Expert Advice on Exit, Succession and Contingency Planning

Images: Beacon Exit Planning

When the time comes to retire from your roofing business, will you have all of the proper financial and legal arrangements in place to avoid being clobbered by taxes or ending up in costly litigation?

Planning for your exit or succession requires a series of complex strategies that can take many years, so don’t waste any time getting started! Sit down with a knowledgeable, professional advisor who can guide you through the process of preserving your business legacy and securing your financial future.

Business-planning experts Kevin Kennedy and Joe Bazzano explain why roofing contractors need an exit or succession plan, common mistakes made during the process and best strategies for success. They also stress the importance of a contingency plan, which covers you and your business in case of life-changing events such as injury, illness or death.

Kennedy, CEO of Beacon Exit Planning, specializes in exit and succession planning for private business owners. He has firsthand experience with the challenges that come with selling a business after he and his two co-owners sold their 63-year-old roofing company to the business’ fourth-generation team. Making a few financial mistakes during the sale, and realizing he didn’t have a solid understanding of the technical aspects of exit planning, Kennedy put himself through two years of school to learn everything he could. Now he helps others avoid the same mistakes.

Bazzano, COO at Beacon, is a certified public accountant, certified valuation analyst and certified business exit consultant. His areas of expertise include financial reporting, consulting, business valuations, mergers and acquisitions, exit strategies, and tax planning and compliance for individuals and businesses. Bazzano shows business owners how to increase the value of their companies and save on taxes.

Exit Planning

An exit plan helps you control and visualize the process of transferring and monetizing your business, while also gaining a better understanding of all the financial aspects involved in the transaction.

In most situations, business owners have 70 percent of their wealth tied up in their illiquid business, which means the company and its assets cannot easily be converted into cash.

Images: Beacon Exit Planning

If you’re fortunate enough to sell your roofing business, you could pay up to 60 percent or more in taxes, depending on which state you live in. And if you can’t sell your company, you will essentially have to liquidate it, which could leave you with only 10 percent of your wealth.

During the exit-planning process, Bazzano says they look at the three basic circles of a business owner’s life: business planning, personal planning and financial planning.

The business-planning circle is about protecting the business — determining valuation, planning for succession, evaluating tax ramifications and managing buy/sell risk. The personal-planning circle involves the emotional side of the business and considers the owner’s emotional attachment to the business, whether he or she is ready to leave it and if family members are involved. The financial-planning circle includes identifying the liquid assets business owners need to survive and maintain their lifestyle.

Contractors have several options for exiting their business, including:

  • Selling to an outsider (e.g., consolidator, investor)
  • Selling to employees/ESOP (employee stock ownership plan)
  • Selling to managers (manager buyout)
  • Selling to family
  • Gifting the company

Kennedy says the most common type of sale for a roofing business is a manager buyout, which can take from eight to 12 years because the company pays for everything.

“They don’t go to the bank and get the big loan,” Kennedy says. “The company can’t afford to do that. What they do is take their profits, and the profits pay for the owner’s stock, which is then given to the managers.”

Common mistakes during the exit-planning process include issues with entity structure, taxes, not planning for catastrophic events, being underfunded with buy/sell agreements, and inaccurate valuations.

Bazzano says lessening your dependency on the business as an income source after you leave is a particularly important strategy to keep in mind.

“It doesn’t always happen because business owners grow and reinvest in their business,” he explains. “But there’s nothing worse than being 65 years old and realizing that 92 percent of your wealth is in this business. Basically, you’ve reinvested everything and you’re completely dependent on monetizing this business as you try to retire. That’s pretty risky, as opposed to somebody who’s got maybe 20, 30 or maybe even 50 percent of their net worth in the business. So taking some chips off the table really helps.”

Having a good understanding of your options early on can help you generate more value in your company and lessen your financial risk down the road.

At Beacon Exit Planning, Kennedy and Bazzano use a proprietary process — known as DAD — that covers three phases of actions needed for a successful exit plan:

  • Discovery. Interviewing owners to get an understanding of their business, personal and financial goals.
  • Analysis.Looking at underlying documents such as wills, trusts, buy/sell agreements, financial statements, tax returns and entity formation, and evaluating whether they support the owners’ intentions and goals.
  • Design. Putting together a blueprint to solidify goals, going over findings from the analysis phase and presenting alternatives owners can use to exit their business.

The DAD plan can range from 50 to 120 pages. “It’s like being fed with a fire hose,” Kennedy says. “But we always tell our clients that we when we deliver the plan, it’s not the end — it’s the beginning.”

Succession Planning

In contrast, a succession plan prepares your company to succeed without you by moving your managers into leadership roles, then into ownership and eventually establishes the new CEO.

Exit planning focuses on replacing your wealth, but succession planning focuses on replacing yourself, Kennedy explains.

“In a broader sense, it’s about building value — creating a culture of continuous improvement that focuses on educating the next generation of owners so they can protect the future of the company,” he says.

Fewer than 30 percent of all private companies ever transfer to the second generation, according to Kennedy. This means that 70 percent fail. The statistics are even worse for transferring from the second generation to the third generation, which has a 90 percent fail rate. The odds that company founders will transfer their business to their grandchildren are less than 3 percent.

When Kennedy and his partners sold their roofing company via a management buyout, the process took seven years and $250,000.

