Are your profit margins slipping through the cracks?  

Standard cost accounting might be your missing piece. This powerful approach doesn’t just track where your money went—it predicts where it should go, giving you the insight to spot inefficiencies before they drain your profits and the clarity to make decisions with confidence. 

Today, we’ll review what standard costing is and if it’s right for your business.  

What is standard costing? 

Standard costing is a cost accounting method where predetermined estimated costs are used instead of actual costs in the accounting records.  

Rather than tracking every penny as it’s spent, this approach establishes target costs for materials, labor, and overhead before production begins. 

At its core, standard costing creates a financial “blueprint”; a benchmark against which actual performance can be measured. It’s like setting a budget for each unit you produce, then comparing what you actually spent to identify where you’re over or under your targets. 

Basic principles of standard costing 

The fundamental principles of standard costing include: 

• Predetermined cost estimation: Standard costs are educated estimates of what each component of production should cost under normal capacity. 
• Variance analysis: The difference between standard and actual costs (called a variance) is calculated, analyzed, and used to identify inefficiencies and opportunities for improvement. 
• Performance measurement: Standard costs provide a baseline for evaluating operational efficiency and management performance. 
• Cost control: By highlighting deviations from expected costs, standard costing helps managers identify areas that need attention before they significantly impact profitability. 
• Simplified inventory valuation: Standard costs streamline the valuation of raw materials, work-in-progress, and finished goods inventory, offering an alternative to more complex cost layering systems like FIFO and LIFO. 

Standard costs can be established at different levels depending on your business goals. These include basic standards (long-term benchmarks), ideal standards (perfect operating conditions), attainable standards (efficient but realistic conditions), and current standards (based on existing performance levels). 

How does standard cost accounting work? 

At its core, standard cost accounting creates a financial prediction for production costs (materials, labor, and overhead) before manufacturing begins. These costs are used to benchmark performance.   

The process works through four fundamental steps: 

1. Setting standards – Management establishes target costs for each component of production based on historical data, engineering studies, and market conditions. 

2. Recording at standard – As production occurs, inventory and cost of goods sold are recorded using these predetermined standard costs, not actual costs. 

3. Tracking variances – The differences between standard and actual costs (called variances) are calculated and analyzed to identify inefficiencies or cost savings. 

4. Taking action – Management uses variance analysis to make informed decisions about pricing, production methods, and purchasing strategies. 

This system creates a continuous improvement cycle where standards are periodically reviewed and updated based on actual performance, helping businesses progressively optimize their operations and costs. 

Variables (and variances) in standard costing 

Standard cost accounting relies on several key components that work together to create a comprehensive cost management system.  

Direct materials 

Direct materials represent all raw materials that become part of the finished product. For standard costing purposes, two key variables are established: 

• Standard quantity: The predetermined amount of materials needed to produce one unit 
• Standard price: The expected cost per unit of material 

When actual production occurs, two types of variances may arise: 

• Material price variance: Occurs when you pay more or less than the standard price 
• Material usage variance: Happens when you use more or less than the standard quantity 

For example, if a furniture manufacturer sets standards of 10 board feet of oak at $5 per board foot for a chair, but actually uses 11 board feet at $5.20, both price and usage variances would occur. 

Direct labor 

Direct labor includes wages and benefits for workers directly involved in production. Similar to materials, labor standards include: 

• Standard hours: The predetermined time required to complete one unit 
• Standard rate: The expected hourly wage rate 

Labor variances include: 

• Labor rate variance: Difference between standard and actual wage rates 
• Labor efficiency variance: Difference between standard and actual hours worked 

These variances help identify issues with labor scheduling, training needs, or process inefficiencies. 

Say a winery establishes standard costs for labor where each case of wine should require 0.5 hours of direct labor at a standard rate of $20 per hour. During the harvest season, the winery produced 10,000 cases of wine. The actual labor used was 5,200 hours at an average rate of $21 per hour. 

• The standard labor cost should have been: 
  10,000 cases × 0.5 hours × $20 = $100,000 
• The actual labor cost was: 
  5,200 hours × $21 = $109,200 

This creates two variances: 

• Labor rate variance = (Actual rate – Standard rate) × Actual hours 
  = ($21 – $20) × 5,200 = $5,200 unfavorable 
• Labor efficiency variance = (Actual hours – Standard hours) × Standard rate 
  = (5,200 – 5,000) × $20 = $4,000 unfavorable 

For wineries, these variances are particularly important as labor costs significantly impact the final cost per bottle.

Manufacturing overhead 

Manufacturing overhead encompasses all indirect production costs that can’t be directly traced to specific products. Overhead is typically divided into: 

• Variable overhead: Costs that change with production volume (utilities, supplies) 
• Fixed overhead: Costs that remain constant regardless of production level (rent, depreciation) 

Standard overhead costs are typically applied using predetermined rates based on a cost driver like direct labor hours or machine hours. 

Overhead variances are more complex and may include: 

• Spending variance: Difference between actual and budgeted overhead costs 
• Efficiency variance: Related to how efficiently the cost driver (like labor hours) was used 
• Volume variance: Occurs when actual production differs from the planned level used to set fixed overhead rates 

Understanding variance relationships 

Variances don’t exist in isolation—they often influence each other. For instance, purchasing lower-quality materials (favorable price variance) might lead to more waste (unfavorable usage variance) or more labor hours (unfavorable labor efficiency variance). 

Effective standard costing requires analyzing these relationships to understand the true causes of cost deviations and make informed decisions about process improvements. 

By tracking and analyzing these variables and their variances, businesses gain valuable insights into their operations, enabling more effective cost control and better decision-making. 

Financial statement impacts of standard costing 

Standard costing significantly influences how your financial statements represent business performance. When you implement this system, it affects several key financial elements: 

• Inventory valuation on your balance sheet typically reflects standard costs rather than actual costs incurred. This creates consistency in your inventory reporting but requires decisions about how to handle variances. 
• Cost of goods sold on your income statement incorporates standard costs plus or minus applicable variances. How you allocate these variances can meaningfully impact your reported profitability. 
• Variance accounts in your general ledger track differences between standard and actual costs. These accounts must be analyzed and properly disposed of during each accounting close process. 

While standard costing is an acceptable costing method under Generally Accepted Accounting Principles (GAAP), your implementation should include processes for periodic updates to standards to reasonably approximate actual costs computed under recognized inventory costing methods to maintain compliance. 

Understanding these impacts helps you interpret financial statements more accurately, make informed decisions about inventory and pricing, communicate effectively with stakeholders about cost variances, and maintain compliance with accounting standards. 

7 benefits of standard cost accounting  

Standard cost accounting offers businesses numerous advantages that support financial management and operational efficiency. 

1. Improved cost control stands at the heart of standard costing benefits. By establishing clear benchmarks, companies can quickly identify when actual costs deviate from expectations, allowing for timely corrective actions before small issues become major problems. 

2. Decision-making support becomes more robust as management gains clear visibility into costs. This transparency helps leaders make informed choices about production methods, resource allocation, and business practices based on reliable cost data rather than guesswork. 

3. Performance evaluation becomes more objective when standard costs are in place. Managers can assess how well departments, products, or processes are performing by comparing actual results against predetermined standards, creating accountability throughout the organization. 

4. More accurate budgeting naturally follows from a standard costing system. As managers gain better control over costs and understand cost behaviors, the gap between budgeted and actual costs typically narrows over time. 

5. Simplified inventory valuation represents another significant advantage. Standard costing provides a consistent method for valuing identical products, eliminating the complications that arise when trying to track varying actual costs for identical items. 

6. Standardization of activities helps employees work more efficiently as clear expectations are established for various tasks. This consistency can lead to improved quality and productivity across operations. 

7. Pricing decisions become more strategic with standard costing. With clear insight into production costs, businesses can set appropriate selling prices that balance competitiveness with profitability. 

Does standard costing make sense for your business? 

Standard costing can be a powerful tool for many businesses, but it’s not universally applicable.  

Understanding when and where it’s most effective can help you decide if it’s right for your organization. 

When standard costing makes sense 

Standard costing is typically most beneficial for: 

• Businesses with repetitive manufacturing processes 
• Companies producing homogeneous products in large quantities 
• Organizations with stable production methods and predictable cost structures 
• Industries where direct material and labor costs are significant 

When standard costing doesn’t make sense 

Standard costing may not be suitable for: 

• Businesses operating in volatile environments with frequent fluctuations in material prices, labor rates, or production volumes 
• Companies with long production cycles or slow inventory throughput, as standards can become outdated during extended manufacturing periods 
• Smaller businesses with limited resources, as implementation requires significant skill and ongoing maintenance 

In these situations, alternative costing methods like actual costing might be more appropriate, though transitioning between systems requires careful planning and may necessitate changes to accounting processes and systems.  

