Partners Capital Group
Archer Capital
Balance sheet Part 2
There is no doubt that Balance Sheet Management needs to be a top priority for Dealer Management. Dealers have a lot of money tied up in the Balance Sheet and with current economic and industry dynamics changing it will be imperative that Dealers be able to convert Balance Sheet Assets into CASH. Sounds like another MTM conversation but it is not. I have been doing my normal economic daily review which entails about 100 email sources plus hours listening to CNBC and Bloomberg to try and anticipate future activities that will impact the equipment business in terms of material handling equipment as well as construction equipment. And as of April 19, 2023, I am taking a stand that: Rates will remain higher and last longer. Inflation factors considered by the Fed are slowing but the remaining factors the Fed has no control over are sticking. The recession will happen if we are not in one already, Banks will be tough to deal with for the foreseeable future. The EV conversion is moving much faster than anticipated. Any customers with any connection to the auto industry can expect major changes in their company activities. OEMs, Dealers, and Customers will probably change the way they do business because they have to. Most items on your Balance Sheet will probably be impacted by the above. Your homework assignment for this evening is to figure out what your Balance Sheet will look like a year from now (especially the cash account). A typical deal Balance Sheet would look like this: On the ASSET SIDE 2% Cash 28% AR 28% Inventory 40% Fleet and Fixed Assets On the LIABILITY & EQUITY SIDE 11% AP 17% NP -current 7% Other Current Lia 25% Long Term Lia 38% Equity So, what do you think? How will the changes discussed above positively or negatively impact your balance sheet, understanding that changes in the Balance Sheet can leave you with either a higher cash balance or a lower cash balance? Hey, maybe we should turn this into a game and see who comes out with the biggest cash balance. The company with the largest cash amount will be featured in my Cover Story for the September issue. Just send me your starting Balance Sheet and a Balance Sheet a year later and we will assign a code number to it to keep it confidential. Dean even said he will give a full-page ad to the winner. Please email the two balance sheets above to me by July 7th. Email them to editorial@MHWmag.com. I guess the first thing I would do is compile a couple of revenue stream projections covering current lines of business as well as what you would expect from changes your OEMs will make and how those new items will price out and how will they compare maintenance wise with what you are selling now. And I guess you would want to include any new products or service lines you may add to support customers and their current needs. Don’t forget to factor in inflation as well as new cost line items needed to support new business. Next, I would get a list of my top 50 customers and determine if they are “auto” related in any way, shape, or form. I guess any company with EV exposure also falls into this category. My fear would be that they will no longer need the number of units owned or rented. Finding this out sooner rather than later allows you to plan to replace “lost” business while at the same time helping them downsize their fleet by selling off the units for them. My biggest fear would be the ultimate value and use of what you have hiding in your parts inventory and used equipment inventory. This is usually a scary scenario. What is interesting is the value can probably increase as supplies disappear, but at some point, sink like a rock as demand disappears. A timing issue for sure. Me, I would sell off what I could now as prices are elevated and convert the assets into cash. The goal here would be to get rid of slow-moving or sure-to-be slow-moving inventory and units to make room for replacement units and related maintenance items. You have to be a little careful here because your Assets are supporting those loans you have on the books in terms of an operating line and equipment purchase long-term notes. Sell off too much and the bank will want a piece to put their ratios back in order. My guess is that new unit revenues will increase for some time but that support revenues will decline as new units become more efficient and thus require less maintenance. I also expect rental revenues to increase but with some new rental scenarios coming into being. And let’s not forget that there are OEMs now planning to sell direct, which puts you in the service and maintenance business, which may not be a bad idea. In the end, however, whatever plan you come up with needs to pay off related debt before you can move on to another business plan. What we are discussing here is not easy to get your hands around. I would suggest that conversations with all OEMs are in order to see what they have in mind, especially for your region. Who knows, this may also be a good time to add other companies into your fold if their management is not ready to deal with this new business environment. About the Columnist: Garry Bartecki is a CPA MBA with GB Financial Services LLC and a Wholesaler columnist since August 1993. E-mail editorial@mhwmag.com to contact Garry.
The Impact of Inflation
It is a generally accepted principle that moderate inflation is good for business. Moderate inflation has been a fact of life and the natural economic state for more than a century. For one thing, inflation is usually a sign that the economy is growing, which leads to higher demand. Inflation often encourages consumers to make purchases now rather than later. A small but positive inflation rate is economically useful; however, a high inflation rate tends to feed on itself and impair the economy’s long-term performance. What exactly is inflation? Inflation is the overall rise in the prices of goods and services over time. The rising of prices leads to a reduction of purchasing power. The rise in the general level of prices often expressed as a percentage, means that the dollar buys less than it used to in prior periods. As mentioned before, inflation can have a positive impact on the economy. In fact, the Federal Reserve sets an inflation target. They want a healthy core inflation rate of 2%, which takes out the effect of food and energy prices. The central bank wants a little inflation, which also leads consumers to believe prices will continue rising. When inflation rises faster than expected, problems can arise. Now how does inflation impact business owners? Naturally, with inflation costs will rise, putting pressure on gross and net profits. However, the impact of rising prices will vary for different cost types. The rising cost of raw materials will erode gross margins if sales prices are not increased. Keep in mind, the reduction in gross margins may not be immediately apparent. This is because an existing stock that was purchased at lower prices will be used first. However, that inventory will eventually need replenishment. It is best recommended to use the current or predicted cost of raw materials when making pricing decisions when inflation is high. An important note about inflation is that it varies by region and country. It may be possible for a business to source materials from regions where inflation is lower. When the prices of energy are affected by inflation, distribution costs will likely increase. Such rising costs will impact both shipments to customers and suppliers. While service providers may be able to avoid certain negative impacts, they will experience an increase in the cost of travel. As expected, all overhead costs will rise under high inflation periods. These rising prices will begin to eat into net profit that is already being impacted by raw material and distribution costs. While it will take longer for inflation to increase the cost of long-term fixed-price contracts (rent, maintenance contracts, etc.), you could see significant annual increases in these costs if inflation remains high for an extended period. With the impact of rising inflation on businesses, consumers will begin feeling the effect as well. This can lead to pressure from employees to increase wages and salaries. Businesses that do not adjust pay in line with inflation often risk losing workers. When the employee turnover rate is high, recruitment and training costs will be incurred and a drop in productivity will often occur. This encourages businesses to increase wages and salaries to retain employees. An erosion of spending power will affect both businesses and consumers alike. B2B (business-to-business) and B2C (business-to-consumer) companies could very well experience a drop in demand. The degree of the drop in demand will depend on the sector of products or services. Demand for luxury and non-essential products will tail off quickly and demand for low-cost alternatives could rise. As inflation grows higher, so will interest rates. Consequently, servicing existing debts will become more expensive. It very well may become a challenge to obtain new financing. Additionally, inflation devalues money. As a result, you will be repaying the capital element of loans at face value with money worth less than when you took out the loan. Along with this, businesses will likely see a rise in overdue accounts receivable (AR). Customers will have less money to pay their bills and will try to manage their limited available cash. The effects of this will be high collection costs, a squeeze in cash flow, and possibly the need for increased borrowing. As a result, there could be higher bad-debt risks. Considering all the effects of inflation listed above, businesses will ultimately increase sales prices. Consumers and companies will be fully aware that prices are rising and with competitors having to follow suit, it is generally best to adjust prices in line with the inflation rate. With periods of high inflation not being a suitable time for most businesses to expand, it would be advisable to retain cash reserves as a cushion against rising prices and possible bad debts. As mentioned earlier, the cost of borrowing will be high, so most business sectors need to avoid any increases in borrowing during a time of high inflation. High inflation certainly presents challenges to businesses. However, the effects of rising prices can be managed. If costs are controlled, cutbacks are made when needed, and sales price increases are made in a timely manner, margins can be maintained. About the Author: Ian C. Perry is a staff accountant for the Center for Financial, Legal, and Tax Planning, Inc. Roman A. Basi is an expert on closely held enterprises. He is an attorney/CPA and the president of the Center for Financial, Legal, and Tax Planning, Inc. For any questions about how to prepare yourself or your business for rising inflation, do not hesitate to reach out to the professionals at The Center for Financial, Legal, and Tax Planning, Inc at our website, www.taxplanning.com, or by phone at 618 997-3436
Are you prepared to talk MTM to your banker?