“Our company overspent millions of dollars in taxes that were unnecessary because of the cookie-cutter advice [we received] from our advisors,” he explains. “They weren’t specialists. It wasn’t a coordinated plan, they didn’t have the right advice, and they didn’t understand the laws, so we were put in a taxed position.”

Succession plans can take anywhere from three to 10 years, depending on the maturity of the management and how much the owner is working. The process requires more time than exit planning because of the learning curve required for new managers.

“At any given time, 40 percent of U.S. businesses are facing the transfer of ownership issue,” according to the Small Business Administration (SBA). “The primary cause for failure is the lack of planning.”

Some 75 percent of a typical business owner’s net worth is tied up in the company, Kennedy adds, citing data from the SBA, and only 22 percent of owners report planning for their succession or exit.

“Wise people plan early and implement slowly,” he says. “I like to see people going through the process of visualizing their financial future at least 15 years out. That would be ideal because it may take three or four years to set the plan in motion.”

Succession planning may be complicated more when family is involved. Children or other family members who think they’re entitled to the company can be poisonous to the process, especially when owners don’t hold them to the same standards and accountability as other employees.

Another issue business owners face is that they can’t see their financial future and are dependent on their business for their day-to-day lives, Kennedy says. “If they don’t relinquish what duties they have so they can build new leadership, they tend to get stuck in their businesses.”

Bazzano shares three important steps for a successful succession:

  1. Have a good financial plan so you can understand the future income needs for the company.
  2. Get a business appraisal so you understand if you have a value gap. In other words, if you have not saved enough money for retirement, the shortfall is going to come from the sale of the business.
  3. Put a good management team in place so it can support you in generating the income the business will need to pay you out. This step typically takes the longest — anywhere from two to 10 years.

“The great news about succession is it always adds to the bottom line, not just the financial value,” Kennedy says. “The key is to start early because succession takes time. It’s a complex process. The exit plan will get you started and the succession plan will bring everything together to allow a graceful exit from your business and protect your wealth.”

Contingency Planning

Regardless of your exit strategy, your plan should also include preparing for the unexpected.

What would happen to your business if you were diagnosed with a life-threatening disease or were critically injured in an accident — or worse? Having a contingency plan for “just in case” can help to cement the future of those you love.

One of the most important parts of a contingency plan is a buy/sell agreement. This document governs what will happen if one of a company’s multiple owners and/or shareholders dies or experiences divorce, disability or voluntary/involuntary departure.

“A buy/sell agreement should have the appropriate documentation and appropriate wording to support the owner’s intentions,” Bazzano says.

This type of agreement allows co-owners to decide who else can buy into the company and how the process will work. It also provides an opportunity for owners to discuss potential scenarios ahead of time to avoid ending up in pricey litigation down the road.

Despite the importance of creating a buy-sell agreement, more than 70 percent of business owners do not have documented succession plans for senior roles, according to the 2014-2015 U.S. Family Business Survey conducted by the consulting firm PwC.

Contingency plans and buy/sell agreements are living, breathing documents and should be started as soon as the business is established, according to Bazzano. They should also be reviewed regularly to account for changes in the company’s structure or value, or an owner’s intentions.

The most difficult event to plan for, of course, is death. The loss not only puts an emotional burden on a family, it can also create a financial one. Without a proper contingency plan in place, a family could lose its income stream and experience financial turmoil.

One of the most common mistakes Kennedy and Bazzano see in contingency plans is improperly structured documents. For instance, the owner of a roofing business may think everything is in place because he/she has a will, trust and insurance — yet each document was set up by different people, none of whom talked to each other during the process.

Another issue in contingency plans is that companies are underfunded with their buy/sell agreements and insurance, Bazzano says, which often includes issues with valuation that prevent a widow from receiving the full worth of the company.

Business owners can also fail to understand how to manage their risk. Bazzano says business owners need to do a better job of protecting their wealth and the companies themselves, which involves understanding insurance requirements and asset protection, and knowing how to structure their estate and the business to limit exposure to frivolous lawsuits and creditors.

Planning to leave your roofing company — whether to retire, pursue another interest or because something unexpected happens — can be an overwhelming and confusing process. However, enlisting the services of an exit-planning professional can help you avoid big headaches and save you countless dollars in taxes.

To find a consultant you can trust, ask questions such as:

  • What is your training in exit planning?
  • How many exit plans have you delivered?
  • How much have you saved your customers in taxes?
  • Do you have any referrals from existing clients?

To learn more about Kevin Kennedy and Joe Bazzano, and for access to more in-depth information about the exit planning process, visit www.BeaconExitPlanning.com.

 

Easy-to-Use Discs Enable Induction Welding of PVC and TPO Membranes Over EPS Insulations

With induction welding, the membrane is heat bonded to the top of each plate and there are no penetrations in the membrane. Photo OMG

Over the past ten years, North American roofers have begun to adopt induction welding as a fast, simple and secure way to mechanically attach TPO and PVC membranes. The method also helps create a high-performance roof assembly by eliminating fastener penetrations of the membrane.

For most of its history, induction welding was limited to installations over thermoset insulations such as polyiso or over other rigid insulations with a cover board. But now, a deceptively simple and easy-to-use disc enables roofers to use induction welding over expanded polystyrene (EPS) insulations that don’t have cover boards. The result is faster and more affordable insulation installation and lower fatigue for work crews.

