THE BP PULSEDistribution and Manufacturing Survey 2020

In collaboration with these valued partners:

CONTENTSEXECUTIVE SUMMARY ..................2SUPPLY CHAIN LANDSCAPE .......3CHALLENGES AND OPPORTUNITIES ..............................4CAPITAL BUDGETS AND FINANCING .........................................5REGIONAL COST OF LIVING / TRANSPORTATION ...........................6WORKFORCE ....................................8TECHNOLOGY .................................. 10TARIFFS AND TAXES .......................11

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Welcome to 2020 and the fourth annual edition of the BPPulse. I invite you to dive into this year’s report, which

aims to focus our vision – hopefully to 20/20!

This initiative continues to be a successful collaborative effort between the professionals of Berntson Porter’s Distribution and Manufacturing practice group, carefully selected experts, and feedback from closely held, mid-market businesses within the Puget Sound Region. As a result of this incredible partnership, we’re heading into a new decade with an exclusive in-depth look and fresh insights on local manufacturing and distribution companies, which are so important to the local economy.

Throughout this process, we received feedback from almost 100 manufacturers and distributors - those who we work with every day! Over 90% of the responses are from manufacturers (70%) and distributors (22%), with approximately 60% of the responses coming from the top of the company – owners, pres-idents and C-suite executives. The remaining respondents are either transportation providers or service providers/consultants working directly within the industry.

These companies operate in a diverse range of industries, with industrial (non-consumer) products topping the list, followed closely by aerospace, building products and food and bev- erage. This mirrors the industries within Washington State, which means that we’ve reached the right cross section of participants. Additionally, the majority of respondents have employee headcount between 26 and 100 employees and reve-nues ranging from $5-$50 million, with outliers on both sides of the spectrum. Overall, the sample is representative of the clients that Berntson Porter professionals work with on a daily basis.

The diversity of industries, as well as roles, within the par-ticipating companies means that we’re reaching a wide range of people who can provide meaningful insight into the chal-

EXECUTIVE SUMMARY

BP Specialist: Nicole Wright, CPA, Principal, Assurance Services

Nicole can be reached at 425.289.7626 or nwright@bpcpa.com.

PARTICIPANT’S PROFILE

of respondents indicate they are Owner,

President or CEO

44%OVER

of respondents are distributors and manufacturers

90%OVER

report annual revenues of $5 Million +

per year

70%NEAR

CAMPS INVOLVEMENTBerntson Porter continues our partnership with CAMPS (the Center for Advanced Manufacturing Puget Sound) to reach a broader audience of manu-facturers and distributors in the area. CAMPS is the premier non-profit membership organization in the Puget Sound region that represents small and me-dium sized manufacturing businesses, supply chain partners, business advisors and strategic partners, all working together to drive innovation and find 21st century workforce solutions. Nicole Wright is an ac-tive member of the CAMPS Board of Directors and was recently recognized as Co-Volunteer of the Year for 2019 for her efforts related to the BP Pulse.

Aerospace

Industrial Products

Building Products

Food / Beverage

Printing / Packaging

Medical Devices

INDUSTRIES REPRESENTED

lenges and opportunities, as well as the risks and rewards, that businesses are currently facing.

In this year’s BP Pulse, we tackle some of the current hot topics, in-cluding tax reform and tariffs. The responses from participants, as well as our experts, are very interesting! Now that we’re in the fourth year of the BP Pulse, we also explore trends in areas that have been covered in previous years – workforce, revenue growth and capital budgets. Addi-tionally, we dive into topics whose answers change annually, including current challenges and opportunities and technology. From the responses, I can see that people are excited about the year to come – most companies are forecasting growth, although the lack of skilled workers and concerns about labor costs continue to be pain points for respondents.

Berntson Porter is here to create value for you. Any of the professionals on our team welcome the opportunity to get to know you and your business better, and to discuss how Berntson Porter can be of service helping your company reach its goals.

Thank you all for your contributions and interest in this initiative. Onward to 2020!

