Are Increasing Interest Rates Impeding Growth Plans? Consider this Lower-Interest Financing Option

Are Increasing Interest Rates Impeding Growth Plans? Consider this Lower-Interest Financing Option

With the Federal Reserve Board increasing interest rates seven times in 2022 and another hike likely next month, you may be hesitant about taking out loans to move forward with growth plans and investments in new products, technology, and equipment. What if we told you (or reminded you) there is a funding program available to eligible manufacturers in New York State that can save you 2% to 3% in interest, while supporting business growth?

The Empire State Development Linked Deposit Program (LDP) helps existing businesses in the state secure reduced-rate financing to improve productivity, performance, and competitiveness. Loans are available for 2% or 3% lower than the fixed interest rate a lender would normally charge (depending on factors like where your business is located; whether it is minority or woman owned; if it’s for a defense industry diversification project; the lending institution’s 4-year CD rate; and more). With the LDP, you may qualify for higher levels of funding and funding may be available even if you have less than stellar credit.

This is made possible by New York State, which makes a linked deposit of funds to induce a lender to charge the borrower a lower rate for the first four years of the loan. The lender pays the state a reduced rate of interest on its 4-year deposit (in the form of a CD) and it reduces the interest rate charged on the borrower’s loan by a like amount. Translation: You pay 2% to 3% less than the lender’s going interest rate on the loan.

Who’s eligible? If your manufacturing firm has 500 or less full-time employees based in New York State, you may qualify.

What can an LDP loan be used for? Prepare strategic plans to improve productivity and competitiveness; introduce modern equipment and/or purchase or expand facilities as part of a modernization plan; improve production processes and operations; introduce computerized information, reporting and control systems; reorganize or improve work systems; adopt total quality and employee participation programs; develop and introduce new products; identify and develop new markets; buy out viable companies; and obtain working capital for modernization activities to improve competitiveness and productivity, while creating or retaining jobs.

How much can I get? There are no loan minimums. The maximum for each linked deposit is $500,000 and the lifetime limit is $2 million. You can have up to three LDP loans for up to $1 million at any given time.

How much can I save? 2% to 3% on loans for a four-year term. So, if you’re approved for a 3% reduction on a $500,000 loan and the lender’s interest rate is 7% on the loan, your rate will be 4%. So, you stand to save $60,000 over the life of the loan.

EXAMPLE OF 3% REDUCTION:Without LDPWith LDP
Loan Amount$500,000$500,000
State’s Deposit– 0 –$500,000
Lender’s Interest Rate on Business Loan7%4% (with 3% reduction)
Lender’s Interest Rate on C/D3%0% (with 3% reduction)
Estimated Savings to Borrower (4 yr. term)$60,000

While the uncertain economic environment increases the temptation to curb spending as much as possible, as reported in Forbes, “Some experts say that economic downturns can present the best opportunities for growing a business while others are retreating.” If you agree with the later and are interested in learning more about the LDP, visit the Empire State Development Link Deposit Program for more information, including frequently asked questions, a list of lenders, an application, and more.

For additional insights, including how this may affect your accounting and taxes, give RBT CPAs a call. We’re a leading accounting, tax, and audit firm serving the Hudson Valley and beyond for over 50 years and we believe we succeed when we help you succeed.

Does Your Company Need a Mentor Program?

Does Your Company Need a Mentor Program?

Mentoring was once reserved for building senior leadership talent pipelines – not anymore. Today, over 70% of Fortune 500 companies make mentoring a fundamental part of their recruitment, retention, and engagement strategies for many employees. The fact is, when done right, mentorships can be a win-win, and their resurgence couldn’t have come at a better time.

We all know the statistics – the average age of retirement in construction is 61 and today more than 1 in 5 construction workers is over 55. As if the talent shortage isn’t bad enough, issues are compounded when you consider the pending loss of institutional and on-the-job knowledge that will accompany workers into retirement. Before construction managers, project managers, and experienced tradespeople leave the workforce, it’s imperative to tap into their wealth of knowledge and set up future workers – and your company – for success.

Gen Zers and Millennials make up about 40% of today’s workforce and they’re unlike any predecessor. They place a premium on having a purpose and being valued and respected. Being in the first two digitally native generations, they want continuous learning. Both work/life balance and professional development are important. If a company’s values, culture, and environment don’t align with their priorities, they may not stick around for an interview much less a job.

