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.
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.
Managing your finances effectively begins with the right partnerships and processes. In this audio blog, Karen Hoban, a Senior in CK’s CAAS department, share practical tips to help clients get the most out of their relationship with a CAAS team. From organizing financial records to streamlining communication, Karen offers strategies designed to save you time, reduce friction and help your CAAS team deliver the service you deserve.
Transcript:
My name is Karen Hoban. I’m a senior in Cray Kaiser’s CAAS department. I’ve been with Cray Kaiser about five and a half years. Our goal is to provide excellent service to all of our clients here at Cray Kaiser. And my hope for this blog is to touch on a few ideas I have that might help our current and future CAAS clients help us to help you.
In order for us to deliver to you valuable services, I have a few thoughts on some areas to consider. The first one is documents and financial records management. These would include strategies for maintaining organized financial records, including receipts, invoices, and statements that we require in order to do your accounting or prepare any kind of tax returns. One area that we recommend is to provide us view-only access to your bank and loan statements through the bank. This doesn’t allow for any transactional access, but we can access the bank in our time in order to obtain statements timely. This also frees you up from tedious tasks that you may like us to do instead.
Another thought is to consider upgrading or switching to a cloud-based software similar to QBO or Bill.com. Using a cloud-based software streamlines efforts and allows for document storage within the program. It also offers real-time sharing. We can log in at our convenience to notice any changes that have been made or make any changes to your file.
Another area to consider is to use our portal for document management. This is a secure way to send us files, retrieve files, and we can reduce emails and back and forth of document sharing. It offers access at convenient times for both of us to view what you’ve provided to us.
Another area I’d like to touch on is technology. Again, the usage of QBO, Bill.com, or any other apps for payroll or sales that can be integrated into your accounting software helps us to help you better. Use of AI-enabled software helps in your AR and AP functions, reducing, again, the need for your time for tedious tasks. These softwares also allow us to have real-time collaboration with you and your staff members and gives us extra access to data. Changes and updates can also be made remotely.
The third area that I have to talk about is communication. I find it valuable to have an upfront investment in time to discuss your business and operations. Creating checklists with staff to refer to for documents and information needed on a regular basis, whether it be monthly, quarterly, or at year end. It helps us to be on the same page in what we require and what you know you need to provide. In addition, regular check-ins, whether it be monthly, quarterly, or even at year end, help us to stay up to date with any changes or updates in personnel or management. It allows us to ask the right questions and stay informed of any new purchases or relevant changes in the business.
Lastly, ask questions. It helps us to provide better service if we’re aware of issues, problems, or any questions that you may have.
Hopefully a few of these ideas will resonate with you. A few small or big changes in the areas of document management, technology, and communication can result in a more efficient and successful relationship. Please feel free to reach out via email or phone. We’d be happy to have a conversation on how we can better serve you.
CPA | Tax Manager
A recent federal court decision, Kwong v. United States, may create an opportunity for certain taxpayers to recover penalties and interest assessed during the COVID‑19 relief period. The law in this area continues to develop. The IRS is appealing the decision, so nothing has been settled yet. However, this ruling highlights potential refund and abatement opportunities related to IRS deadlines that were postponed under pandemic‑era disaster relief provisions. Affected taxpayers should review and act immediately to file a protective claim and secure any refunds if the IRS appeals fail.
During COVID‑19, the IRS gave everyone extra time to file federal taxes and make payments. The Kwong case ruled that the IRS may not have applied those extended deadlines correctly when it came to certain penalties and interest assessments. If that’s correct, some of those changes shouldn’t have been assessed in the first place. As a result, some taxpayers who paid penalties or interest during the pandemic period or continue to have outstanding assessed amounts may be eligible to claim relief.