Hey, let’s talk MTM, otherwise, known as Mark to Market. You will soon become very familiar with this phrase. Especially if you are renewing your banking arrangements or are looking for a new loan or loans for 23 and beyond. How about we see if your banker has a sense of humor? When he/she asks for your latest Balance Sheet, how about your ask to see the bank’s Balance Sheet to see if they are liquid and will be able to process your payroll when it comes due? But if you are in serious negotiations with the bank you may want to skip this idea. A number of banks are worried about what is going on in the banking arena. Thus, they will take steps to increase their liquidity which in turn reduces any incentive they have to make loans. NOT GOOD FOR YOU if you have not finalized your arrangements for this year. This is where MTM comes into play because banks will scrutinize the individual categories on your balance sheet to determine whether they are valid, correctly accounted for, and properly valued. Gee, that sounds like what they were doing regarding SVB. They may even ask you to have an audit performed by an agreed-upon accounting firm, hopefully, one that understands your business. They may also ask for annual equipment valuations encompassing both used equipment as well as rental assets. Do not be surprised if they ask for both orderly liquidation values (OLV) and forced liquidation values (FLV). They need these values to mark your assets to market. Which in turn is processed as part of their MTM calculation. And you can imagine how difficult the process can be with the past as well as current used values increasing because of a standard demand/supply situation. If you were in the banker’s shoes, how would you value used equipment as well as recently purchased rental units in terms of loan collateral? I find the answer to this question perplexing. Think about it. Let’s consider some assumptions. Cost of a unit five years ago at $20,000 The cost of the new unit is currently at $26000 to $28,000 Book value of the five-year-old unit. $6,000 The current auction price is $10,000 New EV units coming into market……$30,000 This is a rough idea of what is going on with all types of business equipment. The point is that used prices and demand/supply force prices higher. Lack of new units forces used prices higher. EV units are more costly than current units. Put this all into a blender and I would hate to be the banker required to provide MTM numbers for these units, especially if their loan portfolio stretches over 5-6 years, which is probable in an industry that supplies both short and long-term rental activity. If I were the banker I would be saying. …..here is a used unit that was probably worth $6,000 a few years ago which is now selling for $10,000. What will it be worth (OLV or FLV) five years from now? What if we enter a recession? What if inflation cools or deflation takes hold because of a recession? How much of the inflated costs will stick if there is a recession? If I could build that new machine in 2024 or 2025 for using costs for materials with a cost close to what they were the year before the pandemic hit, what would the value be assuming the labor costs would stick? Would the increase in the used units remain higher than it would have been if the pandemic and related demand/supply issues did not materialize? In the end, the banker is interested in collateral value he can use as a market. What is that market today and what will it be like four or five years from now? He/she will err on the conservative side which means lower collateral value and thus fewer assets to use to make loans. I guess the annual equipment valuations will eventually smooth out and stage the used units by age and hours which will be lower than what you would have to pay for the unit today. Make sense? In the end, it will be tougher when it comes to negotiating with the bank this year. Remember it will be LONGER and HIGHER for some time which translates into higher interest rates for maybe years to come. And that BALANCE SHEET management I keep harping about will provide what the bank needs to support your loans or it will not. I would do my homework regarding the market of the collateral you are providing and how that collateral will provide liquidity as the loan is amortized. This will be a very crazy year. Do your homework and be prepared to show your historical GP margins from used equipment sales including the used rental units as well. One last issue to discuss. It pertains to the commercials about the ERC credits available to companies that qualify. If you did not receive any ERC money to date and you qualified for it, somebody screwed up. But if you didn’t qualify, then nobody screwed up. So, before you sign up with a third-party ERC consultant make absolutely sure you qualify for the funds. I would take the docs to either an independent accounting or law firm familiar with this program. Because There is a lot of money involved It is taxable The consultants take a hefty fee The IRS will audit these transactions and you may have to pay it back if they find you are not entitled to the payment. You do not want to be in this position. About the Columnist: Garry Bartecki is a CPA MBA with GB Financial Services LLC and a Wholesaler columnist since August 1993. E-mail editorial@mhwmag.com to contact Garry.
AtomBeam surpasses $1.3M in investments on StartEngine
AtomBeam Technologies Inc., whose game-changing product has the potential to revolutionize how data is sent and stored, announces today that it has raised $1.3M in its current crowdfunding campaign AtomBeam, whose compaction product massively drives efficiency in data transmission and storage, has announced that it has raised $1.3 million in its current crowdfunding campaign on StartEngine. This milestone marks a significant achievement for the company and its growing investor community. “We are thrilled to see the continued support of our investors, who recognize the potential of AtomBeam’s technology to revolutionize how virtually every machine talks to another machine,” said Charles Yeomans, CEO of AtomBeam. “This successful raise brings us one step closer to achieving our engineering goals and driving adoption of our technology.” AtomBeam’s Compaction is poised to disrupt how connected machines, the Internet of Things, communicate. With its ability to reduce the amount of data that needs to be transmitted by an average of 75%, AtomBeam’s technology offers significant cost and efficiency benefits to businesses and consumers alike. “Imagine your phone could send and receive data four times faster just with a software upgrade,” Mr. Yeomans said. “Compaction does that by squeezing out all the inefficiencies in data transmission, and it does it so fast all you experience is, ‘Wow!’” AtomBeam invites investors to join its growing community on StartEngine and be a part of the company’s exciting journey. The company is committed to developing cutting-edge solutions that solve real-world problems and create meaningful impact. Investors interested in learning more about AtomBeam and its innovative technology can visit the crowdfunding campaign page at https://www.startengine.com/offering/atombeam.
