Six months ago, I was having a conversation with the CEO of a prominent manufacturing organization. Multi-national, publicly traded, Fortune 100—a truly prominent organization. I asked them the very same question I had asked the CEO of a six-person operation the week prior: “What percentage of your capital expenditure budget is filled by C&I?”
Their answers were the same. They didn’t know.
The only difference between the two answers was that the CEO of the Fortune 100 organization assumed that their CFO would know, while the smaller operation knew they had applied to some statute a couple years ago. Fast forward a week later and the CFO had no idea the size of their C&I portfolio much less the percentage of capital expenditure cost. Alternatively, the small business operation tracked down a written correspondence dated months prior notifying them that they had missed a compliance deadline and therefore their $144,000 credit had been nullified—so they did end up knowing both the value of their portfolio as well as the percentage of their capital stack attributable to C&I: zero.
Today, not only can the CEO and CFO of the aforementioned large cap tell you the value of their portfolio, they can tell you that they are currently sourcing 17% of their CapEx through C&I with a goal to reach 25% by 2023. It turned out that they had accrued a portfolio of $2.2B without anyone really noticing. Meanwhile the company of six was waiting for a PPP loan to understand whether or not they would continue on in business.
Weaponizing Every Department in the War on Covid
As the medical catastrophes of Covid manifest into greater and greater economic problems, most CEOs have been forced to look at emergency measures to keep their businesses afloat. Largely, that has meant significant furloughs, layoffs and pay cuts mixed with dramatically reduced capital expenditure plans. Other companies have successfully secured additional capital in the form of loans. And while there are a few industries out there experiencing tremendous growth despite the down economy, the majority are conceptually in “contract and survive” mode.
Respectfully, I would challenge that strategy. While contraction and layoffs may be inescapable, certainly there are avenues to capital and ultimately revenue, which are underutilized. Moreover, there are existing departments in your company which are lying dormant, waiting to be activated as revenue generators rather than cost centers.
I believe there is no greater example of such a department than the Tax Department.
Leave No Stone Unturned
C&I started to emerge in prevalence during the ’70s and ’80s as the growing reality of globalization began to raise new questions for local, state and federal governments vying for the activity created by good business. Today, more than $1.4 trillion in statutory and negotiated C&I is awaiting monetization in the U.S. alone. For comparison’s sake, the total value of all PPP loans is sitting at about $600B—a little more than a third the size of the U.S. C&I market.
Every industry has significant C&I available in multiple U.S. states and globally, like in the EU. Manufacturing, tourism, film, technology, energy—C&I is a tangible part of all 50 states’ economic development plans. Researching C&I can be a bit arduous, but generally, you can find partial lists of state C&I packages by searching state economic sites – take Arkansas, for example.
From a strategic level, the first goal of any organization looking to grow their C&I portfolio is to get a handle on what they actually have. You may think the answer is negligible but I would strongly encourage you to go through the process – likely, the final number will surprise you.
The second goal is to integrate C&I into strategic and financial planning. This is where the rubber meets the road as the discussion of a new factory should include a discussion into available C&I. Whether you do your own research, use technology or rely on an advisor is up to you — but paying heed to C&I at the planning level is a critical paradigm shift for any corporation looking to integrate this useful asset.
Not only have thousands of organizations ranging from two employees to 2 million employees used C&I to reach their goals, entire industries have been built off of C&I.
Any organization with capital expenditure projects should be incorporating C&I into their CapEx stack. Manufacturers, production companies, transportation companies, retailers, real estate— those are the obvious ones. Then, of course, there is the now-permanent Federal R&D Tax Credit which can play a huge role in bridging the gap between research and commercial viability for many different industries, most notably biotech, technology, medical and energy.
Don’t Be Blind
Only 4% of companies know the real value of their C&I, which is another way of saying that 96% of companies are blind as to the value of an asset which is regularly in the eight figures, even for SMBs. Credits & Incentives are unlike other assets in that they are both complicated to monetize and intrinsically tethered to pro-societal goals like job creation, environmental remediation and economic justice. That’s why I call it the “lynchpin asset” and why I believe C&I will play a critical role in the revitalization and restoration of the U.S. Economy at large. From a cold hard business perspective, the rationale behind C&I is even simpler:
If you don’t have a real C&I strategy at your organization, then you are leaving millions, if not billions, on the table.