
Have you ever heard the term “WIP” and wondered what it means? WIP stands for “work in progress” and for construction businesses, it’s a report that shows how a job is doing financially and whether the project is on track. The question is: how much of that work is your accounting software doing and how much is falling on your team’s shoulders? Let’s see why that matters.
What does your monthly WIP reporting look like today?
Let’s take a step back and consider how your monthly close process actually works. As an outside advisor, I often hear clients say things like, “We want our consultants to consult,” or “Is there anything we could be doing better?”
That’s prompted me to approach these conversations a bit differently.
Instead of jumping straight to recommendations, it begins with asking better questions.
For example: does your accounting system generate and keep your WIP up to date on its own? Or does your accounting team still rely on exporting data into Excel—manually updating schedules, recalculating balances, and recording entries after the fact?
If Excel is still where most of this work happens, what does that tell you about the role your system is playing? It might mean your software isn’t being used to its full potential and that your team is doing the work your system could be doing instead.
Which leads to an important question:
Why does updating WIP each month take so much time? Is it simply “the way it’s always been done,” or is something more going on?
Is the system simply unable to handle WIP tracking and calculations?
Or is it capable, but it’s just not set up that way? Somewhere between those answers lies an opportunity. Because every hour spent fixing and double-checking spreadsheets raises a fundamental question:
Should people be doing the work that the software was designed to handle?
From my experience working with contractors, most accounting systems are good at two things: tracking job costs and handling progress billings. As projects change, however, updates to contract values and cost budgets don’t always happen in real time. Instead, they often get handled after data is exported and reworked in Excel.
What would the process look like if those changes were maintained within the system as part of its natural workflow?
Imagine this: instead of exporting data and fixing it in a spreadsheet, your team updates contract values and cost budgets right inside your core accounting system, as part of the natural flow of how information is captured, updated, and maintained over the life of a job.
From there, it’s worth asking:
What processes would need to change to make that possible?
What data would need to be entered differently, or more consistently, to make the system work the way it’s supposed to?
This naturally brings up the role of project managers. They are often the closest to the work and closest to the day-to-day changes like cost updates, job progress, and expectations. Does it make sense to involve them more directly in keeping the job data accurate and current?
What might that look like in practice?
And where is the balance between giving operations more ownership and keeping the right financial checks in place?
All of this comes back to one bigger question:
How is your monthly WIP process built today and how could it look different?
What would it look like to rely less on large, complex spreadsheets and allow the accounting system to carry more of the load?
And if accounting teams weren’t spending hours updating spreadsheets and fixing errors, what could they be doing instead? Probably things like:
And then there’s also the matter of risk.
Spreadsheets are flexible and familiar, which is exactly why so many teams rely on them.
But that flexibility comes with a downside. They depend on formulas, on version control, and on someone entering the right numbers. One small mistake can throw off an entire report.
So the real question is:
Are you actively managing that risk or just quietly accepting it?
At its core, this isn’t just about WIP reporting. It’s about how work gets done, where data lives, and how much your organization relies on people versus systems to keep things accurate and efficient.
The goal isn’t necessarily to eliminate Excel or overhaul everything overnight.
The goal is to start asking better questions:
Just like Steph Curry’s step-back creates an open look, sometimes you have to take a step back before you can take the shot that changes the game.
If this sounds familiar and you aren’t sure where to begin, you don’t have to figure it out alone. The trusted advisors at CK work with contractors to help them make sense of these types of questions and to find practical ways to get more out of the systems they already have. Reach out to us to discuss what your WIP process could look like.
Temporary labor keeps manufacturing lines running, but it can also quietly drain your bottom line if it’s not properly managed. In this video, CK managing principal Deanna Salo and principal Brian Kot draw on decades of experience auditing and advising manufacturing clients across the Chicago area to reveal what’s really happening on the shop floor. They share real client stories that show how temporary labor costs can spiral without the correct oversight. They also talk about the bigger picture: building a skilled workforce through apprenticeships, weighing the trade-offs of automation and AI and knowing when a supervisor or a scheduler could make a difference. If labor costs have you asking questions you can’t quite answer, this video is a great place to start.
Transcript:
Deanna: I’m Deanna Salo, and I’m the managing principal of Cray Kaiser, Limited CPAs. And today I’m here with one of our other principals, Brian Kot. And we’re going to be talking about our manufacturing clients. Cray Kaiser performs a number of services and has for our tenured period of time over 53 years with our manufacturing clients here in the Chicago area. And we want to talk about today some of the key indicators, the key challenges. some of the key observations we have when we’re performing our auditing, advisory, review, tax planning procedures with our clients. The next thing we’re going to talk about is temporary labor. Why don’t you kick us off.