If you (or your business) were charged any of the following between 2020 and 2023:
These penalties apply not only to individuals, but would also apply to businesses, trusts and estates. Please note that the failure-to-file penalty for partnerships and S-Corporations can be significant as the IRS charges these penalties per month per partner with a maximum of 12 months. During the period above, the amount ranged from $205 to $220 per month, per partner. That’s not a trivial amount.
A few things to keep in mind:
We are actively monitoring developments related to this case and can assist with:
If any of this sounds like it may apply to you, we encourage you to contact the trusted advisors at CK to discuss your specific situation. You can call us at (630) 953-4900 or fill out this form.
MSA | Accounting & Advisory Services (CAAS) Senior
The period-end close is the process of finalizing a company’s financial records for a given period of time. It can often be stressful, delayed, and overly dependent on a few individuals. Key financial insights are delivered but not always on time, and not always with confidence. This isn’t from a lack of effort, often it is a lack of structure.
CAAS (Client Accounting Advisory Services) is where accountants work as outsourced advisors. Across many of these engagements, the same problem surfaces, the accounting records are accurate, but the process is stressful and slow.
The result is information that leadership relies on arriving too late to be useful. By the time results are finalized, key decisions may have already been made and even the most precise numbers will lack value. This isn’t a people problem, it’s a structure problem.
Four warning signs that the process is broken:
When these gaps exist, accuracy and timeliness do not reinforce each other but instead they work against each other. The result is inconsistent outcomes, extended timelines, and inefficiencies. But ultimately, there is a growing uncertainty around the completeness and reliability of the financial data.
The most effective improvements aren’t sophisticated, they are foundational. Here’s what actually works:
The takeaway is simple: accuracy creates value when it is delivered through a repeatable and well-defined process. With a strong foundation in place the financial data becomes timely, reliable, and worthy of trust. This is where our work as advisors matters most when supporting our clients to bring integrity to the numbers, care to the process, and consistency they can rely on to make informed decisions with confidence. If you would like to learn more about how our CAAS services can help you with your period-end close, please contact us.
CPA, CVA | Manager
As a manufacturer, your inventory isn’t just sitting on shelves, it’s the lifeblood of your company. Every material you buy, every product you’re building and every finished good waiting to ship represents cash your business has already spent. How well you track and value that inventory has a direct impact on profitability and assists in your ability to make informed decisions.
The foundation of effective inventory tracking is knowing what you have, where it is and what it costs you, in real-time. That means recording inventory movements when they happen, from when raw materials arrive, to production, and ultimately, when they ship. Outdated or rough cost estimates lead to poor decisions about what products to focus on, where to invest, and how to price competitively.
It is also important to regularly review your bills of materials (BOMs), by using systems that capture inventory movements at the point of activity. Like anything, your inventory inputs are impacted by macro and microeconomic factors that can change your cost to produce and therefore, BOMs should be reviewed regularly to ensure that these changes are being reflected. Other factors include changing a supplier, swapping out a material or improving a process; these are all examples of changes that need to be reflected in your records right away, not months later. Stale data can turn into material variances or financial misstatements.
Knowing your accurate costing is equally as important as knowing your inventory because it directly influences pricing, margin analysis, and strategic decision-making. However, you choose to calculate what it costs to make something, including standard, actual, or activity-based costing, the method must reflect what’s actually happening on your shop floor. Inaccurate or outdated costs can lead to underpricing, shrinking margins, misinformed product decisions and misleading financial results. Clear policies about what you expected to spend versus what you already spent help you to catch inefficiencies early, before they become bigger problems.
Regular and timely review of costing assumptions matters more than most people realize. If you don’t know what it truly costs to make a product, you risk pricing too low and losing money on every sale. It is important that your costs reflect current material prices, labor rates, and overhead structures. Outdated estimates lead to poor decisions about which products to focus on, where to invest and how to price competitively.
