Tag: food industry

R&D Tax Credits for Food & Beverage Companies

Certain research expenses can help your food or beverage company save on taxes.

Companies operating in the food and beverage industry are constantly facing increased costs in raw materials, fuel, and regulatory changes while trying to keep pricing competitive and gain market share. Rising costs can be related to research and development (R&D), which include developing new products related to food safety, reducing costs, natural ingredients, dietary guidelines, and sustainable resources.
R&D Tax Credits for Food & Beverage Companies
Luckily, federal and state governments offer R&D tax credits to reduce some of these expenses. The credit allows companies to receive tax breaks on costs associated with technological research performed in the United States. These costs do not have to be the direct cause of a new product or process, but rather activities they already perform.

Activities eligible for R&D credits

Activities that may qualify could fall into numerous categories including food, processes, packaging, and sustainability. A few examples are:

  • Improving taste, texture, or nutritional content of food product formulations
  • Developing techniques that will reduce costs and/or improve product consistency
  • Improving machinery and equipment to ensure safe handling of food
  • Create new packaging to improve shelf life, durability, and/or product integrity
  • Switching to a more environmental friendly packaging
  • Costs associated with being more energy efficient
  • Creating new methods for minimizing contamination, scrap, waste, and spoilage

The credits can be as much as 20 percent of qualified research expenses, which include, but are not limited to, wages, supplies, and contract expenses. Remember, the R&D credit is not a deduction against income, but rather a dollar-for-dollar credit against taxes owed or taxes paid.

There are changes to the tax credits under the new tax law. Prior to the Tax Cuts and Jobs Act (TCJA), the corporate AMT tax rate was 20 percent, regardless of credits or certain deductions. Post-TCJA, AMT tax is eliminated and C Corporations will now be taxed at 21 percent, allowing corporations to take greater advantage of these tax credits. However, one limitation still applies. If a corporation has over $25,000 in regular tax liability, they cannot use R&D tax credits to offset more than 75 percent of their regular tax liability.

Under the TCJA, companies will no longer be able to expense costs that are related to research after 2021. These costs will be capitalized and amortized over a five-year period. Expenses for research activities performed outside the United States would be amortized over a fifteen-year period.

We’ve Got Your Back

As a tax advisor in the food and beverage industry, we ensure that our clients take full advantage of these tax credits. If you would like to learn if your company is eligible for these credits, please contact Sean Faust, CPA of KRS CPAs’ Food and Beverage Practice at 201-655-7411 or [email protected].

Food for Thought from NJBIZ FoodBizNJ Conference

Having recently attended the FoodBizNJ conference, “Setting the Table for Growth”, I would like to share some “food for thought” I took away from the conference.

Food for Thought from NJBIZ FoodBizNJ ConferenceNew Jersey is home to many food manufacturers, distributors, retailers, restaurants, farms, and the service providers to those companies. However, the industry does face challenges that are not specific to New Jersey.

Some key concerns are:

Managing the workforce

As many food manufacturing jobs do not require a college degree, it is possible to have a career in the food industry without a college education. If necessary, advanced education can come later, however, “soft-skills” training is necessary and most likely will need to be provided by the employer.

As stated by Donna Schaffner, Associate Director: Food Safety, Quality Assurance & Training, Rutgers Food Innovation, it is expected that individuals entering the workforce today will have 22 different jobs in their lifetime. Having a strategy for training and retaining these individuals is critical. Training time and dollars must be well spent in an effort to retain those trained employees.

Understand your margins

It is critical to have a handle on your production costs and gross margin. The first step to setting prices is to understand your cost structure. This is not an exercise that is performed only once; costs change and require constant monitoring. Costs can change materially over time. Costs that are too high and prices set too low can result in disaster. If changes are not monitored and quickly acted upon, the business may experience significant losses.

Specific challenges for family food businesses

A very low percentage of family food businesses make it to the 4th generation. Many of those that do have a “family first” mantra that extends the definition of “family” to long-time employees. Many successful multi-generational family businesses get each succeeding generation involved as early as possible and strive to teach them the business from the ground up. It is perfectly acceptable if some family members choose a different career path but retain ownership interests in the business.  The most successful multi-generational businesses employ family members in active roles, and each generation enthusiastically attempts to contribute to the business’s successful continuation.

What is one challenge that KRS has seen in multi-generational food businesses?

