Real Estate Markets: Which Way Will They Go?

Real Estate Markets: Which Way Will They Go?

While I originally set out to write about interest rates and inventory, research into the housing and commercial real estate markets left me feeling that there are a lot of mixed messages out there, and that’s probably because there are. With so many different ways to measure what’s going on with these markets and so many different indices, I feel a need to take a step back and simplify what I’m seeing.

To start, let’s talk interest rates. The Federal Reserve increased them for the eighth time on February 1 by a quarter point. The fact that it was a lower increase than the past few may signal efforts to rein in inflation are working – which would be good news for real estate and ultimately construction…maybe.

While the Fed doesn’t set mortgage rates, which are influenced more so by 10-year Treasury yields, lenders do try to determine what the Federal Reserve’s actions mean and that eventually impacts mortgage rates, which have dropped from their high of 7.12% last October to 6.3% as of Bankrate’s national survey on February 1.  (The Mortgage Bankers Association is predicting rates as low as 5% by the end of 2023.)

Home prices are no longer soaring upward. In fact, they’re starting to stabilize or even decrease a bit, which you would think would mean a pickup in demand and sales, but there are other factors at play. Inventory for affordable housing is down for the 39th consecutive month and the number of properties for sale are down for the 37th consecutive month, according to a report from the New York State Association of Realtors.

Rather than adding to inventory, homebuilders are focusing on getting rid of their existing inventory (and boosting new home sales) and people who locked in historically low mortgage rates will likely continue holding onto their homes. While single family home starts did increase in December, permits decreased. Then starts decreased in January, sending more mixed messages.

Still, the National Association of Homebuilders (NAHB) national Housing Market Index (HMI) increased for the first time in 13 months in January and again in February. The NAHB predicts this increase in homebuilder sentiment combined with lower mortgage rates will spur permits and new starts for single-family homes, which have fallen to the wayside in favor of multi-family homes due to the expectation that people would continue to rent versus buy. However, the NAHB anticipates higher vacancy rates and tighter lending conditions may lead to a slowdown in multifamily housing starts this year, while others believe multi-family housing remains attractive to investors especially during an uncertain economy.

Turning to commercial real estate, what the Fed does has a bigger impact. When rates increase, there are corresponding slowdowns in investor activity on the commercial side. The 2023 Dodge Construction Outlook expects total construction starts to decrease, with retail, warehouse and hotel projects falling dramatically and office and warehouse sectors seeing pullbacks. There’s still a high volume of unfilled office spaces in big cities, although Moody’s Analytics indicates vacancy rates haven’t dropped below 2019 levels.

Thanks to onshoring, CHIP manufacturing and data centers, U.S. industrial real estate needs are on the rise. E-commerce continues to drive the need for warehouse and industrial space. Neighborhood retail is doing well, but malls are not. While the Dodge Momentum Index, which measures nonresidential building projects in planning and leads nonresidential construction spending, was down 8.4% in January it’s still up 32% year over year. It also doesn’t hurt that when interest rates are rising, commercial real estate is seen as a solid investment.

That’s where things stand as of 2:12 PM EST on February 23, 2023. If inflation starts increasing again, the Feds change direction, and/or mortgage rates start increasing again, the message will likely change once again.

General Contractors Face New Liability Scrutiny for Wage Theft by Subcontractors

General Contractors Face New Liability Scrutiny for Wage Theft by Subcontractors

The New Year brings with it new opportunities for growth, new projects to begin, and also, new laws to follow. In 2021, New York State passed legislation that went into effect earlier this month, which shifts liability to general contractors for wage theft cases on private construction projects.

 

Up until now, construction contractors weren’t liable for their subcontractors’ employees’ wages unless there was an employment relationship between the contractor and the employee of the subcontractor. But this law which went into effect Jan. 4, 2022, makes contractors on construction projects jointly liable for wages owed to employees of their subcontractors. It also allows contractors to demand payroll information from subcontractors and withhold payment if the information is not provided. The law exempts home-improvement contracts except for the construction of more than ten one-or two-family owner/occupied dwellings.

Advocates say the law will incentivize general contractors to be more selective in the hiring of subcontractors, with the hope that greater oversight will promote safer working conditions on construction sites and force illegitimate subcontractors out of the industry. Opponents vocalize various concerns about the new law, including the belief that it overcomplicates the process for contractors. 