First Financial Canadian Leasing
Keep them short
Keep your planning process short. From what I see this is a must regarding 2023 and maybe even 2024. The plans I am suggesting for 23 have accounted for not more than three months. You work that plan and while you are doing so you add a month to the three-month plan and subtract the month just completed. You really don’t want to wait until the middle of month 3 to devise the plan for months 4. 5 and 6. You just keep adjusting to having three months on the drawing table at the end of any month. Why am I suggesting this? BECAUSE NO MATTER WHAT YOU HEAR, IT IS STILL SCREWED UP OUT THERE AND WILL PROBABLY BE SO FOR 23 AND INTO 24. Last month’s article by Allen Polk kind of spelled it out for you. The supply chain is still not fixed. Pricing is out of control. The OEM backlog is still not under control. Interest rates doubling over the last year. Customers with needs and problems you cannot solve at this time. Add to that the labor shortage and the need for technology and you find yourself in an almost impossible situation putting a gameplan together. But there is some good news to share as well. If you recall, I recommended a book titled THE END OF THE WORLD IS JUST THE BEGINNING, which basically maps out the collapse of Globalization written by Peter Zeihan, a geopolitical strategist. It basically spells out the history of the world economy and Uncle Sam’s involvement in protecting globalization as a result of increasing the standard of living throughout the world. But now that the USA is no longer finding globalization to be as profitable or useful as anticipated. The result is that many countries that build up an economy because of globalization will find their economy shrinking without a meaningful way to reverse the downfall. On the other hand, those countries hoping to continue to produce and grow their CDP numbers will need to have a certain availability of energy resources, land able to grow all the crops needed, industrial centers where the work can be performed and a population with flexible pay grades to allow for product costs acceptable to the market. Mr. Zeihan suggest that the best location in the world where this program could be developed was the space occupied by Canada, the United States, and Mexico. Working together these three countries will control the world’s economy. THAT IS GOOD NEWS FOR YOU AND IT IS COMING FASTER THAN YOU THINK. MANUFACTURING, HERE WE COME! As I was reading the book, I could spell the lube oils, hear the milling machines operating, and see the steel bars waiting to be processed. This was at my father’s Machine shop. All when well until the time we started allowing foreign steel into the country. When the price of domestic steel alone was more than the full cost of our products made with foreign steel ….globalization put us and many friends out of business. Now the collapse of globalization is going to put the US back on top of the Manufacturing Hill and take the lift truck industry with it. Buy the book, read it, pass it along and start planning how to get your piece of this pie. Since I do a lot of work with construction equipment and how it is used by contractors, I looked over the Dodge Report for 2023. And guess what? Expect housing and warehouse construction to be down, and manufacturing buildings to be up. MANUFACTURING, HERE WE COME! As we plan ahead let us not forget: Some inflation will reverse, and some will not. Many prices will move up and stay there. Remember, you have FIXED COSTS, SEMI-FIXED COSTS, AND VARIABLE COSTS. Are you prepared to adjust costs and billing to maintain margins? Labor costs will stick and even go higher because there are few eligible folks out there to hire. Better review your entire employee package for techs and tune it up so that they cannot leave. 94% of CEOs are planning for a recession in 2023. Hopefully, it is a normal recession (forget the soft landing) where inflation remains high and the Fed keeps hiking to 5% or more, with unemployment heading up and GDP down. Do not assume it will be business as usual in Q2 of 23. Customers need equipment. How about selling them refurb units? Or renting them refurb units. Or refurbing their units with them providing the core. Refurbs work and can be quite profitable for both dealers and customers. A recent email I saw about a contractor that gave his old pickup to a place that refurbs it in 3-4 weeks with a new drivetrain, interior, and parts as necessary replaced. It is a hell of a lot cheaper than a new one. There are probably many firms out there that do not want to own and operate their lift trucks. Work out a deal to manage their fleet. If there ever was a time to belong to a 20 Group, it is now. Believe me, with what you have on your plate, 15 heads are better than one when it comes time to plan for Q1 23. About the Columnist: Garry Bartecki is a CPA MBA with GB Financial Services LLC and a Wholesaler columnist since August 1993. E-mail editorial@mhwmag.com to contact Garry.
Top 10 Equipment Acquisition Trends for 2023
The Equipment Leasing and Finance Association, which represents the $1 trillion equipment finance sector, today revealed its Top 10 Equipment Acquisition Trends for 2023. Real private investment by U.S. businesses in equipment and software is forecast to be more than $2 trillion in 2023, with a substantial amount of that investment activity financed, so these trends impact a significant portion of the U.S. economy. ELFA President and CEO Ralph Petta said, “Slower economic growth underlies the trends this year as equipment acquisition continues to drive supply chains across all U.S. manufacturing and service sectors. Nearly eight in 10 U.S. businesses currently use equipment leasing and financing to acquire the productive assets they need to operate and grow. We are pleased to provide the Top 10 Equipment Acquisition Trends to help businesses make their strategic equipment acquisition plans.” ELFA distilled recent research and data, including the Equipment Leasing & Finance Foundation’s 2023 Equipment Leasing & Finance U.S. Economic Outlook, industry participants’ expertise, and member input from ELFA meetings in compiling the trends. Top 10 Equipment Acquisition Trends for 2023 ELFA forecasts the following Top 10 Equipment Acquisition Trends for 2023: 1. The U.S. economy will experience sluggish growth in 2023 U.S. GDP growth bounced back during the second half of 2022, but underlying conditions remain troubling, including a struggling housing market, volatile financial markets, and the slowing global economy. With a mild recession expected to begin midway through the year, U.S. GDP growth is forecast at 0.9% (annualized) for 2023. 2. The pace of growth in capital spending will continue to slow A surge of 12% annualized growth in capital spending in Q3 2022 provided a solid jumping-off point for 2023. While growth in equipment and software investment has been steady since the onset of the pandemic, rising interest rates, high inflation, and other economic uncertainties are expected to weigh on investment with a 4.2% growth forecast for this year. 3. Financial conditions will tighten regardless of interest rate hikes Interest rate levels are expected to rise above 5% this year and potentially higher as the Fed continues to battle inflation despite the risk of an economic downturn. Even if rate increases slow down or pause later in the year, the Fed’s shrinking balance sheet will contribute to tighter financial conditions. 4. The majority of equipment acquisitions will be financed In 2023, more than half (55%) of equipment acquisitions are forecast to be financed. Eight out of 10 businesses use leases, secured loans, or lines of credit for their acquisitions. Protection from equipment obsolescence, tax advantages, and cash flow optimization will be the top drivers for end-users to finance. 5. Businesses will utilize equipment and software investment to offset labor costs To reduce dependence on labor, businesses in some industries will increase their use of automation and other labor-saving equipment. Additional benefits will be increased economic productivity and downward pressure on inflation in the long term. 6. Normal supply chain backlogs will ease equipment acquisitions By most measures, supply chain backlogs have returned to their historical averages and will ease equipment delivery delays or shortages this year. A combination of cooling demand and an improving public health situation has given suppliers a chance to catch up. In addition, global supply chain disruptions have triggered a paradigm shift with many large organizations “near-shoring” and/or “re-shoring” elements of their supply chains. 7. Many equipment types will thrive amid a slow-growth economy Despite a souring economic backdrop, the residual effects of the pandemic will spur demand for certain equipment types. Post-pandemic hybrid work arrangements will require acquisitions of equipment types such as computers, software, office equipment, and communications equipment. Aircraft investment will boom early in the year as supply chains unwind and travelers return to the skies. Medical equipment appears to be another stand-out vertical for 2023. 8. Federal spending will provide a boost to equipment investment Three major bills passed in Congress authorize at least $600 billion in new funding for a variety of industrial and infrastructure projects and should provide a sharp boost to equipment investment. Funding from these bills will be distributed over the next five years and should help backstop the U.S. manufacturing sector and increase the demand for equipment in 2023 and beyond. 9. Explosive growth in green projects will drive demand for “climate financing” Organizations are committed to cutting their production and emissions of greenhouse gases and require equipment from wind turbines and solar energy systems to microgrids, storage facilities for lithium-iron and hydrogen batteries, electric vehicles, and more. Globally, an estimated $18 trillion of climate-focused equipment is forecast to be financed between now and 2030. 10. “Wild cards” will factor into business investment decisions Businesses will keep an eye on other areas that could impact their equipment acquisition strategies in addition to the trends above. Tightening credit, a potential debt-ceiling showdown in Congress, and energy price increases due to Russia’s war on Ukraine are among potential business impacts. For more information about the Top 10 Trends, please contact Amy Vogt at avogt@elfaonline.org. For forecast data regarding equipment investment and capital spending in the United States, see the Equipment Leasing & Finance Foundation’s 2023 Equipment Leasing & Finance U.S. Economic Outlook.