Standard cost accounting industry examples 

Here are some ways standard cost accounting can be beneficial across industries.  

Manufacturing: A furniture manufacturer can use standard costing to set expected costs for wood, labor, and overhead for each chair produced. This allows them to quickly identify inefficiencies in production or unexpected price increases in materials. 

Food: A large-scale bakery might implement standard costing for its bread production. By establishing standard costs for flour, yeast, labor, and baking time, they can easily track variances and optimize their processes. 

Wine: Wineries can benefit from standard costing by setting standards for grape costs, bottling materials, labor for harvesting and production, and overhead costs like barrel aging. This helps manage the long production cycles typical in winemaking. 

Build a cost accounting model that works for your business 

Standard cost accounting offers a structured approach to understanding, controlling, and optimizing your business costs. When implemented in the right context, it provides valuable insights that can drive more informed decision-making and improved profitability. 

Remember that standard costing is a tool, not a solution in itself. Its effectiveness depends on how well you implement it, how regularly you update your standards, and how thoughtfully you analyze the resulting variances. 

If you’re considering implementing standard costing or refining your existing cost accounting approach, BPM can help. Our team of accounting professionals can assess your specific situation, recommend the most appropriate costing method, and support you through implementation and beyond. 

Take the first step toward better cost management by contacting BPM today. 

Performance reviews are an important step when measuring and improving employee effectiveness. When conducted thoughtfully, ongoing dialogue between managers and team members leads to enhanced productivity and clearer alignment.  

In recent years, traditional “annual performance reviews” have been replaced by “conversations” or “check-ins” as these interactions should be ongoing and not limited to once a year. 

This guide explores the essential components of effective performance conversations, from fundamental concepts and best practices to implementation strategies and measuring success. 

Understanding the fundamentals 

While traditional performance reviews evaluated an employee’s work output at fixed intervals, modern performance conversations continuously assess behaviors and contributions to the organization.  

Managers and employees regularly discuss various aspects including work quality, productivity levels, teamwork capabilities and alignment with company values. These structured yet agile interactions provide a framework for discussing achievements and areas for growth. 

“Regular performance conversations are the compass guiding employees towards growth, ensuring alignment with organizational goals while fostering a culture of continuous improvement and mutual feedback.” – Jill Pappenheimer, Partner – HR Consulting 

Types of employee performance conversations that drive results 

Organizations can implement several formats to gather comprehensive feedback: 

• 360-degree feedback conversations gather input from multiple sources, including managers, peers and direct reports. This approach provides a well-rounded view of an employee’s impact across the organization and highlights both strengths and growth opportunities. 
• Self-assessment discussions encourage employees to reflect on their own performance and identify areas where they excel or need improvement. This format promotes accountability and helps prepare employees for meaningful ongoing dialogues with their managers. 
• Team performance discussions focus on how effectively groups collaborate and achieve shared objectives. These conversations help identify communication barriers and optimize team dynamics. 

Establishing the right frequency 

The timing of performance conversations significantly impacts their effectiveness. While traditional annual reviews were once standard, the modern approach emphasizes regular touchpoints: 

• Monthly check-ins work well for new employees or teams in fast-paced environments where regular guidance benefits productivity. These brief sessions maintain momentum and address concerns before they escalate. 
• Quarterly conversations strike an optimal balance between providing timely feedback and allowing enough time to demonstrate improvement. This cadence keeps goals fresh while avoiding conversation fatigue. 

“Performance conversations are essential touchpoints that help ensure everyone is on the right path, fostering accountability, recognizing achievements and identifying areas for growth.” – Jill Pappenheimer 

4 best practices for meaningful employee performance conversations 

To maximize the impact of performance conversations, managers should: 

1. Prepare thoroughly by gathering specific examples of employee performance and behavior. Document both achievements and areas needing improvement throughout the conversation cycle. 

2. Create a comfortable environment that encourages open dialogue. Schedule adequate time in a private setting where both parties can speak freely without interruptions. 

3. Focus on observable behaviors rather than personal characteristics. Provide concrete examples that illustrate performance patterns and their impact on the organization. 

4. Set clear expectations and measurable goals for ongoing development. Work collaboratively with employees to establish objectives that align with both individual career aspirations and organizational needs. 

Leveraging technology for effective performance conversations 

Performance management software has become an essential tool for organizations looking to strengthen their conversation processes. These platforms help maintain consistent evaluation practices while facilitating meaningful dialogues between managers and employees. 

Modern performance management solutions, such as BPM Link, enable organizations to streamline the entire performance conversation cycle. They provide structured frameworks for conducting one-on-one discussions, gathering self-assessments and facilitating 360-degree feedback. This technology helps ensure all team members understand their responsibilities and performance expectations clearly. 

With automated reminders, goal-tracking capabilities and real-time feedback tools, these platforms promote regular performance discussions throughout the year rather than relying on outdated annual reviews. This ongoing dialogue helps organizations maintain employee engagement while providing managers with timely insights for more effective team development. 

Common pitfalls to avoid 

Successfully managing performance conversations requires steering clear of several common mistakes: 

• Delivering surprise feedback during formal discussions instead of addressing issues as they arise. Regular communication throughout the year prevents this situation.
• Rushing through conversations without allowing time for meaningful discussion. Quality interactions require adequate preparation and engagement from both parties. 
• Making comparisons between employees instead of focusing on individual performance against established standards. Each team member deserves evaluation based on their unique role and objectives. 

Measuring conversation effectiveness 

Organizations should evaluate their performance conversation process regularly to ensure it delivers meaningful results. Track key metrics such as employee engagement scores before and after conversations, goal completion rates and the percentage of employees receiving timely feedback. 

Monitor how often managers conduct follow-up discussions and whether performance improves after conversations. These measurements help refine the process and demonstrate its value to the organization. 

Working with BPM 

BPM understands that effective performance conversations drive organizational success. Our experienced HR professionals help companies develop and implement dialogue processes that align with their specific needs and culture. We provide comprehensive support, from creating customized conversation frameworks to training managers on effective communication techniques. 

Our partnership approach ensures that your performance conversation system reflects industry best practices while adapting to your organization’s evolving needs. Through strategic ongoing performance dialogues and BPM proven methodologies, companies can build stronger teams, improve communication and achieve their business objectives in today’s competitive environment. To find out more, contact us. 

The wine industry is experiencing significant transformation as consumer preferences evolve and new demographic groups reshape the market. These changes are not only affecting sales patterns but are altering how wineries are valued in today’s economy.  

From younger consumers with different purchasing habits to shifting preferences across wine categories, these demographic trends are creating both challenges and opportunities for winery owners and investors.  

This article explores how these demographic shifts are influencing winery valuations and what industry stakeholders should consider when assessing a winery’s worth. 

The changing face of wine consumers 

Today’s wine market looks dramatically different than it did just a decade ago. The traditional image of the wine consumer—predominantly older, affluent individuals—is rapidly evolving as younger generations enter the market. 

“We’re seeing a generational shift in the wine industry, where younger consumers —  Millennials and Gen Z—are beginning to remake the market, and an increase in direct-to-consumer sales in these groups.”

This generational change brings different values and priorities. Young wine drinkers are reshaping the industry with their distinctive preferences: 

• More adventurous palates and willingness to experiment 
• Preference for unique varietals and production methods over established labels 
• Greater concern for sustainability practices and authentic brand stories  

These factors increasingly affect brand loyalty and premium pricing potential. 

Premium shifts driving valuation changes 

The premiumization trend continues to reshape winery valuations, particularly as consumers drink less but spend more on higher-quality options. The sub-$10 wine segment faces significant challenges, while wines in the $15-30 range show resilience and growth potential. 

Data from industry analysts shows that the “sweet spot” for growth now centers around the $13-$20 price range, creating a new definition of what constitutes an entry-level wine. This shift directly impacts how wineries position their portfolios and, consequently, how investors value production capabilities and brand positioning. 

Wineries with established premium and super-premium offerings now command higher multiples during acquisition talks, while those heavily dependent on lower-priced products often struggle to maintain valuations. 