Nicole Wright, CPA Principal, Assurance Services Distribution and Manufacturing Practice Group Leader

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SUPPLY CHAIN LANDSCAPEFINDINGSA large majority (84%) of businesses participating in this survey have their supply chain predominantly located in the greater Puget Sound region - locally (45%) and regionally (39%). Only 22% of their peers take advantage of vast and cost-efficient international markets to be their main supply chain source. A mere quarter (28%) of companies foresee or plan changes in their supply chain in the next year, while about half (51%) anticipate no changes. Productivity improvement and expansion/growth into new markets are the two biggest (32%) targets for companies in their operational and supply chain investment planning. Nearly three-quarters (72%) of businesses expect an increase in their costs of goods sold, while 14% expect them to decline. Twice the number of businesses plan to use customized fulfillment models to accommodate a variety of customer orders and preferences – compared to businesses who plan their fulfillment models for standard products only.

BP INSIGHTThe survey provided insight for companies to explore their sup-

ply chain alternatives nationally and internationally, who are not doing it as much or as of yet – to reduce costs, improve quality,

or both. This may make them more competitive, increase their sales and improve their profitability.

We have also seen that about three-quarters (72%) of businesses are content or unsure about their supply chain next year. In this world of constant change,

these businesses can take the opportunity to align their supply chain practice with their peers (28%) who are on the lookout for new supply chain enhancements.

The above data for companies’ supply chain practices surprisingly mirror their performance for cost control. Seventy-two percent (72%) of businesses anticipate an increase in their manufacturing costs next year – the same number of businesses who are content or unsure about their supply chain. However, 28% of businesses believe their costs will remain the same or decline – the same number of businesses who anticipate changing their supply chain next year. Constantly looking for better supply chain opportunities might be the secret formula for these 28% of businesses who foresee keeping their manufacturing costs in control. Look to your trusted Berntson Porter international business consultants for help exploring new and improved global supply chain initiatives.

WHAT DO THE EXPERTS SAY?“Our digital economy has enhanced companies' ability to expand into new markets and regions and many are taking advantage of this,” says Dan Kocer, P.E. from Kocer Consulting + Engineering. “Operational productivity tops the investment list given the labor shortage we are experiencing. Companies are investing in technology, robotics and automation to allow employees to become technicians instead of laborers – to boost their productivity, improve safety and make their job more interesting. This allows companies to increase their output with their current staff and they can afford to pay them higher wages and retain top talent.”

ARE YOU ANTICIPATING CHANGES TO YOUR SUPPLY CHAIN IN THE NEXT YEAR?

28%Yes

No

Unsure

51%21%

40%39%

42%42%

22%22%

45%45%SUPPLY CHAIN

WHERE IS YOUR SUPPLY CHAIN PREDOMINANTLY LOCATED?

45%39%42%22%

Local

Regional

National

International

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CHALLENGES AND OPPORTUNITIES

BP Specialist: Briana Wickens, CPA, Assurance Services Senior

Briana can be reached at 425.289.7660 or bwickens@bpcpa.com.

FINDINGSSurvey respondents indicated that lack of skilled workers (49%) is one of the biggest challenges facing their organization. This was closely followed by labor costs (40%), including increased minimum wages, and sales/growing market share (40%). Several respondents indicated that their organization's biggest opportunities relate to automa-tion, implementing new technologies, and expanding into new markets/customers. In addition, respondents indicated that the development of the labor force, taxes and/or tariffs will have the biggest impact on the industry over the next five years.

BP INSIGHT FROM BRIANAThe challenges and opportunities

indicated in this year’s survey have been

and distributors as labor costs increase and the avail-ability of skilled workers declines. As more of the baby boomer generation retires and there are fewer workers attending trade schools over four year universities, there has continued to be a decline in laborers with the necessary skills to support the manufacturing industry. Manufacturers and distributors have turned to apprenticeship programs to train workers, however, it does not seem to be enough to support the industry. Companies have also begun to look towards technology to help automate processes and reduce labor costs. Some respondents indicated they are looking to purchase more computer driven equipment over manual machines to support their business and reduce overall costs.

Survey respondents also indicated that sales/growing market share is one of their biggest challenges as well as opportunities. Many respondents indicated they were looking to grow into new markets, however, with the level competition in the Pacific Northwest, this can be challenging. As this area continues to grow and more companies expand their operations here, the result is more competition for local businesses, not only for customers, but for labor as well. This could result in higher labor costs as well as less revenue.

WHAT DO THE EXPERTS SAY?“The investments we are making in advanced manufacturing technology are attracting good people to our businesses. The investments we are making in finding, hiring, and developing people will ensure our future success. Good people get the job done. Because of workforce shortages, companies that invest more in people will have a clear advantage over those who don’t,” says Kirk Davis, MBA, Executive Director of the Center for Advanced Manufacturing Puget Sound (CAMPS).