The Induction Welding Method in Brief

A roof fastener manufacturer pioneered induction welding attachment as a way for roofers to streamline TPO and PVC membrane installation, while avoiding membrane penetrations, for a more watertight roof assembly.

A roofing technician seals the seam with hot-air welder. Photo: Insulfoam

In a typical mechanically fastened membrane system, roofers secure the membrane with 2-inch to 3-inch diameter plates on the seams held down by screws that pass through the membrane and insulation layers to the underlying deck. With the induction welding method, each plate becomes a fastening point for the membrane, and the membrane is heat bonded to the top of each plate. With this method, crews screw down the insulation layer as usual, then unroll the membrane over the insulation. They then place a stand-up or handheld induction welding tool on the membrane at each plate location. In less than five seconds, the tool heats the plate under the membrane to about 400 degrees Fahrenheit, bonding the membrane to the plate. Heating is accomplished via electromagnetic induction between the tool and the plate, rather than via direct application of heat (think of an induction cooktop compared to conventional stove heating coils). Induction welding meets the FM 4470 approval standard and is accepted by most membrane manufacturers.

Induction welding typically requires 25 percent to 50 percent fewer fasteners and plates than typical mechanically fastened installations, as well as fewer seams, resulting in both labor and material savings. As the fasteners are spread across the roof in a grid pattern, the resulting assembly enhances resistance to wind uplift and reduces membrane sheet flutter.

EPS Insulations and Induction Welding

Until now, the induction welding process could not be used with EPS insulations that lacked a cover board, as

EPS insulations can be used in both new construction and roof recovers. Photo: Insulfoam

the 400-degree heated plates caused the insulation to soften and draw back. This resulted in numerous depressions in the roof assembly (at each fastener location), where water could pond.

To enable use of the induction welding process with a broader range of rigid foam insulations, fastener manufacturers have developed a simple solution. For each fastener, crews place a thin disc between the fastener plate and insulation. This separation medium protects the EPS from the high heat of the induction welding process, without interfering with the bond between the membrane and the fastener plate. Manufacturers typically refer to these separators as “induction welding cardboard discs.” While they are paper-based products, calling them “cardboard” understates their performance, as they are densely compressed and have a moisture-resistant coating, so they work well in high-performance roof systems.

Why This Matters

For roofers who prefer using EPS insulations for the products’ thermal performance and ease of installation, the discs allow them also to achieve the benefits of the induction welding process discussed above.

Induction welding cardboard discs enable use of the induction welding attachment process for TPO and PVC membranes over EPS insulation. Photo: Insulfoam

While induction welding has always been possible using EPS insulation products that have standard cover boards, the discs make it possible to induction weld over EPS products with glass facers and fanfold EPS with polymeric facers. Glass-faced EPS products can be used in new applications and recovers while roofers typically use fanfold EPS in roof recovers.

Fanfold EPS bundles, like R-TECH FF and others, are available in standard sizes up to 200 square feet, comprised of 25 panels that are 2 feet by 4 feet each, and come in various thicknesses. A typical two-square bundle weighs less than 11 pounds, so it is easy for one person to carry. EPS fanfold bundles require fewer fasteners per square foot than most roofing insulations and are less expensive than virtually every recover board. The man-hours needed to install fanfold bundles are about 60 percent less than working with individual sheets. Material costs are also lower than wood fiber, perlite, or gypsum board. On large projects, the

Induction welding typically requires fewer fasteners and plates than mechanically fastened applications, resulting in both labor and material savings. Photo: OMG

total savings can add up to tens of thousands of dollars. As with other EPS insulations, the product’s light weight also means less crew fatigue.

As roofers look for ways to create cost-effective, high-quality roof assemblies, new methods provide the opportunity to boost the bottom line by reducing labor and material costs. A simple, affordable disc now enables you to obtain the benefits of both the induction welding method for fastening TPO and PVC membranes and the advantages of EPS insulations.

Are You Meeting Thermal Insulation Code Requirements?

Photo 1. Conditions such as this, in which the fastener plates melt the snow, visually demonstrate the heat loss that is a known entity to roof installers and knowledgeable roofing professionals.

You may have overheard conversations such as this:

New Building Owner: “You promised energy conservation and savings.”

Mechanical Engineer: “We sized the mechanical unit based on the code required effective thermal value.”

New Building Owner: “But why are my cost 30 percent above your estimates and I am needing to run my units constantly and they still barely maintain a comfortable environment?”

Mechanical Engineer: “We have checked all the set points and systems and they are all working, albeit with a bit of laboring. We don’t know why there is not enough heat.”

New Building Owner: “Well, someone is going to have to pay for this!”

Scenarios and liability questions like this are being repeated across the northern North American continent, and to mechanical engineers, architects and owners, the cause is a mystery. Perhaps they should have talked to seasoned roofing professionals and consultants. They could’ve told them that many mechanically attached roofs, incorrectly promoted and sold as energy-saving systems, were actually energy pigs. One only needed to walk a mechanically attached roof with a few inches of snow on it to see the heat loss occurring. It doesn’t take scientific studies and long-winded scenarios to prove this — just get up on the roof and see it. (See Photo 1.)

Photo 2. When a light dusting of snow blew off this 2 million-square-foot facility in central Illinois, every single mechanical fastener and insulation joint could be identified by the ice visible at their locations. This roof needed to be replaced due to condensation issues several years after installation at a cost of more than $10 million.