Brian: A lot of challenges in temporary labor as we all know, it’s very hard to get skilled labor. So one thing I’m seeing in temporary labor is having a good production manager. A shop manager is key and very critical to the process because nobody’s paying attention to what’s going on with the hours. And I had one client do a study and they looked into, they were having four temporary people show up every single day and they didn’t know if they even needed a temporary person for that day or not. And they would be there for about two hours and then they would determine their need for the day and they would send some of them home. But they had to pay them for the two hours that they did nothing.
Deanna: Yeah, it’s really interesting. As we go out and audit our clients, we’ll walk the production floor and you just start talking to people, if they allow you to talk to the people. and see people standing around. We had one manufacturer that we were watching the shift change, right. The machines were getting cleaned. It’s actually food manufacturing so they were doing a shift change and they had over 20 people standing around for what was two hours while the shift was getting changed while the machinery was getting changed. And I said, “Who’s running the scheduling on the floor?”
And they said, “Oh, the supervisor’s off today.”
And I went upstairs to the client’s main office and talked to the owner at the time. And I said, listen, I said, you’ve been talking about your labor costs are just skyrocketing. You’re not quite sure why everything was so high. I just was on the floor for 15 minutes and saw 20 people standing there idly waiting for the shift change. You may want to take another look at that. So while temporary labor is so critical to our clients’ success, the seasonality of their businesses, needing more people, needing less people, finding the skilled trades. You know temporary labor is kind of I think part of the brick and mortar of any company right now they need them. They wildly need those people in there. But then how to manage those costs, how to supervise those costs, having a supervisor or a scheduler predictively look at the week’s worth of manufacturing and plan out when those shift changes are, when those people are needed to show up. Clearly, the people can’t just walk in and get on the line. But do we need a 15-minute transition or a half hour transition? Certainly not two hours or three hours and then go home. Right? We also had another client where they were wondering about their labor costs as well. And they had a kiosk for time entry, specifically for the temporary labor and that was connected to the temporary labor company. So the temporary labor workers would come in be logging their time you know key punching in and out and then their full-time employees that work for actually the company had a different keypad that they were keying in their time. And what we found out, we actually did an agreed-upon procedure we actually did a little bit of auditing with respect to the labor and found out that the labor times were not being approved. While their employees’ time records were getting approved by the floor manager, the temporary labor was not getting approved by the floor manager. So really just adding a procedure to verify that all the labor costs, the time entry is appropriate is a huge part of managing that inventory cost as well.
I mean, right now in today’s market, your labor costs and your rent, your occupancy costs are probably, outside of raw materials, are your single largest cost for any company. Your labor costs and your occupancy costs. Even as people are downsizing in their offices, office space is still pretty expensive, even commercial manufacturing real estate as well. So being able to manage, optimize, and supervise those functions. is another really important part of it, too.
Brian: You know, we’ve talked about skilled labor a couple of times. That term has come up. And we do also have some staffing agencies. And I know that they’re trying to start up actually skilled labor divisions and get people certified in certain areas. But I think you have an interesting story with one of your clients on how are they getting skilled labor inside their plant?
Deanna: Absolutely. So even trying to find temporary employees to come work for their company to then be used as a temporary source. Some of our clients actually created apprenticeships and almost their own little universities to create some skilled training. They’ve gone into high schools, they’ve gone into some of the community colleges, some of the trade colleges that are out there, and actually solicited to them. Hey, you want to get an internship, you want to get an apprenticeship? And it’s a paid apprenticeship, it’s a paid internship to get their certifications while going to school. And then after they’ve graduated, they’ve actually procured their new employees, whether it be for the temporary staffing company or even some of my manufacturers as well. So there’s lots of opportunities to try to build up the skilled workforce. And sometimes it’s just a matter of education. And I can say that from a temporary staffing and even an employee base, getting people excited about working on these lines, which are very sophisticated. They take a lot of skilled labor to do that, is a great career for some of those folks. We talk about the line, the manufacturing line. We’re all dealing with AI, artificial intelligence, and the automation that we see in some of our clients. Brian, speak to some of that automation and some of the AI considerations for some of our clients.
Brian: We have some injection molding clients, and we’re seeing them put in a lot of AI and automated equipment to do that. We see a lot of it in the steel industry as well, too, in welding machines and cutting machines. So that’s replacing some of the employee workforce that is needed.
