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The Benefits of Six Sigma

The benefits of Six Sigma GJMImplementing Lean Six Sigma management principles in your operations can benefit your company by utilizing data, statistics, and measurements to eliminate defects in your processes. Once inefficiencies in your business’ processes have been identified, the Six Sigma methodology applies the use of proper tools to decrease defects and anything that doesn’t fit client specifications. 

Part two of our three-part series on Lean Six Sigma will focus on why your company might pursue the methodology and what will you and your staff get out of it. We’ll also share how Gilmore Jasion Mahler has embraced Lean Six Sigma and some of the benefits we have seen in our own firm.

Lean Six Sigma’s goal is pretty simple: to improve efficiency and eliminate waste. What type of improvements might you see?

  • Reduced Cycle Time. If you have experienced missed deadlines due to unexpected delays in projects or shifts in management policy, Six Sigma can help by setting up a team that can identify the reasons for long cycle times and find solutions to these problems. Lean Six Sigma says in many cases, cycle times are reduced by up to 35%.
  • Motivated Employees. Employees need their companies to fully engage with them to keep them on task. Six Sigma problem solving tools improve employee development and create the proper environment to keep workers motivated. Properly motivated employees experience a 25-50% increase in productivity.
  • Improved Customer Loyalty. Better quality control and improved processes through Six Sigma result in a consistently better product and more satisfied clients. It’s no secret that when your customers are happy with your product, they return to you for future needs and recommend your company to others.
  • Help With Time Management. The principles of Lean Six Sigma involve looking at learning, performance, and fulfillment. Having employees set goals and apply these principles to their work ethic leads to more effectively managed time. The action plan that Six Sigma helps employees to develop is said to increase efficiency by up to 30%.
  • Better Managed Supply Chain. Reducing the number of suppliers your company uses is a key component of the Six Sigma methodology. Changes and variations in the supply chain have an effect on the defect rate of your product, so reducing the number of suppliers reduces the chance of defects in your products.
  • Improved Bottom Line. The customer loyalty mentioned above directly affects your profits in a very basic way. Your happy customers continue to buy from you and will likely recommend your company to others who are looking for a similar product. This leads to increased revenues for your company.

For several years Gilmore Jasion Mahler has been engaged with the Lean Six Sigma methodology. The firm currently has six green belts who have conducted various projects throughout our firm. We’ve embraced the mind-set and applied Lean to all facets of our business: from employee expense account reimbursement to the client experience.

“We’ve learned that sometimes we had to ‘fail forward,’ in other words, we needed to learn that not every project was going to be a success, but we learned something from every project that we implemented,” says GJM Partner Deanna Hall, who is a Six Sigma green belt.

Here are five critical factors that led to GJM’s success with Lean Six Sigma:

  1. Buy-in from the top
  2. Change in mindset across the firm – needed to change to a mindset of continuous improvement, always “hungry” for improvement
  3. Adopted the motto:  Strive for Excellence, Not Perfection
  4. Get all levels in the firm involved – could not just be at the management level
  5. Understand that change is hard for most people  

Change may be hard, but it isn’t impossible. Sometimes starting with smaller changes can demonstrate the ability to improve processes and encourage staff to embrace larger Lean initiatives moving forward.

Part one of our series on Lean Six Sigma offers some basic information, including the basic principles and definitions of the methodology. Be sure to watch for the next part in our series, which will cover what’s involved in acquiring Lean Six Sigma certification.

Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting and provides comprehensive services including assurance, business advisory, tax, risk advisory, healthcare management and outsourced accounting. The Firm’s professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities.


Link to blog post #1

Why a Quality of Earnings Report is So Important

Ask any business owner and they’ll no doubt tell you there’s much to consider when contemplating either buying or selling a business. The process can last months or even years as the owner pulls in experts, reviews reports and considers all the facts before signing on the dotted line. A critical piece of this due diligence is the quality of earnings report (Q of E) that provides a detailed analysis of how a company records its revenues, such as cash or non-cash, recurring or nonrecurring. The Q of E report’s goal is to provide assurance that earnings are sustainable and will also translate into cash flows. Reports are usually focused on sustainable earnings before interest, taxes, depreciation and amortization (EBITDA) or free cash flow (FCF). FCF performs an analysis of working capital needs for the business as well as capital expenditures that are needed. Q of E reports are prepared by independent third parties and usually by the buyer or their representative. The seller may also have an independent third party prepare a Q of E report in preparation for a sale. 

In this blog we will further define the quality of earnings report, examine why this is a critical report to review during the buy/sell process, and offer a list of the most important components of a reliable Q of E report. You’ll also hear from the CEO of a global manufacturer about what he views as the most crucial takeaways.