Assembly member Latoya Joyner said, “This legislation protects the interests of hardworking construction workers over unscrupulous subcontractors. Wage theft is a crime of opportunity that disproportionately affects people who are already living paycheck to paycheck.”

The New York State Building & Construction Trades Council, representing more than 200,000 unionized employees, called the bill’s passage a “monumental victory for working people.”

Meanwhile, the Associated General Contractors of New York State, which represents construction employers, oppose the legislation. While the group supports wage theft prevention, they view the legislation unfavorably because it extends liability for up to three years after a project has been completed. The new law “creates an unmanageable level of risk for general contractors,” according to Mike Elmendorf, CEO of AGC NYS. He says it “slows payments to subcontractors, and raises the cost of construction.”

Whatever your stance is, in order to reduce exposure to wage claims under the new law, New York contractors need to act now. It’s a best practice to consider revising standard contracts and developing procedures for collecting the information that contractors are entitled to receive from subcontractors under the new law. Specifically, upon a contractor’s request, a subcontractor must provide:

  • Certified payroll records containing “sufficient information to apprise the contractor…of such subcontractor’s payment status in paying wages and making any applicable fringe or other benefit payments or contributions to a third party on its employee’s behalf”;
  • The names of all of the subcontractor’s workers (including independent contractors) on a project;
  • The name of the contractor’s subcontractor with whom such subcontractor is under contract;
  • The subcontractor’s contract start date and duration of work;
  • The identity of unions with which the subcontractor is a signatory; and
  • Contact information for the subcontractor’s designated contact.

If a subcontractor at any tier fails to provide the above-mentioned information, the contractor may withhold payment otherwise due to that subcontractor. Make sure you are operating at peak financial efficiency by leaving your financial statements, internal auditing, and overall business analyses to a professional and reputable team. At our company, we prioritize developing a positive relationship that helps you prepare for the future and all of the uncertainty that comes with it.

Sources: Governor.NY.GOV, NYSenate.Gov

Is Your Training Strategy Preparing Employees & Your Company for Future Success?

Is Your Training Strategy Preparing Employees & Your Company for Future Success?

Did you ever think your organization would be competing with Silicon Valley, startups, and major tech companies for talent? As Industry 4.0 (or is it 5.0, now?), AI, robotics, the Internet of Things, smart manufacturing, and more move full steam ahead, ensure your training strategy keeps pace and helps your company and employees secure the skills needed for future success.

We realize there’s no need to preach to the choir about current and pending staffing challenges in manufacturing – you get it. Taking a cue from buy versus build acquisition and growth strategies, have you explored investing in your current employees to build their skillsets and complement your recruiting, retention, and engagement initiatives? It can be a win-win for employees and your business.

As reported by Exploding Topics, “McKinsey predicts the demand for physical and manual skills in repeatable tasks will decline by 30% over the next decade. At the same time, the demand for technological skills will increase more than 50%, and the demand for leadership and high-level social/emotional skills is expected to rise 30%.”

What’s more, The Manufacturing Institute’s 2020 Manufacturing Engagement and Retention Study found two-thirds of those under age 25 feel training and skill development motivate them to stay with their current employers.

Armed with this knowledge, consider enhancing your training strategy and toolkit:

  • Create a reskilling strategy for your workforce. Check out Manufacturing X Digital’s free Hiring Guide, which reviews how to upskill almost 250 different roles.
  • Build relationships with local colleges and let them know the skills you seek in today’s worker and tomorrow’s. See if a college representative will visit your operation and speak with current employees about the classes, certifications, and degrees that can help them reskill for the future. While you’re at it, reach out to their internship/co-op program directors to enhance your talent pipeline.
  • Offer or enhance tuition reimbursement benefits. Nothing tells employees you believe in them and value what they bring to the table than an investment in their future. Tuition reimbursement can open doors to opportunities previously unattainable, while ensuring you’ll have the talent and skills to keep driving your company forward.
  • Explore free, online training opportunities. The Institute for Advanced Composites Manufacturing Innovation (IACMI) America’s Cutting Edge free online program teaches machinists CNC machining skills.

For more ideas, check out The Manufacturing Institute’s 2022 Manufacturing Perception Study results report.

