Speaker 0 00:00:01 <inaudible>
Speaker 1 00:00:08 Hello everyone. And welcome to the podcast. This is the podcast dedicated to advanced manufacturing capital equipment and the robotics and automation industry. We'll be covering trends and topics important to factory automation. My name is Jim Beretta, and I'm your host. I'm also president of customer attraction, industrial marketing based out of Cambridge, Ontario. I'd like to recognize our partner <inaudible> that is the association for advancing automation. It's the umbrella association for the RIA, the AIA, the MCMA and 83 Mexico. These four associations combined represent almost 1300 automation manufacturers, component suppliers, systems integrators, and users, research groups, and consulting firms from throughout the world that are driving automation forward. This episode is brought to you by painted robot painted robot builds and integrate digital solutions. They're a web development firm that offers search engine optimization and digital social marketing, and can set up and connect CRM as well as other ERP tools to unify marketing sales and operations as the web and digital is changing, painted robot is helping advanced manufacturers.
Speaker 1 00:01:16 So stay modern and competitive in the
[email protected]. And we have two guests on our podcast today, Clayton and Rick Kirby is a full service accounting firms, specializing in tax assurance, accounting and consulting services for the growth driven businesses. They're proud of their Michigan roots, but consider the entire world their workplace, their clients, our middle market companies competing in the global marketplace and Clayton Kirby has a special interest within the automation, robotics and machine building industry. And that's one of the reasons that I invited them to be part of the podcast today. I'd like to introduce Tim Finnerty. Tim provides high level tax accounting and consulting services to business owners of domestic and foreign owned subsidiaries. He's particularly tuned to the needs of manufacturing, distribution, and systems integrator businesses. Tim has been an advisor since 2001 and collaborates with clients to help reduce their tax burden, make global expansion seamless and reduce the amount of time spent on their financial analysis and KPIs by utilizing the firm's internal and external network of experts.
Speaker 1 00:02:19 And I'd like to also introduce Brian Perozak. Brian is the manager of the firms systems integration practice focused on research and experimentation tax credits. He's optimistic and solutions oriented. Brian joined Clayton McCorvey after a dozen years working as a mechanical engineer and as a CPA, he has the opportunity to use his background in systems and processes on regular basis to help growth driven system integrators compete in the marketplace. And gentlemen, welcome to the podcast. And I think we met at the <inaudible> conference in Orlando about two years ago. Is that correct? So it's summer 2020, and we're, we're recording this podcast hopefully during the wind down to the COVID-19 pandemic. And let's talk about some of the current challenges in manufacturing and automation.
Speaker 2 00:03:08 Sure. Um, you know, right now I think that the biggest thing is, is, is really trying to understand, you know, what is my business going to look like now? And, you know, a year from now. So most, most companies, you know, have gone through and, and collected on their, their, um, PPP loans, uh, to help support, uh, their current operations. Um, but through that whole time, there's been significant changes that have been happening with that, right? So they first, it was an eight week period. Now it's a 24 week period that you have, and they've they've, the government has put out, you know, some various stimuluses to help, uh, really make, uh, business owners really think about what's what's happening. Um, and so what we're seeing right now is, is really companies looking at their backlogs and really trying to figure out when are they going to be able to do some of this work?
Speaker 2 00:04:10 Uh, you know, as, as here in Michigan, we see the auto companies, um, starting to come back online, supply chain takes some time, you know, certain things might be needed from overseas, you know, so how long does everything take and, and really then trying to manage, uh, their business, um, thinking about it through, through cash, um, you know, what, how much, how much cash do they need? They, you know, you're starting to see a lot more discussions with banks, um, looking at the financial type of situation that we're at, you know, which people are my key people. Uh, a lot of the, a lot of the, um, um, state governments have put in workshare programs, uh, which allow, uh, companies to, um, temporary, we lay off, uh, individuals, but, but they still qualify, um, for the, for the federal unemployment, um, which does run out, which is an extra $600 a week, which does run out in, um, in July, but as being looked at right now to have, is there going to be extension on that or other things, um, and then, you know, how, how much, um, do I need to cut back?