Quality of Earnings: What is it?

A Q of E report offers a close examination of company finances. Unlike an audit, Q of E reports typically focus on trailing 12 months (TTM) and usually a few historic periods as well. They are also more focused than an audit. It typically can take anywhere from three to four weeks to complete a Q of E report depending upon the availability of data and management’s responsiveness.

Components: What’s in a Q of E Report?

Q of E reports usually include but are not limited to:

  • Executive Summary including a business overview and the transaction overview (if known)
  • Income statement section that may include the following:
    • Breakdown of revenue by components such as customer/product lines/service lines
    • Historical revenue trends
    • Determination of one-time income/expenses vs recurring expenses
    • Management EBITDA adjustments are analyzed
    • Diligence adjustments to EBITDA suggested by the preparer
  • Balance Sheet is disclosed and analyzed
  • Working capital is analyzed in detail and normalized
  • Recommendations and findings by the preparer of the report

Gilmore Jasion Mahler (GJM) consulting and assurance partner Greg Taylor leads the GJM Private Equity Advisory practice and advises many businesses. He views the quality of earnings report as an opportunity to discover any “skeletons in the closet” before due diligence is performed by a potential buyer. Taylor says in the past most Q of E reports were strictly buy-side but in the past few years, he says he’s seen more companies also performing sell-side in preparation for a sale. Many investment bankers are also strongly recommending a Q of E report be performed before they will take the company to market. One thing that hasn’t changed: Q of E reports are frequently prepared by an independent third-party firm.

“Buyers usually want independent parties to perform this analysis for a couple of reasons,” says Taylor. “One: another party is taking an independent look and two: these reports can also be provided to third parties for funding or investment reasons.”

Key Questions

Taylor says there are three key questions business owners should ask themselves when reviewing a Q of E with their financial team and advisors:

  1. How accurate are the management proposed addbacks? 
  2. How sustainable are the numbers? 
  3. What are other factors that are not just in the numbers, but the intangibles? For example: the management team, market trends and operational expertise.

CEO Perspective

Findlay-based Rowmark is a leading global manufacturer of sheet plastic for many uses, including signage, awards and other applications. President and CEO Jim Ellward says the company continues to stay active in many acquisitions, and a Q of E report is an important component when exploring any potential acquisition. He has worked with GJM to provide the report to Rowmark when needed.

“You have to have confidence in that third-party advisor that they are going to focus on the details, point out the positive and negative aspects of the business through their findings and truly be that advisor,” says Ellward. “GJM has earned our confidence and we view them as a trusted partner with our business.”

In fact, selecting a professional or firm to provide a quality of earnings report may be equally as important as the report itself. Many firms provide Q of Es, but not all are experts. Ellward says GJM is the right partner for Rowmark.

“Gilmore Jasion Mahler understands our business,” he says.  “They have taken the time to learn our business and understand our long-term strategy. This, coupled with their accuracy, attentive service and fact-based assessments, allows us to feel confident with the information and guidance we are able to attain from the Q of E reports.”

Sometimes a Q of E report brings answers a business owner may not be hoping for, but they wind up being the answers that will guide the business in the right direction. Ellward described once such scenario for Rowmark.

“GJM helped us assess a recent potential acquisition that we ultimately decided to pass on as we moved deeper through diligence. Our decision to exit was based on multiple factors regarding the overall health of the business. The Q of E provided the basis of additional questions that we wanted to dive deeper into understanding and in turn allowed us to identify areas of concern and focus on making the right decision for the business.”

Here’s what Ellward says he looks for in a Q of E report:

  • A more detailed picture of just how well the business is really doing and whether or not it is worth the price negotiated
  • The analysis of customer sales and accounts
  • The identification of any significant or unusual accounting adjustments or policies that need explanation
  • The ability to see an independent, non-biased view evaluating the on-going operations and cash flows  

As this information bubbles up in a Q of E report, the answer often becomes very clear whether it is wise to move forward with the transaction or to walk away and wait for the next opportunity to arise.  

Established in 1996, GJM is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting and provides comprehensive services including assurance, business advisory, tax, risk advisory, healthcare management and outsourced accounting. The Firm’s professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities.