Unlike what these employees learned in a classroom, apprenticeship or internship, mentorships can help provide insights into your company culture, the value proposition your company and their profession offer, and soft skills like decision-making, active listening, communication, and collaboration.

Mentor programs are used to build leadership and communication skills; provide networking opportunities; improve quality and safety; promote employee ownership of professional development; navigate on-the-job challenges; provide a window into career opportunities and professional development; expose new employees to all aspects of a job; foster diversity and inclusion; break down silos; hasten the pace of merger and acquisition integration; and more.

By pairing a workforce entrant with an experienced employee, new employees gain insights into why things are done a certain way, the rewards and challenges of a construction career, what clients really expect, or even the best way to stay safe on the job (which is valuable considering 60% of on-the-job injuries involve employees with less than a year of service).

A mentor program can also serve as a retention tool for existing talent. When more experienced workers are asked to share experiences, skills, and knowledge, they feel valued and have another reason to put off retirement – in fact, retention rates are higher among mentors than non-mentors.

Today’s mentoring programs come in many formats – one-on-one, group, or even online – and last anywhere from a few months to a few years. Some build a talent pipeline by offering mentoring to high school or college students. Others focus on new hires or any employee seeking development. There are even reverse mentorships, where experienced business leaders pair up with new workers to learn about growing up with technology and other traits of Gen Z and Millennials.

Numerous construction associations offer mentor programs as part of their skill building toolkits. Still, many employers build customized programs targeting employee and company priorities. Software is available to help track and facilitate program activities.

Visible executive support is vital to help build support of the program; foster participation; and market an employee value proposition. “We have the best people. We learn from each other. We help each other succeed.” Those are potent selling points to employees that value living a meaningful life.

To maximize ROI, a program should have a formal structure and process for recruiting and training mentors, goals and success measures, and prescribed activities and timelines. One way to promote effectiveness is by conducting a pilot; asking for feedback; and making adjustments before launching companywide.

One challenge to prepare for is motivating existing employees to step up as mentors. Consider what’s in it for them. Plan for special recognition in company communications and at events. Share success stories. Provide incentives ranging from gift cards and extra time off to bonuses.

While there is no magic bullet for resolving current staffing challenges, mentoring programs check off a number of boxes in terms of delivering value to recruits, employees, companies, and clients. Interested in learning more? Our Visions Human Resources affiliate staff is available to work with your team on mentor programs (as well as other recruiting and retention tools), while RBT CPAs can free you up by taking on your accounting, tax, bookkeeping, and audit responsibilities. Give us a call today.

How the Inflation Reduction Act Will Transform Construction

How the Inflation Reduction Act Will Transform Construction

What the introduction of the Intranet did for retail, the Inflation Reduction Act (IRA) – combined with the Infrastructure Investment and Jobs Act (IIJA) – will do for construction, fundamentally changing every aspect of the industry as we know it.

IIJA laid the groundwork for what some are calling the next industrial revolution. As we noted earlier this year in our thought leadership article, Hudson Valley Construction: Get Ready to Get Building (Marchione, 2022),  “The $1.2 trillion law has money for everything from roads, bridges, railways, and highways to clean water, a stronger power grid, internet, climate change, and more. It includes 375 programs, of which 125 are new. Of the $1.2 trillion budget, $550 is new spending. There’s also $650 billion in previously authorized funding for roads and other infrastructure.”

We followed that up with Prepare for the Infrastructure Construction Boom (Marchione, 2022), which included these tips: “For those in the construction industry, it’s a good time to become acquainted with the White House guidebook; raise your hand and let government representatives know if there are particular areas of interest to you; examine staffing and training needs for your organization, and consider whether you should be partnering with other firms.

When we wrote those articles, the IRA didn’t even exist. Now that it does, we still stand behind our initial thoughts and recommendations, but we also believe there’s a much bigger picture to consider.

There’s sort of a peer pressure aspect to the Act. While there are incentives targeting construction, there are also incentives for other industries that will ultimately impact how construction gets done.

For example, look at how the IRA impacts manufacturing. There are incentives for the creation of cleaner processes and materials that will be used in construction (i.e., paving materials). The same incentivization is true for the energy industry, public transportation, the automobile and heavy equipment industries, Internet and communication industries, and more. So, even if you were planning on taking advantage of the upcoming building boom based on the status quo, the “peer pressure” from other industries may give you no choice but to start transforming the way you do construction.