Deanna: But the CapEx requirements are significant for those. So while you’re exchanging the labor force, you are having CapEx costs. We have some manufacturers that actually do some of the folding and packaging and even cellophane wrapping of the boxes and even as much as rolling it off the line and putting it on a forklift truck. That then an actual human, a forklift truck driver, puts it up on the stack. So you know the automation is not new in manufacturing but I think AI is a definite consideration in terms of even quality control, and food manufacturing, food processing, that’s been there forever. You know, the automation of finding a defect as it leaves the line. But even the packaging and the handling that goes to parts and goods that are coming off of a manufacturing line, automating those processes. You know, you’re exchanging labor with CapEx, but the CapEx needs repairs. The CapEx needs somebody to monitor those improvements. So, you know, each company really has to sit with their own financials and see what are some of the exchanged costs? How can I become more efficient and even provide a better product line with some of that automation? Or maybe I stay to the manual labor piece of it because what I’m making is so fairly procured that I really need that individual hand packing and sorting and moving of items off the line.
Brian: So I would ask anybody listening, think about your manufacturing plan. And if you have temporary labor or not. What if you were to cut out two hours a day for four employees for a week for the whole year? How much would that save you on the bottom line?
Deanna: And I think that’s a really important part to the temporary labor. Again, it’s here to stay. We all need that skilled labor force, no matter what industry you’re in, but really making sure that you’re optimizing. paying for that supervisory manager workflow scheduler to make sure that everybody’s being used at their highest and best use.
Brian: And if you have any questions, please contact us.
Deanna: And you can contact Deanna Salo or Brian Kot at Cray Kaiser at www.craykaiser.com. And we’re here to help. Thanks so much for listening.
In Cray Kaiser’s Employee Spotlight series, we highlight a member of the CK team. We couldn’t be prouder of the team we’ve grown and we’re excited for you to get to know them. This month, we’re shining our spotlight on Chely Otero.
Chely Otero is a Senior Accountant in CK’s Client Accounting Advisory Services (CAAS) department, where she helps clients across a wide range of industries make sense of their financials. From tax compilations to monthly and quarterly accounting, Chely works across the full accounting cycle, with a particular focus on the reconciliation work that keeps client reporting accurate and complete.
Chely launched her accounting career at a public relations firm, where her first task was implementing new accounting software to streamline daily bookkeeping. Her time there also included supporting fundraising efforts, an experience that earned her a memorable moment: meeting former President Barack Obama. (Her supervisor at the time had served as President Obama’s campaign manager during his Illinois State Senate run.)
Before joining CK, Chely brought her expertise to a real estate network and corporate relocation company, where she served as the lead accountant for the international organization.
Chely joined the CK team in March of this year, right in the thick of tax season. Rather than feeling thrown into the deep end, she found a team that rallied around her from day one. The opportunity to serve clients across many different industries was a refreshing change after years in the private sector, and the presence of women in CK’s leadership was something she noticed and appreciated right away.
“Everyone’s willingness to help and mentor across departments has helped me adapt and feel welcome at every turn.”
CK’s core values were another draw, particularly Education. Chely believes continuing education is essential in an industry that never stops changing, and that staying informed enables the CK team to show up as trusted advisors to their clients.
For those looking to break into accounting, her advice is simple: ask questions, learn from your team, and never stop growing. The industry never stops evolving, and the best in it don’t either.
Tell us about your family.
I have two sons, Jonathan and Eli. My youngest is in grade school and my oldest just finished his H.S. freshman year. I’m constantly pretending I know what’s going on when they talk to me about Roblox, Call of Duty, or Anime. They keep me very busy and I wouldn’t have it any other way.
Do you have a special/hidden talent or hobby?
I’m an avid reader and belong to the same book group, off and on, since my early 20s. We even traveled to Denver, CO, for one of our monthly meetings when a member relocated.
What was your favorite vacation?
My favorite vacation, before kids, was Dublin, Ireland. One of my closest friends ran the Dublin Marathon, so it was the perfect excuse for all her girlfriends to travel together. We also made a pit stop in London. To this day, we still talk about that time we almost died driving on the wrong side of the road!
What’s the last book you read?
The Dutch House. It’s not the last book, but one of the best I’ve read recently. My team member, Karen, recommended it.
Managing costs and pricing effectively is one of the biggest challenges facing manufacturers today. In this video, CK principals, Deanna Salo and Brian Kot draw on decades of experience working with manufacturing clients in the Chicago area to discuss the common pricing pitfalls from an incomplete bill of materials to outdated costing models. These can erode profitability. They also explore how frequently businesses should be reviewing and updating their costs in today’s market, how to align your sales force with profitability goals and how strategic focus on core competencies can drive long-term success. Whether you’re a seasoned manufacturer or growing your operations, this conversation offers practical insights to help improve your margins.