The sparkling wine advantage 

Sparkling wine continues to outperform the broader category, creating premium valuation opportunities for producers specializing in this segment. While still wines experienced volume declines, sparkling varieties have demonstrated remarkable resilience. 

This trend reflects changing consumption patterns, with younger consumers embracing sparkling wine beyond special occasions. Producers able to deliver quality sparkling options at accessible price points—particularly in the growing prosecco and domestic sparkling categories—position themselves advantageously for stronger valuations. 

Direct-to-consumer relationships as valuation drivers 

Perhaps no demographic shift has more dramatically affected winery valuations than the growing importance of direct-to-consumer (DTC) relationships. As younger consumers seek authentic connections with brands, wineries that build robust DTC channels create significant value. 

Wineries with sophisticated e-commerce platforms, engaging digital content and effective loyalty programs demonstrate higher customer lifetime values—a metric increasingly factored into valuation models. These direct relationships reduce dependency on traditional distribution channels while improving margins and providing valuable consumer data. 

The most successful wineries now leverage technology to personalize recommendations and create virtual tasting experiences that resonate with digitally-native consumers, further enhancing their valuation potential. 

Geographic diversification responding to climate concerns 

Climate change awareness among younger demographics is influencing how wineries approach geographic diversification—another factor affecting valuations. Forward-thinking operations now invest in vineyards across multiple regions to mitigate climate risks and appeal to environmentally conscious consumers. 

This strategy, while capital-intensive, can significantly boost valuations by demonstrating resilience against weather-related disruptions and commitment to sustainability principles valued by younger consumers. 

Health consciousness driving product innovation 

The rise of health-conscious consumers across all demographics has accelerated demand for low-alcohol and alcohol-free wine options. Wineries developing quality offerings in this category are seeing valuation premiums as they capture this growing market segment. 

This trend represents a fundamental shift in how consumers approach wine consumption, potentially creating entirely new revenue streams for adaptive producers. 

Working with BPM for accurate winery valuations 

As these demographic shifts continue to reshape the wine industry, obtaining accurate and forward-looking valuations becomes increasingly complex. BPM brings deep industry knowledge and specialized valuation methodologies that account for these evolving demographic trends. Working with BPM ensures your winery valuation reflects not just current performance but also positions relative to these shifting demographic patterns that will define future growth. 

BPM’s team analyzes how your winery connects with emerging consumer segments, assesses your direct-to-consumer capabilities and evaluates your product portfolio against evolving preferences. By partnering with BPM, winery owners receive valuations that capture the impact of these demographic shifts on their operations, positioning them for strategic decisions that maximize long-term value in this dynamic market. To find out more, contact us. 

When you’re running a business with inventory, the accounting method you pick doesn’t just sit in some dusty back office – it actively shapes your financial picture and how much you’ll fork over to the tax authorities.  

For consumer business companies dealing with changing inventory costs, understanding LIFO (Last In, First Out) accounting is essential. This method assumes that your most recently purchased inventory items are sold first, creating important financial implications in an inflationary environment. 

How LIFO works in consumer businesses 

LIFO accounting operates on a simple principle: the latest inventory you purchase is the first to be recorded as sold. This contrasts with FIFO (First In, First Out), where older inventory is considered sold first. 

For consumer businesses like retailers, electronics stores, or fashion brands, LIFO can be particularly relevant when: 

• Product costs are steadily increasing due to inflation 
• You maintain significant inventory levels 
• Tax efficiency is a priority for your business strategy 
• Your business operates primarily in the United States where LIFO is permitted 

When product costs rise over time, LIFO allows you to match current higher costs against current revenues, providing a more accurate picture of your true replacement costs. 

LIFO calculation example for retail businesses 

Let’s look at how LIFO works in practice for a clothing retailer: 

Fashion Forward purchases inventory throughout the fall season: 

• September 1: 100 jackets at $40 each 
• October 1: 150 jackets at $45 each 
• November 1: 200 jackets at $50 each 

By December, the store sells 300 jackets. Using LIFO accounting, the cost of goods sold would be calculated as: 

• 200 jackets at $50 = $10,000 (November inventory)
• 100 jackets at $45 = $4,500 (portion of October inventory) 
• Total COGS: $14,500 

The remaining inventory value would be: 

• 50 jackets at $45 = $2,250 (remaining October inventory) 
• 100 jackets at $40 = $4,000 (September inventory) 
• Total remaining inventory value: $6,250 

Tax advantages of LIFO for consumer companies 

One of the primary reasons consumer businesses choose LIFO is its potential tax advantages. In periods of inflation, when inventory costs are rising, LIFO typically results in: 

• Higher cost of goods sold (COGS) 
• Lower gross profit 
• Reduced taxable income 
• Decreased tax liability 

For seasonal businesses or those with significant inventory fluctuations, these tax savings can be substantial, freeing up cash flow that can be reinvested in your business operations, new product development, or expansion efforts. 

Financial statement implications 

While LIFO may offer tax advantages, it’s important to understand how it affects your financial statements. Using LIFO generally results in: 

1. Lower reported profits on income statements 
2. Lower inventory values on balance sheets 

3. Potentially less favorable financial ratios for investor analysis 

4. A growing gap between reported inventory value and current market value 

If your business seeks external investment or loans, these financial statement effects require careful consideration, as they may influence how potential investors or lenders view your company’s financial health. 

LIFO reserve – tracking the difference 

When you adopt LIFO accounting, maintaining a LIFO reserve becomes essential. This account tracks the difference between your inventory valuation under LIFO versus what it would have been under FIFO. 

The LIFO reserve represents the amount of income tax your business has deferred by using LIFO instead of FIFO. For consumer businesses experiencing consistent cost increases, this reserve can grow substantially over time, highlighting the cumulative tax benefit you’ve received. 

Analysts and investors often examine the LIFO reserve to understand your “true” inventory value and to make your financial statements more comparable to companies using different inventory methods. 

LIFO limitations for consumer businesses 

Despite its advantages, LIFO isn’t suitable for every consumer business: 

• International restrictions: LIFO is not permitted under International Financial Reporting Standards (IFRS), only under U.S. GAAP 
• Inventory management challenges: Can lead to older inventory remaining unsold, which is particularly problematic for fashion retailers, food businesses, or technology companies where product obsolescence is a concern 
• Administrative complexity: Requires more detailed record-keeping and calculation than other methods 
• Financial statement comparability: Makes comparing your financial performance to companies using different inventory methods more difficult 

Is LIFO right for your consumer business? 

When considering LIFO for your business, assess these factors: 

• Is your business primarily U.S.-based with no international reporting requirements? 
• Are your inventory costs consistently rising? 
• Is tax efficiency a higher priority than maximizing reported profits? 
• Do your products have a long shelf life with minimal risk of obsolescence? 
• Can your accounting systems handle the additional complexity of LIFO calculations? 

For many consumer businesses facing inflationary pressures, LIFO provides valuable tax deferral benefits that outweigh the potential drawbacks. However, this decision should be made in consultation with experienced accounting professionals who understand your specific business model and financial goals. 

Get guidance on inventory accounting methods 

Choosing the right inventory valuation method is a significant decision that impacts your tax liability, financial reporting, and business operations. At BPM, our consumer business accounting specialists can help you evaluate whether LIFO accounting aligns with your company’s strategic objectives. 

Our team understands the unique inventory challenges facing retailers, manufacturers, distributors, and other consumer businesses. We’ll work with you to implement the most advantageous accounting methods while ensuring compliance with all applicable regulations. 

Contact BPM today to discuss how we can optimize your inventory accounting approach and help your consumer business thrive in today’s competitive marketplace. 

Recent developments in the federal funding landscape have created significant challenges for nonprofit organizations across the country. In January 2025, the Office of Management and Budget (OMB) issued a memorandum instructing federal agencies to pause disbursements of federal financial assistance. Although this order was officially withdrawn two days later, the aftermath continues to affect thousands of programs and organizations that depend on these critical funding sources. The nonprofit community is now bracing for additional Executive Orders from the Trump administration to coincide with Earth Day and focused on certain nonprofits, including environmental organizations. 

At BPM, we understand the importance of maintaining financial stability during uncertain times. This article outlines practical strategies to help nonprofit leaders navigate the current federal funding landscape and build greater organizational resilience. 

Understanding today’s federal funding challenges 

The federal funding environment has become increasingly complex, with ongoing legal challenges and policy shifts creating a landscape of uncertainty. Many organizations are experiencing delays in fund disbursement, while others face potential reductions or even eliminations of previously secured grants. 