TOP CHALLENGES YOUR ORGANIZATION IS FACING

Lack of skilled workers

Sales / Growing market share

Labor costs (including minimum wage changes)

Gov’t. and/or Env. regulation

consistent with prior years. Workforce Healthcare costschallenges have continued to impact manufacturers

Materials cost

49%

40%40%

26%25%19%

OPPORTUNITIES

Automation

Growing market share / Growth opportunities

New product development

International expansion

Diversification of customer base

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CAPITAL BUDGETS AND FINANCING

BP Specialist: Austin Mohler, CPA, Senior Tax Staff

Austin can be reached at 425.709.3444 or amohler@bpcpa.com.

FINDINGSRespondents generally expect increased revenue this year, with 72% citing at least a slight increase. However, this is down from 83% in last year’s survey. Only 12% anticipate decreased revenue (either slight or significant). Over 50% of survey responses said their capital budget will increase while 31% expect theirs to stay the same. When asked about concerns of an upcoming recession, over 80% of respondents were at least somewhat concerned (3 or higher on a 5-point scale), while 18% indicated little to no concern.

BP INSIGHT FROM AUSTIN With 72% of respondents optimistic about increased revenue this year, it’s safe to say

participants generally believe the economy will be steady throughout 2020. Additionally, with 50% of respondents’ capital budgets increasing, it is clear

that many distributors and manufacturers are planning for growth. The looming concern is, as we can expect, an unpredictable political environment due to the upcoming 2020 election, along with talks of a potential recession. Based on the open-ended question regarding steps companies are taking to prepare for a possible down-turn in the economy, most respondents are attempting to increase efficiencies to prevent over-hiring, increasing liquidity and monitoring key performance indicators closely. Although preparation for a recession may seem like a hot topic, many in the industry still have high expectations for 2020.

WHAT DO THE EXPERTS SAY? “The availability of senior bank debt as well as other forms of non-bank capital (Private Equity, etc.) remains strong,” says Hieu Tran, SVP Commercial Banking for Columbia Bank. “Manufacturers whose capital budgets call for some form of financing can choose from many providers. So, if you’re a business owner or CFO of a manufacturing enterprise and you’re charged with finding financing, you have many choices in today’s market.

In the present environment, interest rates are at historically low levels, and while the yield curve remains flat, a recession is not pre-dicted by the market nor by most economists. The vast majority (84%) of the survey respondents appear to have similar readings as 53% see business revenue improving from FY 2019 and 41% see revenue being similar to FY 2019. Economic conditions are positive and have continued to improve since the summer with the signing of the Phase I trade deal with China and the flattening of an inverted yield curve (spurred by three Federal Reserve rate cuts). In spite of these positive economic metrics the majority of survey respondents remain cautious. This cautionary outlook is prompted by 2020 being an election year and the robust expansion cycle which is into its eleventh year. Business leaders surveyed have varying responses and strategies to mitigate potential softness based on their business.

The above macro-economic forces impact how decisions are made when it comes to financing. Although getting a low interest rate is one factor when considering business expansion, debt that is appropriately structured which enhances cashflow and/or working capital, along with tools to protect against interest rate risks, such as interest rate swaps or forward rate locks, are also important elements to consider. These tools minimize long term risk while fulfilling the customers’ desire for expansion. Every business has its own unique market niche, sales cycle and risk tolerance. Consequently financial solutions are not “one size fits all.” Collaboration with your banker as a trusted advisor will likely bring the conversation to that win-win scenario. It may well provide you a financial tool which you’ve not used previously.”

53%53%

16%16%

31%31%SAME

CAPITAL BUDGET

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REGIONAL COST OF LIVING / TRANSPORTATION

BP Specialist: Natalya Haan, CPA, Assurance Services Advanced Staff

Natalya can be reached at 425.289.7691 or nhaan@bpcpa.com.

FINDINGS In recent years, the cost of doing business in the Seattle metropolitan area has in-creased greatly, driving the cost of living with it. The majority of business owners are concerned with the cost of living in Seattle and many have considered relocating their businesses as a result. The caliber of employee that companies are able to hire has decreased as there are fewer employees who are qualified to do the work necessary and can afford the cost of living in the Seattle area. Businesses have begun offering employees the flexibility of working remotely, which may allow an employee to live farther from the office, making the cost of living more manageable. Allowing remote work may also aid in the recruiting of more qualified employees. In addition to the increased cost of labor, the cost of facilities is contributing to the overwhelming surge in expenses local companies are facing. Transportation and the congestion throughout Seattle are causing accessibility issues and making it difficult to transport product. As stated above, companies are beginning to feel the effects of the rising costs, as many are thinking of relocating to less expensive areas, including Pierce County and Eastern Washington. For those considering relocating, issues of shipping and logistics, as well as availability of a suitable space, are causing some hesitation.