Transcript:
Deanna: I’m Deanna Salo, and I’m the managing principal of Cray Kaiser Limited CPAs. And today I’m here with one of our other principals, Brian Kot. And we’re going to be talking about our manufacturing clients. Cray Kaiser performs a number of services and has for our tenured period of time over 53 years with our manufacturing clients here in the Chicago area. And we want to talk about today some of the key indicators, the key challenges. Some of the key observations we have when we’re performing our auditing advisory review tax planning procedures with our clients. So inventory, right, huge item on a client’s financial statements, really the brick and mortar of their profitability. We really want to focus in on you know how clients are modeling their pricing to ensure they’re capturing all of their costs when they’re going out to bid in their pricing. You know the pricing models that we’ve seen some of our clients, I guess what are some of the shortfalls that they have in terms of their pricing models.
Brian: I think the shortfalls having the pricing models is they don’t include all the costs it truly takes to manufacture the product. And they might pick up labor and I know I pay a guy X dollars an hour but they forget about the other employment costs, the taxes that go along with that. And another big thing I see missed is also sometimes the rent costs and the building maintenance some of those other overhead costs that go into your facility to run your plant and your operations, those often get missed.
Deanna: Right. So really what I call making sure your bill of materials, your BOM is fully loaded. You’ve got to make sure that those costs are in your pricing model so that when you’re telling your sales force to go out there and sell your goods that you really know what your gross profit margin might be on those fully loaded costs. Again, the sales force, sometimes the sales force, their drivers are to go out and sell. Go out and sell. And their financial acumen might not be at the calibration that they really know what the gross profit margin is for a certain company. So really educating your sales force to really understanding the financial pieces, the labor costs, the rent costs, the burden costs with respect to how to model the pricing. We’ve also seen some clients shift their commissions, right, and payments to their sales force, not on, you know, sales volume, but also on gross profit margin, right? And making sure that they’re yielding the right profitability consistently. You know, they might have some volume discounts. They might have some other perks for some of their specific customers. But really making sure that they’re honing in on all of their related bill of material costs is a really important part of that, too. What’s some of the other things that they should be doing in terms of making sure that the costing is there?
Brian: One thing I see often is they set a price. They look at their costing once a year. Maybe they did it last year. In today’s economy, the prices are changing so often, you know, depending on what type of raw material that you’re buying. I mean, there could be weekly swings, monthly swings in there. So I do recommend at a minimum, at a minimum, you’re reviewing your costing at least twice a year and you are updating those numbers. And that’s actually very generous when I say twice a year.
Deanna: Yeah. We have a client that does use standard pricing, standard costing. And, you know, they were only updating their prices once a year. So we got them to look at it at least four times a year, and depending upon what the variance might be, to do it even more frequently than just the once a year, right? It was something that it’s an audit client, and we do look at their processes and procedures in terms of their standard costing. And while they were uploading and getting all the pricing there, they weren’t really doing the full roll-up other than once a year. They actually now do it twice a year. But we’ve even leaned in a little bit more on them to say maybe even a little bit more often because the raw material costs is steel imports from China and the tariffs and so forth that, you know, we’ll be going out there this year to audit them. So we’ll be really interested to hear, you know, how frequently they’ve even updated it for the current year. Another thing on inventory is, you know, even on the sales side, you know, some clients are really trying to diversify right through a whole bunch of different types of sales lanes. You know, they want to expand, broaden what they’re selling, how they’re selling to stay competitive in the marketplace. You’ve got a client example that kind of didn’t do that and just stuck true to what they do.
Brian: Yeah. I had a client they were looking to expand into different lanes and kind of take over their supply chain for themselves and they thought maybe we could start manufacturing these items that we’re buying and they decided not to. And the model was we wanted to use the finances and invest in what we do well and do it better. And with that, they have had tremendous success by not expanding out and properly utilizing their capital funds.
Deanna: Yeah. So using their capital funds, reinvesting in the things that they did well, and staying honed in on their costing and profitability, and they’ve been super successful. So there’s a little bit of ying and yang, growing for the sake of growth, which a lot of people could get into that whole wheelhouse of let’s grow to grow, but also stay profitable. And even beyond that is really being able to have the leverage that they had to get the costing at a place in their existing profitability that didn’t compromise their growth. They stayed super profitable.
Brian: And if you have any questions, please contact us.
Deanna: And you can contact Deanna Salo or Brian Kot at Cray Kaiser at www.craykaiser.com. And we’re here to help. Thanks so much for listening in.