Going back to continue with our manufacturing example, to maximize IRA opportunities, let’s imagine manufacturers start shifting from the production of current construction materials to greener/cleaner/more sustainable ones, which will impact construction project planning (Strupp, 2022), sourcing, and procurement (especially given Buy American provisions). Everything from doors, windows, ductwork, insulation, wiring, heating and cooling systems, electric panels, paving materials and more will likely change.

Employees will have to be trained on using the new materials. Prevailing wage requirements under IIJA and the IRA will likely come into play. The equipment you use to get work done – from vehicles to handhelds – may have to be modified or updated to handle new materials. (It will be a good time to take advantage of the first federal tax credits (Electrification Coalition, 2022) for commercial EVs). No doubt, that’s just the tip of the ice burg.

So, as you consider how your business may benefit from IIJA and the IRA, also consider how it will have to change. Whether that change starts now or will be eventually driven by transformation in other industries is up to you.  In the meantime, if you need any assistance with accounting, audits, and/or taxes, RBT CPAs – the largest CPA firm in the Hudson Valley – is here to help. Give us a call today.

Tips to Prepare for a Workers’ Compensation Audit

Tips to Prepare for a Workers’ Compensation Audit

The best time to prepare for a Workers’ Compensation audit is at the start of a new policy year.

Setting up all processes and recordkeeping properly and keeping them updated throughout the year can help ensure you’ll be ready for an audit and help protect your company from penalties for violations.

According to the New York Workers’ Compensation and Employers’ Liability Manual, if your organization’s premium is:

  • $10,000 or over, it will be subject to a physical (a.k.a. on-site) audit once a year.
  • Within the $5,000 to $10,000 range, an audit will be conducted the first year a carrier offers the policy and at least once every three years thereafter (a signed payroll statement must be provided any year a physical audit is not conducted).

If an audit is impracticable, a signed payroll statement may be accepted.

At the start of a policy year, you provide your carrier with estimated payroll and the type of work your employees do. In turn, they assess the risk involved to calculate your annual premium. Since the number of employees you have, the work they do, how much you pay, and other factors can change during the year, an audit is conducted at the end of the policy year. As a result, you may get a refund; you may be charged more; or you may come out even.

Typically, your policy will contain a provision stating you agree to be audited. So, you are legally obligated to comply in a timely manner. For a physical audit, you’ll generally receive notice within 60 days of the end of the policy year. For a voluntary audit, within 30 days of a policy year, you may be asked to complete and submit forms related to payroll. If you don’t comply, you risk giving the carrier latitude to estimate audit figures (which are likely to be higher than the actuals you can provide) and apply penalties equal to 25% to 50% of your premium.

What You’ll Need

To prepare, your organization must keep good records and documentation for the policy period:

  • General information including a description of your operations; names and titles of owners and officers; number of employees at each location; and a description of work performed by contractors or subcontractors.
  • Job classifications and descriptions providing detailed information about what employees do.
  • Payroll records including payroll register; checkbook (if that serves a recordkeeping purpose); accounting ledger; Form 941, Form 944, W-2, 1099 and other tax forms; state unemployment insurance tax reports; hours, days and weeks worked annually; individual earnings, overtime and bonus records; salaries, wages and commissions. (TIP: Separate earnings and overtime for each employee classification, as they impact the premium differently.)
  • Financial data including payments to independent contractors and subcontractors, as well as casual laborers, and receipts for materials purchased.
  • Insurance certificates for every contractors’ and subcontractors’ Workers’ Compensation coverage.

Take Control

The word “audit” itself is unnerving; however, there are steps that can help you control the process and promote a positive outcome:

  • Designate one person to make sure everything is prepared on time for the audit; answer auditor questions; and get answers to any questions he/she may have.
  • Be prepared. Auditors work under tight deadlines. Help them move through the audit quickly by having all requested documentation and records accessible and organized. Keep all contractor/subcontractor documentation and information together.
  • Do not provide any information, documentation, or records that were not requested.
  • Review audit documents carefully. Focus on how the auditor classified employees and the audit’s impact on your business.
  • Do not sign anything until you have completed your review. Never sign if the audit documentation is not complete, even if the auditor says he/she will fill it in later.
  • Request and keep a copy of any audit documents for your files.

