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ARDMORE, Pa. — The so-called “fiscal cliff” tax package recently signed into law renewed more than 50 temporary tax breaks through 2013, saving individuals and businesses an estimated $76 billion. For the owners and operators of small- and medium-sized laundry businesses, there is good news and bad news contained in the fiscal cliff tax laws.

First, the good news: greater certainty in taxes. The owners and operators of laundry businesses have grown used to many longstanding tax breaks but they also have had to get used to the uncertainty of whether they will be renewed each year.

On the downside, in addition to a 3.8% Net Investment Income (NII) tax and a 0.9% Additional Medicare tax that, thanks to the Health Care and Education Reconciliation Act of 2010, began in 2013, many laundry owners discovered they are subject to new taxes. Single individuals with incomes above the $400,000 level and married couples with income higher than $450,000 will pay more in taxes in 2013.

EQUIPMENT WRITE-OFFS FOR PROFITABLE OPERATIONS

The American Taxpayer Relief Act extended through 2013 the Tax Code’s Section 179 first-year expensing write-off for equipment and business property purchases. Now, the higher expensing limits in effect in 2011 have been reinstated for 2012 and extended for expenditures made before Dec. 31, 2013. Thus, a laundry business can expense or immediately deduct up to $500,000 of expenditures in 2012 and 2013, subject to a phase-out if total capital expenditures exceed $2 million.

The tax break that allows profitable laundry businesses to write off large capital expenditures immediately—rather than over time—has long been used as an economic stimulus by our lawmakers. While 100% “bonus” depreciation expired at the end of 2011, today the new law allows 50% bonus depreciation for property placed in service through 2013.

Some transportation and longer-lived property are even eligible for bonus depreciation through 2014. If bonus depreciation had not been extended, the 2012 tax year would have been the final year in which substantial first-year write-offs for buyers of business automobiles and light trucks were available.

To be eligible for bonus depreciation, property must be depreciable under the standard MACRS (Modified Accelerated Cost Recovery System) and have a recovery period of less than 20 years. Section 179 first-year expensing remains a viable alternative, especially for small businesses. Property qualifying for the Section 179 write-off may be either used or new, in contrast to the bonus depreciation requirement that the taxpayer be the “first to use.”

Leasehold improvements and building improvements generally must be depreciated over 39 years. The tax law provides a special 15-year, straight-line depreciation break for qualified leasehold improvements, restaurant property, and retail improvements. Naturally, there are quite a few restrictions, such as the lease must between unrelated parties.

Qualified leasehold improvements also qualify for the 50% bonus depreciation. In fact, qualified leasehold improvements, restaurant property, and retail improvements up to $250,000 may qualify for Section 179 expensing. And, best of all, these provisions have been extended for property placed in service before Jan. 1, 2014.

MORE, MORE AND MORE

The Work Opportunity Tax Credit (WOTC), which rewards employers that hire individuals from certain target groups, has extended to Dec. 31, 2013, and applies to individuals who begin work for the employer after Dec. 31, 2011. Under the revised WOTC, laundry businesses hiring an individual from within a target group are eligible for a credit generally equal to 40% of first-year wages up to $6,000.

An S corporation is a pass-through entity and not usually subject to income taxes. It is, however, liable for the tax imposed on built-in gains or capital gains. The tax on built-in gains is a corporate-level tax on S corporations that dispose of assets that appreciated in value during the years when the operation was a regular C corporation.

The new law extends a relaxed version of the provision limiting the “recognition period” to five years, but only for “built-in gains” recognized in 2012 and 2013. Thus, if a laundry business elected S corporation status beginning Jan. 1, 2007, it will be able to sell appreciated assets it held on that date without begin subject to a hefty tax bill.

Check back Thursday for the conclusion!

Information in this article is provided for educational and reference purposes only. It is not intended to provide specific advice or individual recommendations. Consult a financial adviser for advice regarding your particular situation.

CHICAGO – August coin laundry sales reports were a mixed bag, with the West and the Northeast reporting increased sales from one year ago and the West and the Midwest garnering greater profits for the first half of 2012, according to the latest AmericanCoinOp.com StatShot survey.

Self-service laundry operators in the West reported August sales were up 1.4% compared to August 2011, and that their first-half profits were up 0.5% compared to the first half of 2011.

“I attribute the increase in business to the remodel of one of my three locations, which was up substantially after the remodel,” says an owner from the region.

In the Northeast, August 2012 sales were up 1.9% from the previous August while first-half profits for this year were down 1.1% compared to the first six months of 2011.