SBA Releases PPP Loan Forgiveness Application

The Small Business Administration (SBA) has released the application for Paycheck Protection Program (PPP) loan forgiveness. The 11-page application includes instructions and worksheets to guide businesses through the process. The application and instructions also clarify some requirements and options for businesses requesting forgiveness of their PPP loans, including:

  • The FTE (full time equivalent) calculation is based on a 40-hour work week.  No person can be considered greater than a 1.0 FTE.  For those employees working less than 40 hours per week, the calculation can be based on a 40-hour week rounded to the nearest 0.1 or they can all be considered as .5 FTE’s. 
  • Businesses can calculate their payroll costs through an “alternative payroll covered period” that aligns with their own payroll schedule. This “alternative” period is only available to borrowers with a bi-weekly (or more frequent pay period like weekly), not semi-monthly or monthly pay periods. 
  • There’s a new exception from the loan forgiveness reduction for businesses that have made a (1) written offer to rehire workers which was rejected by the employee and (2) any employees who during the covered period (a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours.   
  • FTE Reduction Safe Harbor if FTE employee levels are restored to February 15th staffing levels by no later than June 30, 2020.

Further guidance is expected soon to help businesses and their lenders navigate the application for loan forgiveness. You can access the SBA PPP loan forgiveness application here. We will be sure to communicate further updates as more guidance becomes available.

Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting and provides comprehensive services including assurance, business advisory, tax, risk advisory, healthcare management and outsourced accounting. The Firm’s professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities.

PPP Loan Forgiveness: Waiting for Answers

PPP Loan forgivenessJust over a week ago, the Internal Revenue Service (IRS) released an opinion on the deductibility of expenses relating to the forgiveness of Paycheck Protection Program (PPP) loans (IRS Notice 2020-32).  When Congress passed the CARES Act in March establishing the PPP, the legislation stated that any portion of the loans that were forgiven would be non-taxable income for taxpayers.

Many of us speculated that the IRS would follow their statutes and rule that though the forgiven income is non-taxable, the payroll, health and retirement benefits, rent, utilities and interest expense that qualify for the loan forgiveness would be deemed non-deductible. Indeed, this is exactly how the IRS ruled in the notice, stating that, as the expenses would relate to non-taxable income, they would in turn not be deductible.

Along with many taxpayers, several legislators in Congress are very upset about the ruling and feel that it is not in line with their legislative intent. They would like Treasury Secretary Steven Mnuchin to reverse the IRS position. In the alternative, the legislators plan to introduce legislation to mandate these expenses be allowed as tax deductible, as their intent was to make this program very generous. This would also be consistent with the tax treatment of an alternative option in the same law, the employee retention credit.

We will wait and see in the coming months how this plays out. In the meantime, it is expected that within the next week or so, we should be receiving some much-needed guidance from the Small Business Administration (SBA) on numerous PPP loan forgiveness questions. Among them are the following.

  1. Will costs such as payroll only be allowed if paid during the 8-week period after loan funding or will we be able to include payroll paid after the 8-week period that relates to work done during the 8 weeks?
  2. For loans funded after May 6th, will taxpayers be able to extend their 8 weeks beyond June 30th?
  3. Will any restrictions be made on self-rental properties?
  4. How are FTE’s (full time equivalent employees) being calculated?
  5. What exactly does it mean to have your workforce restored by June 30th if they were not restored during the 8-week period in order to get loan forgiveness? How long do they need to stay on the payroll?
  6. Are there any restrictions on hiring and paying family during the 8-week period?
  7. Is interest on non-mortgage debt allowed?
  8. What retirement benefits will be allowed? Do they need to be paid during the 8-week period in order to be forgiven? Will payment of an accrued liability from the prior year qualify for loan forgiveness?

These are just a few of several questions that have been asked with no clear guidance on PPP loan forgiveness. Hopefully, we will have that soon. We continue to recommend that PPP borrowers make a good faith effort in determining cost eligible for forgiveness. 

As new information comes forth, its critical that you work closely with your trusted advisors so you’re able to make the best decisions to position your business to emerge from the pandemic in as healthy a position as possible.

Kevin GilmoreGilmore Jasion Mahler Managing Partner Kevin Gilmore provided this blog. For more information on the impact of the pandemic on your business, we encourage you to visit the GJM COVID-19 Resource Center.

Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting and provides comprehensive services including assurance, business advisory, tax, risk advisory, healthcare management and outsourced accounting. The Firm’s professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities.

Protecting Your Business From Disaster

Protect your business from disaster GJMAs small and mid-size businesses around the country and the world work to stabilize in the wake of the deadly COVID-19 pandemic, the economic upheaval caused by the coronavirus crisis brings a wake-up call. Just how prepared was your business for such a devastating event and how would your company or organization fare should disaster strike your technology infrastructure?

Such a “disaster” can cause significant disruption in operational and/or technological process capabilities for a period of time for businesses, which in turn affects the ongoing operations of the company and can, in fact, threaten its very existence. That’s why all organizations should be considering disaster recovery, which involves a set of policies, tools/applications and procedures to help enable the recovery and continuation of critical technology and systems following a disaster.