When inventory tracking, BOM management, and costing are kept accurate and up-to-date, the payoff is significant. You’ll gain a clearer picture of what products are actually making you money, have better control over cash flow, and more confidence in management decisions especially during times of inflation, supply chain disruptions, or rapid growth. In short, strong inventory practices aren’t just an accounting exercise. They’re one of the most practical tools you have for running a healthier, more resilient business.
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 Amanda Gard.
Amanda Gard is an Administrative Assistant at Cray Kaiser, serving as the first point of contact for clients whether they’re walking through the door or calling the office. In her role, Amanda works to ensure every interaction reflects the firm’s commitment to exceptional service, all while keeping day-to-day office operations running smoothly. She collaborates closely with the administrative team, jumping in wherever needed to meet deadlines and keep clients well taken care of.
With a background spanning Office Operations and Wealth Administration, Amanda brings a versatile skill set to her work and a warmth that clients and colleagues notice right away.
Amanda joined Cray Kaiser during tax season, one of the busiest times of the year, and it didn’t take long for her to feel at home. She was drawn to a role that let her put both sides of her experience to work. What she found was a team that made even the most demanding stretches feel manageable.
“The continuous support and positive atmosphere, even during intense deadlines, have been incredible and a big part of what’s kept me here.”
The CK value that resonates most with Amanda is People. For her, it’s more than a value on paper. It’s something she sees lived out every day, in the way teammates show up for each other and in the care the firm extends to every client.
“Not only do team members genuinely support one another, but they also pour into their clients. Cray Kaiser truly cares and it shows.”
Looking ahead, Amanda plans to return to school this fall to further her education in Human Resources. It’s a natural next step as she looks to deepen her expertise and expand her impact in the workplace.
How do you like to spend your weekends/time off?
Weekends are for sleeping in, relaxed vibes, and errands.
Tell us about your family.
I am 1 of 5 siblings and have 9 nieces and nephews. I am lucky that we all live in the Chicagoland area and I spend a lot of time with them. Most of us can often be found at our parent’s house on Sunday afternoons.
Do you have a special/hidden talent or hobby?
I read, roughly, a book a week.
What was your favorite vacation?
Growing up, my family would rent a cabin in Arkansas and spend time in our boat on Bull Shoals Lake during the summer. It was always a great time!
What’s on your music playlist?
95% of the time, I am listening to Broadway Showtunes.
What’s the last book you read?
I recently joined a “horror” themed book club to expand by reading genre background and try new things. I just finished The Eyes Are the Best Part by Monika Kim.
A business valuation isn’t just a number on a page, it’s an estimate built on judgement, financial data and a deep understanding of your industry. In this audio blog, Jason Hofferica, CPA and Certified Valuation Analyst at CK, breaks down how valuations work, what their purpose is, what they can and can’t tell you and what common mistakes to watch out for.
Transcript:
My name is Jason Hofferica. I’m an assurance manager here at Cray Kaiser, and I’m a certified public accountant and a certified valuation analyst. The purpose of the valuation is to provide information to either the buyer or the seller as to what, based on the facts and circumstances that we are looking at, looks like a fair value for someone to pay. So whether it’s a minority interest, as I mentioned before, there’s an adjustment for a minority interest. There’s an adjustment for that fact that this person buying it will not have control of the company. They’ll have ownership in the company, but they won’t have control of the company. Now, as far as how they use that information, they could use it in negotiating. It’s you know, it is pretty accurate based on the information that we’re provided. However fair market value is essentially what two parties, unrelated parties will pay at an arm’s length transaction. It’s ultimately up to them what they want to determine what fair value is. We just come up with this is what we see, this is what we think the fair value is, and they could use that information to make their investment decision, whether it’s buying or it’s selling.
How accurate it can be? It is an estimate. If we’re coming up with a value of a business and they agree on a price that’s $10,000 different or something, but the information was provided to say this is where it should be around. So as far as exact, exact numbers, that’s not what it’s going to provide. It will provide a valuation, but it’ll provide an estimate.