For additional information, refer to the New York Workers’ Compensation Rating Board manual, overview for employers,  employer rights and responsibilities, and website. RBT CPAs’ Visions Human Resource Services affiliate is available to provide advice regarding Workers’ Compensation. What’s more, RBT CPAs, a leading accounting firm in the Hudson Valley and beyond, is ready to take on your accounting, tax, and audit needs with the highest levels of professionalism and ethics. When you engage us to do what we do best, you’re freed up to focus on what you do best – running your business.

Compensation Budgets: Annual Plans Are Not Enough

Compensation Budgets: Annual Plans Are Not Enough

2022 started on a cautiously optimistic note for construction, considering the planned influx of investments from the Infrastructure Investment and Jobs Act, backlog of jobs, and other indices. Then came the war in Ukraine, the gas crisis, and higher inflation, adding to challenges created by supply chain issues and labor. In the blink of an eye, some data that typically would guide a business for a year is changing much faster, making it vital to review important metrics with greater frequency so you can plan and respond appropriately. Take compensation as an example.

Compensation has become a hotter-than-normal topic thanks to employers’ responses to the Great Resignation and tight labor market, prompting businesses to review and adjust compensation budgets more frequently than in the past. With just a little more than four months left in 2022, no doubt benefits and compensation planning for 2023 is underway. Leaders may want to keep in mind what has happened with compensation over the last few years and plan accordingly.

WorldatWork’s 2021 – 2022 Salary Budget Survey results released in August 2021 projected an average 3.3% increase to salary budgets. A quick pulse survey conducted December 2021 to early January 2022, showed in the six months between surveys, companies actually made a bigger increase to salary budgets, coming in at an average of 4%. This shouldn’t come as a surprise considering 94% of survey respondents indicated it was very or somewhat difficult to attract and retain talent.

Pearl Meyers conducted a quick poll about 2022 base salary in November and December 2021 and found almost 50% of respondents expected 2022 base pay increases to be higher than what they expected earlier in the year (12% expected increases to be significantly higher). Mercer quick polls conducted in August and November 2021 revealed the percentage of employers planning increases of 3.5% or higher doubled. A Willis Towers Watson survey conducted in October and November 2021 found 32% of respondents increased salary projections from earlier in the year.

What does this mean to construction companies and their compensation plans for the year ahead?  FMI, a consulting and investment banking company focused on engineering and construction, has been tracking compensation in the industry for two decades. In April of this year, FMI reported, “Average hourly wages for craftworkers, those considered production and nonsupervisory, climbed 6.2% from March 2021, according to the Bureau of Labor Statistics and the Associated General Contractors of America. This indicates that construction companies are paying more to attract workers and retain their current employees.”

In a Pay Practices Survey from February of this year, FMI found the average pay increase budgeted for 2022 was 4.6%. (Just one percent of survey respondents indicated they were not giving increases.) PAS, Inc’s Contractor Compensation Quarterly review issued in July shows average 2022 construction wages increasing 4.1%. However, there’s more to the story.

FMI reports that the U.S. Bureau of Labor Statistics tracks the overall employment cost index to measure changes in the price of labor in terms of employee compensation per hour of work. During the last quarter of 2021, employee compensation per hour of work increased 7.1% for private sector workers, but just 5.4% for construction workers. At the same time, the consumer price index increased 8.5% from April 2021 to April 2022. So, average construction pay increases aren’t keeping pace with other sectors or cost pressures in general.

To address this, many employers are evaluating merit and performance pay enhancements, offering one-time lump sum payments, providing bonuses, and/or enhancing benefits. While FMI indicates construction employers should plan for a 5% compensation budget increase in 2023, flexibility is required to ensure long-term affordability while keeping an eye on pay compression, equity, and  compliance with fair pay regulations.

Considering U.S. Census Bureau data shows a decrease from May to June in spending on construction and the Associated Builders and Contractors report a backlog decline in July – that’s the second month in a row, more challenges lay ahead for construction businesses. Still, there’s more work than workers available, and certain parts of the country (like the Northeast and South) are experiencing backlog increases. While profit margins may be shrinking due to inflation and employee compensation increases, monitoring big picture financial landscapes, as well as compensation and other indices more frequently can help inform flexible decision-making during these tumultuous times.

If you need assistance with compensation planning, RBT CPAs’ Visions Human Resource Service Affiliate offers benefits and compensation analyses (along with a variety of other services). To free you up to focus on your compensation and benefits strategies, you can count on RBT CPAs to address all your accounting,  tax, and auditing needs. Give us a call today.