While you focus on enhancing your company’s training strategy for the future, let RBT CPAs help free you up by taking on your tax, audit and accounting needs. We’ve been providing professional, ethical services to clients in the Hudson Valley for over 50 years. Give us a call.

Has the Supply Chain Changed for Good?

Has the Supply Chain Changed for Good?

We’re over two-and-a-half years out from when COVID basically shut down the world, setting off global supply chain issues that have yet to return to normal. While price and supply are stabilizing for some construction materials, they’re increasing in volatility for others. This may be one time the pendulum will not swing both ways. Even though we have a grip on Covid (for the most part), several other factors that caused the supply chain to implode continue, and there’s no timeline for resolution.

The labor shortage (which is expected to worsen as U.S. infrastructure work gets underway); the war in Ukraine; China’s faltering economy; a huge increase in supply chain cybercrime; and regulations all have a role to play in the supply chain’s recovery. The outlook is literally changing month-to-month, with some estimating a return to normalcy by the end of 2023 or, maybe, 2024. This begs the question: by that time, won’t new approaches have taken root, forever changing how the supply chain works (or doesn’t work)?

Border States, a supply chain solutions company, reported in mid-September that while lead times are decreasing, they’re still “85% longer than pre-pandemic across all markets and products.” Similarly, port backlog is decreasing but it is not back to normal. For construction, categories that still require long lead times include distribution equipment (circuit breakers, load centers, panels, switches); EMT fittings (1/2”–4” compression and set screw connectors); wiring devices and wall plates; PVC and weatherproof boxes; fuses; meter sockets and hubs; ground rods, and automation products controls.

ConstructionDive.com reported in September: “The reduction in oil prices is slowly being reflected in materials like roofing products, but that remains an area of concern. Similarly, delivery costs are easing, but there is still a shortage of drivers…Our greatest challenges are anything that involves metal, wood or glass in construction.”

In October, FreightWaves.com reported that all major indices used to track supply chain performance show it’s improving, but still has a long way to go to get back to pre-pandemic levels. For example, “ship-position data and queuing lists showed 109 container vessels waiting off U.S. ports as of Sunday. That’s down from a high of over 150, but still far above the pre-COVID normal in the single digits.”

ForConstructionPros.com also reported in September, “Expect disruptions in the supply chain to improve but not fully return to normal in 2022. Lead times will come down for many products, especially those with fewer component parts and those manufactures in onshore or nearshore locations. However, expect labor shortages to persist in 2022, causing strains on manufacturing as well as the trucking and logistics sector. Also expect backlogs in ports and on cargo ships around the world as pent-up demand continues to outstrip the supply of containers, ships and port-space.”

In August, a Supply Chain Management Review article advises firms to “proactively address supply chain disruption; focus on building a diversified supply chain with enough slack to ride out uncertainty; build for continuity; invest in systems that enable smooth operations in periods of high labor turnover; and consider smart hedges. Make strategic decisions about where to hedge (e.g., pre-buying raw materials) and consider areas most susceptible to destabilization.”

Rather than risk an influx of projects and construction growth, some firms are opting for early-stage procurement over the Just in Time inventory strategy of the past. With early-stage procurement, all supplies and materials are purchased and stored at the start of a project, rather than in phases. This can impact everything from warehouse space and equipment to staffing, procurement, project timelines, budgets, insurance policies, and cash flow. As noted by Jason Earnhardt, Austin Commercial Supply Chain Manager, on Building Design + Construction, “We have essentially become our own in-house logistics company, all in the name of keeping our clients’ projects on track.”

While you’re working to keep client projects on track, please know you can count on RBT CPAs to keep your taxes, audits and accounting on track. We’ve served clients in and around the Hudson Valley for more than 50 years. We’re an Employer of Choice. And, we hold ourselves to the highest levels of professionalism and ethics. Give us a call today.

What’s Next for Inventory Management in Manufacturing?

What’s Next for Inventory Management in Manufacturing?

Just as supply chain issues start to ease and manufacturers think they have inventory management under control, talks of an economic downturn pick up speed. At least for the time being, manufacturers will continue walking an inventory management tightrope.

Earlier this month, The Empire State Manufacturing Index showed a big decline in business conditions, with new orders and shipments significantly down, while delivery times are steady and business inventories are up slightly. This was reiterated in the New York Fed’s description of the economy as slowing to a crawl. In June, the U.S. Fed indicated there was a downshift in economic growth, but a month later reported a slight increase in manufacturing output. Needless to say, it’s more challenging than ever to make operating decisions, especially when it comes to inventory.