BP INSIGHT FROM NATALYA The cost of living in the Seattle area is an invasive issue through-

out every industry in this region, and effects numerous companies and individuals. Through the expansion of large businesses head-

quartered in this region, there has been an increased demand for housing and other amenities, increasing the cost of living. Many individuals cannot afford to live near their jobs, and are faced with the choice of finding a new job or commuting multiple hours a day.

Another factor in the growth of large businesses in the Seattle area is com-pensation related. Many employees are leaving their previous jobs to work for large businesses, since these companies are able to provide them with pay and benefits that smaller companies cannot. This causes a deficiency in the skilled work force for the smaller companies. Additionally, as more people are moving into the region to pursue opportunities with large

corporations, traffic and congestion within and around the city have increased drastically. Overall, the increase in the number of large businesses in the Seattle area has increased the cost of living, depleted the skilled work force and caused an increase of traffic throughout the area. These effects are expected to remain for the foreseeable future, transforming both businesses and residents in the Seattle area.

DO YOU OFFER WORK FROM HOME / REMOTE WORK OPTIONS FOR EMPLOYEES?

57%Yes

No

Unsure

39%4%

WHAT OTHER LOCATIONS ARE YOU CONSIDERING?

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HAVE YOU CONSIDERED MOVING YOUR BUSINESS OPERATIONS (WAREHOUSE, OFFICE, ETC.) OUTSIDE OF THE SEATTLE AREA?

46%Yes

No

N/A

Unsure

31%15%8%

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REGIONAL COST OF LIVING / TRANSPORTATION

CONTINUED

WHAT DO THE EXPERTS SAY?According to Robert Rainey, Senior Vice President of The VisionLink Advisory Group, “One of the biggest issues on a CEO’s 'worry list' is compensation and how it might affect the following: (1) ability to attract and retain key talent; (2) improve employee ownership of results; (3) commit to value creation and business growth; (4) improve productivity; (5) sustain a culture of success committed to customers.As you might imagine, this is confirmed by many of the responses in the 2020 BPPulse survey.

When asked to select the two top challenges facing the organization, labor costs (40.35%), health care (24.56%) and a lack of skilled workers (49.2%) received a large percentage of the overall responses. In addition, when asked how concerned respondents were about the cost of living in the greater Seattle area, 69.23% were concerned or very concerned and 46.15% said they were considering moving busi-ness operations outside of the Seattle area.

With that in mind, how does how does a city or region’s cost of living affect com-pensation levels versus other cities or regions? According to the Economic Research Institute someone making $100,000 in Seattle could see an average reduction in salary of between 10% and 20% depending on the area (e.g., Austin, Boise, Raleigh and Salt Lake City). Many people have determined that even with a reduction in pay they still 'come out ahead' because of the lower overall cost of living (particularly as it relates to housing). With a tight labor market like Seattle, the cost of living and wage gap between cities/regions could very well increase even more. Time will tell.

Having said that, clearly compensation is not the only reason someone remains with a company. Other factors include: (1) positive work environment; (2) work/life balance; (3) opportunities for personal and professional growth; (4) a compelling future; (5) friends and family; (6) city lifestyle; (7) outdoor activities; etc.

To help enhance employee engagement, the company’s Total Compensation Structure must demonstrate how the financial inter-ests of the company and employees are aligned, a pay-for-performance mentality that addresses the employees five core objectives (income needs, performance upside, wealth opportunities, family protection and retirement), it must be communicated on a regular basis and, it must be sustainable to maintain and improve pay-decision making and operation."

OVERALL, HOW CONCERNED ARE YOU ABOUT THE COST OF LIVING IN THE SEATTLE AREA?

10%4%

17%36%33%

Not at all concerned

Very concerned

1

2

3

4

5

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WORKFORCE BP Specialist: Thanh Vu, CPA, Tax Senior

Thanh can be reached at 425.289.7668 or tvu@bpcpa.com.