Manufacturing Technology Orders Total $436.5 in November 2022; Annual total value dips below 2021 for first time in 2022
New orders of manufacturing technology totaled $436.5 million in November 2022, according to the latest U.S. Manufacturing Technology Orders Report published by AMT – The Association For Manufacturing Technology New orders of manufacturing technology totaled $436.5 million in November 2022, according to the latest U.S. Manufacturing Technology Orders Report published by AMT – The Association For Manufacturing Technology. November 2022 orders were down 4.5% from October 2022 and down nearly 32% from November 2021. Year-to-date orders dropped below 2021 for the first time in 2022, dipping 3.7% below the total through November 2021. “After recording the highest level of orders in 2021, it was only a matter of time before 2022 fell slightly behind,” said Douglas K. Woods, president of AMT. “The fact that orders stayed above 2021 levels for 10 months really speaks to the continued strength in the demand for manufacturing technology. This demand has been spurred by the extraordinary economic challenges of the last few years, which has prompted expanded domestic manufacturing as well as foreign direct investment.” Although domestic capacity has expanded greatly over the last two years, the current economic environment is starting to take a toll on demand for manufacturing technologies in some sectors. In an environment of rapidly rising interest rates, home construction and renovation has slowed, and manufacturers of household appliances have continued to reduce their orders through November 2022. Likewise, declining investments in capital goods by manufacturers of HVAC and commercial refrigeration reflect slowing demand from commercial construction. While job shops remain the largest customer segment, their orders have continued to decline since peaking in September 2022. Interestingly, the average value of orders from job shops has been increasing, indicating continued demand for the more-automated, higher-value machinery. Order activity in this sector appears driven by application-specific needs rather than expanding capacity. “Despite some of the slowing orders, a number of our members remain confident in their 2023 projections because of the outstanding orders collected in 2022,” said Woods. “2023 will most likely be a balancing act. The manufacturing that has returned to the country will continue to spur economic activity, which may be tempered by rising interest rates and slowing demand.”
Section 1202: Small Business Stock Capital Gains Exclusion
Selling your business? What if I told you that you could exclude up to $10 Million from the sale of your business if you meet certain parameters? It is important business owners take note of the requirements as they are very important in order to qualify for the exclusion. Section 1202 of the Internal Revenue Code is a very beneficial tool and the exclusion and easily be applied to your sale. Section 1202 is known as the Small Business Stock Capital Gains Exclusion. This section can only be applied to qualified small business stock acquired after September 27, 2010, that is held for more than five years. Within the Protecting Americans from Tax Hikes (PATH) Act in 2015, one tax benefit, made permanent by the Obama administration, was the Small Business Stock Capital Gains Exclusion found in Section 1202. The intention of this section in the Internal Revenue Code was to provide an incentive for non-corporate taxpayers to invest in small businesses in the United States. Before February 18, 2009, Section 1202 allowed up to 50% of capital gains to be excluded from gross income. The American Recovery and Reinvestment Act then increased the exclusion rate from 50% to 75% for stock purchased between February 18, 2009, and September 27, 2010. This was done in order to stimulate the small business sector. The latest revision to Section 1202, where we are today, provides for 100% exclusion of any capital gain if the small business stock was acquired after September 27, 2010. The capital gains exempt from tax are also exempt from the net investment income (NII) tax applied to most investment income at a rate of 3.8%. The limit upon the amount of gain a shareholder can exclude is limited to either $10 Million or 10 times the adjusted basis of the stock. Any taxable portion of the gain from selling small business stock has an assessment at the maximum tax rate of 28%. Keep in mind, not all small business stocks qualify for this tax break. Some very stringent requirements must be followed regarding small business stock. These requirements are: It was issued by a domestic C-corporation other than a hotel, restaurant, financial institution, real estate company, farm, a mining company, or business relating to law, engineering, or architecture. Can also be applied to an LLC taxed as a C-Corporation. It was originally issued after Aug. 10, 1993, in exchange for money, property not including stocks, or as compensation for a service rendered. On the date of the stock issue and immediately after, the issuing corporation had $50 million or less in assets. The use of at least 80% of the corporation’s assets is for the active conduct of one or more qualified businesses. The issuing corporation does not purchase any of the stock from the taxpayer for four years beginning two years before the issue date. The issuing corporation does not significantly redeem its stock within two years beginning one year before the issue date. A significant stock redemption is redeeming an aggregate value of stocks that exceed 5% of the total value of the company’s stock. If you own a business that satisfies these requirements, then start celebrating. Whenever you go to sell your business, you should be able to exclude all or almost all your federal capital gains tax. Keep in mind that state taxes differ from federal taxes. If your state taxes conform to federal taxes, you could also exclude capital gains from your state taxes. Since all states do not correlate directly, taxpayers should seek guidance on how their states will treat the gain from the sale of qualified small business stock. Looking at an example, consider a single taxpayer with normal taxable earnings of $600,000. Due to their income, they are subject to the highest tax rate. When they sell the eligible small company shares, they bought on September 30, 2010, they get $60,000 in realized profit. Since the person may deduct all their capital gains, no federal tax is owed on the profits. Assume the Investor bought the stock on February 9, 2009, and traded it for a gain of $60,000 after five years. The amount of federal tax owed on capital gains is 28% × 50% x 60,000, or $8,400. About the Author: Business owners must check immediately with their business broker, accountant, or legal counsel regarding their business structure. This is especially true for those who plan to sell within the next couple of years. If you are looking into selling your business and have any questions about the Small Business Stock Capital Gains Exclusion, reach out to the professionals at The Center for Financial, Legal, and Tax Planning, Inc at our website, www.taxplanning.com or by phone at (618) 997-3436.