Proactively Manage Financial Reporting & Forecasting During Uncertain Times

Proactively Manage Financial Reporting & Forecasting During Uncertain Times

No doubt, uncertainties stemming from the impact of inflation, supply chain issues, labor shortages, and more have you focusing on every aspect of your business, from overall strategy and pricing to contracts, inventory, purchasing, and more. The last thing you need are mistakes related to your financial reporting and forecasting. Making adjustments to reporting and forecasting to reflect how macroeconomic factors are affecting your business is important. Following are considerations to help you think through the factors that may impact reporting and forecasting compliance.

General Considerations

  • Are your business cost structures changing? Will this continue in the future?
  • Is the impact of uncertainties short- or long-term? How does that affect related accounting estimates?
  • How are your forecasts impacting accounting estimates for goodwill and other long-lived assets for impairments? Are valuation allowances for the recovery of deferred tax asset balances needed? Are your liquidity and going-concern presumptions affected?
  • Are you meeting U.S. GAAP and/or SEC disclosure requirements?

Inflation

  • With inflation increasing costs to acquire goods, inventory, packaging materials, and even employee pay, should you consider passing on increases to customers via price increases?
  • If your company has long-term revenue contracts impacted by increased costs that you may not be able to pass on to customers, your business may experience a profitability decrease or loss. How will this impact accounting for the contract? Which period do you record the loss?
  • If you are renegotiating long-term contracts like leases or supply agreements, do you need to reassess their classification and measurement?
  • Are interest rate increases and fixed-rate financial asset decreases impacting estimated credit and loan loss reserves?
  • Are you changing your company’s investment strategy and any related accounting and reporting requirements?
  • Are you using the right discount rate for pension-related liabilities? While pension liabilities and related employer contributions may be lower due to higher interest rates, are they offset by higher employee wages?

Labor

  • Are your labor costs increasing? What are the accounting implications? Can you offset higher labor costs with price increases?
  • Has your company increased hourly wages, bonuses, incentive, or stock compensation or benefits? Do you know the implications on your accounting practices? For example, which period should you recognize retention bonuses? Do compensation structure and workforce changes warrant changes to assumptions used for pension liability?
  • Is the labor shortage requiring you to operate at a reduced capacity? If so, are there costs capitalized into inventory that should be expensed now (i.e., rent or depreciation)?
  • Do you have the right people with the right skills monitoring your internal controls, including those related to IT?

Supply Chain

  • Are supply chain costs significantly increasing and included in inventory? Should you adjust the cost of inventory based on its expected net realizable value? Should you consider using different materials, other suppliers, and/or a price increase to manage supply chain increases?
  • How are you reporting raw materials, finished goods, and supplies on your balance sheet? What is the actual point in time that you take ownership of each? Do your accounting processes and internal controls accurately capture inventories?
  • Do your cutoff procedures accurately help you recognize revenue in the right period?
  • If you are adjusting manufacturing processes or using different materials to manufacture products, does this affect warranties – including terms and conditions, product life cycle, or expected claims – and related accounting?

If you need a partner to help guide you through accounting, tax, and bookkeeping during uncertain times, call RBT CPAs. We’re here to help and provide you with peace of mind related to your accounting, reporting and forecasting, so you can focus on all of the other things you need to do to survive and thrive in 2022 and beyond.

What Can an Investment Recovery Program Do For You?

What Can an Investment Recovery Program Do For You?

If you’re looking around your operations and thinking maybe it’s time for a garage sale, think again. Your company may benefit from an investment recovery program.

An investment recovery program enables you to recoup some of the initial investment you made in materials or equipment that are obsolete, extra, or no longer needed. You can use it to sell, trade, or donate anything from spare parts, returned investment, raw materials, and piles of scrape to obsolete equipment, furniture, and machinery.

Not only can it help keep your facilities clutter free and make better use of your business’ facilities, but an investment recovery program can boost your profits.

According to the Investment Recovery Association, a trade group for managers of idle and surplus assets, 70% up to 90% of every dollar that comes from investment recovery directly contributes to a company’s bottom line as profit. In fact, most association members save an average of $8 million a year and some save as much as $150 million (of course, most members are Fortune 1000 companies, but even recouping a portion of the savings they realize is worth it.)

Before you start hanging the garage sale signs, it’s important to note that inventory recovery is a serious business.