I spoke on this topic back in 2007 at the RCI Cool Roofing Symposium. I always like being a soothsayer, and several recent studies are demonstrating and attempting to quantify this energy loss that most roofers could tell you was there.

For years the NRCA suggested a loss of thermal value of 7 percent to 15 percent through the joints in a single-layer insulation application and through mechanical fasteners used to secure the insulation. (The NRCA has since removed this figure and suggests that professionals be consulted to determine thermal heat loss.) The NRCA recommended a cover board to reduce this effect. This was at a time when roof covers were predominantly BUR, modified bitumen or adhered single plies. The upsurge in mechanically attached single-ply membranes, brought on by low-cost installation and the promise of energy savings, changed the game. No one was asking, if there could be a loss of 7-15 percent when mechanically attaching insulation, what could the effective R-value loss be when we install thousands of fasteners and plates 12 inches on center (or less) down a membrane lap seam? Gee, haven’t we seen that before?

Code Requirements

The code and standard bodies — ICC, IECC, ASHRAE — have been repeatedly raising required thermal insulation values over the past decade in an attempt to conserve energy; that is their intent. They listened to astute designers and

Photo 3.This is close-up of the roof shown in Photo 2. Heat loss through the screws and fastener plates and through joints in the single layer of insulation melted the snow. The water froze when the temperatures dropped and the ice was revealed when a light wind pillowed the membrane and the remaining snow blew away.

prescribed two layers of insulation, and then again to determine the minimum R-value and not allow averages. The intent is clear. The required R-value per ASHRAE zone is to be achieved.

Their goals were laudable, but not all roof systems achieved the in-place R-values required. So, this article is in part an attempt to educate code officials and explain the need for a change.

Words can explain the phenomenon of thermal loss, but photos are worth a thousand words, and since my editor has told me that I cannot have a 4,000-word article, I leave it to the photos to do the talking. (See Photos 2, 3 and 4.)

Scientific Studies

In their Buildings 2016 article titled “Three-Dimensional Heat Transfer Analysis of Metal Fasteners in Roofing Systems,” Singh, Gulati, Srinivasan and Bhandari (Singh) studied the effect of heat transfer through thermal bridging (mechanical fasteners) in various roof assembly scenarios.

Their study exposes a shortfall in many standards that have as their goal a reduction in energy loss through building envelope systems through prescriptive approaches. For roofing assemblies, standards prescribe a minimum R-value, but they do not take into consideration the heat loss that happens though metal fasteners. There are no guidelines or recommendations in regards to thermal loss, including the loss of heat through roof system fasteners. It’s actually ignored.

Figure A: The effect of mechanical fasteners below the roof cover in mechanically attached roofs is not negligible as considered by general standards. As can be seen here for systems 1A and 1 B, in which mechanical fasteners are used in the lap seams of the roof cover (systems 3A and 3B have the fasteners below a layer of insulation), the actual thermal value loss caused by mechanical fasteners can be as high as 48 percent, as seen in system 1A with a high density of mechanical fasteners. As the mechanical fastener density decreases (1B), the heat loss also decreases. Thus, a correlation appears to exist in which heat loss due to thermal bridging is proportional to the fastener density.

The results of the Singh study, as seen in the graph (Figure A), show that the effects of thermal shorts, e.g., mechanical fasteners used to secure the roof cover, is not negligible. In fact, thermal shorts can result in a loss of 48 percent of the effective value. Read that again! The thermal value of the roof insulation layer on which the mechanical engineer has in part sized the mechanical equipment — and which the owner is counting on for significant energy savings — could be about half of what was assumed. Add in gaps and voids, and the loss in the effective R-value could top 50 percent. What that means is that to achieve the code required R-30, say in Chicago, mechanically fastened roof systems need to have R-45 in the design to meet the effective code required R-value. This last sentence is for the code bodies — are you listening?

The value of this study cannot be underestimated, as thousands of buildings have been constructed since its publication that would not meet an effective R-value check in a commissioning study.

Changing the Code

The energy inefficiency of mechanically attached roof systems in ASHRAE zones 4 and above has been known to roofing crews for decades. Now, with the requisite scientific studies completed, the codes need to be revised to reflect the inherent thermal loss through mechanical fasteners. Additionally, studies from Oak Ridge National Laboratory highlight the energy increase required with inherent air changes below the membrane, confirming the need for air/vapor barriers on the deck on mechanically attached roof assemblies. (See “The Energy Penalty Associated with the Use of Mechanically Attached Roofing Systems,” by Pallin, Kehrer and Desjarlais.)

Photo 4: Heat loss also occurs through adhered roofs when the insulation is mechanically attached.

As a starting point for code groups and officials, I suggest the following code revisions:

  1. State that if a mechanically attached roof cover is being used that the prescribed thermal R-value shall be increased by 50 percent.
  2. State that if a mechanically attached roof cover is being used that an air barrier below the insulation must be used and that it shall be fully adhered to penetrations and roof perimeters.

Closing Thoughts

The goal of energy conservation is a laudable one. The American Institute of Architects’ goal of zero-energy building by 2030 will never be met until real-world empirical information can be presented at code hearings. (For those of you who do not attend code hearings or know the process, information is usually disseminated in two-minute sound bites without documentation.) This lack of information sharing is a travesty and has resulted in numerous code changes that have been detrimental to the goal of energy savings. Time has come for a new way of thinking.