Equipment Leasing and Finance Association’s Survey of Economic Activity: Monthly Leasing and Finance Index
November new business volume up 9 percent year-over-year, down 24 percent month-to-month, up 6 percent year-to-date The Equipment Leasing and Finance Association’s (ELFA) Monthly Leasing and Finance Index (MLFI-25), which reports economic activity from 25 companies representing a cross-section of the $1 trillion equipment finance sector, showed their overall new business volume for November was $8.6 billion, up 9 percent year-over-year from new business volume in November 2021. Volume was down 24 percent from $11.3 billion in October. Year-to-date, cumulative new business volume was up 6 percent compared to 2021. Receivables over 30 days were 1.7 percent, unchanged from the previous month and down from 2.2 percent in the same period in 2021. Charge-offs were 0.27 percent, up from 0.26 percent the previous month and up from 0.20 percent in the year-earlier period. Credit approvals totaled 77.7 percent, up from 77.0 percent in October. The total headcount for equipment finance companies was down 4.7 percent year-over-year. Separately, the Equipment Leasing & Finance Foundation’s Monthly Confidence Index (MCI-EFI) in December is 45.9, an increase from the November index of 43.7. ELFA President and CEO Ralph Petta said, “Moving into the final month of the year, equipment finance companies report solid performance. Rising interest rates seem to have little or no effect on origination volume in November. The economy grew in Q3—albeit slowly—and is expected to do so again in the current quarter. Labor markets are stable, inflation woes appear to be abating, consumers are spending, and businesses continue to expand and grow: a recipe for stable growth by providers of equipment financing.” Patrick Hoiby, President, Equify Financial, LLC, said, “New volume continues to be very strong despite continued rate hikes. Charge-offs and delinquency are remaining in check and overall credit quality is good. Employee count is hard to measure because many companies wish to expand, but are having hard times finding people.”
Continued Q4 decline in new Industrial Manufacturing with 118 planned projects in November 2022
IMI SalesLeads announced the November 2022 results for the newly planned capital project spending report for the Industrial Manufacturing industry. The Firm tracks North American planned industrial capital project activity; including facility expansions, new plant construction, and significant equipment modernization projects. Research confirms Q4 Projects Totals to be October with 129 new projects and November with 118 new projects in the Industrial Manufacturing sector. The following are selected highlights on new Industrial Manufacturing industry construction news. Industrial Manufacturing – By Project Manufacturing/Production Facilities – 106 New Projects Distribution and Industrial Warehouse – 41 New Projects Industrial Manufacturing – By Project Scope/Activity New Construction – 45 New Projects Expansion – 39 New Projects Renovations/Equipment Upgrades – 33 New Projects Plant Closings – 13 New Projects Industrial Manufacturing – By Project Location (Top 10 States) Indiana – 7 Minnesota – 7 North Carolina – 7 Ohio – 6 Pennsylvania – 6 California – 5 Georgia – 5 Iowa – 5 New York – 5 Quebec – 5 Largest Planned Project During the month of November, our research team identified 16 new Industrial Manufacturing facility construction projects with an estimated value of $100 million or more. The largest project is owned by Freyr Battery, which is planning to invest $2.5 billion in the construction of a manufacturing facility in NEWNAN, GA. They are currently seeking approval for the project. Construction is expected to start in 2025. Top 10 Tracked Industrial Manufacturing Projects QUEBEC: Automotive mfr. is planning to invest $700 million in the construction of a battery manufacturing facility in BECANCOUR, QC. They are currently seeking approval for the project. Construction is expected to start in 2023. ARIZONA: Consumer goods mfr. is planning to invest $500 million in the construction of a manufacturing facility at Inland Port Arizona in COOLIDGE, AZ. They are currently seeking approval for the project. Construction is expected to start in 2023, with completion slated for 2025. MAINE: Paper product mfr. is planning to invest $418 million for the renovation and equipment upgrades on its manufacturing facility in SKOWHEGAN, ME. They are currently seeking approval for the project. NEW YORK: Industrial tool and equipment mfr. is planning to invest $319 Million for the construction of a manufacturing facility on Stamp Drive in ALABAMA, NY. They are currently seeking approval for the project. Construction will occur in multiple phases, with the completion of Phase 1 slated for late 2024. INDIANA: Semiconductor mfr. is planning to invest $236 million for the construction of a 100,000 SF manufacturing facility in ODON, IN. They have recently received approval for the project. Completion is slated for 2024. GEORGIA: The apparel company is planning to invest $87 million in the construction of a manufacturing and distribution center in ELLABELL, GA. They are currently seeking approval for the project. MISSISSIPPI: Packaging product mfr. is planning to invest $79 million for the expansion and equipment upgrades at their manufacturing facility in PELAHATCHIE, MS. They have recently received approval for the project. UTAH: Telecommunication equipment mfr. is expanding and planning to invest $73 million for the construction of two manufacturing facilities in SALT LAKE CITY, UT. Completion is slated for Summer 2023. WISCONSIN: A pharmaceutical company is planning to invest $60 million for the expansion of a recently acquired processing facility in EAU CLAIRE, WI. They are currently seeking approval for the project. GEORGIA: Ammunition mfr. is planning to invest $60 million for the construction of a 300,000 SF manufacturing and warehouse facility in ELLABELL, GA. They have recently received approval for the project. They will relocate their operations upon completion. About the Author: Since 1959, SalesLeads, based out of Jacksonville, FL has been providing Industrial Project Reports on companies that are planning significant capital investments in their industrial facilities throughout North America. Our professional research team identifies new construction, expansion, relocation, major renovation, equipment upgrades, and plant closing project opportunities so that our clients can focus sales and marketing resources on the target accounts that have an impending need for their products, services, and indirect materials.