Speaker 2 00:05:30 Or, you know, we, we do have quite a few clients because they've gotten into some of the PPE, uh, type, um, work that they're, they're busier than they ever been. And so trying to find new people, you know, trying to, to identify, uh, different things. Uh, one of the strategies we've talked a little bit about internally with some of our clients, is how could you work, share possibly with other, um, companies that are in
Speaker 3 00:05:58 Your industry that you've known that may or may not compete against you, but you've had a relationship with, and you might be able to offset some of the costs by utilizing them, uh, as a resource. It certainly is a, uh, complicated time. And, uh, like you say, I talked to a lot of automators as well. And, you know, there's, there's a certain fraction that are really, really busy too. Um, Brian, do you have any perspective on that as well? Yeah. You know, it it's, um, it's interesting when you, when you think about just what automation brings to, uh, to, uh, you know, the world as part of kind of a big business continuity plan, right. That a robot can't get COVID-19 right. So, so there's a lot of, we're hearing a lot, you know, from our clients of, you know, renewed interests, new interests, uh, you know, people wanting to get in line, you know, so to speak, to, to start working on an automation project, once this is all you know, all over with.
Speaker 3 00:07:04 And so, so I think there's a lot of challenges for the business owners themselves to really kinda kind of see through that forest. And what are the, what are the realistic opportunities? What are just the reactionary opportunities that, you know, someone's sitting in a meeting saying, how are we going to, how are we going to get, make it through this? Well, let's, you know, let's automate our factory. I mean, it's great to have that idea, but how close are people to actually pulling the trigger and moving forward with that? So it's a, it's a challenging time for the automation companies to, you know, to, to try and figure out where to invest, you know, as Tim kind of mentioned, as people have maybe, you know, scale back on their workforce or reduced hours and things like that, you have a very finite amount of resources to go after those opportunities. So you gotta make sure that you're, you're allocating them and putting them towards the right opportunities, uh, when they come up.
Speaker 3 00:07:53 Uh, thank you for that, Brian. Um, I'd like to talk a little bit about, uh, the, kind of the innovation side of the machine building industry. You're kind of talking about creativity, right. About how do we now, uh, shift or pivot, uh, maybe people are putting in, uh, collaborative technologies to social distance at work, right. So we can put in a collaborative robot really quickly and easily here to do this task. How important is innovation from your perspective to be competitive in the industry? Yeah, I think, I mean, that's a, it's paramount in my mind, you know, to, uh, to be competitive in, in industrial automation, you know, it's, and maybe this is just the engineer part of my brain coming out. But, you know, when you think about, you know, we're three to four months into this, into this pandemic, at least here in the U S you know, how it's, it's impacted us, uh, you know, in, in three to four months and just the way that life has changed, right?
Speaker 3 00:08:46 Like we always had door dash and grub hub, not always, but, you know, it's been around for a number of years, but it's never, we've never needed to rely on it as much as we do now in restaurants, switching from, you know, dining ins to carry out only. And, and it's really impressive when you think about the amount of innovation change that's happened just around this in four months to kind of keep life going at some semblance of normalcy. Uh, and, and really, I feel like the industrial automation community is really poised to kind of help drive that. And if you're not thinking, you know, how does, how can my product be used differently, or are there other businesses industries that are kind of similar to mine, uh, that I could potentially branch out into, uh, coming out of this pandemic, you know, you're, you're going to be left behind because there's, there's going to be a lot of opportunities coming out of this.
Speaker 3 00:09:40 You know, we already hear about the kind of the pent up demand for automation equipment. That's there people realizing that this is going to be a key part of if they want to reassure business from, you know, from China, for example, the only way you're going to compete in North America, at least in the U S in Canada will probably be through automation. You know, we don't have the labor advantage that you might have in Mexico. So, um, if you're not really, you know, thinking along those lines of how you can, how you can innovate and change and do things better, you're going to get passed by, by a lot of your competition. Hey, Jim, I wanted to add something there. I mean, when we talk about innovation, I think there's a couple of different things that, that companies have to be thinking about as well.
Speaker 3 00:10:22 So like end-users of automation, um, is, is kind of key and paramount in this whole thing as well, because as Brian was saying, like grub hub or other things, there are collaborative robots out there and been out there, uh, to move product from one point in the, in the plant to another point in the plant. And now with the, you know, kind of the physical distancing, their social distancing, uh, rules, you can use those collaborative robots to help in these processes. So being able to think within your own company, what types of changes can I make and utilize automation that could be a longterm benefit is a huge opportunity as well.