Tax Cuts and Jobs Act a Big Victory for Roofing

Recent legislation is expected to provide a boost to the commercial roofing industry. A commercial roofing application of Lapolla FOAM-LOK spray foam roofing is shown here. Photo: Icynene-Lapolla

2017 proved a significant year for the roofing industry. Not only was optimism high and demand still on the uptick in both the new construction and re-roofing marketplaces, but when The Tax Cuts and Jobs Act of 2017 passed in December last year, it marked a huge victory for those involved in roofing. The tax reform essentially opened the door for a series of tax related benefits likely to boost business in 2018 and beyond.

There are a few key areas of the tax reform applicable to roofing entities. One of the key sections — IRC Sec. 179 expensing provision (deduction) — intends primarily to benefit small businesses who can purchase equipment, then write-off the amount of those purchases during the same calendar year. For 2018, qualifying property purchases include most business equipment such as computers, certain vehicle types, virtually all construction equipment and machinery.

“For contractors in our sector specifically, this portion of the reform is key, as it allows them to write off the equipment and vehicles they purchase specific to transporting and installing spray foam roofing on the jobsite,” says Kurt Riesenberg, executive director of the Spray Polyurethane Foam Alliance (SPFA). “Some of our members have been quite pleased to learn about these tax changes, and although we worked hard with other groups to make them happen they still seem like one of the best kept secrets. We need to change that so all of our members know about them.”

Perhaps one of the most notable aspects of IRC Sec. 179, however, is that the qualified property listed under it now includes non-residential roofs. Hailed as a huge win, the new limit on the total amount of Sec. 179 property that a business can purchase each year before being totally phased out is $2.5 million (up from the previous $2 million), and the annual limit for the deduction itself has been raised to $1 million (up from $500,000). A property owner is now able to write off up to $1 million the same year that a commercial roof is purchased. Additionally, the $1 million annual deduction and $2.5 million business investment limit are now permanent and indexed for annual inflation starting in 2019.

“The commercial roof inclusion in the tax reform is likely to spur increased sales and installations of new roofs this year, and we want our members making the most of the opportunity,” adds Riesenberg.

There was one tradeoff made in order to make commercial roofs eligible for Sec. 179 — the elimination of the deduction for the interest on loans to finance the purchase. However, it’s still a significant benefit for contractors able to leverage IRC Sec. 179’s equipment purchase write-off.

Bonus Depreciation Deduction

Another key area of note is IRC Sec. 168(k) — the Bonus Depreciation Deduction — which the act raises to 100 percent for qualifying new and used property acquired, and placed in service, after September 27, 2017 and before January 1, 2023. Property with a depreciable tax life of 20 years or less generally qualifies and includes: machinery and equipment, furniture and fixtures, computers and computer software, and vehicles utilized primarily for business (with a dollar cap on cars and trucks with a loaded vehicle weight of 6,000 pounds or less).

More broadly, the tax rate for C corporations, or the corporate tax rate, was cut through the new reforms to 21 percent (from 35 percent). Also of note to many roofing contractors and contractor firms, pass-through entities organized as S corporations, partnerships, LLCs and sole proprietorships now receive a 20 percent deduction on taxable income up to $157,000 or $315,000 if filing jointly that is phased out at $207,500 or $415,000 respectively.

Many contractors are structured as pass-throughs and pay their business taxes on individual returns, so it also helps that the top individual rate has been lowered from 39 to 37 percent.  However, the rules for pass-throughs are complex and consulting with a tax expert is encouraged.

For contractors that are family businesses, the new tax code doubles the estate tax exemption so that estates of up to $11 million ($22 million for couples) are now exempt from taxation. In addition, the Alternative Minimum Tax (AMT) exemption and phase-out amounts for individuals have been sharply increased.

Finally, in a separate bill, Congress renewed the Residential Energy-Efficiency Tax Credit (IRC Sec. 25C), the Energy Efficient New Home Tax Credit (45L), and the Commercial Building Tax Deduction (179D).  While renewed retroactively only for tax year 2017, the door remains open for these incentives (tax extenders) to be renewed for 2018 and beyond.

“These incentives help, but the tax act’s reforms are a big, long-term win for both the spray polyurethane foam sector and the roofing industry at large,” says Riesenberg. “All indications point to this act giving the roofing industry and its many players a boost in business. It’s business and jobs that drive the economy, and when you add in the resulting benefits direct to our members, this news hits the trifecta for an exciting and optimistic 2018 and beyond.”

The Federal Government Is Making Energy-Efficient Roofing Attractive

Small businesses are now able to deduct the full cost of replacing a roof on an existing non-residential building in the year the project was completed instead of depreciating that cost over a 39-year period, as was previously required. Photo: SOPREMA

It is fair to say that Washington, D.C., is far from dull. From the recent Tax Cut and Jobs Act to rolling debates on passing a federal budget, there is a great deal going on at the federal level that impacts the building and roofing industries. In particular, new reforms allow qualifying building owners to expense, or deduct, up to $1 million for the cost of certain building improvements in the year the work is performed, including adding insulation during roof replacement projects to meet or go beyond modern building energy code requirements. The impact can be significant for capital improvement projects. For example, a building owner that expenses the cost of a full roof replacement can reduce the net cost of the entire project by 25 percent to 30 percent.