“Our northeast part of western Pennsylvania is reacting to the economy like the rest of our country…scared! Help us, Lord,” offers one store owner. Another in the Northeast says sales have been consistently flat since March. “Customers are getting squeezed as their state and federal assistance is cut back or expires. Volume continues to shift from larger to smaller washers.”

Store owners in the Midwest saw first-half profits rise 3.1%, while their August sales declined 1.1% from the previous year. One operator says his/her closest competitor closed in March. Another attributes difficult market conditions to high unemployment and too many operations offering free drying.

All of the numbers were in the red for operators in the South: August sales were down 2.7% and first-half profits declined 1.6% compared to January-June 2011.

AmericanCoinOp.com’s StatShot includes information on sales, wages, costs and other financial data based on anonymous survey information provided by industry owners and operators.

Audience members are invited to participate in these unscientific surveys, which are conducted online via a partner website, on a regular basis. All self-service laundry operators are encouraged to participate, as a greater number of responses will help to better define industry trends.

ARDMORE, Pa. — Things go a lot easier when potential lenders, suppliers and partners can decide to take a risk based on a laundry business’ credit history and capability of repaying obligations. With strong business credit, a business can borrow at a lower cost, with more favorable terms. In fact, many small businesses with good business credit have discovered it is possible to get loans without an onerous and often embarassing personal guarantee.

Obviously, business credit is quite difficult to get. For any small-business owner, navigating the credit and lending world can feel like a vicious Catch-22. Most commercial banks and traditional lenders are reluctant to loosen their purse strings until would-be borrowers have proven themselves with a strong credit history. But it’s difficult to develop that good record when no one will lend in the first place.

TRADE CREDIT

Suppliers often allow their customers a grace period before requiring payment for the goods or services they provide. This is called vendor or trade credit and it permits every laundry business to generate at least some revenue from sales before they have to pay for the supplies, goods or products. Vendor or trade credit is also often easier to obtain than bank credit because it doesn’t require collateral. Unfortunately, trade credit can be quite expensive.

Terms of 2% 10 days, net 30 days (2% discount if paid within 10 days, the net [full] amount due in 30 days) translates into a 36% or 37% annual interest rate if the cash discount is foregone. While trade credit may be appealing to laundry businesses looking to save money, beware when opting to take these discounts.

BUILDING MORE CREDIT

It is important to remember that business credit cannot be built overnight. Everyone should think about the business credit of his or her laundry operation from day one. Having access to credit can help any business adapt to changing conditions and position itself for success. But what steps can a coin laundry owner take to improve the creditworthiness of his or her business?

• Always pay on time. An operation’s ability to repay loans promptly has the greatest impact on its credit score. On-time payments are the most direct way to improve a credit rating.
• Ensure creditors regularly report the operation’s payment history to the credit bureaus. If timely payments to suppliers and lenders are not included in its profile, the laundry business may not get the credit it deserves for paying bills on time. It goes without saying that the credit profile should be monitored at least twice per year to ensure that all vendor payment relationships are included.
• Maintain good personal credit. After all, well-managed personal finances can indirectly impact the business’ creditworthiness. Personal and business credit ratings are separate, however, and do not directly affect one another.
• Contribute to the business’ credit profile. The more information provided to credit bureaus, the more robust its credit profile will be. In addition, wherever possible, choose suppliers and vendors that report their experiences to credit bureaus, which will also help boost the operation’s profile.

As already mentioned, the best place to start building or rebuilding business credit is with suppliers. Many types of suppliers, including major brands, extend lines of credit that give businesses the opportunity to finance purchases and conserve their cash.

In addition to goods and merchandise for resale, a laundry business can obtain products such as office supplies, computers and marketing materials with payment terms ranging from net 30 to net 60 days. Of course, the focus should remain with applying for credit with suppliers that provide products and/or services needed on a regular basis, in order to make regular purchases using the operation’s credit line. By paying invoices on time, every laundry business can build a credit history and increase the operation’s creditworthiness.

With a strong business credit report, a coin laundry owner can stop relying on personal credit to qualify for needed financing. Because creditors, lenders or suppliers can now easily determine the operation’s risk level with a business credit check, qualifying will be a much easier process.

Building business credit can also improve a store owner’s image, protect the owner’s personal credit, limit liability, and increase credit capacity since businesses can obtain 10 to 100 times greater financing than an individual. But the time to think about credit for your laundry business is now—before it is really needed.