FINDINGSAccording to our survey results, most companies in the distribution and manufacturing industry are expecting to increase their workforce in 2020. Among those who responded, almost 50% indicated that their companies will have a slight increase in workforce, while another 16% believe the increase will be greater than 10% compared to 2019.

The participants were also asked about their concern regarding employee turnover at their organizations. While most reported little to no concern, nearly 29% of the respondents indicated that employee turnover is either somewhat or very concerning to them. Over 85% of respondents provide annual raise and/or bonuses to retain top workforce talent. Following that are healthcare benefits (71%), flexible scheduling/remote work options (52%) and catered food options (21%).

When specifying their method of increasing employee engagement and the perceived value of their company’s benefit plans, respondents most commonly cited the use of open enrollment meetings, live and / or recorded benefit webinars, benefit information posted to the company intranet, lunch and learn benefit presentations, and periodic benefit communications (e.g. wellness posters, videos, etc.).

BP INSIGHT FROM THANHWith the lowest unemployment rate in nearly 50 years, it is becoming increasingly

hard to fill vacant slots as many high school graduates choose to go to college instead of trade school. Although the importance of trade and vocational schools is sometimes presented to high school students, there is still a large shortage of technical and vocational workers in the workforce. Because of this shortage, companies are using the recent advances of technology to increase productivity and efficiency.

The addition of the Washington State Paid Family and Medical Leave could allow for greater flexibility for employees and their families to achieve work/life balance, leading to better workforce retention. The program is still new, with demand for benefits much higher than originally projected - demonstrating the importance employees place on flexibility and family time.

Employers who are able to offer at or above market rate pay and benefits, as well as flexible scheduling and/or remote work options, should be able to better attract and retain employees. When possible, companies should get creative in offering these types of perks to employees. It’s important to note that not all benefits have to be expensive – items such as team volunteer opportunities, gym access and transportation assistance are all important to employees and can help differentiate a company in this competitive marketplace.

WHAT STEPS ARE YOU CURRENTLY TAKING TO RETAIN YOUR TOP WORKFORCE TALENT?

Providing annual raises and / or bonuses

Healthcare benefits

Flexible scheduling / Remote work options

Catering / Snacks

Ownership options

Philanthropy / Volunteer opportunities

Recreation (game rooms, gym, etc.)

86%

52%71%

21%

9%7%

12%

CONTINUED ON NEXT PAGE

66%66%

5%5%

29%29%SAME

WORKFORCE GROWTH

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WHICH OF THE FOLLOWING HAS YOUR ORGANIZATION UTILIZED TO INCREASE EMPLOYEE ENGAGEMENT AND THE PERCEIVED VALUE OF YOUR COMPA-NY’S BENEFIT PLANS?

Open enrollment meetings

Carrier and / or vendor mobile apps

Periodic benefit communications

Lunch and learn benefit presentations

Healthcare access technology

Benefit webinars

Company intranet

Rewards for online health assessments

Text alerts

Benefit fairs

63%

36%36%

34%

27%25%14%

9%5%

32%

CONTINUED

WORKFORCE

WHAT DO THE EXPERTS SAY?"Manufacturing in the US is expected to increase at a rate faster than the general economy,” states Lorrie Baldevia, COO of AssuredPartners MCM. "The results of this survey question reflect confidence that a significantportion of respondents expect their workforce to increase to some degree.The Manufacturers Alliance for Productivity and Innovation Foundation predictsthat capital growth and increased exports will boost manufacturingproduction by 3.9% in 2019, slow-ing slightly to 2.4% in 2020 and 1.9% in2021. Despite this relatively rosy outlook, according to a 2019 DeloitteInstitute report, 89% of manufacturers have unfilled jobs because they areunable to find qualified applicants.

The results of this survey also reflect the perceived value of increased com-pensation, healthcare benefits, and flexible scheduling. Industry experts, however, recommend that employers broaden their scope and look to other factors to attract and retain top talent. US Tech Solutions, one of the largest and fastest-growing recruitment firms, suggests several ways to achieve this goal. They include development of mentoring programs pairing trainable new hires with veteran employees; partnering with state-run training programs; and embracing automation by expanding recruitment to individuals with technology-based manufacturing skills.

Based on the responses, employers in the manufacturing sector continue to rely heavily on open enrollment meetings as the primary source of benefit communication. While open enrollment meetings can be beneficial, the loss of production time while employees attend meetings can be problematic. The healthcare communication landscape is changing rapidly, with an emphasis on technology-based solutions. Employers would be wise to step up their efforts to increase employee engagement with alternative tools, including carrier mobile apps, virtual physician visits, and text-based communication directly with health insurers, vendors, and health care providers.

