Jeff Malish left January’s World of Concrete show in Las Vegas buoyed by a newfound optimism.
As CEO of Malish Corp., he’d invested three years and more than $50,000 — in the throes of a recession — to develop a new concrete floor preparation system known as
Diamabrush.
The diamond-blade brushes, which can be retrofitted for standard scrubbers and buffers, can lower commercial users’ maintenance costs from $2.50 per square foot to less than 25 cents per square foot.
“It was absolutely fantastic,” Malish says. Compared to traditional high-pressure grinding systems on display there, “our concrete floor looked as good or better,” he says. “This line is new technology, and it generated a lot of interest.”
Malish expects Diamabrush to create a new revenue stream for his 65-year-old company.
That’s good news for the Willoughby-based engineered brushes manufacturer still battle-scarred by the recent recession.
What happened to Malish Corp. in 2008 was like nothing the company had ever experienced. Sales dropped sharply between October and November. When people stopped buying equipment from Malish’s customers, they had no need for more brushes. Malish says it felt like his business “fell off a cliff.”
The company had to find ways to streamline its operations and cut expenses. Temporary workers were the first to go. Then came layoffs and finally wage reductions across the board to keep from losing more talent, Malish says. The cuts were deep and painful.
At the same time, Malish and his management team never stopped looking for opportunities to grow. Even when they cut all other nonessentials, they never cut sales budgets. Instead, they committed to selling even harder during the recession.
“We had no crystal ball,” Malish says, admitting that his decision then was clearly a risk.
But the combination of belt-tightening and pursuing new clients and markets has Malish Corp. moving in the right direction.
The road back
The company’s recovery started in July 2009. Many full-time and temporary workers were brought back. By early 2010, Malish Corp. reversed the wage reductions, and in October, employees were given small raises. The company’s custom plastic tubing division recently signed a major new account.
“Coming out of recovery doesn’t mean fully recovered,” Malish adds. This was not the V-shaped recession that economists originally expected.
“It’s been two years of pain, and we’re not back yet,” says Dan Zittnan, managing partner at
Grant Thornton in Cleveland. “We’re never going to get back to normal — if by normal, you mean a return to the 2003 to 2007 economy.”
Still, local accountants agree that the economy is stabilizing. Most have seen pickup in companies that support the auto and health care industries. The information technology sector is solid. And even in the heavy manufacturing sector, among the hardest hit, backlogs are improving.
Most Northeast Ohio companies are facing one of three scenarios right now, says Dario Savron, senior manager at
Maloney & Novotny. Many are still slugging it out day by day with a wait-and-see attitude about the economy. Some have managed to cut costs, maintain a strong balance sheet and turn a decent profit in 2010 and may actually be cash rich. A few are in dire straits or maybe just fatigued by the extended recession and looking to sell off all or part of their business.
What’s next?
Let’s start with the numbers.
While 80 percent of small-business owners say the economy has hurt their business, more than half of those polled expect to expand in the coming year, according to October’s
ADP Survey of Small Business Owners.
Thus, many small and midsized companies are approaching what looks like a hiring tipping point. In a January national survey from financial analyst Sageworks, nearly 89 percent of public accountants said they believe that businesses will either hire more in 2011 than they did in 2010 or maintain the same employee count from 2010 in 2011.
“[Businesses] are starting to see some reasons to make investments in people and equipment,” says Jim Rollins, a vice president at Meaden & Moore in Akron. “But many are still not quite ready to pull the trigger.”
Companies that postponed expansions or need new equipment have plenty of incentives to invest in new fixtures now.
Those in a good cash position have real negotiating power in this market, and credit is loosening a bit. In fact, 57 percent of banks polled in
Sageworks’ October 2010 Commercial Lending Survey said they plan to make more or significantly more commercial loans in 2011.
There are tax incentives as well.
Maloney & Novotny helped Malish Corp. take advantage of research and development tax credits for its Diamabrush system and for some new custom plastics products.
“We would have done these things [even without the tax credit],” Malish says. “They were the right things to do for our company.” Still, he is grateful to his accountants for helping him find more cost-effective ways to grow his business.
In addition to tax credits for research and development, 2011 is a good year for small businesses to take advantage of tax deductions for capital expenditures.
As a result of the Tax Relief Act of 2010, companies can expense up to 100 percent of the cost of qualifying new fixed-asset purchases made between Sept. 8, 2010, and the end of 2011, and 50 percent of the cost for purchases made in 2012.
Cash flows
Businesses that are still struggling to meet their financial obligations need to have an open dialog with their financiers.