Your goal should be to get back as much of your capital investment as possible, rather than getting whatever you can for idle assets. To do this, you’ll need a formal investment recovery program that becomes a regular, ongoing part of your operations.

Start by finding a certified investment recovery manager or appraiser who knows or can find out the fair market value of what you are selling and knows the best channels for making those sales. Experienced investment recovery specialists know how to use a variety of strategies to recover a portion of the cost of an asset. These include returning an item to the manufacturer or distributor, selling it, or trading it for something else. Potential customers can be found:

  • Inside your company. While your Maintenance Department may be done with a forklift purchased for a special project years ago, your Inventory team may be able to put it to good use today.
  • Among your employees. Especially when it comes to office equipment and supplies like cabinets, computers, desks, and tools, employees may be interested in getting a deal and taking them off your hands. Not only do you benefit from the money, but you build good will among your employees.
  • Charity. Nonprofit organizations always welcome donations – especially in the form of equipment and furniture. Build your business’ reputation as a good corporate citizen while getting a charitable tax write-off by donating equipment, furniture, and supplies you no longer need or use.
  • On online auction sites. There are sites dedicated to selling just about anything (they can also be a great place to turn if you’re looking to make purchases).

Is investment recovery worth the time and effort?

According to the Investment Recovery Association, it would take $20 in sales to achieve the same net effect on profit for every dollar generated by investment recoupment. So, yes, it’s worth it.

To learn more about how investment recovery could affect your accounting processes or taxes, RBT CPAs is always here to help — give us a call.

Connect Construction with Digital Solutions to Propel Growth in 2022 and Beyond

Connect Construction with Digital Solutions to Propel Growth in 2022 and Beyond

Optimism is high about construction industry prospects thanks to the Infrastructure Investment and Jobs Act.

There are going to be more jobs, opportunities, and investments. Before partaking in the coming construction boom, businesses must prepare to navigate some storms; digitalization of the construction industry can help.

On one front, supply chain issues and the resulting impact on prices – and profit margins – are continuing (although price increases feel more like riding a rollercoaster than a rocket, as was the case in 2021).

On a second front, there’s talent – or the lack of it. With the great resignation and silver tsunami underway, there are more jobs than people to fill them. One source says there are currently over 345,000 open construction jobs nationwide. No doubt, that’s driving competition and the pay and benefit packages employers need to win and retain talent.

On a third front, there’s the geo-political climate which is filled with uncertainties and unrest, and will no doubt exacerbate supply chain issues and operating costs (due to things like rising oil and gas prices, for example).

Combined, these forces impact everything from profitability and productivity to competitiveness.

Although construction is one of the biggest industries in the U.S., it is also the least digitalized.

Digitalization – which is the process of integrating digital technology into all facets of a business and its operations – may act as a compass to help construction firms navigate choppy waters and get into position to maximize productivity, profitability, and future growth.

Digital construction solutions are commonly used for project planning, management, and documentation. To maximize impact and potential, digital solutions can modernize construction with:

  • Artificial Intelligence (AI) to automate tasks and enhance building designs (extending longevity).
  • Building information modeling (BIM) tools to review projects in real-time; improve collaboration between engineers, architects, and construction staff; and streamline planning.
  • Cloud technology to manage and store data; integrate suppliers and contractors; and address data gaps.
  • Internet of Things (IoT) so smart equipment can self-maintain and operate, while sensors and monitoring systems reduce waste and carbon footprints.
  • Machine learning for monitoring progress and identifying issues.
  • Software to promote project management and data analytics.
  • Virtual reality (VR) and augmented reality (AR) for simulations, planning, and risk reduction.

Construction digitalization can deliver a myriad of benefits to construction firms, engineering partners, employees, vendors, and clients.

Firms can use digital construction solutions to optimize operations; identify and mitigate safety risks; manage projects, procurement, and supply chain; provide real-time updates; collaborate, get approvals, and make decisions or problem-solve in real-time; reduce waste; minimize errors; increase productivity, agility, and profitability; align with clients’ systems and processes; identify and rectify issues before they escalate; improve workflow and document tracking; reduce costs to increase bid competitiveness; and promote growth readiness.

Consulting firm McKinsey found firms with digital procurement, supply chain, and on-site operation solutions increased productivity by 50% as compared to firms with analog solutions. It also found digital transformation reduced costs by 4 to 6 percent and increased productivity by 14 to 15 percent.