Speaker 3 00:11:09 Thanks for that. Um, what are some of the challenges balancing kind of risk and innovation from a financial perspective? Yeah, I mean, that, one's a, that, one's a really good question. Um, and especially right now, too, um, because there's, there's a few different, um, tax, um, options out there that have been brought to the, to people's attention. And, and two of those would be is, um, the, the first one is your research and development credits that are out there. And the second one that got put into place during this pandemic is you can, if you create any losses in 2020, or before, you can carry back five years,
Speaker 2 00:11:54 Which, which allows you to offset those, those losses against a higher tax dollar rates. So it gives you an opportunity if you are cash cashflow positive, or you can potentially get, uh, some financing from the bank to look at building some, some new type of equipment, trying out new ideas, because you could, you could get the full deduction in the current year, as well as being able to take it back and get money back. So it could offset some of your, some of your costs to try some of this innovation. Um, but, but you definitely, um, need to be very cognizant of, of what you're doing. Um, because you know, it can also always spin out of control as, as we've talked with a lot of our companies, you know, the, the engineers always want to make it perfect. And if you keep working and working and working and never get to the final, um, the final assembly, you're just, you're, you're just spending money out of, you know, out of, you know, just, just keep putting, putting money towards something that's not, that's not finalized.
Speaker 1 00:13:08 It's a very lumpy business, right? The automation, uh, industry and robot integration, it, uh, you're, they're poor users of floor space. And, uh, and you really, sometimes you don't know what industry you're, you're, you're going into. So it is, it is, uh, uh, a very exciting business of course, but let's talk about profits and profitability in the machine building. And, um, and the fact that it is a very competitive business, despite some of the big numbers. Yeah.
Speaker 2 00:13:34 Yeah. And, and, and, and there's no doubt we've been hearing. Um, you know, there, there's definitely competitiveness both from, from Canada and Mexico. So when, when you're looking at, um, who you're selling to and how you're producing it, you, you really have to take all that into account, but, but as we mentioned, and I think Brian can get into a little more detailed. The research and development credit is a, is a, a really nice opportunity, um, for companies to, you know, automation or machine builders that are doing that. Um, and as I mentioned, just briefly before the, uh, the, the ability, um, to sell that equipment to the end user, which then would be a capital item, could be an opportunity for, um, companies in the current year because of the way that the new stimulus package worked, that they can buy fully utilize the equipment and appreciate that equipment a hundred percent in the current year, which then could, could help them reduce their tax liabilities, or even reduce it enough that they could carry back. As we mentioned a little bit about these NOL. So there's, there's some strategy, um, that needs to be happening within this industry. Um, I know,
Speaker 3 00:14:52 You know, a much smaller one a few years ago, uh, when we had well, and I think most people know about section one 79, but there was where you could, you could buy a, a piece of used equipment or a vehicle and depreciate it all. And you used to get towards the end of the year, you used to get car dealerships, announcing this and putting out different ways of trying to get people to come by, because they could take a deduction on their tax return, uh, before the end of the year. And so I think if the industry understands some of the, some of the tax incentives that are out there for buyers of their equipment, there could be a better, um, a better way to get this Academy up and running again, and getting more automation equipment out to, uh, out to people right away.
Speaker 3 00:15:46 No, that's a very interesting point because some of these automation integrators, and especially I'm thinking kind of the SMEs, which I think you guys do a lot of work in, um, their whole business can depend on tax credits, right? Correct. Correct. I mean, we have, we have clients, you know, you know, that are able to, which is, which is, which is amazing, you know, where though, you know, let's just say they have a good year and they make about a million dollars, and if they get enough tax credits, they can offset their tax, uh, for, for a federal tax liability of, of basically somewhere around 75,000 instead of about 300,000.
Speaker 3 00:16:28 And so that's, so that's a really good point about kind of about the business of automation, right? When it comes to that tax planning and the cashflow financing, and I'm using a government programs to help propel this business and what, what are some of the things that they have to do like do, is it, um, pictures and video and, and what are some of the nitpicky things that these companies need to be thinking about? And, you know, I think the, probably the biggest thing is some of the stuff that Tim's already alluded to is really, they really need to start thinking about this a bit more holistically than just, you know, um, you know, filing your tax return at the end of the year. Right. It's, it's great to get money back because the army tax credit, um, but what are you going to do with that money?
