Setting a Fiscal Baseline for Regulatory Compliance

November 5, 2018 by Comerica Bank

Environmental regulatory compliance is both a challenge and opportunity for environmental services businesses. On one hand, organizations in the various segments of the waste management industry must be especially cautious about following best practices in how they handle and dispose of materials at all times or be at risk of significant negative attention. On the other hand, environmental standards also offer waste management businesses an opportunity to provide new services focused on making compliance easier for other businesses.

For example, a waste management organization operating in a region with many data centers may want to open a specialized e-waste management service to take advantage of the market opportunity. Similarly, a business in an industrial region may want to offer specialized solutions for chemical and industrial waste removal. These services can be invaluable, especially as the cost of non-compliance with environmental laws can be high.

Considering the costs of failure to maintain environmental compliance

Non-compliance with environmental standards can be personally costly, not just impactful at the business level. The Environmental Protection Agency has the power to enforce regulatory standards by punishing offenders in the form of civil and/or criminal trials. In major breach incidents, a business may be fined heavily for the incident, and leaders could be either fined or face criminal charges. These aren't just nominal charges either. The EPA recently released the results of its enforcement activities for the fiscal year 2017. During that period, the agency required environmental criminals to pay out $2.98 billion. This came in the form of fines, restitution, and mitigation. Total criminal sentencing during the year amounted to more than 150 years in jail.

Investing in the equipment, staff or technology you need to maintain compliance may seem expensive, but this move may pay off. The EPA isn't just interested in recouping funds based on damages and using criminal punishment as a deterrent. Instead, the agency is also committed to creating a level fiscal playing field as businesses strive for compliance. As such, the EPA searches for situations in which organizations may be failing to comply in order to gain a financial advantage and levy penalties accordingly.

Environmental services businesses can't afford to cut regulatory corners. They can capitalize on the scrutiny facing businesses across just about every sector to offer services that solve specific pain points. For example, proper disposal of hazardous waste materials represents a growing challenge as the EPA works to monitor safe handling across a material's entire lifecycle.

Looking at hazardous waste as an example of regulatory challenges

The Resource Conservation and Recovery Act covers the majority of hazardous waste issues, and any compliance audits will usually be performed by either the EPA or a state authority that works with the EPA. Inspections can involve anything from asking for material manifests to visiting a work site and evaluating the environment for signs of contamination or malpractice. For environmental services firms, it's important to recognize that the EPA inspects processes regarding handling, transportation, storage and disposal of hazardous materials.

Preparing to ramp up regulatory compliance

Building stronger environmental regulatory compliance practices can require significant financial investments. An environmental services firm could enact a variety of strategies, including:

  • Investing in state-of-the-art trucks and waste management equipment.
  • Purchasing real estate, constructing new facilities or renovating outdated buildings to support modernized operations.
  • Deploying modern information technology systems, including internet-of-things devices, to track materials and improve documentation.

These types of investments can dramatically improve compliance, but they come with costs. Comerica Bank can help. We're the Leading Bank for Business1 and will work closely with you to help you identify the best strategies and financing opportunities for your organization.

 

1Comerica ranks first nationally among the top 25 U.S. financial holding companies, based on commercial and industrial loans outstanding as a percentage of assets, as of June 30, 2018. Data provided by S&P Global Market Intelligence.

This information is provided for general awareness purposes only and is not intended to be relied upon as legal or compliance advice for your business.
 

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Waste Management Financial Planning for Commodity Risk

October 29, 2018 by Comerica Bank

Commodity prices can fluctuate substantially on an annual basis, making it difficult for waste management and recycling companies to accurately project revenues related to commodities and plan accordingly. The inherent risk in the commodity market can be a stumbling block to business growth and sustained innovation as a decline in a key commodity can severely reduce cash available to spend on equipment, facilities or workforce improvements. Managing risk is critical when engaging in the commodities market, and strong relationships with stakeholders, particularly public sector agencies, can be instrumental in weathering fluctuations in the sector.

The commodity risk situation

Commodity pricing is extremely dependent on supply and demand, and the rise in recycling can lead to a decline in demand for raw materials. As more environmental services firms have goods to sell to processing plants, the market value of those materials will decline. The U.S. Environmental Protection Agency performed a landmark study in 2015, covering historic costs of commodities across a variety of sectors. In general, the average cost of commodity declined substantially per ton over the research period. Significant annual fluctuations were common in the study. For example, HDPE, PET, and aluminum cans all experienced major price increases in 1995 and 2011 but then declined quickly from 1995 to 1996 and again from 2008 to 2009. These kinds of rapid changes must be accounted for in waste management and environmental services business models, especially as political decisions and similar macroeconomic issues can also have a major impact on the market.