“Don’t push your problems under the rug,” Savron advises. “Resist the tendency to hide.”
A stable company making a reasonable profit might consider refinancing its debt at a better rate. If that isn’t possible, consider renegotiating terms or finding other sources of funding.
Savron’s clients who have already faced down that dragon have an even stronger relationship with their lenders now that things are stabilizing, he says.
Companies still feeling the squeeze may also want to reach out to vendors to discuss extending payment terms. Many in worse cash positions have already begun selling off assets.
Both Rollins and Zittnan say local accountants are doing more transaction work for companies right now.
There has been a noticeable uptick in mergers and acquisitions as more buyers with cash are looking to grow their businesses by acquiring all or parts of others, and more financially strapped companies are looking to divest selected assets or entire companies.
Zittnan says accountants can provide companies with profitability studies by customer or help them to segregate costs by activity or product line to help them identify potential divisions to sell.
Several local accountants say they have been actively working their networks to help identify buyers for their clients looking to divest.
Even lines that are a drain to the seller’s core business may bring valuable new customers, market share or capabilities to the right buyer.
Focus on the top line
Two years ago, Robert Littman, managing director at
SS&G in Akron, was encouraging customers to look at their business expenses — not just people but anything nonessential — to cut costs just to stay solvent. Now that the recession is ebbing, he says, the time has come to take some calculated risks.
“2011 is going to be a challenging year, but now is the time to focus on the top line,” he advises.
There is a cost to indecision, he adds. Just as some companies didn’t act fast enough two years ago to cut costs, you may need to act decisively in a rebound to make the most of opportunities as they arise.
For example, companies that have avoided raising prices on their goods or services in the down market may be able to increase their profit margins without increasing sales by revisiting the whole issue of pricing, Zittnan suggests.
But repricing products is not enough. “Businesses that want to survive need to find ways to grow again,” Littman says. “I’m a big believer in growth. Growth creates tons of opportunities.”
Sometimes new people can be a catalyst for growth. Although significant new hires are costly from an employer’s standpoint, investing in the right people is strategy-related, Littman says. “The upside could be huge.”
“We’ve lived it here,” he says when describing SS&G’s growth from 10 to 400 people in the past 25 years.
For example, in anticipation of the growing need for dedicated mergers and acquisitions experts, SS&G brought in a new director to specialize in that area in early 2010. Scott McRill now runs the firm’s transaction advisory services group.
“We made an investment in this person to build that practice,” Littman says.
The need for good accountants
There are plenty of competent accountants out there, Savron says. But the best ones bring something intangible to the relationship: a high level of passion for their clients’ success.
Bruce Hendrick, president and CEO of
RBB Systems Inc. in Wooster, agrees. Changing accountants a little more than a year ago has helped his company on a number of fronts.
Seeing a growing need for both new and mature electronic devices to be made in smaller batches, Hendrick moved RBB, a 38-year-old electronics company, from its full-service provider model to a more specialized niche market. He announced this strategic direction change in September 2007.
It took more than a year to fully implement the change, but by the following October, new branding and shop-floor optimization were in place.
The company’s new focus filled a void in the marketplace: assembling and testing custom electronics and electrical control panels in batches of 200 or fewer for industries such as emergency response or medical devices that require high reliability.
But when the 2008 recession hit, RBB’s sales dropped by more than 30 percent. The company did some serious belt-tightening, including a dramatic reduction in staff.
With so much at stake, they also decided to find a new accounting firm, one equipped to offer more services, faster response times and more depth in resources. At the recommendation of a trusted adviser, Hendrick began working with Meaden & Moore a little more than a year ago.
Meaden & Moore provided RBB with a cash flow forecasting model that helped the company commit to hiring decisions, capital investments and raw material purchases.
“In a small company, cash is everything,” Hendrick says. “The clearer we can see the future cash flows, the better we can make and keep business commitments.”
The firm helped RBB analyze its business performance and trends to see how it compared with others in the industry. Meaden & Moore alerted the company of changes in the tax law and advised it on how to respond to those changes.
Meaden & Moore was also a helpful partner, adding financial credibility to RBB’s reporting, which enabled it to get critical new business financing at Huntington National Bank.
“2010 was a great year for RBB,” Hendrick says. It has emerged an even stronger company today, he explains, with sales up 25 percent and 10 new jobs added.
“We are seeing continued aggressive growth as the general economy picks up steam,” he says.
The best thing he learned in the down economy: “Have something unique to offer the marketplace.”