As the Urban Institute recently reported, between 60% and 80% of nonprofits that rely on government grants would be at risk of financial shortfall if significant funding changes occur sobering statistics that underscores the importance of proactive planning. 

What nonprofit leaders need to know 

Before implementing specific strategies, nonprofit leaders need to understand several critical aspects of the current situation.  This knowledge will assist in more effective decision-making and response planning.  Here are key areas to consider: 

Impact assessment and risk evaluation 

Understanding your organization’s vulnerability is imperative to effective planning: 

• Conduct a grant dependency analysis to identify what percentage of your budget relies on federal grants 
• Categorize grants by funding agency, program type, and expiration date 
• Evaluate which services or programs are most vulnerable to funding changes 
• Develop multiple budget scenarios to weigh the effects of different funding levels 
• Create actionable contingency plans for each scenario 

Accounting implications to consider 

The uncertainty about federal funding has important accounting and financial statement ramifications: 

• Ensure you have evaluated your grant revenue recognition under Generally Accepted Accounting Principles (GAAP) for conditional or unconditional grant reporting
• Evaluate the collectability of grant receivables and adjust allowances if necessary 
• Assess whether additional financial statement disclosures regarding risks and uncertainties are needed, including subsequent event disclosures 
• Consider whether concentration disclosures related to revenue sources are required 
• Evaluate liquidity and availability of resources disclosures in light of current uncertainties 
• Determine if substantial doubt exists about the organization’s ability to meet obligations as they come due 

Action steps for nonprofit resilience 

Financial management tactics 

Implementation of strong financial practices becomes critical during periods of uncertainty: 

• Establish or increase emergency reserves to provide a financial safety net 
• Develop detailed cash flow forecasts that outline best-case and worst-case funding scenarios 
• Identify discretionary spending that can be temporarily paused if necessary 
• Implement robust grant tracking systems to monitor timelines, requirements, and deliverables 
• Review your cash position regularly and understand your monthly cash needs 

Funding diversification strategies 

Organizations that rely heavily on federal awards and funding should prioritize developing alternative resources: 

• Explore alternative funding sources such as foundation grants, corporate partnerships, and individual donations 
• For public charities, evaluate how you will plan to continue to meet the public support test as you expand your funding base, as there could be limits on non-governmental funding sources when calculating public support 
• Develop fee-for-service models or membership programs to create steady revenue streams 
• Form strategic alliances with peer organizations to collaborate on joint funding initiatives 
• Emphasize unrestricted funds when pursuing alternative revenue to maximize flexibility 
• Consider social enterprise projects that align with your mission while generating income 

Compliance and risk management protocols 

Maintaining impeccable compliance with grant requirements offers important protection: 

• Review grant agreements to ensure expenditures align with requirements 
• Maintain detailed documentation of all grant-related activities and expenditures 
• Ensure you have good tracking of donor restricted balances and that you are not spending restricted funds to satisfy cash flow needs  
• Strengthen internal controls related to federal funding 
• Conduct regular internal compliance reviews 
• Stay informed about changing regulations that may affect your grants 

Information gathering and advocacy initiatives 

Being proactive with information gathering and advocacy can help safeguard essential funding: 

• Monitor announcements from government agencies for policy changes 
• Maintain open communication with federal grant officers 
• Join coalitions focused on nonprofit policy advocacy 
• Meet with legislators to educate them about your organization’s community impact 
• Share data-driven stories that demonstrate the value of your programs 

Building sustainable organizational strength 

While addressing immediate challenges, also focus on long-term sustainability: 

• Foster financial transparency with all stakeholders 
• Engage your board of directors in financial oversight and contingency planning 
• Invest in staff training on grant management and compliance 
• Review and potentially restructure programs to reduce dependency on vulnerable funding sources 
• Build stronger relationships with diverse funding partners 

How BPM can help 

At BPM, we understand the unique challenges nonprofits face in this uncertain funding environment. Our team can assist your organization with: 

• Developing comprehensive contingency plans 
• Strengthening financial management practices
• Supporting grant compliance efforts 
• Navigating accounting and reporting challenges 
• Supporting sustainable revenue diversification strategies 

By taking proactive steps to address federal funding uncertainty, nonprofit organizations can continue to fulfill their vital missions while building greater resilience for the future. 

This article contains general information and does not constitute accounting, tax, or financial advice. Organizations should consult with their advisors regarding specific circumstances. 

Please attend our nonprofit webinar on Key Legislative & Policy Updates for Nonprofits: Compliance, Funding & Donor Privacy in 2025 on April 29, 2025  

The Cybersecurity Maturity Model Certification (CMMC) Framework represents a critical shift in how the Department of Defense (DoD) approaches cybersecurity across its supply chain. Organizations working with the DoD face increasing pressure to strengthen their security posture as cyber threats grow more sophisticated.  

This article explores the essential elements of the CMMC Framework and provides practical implementation strategies for organizations seeking certification. 

Understanding the CMMC Framework

The CMMC Framework serves as a unifying standard that supports consistent implementation of cybersecurity controls throughout the DoD supply chain. Designed to protect sensitive information, particularly Controlled Unclassified Information (CUI) and Federal Contract Information (FCI), the framework establishes clear requirements for contractors and subcontractors. 

The DoD developed CMMC in response to persistent threats targeting their supply chain. After releasing CMMC 1.0 in 2019, the DoD gathered feedback and launched a streamlined CMMC 2.0 in 2021, making the framework more accessible for smaller organizations while maintaining robust security expectations.  

Core components of the CMMC Framework 

The three-tiered maturity model 

CMMC 2.0 defines three distinct maturity levels that build upon each other: 

• Level 1 (Foundational): Includes 15 basic security requirements with annual self-assessment 
• Level 2 (Advanced): Encompasses 110 requirements from NIST SP 800-171 with either triennial third-party assessment or self-assessment for select programs 
• Level 3 (Expert): Extends beyond Level 2 with additional requirements from NIST SP 800-172 and requires government-led assessment 

Each level’s requirements are cumulative, meaning organizations must implement all practices from previous levels to achieve certification at higher levels. 

Assessment methodology 

Under CMMC 2.0, assessment requirements vary by level: 

• Level 1 requires annual self-assessment and affirmation 
• Level 2 typically requires assessment by a Certified Third-Party Assessment Organization (C3PAO) every three years 
• Level 3 requires government-led assessment every three years 

These assessments thoroughly evaluate an organization’s cybersecurity controls, including policy review, evidence examination and stakeholder interviews. 

Alignment with NIST standards 

While CMMC is a DoD framework, it draws heavily from NIST standards: 

• Level 1 incorporates basic safeguarding requirements 
• Level 2 adopts all 110 requirements from NIST SP 800-171
• Level 3 includes additional controls from NIST SP 800-172 

This alignment helps organizations leverage existing NIST compliance efforts when pursuing CMMC certification. 

Implementation strategies for success 

Determine your appropriate CMMC level 

Start by assessing which CMMC level applies to your organization based on: 

• The types of information you handle (FCI or CUI) 
• Your position in the DoD supply chain 
• Your contractual requirements 

Organizations handling only FCI typically need Level 1, while those processing CUI generally require Level 2 or higher. 

Conduct a comprehensive gap analysis 

Before pursuing certification, perform a thorough gap assessment against your target CMMC level. This helps you: 

• Identify existing controls that satisfy requirements 
• Highlight areas needing improvement 
• Prioritize remediation efforts based on criticality  

“The documentation and the assessment, once your reach the C3PAO, are quite rigorous. Having that gap assessment by a subject matter expert or team,  like BPM, could assist in reducing or eliminating non-conformities or findings on your first C3PAO certification audit.” – Sarah A. Lynn, BPM Advisory Partner, IT Security & Compliance Subject Matter Expert         

Develop a strategic implementation roadmap 

Create a detailed plan that addresses: 

• Resource allocation for implementation 
• Realistic timelines for control implementation 
• Budget considerations for necessary technology investments 
• Training requirements for security personnel and general staff 

Establish continuous monitoring practices 

CMMC certification isn’t a one-time achievement. Implement systems to: 

• Monitor control effectiveness regularly 
• Document compliance evidence continuously 
• Conduct periodic internal assessments 
• Update security practices as threats evolve  

“The periodic internal assessments, monitoring effectiveness and reviewing the ongoing documentation and practice updates is a group of tasks our BPM team is very skilled at performing, and guiding companies to do in their own future.” – Sarah A. Lynn 

Leverage technology solutions 

Consider specialized tools that can: 

• Automate compliance monitoring 
• Track progress toward certification
• Document evidence for assessment
• Streamline the assessment process 

Working with BPM for CMMC success 

While the CMMC Framework presents challenges, partnering with BPM provides a clear path to compliance. Our dedicated team understands the intricate requirements of the CMMC Framework and can guide your organization through the entire certification process. From initial gap analysis to remediation planning and pre-assessment preparation, BPM delivers tailored solutions that align with your specific needs. 