Commercial Building Roof Replacements

The Tax Cut and Jobs Act, signed into law by President Trump on December 22, 2017, includes a provision that reduces the overall cost associated with re-roofing and significantly improves the cost-effectiveness of commercial roof replacements that comply with building energy codes. The vast majority of state and local governments require minimum insulation levels for both new roofs and roof replacements (but not for roof repairs or recovers). These requirements apply to existing buildings because the most economical time to improve a roof’s thermal performance is when the roof membrane is pulled off and replaced. Also, roof replacements are one of the best opportunities for improving energy efficiency in existing buildings, which account for 40 percent of U.S. energy use.

Starting in 2018, the new federal tax law expands the definition of “qualified real property” under the small business expensing provisions of Internal Revenue Code section 179 to include improvements to existing nonresidential roofs. Section 179 allows businesses to fully expense (deduct) up to $1 million (indexed for inflation after 2018) in one year for qualified business expenses, such as equipment purchases and specific building improvements. With this change, small businesses are now able to deduct — in the year completed — the full cost of replacing a roof on an existing non-residential building instead of depreciating that cost over a 39-year period, as was required under prior law. As a mechanism intended to limit the deduction to small businesses, the benefit is phased out for businesses that spend more than $2.5 million (also indexed for inflation) on qualified equipment and real property. This change takes effect in 2018 and, unlike some provisions of the new law, is permanent.

A typical scenario under which a commercial building roof replacement is required to comply with a building energy code is one where an older building with a low-slope roof has R-11 or R-12 insulation in the roof prior to the roof replacement. The R-12 assumption is based on a U.S. Department of Energy (DOE) study that evaluated the level of existing insulation in commercial building roofs. For most of the country, current building energy codes require roof replacements to have a minimum level of R-25 or R-30, depending on the climate zone.

The average simple payback period for meeting the energy code is 11.6 years, according to a comprehensive energy modeling study completed in 2009 (“Energy and Environmental Impact Reduction Opportunities for Existing Buildings with Low-Slope Roofs,” produced by Covestro).

The payback period is the amount of time it takes for the energy savings to equal the cost of installing the additional insulation. By allowing a building owner to deduct the full cost of the roof replacement, including the cost for installing additional insulation, the net cost of the entire project is reduced by 25 percent to 30 percent, depending on a tax payer’s tax rate. (The Tax Cuts & Jobs Act reduced the corporate tax rate to 21 percent, but the pass-through rates, which are more relevant to small businesses, are closer to 30 percent, which increases the impact of this new deduction.) More importantly, the deduction shortens the average payback period on the cost of installing additional insulation to 8.1 years, making the investment in energy efficiency even more cost effective for the building owner.

Disaster Relief Reforms and Resilient Buildings

Recent maneuvers by Congressional budget writers provided several positive reforms that will impact the resiliency of buildings in some of the most vulnerable parts of the country.

First, Congress passed improvements to the Federal Cost Share Reform Incentive that increases post-disaster federal cost-share with states from 75 percent to as high as 85 percent on a sliding scale based on whether a state has taken proactive steps to improve disaster preparedness. These steps can include the adoption and enforcement of the most recent building codes. This further incentivizes states to maintain robust and current building codes, including the energy code.

Second, under reforms to the Stafford Act, federal disaster relief funds administered by the Federal Emergency Management Agency may be used to replace or restore the function of a facility to industry standards without regard to pre-disaster condition and replace or restore components of the facility not damaged by the disaster where replacement or restoration is required to fully restore the function of a facility. This allows post-disaster funds to be more effectively used to improve the resiliency of damaged buildings and should create opportunities for higher performing roof systems to replace those damaged in disasters.

While the built environment is likely to benefit under recent Congressional action, other policy priorities for the construction and energy efficient industries have been left unresolved. For example, Congress “extended” several clean energy and energy-efficiency related tax provisions, including the Section 179D deduction for commercial building energy efficiency. However, in head-scratching fashion, this and other tax provisions were only extended through December 31, 2017. This means more work is ahead to preserve the policies for the long term and add much needed certainty to the marketplace.

Unpredictable is a polite (and likely understated) description of the policy environment in our nation’s capital. You need not look beyond the recent FY2018 budget deal for an example. Building energy efficiency advocates spent countless hours educating lawmakers on the importance of funding federal research led by the Department of Energy (DOE). Fearing a federal budget that would cripple these vital programs by slashing budgets, advocates saw an 11 percent increase to the DOE’s Office Energy Efficiency and Renewable Energy budget, which leads research on building energy performance. And while history is a poor predictor of future success, recent action impacting buildings demonstrates that policymakers understand the need for strong policies that encourage and lead to more efficient and resilient construction.

You Might Have More Employees Than You Think You Do

If you are a contractor in the construction industry, there is a chance that a person who isn’t on your payroll is legally considered to be your employee.

If you meet the above description and you operate in North Carolina, South Carolina, Virginia, West Virginia, or Maryland, there is a particularly good chance that’s the case.

You might be thinking this is because of employee misclassification — which occurs when laborers are wrongly classified as independent contractors instead of employees. But that isn’t the whole story. Increasingly, unanticipated employer liability occurs not because of employee misclassification, but instead due to joint employment — a related but totally distinct issue.