For example, a Seeking Alpha report explained that a ban on importing 24 types of recyclables and solid waste in China led to lower commodity prices throughout 2018. The rule went into effect in January 2018 and was specifically aimed at limiting paper and plastic importation from North America, though the legislation had a global impact. This type of measure led to significant changes in commodity pricing and can be disruptive in the sector, leading businesses to rethink their export strategies, invest in local recycling facilities or otherwise adapt to the new industry dynamics.

Responding to commodity risk

Preparing for cost fluctuation is critical when it comes to commodities, and many recycling companies have stayed afloat by strengthening their position in the broad waste management landscape. According to IbisWorld, revenues in the recycling facilities market have been tepid, with revenue only increased slightly in 2018, reaching $6 billion. Declining commodity prices have been a primary limiting factor to growth. However, public interest in recycling has led to significant investment in the practice among state and local governments, creating stability at a time when commodity prices are proving problematic.

Fostering stronger relationships with key stakeholders can go a long way in dealing with commodity risk. To illustrate this, a Let's Recycle report detailed how a workshop held by industry leader SUEZ addressed commodity risk. The workshop was held largely in response to the new policies out of China. While the waste management firm itself was prepared to deal with the change in prices, it realized that its public sector partners wouldn't necessarily handle the situation as smoothly and held the small conference specifically to inform agencies it works with on how to tackle the commodity situation effectively.

While SUEZ was tackling this issue from a UK-focused perspective, its activities serve as a key example of how to handle commodities risk. With the public sector embracing recycling in response to consumer demand, service advances aimed at municipal markets can go a long way in fostering value creation.

Enacting new strategies to withstand commodity risk requires capital, and that's where Comerica Bank can help. We offer specialized lending options aimed at environmental services and can support organizations as they work to adapt to the ever-changing market while sustaining innovation.

 

Comerica ranks first nationally among the top 25 U.S. financial holding companies, based on commercial and industrial loans outstanding as a percentage of assets, as of June 30, 2018. Data provided by S&P Global Market Intelligence.

This information is provided for general awareness purposes only and is not intended to be relied upon as legal or compliance advice for your business.

 

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How to Leverage the Section 179 Deduction for Your Dealership

October 26, 2018 by Comerica Bank

The lowering of the corporate tax rate was one of the biggest highlights to the Tax Cuts and Jobs Act of 2017 (TCJA), but far from the only takeaway for businesses. Look closer at the reforms, and a near doubling of the Section 179 tax deduction could prove as advantageous for companies as a lower overall rate. 

Why? Because Section 179 allows businesses to fully deduct qualified purchases and expenses in their first year of tax service, allowing organizations like auto dealers to improve their operations immediately. Instead of deducting little by little through depreciation, dealerships can write off an entirely new piece of machinery, customer relationship management software solution or security system under the Section 179 tax deduction. The tax code can provide powerful leverage to dealerships, but they must know how to use it.

What is the Section 179 tax deduction?

Section 179 provides businesses with a way to deduct capital expenses on qualified business or personal property bought and placed into service that tax year. Some of the items covered by the deduction include financed new or used business equipment, computers, off-the-shelf software, office furniture and equipment, and certain real property. Vehicles are a popular deduction under Section 179, but auto dealers be aware, those cars have to be for business use, not inventory.

Still, the Section 179 tax deduction is highly useful for dealerships, and the TCJA made it even more so. The total allowable deduction in 2017 was $510,000, but in 2018 that limit jumps to $1 million. The reforms also opened up the possibility to deduct nonresidential property improvements under Section 179. The cap hike is permanent and will be indexed to inflation in future years.

One thing to note, however, is that the deduction begins to phase out at $2.5 million of qualified expenses. For every dollar after that, the $1 million allowable deduction is reduced in kind, meaning the deduction is negated at $3.5 million of purchases. The phase-out cap was also raised by the TCJA.