Globally, manufacturers are seeing inventory levels reach record highs. While this is occurring across all 12 manufacturing sectors, automobiles, electronics, and machinery are responsible for most of the buildup. In April, the Office of the Comptroller of the Currency reported, “The uncertainty around supply chain disruptions and future demand creates risks for firms.” It went on to state, “As some, possibly many, companies look to maintain safety stocks in a just-in-case model, the risk of an inventory overbuild may be higher than in the past.”

In many cases, a just-in-time inventory management strategy worked until COVID, but then manufacturers hit a major speed bump with supply chain delays and issues. Building a just-in-case safety stock served as a work around to catch up and meet demand. Now, inflation and other economic headwinds appear to be slowing demand and increasing inventory. With a lot of speculation about what comes next, manufacturers are left in a precarious position about how to manage inventory going forward.

Safety stock provides a cushion to help a manufacturer avoid missing deliveries and losing customers. It serves as “backup” to cycle stock or inventory expected to be sold within a defined time period, and helps address a variety of issues from supplier delays and inaccurate forecasts to excess demands and financial constraints. With the right safety stock, you can continue filling orders even if your cycle stock runs out.  (Abby Jenkins, Safety Stock: What It Is & How to Calculate It, Oracle Netsuite)

While it’s tempting to reduce safety stock to zero when demand slows, it also increases the risk of not having a cushion to meet demand fluctuations or supplier delays. On the other hand, too much safety stock translates into excess stock that ties up cash, can be a considerable expense, takes up space needed for cycle stock or new products, and results in revenue losses.

Different formulas (click here for one and  here for a few others) can be used to calculate safety stock for different situations. As an alternative, some manufacturers set fixed amounts for safety stock, but this increases the likelihood of overstock. InFlow Inventory suggests comparing carrying costs against the cost of potential stock outs, when making decisions about excess inventory. A Fast Company article suggested “leveling production rates with demand” even though that demand may be difficult to forecast, especially since different industries will likely experience shortages and excess inventory issues throughout the year.

An inventory management software or platform may provide some relief by helping address a number of challenges inherent to the entire inventory management process, from tracking, warehouse efficiencies, and data issues to order management, warehouse space management, and more.

As you strategize your inventory management approach for the months ahead, please know RBT CPAs is here to take care of your accounting, tax, and audit needs. This way, you’re freed up to safely walk across that tightrope, one step at a time.

What AI & Robots Can Do For Your Construction Business

What AI & Robots Can Do For Your Construction Business

Thanks to the Infrastructure Bill construction is positioned to benefit from an abundance of work over the next several years.

With $100 million budgeted for advanced digital construction management systems and related technology solutions, no doubt Artificial Intelligence (AI) and robotics will play an important role in rebuilding America’s infrastructure.

Especially when dealing with the restrictions put in place during the COVID pandemic, a growing number of construction companies were compelled to use new AI and robotics in various capacities to keep work going. Unexpectedly many found a new way to address staffing challenges, while transforming the way they work. As one of the least automated industries, huge potential lies ahead.

So, what are construction companies currently using/planning to use AI and robots to do? Here’s a sampling…

Architectural planning

Drones help map out projects before they begin and identify things like terrain elevations and water tables so plans can be adjusted to avoid issues later.

Ceiling drilling and overhead work

After identifying ceiling work as one of the most strenuous and stressful aspects of construction, a mobile drilling robot was created to work alongside installation teams drilling ceiling holes and using building information modeling (BIM) to promote accuracy.

Compacting/rolling

Primarily used in road construction, an autonomous roller is operated via computer or a geofence defining the area to be rolled. The operator can select the layer thickness, measure material stiffness, and monitor the force required to achieve desired results.

Creating concrete structures

Robot assisted technology uses an automated prefabrication process to create a 3D steel-mesh structure that gets filled with a concrete mix without formwork. It can be used to customize and optimize concrete structures and for producing complex forms for building.

Demolition

Remote controlled demolition robots can demolish buildings with a variety of robotic arms designed to break, crush, and drill through materials.

Emergency response

Drones can monitor bad weather events and provide valuable information to emergency response teams to aid with disaster response.