Some examples of potential disasters:

  • Natural disasters like floods, tornadoes and hurricanes
  • Infrastructure break-down (i.e. utility disruption, pipeline bursts)
  • Human error or threats (i.e. cyber-attacks)

According to global IT services provider phoenixNAP, statistics show about 93% of businesses without a Disaster Recovery (DR) plan in place that suffer from a major data disaster are out of business within one year.

As consumers and business operators, we’ve seen an increase in attacks in which companies are locked out of their systems or data was held for ransom. Such attacks can be costly. On average, businesses lose over $100,000 per ransomware incident due to downtime and recovery costs. As these attacks increase, so should your focus on the importance of data back-up and recovery processes and controls. Without sufficient back-ups and defined processes for recovery, companies run an increased risk of delay or error in financial reporting. phoenixNAP says about 96% of companies with proper backups and Disaster Recovery plans in place were able to survive ransomware attacks.

Disaster recovery can be considered a subset of what is considered “business continuity”. Business continuity involves keeping essential aspects of your business functioning when significant disruptive events occur. Disaster recovery focuses on the IT or technology systems supporting your critical business functions.

What Is a Disaster Recovery Plan?

A Disaster Recovery plan is simply defining the strategy for recovering critical technology resources to ensure the continuation of critical/vital business processes in the event of a disaster. 

As most organizations are very reliant on information technology to conduct business, it’s critical to have a plan in place that can be easily implemented to minimize down-time. This plan defines the key processes for recovering critical technology platforms and telecommunications infrastructure within a specified timeframe. 

Tips for Creating a Disaster Recovery Plan

Identify Your Team

Establishing a Disaster Recovery Team (DRT) is a critical initial step in establishing a DR plan. The DRT should be a cross-functional team consisting of IT leadership and other individuals as needed who are responsible for carrying out the tasks outlined in this plan and providing expertise needed to recover from a disaster. It’s also important to involve key business stakeholders who would be involved in helping manage the downtime and recovery and ensure alignment with overall business continuity.

Create an IT Inventory

Ensuring that the organization has a real-time and up-to-date IT asset inventory listing is important in order to focus on the Recovery Time Objective (RTO) and Recovery Point Objective (RPO) for critical systems/applications. An IT asset inventory lists all key hardware and software (i.e. applications, servers, databases, etc.) and their relationships with one another. RTO is the goal for how quickly to restore technology services after a disruption, based on the acceptable amount of down-time for the specified technology. For example, a recovery time objective of 48 hours with local accessibility for payroll services means that the payroll application must be up and running within 48 hours as well as locally accessible. RPO is the goal for the point at which to restore data or information after a disruption, based on the acceptable amount of data or information loss. For example, an RPO of four hours for your financial reporting application means that the application data must be backed-up every four hours so that no more than four hours of data entered into the application is lost after a disruption.

Get Your Plan in Writing

Creating and documenting a plan involving these objectives is key to building out a realistic DR plan. Your organization will likely find during this process that there will be gaps between the current IT infrastructure and the determined recovery objectives. That said, it’s critical for your organization to work through these to ensure that the plan can be carried out as needed for the fluid continuity of the business.

What Else to Consider

Other important items to keep in mind when creating a DR Plan include:

  • Determining channels for communicating disasters and next steps to your employees
  • Obtaining stakeholder buy-in on the plan and its execution in order to ensure that the plan can be followed through on if necessary
  • Testing and practicing your plan to help you find and correct issues, as well as enable more accurate and efficient execution 

With these simple actions, you’re on your way to having a plan. COVID-19 reminded us all that catastrophic events do happen. The businesses with a Disaster Recovery plan in place are likely to be the ones to weather IT outages. Now’s the time to pull together your team and establish your plan so should disaster strike, you’ll be ready.

If you have questions creating or cleaning up your DR plan, Gilmore Jasion Mahler’s (GJM) Risk Consulting Team can help guide your business in building out that plan, determining the gaps and testing your DR plan. To start the conversation, reach out to Director Matt Hoverman at mhoverman@gjmltd.com, Manager Tim Schloz at tschloz@gjmltd.com, or Senior Associate Reid Mankowski at rmankowski@gjmltd.com.

Reid Mankowski GJM Disaster Recovery PlanGJM Senior Associate Reid Mankowski contributed this blog. Reid joined the GJM Risk Consulting Team in 2019. Reid has significant experience in testing and leading IT general control and business process SOX testing for large and medium size companies, primarily in the manufacturing industry.

Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting and provides comprehensive services including assurance, business advisory, tax, risk advisory, healthcare management and outsourced accounting. The Firm’s professionals specialize in industries including construction & real estatehealthcaremanufacturing & distribution and utilities.