Speaker 3 00:17:11 And what are some of the things that you might be able to invest in or grow in? So, so Tim and I spent a lot of time talking to our clients about just that, you know, and it's interesting because I see a lot of parallels between, you know, kind of the industrial automation system integration space and what we do in public accounting and that, you know, for the longest time it was everybody thought about their accountants very much, you know, like the compliance people, right. We would do your financial statements, we do your tax returns. Uh, and, and, you know, you'd kind of have a few touch points throughout the year to make sure everything was on track, but realistically, if you want to take full advantage of all these programs, you need to be thinking about them as part of your strategic plan, right.
Speaker 3 00:17:50 That I'm going to, uh, if I go after this type of program, or if I bid this program in a certain way, it could be eligible for the R and D tax credit, which then is going to reduce my tax bill and free up more cash to reinvest in the business. So I think the first part is, is thinking about it kind of in that frame, as opposed to just a annual compliance thing. And then depending on, um, you know, which program you might be talking about, there are, you know, some, some specific, you know, documentation requirements, uh, you know, I think two of probably the biggest ones that we come across within, within our client base would be the, the R and D credit, um, as well as a program referred to as IC disk. But it's essentially an export program that allows you to get some fresh, uh, preferential tax rate on, um, on your export sales.
Speaker 3 00:18:39 And each of those have some different documentation requirements that, that you'd want to, um, you know, look at and make sure aware of, especially it's, it's ideal, if you can start thinking about this at the beginning of the year. So now you're getting everything together, uh, as opposed to waiting till the end of the year, when you're going to now scramble and try and pull your, uh, your supporting documents for your RNA credits and time entry records and stuff like that, to try and go ahead and figure out what the, what the credit might be.
Speaker 1 00:19:06 It's funny, because this is a lot of what machine builders and automators tell their clients, right. It would be so much better if you started earlier, uh, working with us on what your machine has to do instead of giving this, you know, this RFQ or all just at once. So it's kind of an interesting, um, uh, uh, an interesting idea that they should use the same kind of language that you're using
Speaker 3 00:19:29 Jim, before you move on. I mean, if one of the things that Brian said that I think is really important, and it's something that we try to talk about as well, but you mentioned it briefly, you know, taking this holistic approach and really making sure that you're involving, you know, everybody up and down your supply chain, right? If you guys, if people have better conversations with their, you know, with their key customers or their, you know, or their customer context that they know, and really understand how each thing can impact, you know, it can, it can set forth a way for us to continue to drive automation throughout this, throughout this process and, and, and continue to innovate more.
Speaker 1 00:20:14 That's a good point. Um, in, uh, in setup for this call, we talked briefly about how companies can do things like having their customers it's, it's called drop shipping, right? When maybe, uh, GM or Ford, they have a really big discount arrangement with, uh, a big robot supplier. And so how does that kind of work on cashflow
Speaker 3 00:20:35 Or your typical robot integrator? Yes. So a lot of, a lot of the, the issue with integrators is you got these projects that can be a million to $5 million. And depending on, on who, who the end user is, it it's the timing of when you're going to get paid first for some of this work. And so if, yeah, if, if, um, you're, you're selling a GM GM might have a better buying power, uh, on the, on the robot from buying it from, you know, one of the robot suppliers than what you do, and therefore you wouldn't have to be out that cash, however, when you're looking at it and, and you're trying to work up and down that supply chain, if, if you can work through potentially you buying that robot, but being able to still finance it the same way you get paid through, uh, through, through a OEM, uh, or, or tier one or, or someone else, then that all becomes part of the project and can, can help improve your ultimate R and D credit for the long term. And therefore if, if, if that then helps with some, some tax savings, it could, it could be potentially a given a portion of that could be given back to the customer or, you know, what you pay for that robot in the financing charges or other things is as well.
Speaker 1 00:22:06 Thank you, Brian. Uh, we talk a little bit about how your company works with robot integrators. Like, uh, it's really kind of interesting that you've kind of focused in within this practice, because it's a very complex business. There's a lot of players there. The cash is King, as you kind of mentioned. Um, how does that kind of work because you, you come in with a lot of outside knowledge.