Excavating/hauling/loading

Heavy machinery – like excavators, dozers, and loaders – can be operated remotely to dig trenches, load and haul debris, and more.  Some of the biggest manufacturers of heavy machinery already incorporate these capabilities into their equipment, while others are creating ways to retrofit existing equipment. For smaller sites, an Automated Track Loader can see where it’s going and measure material excavated using a combination of GPS, satellites, and onsite base stations.

Impact protection

For both road and building construction, specially equipped trucks can be programmed to drive autonomously and protect crews from other vehicles.

Laying bricks

One bricklaying robot works with two masons – one to maneuver it and load its materials while the other conceals wall ties, removes excess mortar, and lays bricks in hard-to-reach areas. Another type of robot uses 3D CAD models to build walls and block structures.

Layout and measurement

A robot navigates a construction site to do layout and measurement tasks using CAD drawings or BIM models.

Lifting and moving materials

Exoskeletons that workers wear and self-propelled equipment make lifting, moving, and drilling easier and safer, while also boosting productivity.

Post construction monitoring and maintenance

AI can help building managers collect information to monitor performance, identify potential issues, and decide when preventative maintenance is needed.

Safety and security

Drone technology can conduct repetitive security risk assessments, quality control inspections, and safety checks and then relay information via a mobile device or app to a project manager in a safe location.

Site/project/building inspections and monitoring

Field robotics can be used to check for a variety of issues so they can be addressed before escalating. They can examine buildings, structures, and work sites for issues (i.e., cracks and water infiltration) and structural defects. There’s even a robotic dog that can travel almost anywhere on a construction site while carrying scanning and data collection software to help ensure on-time and in-budget projects.

Tying rebar

A robot can continuously tie rebar with one person overseeing its work. A counterpart robot is in development to carry and place up to 5,000 pounds of rebar.

There are other solutions doing everything from automating piling rigs to painting and finishing drywall and paddings.

These solutions deliver a variety of benefits from decreasing waste, shortening project timelines, decreasing carbon footprints, and reducing errors to boosting productivity and quality, while saving money and other resources. While there are still challenges that need addressing – like the cost of new systems and equipment, variability from site to site, lack of regulations, and quickly scaled errors – many suggest the pros far outweigh the cons.

While you focus on your operations, you can count on RBT CPAs to focus on your tax, audit, and accounting needs. Give us a call today.

Tips to Help You Manage Cash Flow During Volatile Times

Tips to Help You Manage Cash Flow During Volatile Times

As if the skyrocketing costs of materials and supply chain issues weren’t enough, managing cash flow carefully is even more important in light of pending stagflation, where the economy slows (with less spending and higher unemployment), while inflation and interest rates grow.

No doubt, you’re already aware of the impact supply chain issues and material price volatility are having on project schedules and budgets. By now, many had hoped focus would be shifting to a construction boom thanks to the Infrastructure Investment and Jobs Act. However, economic headwinds aren’t cooperating and may lead to another year or two before volatility subsides. All of this makes managing cash flow critical.

Let’s start with the basics. Cash flow is the money that comes in and goes out of your business to keep it running. You have positive cash flow when there is more money coming in than going out. Negative cash flow is the opposite and can be a sign your business is losing money or dealing with short-term timing issues with payments and billing. It also may mean you won’t have enough cash on hand to cover unexpected expenses.

Once you bid on a project, you must be ready to cover the costs required to purchase materials; pay vendors, subcontractors, and employees; get the work done (i.e., equipment and fuel); and cover unexpected costs that may arise. At the same time, if you’re like most contractors, you’re balancing this knowing that the money coming into your business in the form of payments will likely be delayed.

As reported in Construction Executive, the ideal is to make sure your operating budget covers the next 18 to 24 months and you have a cash flow model projecting cash flow for the next 6 to 12 months that you monitor closely, so you’re prepared to act accordingly whether cash flow dips or grows.

You need to relentlessly focus on planning, managing, and maximizing cash flow, overall and for each project. Know when certain activities will be complete and billed so you have positive cash flow on each project.

As revealed in Levelset’s 2022 Construction Cash Flow & Payment Report, this is easier said than done. A survey of more than 500 construction firms across the U.S. reveals only 1 in 10 businesses are always paid on time for their work. 90% of survey participants have 30-day payment terms, but less than 40% receive payment within that time. Slow payments can have a domino effect, resulting in wasted resources, lower profits, project delays and stoppages, and an inability to make payroll. It can also impact your ability to secure new credit.