In our practice, we frequently encounter family businesses struggling with under-performing family members involved  in the business. It is often a difficult subject to approach when “family first” is your mantra.  A good executive training program as well as holding family members to the same standards as other employees is a good first step in avoiding the problem early on. Utilizing a performance-based evaluation and compensation program may also help alleviate any discontent within the generations.

This is one of the many challenges we have seen in multi-generational family businesses. If you are in a family food business and you have a unique challenge contact KRS CPAs as we can offer a fresh, independent evaluation of your business.

Food Industry Trends and More: Notes from the Summer Fancy Food Show

Maria Rollins at the Summer Fancy Food ShowWhenever a local industry trade show aligns with a KRS service offering or niche I look forward to an opportunity to get out and network with its exhibitors. I also find that the breakout education sessions are extremely relevant and offer insight to the business challenges faced by industry members. Recently I had the opportunity to attend the Specialty Food Associations’ Summer Fancy Food Show in New York City.

I was drawn to this particular show because we have many clients who are in the food and beverage industry. In addition, I am a “foodie” and was enticed by the thought of spending a day in New York City networking while sampling the latest in specialty foods and beverages.

The show lasted for four days and although I only attended the last day (usually the day with the most giveaways) I was able to get a flavor for many product and business trends. Here’s just a sampling of what I learned.

Hot product trends and business challenges

In light of the shift in consumer demand from processed foods to healthier options, I wasn’t surprised to see gluten-free, vegan, raw and “sugar conscious” products as the hot items on exhibit. Many of the dessert and snack items I sampled were marketed as gluten-free and many amount were also dairy-free and vegan.

As the gluten-free trend continues, manufacturers will face challenges in production when gluten-free and gluten products are manufactured in the same facility. The gluten-free trend will also continue to boost the need for gluten-free flour substitutes such as coconut, corn and rice flours, in addition to other ingredients needed to improve texture and consistency.

Shelf-life of gluten-free products can also be a business challenge. Many exhibitors stressed the shelf-life of their products since many of the ingredients in these gluten-free alternatives result in a shorter shelf-life compared to full gluten products.

Many of the beverage samples offered by exhibitors continued the “healthier” option theme and were low sugar alternatives to traditional sodas. Flavored waters and spritzers containing organic juices, apple cider vinegar or Acai berries were positioned as healthier alternatives to sugar-laden sodas.

I also saw many dairy-free and vegan products exhibited by small businesses and start-ups. Many of the small business exhibitors I spoke with are challenged with expanding their distribution beyond their local geographical region. Attending such premier show was an important way for these companies to get their products in front of the many distributors and buyers attending.

All the small businesses and start-ups I spoke to have e-commerce sites and will ship their products to consumers. We talked about how important e-commerce is to their growth and how it requires that they invest in technology. I also listened to panelist Monica Schechter, specialty and international food category manager at Jet.com and Walmart.com, who cited technology as a catalyst to finding new products and assisting with the discovery experience through online searching and shopping.

Turning a food idea into a successful business

My favorite experience at any trade show is talking to the exhibitors and learning the story behind their product or brand. Many are family businesses or friends who came up with an idea. They are passionate about their ingredients and the quality of the product they deliver to their consumers. As an accountant working with many start-ups and “well-seasoned” businesses, I find these stories are refreshing and often heart-warming. Common for start-ups, these stories usually include a business mistake or two they encountered along the way. After all, having a great idea is only the first step. A successful food manufacturer must build their brand, secure efficient manufacturing, seek distribution channels, set pricing, manage inventory, finance the business and market their product. The most successful businesses deliver their product more efficiently than their competitors.

My advice to small businesses and start-ups is to seek out help from professionals and mentors. I recently spoke to one food manufacturer who has grown a significant business and now offers advice to those entering the market. They are willing to share their challenges and how they overcame obstacles in growing their business.

Resources for Growing Your NJ Food Business

Resources for Growing Your NJ Food BusinessWith food trucks, farmers markets and innovative “Jersey Fresh” products popping up daily, it’s no wonder New Jersey is known as a food industry hub.