This is happening because the definition of what constitutes employment, and joint employment particularly, has become increasingly broad in recent years. Many courts expanded the definition in response to stricter guidelines the Department of Labor’s Wage and Hour Division set forth during the Obama presidency. But this is perhaps most apparent in the Southeast, where, in January 2017, the Fourth Circuit Court of Appeals expanded the definition of joint employment in Salinas v. J.I. General Contractors, Inc. The Salinas decision, along with Hall v. DirecTV, a case involving employee misclassification decided the same day, predate the Department of Labor’s June 2017 rollback of the Obama administration’s restrictive guidelines. However, despite any efforts by the Trump administration to curtail the expanding joint employment doctrine, the Salinas and Hall decisions still control in the Fourth Circuit — and case law in other jurisdiction still controls as well. It’s unclear whether a change in the law is in store anytime soon; however, in January, the United States Supreme Court declined to hear DirecTV’s appeal in the Hall case.

The Salinas court found that a general contractor was considered the joint employer of its subcontractor’s employees and therefore that the general contractor was responsible for wage violations under the Fair Labor Standards Act (FLSA). The Salinas decision and the new standard it set for joint employment represent a significant change from the more than 30-year precedent on joint employment. This means contractors — and other entities who could be considered joint employers — need to understand the risks involved in joint employment and try, to the extent possible, to manage that risk.

Defining Joint Employment

So, what is joint employment? It generally occurs in two scenarios: horizontal joint employment and vertical joint employment. Vertical joint employment is the type at issue in Salinas and the type more likely to be applicable in the construction industry. The typical scenario is one where a contractor arranges or contracts with an intermediary employer to provide the contractor with labor in certain scenarios — in essence, the contractor-subcontractor relationship. Vertical joint employment can also arise when a contractor or subcontractor contracts or engages with a staffing company to provide it with laborers for a certain project or merely to carry out certain employer functions, like administering payroll and benefits.

Due to the Salinas decision, the law in the Fourth Circuit (North Carolina, South Carolina, Virginia, West Virginia, or Maryland) is that alleged joint employers must be “completely disassociated” from the intermediary employer. Otherwise, they will be considered joint employers of the intermediary’s employees. The court set forth six factors that determine whether two entities are not completely disassociated. Here are the factors with some analysis of how they could be applied to a general contractor-subcontractor or contractor-staffing firm relationship:

  1. “Whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate the power to direct, control, or supervise the worker, whether by direct or indirect means;”

If a general contractor and subcontractor agree — or if they operate in such a way — that the contractor has the authority to direct the subcontractor’s employees, set their schedules and work assignments, enforce project site rules, and/or supervise their employees, this factor would support a finding of joint employment. Similarly, if a subcontractor contracts with a staffing firm for laborers and the subcontractor has the authority to set workers’ hours and locations, and/or dictate how they perform their work, the subcontractor is probably a joint employer.

  1. “Whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate the power to — directly or indirectly — hire or fire the worker or modify the terms or conditions of the worker’s employment;”

When this factor is applied, any contractor who is authorized to assign a subcontractor’s or staffing firm’s employee to a particular project — or remove the individual from a project site — will likely be considered a joint employer of that individual.

  1. “The degree of permanency and duration of the relationship between the putative joint employers;”

Many general contractors establish long-term working relationships with certain subcontractors and/or staffing agencies and work with the same companies repeatedly on many jobs. These contractors are at risk of being found to be joint employers. Likely at an even higher risk are contractors that have few to no employees on their payroll and instead retain all of their workers through an intermediary, such as a staffing firm. These contractors may believe that using staffing firms reduces or eliminates their liability under federal and state employment laws. While it might allow these companies to delegate administrative functions like administering payroll and benefits, the law in the Fourth Circuit won’t allow them to avoid much liability.

  1. “Whether, through shared management or a direct or indirect ownership interest, one putative joint employer controls, is controlled by, or is under common control with the other putative joint employer;”

This scenario is perhaps less common than the others but appears to apply when a contractor controls a subsidiary or affiliate. The contractor could be considered the employer of the subsidiary, affiliate, or indirectly owned entity.

  1. “Whether the work is performed on a premises owned or controlled by one or more of the putative joint employers, independently or in connection with one another;”

Most general contractors or construction management firms are obligated to control and supervise the project site. This factor, as applied to such firms, would establish them as joint employers of subcontractors’ and staffing firms’ employees.

  1. “Whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate responsibility over functions ordinarily carried out by an employer, such as handling payroll; providing workers’ compensation insurance; paying payroll taxes; or providing the facilities, equipment, tools, or materials necessary to complete the work.”

This factor pertains to the above scenario where entities try to delegate certain employer functions to staffing agencies. Virtually every staffer/client agreement is one where the parties “jointly determine” who has what responsibility for these functions. Even if the staffing agency is in charge of screening, payroll, workers’ compensation, and benefits, if the client performs any employer functions — like supervision, hiring, firing, and/or providing instructions, tools, or materials — then the client will likely be seen as a joint employer.

Examine Your Business Model

If a court within the Fourth Circuit is faced with any federal employment issue and a joint employment question exists, it will consider the above factors. Such a court would then likely analyze whether the laborers in question are employees or independent contractors — another, separate test. But the Salinas factors alone are enough to cause concern for most contractors who contract for labor.