Information in this article is provided for educational and reference purposes only. It is not intended to provide specific advice or individual recommendations. Consult a financial adviser for advice regarding your particular situation.

Click here to read Part 1!

CHICAGO — The arrival of fall can only mean one thing for self-service laundry operators—a calendar full of opportunities to attend distributor special events, open houses and service schools.

Here is a brief rundown of events through October — call or visit the website listed for registration information. In many cases, space is limited.

Sept. 5 — Summit Laundry Equipment Open House, Plainview, N.Y.; 855-SUMMIT9, summitlaundry.com.

Sept. 12-13 — BDS Laundry Systems Open House & Product Show, St. Paul, Minn.; 800-688-0020, bdslaundry.com.

Sept. 12-13 — Gold Coin Laundry Equipment Founder’s Day Sale, Jamaica, N.Y.; 800-952-1474, goldcoinlaundry.com.

Sept. 15 — Professional Laundry Systems Open House and Service School, Feasterville, Pa.; 215-354-0111, plslaundry.com.

Sept. 15 — PWS Open House, San Francisco; 650-871-0300, pwslaundry.com.

Sept. 19 — D&M Equipment Open House and Service School, Skokie, Ill.; 800-451-2676, dandmequipment.com.

Sept. 19 — Valley Washers Open House, Harrisonburg, Va.; 540-434-8086, valleywashers.com.

Sept. 21 — PWS Open House, San Diego; 858-560-6969, pwslaundry.com.

Sept. 21 — Star Distributing Open House and Service School, Knoxville, Tenn.; 800-897-7570, stardistributing.com.

Sept. 27 — Commercial Laundry Sales & Service Open House, Wichita, Kan.; 316-267-6650, commerciallaundrysales.com.

Sept. 27 — Hynes & Waller Open House, Upper Marlboro, Md.; 301-249-9421, hynesandwaller.com.

Sept. 27 — Star Distributing Open House and Service School, Nashville, Tenn.; 800-897-7570, stardistributing.com.

Sept. 28 — PAC Industries Open House, Harrisburg, Pa.; 800-692-6214, pacindustries.com.

Sept. 29 — Professional Laundry Systems Open House and Service School, Orchard Park, N.Y.; 716-662-6100, plslaundry.com.

Month of October — Statewide Machinery Open House, Rochester, N.Y.; 800-527-2219, statewidemachinery.com.

Oct. 2 — Martin Ray Laundry Systems Open House, Denver; 720-359-8000, martinray.com.

Oct. 4 — Southeastern Laundry Equipment Sales Open House and Service School, Marietta, Ga.; 800-522-9274, selaundryequip.com.

Oct. 8 — Sav-A-Day Laundry Machinery Open House, St. Louis; 800-489-9274, sav-a-day.com.

Oct. 9 — Martin Ray Laundry Systems Open House, Albuquerque, N.M.; 505-883-7277, martinray.com.

Oct. 11 — Ontario Laundry Systems Open House & Product Show, Mississauga, Ont.; 888-669-4837, ontariolaundry.com.

Oct. 16 — Coin-O-Matic Open House, Alsip, Ill.; 708-371-9595, millerlaundry.com.

Oct. 16 — Commercial Laundry Equipment Co. Open House, Chester, Va.; 804-231-9668.

Oct. 17 — Commercial Laundry Equipment Co. Open House, Norfolk, Va.; 804-231-9668.

Oct. 18 — Evans Distributing Open House, Salt Lake City, Utah; 801-972-6580, evanslaundryequipment.com.

Oct. 19-20 — Western State Design Service School and Open House, Cerritos, Calif.; 800-633-7153 x208, westernstatedesign.com.

Oct. 26-27 — Western State Design Service School, Open House and Grand Opening, Hayward, Calif.; 800-633-7153 x208, westernstatedesign.com.

Check the AmericanCoinOp.com calendar periodically for updates/additions.

ARDMORE, Pa. — In an effort to resolve the controversy over whether certain expenditures made by a laundry business are currently deductible as repair expenses, or whether they must be capitalized and deducted over the life of the underlying business asset, the Internal Revenue Service has finally released new regulations.

The IRS’s long-awaited expanded regulations for determining whether an expense must be capitalized because it betters or improves tangible business property or equipment, restores it, or adapts it to a new and different use, will have a significant impact on every laundry business that acquires, produces, or improves its tangible property. 