You may find opportunity to improve cash flow by improving payment and collection processes. Consider adopting a customer prequalification process to ensure any one you do work for will have the money to pay their bills on time. Also explore whether you need to strengthen collections processes – there’s a lot of opportunity here as only about 40% of Levelset survey participants issue an intent to lien and 34% issue a demand letter. (Of course, getting legal counsel is a good idea in this situation.)

Beyond billing, there are numerous other opportunities to have a positive impact on cash flow:

  • Make sure proposals are profitable and realistic. Project owners know what’s going on with the supply chain and economy. Seeing smart proposals that address challenges fairly may be more attractive than risking going with a low-ball bidder who could have issues completing a job.
  • Protect your cash. Consider loans or lines of credit so you can keep cash on hand, but also balance this with an eye toward avoiding interest rates that could make payment unsustainable.
  • Review contracts with a fine-tooth comb. Challenge clauses that may increase risk to cash flow given supply chain issues. Avoid hard project bids that lock-in prices over a long period of time. Incorporate ways to share price volatility risks. Consider requesting a cash advance.
  • Relentlessly document and communicate scope and schedule changes. You have to manage client expectations and protect your business on an ongoing basis.
  • Check your insurance. Higher prices may require higher coverage. Also, if you’re stockpiling materials, make sure your policy will cover them.
  • Build relationships with suppliers. Talk with material supplier owners about materials storage and owners funding materials up front. Consider buying in bulk, shopping around, negotiating for the best deals, getting payment terms that align with the time it will take for you to get paid by clients, and exploring lines of credit or loans that your supplier may offer. Always have back up suppliers on hand and build relationships with more local and regional suppliers.
  • Monitor and forecast cash flow monthly. Identify the biggest cash flow risks up front and potential solutions so you’re prepared for the unexpected.
  • Stay informed. The Associated General Contractors (AGC) Inflation Alerts provide timely and comprehensive information to inform project owners, government officials, and the public about the impact of supply chain issues, material costs, and inflation on construction.

Having a professional accountant and tax partner can also help your cash flow, especially when you partner with someone that knows your industry and potential opportunities to maximize tax deductions and credits (i.e., IRC Section 179 and the Fuel Tax Credit). Interested? Give RBT CPAs a call. We’ve been around for more than 50 years, serving construction (and other clients) in the Hudson Valley. We’re one of the best in the region and among the top 250 in the country. We believe we’re successful when we help make you successful – especially during challenging times.

Cyberattacks Cost More Than Manufacturers Realize

Cyberattacks Cost More Than Manufacturers Realize

How much can your organization afford to pay to end a cyberattack? How long can it last with operations shut down? What if the amount you pay represents just 5% of the total financial impact to your business for years to come and the balance isn’t covered by insurance?

Yes, it all sounds a bit hysterical and for good reason. The frequency and cost of cyberattacks are increasing rapidly. It’s estimated that a cyberattack occurs every 11 seconds, at an average cost of $22 million in 2022. According to Cybersecurity Ventures, global cybercrime costs will reach $6 trillion this year and $10.5 trillion in 2025. That doesn’t even get into the $170 billion companies are spending to defend operations against attacks.

You may think that because your business is small, it’s not worth a cyber criminal’s time – think again.

Manufacturers are among the most vulnerable because of their reliance on digital technology and the internet. While they’ve flown under the radar because of more lucrative targets like financial and institutions and insurance companies, a recent report by IBM identified manufacturing as the most targeted industry for cyberattacks in 2021. Almost one in four cyberattacks targets a manufacturer.

As TechTarget notes, “Cybercrime can affect a business for years after the initial attack occurs. The costs associated with cyberattacks — lawsuits, insurance rate hikes, criminal investigations and bad press — can put a company out of business quickly.”

