5 Ways for Manufacturers to Preserve Capital During the COVID-19 Recession
May 26, 2020
For manufacturers trying to navigate the havoc COVID-19 has wreaked on the American economy, capital is king. Orders are slowing down and distribution is becoming more challenging, so manufacturers need to be more creative than ever in preserving capital to keep their doors open.
How do you preserve capital during a global health and economic crisis? We have some ideas:
1. Maximize your PPP Loan Forgiveness
If you received a PPP loan, maximizing your loan forgiveness is one of the most important ways your company can preserve capital right now. The PPP loan provides up to $10 million in funding to help cover critical expenses and, with proper spending and documentation, that loan can be forgiven – meaning the funding you received essentially becomes a grant. Maximizing your loan forgiveness requires careful planning and critical documentation that can be challenging for even the most seasoned financial experts.
To ensure the maximum possible loan forgiveness, consult an advisor and make a detailed plan for spending and documenting your expenses. Aprio’s dedicated PPP Loan Forgiveness Team can advise on the necessary business considerations surrounding loan proceeds, loan forgiveness, and long-term planning.
2. Explore tax credits and incentives
One of the easiest ways to access and preserve capital is through maximizing your tax savings with federal and state tax credits. Aprio’s team of advisors specialize in a wide variety of available credits and can help clients determine eligibility and maximize their benefit. Many of these credits are available to companies in the manufacturing industry, including the following:
Research and Development (R&D) Credits
The R&D Credit includes both a state and federal credit benefiting any company that designs, develops, or improves products, processes, techniques, formulas, or software. Manufacturers are often an ideal candidate for this credit due to the constant innovation required to improve efficiencies and reduce costs; however, many companies in the manufacturing industry often leave money on the table by either failing to maximize their credits or failing to claim the credit at all. Connect with Carli Huband, Partner-in-Charge of R&D Credit Services, to maximize your savings.
If you’re operating and hiring in Georgia, you may be eligible for state jobs credits, such as the tier-based jobs credit, the quality jobs tax credit, and the rural zone jobs tax credit. Each of these credits boasts unique eligibility requirements, but they share the common goal of incentivizing hiring by helping companies recoup some of what they invest in new hires. The details of these credits are complex, so it’s best to consult an expert like Jeff Glickman, Partner-in-Charge of Aprio’s State and Local Tax team.
Training or Re-Training Credits
Many states offer training and re-training credits to help companies offset the cost of educating their workforce. As many manufacturing companies push to become more innovative and use more automation, it often requires extensive training for employees on new equipment and technologies. If this is true for your company, contact Jeff Glickman, Partner-in-Charge of Aprio’s State and Local Tax team.
3. Review your 401(k) plans
If you provide 401(k) plans for your employees, it may be possible to restructure your current plan to save capital. Try negotiating your plan fees with your providers; if it’s not possible to reduce the fees altogether, it is likely possible to change how you’re paying the plan fees. For instance, is the company paying the fees, or are the fees paid out of plan assets?
If negotiating the fee structure is not an option, consider reviewing your plan design. It may be possible to change your company matching program by deferring match contributions to the end of the year, or by removing the company match altogether until the crisis has passed.
When evaluating possible changes to your company’s 401(k) plan as an option to preserve capital, it’s best to work with a knowledgeable advisor. Aprio’s Retirement Plan Services group provides comprehensive advisory services to maximize the value of your retirement plan while prioritizing compliance. Contact Michael Saulnier, Director of Aprio’s Retirement Plan Services, for more information.
4. Take advantage of low commodity prices
The pandemic is causing unprecedented effects on the economy, including the supply, demand, and prices for key commodities. While it’s taken a hard toll on many facets of the economy, it’s also creating opportunities for manufacturers and distributors to save capital.
Take the oil prices, for instance. As self-isolation, distance learning, and remote work ramped up in response to COVID-19, demand for gasoline, diesel, and aviation fuel plummeted, along with prices. Initially, this phenomenon created a new crisis; the ripple effects on the economy were widespread as companies struggled to adjust sales forecasts, fuel surcharges, and oil-derived input costs. However, the new low cost of fuel poses a potential advantage.
Some companies may be able to capitalize on current lower commodity prices, like oil, by optimizing expenses. You could explore opportunities to purchase commodities now in exchange for early payments and negotiate with suppliers to lock in lower costs. Likewise, you can evaluate areas to renegotiate costs and surcharges to ensure suppliers are adjusting prices accordingly and passing along any savings.
Aprio’s Manufacturing and Distribution team along with our Investment Advisory team discussed ways for companies to take advantage of the falling oil prices, but the logic applies to other commodities as well, and Aprio’s advisors are prepared to help you identify opportunities. Contact Adam Beckerman, Partner-in-Charge of Aprio’s Manufacturing and Distribution team, to discuss innovative ways to capitalize on low commodity prices.
5. Negotiate unnecessary fees
Did you know that 85% of companies overpay on merchant processing fees? Did you also know that some of those fees are negotiable?
Aprio now offers a unique service that can help your company save as much as 35% in fees while maintaining your current relationships. For manufacturing companies, savings in credit card rebates and merchant processing fees can be especially lucrative, freeing up thousands of dollars in critical capital.
If you’re concerned that your company is overpaying in merchant processing fees or not maximizing the current services you’re already paying for, a consultation with Aprio could help. Schedule a no-obligation assessment with Director Tim Saulnier.
The options now available for manufacturing and distribution companies to preserve capital are plentiful. While the economic impact of this pandemic has been challenging and will likely continue for some time, there are steps companies can take to help safeguard against a continuous decline.
Aprio’s advisors are seasoned experts and can help you realize significant savings with a few small changes. The time to plan for what’s next is now. Let Aprio help.
Disclaimer for services provided relative to SBA programs and the CARES Act
Aprio’s goal is to provide the most up to date information, along with our insights and current understanding of these programs and regulations to help you navigate your business response to COVID-19.
The rules regarding SBA programs are constantly being refined and clarified by the SBA and other agencies In certain instances, the guidance being provided by the agencies and/or the financial institutions is in direct conflict with other competing guidance, regulations and/or existing laws.
Due to the evolving nature of the situation and the lack of final published rules, Aprio cannot guarantee that additional changes or updates won’t be needed or forthcoming and the original advice given by Aprio may be affected by the evolving nature of the situation.
You need to evaluate and draw your own conclusions and determine your Company’s best approach relative to participation within these programs based on your Company’s specific circumstances, cash flow forecast and business strategy.
In situations where resources are provided by third parties, those services should be covered under a separate agreement directly with that service provider. Aprio is not responsible for the actions of any other third party.
Aprio encourages you to contact your legal counsel to address the legal implications of the impact of the CARES Act and specifically your participation in any of the SBA programs.