Fair market value is what two unrelated parties would expect to pay at an arm-length transaction. So determining fair value, is for a lot of the time, for the businesses that we perform valuations for. There’s, of course, the market approach. However, the problem with that is that those companies aren’t. The market is usually a stock exchange and these businesses are nowhere near that size or complexity. So while using some of these companies for some information to see if things might be reasonable, it’s usually not the true indication of what these companies are worth. Usually it depends on the type of transaction we’re talking about, if it’s an asset only sale, if it’s just revenue, the nature of the business, but there’s all different approaches including the capitalization method and the capitalization of excess earnings. All of these factor in not only the assets in the business, but also the revenue streams of these businesses to come up with a true value of these businesses.
You might also have estate tax issues that are at play, to where you might want to go ahead and plan accordingly as to what is going to happen when the inevitable does happen so that you can have you or your estate pay the least amount of tax possible. There are different thresholds with federal and state and those are some considerations. That if somebody’s holdings are valuable enough to where they’ll start gifting some of it to their heirs, so that they can, you know, either defer some of that tax or come underneath the estate tax threshold.
Sometimes in a business, let’s say they’re a manufacturing business, some of these manufacturing pieces of equipment are fairly large and they cost a lot of money. There’s some clients that we have, that their assembly line equipment is a million dollars. Now, well, it costs them a million. Now, it may be carrying a value on the balance sheet of $150,000. Now, if an equipment appraisal is done, it says, yeah, this piece of equipment could be resold for $700,000 or so. We change that value on the balance sheet because it’s not capturing the true value of not only the assets in the business that are part of the sale or the purchase or whatever, but also in considering the revenue stream. So we adjust everything to what is it that is truly involved here.
There were some valuations wanting to be performed regarding the gifting of the shares. One of the considerations in there, of course, is there’s a lot of things that can be covered under home improvement and remodeling. So you had to really look at what does this company do? What market, what region are they in? How many competitors do they have? You have to look at all of this stuff in determining a valuation and coming up with an evaluation. And like I said, the valuation reports can be sometimes a bit lengthy, but it’ll tell you why something was or was not considered.
One of the nuances for that is, and one of the challenges too, especially in the last couple of years, has been when we analyze these revenue streams or what these businesses are capable of doing. Now the problem is, last couple of years, everybody was affected in some way by COVID, some more than others. And some of that, and some did just fine based on the industry they were in. Some saw a fall off in revenue. How much of an impact does that really have on what this company is worth? Were they able to weather the storm? Did they stay fairly consistent? So these were all kind of things to consider.
Now, on this valuation too, one thing that you also have to look at is what is the purpose of the valuation? And in this case, not only was it for gifting of the shares, but you have to consider what’s going to happen based on that purpose. So in this instance, you have to go ahead and value the company. It’s still at a fair value consideration, but your approach is you’re valuing basically a minority interest in this company. So other things that are considered on there is whether or not that person will not have control, how much is this of a value on a per share basis to them because they ultimately don’t have control over how much people get paid, how much dividends are paid out they don’t they don’t have any of that. So is what do we believe that a reasonable person at an arm’s length agreement would pay for not only not having control but we also have to consider whether or not the marketability of a company. That again comes down to what industry they’re in and how many sellers and buyers we believe that there are in the market.
Common mistakes I would say is, there is a lot of the valuation that is built off of judgment and variables, and certain variables. And it’s very important to make sure that you not only are solid with your analysis, but the reasoning for your analysis. One of the mistakes that you see, that I have seen sometimes is some have a tendency to overvalue a business because they won’t use the appropriate method. And what I mean by that is someone that is leaning too heavily on using market, so using these publicly traded companies as a large basis as to you know, this is what their EBITDA is or should be, or again, you can’t use a very, very large company, which also may have a lot more resources at their disposal, and they may be involved in a lot more things as a basis as far as we believe this company is worth just as much as this company. That is one of the errors that I sometimes see is using these methods that are not comparable to who you are evaluating, who the subject is.