Consider these stats:

  • “The average cost of downtime caused by ransomware between 2018 and 2020 has grown from 46,800 dollars to 283,000 dollars per incident, which is about a 7× increase.” (Source: CEOWorld Magazine)
  • “It takes an average of 287 days for security teams to identify and contain a data breach, according to the ‘Cost of a Data Breach 2021’ report releasedby IBM and Ponemon Institute.” (Source: TechTarget)
  • “For a smaller business, a ransom is often $3,000 to $10,000, or sometimes as large as $100,000. For large companies, ransoms are typically in the millions.” (Source: Association of Equipment Manufacturers)

As reported in Deloitte’s CFO Insights, a new Deloitte study – “Beneath the surface of a cyberattack: A deeper look at business impacts” – shows direct costs account for less than 5% of the total business impact of a cyberattack. Hidden costs are much higher and add up over several years. They can include insurance premium increases of 200%; a short-term credit rating downgrade resulting in higher interest rates; costs to repair equipment and facilities, additional resources to support business continuity, and losses due to inability to deliver goods and services; damage to customer relationships; devaluation of trade name; and loss of intellectual property ranging from trade secrets and copyrights to investment plans.

When weighing the expense of building up cyber security versus the potential cost to your business, make sure you’re weighing all the potential factors – especially the hidden ones.

If you need more data to justify your investment in cyber security, here are several resources:

2022 IBM Security X-Force Threat Intelligence Index

CISA Insights on Cyber Threats to Manufacturing

Accenture’s State of Cybersecurity Resilience Report 2021

World Economic Forum’s 2022 Global Risks Report

Trend Micro Incorporated’s The State of Industrial Cybersecurity

For more information about resources to help your manufacturing organization with cyber security, visit another RBT CPAs thought leadership article: Is Your Manufacturing Operation Cyber Secure?

Finally, if you’re interested in learning more about the tax and accounting side of building your cyber security, give us a call. RBT CPAs has been serving clients in the Hudson Valley for more than 50 years.

Are You Succeeding? Do the Math

Are You Succeeding? Do the Math

All you have to do to run a successful construction business is turn a profit, right?

Well, that’s easier said than done, especially when you consider the many challenges confronting construction firms today.  Inflation, soaring fuel prices, and unreliable supply chains are just a few of the bigger challenges that can impact profitability and ultimately success. Still, there are three key numbers that you should know, review, and update during the course of a project to help boost financial success: total costs, markup, and profits. Let’s take a closer look…

  1. Total Costs

While it may be tempting to lowball bids in an effort to win business, it’s also a risky proposition. According to the 2022 Association of General Contractors (AGC) national survey, 84% of respondents’ costs are higher than anticipated. To be competitive and choose the right projects to bid on, it’s important to understand what it will cost to actually do the work and budget accordingly (or even charge more, which is what 62% of AGC survey respondents indicate they are doing).

To start, define each task or activity you’ll need to complete and then put a price on it. Be sure to include the price reflects labor, materials, and overhead.  When you add those costs together, you’ll get the true cost of a job (that’s why this process is sometimes called job costing). By taking this approach, you can also easily identify and track project scope changes that impact costs.

Be aware of indirect costs, which typically apply across all of your jobs and include things like construction equipment, workers’ compensation insurance, and payroll service fees.

Finally, there’s overhead. In general, this includes rent/mortgage, office equipment, and supplies, licenses and fees, taxes, utilities, general insurance, and salaries.

It’s important to define all costs upfront and then track them regularly throughout each project’s duration. Unexpected costs and work come up on most projects. By adding them to your costs immediately and letting your client know about changes in scope and price, you help manage client expectations while making sure your costs are covered. Regularly meet with project managers and accounting staff to track costs and swiftly course-correct when needed.

  1. Markup Percentage

Breaking even on a job pays the bills but nothing else. To succeed, you need to make above and beyond the cost of the project. By applying a markup percentage to the total cost, you can generate additional revenue to cover other additional costs or serve as a profit.

For example, let’s say your total cost estimate for a job is $10,000. You decide to mark it up by 20% or $2,000. You’ll charge your client $12,000. If you’ve kept your costs on track, your profit will equal the markup amount of $2,000. It’s important to note that realizing the full $2,000 in profits requires you to be sure all direct and indirect costs are reflected in the estimate; otherwise, a portion of the revenue will go towards those other costs.

To protect your revenue, you should carefully review contracts for language that limits markups on change orders. Project owners often include this language so contractors do not lowball a bid and later make up any shortfall by overcharging on change orders. Unfortunately, contracts that limit markup percentages can also prevent you from covering your costs, much less retaining revenue. At the very least, avoid contracts that limit you to cost or cost plus 10%.