What are the current issues facing the construction industry in 2022?

According to Dodge Data and Analytics, 95% of employees are willing to use digital tools and 84% of field employees indicate these solutions already impact the way they work. As reported by ConstructionDive.com, 92% of construction business owners and 96% of contractors have digital transformation strategies. So the issue isn’t getting employees on board.

When it comes to technology infrastructure, a JBKnowledge survey shows, 22% of companies surveyed use six or more apps for daily operations; 92% of construction workers use smartphones, 83% use laptops, and 65% use tablets at work; and nearly 50% of firms have dedicated IT departments or resources. So, the issue isn’t a fear of technology or building a technology infrastructure.

Issues appear to rest in the piecemeal nature of using multiple solutions that don’t integrate or share data; are not accessible by all who may need information; and aren’t being maximized. A new thought process is emerging that indicates the answer may lay in simplifying by adopting connected construction strategies and technologies.

Engineering firms, contractors, construction firms, and others involved in the value chain can use connected emerging platforms to bring people, processes, job sites, and assets together to work efficiently and effectively. By connecting, automating, and integrating everything into one platform, people work smarter, operations are more efficient, and businesses are poised to maximize success.

Hudson Valley Manufacturing: Get Ready for Growing Pains

Hudson Valley Manufacturing: Get Ready for Growing Pains

The Hudson Valley enters 2022 with strong economic growth prospects, considering the increasing number of companies expanding manufacturing, fulfillment, and distribution operations, and opening new ones in the region. While the potential positives resulting are many, growth also poses challenges, especially when it comes to attracting and retaining skilled talent in an already-tight labor market.

Here’s a glimpse of the expansion underway… IBM’s footprint is growing in Poughkeepsie. RBW Studio moved its headquarters and is building factory in Ulster, and is being joined by Mio Marino Men’s Clothing Brand.  Amazon is opening a warehouse in Hawthorne and fulfillment centers in Montgomery and East Fishkill. Regeneron is planning a $1.8 billion expansion at its Tarrytown campus. Green Thumb Industries cultivation and manufacturing site is in Warwick. The Food Bank of the Hudson Valley’s new distribution center will be in Montgomery, while Frito Lay’s will be in East Fishkill.

There’s more to come, with Governor Kathy Hochul announcing a proposed $500 million investment for offshore wind ports, manufacturing, and supply chain infrastructure.

According to The Council of Industry, the U.S. is the world’s largest manufacturing economy, with 12.1 million employees and 21% of products worldwide. New York manufacturers employ 4.55% of the workforce (or 400,000 employees in 2020) and account for 4.01% of the state’s output (source: National Association of Manufacturing). While business conditions may be more favorable in other states, there’s still a resurgence taking place in the Hudson Valley, and business activity is growing swiftly.

Now for the kicker: as of December 2021, the Hudson Valley’s 2.7 percent unemployment rate is its lowest in over a decade. It’s lower than the U.S. unemployment rate (3.7 percent) and New York State’s (5 percent). That’s leading to significant challenges finding talent to take advantage of new opportunities and keeping existing talent safe from poachers. It can lengthen the time it takes to hire new employees, and up the ante in terms of what employees may be looking for from their employers.

With employees in the drivers’ seat when it comes to jobs, what can an employer do? The solution may rest with creating a multi-pronged strategy that addresses the challenge from several angles:

  • Digitalize operations Increase efficiency and eliminate non- or low-value activities, so you can focus limited pools of talent on what’s most meaningful. Consider how AI, robotics, the IoT, and cloud computing can help streamline operations and take over low-value repetitive tasks.
  • Engage your employees Hold focus groups with current employees and/or conduct a survey to gauge what’s working (and what’s not) in terms of your value proposition, from benefits and pay to promotion opportunities, development, culture, and more. Share results; develop a plan to address employee input; and communicate what the company is doing to better meet employees’ needs and reward their commitment and contributions.
  • Promote your employment brand and employee value proposition What distinguishes your workplace from others? Is it a great place to work? What percent of employees stay their entire careers? What percent advance on the career ladder? What unique benefits and perks do you offer? How do your pay and benefits compare to other employers’ in the area? Let prospects know by promoting this on your website and via social media.
  • Enhance recruiting Expand your presence and recruiting activities online. Take a more diverse view of the prospective employee population by reaching out to groups where you may find untapped talent (i.e., Veterans, disabled individuals, and others). Consider adding an employee referral program.
  • Streamline hiring. Replace the paper application with a mobile app. Forget about bringing a prospect back and forth to your organization for interview after interview, and instead use Zoom and standardized candidate selection processes. At hiring events, have staff scan resumes and connect virtually with those in the office for on-the-spot interviews. Have templates for job offers ready and digitalize hiring and payroll paperwork.
  • Foster relationships to build a talent pipeline. Check out the Council of Industry’s Hudson Valley Consortium Training; the New York State Manufacturers Intermediary Apprenticeship Program (MIAP); and Westchester’s Office of Economic Development pre-apprenticeship program.