BPM supports organizations at every stage of CMMC implementation, offering practical strategies that minimize disruption while maximizing security effectiveness. Our approach combines technical knowledge with business acumen, ensuring your CMMC journey enhances your overall security posture while maintaining operational efficiency. To transform your CMMC compliance challenges into opportunities for strengthening your cybersecurity program, contact us.  

Product-led businesses constantly struggle with the balancing act of maximizing profits while maintaining operational efficiency. Cost accounting cuts through the complexity by revealing exactly where your money goes and why.  

When you understand the true cost behind every product and decision, you gain the power to set strategic prices, eliminate waste, and focus resources where they matter most. This visibility transforms guesswork into precision, helping you build stronger margins and sustainable growth. 

So, what is cost accounting and how can it help your business improve profits? Let’s find out.  

What is cost accounting? 

Cost accounting is a specialized field of accounting that focuses on analyzing, standardizing, forecasting, and comparing cost data to determine the true cost of products or services.  

The core purpose of cost accounting is to track, analyze, and manage all expenses associated with producing goods or delivering services. This systematic approach helps businesses understand their cost structures, identify inefficiencies, and implement strategies to enhance profitability and operational performance. 

It goes beyond traditional accounting by providing detailed insights into where money flows within a business, helping management make informed decisions about pricing, resource allocation, and process improvements. 

Unlike financial accounting, cost accounting is not required to follow Generally Accepted Accounting Principles (GAAP). This enables businesses to develop tailored systems that provide the most useful information for their unique decision-making processes. Additionally, for financial reporting purposes, companies can choose to align their cost accounting processes to include GAAP compliant costing for inventory valuation purposes via Accounting Standards Codification (ASC) 330. 

Keep in mind that organizations working with government contracts may need to follow specific Cost Accounting Standards (CAS), which helps ensure consistent and equitable methods of accounting for costs related to government work. 

In essence, cost accounting empowers teams to provide management with the most relevant and actionable information for internal decision-making.  

How does cost accounting differ from financial accounting? 

Just because it has the word ‘accounting’ in the name doesn’t mean cost accounting and traditional accounting are the same.  

In fact, they are quite distinct.  

Cost Accounting	Traditional Accounting
Focus: Provide detailed internal insights (efficiency, overhead, costs) about specific operations and products.	Focus: Report the overall financial health of a business to external stakeholders and regulatory bodies.
Regulation: Since it’s for internal purposes, it’s flexible to meet certain management needs.	Regulation: Follows strict regulatory standards like GAAP and IFRS.
Point of view: Often looks forward with forecasting and planning.	Point of view: Often looks backward at historical performance.

Both play a different yet complementary role in a business’s financial function. 

How (and why) do businesses use cost accounting? 

Cost accounting provides businesses with crucial data to make informed decisions that drive growth and profitability. By tracking and analyzing costs, companies gain insights that help them optimize operations and maximize returns. 

Here are some key reasons businesses use cost accounting: 

Strategic decision-making 

Cost accounting data serves as the foundation for strategic business decisions. When companies understand their true costs, they can make informed choices about which products to develop, markets to enter, or operations to expand. This data helps leadership evaluate alternatives based on financial impact rather than gut feelings. 

For example, automotive manufacturers use cost accounting to decide whether to produce components in-house or purchase them from suppliers by comparing all associated costs of each option. 

Efficiency improvements 

By identifying cost drivers and analyzing process expenses, businesses can pinpoint inefficiencies and implement targeted improvements. Cost accounting reveals which activities consume disproportionate resources relative to their value, allowing companies to streamline operations. 

Budgeting accuracy 

Cost accounting enhances budgeting precision by providing detailed historical cost data and helping forecast future expenses. This granular understanding of costs enables more realistic budget planning and reduces the gap between projected and actual spending. 

When businesses understand their cost structures in detail, they can create budgets that accurately reflect operational realities rather than relying on broad assumptions or previous years’ figures. 

Profit maximization 

Through detailed cost analysis, businesses can identify their most profitable products, services, and customers. This insight allows companies to focus resources on high-margin offerings and optimize their product mix for maximum profitability. 

Cost control and reduction 

Regular review of cost accounting data reveals areas of overspending or waste. Companies can implement targeted cost control measures based on this information, tracking their effectiveness over time through continued cost monitoring. 

Cost accounting helps businesses identify unnecessary expenses, redundant processes, and opportunities for consolidation that might otherwise go unnoticed. 

Pricing strategy development 

Cost accounting provides the foundation for effective pricing strategies by calculating the true cost of producing goods or delivering services. This data helps to ensure prices cover all costs while maintaining competitive positioning. 

When launching new products, companies use cost accounting to determine unit production costs, including materials, labor, overhead, research and development, and marketing expenses. This comprehensive view enables them to set prices that support profitability while remaining competitive in the marketplace. 

Cost accounting infrastructure 

What do you need to do cost accounting right? The following framework provides the structure needed to capture all expenses associated with producing goods or delivering services. 

• Materials: Materials tracking involves monitoring the flow of raw materials, components, and supplies throughout the production process. This includes recording purchases, tracking inventory levels, and measuring consumption rates to determine the true cost of materials used in each product or service. 
• Labor allocation: Labor allocation focuses on assigning employee time and associated costs to specific products, services, or activities. This includes direct labor (employees directly involved in production) and indirect labor (supervisory or support staff). Effective labor allocation requires systems to track hours worked, wage rates, benefits, and other personnel expenses. 
• Overhead distribution: This involves allocating indirect costs like facility costs (rent, utilities), equipment depreciation, maintenance, and administrative expenses. 
• Technology integration: Tech automates data collection and analysis. Enterprise resource planning (ERP) systems integrate with production equipment, time-tracking applications, and financial software to create a comprehensive cost management ecosystem. 

Building a robust cost accounting infrastructure requires thoughtful integration of these components. When implemented effectively, this framework provides the visibility and insights needed to make data-driven decisions that improve efficiency and profitability across your business. 

Cost accounting methods 

Cost accounting offers several methodologies that businesses can implement based on their specific needs, industry, and operational structure. Each cost accounting system provides unique insights into costs and helps management make informed decisions. 

Some entities may have more labor-intensive production while others are heavy on materials costs; some may have a single production line while others multiple. Choosing the right costing method for your business is important, because it can allow you to identify variances that are most applicable to your production processes while giving you the level of granularity in product costs you want. – Chris Rosales – Senior Manager, Advisory 

Standard cost accounting 

Standard costing establishes predetermined cost expectations for products or services, then compares these standards against actual costs to identify variances. This method helps businesses spot inefficiencies by analyzing where and why actual costs deviate from expected standards. 

For example, a furniture manufacturer might set standard costs for materials, labor, and overhead for each chair produced, then analyze variances to identify production inefficiencies or material waste. 

Activity-based costing (ABC) 

Activity-based costing allocates overhead costs to specific activities and then assigns those costs to products or services based on their consumption of each activity. This provides a more accurate picture of product costs by recognizing that different products consume resources differently. 

ABC is particularly valuable for businesses with diverse product lines where traditional allocation methods might distort the true cost of production for each item. 

Lean accounting 

Lean accounting aligns with lean manufacturing principles by focusing on value streams rather than departmental or product costs. This method emphasizes eliminating waste, improving flow, and measuring performance in ways that support continuous improvement. 

Unlike traditional cost accounting, lean accounting simplifies financial reporting and provides information that’s more relevant to operational decision-making in a lean environment. 

Marginal costing 

Marginal costing (also called variable costing) separates costs into fixed and variable components, focusing on the change in costs that occurs with each additional unit produced. This approach helps businesses make short-term decisions about pricing, production volumes, and special orders. 

By understanding marginal costs, companies can determine contribution margins and break-even points, which are essential for profit planning. 