  1. Sales/Profit Margin

Net profit is the amount of sales revenue left after you’ve paid all applicable costs. For example, a 40% profit margin means 40 cents of every dollar in sales is profit. To calculate profit, use this formula: (Net Income / Revenue) × 100. In general, you should strive to earn a net profit of at least 8% — more is even better.

You should review profit margins regularly as it measures your ability to maintain and build a strong bottom line. You can use this knowledge to create a realistic profit margin goal, and then use your markup percentage to reach that goal.

Calculating total costs, markup percentage, and sales/profit margin is essential to defining and measuring construction company success.

Always start using good data that’s regularly gathered, clearly displayed, and accurately analyzed. If you need help with your finances or processes, RBT CPAs is here to help. Contact our experts today!

The Benefits of Having a Business in New York

The Benefits of Having a Business in New York

A growing number of manufacturers (and other businesses) are realizing there are a lot of perks of doing business in New York.

A few decades ago, most large companies’ manufacturing operations relocated offshore to reduce costs and remain competitive. The COVID pandemic highlighted one of the biggest risks of this move – not being able to get products, supplies, and inventory when and where they are needed. Regionalization shortens the supply chain, puts products closer to customers, and lowers shipping and potentially production costs.  So, reshoring – or bringing manufacturing or parts of it back to the US – is the next big trend. Even the White House is doing its part to help manufacturing thrive on American soil.

While you would think up-and-coming cities in other parts of the country with lower costs of living would be attractive to these operations, don’t count New York out.

Overall, employers in New York are experiencing the lowest taxes in decades and have a lot to look forward to thanks to the $150 billion in upcoming infrastructure investments in state-of-the-art business and transportation systems. The state boasts one of the country’s largest higher education systems and a plethora of workforce development programs. It’s a leader in low-cost clean energy and protecting the environment. Plus, there’s something for everyone from the arts, sports, fine dining, and culture to a variety of outdoor activities and spaces.

While the entire country is striving to rebound from the Great Resignation and a beyond-tight talent pool, New York State’s Workforce Development Initiative is investing $175 million to meet current and future staffing needs. Funds are available to build regional talent pipelines, expand workplace learning, address short-term and long-term staffing needs, and more.

New York’s Department of Labor and State University of New York (SUNY) system collaborate on apprenticeship programs and positions in advanced manufacturing. Businesses are benefitting from university research and development (R&D) resources and universities are benefitting from providing students with hands-on experience, with more than 70 Empire State Department of Science, Technology and Innovation (NYSTAR) funded facilities and tools.

In the state, there are 10 regional economic development councils (REDCs) charged with developing strategic plans for growth and investments in their respective region. The councils are made up of public-private partnerships, with experts and stakeholders from business, academia, local government, and other organizations.

For example, existing businesses and businesses that are expanding within or relocating to the Hudson Valley have access to the Hudson Valley Economic Development Corporation (HVEDC), which strives to drive business innovation, attraction, and expansion throughout the region. The council offers regional and state collaboration; market, economic, workforce, and real estate data and statistics; site search consultations; business education; and training.  

The state offers a broad variety of tax incentives and business credits to support business development, startups, expansions, relocations, process improvements, energy efficiencies, low-cost power, workforce development, and more. Manufacturers benefit from tax credits, including property tax credits and business incentives.

New and existing NY businesses receive tax credits for jobs, capital investments, and R&D through the Excelsior Tax Credit Program.

Businesses new to the empire state can receive a 5% cash refund on capital spending up to $350 million and 4% for spending above that during the first five years of operation. There are also numerous grants available for job creation or corporate infrastructure through Empire State Development.

Even the 2022 state budget includes tax breaks for businesses to comply with public health orders and keep their businesses safe; tax credits for hiring veterans, at-risk youth, people with disabilities, and apprentices; and tax credits for clean heating fuel, upgraded electric vehicles, and recharging.

For more information about doing business – or more specifically manufacturing – in New York, visit the Manufacturers Association of central and upstate New York; Manufacturing and technology enterprise center in the Hudson Valley for business consulting services related to technology and engineering; and the Business Incentives Guide, which focuses on New York City but includes state and federal resources for financing, taxes, energy, and workforce.

For more information about taxes, accounting, and finance, contact RBT CPAs – a professional, local resource supporting businesses in the Hudson Valley for more than 50 years.