According to Choose NJ, New Jersey boasts a thriving $105 billion food industry and an agriculture sector that’s growing every day. The Garden State is home to 1,900 food manufacturing companies employing about 31,000 people at last count. There are also thousands of food distribution centers, retailers, restaurants and farms. For more on the size and importance of food manufacturing to the New Jersey economy, download the New Jersey Business and Industry Association (NJBIA) report, “Food Manufacturing in New Jersey.”

At KRS, we work with many food startups, as well as established companies in food manufacturing, wholesale and distribution, brokerage, and transportation and logistics. We know how important it is to have the resources you need to grow your business, so we’ve put together this guide to the local food industry to help you.

Innovation and technical expertise for emerging and established food companies

Rutgers Food Industry Gateway combines the resources of the Rutgers Food Innovation Center and Rutgers’ Center for Advanced Food Technology to create a business incubation and economic development accelerator for the food and agricultural sectors.

The Gateway provides business and technical expertise in addition to serving as a guide to the wealth of knowledge within the many departments and institutes of Rutgers. Chief among these are:

Financial incentives and workforce development programs

Choose: New Jersey’s mission is to encourage and nurture economic growth throughout New Jersey, with a focus on urban centers. They provide relocation and expansion services, property search/site visits, and economic development connections.

Under their Grow New Jersey Assistance Program, food companies may qualify for fully-transferable tax credits by creating as few as 25 full-time jobs (10 for new technology startups). The Advanced Manufacturing and Transportation, Logistics and Distribution Talent Networks partner with businesses to develop workforce training and connect companies with already trained employees to address their needs. Download Choose: New Jersey’s food industry brochure to learn more.

New Jersey Economic Development Association (EDA) works in partnership with Choose NJ and the New Jersey Business Action Center, along with the Office of the Secretary of the Higher Education, to collaborate under the umbrella of the New Jersey Partnership for Action (PFA). The EDA’s role in attracting and retaining businesses is to administer financial resources that help companies bridge financing gaps and encourage companies to choose New Jersey over a competing location by making a project more financially viable.

Best practices for food manufacturers and suppliers

The New Jersey Food Processors Association (NJFPA) is an organization of manufacturers and suppliers of food and agricultural products joined together to promote best practices, share information and expand the food industry of New Jersey and the surrounding region.

NJFPA provides its members with access to the networking events and the resources necessary to strengthen their companies. The NJFPA holds an Annual Conference, usually in January, which provides sessions on technical innovations, sales and marketing tips, consumer trends, distribution solutions, new product and package development, and food safety issues.

New Jersey Manufacturing Extension Program, Inc. (NJMEP) is a not-for-profit company that works with New Jersey’s small to mid-sized manufacturers to help them become more efficient, profitable and globally competitive. NJMEP’s Made in New Jersey program showcases the state’s products and the companies that are manufacturing them. A key component of this program is the online directory listing NJ’s manufacturers and the products they create. Register to be a part of Made in New Jersey.

Food conferences and trade shows

Many food conferences and trade shows occur in the New Jersey and New York area. We’ve been to these four and they are worth checking out:

FOODBIZ, presented by NJBIZ, is a day of education and networking designed to benefit New Jersey business owners and operators in the food and beverage industries. The event brings together buyers and sellers in this business-to-business environment aimed to stimulate revenue opportunities, educate and inspire.

The World of Latino Cuisine Food and Beverage Trade Show, held at the Meadowlands Expo Center, includes the participation of domestic food manufacturers, producers, and distributors. Importers from the Caribbean and many Latin American countries also participate as exhibitors. Matchmaking opportunities are offered off-site and at the event, as ninety-five percent of the largest Latino food and beverage distributors in the Northeastern United States are located within a 25 miles radius of the Meadowlands Expo Center.

The New York Produce Show and Conference is held each year at the Javits Center, NYC, and is presented by the Eastern Produce Council and Produce Business magazine. The 3-day event includes networking opportunities and a tradeshow of over 400 companies representing local retailers, wholesalers, foodservice distributors, urban farmers and unique eateries.

The Fancy Food Show, presented by the Specialty Food Association, showcases over 2,500 exhibitors with the latest in specialty food and beverages from across the U.S. and 55 countries. It is held annually at the Javits Center.

We’ve Got Your Back

Regardless of the type of food business you run, you need to have the financial, accounting and business advice that enables your company thrive in a competitive marketplace. We can help. Contact Managing Partner Maria Rollins at 201.655.7411 or [email protected] to set up a free initial consultation.