How dealerships can leverage the Section 179 tax deduction

Auto dealerships have a range of options when it comes to leveraging the Section 179 tax deduction. Thanks to increased flexibility in qualified expensing and the new maximum allowable deduction, these businesses can utilize the Section 179 tax deduction throughout operations. Section 179 deductions can allow dealers to:

  • Upgrade shop equipment: Auto repair is often a major part of dealer operations, meaning shop equipment is regularly and thoroughly used. Such high levels of use can lead to costly repairs, and maintenance only prolongs the inevitable. These repeated fixes eventually become less and less cost-effective than financing a new or used purchase. Dealers can leverage Section 179 in such situations to upgrade their critical machinery, as well as generate tax savings.
  • Install new car lot alarms or showroom HVAC units: Nonresidential property improvements now covered by the Section 179 deduction include roofing, heating, HVAC, security and fire protection improvements. The allowance for nonstructural renovations means dealers can invest in new alarm or security systems or opt to enhance ventilation in the main building.
  • Purchase brand-name software: Software is as important a business asset as any these days. The Section 179 deduction reflects that, allowing businesses to expense off-the-shelf solutions. While the costs of proprietary platforms aren't covered, businesses can buy any one of the several brand-name accounting, CRM or sales solutions on the market today and deduct its cost.

How to take full advantage of Section 179

With decades of experience in providing financial assistance to auto dealers, Comerica Bank knows the unique needs these businesses face. As the Leading Bank for Business1, Comerica Bank can help auto dealers navigate the Section 179 tax deduction and strategize accordingly, as well as finance inventory, acquisitions and real estate. Contact us today for more information about how dealerships can benefit from our full banking services.

 

1Comerica ranks first nationally among the top 25 U.S. financial holding companies, based on commercial and industrial loans outstanding as a percentage of assets, as of June 30, 2018. Data provided by S&P Global Market Intelligence.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, compliance or accounting advice. You should consult your own tax, legal, compliance and accounting advisors before engaging in any transaction.

 

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Environmental Service Innovation: Equipment Leasing and Financing

October 23, 2018 by Comerica Bank

Environmental services businesses are facing a period of tumultuous growth as emerging technologies and a widespread move to sustainability create demand for innovation. Waste management and recycling organizations trying to adapt to emerging requirements often find themselves in a difficult position as significant changes require new equipment, vehicles, and even facility investments. Mid-sized businesses hoping to keep up with larger competitors have an opportunity to use innovative equipment to stand apart, and strategic funding can go a long way in making that possible.

While spending heavily on new equipment can seem daunting, organizations can't afford to miss out on the opportunity to advance their capabilities as the industry goes through a period of rapid change.

Innovation ahead in environmental services

Change is afoot for environmental services firms, as even public sector groups are prioritizing spending in the sector to drive progress. According to an Onvia study on state and local government procurement, year-over-year spending increased 5.5 percent during the fourth quarter of 2017. While a variety of operational areas benefited from this increase, the environmental services segment experienced some of the fastest spending growth.
Investing in waste management and environmental services is occurring at a time when many organizations are facing demand to become more sustainable and efficient in how they operate. With commercial, industrial and consumer groups embracing green practices, waste management companies have an opportunity to expand their service offerings. In practical terms, this puts pressure on environmental services businesses to:

  • Become more efficient and sustainable in their own practices.
  • Expand services to incorporate handling a wider range of waste types.
  • Deploy equipment designed to process varied materials and support emerging operational strategies.

Smart solutions, dubbed as intelligent because of their ability to connect to networks, allow environmental services businesses to modernize their operations around data-driven processes. As such, organizations increasingly find themselves blending equipment investments that promote sustainability with those that allow for smart solution use, bringing about rapid change. In fact, the market for smart equipment is gaining momentum quickly.

Smart equipment in environmental services

A Technavio study found that the global smart waste management market will expand quickly, achieving a compound annual growth rate of 18 percent for the 2018 to 2022 period. Key factors shaping the industry include:

  • Rapid innovation in waste collection, which took 62 percent of the smart equipment market share in 2017.
  • A move into waste processing, as investments in this segment will outpace those in landfills.
  • A growing emphasis on operational efficiency across the entire waste management life cycle.

Key technologies emerging as firms embrace smart equipment include driver-assistance solutions and autonomous vehicles, embedded systems focused on real-time data delivery, artificial intelligence and the industrial internet of things.
Environmental services firms are embracing new technologies and equipment, and funding can help mid-sized firms advance their initiatives and fuel industry progress.

Using financing to bolster equipment innovation

Smart equipment is designed to fuel efficiency and sustainability gains, creating opportunities to drive return on investment from strategic spending. As such, finding initial capital to support equipment purchases can go a long way toward creating consistent profitability. Comerica can position organizations to take advantage of this opportunity through financing that emphasizes lending for equipment leasing and specialized options for environmental services firms.

