Middle market business owners can capitalize on tax savings

Each quarter, KeyBank surveys owners and executives of middle market businesses – businesses with revenue between $10 million and $4 billion – for insight about the issues and challenges they are facing. A recent middle market business survey shows that reduced corporate tax rates have middle market business owners planning to add facilities or reinforce their businesses’ financial position.

Survey results show the majority of middle market business owners anticipate savings from corporate tax reform. Half of those surveyed indicated that they plan to expand by adding facilities, while 30 percent will use savings to strengthen their business’ financial position. Others still will use the tax credits to invest in their employees.

Growing a business through expansion is both exciting and complex, with many financial considerations. The first step should be a conversation with a banker about the company’s needs. For example, a business owner contemplating facility expansion needs to think beyond infrastructure:

• Will the business be the sole occupant of the planned building, or will there be non-related tenants?
• A new facility might mean adding equipment, inventory and work force – factors that might have implications for working capital, cash flow and financing.
• Expansion could also require new ways of managing payables, receivables and liquidity.
• What local tax incentives are available?
As with planning to expand facilities, strengthening a business’ financial position means more than stowing tax savings into cash reserves. Building cash reserves is just one step toward strengthening a business’ financial position. Other steps could include reducing debt, using enhanced reporting to better manage cash flow, using tools to manage interest rate costs, commodity risks, and futures.

Investing in employees is yet another option that many companies are pursuing. Many companies paid one-time bonuses to employees, while others used the tax savings to increase the hourly wage for their workers. Others, still, are looking at long-term changes to employee benefits.

A key driver for these changes is talent acquisition and retention, as many middle market businesses see their people as their most valuable resource. Businesses know that competition for talent is fierce, and the pressure of a strong job market is helping them realize that generous benefits programs can be a winning differentiator.

Bob Piazza is president and CEO of Price Pump Company, which is relocating to Idaho from California. Price Pump recently began its investment in Idaho by building a new, state of the art facility in Caldwell. The facility will allow for net, local job growth as the company expands its employee base to facilitate growth. This growth will be benefited by tax breaks nationally and tax advantages locally, but also by Idaho’s business-minded legislature. Also, the buoyancy in the economy creates more need for high quality equipment of which they manufacture and ship globally.

“We made our decision to move to Idaho before the tax changes, and really before the trends of the current economy, due to the ever-evolving legislative changes and high cost of living in California,” said Piazza. “Idaho offers a quality of life and cost of living that will serve our recruiting efforts as we grow. We think we can add meaningfully to our growth through a robust benefits package and strong wages. These two factors should give us a competitive advantage.”

As Idaho continues its historic growth, businesses and their expansions will be the lifeblood to the sustainability of our economic durability. Working with institutions that are able to scale with the growth, while performing as trusted, informed advocates focused on building long-term relationships will be key. Thankfully, Idaho is full of professionals who put these values at the core of their stewardship of the community.

Scott Schlange is senior vice president and head of commercial banking for KeyBank’s Idaho market. He has nearly 15 years of experience in commercial banking. He can be reached at [email protected]