Speaker 3 00:22:29 Yeah. You know, and that's, uh, when, when Tim, uh, really started in investigating this, uh, you know, this market niche, uh, gosh, now it's been, what was it, five, six years ago? Uh, you know, it really, it jumped out to him, you know, some of these unique characteristics about companies that operate in this space that, uh, you know, led to some really beneficial tax positions, you know, the R and D credit being one of them, uh, but also an area where we could, we could couple our knowledge of, you know, tax planning and, you know, strategic advising, you know, from the, from the business side to help them achieve some of their goals. And at the same time, you know, there were some pretty beneficial programs out there, uh, that we could help them implement, or if they were already utilizing, like, we have a, we have a number of clients who, uh, who new clients that we take on who were previously claiming the R and D credit, but maybe not fully claiming it to its fullest extent or even utilizing those credits to their fullest extent within the business. And so we're able to kind of sit down with them based on our understanding of how, uh, you know, how other companies in the space operate and what some of the things they might want to do and accomplish and help them really fine tune their, their strategy
Speaker 2 00:23:46 For using that within their business. Uh, Jim also, um, you know, one of the other things as we've gotten into this industry and, and really started to, to understand it is a lot of the accounting is a little bit different than, than a pure manufacturer. You're doing a lot more job costing and percentage of completion. And, you know, you're, it's, it's, it can be similar to professional services based off of utilization of, of people. So when we started to get into it and looking at different KPIs as well, and trying to use some data analytics and some of this stuff to help provide some additional value that all of a sudden when, uh, when an owner, you know, gets a dashboard, they can look at it and go, Oh yeah, this, this is exactly what I was looking for. You know, I got this amount of days of cash on hand, I got this amount of utilization is, is trending, you know, based off of what I, what I've been doing, my revenue per employee is at ax. You know, if I pull out my, my cost of my cost of goods sold, I can then effectively see what my true revenue per employee is. You know? So some of those types of things that you wouldn't think about having to change a little bit, you kind of would that industry knowledge, it really helps, um, you know, get the business owners thinking differently.
Speaker 1 00:25:11 And one thing that, uh, uh, you know, we see a lot of times in the industry is companies taking on a lot of risk because some of these things may never have done. They may never have done them before. Maybe it's a unique vision application, or maybe it's a material handling. How do you advise your clients when you talk about a risk?
Speaker 2 00:25:31 Yeah, I think, um, you know, risk risk is, is a difficult, uh, thing to talk about because each person has a different, uh, tolerance on it. So, you know, as you start to get to understand your, your clients and, and seeing which way they lean, um, you know, I think that gives us the ability to, to then advise based off of, you know, how much risk are they going to take with it? You know, is it, how, how new is this project? How, how much, um, you know, capital is this gonna hurt? Um, or is it that we got enough other good things going on that this, this new project and this new idea may hit a home run? And if it doesn't, we can spend a certain amount of time on it because it's not going to hurt the overall business. And it really could get us to where we want to be, you know, two years, five years from now, you know, on what we're looking at doing.
Speaker 2 00:26:28 And I think as, as, as every engineer, uh, probably Brian can talk about that a little bit more since he's an engineer, but you know, most engineers say, you know, no matter how, you know, if you give me enough money, I can find I can that solution to it. But, um, you know, so it's just managing, how long do we want to do it, but, but it is then, you know, what what's great about this industry that I've seen is, you know, the couple, especially like the <inaudible> association and, and, and what they do with, um, their, um, conferences is it's, it's a community that you get to know a lot of different people. So if you do get an opportunity because a customer took you in one direction and it's, it's something new, you can reach out to some of the people that maybe have done more of that. And, and there's a lot of still collaboration, which I think is great, because I think, you know, people in this industry kind of look out for each other and, and, and hope, um, that, uh, because you never know what's going to happen. There's, we've had so much consolidation in the, in the area you might become part of, you know, one of those companies later on again.
Speaker 1 00:27:36 Yeah. It makes sense to stay connected for sure. And that's one of the reasons I'm a big believer in <inaudible> and RIA and, and all the other associations. Um, did we forget anything in our conversation? Is there anything we want to cover? No, I think we've covered, uh,
Speaker 2 00:27:52 Most of the stuff that we had here on our original agenda, so yeah, I think we're pretty good.
Speaker 1 00:27:57 Um, so, Hey, thanks, Tim. And thanks, Brian, for taking time out of your day to talk with me, um, can you let the audience know how they might get ahold of you? Yeah, we can be
[email protected]
Speaker 2 00:28:10 And that's spelled C L a Y T O N M C K E R V E y.com.
Speaker 1 00:28:19 Well, I want to thank everyone for tuning into the podcast today, and we drop all of our podcasts on Wednesday. So please join us next week.