Process costing 

Process costing is used in industries where identical units are mass-produced through a series of uniform production steps or processes. This method accumulates and assigns costs to each production process rather than to individual products. 

Industries like chemical processing, food production, and oil refining typically use process costing because their products move through consistent, continuous production processes. 

Job costing 

Job costing tracks costs for specific customer projects or jobs, accumulating direct materials, direct labor, and overhead costs for each distinct job. This method is ideal for businesses that provide unique, customized products or services. 

Construction companies, custom furniture makers, and professional service firms often use job costing to help ensure each client project is properly priced and profitable. 

Cost accounting metrics and KPIs 

Tracking the right metrics is essential for effective cost accounting. These key performance indicators help businesses measure efficiency, profitability, and operational performance. 

• Cost of goods sold (COGS) represents the direct costs of producing goods sold by a company, including materials and labor. This metric is calculated as: Beginning Inventory + Purchases – Ending Inventory. 
• Work in progress (WIP) tracks partially completed products still in the production process, representing capital tied up in unfinished goods. 
• Efficiency ratios like inventory turnover and capacity utilization help identify how effectively a business uses its resources. 
• Cost variance metrics compare actual costs against budgeted or standard costs, highlighting areas where spending deviates from expectations and identifying opportunities for improvement. 

These metrics provide a comprehensive view of cost performance, enabling better decision-making and resource allocation. 

You can also use all of these figures to accurately track (and predict) your overall return on investment (ROI).  

Pros and cons of cost accounting 

Cost accounting offers significant advantages for businesses, but also comes with certain limitations that should be considered before implementation. 

Benefits for different business sizes 

Cost accounting empowers businesses of all sizes to make data-driven decisions, enhancing profitability through better cost control and more accurate forecasting. The transparency it provides helps management understand exactly where money is being spent. 

• Small businesses benefit from cost accounting through improved budgeting accuracy and resource allocation, helping them identify inefficiencies early.  
• For medium-sized companies, cost accounting enables strategic pricing decisions and helps optimize production processes.  
• Large enterprises gain comprehensive visibility across complex operations, allowing them to identify cost-saving opportunities across departments and product lines. 

Potential challenges 

Despite its many benefits, cost accounting does come with some potential challenges to consider: 

• Implementing cost accounting can be resource-intensive, requiring specialized knowledge and potentially new software systems. The initial setup costs and learning curve may be prohibitive for very small businesses. 
• Cost accounting isn’t GAAP compliant, which means it can’t replace financial accounting for external reporting purposes. This necessitates maintaining two accounting systems simultaneously. 
• Some cost allocation methods may introduce subjectivity when distributing overhead costs, potentially leading to inaccurate product costing. Additionally, excessive focus on cost reduction might inadvertently lead to quality compromises if not balanced with quality metrics. 

While these challenges exist, working with cost accounting professionals can help companies navigate these potential drawbacks and maximize the benefits of cost accounting systems. 

Is cost accounting right for you? 

Cost accounting provides businesses with the visibility and insights needed to make informed decisions, optimize operations, and maximize profitability.  

By implementing the right cost accounting methods for your specific industry and business size, you can gain a competitive advantage through better resource allocation and strategic pricing. 

“Whether you’re experiencing issues related to labor, material, overhead, or some other internal decision-making capability, the inability or misunderstanding of where to turn the dial to move in the right direction can be frustrating. Perhaps you aren’t experiencing particular problems and just want an external team to help solve a particular challenge or achieve the costing granularity you desire. By gaining an understanding of a client’s operations, BPM can guide them on where to focus their time to make improvements in their operations. BPM can help identify data gaps that once filled will help achieve desired results. BPM can bring clarity through applying the needed experience to each unique situation.” – Chris Rosales 

Ready to improve your cost accounting practices? Start by assessing your current cost tracking systems, identifying your most important cost drivers, and selecting metrics that align with your business goals. Then, enlist the support of a professional cost accounting team to get an approach tailored to your unique needs. 

Get in touch with BPM’s outsourced accounting division today. 

Cybersecurity threats continue to grow in sophistication and frequency. The cost of data breaches reached unprecedented levels in 2024, with some companies experiencing a cyber attack that cost upwards of $100 million.  

To avoid costly attacks, organizations must adopt proactive security measures to protect their assets and maintain customer trust.  

Two key strategies in proactive cybersecurity are red teaming and penetration testing. These methods allow organizations to assess their security posture from different angles: 

1. Penetration testing simulates targeted attacks on specific systems or networks to uncover vulnerabilities. 

2. Red teaming takes a broader approach, evaluating an organization’s overall security by simulating real-world attack scenarios. 

Both techniques play crucial roles in strengthening an organization’s defenses but differ in scope, objectives, and methodology. Understanding these differences is essential for companies looking to implement a holistic approach to security controls and management. 

Understanding pen testing 

Penetration testing, often called pen testing, is a controlled method of evaluating an organization’s cybersecurity defenses. It simulates real-world attacks to identify existing vulnerabilities in systems, networks, or applications. The primary objective is to uncover security weaknesses before malicious actors can exploit them. 

Penetration testers typically focus on specific areas, such as external network penetration, internal network penetration, web application testing, or wireless network assessments. Each type targets different aspects of an organization’s infrastructure, providing a comprehensive view of potential vulnerabilities within the scope of the engagement.  

Penetration testers focus on several key components: 

• Reconnaissance: gathering information about the target 
• Scanning: identifying potential entry points 
• Vulnerability assessment: analyzing discovered weaknesses 
• Exploitation: attempting to breach the system 
• Reporting: documenting findings and recommending fixes 

While penetration testing offers valuable insights into an organization’s security posture, it has limitations. Pen testing is often more time-constrained and focused on known vulnerabilities, potentially missing more complex or novel attack vectors. 

Exploring red team assessments 

Compared to pen testing, red team assessments take a more adversarial approach to security testing. They simulate real-world attacks on an organization, mimicking the tactics, techniques, and procedures (TTPs) of real-world threat actors. 

What is red teaming? 

Red teaming is an offensive security approach where a group of professionals simulates real-world cyberattacks to test an organization’s defenses. It works in tandem with blue teams, who defend against and respond to these simulated attacks – frequently without knowledge of the red team. 

Red team engagements help organizations identify vulnerabilities, improve incident response, and strengthen their overall security readiness by mimicking the tactics of actual threat actors. 

How does red teaming work? 

The primary goal of a red team assessment is to discover real world vulnerabilities in an organization’s security posture, including its ability to detect and respond to sophisticated attacks. Unlike penetration testing, a red teaming exercise typically aims to achieve specific objectives, or goals, such as gaining access to sensitive data or compromising specified critical systems. 

Red team methodology is more objective focused and typically involves: 

• Extensive reconnaissance and intelligence gathering 
• Developing custom tools to exploit vulnerabilities 
• Employing social engineering attacks and tactics 
• Attempting to evade detection and maintain long-term access 
• Simulating multi-vector attacks 

A key element of a red team operation is its goal-oriented approach. Red teams work towards specific objectives, often targeting an organization’s “crown jewels.” This focus allows for a more realistic simulation of how actual attackers might prioritize their efforts. 

Stealth and persistence are crucial components of a red teaming exercise. Operations typically last at least a month and can scale up to over six months, with red teamers attempting to remain undetected throughout the engagement. This extended timeframe allows for a more thorough assessment of an organization’s ability to detect and respond to ongoing threats. 

The real-world simulation aspect of red teaming sets it apart from other security assessments. By using the same TTPs as actual threat actors, red teams provide organizations with invaluable insights into how they might fare against sophisticated adversaries. 

While red teaming offers significant advantages, it also presents unique challenges. Because red teams are typically attempting to remain undetected, the engagements take significantly longer and are generally more costly per discovered vulnerability. Communication with the target organization can vary, depending on scope, but is often restricted to very few contacts within the company. 

Despite these challenges, red teaming remains a powerful tool in an organization’s security arsenal. By providing a holistic view of security posture and identifying real-world attack paths, red team assessments enable organizations to strengthen their defenses against the most sophisticated threats they face. 

Red teaming vs pen testing: A detailed comparison 

Both penetration testing and red teaming are valuable cybersecurity assessment methods, but they differ significantly in their approach, scope, and outcomes.  

The primary distinction lies in their objectives and methodology. While penetration testing focuses on identifying all vulnerabilities within a defined scope, red teaming simulates real-world attacks to assess an organization’s security posture with respect to an advanced threat targeting their most valuable resources by any means. 