The time to start is now
Our topic this month deals with tax planning and an organized approach to minimizing your tax bite as part of your CASH IS KING business practice. The is no doubt about it, the uncertain nature of our economy, inflation, and a lack of qualified personnel justify a tax avoidance policy to pay as little as possible. Being that your 2022 book results and therefore your tax results are somewhat in the “can” already, I plan to suggest methods to minimize the 2023 tax bill due 16 months from now. The tax code is EXTREMELY complex, and for equipment dealers, it is even more complex because rental transactions add to the complexity to the point where your normal an IRS agent without a lot of rental experience can drive you up the wall with the potential adjustments they come up with. Consequently, it pays for dealers to work with industry-specific professionals to suggest, explain, execute and deliver a tax avoidance plan as soon as possible for 2023 and beyond based on the current tax code. As far as 2022 is concerned you should have met with your industry tax expect at least four times before December 31, 2022. At the beginning of 2022 discuss how the 2021 return is going to look. How much you have paid in and what you will have to pay for ’21 results as well as estimated payments for ’22? The dealer, of course, has input into the estimated payments if certain events or transactions will change business operations in any way. When the ’21 return is delivered ready to be sent to the IRS. There should be a discussion that compares the ’21 returns against the ’20 returns and the previous discussion estimating the tax payments discussed in #1 above. What changed? Why? If changes are negative, how do you avoid them in ’22? And I expect the return to be delivered and processed before the first due date meaning no extensions are required. It does nobody any good to file the ’21 returns in Oct of ’22 because if there were tax reductions to be had you now do not have the time to take full advantage of them. At this same meeting potential changes to the tax code for the current year should be discussed to determine both positive and negative impacts and any steps that can be taken in ’22 to minimize any negative impact they may have. This second meeting also provides input to pass on to customers if your products and services are part of their tax equation. A July or August meeting to see how the company is progressing and whether the remaining estimated tax payments are necessary at the level they are set at. If the company’s taxable income is expected to be less than projected perhaps the final two payments can be reduced. This is also a good time to explore any other code changes anticipated for ’23, and how to take advantage of them if time is available. In December see how the year is working out and identify any issues or questions about specific transactions that may impact revenue or expenses. This is also a good time to provide a data request to provide the information necessary to prepare the annual return. I do not believe this is overkill. It is a program to make your tax person’s job easier to produce a plan of attack for your finance department to avoid both unnecessary cash outflows and delays in receiving refunds. This approach should also apply to the business owners of the C-Corp, S-Corp, or LLC. And to add to the complexity I have to include a State & Local (SALT) review in the process. As I have mentioned in the past State and Local tax issues are in many cases more complex than the Federal requirements. If you buy, sell, and rent over state lines you have tax requirements. And if you have work-from-home employees you may have a state issue to deal with. And since some states do not allow bonus depreciation, the tax liabilities we are talking about can become substantial. The SALT initial review will cover your nexus status in the states you do business in, along with the sales and use tax requirements required for goods sold in each state involved. There are ways to mitigate these SALT taxes if you change how you process transactions. A good SALT advisor can help with this process (I know a couple of you need assistance). Once the initial SALT review is performed you may only require a “touch base” interaction once a year to stay on track. One other issue that is sure to surface is how you cost out your goods and services for tax purposes during an inflationary period. For equipment, the price paid is the tax basis of the equipment. The same goes for service work. But how about parts sales? How are you costing your current sales? This may be a good discussion point to ask your tax person about. And what if you decide at some point that the costs you incurred for new and used equipment and parts are no longer recoverable in the then-current market? Can you adjust your cost and take a tax deduction? What process do you have to follow to warrant a deduction? Speaking of deductions, your CAP-X purchases allow for Bonus and Sec 179 deductions. If you are having a good year and have the ability to purchase equipment or other fixed assets it may pay to complete those transactions in ’23 as opposed to waiting to buy in ’24. That is assuming, of course, that what you need is available. The acquisitions bring additional value because they reduce the 23-tax burden as well as any estimated tax payments due in ’24 based on the ’23 tax due. As a reminder, the units purchased have to be “placed in service” in ’23 to make this work. Knowing that skilled labor
First Financial Equipment Leasing expands operations in Canada following acquisition of NorFund Capital
First Financial Equipment Leasing (FFEL), a provider of equipment financing solutions and a member company of JA Mitsui Leasing Ltd (JAML), announces a strategic expansion into Canada with the acquisition of NorFund Capital. Based in Toronto, Canada, NorFund Capital is an independent leasing company specializing in capital equipment, solar and alternative energy, and vendor finance programs. The acquisition continues First Financial Equipment Leasing’s tremendous growth trajectory, driven by its vision to elevate and broaden solutions offered to its global customers. “NorFund Capital’s expertise and creativity within the Canadian market made it the ideal fit to lead our growth in new markets and industries,” said Tom Slevin, FFEL Co-Founder and CEO. “With Canada becoming a significant part of our North American platform, this acquisition provides key opportunities for us to extend our financing solutions and enhance the customer experience throughout our global client base.” “We are excited to join First Financial Equipment Leasing and the JA Mitsui Leasing Ltd. family of companies,” said Robert MacFarlane, President and Founder NorFund Capital. “Our organizations have a shared passion for building innovative financing solutions with a customer-focus approach. Given the complementary nature of our combined businesses, we look forward to a strengthened global platform with expanded investment opportunities.” MacFarlane will lead the newly named First Financial Canadian Leasing as Senior Vice President, overseeing the Canadian sales strategies and business development. He will focus on growing the company’s fair market value (FMV) leases and establishing First Financial Canadian Leasing as a market leader in renewable energy financing in Canada. MacFarlane has over 30 years of experience in the leasing industry and has built and managed several highly successful equipment finance companies. First Financial Equipment Leasing was represented by Cassels Brock & Blackwell LLP on the transaction.
November 2022 Logistics Manager’s Index Report®
LMI® at 53.6 Growth is INCREASING AT AN INCREASING RATE for: NOTHING Growth is INCREASING AT A DECREASING RATE for: Inventory Costs, Inventory Levels, Warehousing Prices Warehousing Utilization, Transportation Capacity, and Transportation Utilization Warehousing Capacity and Transportation Prices are CONTRACTING The Logistics Managers’ Index reads in at 53.6 in November, down (-3.9) from October’s reading of 57.5. This is the third month out of the last four that the overall index has read in below 60.0. It is also the second lowest overall reading in the history of the index, only surpassing the reading of 51.3 from April 2020 at the height of COVID-19 lockdowns, however, as the rating is over 50.0, we do still register a very moderate rate of growth. In a change from what we have observed throughout 2022, inventory metrics are now settling into more sustainable rates of growth. Inventory Levels have decreased significantly, particularly for Upstream respondents. This is likely indicative of goods being positioned downstream for the holiday season, and more importantly for supply chains, being purchased by consumers. Despite the reductions in inventories, Warehousing Capacity remains tight, which in turn ensures continued expansion in Warehousing Prices. On the flip side, the transportation market continues to fall from the dizzying heights that had become the norm during 2021. This is epitomized by Transportation Prices, which read in at 37.4 – the most severe rate of contraction we have measured in the over six years of the Logistics Managers’ Index. Researchers at Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, and in conjunction with the Council of Supply Chain Management Professionals (CSCMP) issued this report today. Results Overview The LMI score is a combination of eight unique components that make up the logistics industry, including inventory levels and costs, warehousing capacity, utilization, and prices, and transportation capacity, utilization, and prices. The LMI is calculated using a diffusion index, in which any reading above 50.0 indicates September and October, transportation metrics continue to be a drag on the logistics industry, while warehousing remains strong, and inventories finally begin to moderate away from the record levels reached earlier this year. The slowdown in the overall index is largely due to the long-anticipated wind-down in inventories. Our Inventory Levels metric, which came in over 80.0 in February, reads in at 54.8 in November, down (-10.7) significantly from October’s reading of 65.5. This is indicative of two things: the movement of goods downstream towards retailers, and the sale of those goods as holiday spending picks up. Spending growth remained strong to kick off the holiday season. Online consumers spent just over $35 billion during the period from Thanksgiving to Cyber Monday. This shows a significant level of growth from 2021, although it should