Having enough employees with the right skills and in the right place may very well become one of the largest competitive differentiators in the coming decade. Position your organization to compete and win. Give RBT CPAs a call to partner with you on all tax and accounting matters, so you’re free to focus on creating and executing a winning talent acquisition strategy.

New Year’s Resolution: Revising Contracts

New Year’s Resolution: Revising Contracts

What’s your New Year’s resolution?

Want to get in shape, or maybe get more organized? How about taking care of some annual business tasks that you may be putting off, like cleaning up your contracts? It’s the perfect time of year to knock this often neglected item off your to-do list.

Many manufacturers fail to annually review and revise contracts – but the reality is you really can’t afford to skip this step.

The ongoing supply chain dilemma is largely consumer-driven, and manufacturers worldwide have been wholly unprepared to handle the pandemic’s perfect storm of increased demand coupled with resource reduction. While some analysts anticipate a return to normality in late 2022, others say the economic turbulence could last for another 24-36 months. Can contract reviews be tedious? Yes. Are carefully crafted contracts also central to your financial success in the New Year? Absolutely. Below, we’ll outline some critical steps your manufacturing team should consider taking as we ring in 2022, to ensure your customers are satisfied, and your contracts are working for you.

Rising materials prices make it crucial for manufacturers to limit risk in their client agreements.

Bottlenecks, delays, equipment shortages, and shutdowns have created disruptions across the board leaving some manufacturers in precarious positions. At this point, we can all agree that pandemic clauses are necessary, not only due to COVID-19 but also to protect from future pandemics and similar situations. To avoid being tied up in unrealistic contracts and producing for a loss because of mounting material costs, carving out changing cost clauses will be essential in 2022 and beyond. Cost structure changes are necessary during these tumultuous times. Manufacturers should typically hold prices for a specified number of days but should have a clause in the agreement stating that if the contract is not released for production in a set number of days, then a price adjustment can be made by the manufacturer.

In response to increased price volatility in the current market, it’s wise to insert extremely open-ended language in the contract itself and/or in the manufacturer’s clarifications exhibit attached to the contract, which entitles the manufacturer to a change order for any increase in materials pricing throughout the manufacturing process. As these provisions shift 100% of the risk to the client, manufacturers should be prepared for clients to try to tailor the contract to share the risk. Some clients may include a contingency line item to address certain unforeseen costs that arise during manufacturing, including materials price increases.

Another approach some may take is to set a threshold percentage above which the client covers price increases and below which the manufacturer bears the risk. Here, the client and manufacturer would agree that the client covers the amount of increased cost if the cost incurred is 10% above the line-item amount shown in the schedule of values. If, for example, the cost of lumber increases by only 9%, then the manufacturer is responsible for all of the increased cost. However, if the cost of lumber increases by 15%, then the manufacturer is responsible for 10% of the increased cost, and the client must cover the remaining 5% of the increased cost. This approach sets a clear standard for addressing price increases and may provide enough flexibility to allow the price volatility to subside.

The time is now to ask yourself, is your team operating as cost-effectively as you can be?

The start of a New Year signals fresh opportunities to recharge, reinvigorate, and reinvent your practices. Dedicate some valuable time to examine your process and determine what’s working, and what’s not. Of course, there’s no one size fits all approach for your operation, and each client relationship is unique. Regardless of how you approach current and future contracts, the most important thing to remember is to address the uncertainty of material price escalation clearly. The information contained in this article is provided for informational purposes only and should not be construed as legal advice on any subject matter. We highly recommend you contact your attorney to thoroughly review all contract language. If you have any questions for our team of financial and tax professionals or would like help evaluating what effect increasing materials prices may have upon your latest project, please do not hesitate to contact our dedicated team.

Source: NYSHEX