With change happening quickly in the sector, organizations can't afford to sit back and wait to see how the market unfolds. At Comerica Bank, we work closely with our clients to understand their business needs and become a key part in their growth. Our loan options can help you position your business for the future, and it’s a big reason why we're considered the Leading Bank for Business1.

 

1Comerica ranks first nationally among the top 25 U.S. financial holding companies, based on commercial and industrial loans outstanding as a percentage of assets, as of June 30, 2018. Data provided by S&P Global Market Intelligence.

This information is provided for general awareness purposes only and is not intended to be relied upon as legal or compliance advice for your business.
 

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How IoT is Leading the Way in Smart Recycling and Waste Management

October 22, 2018 by Comerica Bank

Internet of things technologies promise a transformative impact on a wide range of industries, and the recycling and waste management sectors won't be left out. Widespread access to connected sensors, monitoring devices and similar solutions can empower organizations to gather more information from real-world environments and develop new operational strategies that drive efficiency and position organizations to enact more sustainable, cost-effective practices. However, transitioning to a smart recycling or waste management operation relies on strategic IT investments that lay the groundwork for far-reaching progress.

How IoT is disrupting recycling and waste management

Consider typical operating procedures in recycling and waste management. Organizations track consumption patterns in their service areas based on historical patterns, identify their availability to collect materials and schedule their operations accordingly. This general practice follows across the industry, from municipal waste management teams to specialized companies that focus on commercial and industrial markets. Smart recycling and waste management could turn this model on its head, giving organizations real-time visibility into the status of collection receptacles so they can avoid unnecessary pickups and optimize operations. IoT solutions are making this possible.

According to a Waste360 report, IoT projects are already taking shape in the form of waste and recycling containers that use radio-frequency identification technology to allow haulers to track assets in the field. This ensures that garbage and recycling bins don't go missing. The news source also highlighted sensors that alert teams to how full containers are, and even vehicles that connect to the internet to access and transmit telematics data are becoming popular.

When combined, these types of technologies add a critical layer of intelligence to operations, giving organizations real-time data updates that allow them to become more responsive to the needs of their customers and less reliant on projections and similar estimates.

Operational gains aren't the only advantage of IoT-enabled recycling and waste management solutions. The ability to embed connected technologies into receptacles is also allowing for the use of artificial intelligence, machine learning, and cameras to eliminate some long-standing problems in the recycling industry. Smithsonian reported that emerging recycling bins using computer vision can process the type of material placed in the container and automatically sort it. This simultaneously eliminates human error and makes it much easier for downstream recycling centers to process goods.

Connected technologies hold a great deal of potential for the recycling and waste management sectors, but organizations must also weigh the costs of adopting such a program.

Considering costs, benefits of smart recycling and waste management

Deploying an IoT-based recycling and waste management strategy can come with significant upfront costs, including:

  • New vehicles or significant equipment to enable telematics in vehicles.
  • Replacement bins and containers across the service area.
  • Software and mobile apps to support end-user operations.
  • Wireless network access points, RFID scanners or similar solutions to provide connectivity in key locations.
  • Customer-facing applications and services that allow them to interact with systems when appropriate.

The costs can add up quickly when rolling out new solutions, and many organizations will take a piecemeal approach to IoT projects, deploying specific solutions when operational pain points and budget availability happen to align. However, waste management ecosystems that employ fully intelligent recycling present opportunities for large investments to pay off. Smart technologies allow organizations to:

  • Optimize the workforce by ensuring employees are working on the best tasks possible at a given time.
  • Eliminate unnecessary trash and recycling collection.
  • Improve routing for vehicles.
  • Respond to unexpected needs with less disruption.
  • Develop a stronger awareness of community needs to better align day-to-day strategies with operational realities.

The recycling industry is changing, and environmental services firms can use strategic funding to keep up. As the Leading Bank for Business1, Comerica Bank is committed to connecting clients with the best loan options for their needs, helping them drive growth while minimizing risk.

1Comerica ranks first nationally among the top 25 U.S. financial holding companies, based on commercial and industrial loans outstanding as a percentage of assets, as of June 30, 2018. Data provided by S&P Global Market Intelligence.

This information is provided for general awareness purposes only and is not intended to be relied upon as legal or compliance advice for your business.
 

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