In addition to clarifying and expanding the current rules, the new regulations create “bright-line” tests for applying the repair-or-capitalize standards, provides guidance for accounting for—and disposing of—repaired property, as well as clarifying other aspects of the repair/capitalize dilemma.

The new regulations specify how repairs made simultaneously with improvements are to be treated, and provide a “safe harbor” for routine maintenance expenses such as materials and supplies. The new rules are also must reading for landlords and tenants that must capitalize expenses related to leased buildings. And, because the new rules were issued in “temporary” form, every plant owner and operator will feel the impact immediately.

CHANGES, WE HAVE CHANGES

The new regulations are the IRS’ third attempt to provide comprehensive guidance under the repair-or-capitalize rules. They attempt to answer such questions as how to treat environmental remediation expenses and how to treat rotatable spare parts used in repairs. One significant rule change allows a laundry owner or operator to deduct retirement losses for building components.

If, for example, the laundry operation replaces the roof on a building and disposes of the old roof, it now has the option of taking a retirement loss for the old roof. Of course, the replacement must be capitalized, but at least a retirement loss can be claimed.

Another change involves the “de minimis” expensing rule, a rule that allows a laundry business to expense or write off the acquisition cost of property on his books for financial reporting purposes. This immediate write-off is available to a laundry business with a written policy in place to do that, but only up to a threshold or ceiling. The new regulations also include many types of materials and supplies among those eligible for the de minimis expensing rule. Under earlier rules they were not eligible, or only some categories were.

MATERIAL AND SUPPLIES

As mentioned, under the new rules the costs of buying or producing materials and supplies remain deductible maintenance expenses in the year they are used or consumed. The cost of incidental materials and supplies, for which no record of consumption is kept, are generally deductible in the tax year in which they are paid.

However, while the timing rules for materials and supplies remain the same, the new rules provide a new definition. Materials and supplies may now be currently deducted as an expense if they are acquired to maintain, repair or improve business property owned, leased, or serviced by the laundry business, consist of fuel, lubricants, water and similar items that are reasonably expected to be consumed within 12 months, with an economic useful life of less than 12 months or costing less than $100.

Under an elective “de minimis” rule, amounts (other than inventory or land), along with amounts paid for any materials and supplies are not required to be capitalized. That is, the amounts do not have to be capitalized if the laundry operation has an applicable financial statement (such as one required by the Securities and Exchange Commission), a certified audited financial statement, written accounting procedures in place for treating the amounts as expenses on its AFS, and if the amounts paid and not capitalized are less than (1) 0.1% of gross receipts or (2) 2% of the total depreciation expense as determined in its AFS.

ACCOUNTING FOR REPAIRS AND REPLACEMENTS

Every laundry business should have some way of tracking the equipment and other assets used in the business and their repair costs on a unit-by-unit basis. It’s unlikely that those repair costs can be tracked mentally. Increasing repair costs can be a strong indication that equipment is coming to the end of its useful life, or that the operation has a “lemon” that will continue to suck cash.

Generally, it is useful to maintain a spreadsheet listing the purchase date, identifying the equipment and then listing repair or maintenance costs, along with a brief description of the work performed. It becomes easy to then determine which units or models are racking up the costs.

Thanks to the new rules, the owners and operators of many laundry businesses may discover that they will have to modify how they account for expenditures, as well as collecting information necessary to determine whether these expenditures are capital or alternatively currently deductible in the year that they are incurred.

Typically, if a repair cost were not deductible in the year incurred, it would be capitalized and depreciated. If, for example, a plant owner or operator had equipment or a machine and performed a “capitalizable” repair on it, that additional repair cost would be capitalized and depreciated over the appropriate recovery period for tax purposes. If it were a deductible repair cost, obviously the laundry operation would benefit from a deduction up front in the tax year incurred.

While awaiting the IRS’ guidelines for implementing the new regulations, it is already obvious that many plant owners and operators will need to implement the changes for the 2012 tax year. Whether the IRS will treat the changes required under the new regulations as automatic accounting method changes, and whether affected laundry businesses will be required to obtain approval for a change in accounting methods, are, as yet, unknown.

The sheer volume of the new rules on deduction vs. capitalization of tangible property costs will obviously require professional assistance. Now is a good time to seek such help. While it’s not urgent, now might be a good time to begin looking at repair and maintenance costs for 2012.

Information in this article is provided for educational and reference purposes only. It is not intended to provide specific advice or individual recommendations. Consult a tax adviser for advice regarding your particular situation.