Given the low unemployment rate and relatively flat levels of pay increases, it is surprising that employers who responded to this question do not seem overly concerned about turnover. For those who are, recruiting firm Staff Management | SMX recommends these five steps to reduce turnover:

• Calculate the cost turn of turnover• Understand the reasons why employees leave your company• Refine your hiring processes to recruit the right people to begin

with• Develop flexible scheduling practices• Provide a clear path for upward mobility."

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TECHNOLOGYBP Specialist:Rachel Roberson, CPA, Tax Senior Manager

Rachel can be reached at 425-289-7664 or rroberson@bpcpa.com.

FINDINGSWhile implementing Internet of Things technology was the highest response in our survey, 3D printing technology was close behind. 3D printing lends itself well to certain applications but also has challenges when compared to traditional manufacturing practices such as machining or injection molding. Several different printing technologies can produce parts in plastics/resin, rubber, ceramics, certain metals or sometimes combinations thereof.

BP INSIGHT FROM RACHEL Major benefits of 3D printing are low initial cost to create a part and the ability to

create intricate shapes not possible with other technology. Some of the comparative drawbacks to 3D printing are the additional manufacturing time required per part, rela-

tively high material cost, and the material quality variances that result from the printing process (such as material strength, resiliency or porosity).

3D printing works very well in R&D and prototyping applications where the ability to make a custom part, test it and iterate improvements are valued. This can speed the process of hardware develop-ment where unique designs and low volumes are required. However once a final part is settled on, traditional manufacturing processes are often quicker and more cost effective for higher quantity production. As an example, injection molding requires an expensive custom mold, however once implemented, parts can be produced at volume much quicker and at lower cost than with 3D printing.

Another common application is in development of the custom tooling or mold component itself. Since 3D printing can produce complex forms that may be difficult or impossible to create with traditional methods, incorporating these forms in the mold (for example sinuous internal cooling channels in a mold part) can be used to replicate these forms in the final part. A manufacturer can then benefit from both the design abilities of the 3D printing as well as the reduced cost and throughput time available from traditional practices. 3D printing can also be used to print custom fixtures to hold parts in place for testing or in a manufacturing process. In this application, it enables quick and easy adjustments of manufacturing or quality control processes.

3D printing can be effectively used to reduce the time and cost to develop new products, produce unique/low quantity products and help other manufacturing processes become more efficient. How-ever, traditional manufacturing processes will continue to be widely used for higher quantities and in high-risk technologies like aerospace and medical applications where material tolerances and part specifications are narrow.

WHAT DO THE EXPERTS SAY? “These results align with what we are seeing in the market at Xemelgo,” says Rich Rogers, CEO and Founder. “Manufacturers know that they need to begin investing in Industry 4.0 technologies, and sensors and AI are at the top of that list. However, there is currently a lack of turnkey solutions that package these technologies in an easy-to-deploy manner providing a strong near-term return-on-investment. In fact many offerings are technology led, and ultimately result in a science project. Our recommendation is to begin your Industry 4.0 journey with a turnkey solution that can provide near-term value, and then begin to spread your Industry 4.0 wings from there.”

TECHNOLOGY ADVANCES

Unsure

IoT (Internet of Things)

AI (Artificial Intelligence)

3D Printing

Cobots

Block chain technology

CONTINUED ON NEXT PAGE

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TARIFFS AND TAXES

BP Specialist: Fletcher Conner, CPA, Advanced Tax Staff

Fletcher can be reached at 425.289.7636 or fconner@bpcpa.com.

FINDINGSTariffs are a concern for a majority of respondents; 76% said their level of concern was at least a 3 on a scale of 1-5 and 31% indicated that they were very concerned about the effect of tariffs going forward. Many respondents indicated that tariffs are increasing their materials costs, particularly from China. Regarding tax reform, the majority of respondents indicated a minimal benefit with very few experiencing negative effects.

BP INSIGHT FROM FLETCHER

There is a high level of concern surrounding

tariffs and much of that stems from uncertainty. Several respondents indicated hesitation to make changes in response to the tariffs because they aren’t sure if the tariffs are here to stay and they don’t want to overreact. One factor mitigating concerns with tariffs is that they are increasing costs for competitors as well, so while the tariffs are raising costs, most companies aren’t being placed at a competitive disadvantage.