Here’s a detailed comparison of red teaming and penetration testing: 

Understanding these differences between red teaming and penetration testing is crucial for organizations to choose the most appropriate assessment method based on their security maturity, objectives, and resources. 

When to choose penetration testing 

Penetration testing is most effective for organizations seeking to identify all vulnerabilities within a specific scope. It’s particularly useful for: 

• Evaluating new systems or applications before deployment 
• Assessing the security of specific assets or network segments
• Meeting compliance requirements in regulated industries 

Industries that benefit most from penetration testing include manufacturing, healthcare, legal services, and financial institutions, as these sectors handle secure data and face significant risks from cyber attacks. 

Here’s what this could look like.  

Say a financial institution went through a comprehensive external and internal penetration test to meet regulatory compliance requirements. Many vulnerabilities were discovered and reported. Prioritized remediation guidance was provided to the financial institution so they can appropriately assign resources to improve the organization’s security posture in the most cost-effective manner possible. 

When red teaming is the right choice 

Red team assessments are ideal for organizations with mature security programs looking to test their security in an on-going fashion. They’re particularly valuable when: 

• Simulating advanced persistent threats (APTs) 
• Creating a more realistic threat scenario 
• The IT team is not expected to create any allowances 
• Evaluating incident response capabilities 
• Testing the real-world effectiveness of security controls across the organization 

Given the more extensive nature of the testing parameters, organizations ready for red team assessments typically have, established security policies and procedures, a dedicated security team or security operations center (SOC), and plenty of resources to support a comprehensive, long-term engagement.  

Here’s what this could look like.  

Pretend a large financial institution conducted a red team assessment to test its defenses against sophisticated attacks. The red team successfully breached the network through a combination of social engineering and exploiting a zero-day vulnerability. This exercise revealed gaps in the organization’s detection capabilities and led to significant improvements in its incident response procedures. 

An integrated approach: Combining the best of both worlds 

BPM recognizes that both penetration testing and red teaming offer unique benefits. Our integrated approach leverages the strengths of both techniques to provide comprehensive security assessments tailored to each client’s needs. 

By utilizing both methodologies, we can: 

• Identify specific vulnerabilities through targeted penetration testing 
• Assess your organization’s ability to detect and respond to sophisticated attacks 
• Evaluate the effectiveness of your security controls across multiple vectors 
• Provide a more comprehensive view of your overall security environment 

With a hybrid approach, businesses receive a more thorough assessment of their security defenses, gaining insights into both technical vulnerabilities and potential gaps in their incident response readiness. This evaluation enables organizations to make more informed decisions about resource allocation and security investments. 

Building a resilient cybersecurity posture with red teaming and penetration testing 

Both red teaming and pen testing are security strategies designed to exploit vulnerabilities, but they achieve this in fundamentally different ways—both of which can benefit your organization. 

By regularly assessing your defenses through penetration testing and red teaming, you can stay ahead of potential attackers, identify weaknesses before they can be exploited, and continuously improve your security resilience. 

Don’t wait for a breach to expose your security vulnerabilities. Take action to strengthen your organization’s security controls. Schedule a call with our security team for a personalized assessment. 

In today’s competitive business environment, efficiently managing your company’s stock plan is more important than ever. Many companies consider outsourcing stock plan administration to alleviate bandwidth constraints and gain access to specialized experience. Selecting the right organization to manage your company’s stock plan administration is a critical decision that can significantly impact your business.

5 factors to consider when outsourcing stock plan management

To ensure you choose the best provider, here are five important aspects to consider when outsourcing your stock plan administration.

1. Role and Responsibility Alignment

To ensure a smooth outsourcing experience, it’s crucial to clearly define the roles and responsibilities between your company and the provider. This helps avoid misunderstandings and ensures that both parties know what is expected of them. Some providers may require you to retain responsibility for certain tasks due to liability reasons, which can reduce the time and energy you initially hoped to save by outsourcing.

To assess the potential time savings or benefits, ask detailed questions about the provider’s processes and who owns each part of the process. For example, with new grant creations, ask:

• Can they help assemble board exhibits for new grants?
• Who is responsible for creating the template to upload the data to the equity platform?
• Do they have any internal verification processes before the data or reporting reaches your desk for approval?

By clearly defining these roles and responsibilities, you can ensure a more efficient and effective partnership with your stock plan administration provider, setting the stage for successful collaboration.

2. Flexibility and Scalability

Consider how flexible and scalable the service provider is. Your business will evolve, and your needs will change. Ensure the provider can support you through different growth stages, whether you’re in a startup phase, experiencing significant growth and will be needing need significant help with new grants and employee education, or going through a transition period such as a downsizing where new and ongoing equity activity becomes less frequent. Finding a provider that can grow or shrink with you as your needs change is key. You will also want to ask if they also offer flexible pricing models to accommodate you at these various stages.

3. Additional Services and Resources:

Outsourcing stock plan administration is often just one of many needs a company might have. Evaluate whether the provider can offer other services, such as HR, payroll, technical accounting, or corporate tax advisory. A provider that can address multiple needs can streamline your operations and provide continuity. These additional services can be particularly beneficial during critical business phases, such as mergers and acquisitions, where seamless integration of HR and payroll functions is essential.

Furthermore, having access to technical accounting and corporate tax advisory services under one roof can help ensure compliance with regulatory requirements and optimize financial strategies. By leveraging a provider’s comprehensive suite of services, companies can reduce administrative burdens, improve efficiency, and focus on their core business activities.

4. Specific Knowlege and Experience

Assess the qualifications and experience of the individuals you’ll be working with. Look for Certified Equity Professional (CEP) certifications, which is the primary industry certification, and indicates a thorough understanding of equity compensation.

Additionally, consider the provider’s reputation and experience in handling similar situations to your company’s needs. For example, if your company is planning an IPO, it’s crucial to choose a provider with a proven track record in guiding companies through this process, as it’s complicated and time sensitive. Any delay due to an equity issue can be costly.

5. Client Relationship Style

Finally, ensure your stock plan administrator provider is focused on excellent client service tailored to your needs. Consider the quality of your interactions with the provider and the timeliness of their responses. Ensure they treat you with respect and attention, regardless of your company’s size. A good provider will make you feel valued and prioritize your best interests, not just their bottom line. They should aim to build a long-term partnership that fosters trust and collaboration, ultimately leading to better outcomes for your organization.

Moving forward with the right stock plan management provider

As you speak with different service providers for your stock plan administration needs, keep these five key factors in mind. By carefully evaluating each provider’s responsibility guidelines, flexibility, additional services available, experience, and relationship management style, you can make a more informed decision that will benefit your organization in the long run.

Ultimately, choosing the right partner can lead to improved efficiency, reduced stress, and a more seamless administration process, contributing to your company’s success. Take the time to find a provider that aligns with your values and goals, and you’ll be well on your way to a successful partnership.

Your family has big dreams. But using your resources to turn those dreams into reality can be overwhelming. With so many decisions to make and responsibilities to juggle, it’s easy to feel lost.  

And when things get convoluted, it’s not just the finances that suffer—your family’s legacy and dreams can also be obscured. 

A family office is designed to help high-net-worth families navigate these challenges. Family offices align financial decisions with your family’s values and goals, ensuring your resources are used to enhance your life and the lives of those who come after you. 

Today, we’ll dive into the value of a family office and provide you with the knowledge and tools to maximize yours.  

What is a family office? 

A family office is a private entity that oversees and manages the financial affairs of high-net-worth families.  

It serves as a centralized hub for coordinating financial decisions, investments, and other family-related activities, ensuring alignment with the family’s values and goals. 

How does a family office work? 

A family office operates by integrating various financial and administrative functions under one umbrella. This includes managing assets and investments, financial planning, tax planning, overseeing philanthropic efforts, and coordinating family governance.  

The operational procedures typically involve a team of professionals who work closely with the family to implement strategies, manage day-to-day operations, and ensure long-term financial stability. 

What are the most common types of family office structures?  

When establishing a family office to manage significant wealth, you can choose from four main structures, each with distinct characteristics.  