be noted that “buy now, pay later” transactions were up considerably – perhaps underlying the ongoing inflation issues[1], [2], [3]. The growth was not limited to eCommerce, as an estimated 196.7 million shoppers headed back to stores in-person during the holiday shopping weekend. The National Retail Federation expects overall holiday sales to be up 6-8% from 2021, although some of that increase will certainly be fueled by inflation[4]. In general, consumer spending – long one of the primary drivers of the US economy – remains strong, with spending up 0.8% in October, representing the strongest increase since June. This spending may have been somewhat tempered by inflation, which while still down read in at 6% year-over-year for personal consumption expenditures[5]. This capped a third quarter in which the U.S. economy grew at a revised rate of 2.9%, a marked shift from the contraction observed in the first half of 2022[6]. At the same time, the cost of holding inventories is still expanding significantly at a level of 73.4, but at a slower rate (-7.5) than what we saw in October. This is likely the result of the shifting of inventories downstream. Some retailers like Lowe’s and Walmart have built their stores of goods up in anticipation of strong holiday spending. Some of the inventory shed by primary retailers has also trickled down to secondary market retailers like TJX and Burlington[7]. There has been a lot of effort in 2022 to run inventories down after the overages we saw early this year. It will be very interesting to observe whether or not inventories build up again in a significant way in 2023. If one was only to observe international imports, one may lean towards “not”. The slowdown in inventory imports is somewhat unprecedented. In the first week of December, the price of a 40-foot container going from East Asia to the North American West Coast cost $1,426. This is approximately a third of the cost shippers were paying as recently as mid-September, and only a fraction of the $20,000 per container average observed in 2021[8]. The PMI’s manufacturing index fell into contraction territory (at 49.0) for the first time since May of 2020. This drop was fueled by the continued drops in new orders. The PMI measure of manufacturer inventory grew at a very slow rate of 50.9[9], if this number drops below 50 and new orders continue to lag, it will be a sign that manufacturers are indeed expecting some type of slowdown. This slowdown has led to the official declaration of the end of the backup that plagued the Ports of Los Angeles and Long Beach over the last few years. January’s queue of 109 ships – ships that carried the inventory that led to this year-long glut – down to zero in the last week of November[10]. It should of course be noted that some of the slowdown in traffic in the San Pedro Bay is due to ships being re-routed to other East and Gulf Coast ports. There are also several orders that cannot be filled due to China’s zero-Covid policy. Both Volkswagen and Honda were forced to halt production at their Chinese plants due to forced lockdowns. The slowdown is being felt
Equipment Leasing and Finance Association’s Survey of Economic Activity: Monthly Leasing and Finance Index
October New Business Volume Up 6 Percent Year-over-year, 11 Percent Month-to-month and Nearly 6 Percent Year-to-date The Equipment Leasing and Finance Association’s (ELFA) Monthly Leasing and Finance Index (MLFI-25), which reports economic activity from 25 companies representing a cross-section of the $1 trillion equipment finance sector, showed their overall new business volume for October was $11.3 billion, up 6 percent year-over-year from new business volume in October 2021. Volume was up 11 percent from $10.2 billion in September. Year-to-date, cumulative new business volume was up nearly 6 percent compared to 2021. Receivables over 30 days were 1.7 percent, up from 1.5 percent from the previous month and unchanged from the same period in 2021. Charge-offs were 0.18 percent, up from 0.17% the previous month and up from 0.16 percent in the year-earlier period. Credit approvals totaled 77.0 percent, down from 77.3 percent in September. The total headcount for equipment finance companies was down 4.7 percent year-over-year. Separately, the Equipment Leasing & Finance Foundation’s Monthly Confidence Index (MCI-EFI) in November is 43.7, a decrease from the October index of 45. ELFA President and CEO Ralph Petta said, “The equipment finance industry demonstrates its typical resilient nature, producing an increase in October’s new business volume despite months of interest rate hikes brought on by the Fed’s efforts to control inflation. Despite the spectre of an imminent recession—as many economists predict—equipment finance organizations continue to do what they do best, i.e., help supply the nation’s businesses with productive assets that enable them to survive and thrive.” James Currier, Chief Revenue Officer, Finloc USA Inc., said, “By now there should be some consensus amongst economists and industry vets alike that the economy slowing down is not only predictable but intended—and necessary. We see it coming and know it’s close. We just won’t know what the severity and duration will be until we come out on the other side. Despite the rhetoric from drama-driven sources, it’s unlikely that the sky will fall given our modern quantitative tightening policies and practices. Tough, yes, global economic catastrophe, probably not. We see the economic tightening as an opportunity for carriers to get back on track with normal equipment replacement cycles that have been postponed and explore new verticals. Business reorganizations will require lenders to adapt to changing practices and operations. It will not be business as usual for the foreseeable future, so it is our role as lenders and financing consultants to help manage difficult situations.”
Equipment Finance Industry confidence eases further in November
The Equipment Leasing & Finance Foundation (the Foundation) releases the November 2022 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI). The index reports a qualitative assessment of both the prevailing business conditions and expectations for the future as reported by key executives from the $1 trillion equipment finance sector. Overall, confidence in the equipment finance market is 43.7, a decrease from the October index of 45. When asked about the outlook for the future, MCI-EFI survey respondent Aylin Cankardes, President, Rockwell Financial Group, said, “There continues to be uncertainty in the markets as a result of inflationary pressures, rising rates, and the unknown impact of mid-term elections. Due to ongoing challenges from supply chain delays, we are seeing increased demand for used equipment. Overall, our customers have been very resilient and underlying growth has been robust so we anticipate a strong finish to 2022, particularly in the energy transition and sustainability finance sector.” November 2022 Survey Results: The overall MCI-EFI is 43.7, a decrease from the October index of 45. When asked to assess their business conditions over the next four months, none of the executives responding said they believe business conditions will improve over the next four months, unchanged from October. 46.4% believe business conditions will remain the same over the next four months, down from 62.5% the previous month. 53.6% believe business conditions will worsen, an increase from 37.5% in October. 10.7% of the survey respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, an increase from 8.3% in October. 67.9% believe demand will “remain the same” during the same four-month time period, an increase from 66.7% the previous month. 21.4% believe demand will decline, down from 25% in October. 14.3% of the respondents expect more access to capital to fund equipment acquisitions over the next four months, up from 4.2% in October. 64.3% of executives indicate they expect the “same” access to capital to fund business, a decrease from 87.5% last month. 21.4% expect “less” access to capital, up from 8.3% the previous month. When asked, 32.1% of the executives report they expect to hire more employees over the next four months, up from 29.2% in October. 64.3% expect no change in headcount over the next four months, a decrease from 66.7% last month. 3.6% expect to hire fewer employees, down from 4.2% in October. 3.6% of the leadership evaluate the current U.S. economy as “excellent,” a decrease from 8.3% the previous month. 75% of the leadership evaluate the current U.S. economy as “fair,” up from 66.7% in October. 21.4% evaluate it as “poor,” a decrease from 25% last month. None of the survey respondents believe that U.S. economic conditions will get “better” over the next six months, unchanged from October. 28.6% indicate they believe the U.S. economy will “stay the same” over the next six months, a decrease from 41.7% last month. 71.4% believe economic conditions in the U.S. will worsen over the next six months, an increase from 58.3% the previous month. In November 28.6% of respondents indicate they believe their company will increase spending on business development activities during the next six months, up from 25% the previous month. 64.3% believe there will be “no change” in business development spending, down from 70.8% in October. 7.1% believe there will be a decrease in spending, an increase from 4.2% last month. November 2022 MCI-EFI Survey Comments from Industry Executive Leadership: Independent, Small Ticket “Despite the economic headwinds and rising interest rates, there will still be decent demand as equipment that has aged due to supply chain constraints will need to be replaced. We are concerned how the rising costs of borrowing combined with a softening economy will impact some of our leveraged borrowers.” Chris Lerma, President, AP Equipment Financing Independent, Middle Ticket “While our customers will pay higher interest rates due to continued policy moves by the Federal Reserve, we don’t expect spending on major capital expenditures to be negatively impacted solely by higher rates. We are, however, on the lookout for slowing in certain sectors that will eventually slow down or delay spending on equipment purchases.” Bruce J. Winter, President, FSG Capital, Inc. Bank, Middle Ticket “Supply chain issues look to extend into 2023 delaying equipment purchases. Higher rates are having customers consider leasing options to conserve cash flow.” Michael Romanowski, President, Farm Credit Leasing [Note: Some MCI survey questionnaires and comments were submitted before Election Day results were publicized.]