CHICAGO — Credit is the oil that lubricates the machinery of business. Whether it’s a loan to buy supplies, to support expansion, a capital purchase, or just the need for a short-term loan to meet payroll or other operating expenses, most coin-op laundry owners need to depend on credit at some point. Unfortunately, the upheaval in today’s economy has resulted in a credit crunch that seems to have made it tougher than ever for business owners to swing a loan.

Still, for those in the know, there are enough options available to make the task a little easier. Money may be tight, but business loans are being made every day to those who know how to ask.

“In today’s banking climate, good deals still get done, but with more equity, more collateral and much higher credit scores required of the borrower than in the past,” says Linda Feltman, Pennsylvania State University, Small Business Development Center.

If you’re looking for financing for your coin-op business, now or in the future, here are some choices along with hints on how to greatly improve your chances of coming away with the money you need:

Banks

The first place most coin-op laundry owners turn to when they need a business loan is their local bank. That’s why it’s essential to build a solid business relationship with your bank well before you need to ask them for money. Allowing your bank to become familiar with your business sets the stage for the time when you need to ask for a loan.

“The news media tends to lump all banks together when it come to tight money,” says Bob White, president of Abington Bank, Jenkintown, Pa., “but there are big differences among banks. Like many other small community banks, we have always followed conservative lending practices. As a result, our default rates haven’t suffered and we’re in the same healthy position for making loans now that we were four years ago.”

Even after establishing a relationship, some business owners meet with frustration when the bank turns down their loan application. Most bankers agree that this is often because the owner has failed to come prepared with the information a lender needs to make a positive decision.

“How to find the money to finance a renovation, expansion, or other need is the last thing that many business owners think about when they plan a project,” says James G. Marshall, vice president, Fulton Bank, Lancaster, Pa. “It’s best to have a team lined up behind you when you plan a major financial move — and your bank should be a member of that team.”

How should you prepare for a meeting with a bank loan officer? Marshall suggests that you come armed with:

• Financial statements for your existing business
• Accountant-prepared financial projections and cash-flow analysis
• Marketing feasibility study for the project
• Owner’s personal financial statements and tax returns
• Information on the background and experience of owner(s)

“With this information,” says Marshall, “the bank can give proper consideration to your loan application.”

Be careful to avoid the red flags that may raise concerns in the mind of a loan officer. “One of the things that would turn me off,” says White, “is an applicant who has over-leveraged himself or recently financed the purchase of an expensive asset. And, of course, it’s absolutely essential that the applicant be honest and up-front with all pertinent information.”

Check back tomorrow for Part 2: What happens when the bank says no?

HARRISBURG, Pa. — Milford (Pa.) Laundromat is among 46 small businesses awarded $293,889 in grants by the Pennsylvania Department of Environmental Protection (DEP) to help them invest in energy-efficiency or pollution-prevention projects.

The business applied for and received a $7,500 grant, which will be used to purchase and install a high-efficiency boiler and hot-water heaters, according to DEP. Total project cost is $15,000.

Pennsylvania’s Small Business Advantage Grant Program provides small businesses with fewer than 100 employees 50% matching reimbursement grants of up to $7,500 to implement projects that will save $1,000, in addition to 25% annually in pollution prevention or energy-related costs.

Since 2004, the program has invested $5.3 million in 1,451 small businesses.

“This program empowers small-business owners to invest in important upgrades that make the most sense for their business,” says DEP Secretary Mike Krancer. “It gives them the opportunity to lower the costs of production, which makes them better environmental stewards and more competitive.”

Other recipients include Quality Cleaners in Lemoyne, Steininger’s Laundry & Dry Cleaning in Selinsgrove, and Murrysville Cleaners in Murrysville.

JOHNSTOWN, Pa. — Concurrent Technologies Corp. (CTC) has been contracted by the United States Mint to conduct research and development for more economical alternative metallic materials for the production of circulating coins, and owners of coin laundries are among the stakeholder groups it is polling.

“CTC will undertake studies to identify issues with current coinage materials and recommend potential alternative metallic materials for future coins,” says Dr. Joseph R. Pickens, CTC chief scientist and technical lead for the two-year contract. “Our metallurgists will consider a wide range of coinage alloys and fabrication processes and propose their best recommendations to the United States Mint.”

CTC will address various factors, including the acceptability of new metallic materials; costs of metallic material, fabrication, minting, and distribution; metallic material availability and sourcing; durability; effect on sorting, handling, packaging and vending machines; appearance; resistance to counterfeiting; and commercial and public acceptance.