• Virtual family office (VFO) is a flexible arrangement where family members manage core financial functions while outsourcing specialized services to external advisors. This approach provides access to diverse specialized knowledge without maintaining a full in-house team, making it cost-effective and scalable, though it requires significant coordination effort from family members.  
• An embedded family office integrates financial management functions into an existing family business, using the company’s resources and infrastructure. While this structure offers cost efficiency and familiarity with family assets, it can blur lines between business and personal matters, potentially creating privacy and governance challenges. 
• A single family office (SFO) serves one family exclusively, providing customized financial, legal, tax, and operational services. This structure offers complete control over decision-making and operations, with high levels of privacy and customization. Though operational costs are much higher, a single family office provides independence from family businesses and is particularly suitable for ultra-high-net-worth families. 
• A multi-family office (MFO) manages wealth for multiple unrelated families, pooling resources to offer a broader range of services at lower costs per family. This arrangement provides access to support and investment opportunities through economies of scale, though services may be less tailored to individual family needs and families have less operational control.  

Each structure has distinct advantages and limitations, making the choice dependent on your family’s specific wealth circumstances, long-term goals, desired level of control, and resource availability. 

What is a family office responsible for? 

A family office is responsible for a wide range of activities that can be broadly categorized into high-level strategic functions and day-to-day operational tasks. 

Big picture family office responsibilities 

At a strategic level, a family office focuses on: 

• Setting and achieving long-term goals, including the family’s mission, vision, values, and legacy plan 
• Developing coordinated investment, compensation, and tax strategies 
• Facilitating communication and education among family members 
• Planning for succession 

These responsibilities ensure that the family’s wealth is preserved and grows in alignment with their values and vision. 

Day-to-day family office responsibilities 

On a day-to-day basis, many family offices handle tasks such as managing staff, accounting, payroll, property management, philanthropic initiatives, and investment portfolios.  

It also oversees administrative tasks like insurance management, tax compliance, and legal affairs.  

Additionally, the family office may coordinate family events, educational programs, and other activities that foster unity and shared purpose among family members. 

Depending on the size, scale, and complexity of the family office, these tasks are often managed by an individual or larger team within the family alongside specialty advisors in required areas like estate planning and trust administration, investment management, financial reporting, and more.  

Lifestyle family office concierge services are also gaining popularity. This entails supporting wealthy families in tasks like travel arrangements, lifestyle management, educational and cultural enrichment, and luxury investments like art. 

Why set up a family office? 

Ultra-high-net-worth individuals (UHNWI) and families often consider establishing a family office due to the complexities of constructing their vision and effectively managing their assets in a way that supports that vision.  

“Setting up a family office brings all the services a family needs, whether outsourced or internal, under one umbrella to aid in strategic planning and timely decision making.  Without having to manage the day-to-day complications of a diverse portfolio of assets, the family can plan for their legacy and provide regular oversight to that plan.” – Kris Marney – Director, Advisory 

Common challenges that prompt a family office 

Family offices are as unique and storied as the people who create them.  

As such, every family experiences unique challenges and pain points that cause them to consider establishing a family office. Many find themselves navigating: 

• Complex financial planning and asset management, including investments, property, and collectibles 
• Detailed estate planning, succession planning, and wealth transfer needs  
• Overgrown financial and accounting administrative duties 
• Conflicting and competing financial advice among family advisors  
• Cross-country or international tax and financial obligations 
• Specific wealth-focused goals like philanthropy, acquisitions, or divestitures   

And so much more.  

Let’s take a look at an example. For instance, a family with significant real estate holdings and multiple business interests might struggle to manage these assets efficiently without a centralized entity. A family office can help streamline these responsibilities, ensuring financial decisions align with the family’s goals. 

Benefits of constructing a family office 

The benefits of a family office extend beyond mere financial management. It serves as a strategic tool for preserving intergenerational wealth, building a lasting legacy, and protecting both tangible and intangible assets. 

For example, a family might establish a family office to help ensure their art collection is preserved and passed down to future generations while supporting philanthropic efforts that reflect their values.  

Additionally, a family office can facilitate estate planning and trust administration, providing a structured approach to wealth transfer and succession planning. 

By establishing a family office, families can also focus on philanthropy in a more organized and impactful way. This might involve creating a foundation or supporting specific causes that align with the family’s mission and values.  

Overall, a family office offers a comprehensive framework for managing wealth, fostering unity among family members, and achieving long-term goals that transcend financial success. 

Our Family Office Services Team customizes your family office experience around three high-level goals: simplicity, strategy, and specialization, to help ensure your entire financial ecosystem is built around your unique vision.  

Ongoing challenges of running a family office  

Once a family office is established, ongoing management presents its own set of challenges. Managing a family office independently or with a disjointed team can be particularly daunting. The complexity of financial, tax, compliance, and legal matters requires a high level of specialization and coordination. 

Ensuring that all aspects of the family office are working together seamlessly is crucial. This involves aligning financial decisions, investments, and administrative tasks with the family’s goals. Without a cohesive approach, it’s easy for different components to become disconnected, leading to inefficiencies and potential misalignments with the family’s vision. 

Moreover, effective family office management requires identifying strategic opportunities to enhance the family’s wealth and legacy. This involves leveraging tools like financial modeling, forecasting, and reporting to make informed decisions.  

Strategic support is essential for navigating these complexities and ensuring the family office is optimized to support the family’s long-term objectives. 

By recognizing these challenges and opportunities, families can better position their family office to achieve its full potential. This might involve seeking professional guidance to help ensure all elements of the family office are working in harmony and that strategic opportunities are identified and capitalized upon. 

How can a family office protect your legacy? 

Your legacy is a living, breathing entity that exists in you, your family, and the incredible work you do for each other and your communities. As such, it’s precious and deserves protection.  

Protecting your family’s legacy involves more than just preserving wealth; it requires a thoughtful approach to aligning your financial decisions with your values and goals. Here’s how a family office can help you do that.  

Define your family’s “why” 

A family office plays a crucial role in this process by helping you define your goals, vision, values, and purpose. This foundation establishes a culture within the family office that guides all decisions and helps to ensure your legacy is built on a strong, principled base. 

Build intergenerational wealth strategies 

A key aspect of legacy protection is developing strategies to build and maintain intergenerational wealth. This involves creating a long-term plan that considers the financial needs and aspirations of current and future generations. By doing so, you can ensure that your wealth continues to support your family’s goals and values over time. 

Employ coordinated tax planning 

As the years go by, tax burdens can chip away at your family’s wealth. Effective tax planning is essential for minimizing tax liabilities and maximizing the wealth available for your family and the causes you care about.  

A family office can help coordinate tax strategies across different assets and jurisdictions, ensuring you retain more of your wealth for what matters most. 

Create efficient asset transfer strategies 

Ultra-high-net-worth individuals and families often run into several questions when passing their wealth onto the next generation: 

• What’s the most tax-optimized vehicle for transferring wealth (trust, investment accounts, etc.)? 
• How should I pass on tangible assets like a house, boat, plane, or valuable collectibles?  

And many more.  

 Transferring real estate, art, or collectible cars to future generations requires careful planning. Strategies like trusts can help ensure these assets are passed down efficiently, minimizing legal and financial complexities.  

A family office can assist in setting up and managing these strategies to protect your tangible and intangible assets. 

Offer ongoing financial management 

Effective ongoing financial management is crucial for ensuring a family office operates smoothly and efficiently. This involves several key components: 

• Reporting and modeling 
• Back-office operations 
• Financial statements and compliance
• Human resources and staff management
• Financial software solutions  

By focusing on these aspects of ongoing financial management, a family office can ensure that it is well-equipped to handle the complexities of managing wealth while supporting the family’s long-term goals and legacy.  

Provide comprehensive education for future generations 

Protecting your legacy involves educating the next generation about their responsibilities and roles in managing the family’s wealth.  

And this education is integral. Grim research uncovers that 70% of families lose their wealth by the second generation. More alarming still, 90% of families will lose it by the third.  

At BPM, our family office team can facilitate ongoing education and training programs to help ensure younger family members understand the importance of responsible stewardship and are equipped to make informed decisions about the family’s assets. 

Create a lasting impact with your family office through BPM 

When structured and operated correctly, a family office can make an immense impact on your family and community 

At BPM, our Family Office Services team is dedicated to helping wealthy families navigate the complexities of starting, operating, and maximizing the value of their family offices.  

“BPM acts as the quarterback to bring all the family’s advisors together in support of their goals and long-term planning.” – Kris Marney 

We focus on simplicity, strategy, and specialization to ensure your entire financial ecosystem is built around your unique vision. Our approach combines deep skill with a personal touch, empowering families to achieve their goals and protect their legacy. 

If you’re interested in learning more about how BPM can support your family office, book a call with our team.