Merry Christmas and Happy New Year
Santa will hopefully be good to you and provide you with an unexpected taxable income along with a few tax strategies to minimize the Federal and State tax bites. I suspect that if you find yourself in this situation you are at the head of your class this year. So, good for you! Is a repeat in the offing? Based on what I have been reading I would not count on it. On October 28 I heard a report that 97% of CEO are planning for a recession. I guess that would include all of you. The Duke Q3 CFO survey indicates: Growth expectations for the next 4 Quarter are lower than the 22 results Inflation cited as the most pressing concern Firms well below prior-year level, but holding steady Expect elevated price pressures with a slight reduction in 23 Expect price pressures to continue for more than 12 months. Most passing some % of increases through to customers. Hard to find and keep high-skilled employees. Expect hiring conditions to stay the same Being we are in “that” time of the year; I would suggest you schedule a meeting with your banker and tax folks to find out where you stand with your financial arrangements and tax position. I came across three articles that I am going to ask Dean to put on the website, so you determine if you need to follow up on anything as it pertains to your situation. Two are BDO Tax Strategist pieces. One discusses the use of accounting methods to defer tax. The second is on planning for NOLs in the current environment. Good stuff, both of them. The third piece titled 5 TAX ISSUES TO KEEP YOUR EYES ON (https://www.aicpa.org/resources/article/dont-fall-into-a-lull-five-tax-issues-to-keep-your-eyes-on?utm_medium=email&utm_source=SFMC_RAVE&utm_campaign=&utm_content=501416&AdditionalEmailAttribute2=&AdditionalEmailAttribute3=&AdditionalEmailAttribute4=&AdditionalEmailAttribute5= ) is an AICPA piece. If there ever was a year to make your tax bill decrease and as a result keep more cash flow, this is the year to do it. As far as your banker goes, they are only interested in two things. Collateral Value and Debt Service Coverage. Be prepared. If you have recent equipment valuation stats, be ready to provide them. If your internal statement book value is less than the appraisal value (OLV) point it out as “hidden equity.” If you also provide a report on your used equipment sales to show this spread is real …that will help as well. And if you are or should be one of the 97% expecting a recession, explain how you plan to deal with that issue. The CFO survey results (above) make good talking points. To get a better handle on all these economic issues facing you and us I am going to suggest you buy yourself a book to read over the holidays that will help you understand where we are at currently and what is going to happen as globalization is reversed in the coming years (not at long as you think). Absolutely readable, understandable, and fascinating. I CAN NOT PUT IT DOWN. The good old USA made this globalization work which made goods and service providers SMARTER, BETTER, AND FASTER which in turn lowered pricing and raised the world’s standard of living. Now that the USA may no longer be interested in this economic concept things are going to change. I will say no more. Read it yourself and give a copy to high school and college students. They will find it useful as well. What did you think about last month’s article that mentioned the OEM direct sales potential? I can see it happening and wonder why it has taken so long. Be more of a build-to-order program which would reduce inventory levels as well as absorption costs you now have to cover to offset new equipment sales costs. In fact, the whole basic dealer income silos and departments will be changing as well. As EVs become more prevalent, as lithium batteries become more of the norm, as customers ask for that SMARTER, BETTER, AND FASTER (SBF) product, eventually your aftermarket revenues as a percent of sales will decrease. On the other hand, I expect rentals to boom during this time and for the next decade. With a lack of techs. A lack of drivers. And with a general lack of finding skilled personnel, a size reduction of a dealership may be just what we need to keep things going profitably. This SBF is already taking place in the construction industry. Contractors are taking steps to do more with less. And they are succeeding. And in many cases, OEMs are helping with the process. Take a blank piece of paper and start thinking about how your dealership will look in 5 years, or 7 years. In either case, based on what was in the McKinsey report, your operation will need to change or stand to lose your position in your territory. I would take that report seriously. I would also train more people in the rent-to-rent business. If you do not provide the utilization for a daily, weekly, or monthly fee, I am sure the Bid Boys will find a way to do so. The name of the book is: The End of THE WORLD Is Just BEGINNNING…. Mapping the Collapse of Globalization By Peter Zeihan Have a great 2023. About the Columnist: Garry Bartecki is a CPA MBA with GB Financial Services LLC and a Wholesaler columnist since August 1993. E-mail editorial@mhwmag.com to contact Garry.
Manufacturing Technology orders up 13% in September despite anticipated economic slowdown ahead
New orders of manufacturing technology totaled $519.3 million in September 2022, according to the latest U.S. Manufacturing Technology Orders Report published by AMT – The Association For Manufacturing Technology. September 2022 orders were up just under 13% from August 2022 but down 12.4% from September 2021, marking the first time an IMTS September had a lower order value than the year prior. Total orders in 2022 reached $4.2 billion, an increase of 2.7% over the first three quarters of 2021. “We’re seeing the typical bump in orders brought on by IMTS and ‘the IMTS effect,’ but orders throughout 2022 are expected to fall short of 2021 order levels – the largest year in the program’s history,” said Pat McGibbon, chief knowledge officer at AMT. “The backlogs built over the last 18 months have lengthened delivery times and weigh on the decision to continue investing in additional equipment.” Demand for additional domestic capacity and augmenting current production lines with automation has driven orders. In September 2022, that was particularly apparent in orders for forming and fabricating machinery. Appliance imports have fallen by nearly one-third but largely because of supply challenges, not a lack of demand. Appliance and HVAC manufacturers are increasing domestic capacity to bridge this gap, and that can be seen in the USMTO data. Supply chains for the aerospace sector are continuing to increase domestic capacity, particularly for cutting equipment, in an attempt to reduce reliance on foreign components. Likewise, manufacturers of agricultural equipment are continuing their investments in capital equipment. The agricultural sector has been feeling the brunt of recent labor shortages, which has necessitated the investment in more efficient, automated machinery. Additionally, with the growing unpredictability of Ukrainian grain exports, more reliance has been placed on expanded U.S. production. Despite the anticipated slowing economy as 2022 closes and 2023 begins, the manufacturing sector remains to hum at near-full capacity. “Quotations remain high, and anecdotally, we’re hearing that demand from our customer industries is not slowing,” said McGibbon. “While signs are positive now, we do expect orders to be softer the remainder of the year for most production equipment – with the exception of advanced and automation technologies. These technologies are in high demand to address the tighter labor market and increase the productivity of existing capacity. Also, continued efforts by North American manufacturers to increase their regional supply chain will continue to mitigate the modest decline in demand for durable goods. The softer order levels will provide the opportunity for manufacturing technology providers to convert their backlogs into shipped orders.” The United States Manufacturing Technology Orders (USMTO) Report is based on the totals of actual data reported by companies participating in the USMTO program. This report, compiled by AMT – The Association For Manufacturing Technology, provides regional and national U.S. orders data of domestic and imported machine tools and related equipment. Analysis of manufacturing technology orders provides a reliable leading economic indicator as manufacturing industries invest in capital metalworking equipment to increase capacity and improve productivity.