With many respondents indicating minimal benefits from tax reform, there is a pos-sibility that some aren’t maximizing the potential benefits or optimizing their tax planning strategies. Bonus depreciation can be a major tax benefit, particularly for larger companies that want to add or replace equipment. The R&D tax credit and 199A deduction can also be significant benefits in the right situation, though for pass-throughs the benefit is realized at the shareholder or partner level rather than the corporate level.

WHAT DO THE EXPERTS SAY?Nicole Zhang, Tax Manager at Berntson Porter, states: “With the US and China imposing tariffs on hundreds of billions of dollars' worth of one another’s goods, the costs of many raw materials have increased by 20% - 30%. Even with recent agreements, there are still uncertainties around the trade war. However, tax saving opportunities provided by the Tax Cuts and Jobs Act of 2018 could potentially help a lot of eligible businesses. While most of the respondents indicated a minimal benefit from the Act, the lesser known Cash Method of Accounting, R&D tax credit, Opportunity Zones, Qualified Business Income Deduction for pass-through entities, and other tax law changes will provide tax savings and relief for many small businesses. In terms of conducting business in foreign countries, there are more disclosure requirements with the IRS now. Failure to comply can result in substantial penalties and a federal prison sentence. So it’s always a best practice to consult your tax professional to assure you’re planning wisely and filing correctly.

HOW CONCERNED ARE YOU REGARDING TARIFFS?

Not at all concerned

Very concerned

11%13%

29%16%31%

1

2

3

4

5

“The survey provides some insights into the acceleration of implementing technology advancements in organiza-tions,” notes Adam Livesay, Co-Founder of elevat. “Just a year ago in the 2019 survey, 90% of respondents reported little or no plans to implement next generation technology compared to 63% with technology plans this year. This significant increase suggests companies are increasingly finding value in these new technologies.

Nearly 61% of companies plan to implement IoT and AI solutions in their or-ganizations. Both of these tech-nologies have matured over the last 3 years and we are seeing more turnkey solutions in the marketplace and industry that solve real business problems and provide more immediate ROI . We believe this is the major contributor the accelerated pace of adaption and implementation in their businesses.”

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ABOUT BERNTSON PORTERBerntson Porter is a premier Certified Public Accounting and planning firm that helps cli-ents identify, clarify and achieve their goals. In addition to providing tax, accounting and a wide range of consulting services, we help cli-ents manage their wealth and insurance needs through our affiliated firms. Through our exten-sive network of partners, we serve clients across the globe, helping them expand nationally and internationally.

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This publication contains general information and is not intended to be a substitute for professional advice or services. Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, Berntson Porter & Company, PLLC would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services. Berntson Porter & Company, PLLC, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this publication by any person. In accordance with the rules of the Internal Revenue Service (IRS), we are informing you that this communication may be deemed as a solicitation to provide tax or accounting services. This document is being sent to parties who have subscribed to receive it or who have expressed an interest in the topics addressed.

ACKNOWLEDGEMENTSFirst and foremost, Berntson Porter wishes to acknowledge the distribution and manufacturing professionals who participated in this year’s survey; your feedback is essential.

We also thank the many individuals who participated directly in this endeavor, namely the core team committee members within Berntson Porter: Amy Ellisor, Nicole Wright, CPA, Rachel Roberson, CPA, Briana Wickens, CPA, Natalya Haan, CPA, Austin Mohler, CPA, Fletcher Conner, CPA, and Thanh Vu. Your time and dedication to this project is greatly appreciated.

Additionally, we are grateful for the contributions of our distribution and manufacturing experts, who provided industry-specific insight to our publication, including Nicole Zhang, CPA, Tax Manager at Berntson Porter, Dan Kocer, P.E. from Kocer Consulting + Engineering, Kirk Davis, MBA, Executive Director of CAMPS, Lorrie Baldevia, COO of AssuredPartners MCM, Rich Rog-ers, Founder and CEO of Xemelgo, Adam Livesay, Co-Founder of elevat and Robert Rainey, Senior Vice President of The VisionLink Advisory Group. Your participation provided much need-ed third-party perspective to our analysis; thank you for being part of this project.

Finally, we wish to recognize the Center for Advanced Manufacturing Puget Sound (CAMPS) for continuing to partner with us on the BP Pulse survey. Your collaboration is greatly appreciated, as is your commitment to distribution and manufacturing in our region.