We review the report internally, of course, and make sure it seems like nothing was missed. But we do issue a draft to that, and they have the opportunity to review it. They’ll read through it. They’re free to ask any questions, including why this, why not that. Sometimes there are things that, you know, we were not aware of that may or may not change something. So they get the opportunity to review it and come up with those ideas and those questions because ultimately we want them to also understand the valuation as well. Once they read through it, they, you know, have no more questions or they agree with it, then we’ll actually issue it a final report. So, yeah, it’s not just a, yeah, here’s what we think and that’s it. We provide it to, you know, the buyer, the seller, or the client, whoever is requesting the valuation and they have the opportunity to review that before we make it final.
When the last bell rings, school is far from over. Schools have a myriad of extracurricular activities running nearly every day of the week and late into the evening. This includes everything from athletics to fine arts to chess club and all the activities in between. All of these activities involve money, including fundraising, participant fees, and expenditures for equipment and services. Most Illinois school districts track this money in “activity funds” or “club accounts”. These accounts make enriching school experiences possible, but they come with challenges and risks. Here’s what every school district should keep in mind to stay organized, transparent and compliant.
Set up clear rules for handling money
Before any club or team collects or spends a dollar the district should have a clear plan in place for how that money is managed. This includes who is allowed to make purchases. Will coaches and club sponsors be able to buy things directly? Will everything need to go through the district’s business office first?
It also means establishing how cash and check deposits will be handled. Who physically takes money to the bank, what paperwork is required and whether the district has a check scanner to make deposits easier. Finally the district needs to decide what software system will be used to track the money and who has access to it. Bottom line: Coaches and sponsors need clear, easy-to-follow reports so they can make good decisions for their clubs. Make sure that information gets to them regularly.
Bottom line: Coaches and sponsors need clear, easy-to-follow reports so they can make good decisions for their clubs. Make sure that information gets to them regularly.
Keep each club’s money in its own account
Each club or team account is meant for that specific group. For example, the cheerleading account is for cheerleading, the drama fund is for drama, and so on. Money shouldn’t be moved casually between accounts. If one club temporarily needs to borrow from another, the district should be sure to set up a due to/from entry. This keeps the records clean and makes it easy to see exactly what is happening with each club’s funds at any time.
Bottom line: Treating each account as its own separate “budget” prevents confusion and keeps things transparent for everyone involved.
Use the district’s sale tax exemptions correctly
Illinois school districts are units of local government, which means they are generally exempt from paying sales tax on purchases. Most districts often have an official letter that employees can use at checkout to provide proof that the exemption applies. This is a benefit that needs to be used responsibly. Only coaches and sponsors should use the tax exemption and only for legitimate school purchases. Requiring purchase orders for all transactions is a good way to keep this process organized and eliminate misuse.
Bottom line: Train coaches and sponsors on how and when to use the tax exemption and make sure it’s not being used for personal purchases.
Be careful with crowdfunding platforms
Crowdfunding platforms, like GoFundMe may seem like an easy way to raise money for a team or club but they carry real risks for school districts. If a coach sets up a personal crowdfunding campaign on behalf of the school, the district may have little control over where the money goes or how it’s reported.
Best practice is for the school district to require approval for any crowdfunding campaign set up in the school’s name and to ensure all funds raised are deposited into official district accounts. Some districts choose to establish a policy forbidding crowdfunding for school-sponsored purposes. This eliminates the risk entirely.
Bottom line: Have a written policy on crowdfunding before someone launches a campaign. Reacting after the fact is much harder than preventing the problem before it happens.
Activity funds are a small but important part of what makes school life meaningful for students. With the right policies and some training, they don’t have to be a source of stress or confusion. By setting clear expectations from the beginning, Illinois K-12 districts can support their clubs and teams with confidence while avoiding the financial headaches that can distract from what matters most: the students.