Because the above factors apply regardless of the terms of any subcontract or staffing agreement, consulting with counsel about how to better draft those agreements is only one step for contractors who are concerned about expanded liability. They also need to consult with counsel about the way they conduct business and whether it still works in light of the expanded joint employment doctrine.

Otherwise, they should understand that they may have more employees than they realized.

 

 

This article is not intended to give, and should not be relied upon for, legal advice. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.

Recent Changes in Tax Legislation Could Save You or Cost You Beginning in 2018

The recently enacted Tax Cuts and Jobs Act (TCJA) is a sweeping tax package. Everyone in business — including roofers — should have at least a passing knowledge of what to expect beginning in tax year 2018. Most of the changes are effective for tax years beginning in 2018 and lasting through 2025.

Tax rates — personal and corporate. The new law imposes a new tax rate structure with seven tax brackets: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent. The top rate was reduced from 39.6 percent to 37 percent and applies to taxable income above $500,000 for single taxpayers and $600,000 for married couples filing jointly.

The corporate income tax rate used to be graduated with a maximum cap at 35 percent. It was reduced to a flat 21 percent. The corporate tax rate reduction puts the United States in line with most of the rest of other developed nations. The reduction is designed to increase spending, increase jobs, increase employee salaries, foster corporate improvements, and continue to incentivize the overall economy.

Standard deduction. The new law increases the standard deduction to $24,000 for joint filers, $18,000 for heads of household, and $12,000 for singles and married taxpayers filing separately. Given these increases, many taxpayers will no longer be itemizing deductions. These figures will be indexed for inflation after 2018.

Exemptions. The new law suspends the deduction for personal exemptions. Thus, starting in 2018, taxpayers can no longer claim personal or dependency exemptions. The rules for withholding income tax on wages will be adjusted to reflect this change, but IRS was given the discretion to leave the withholding unchanged for 2018.

New deduction for “qualified business income.” Starting in 2018, taxpayers are allowed a deduction equal to 20 percent of “qualified business income,” otherwise known as “pass-through” income, i.e., income from partnerships, S corporations, LLCs, and sole proprietorships. The income must be from a trade or business within the United States. Investment income does not qualify, nor do amounts received from an S corporation as reasonable compensation or from a partnership as a guaranteed payment for “services” provided to the trade or business. In other words, lawyers are out of luck! The deduction is not used in computing adjusted gross income, just taxable income. For taxpayers with taxable income above $157,500 ($315,000 for joint filers), (1) a limitation based on W-2 wages paid by the business and depreciable tangible property used in the business is phased in; and (2) income from the following trades or businesses is phased out of qualified business income: health, law, consulting, athletics, financial or brokerage services, or where the principal asset is the reputation or skill of one or more employees or owners.

Child and family tax credit. The new law increases the credit for qualifying children (i.e., children under 17) to $2,000 from $1,000, and increases to $1,400 the refundable portion of the credit. It also introduces a new (nonrefundable) $500 credit for a taxpayer’s dependents who are not qualifying children. The adjusted gross income level at which the credits begin to be phased out has been increased to $200,000 or $400,000 for joint filers.

State and local property taxes. The itemized deduction for state and local income and property taxes is limited to a total of $10,000.00 starting in 2018.

Mortgage interest. Under the new law, mortgage interest on loans used to acquire a principal residence and a second home is only deductible on debt up to $750,000, starting with loans taken out in 2018. This sum is down from $1 million. There is no longer any deduction for interest on home equity loans, regardless of when the debt was incurred.

Miscellaneous itemized deductions. There is no longer a deduction for miscellaneous itemized deductions which were formerly deductible to the extent they exceeded 2 percent of adjusted gross income. This category included items such as tax preparation costs, investment expenses, union dues, and unreimbursed employee expenses.

Medical expenses. Under the new law, for 2017 and 2018, medical expenses are deductible to the extent they exceed 7.5 percent of adjusted gross income for all taxpayers. Previously, the adjusted gross income floor was 10 percent for most taxpayers.

Casualty and theft losses. The itemized deduction for casualty and theft losses has been suspended except for losses incurred in a federally declared disaster.

Overall limitation on itemized deductions. The new law suspends the overall limitation on itemized deductions that formerly applied to taxpayers whose adjusted gross income exceeded specified thresholds.

Moving expenses. The deduction for job-related moving expenses has been eliminated, except for certain military personnel. The exclusion for moving expense reimbursements has also been suspended.

Health care “individual mandate.” Starting in 2019, there is no longer a penalty for individuals who fail to obtain minimum essential health coverage.

Estate and gift tax exemption. Effective for decedents dying, and gifts made, in 2018, the estate and gift tax exemption has been increased to roughly $11.2 million ($22.4 million for married couples).

A lot of the details of the simple descriptions listed above remain to be completely formalized, and some of it may still change. Stay aware of the tax revisions and consult with an attorney in your locale if you have any questions.

Updated NIBS Study Proves Mitigation Is a Sound Investment

Table 1. Benefit-cost ratio by hazard and mitigation measure. Courtesy of the National Institute of Building Sciences.

More than a decade ago, the National Institute of Building Sciences (NIBS), a nonprofit mandated by Congress to improve building process and facility performance, issued a landmark report which changed the conversation about the value of resilience. The 2005 report, Natural Hazard Mitigation Saves, was authored by NIBS’ Multihazard Mitigation Council (MMC), which promotes collaboration to achieve resilience objectives among a broad spectrum of stakeholders. Working from data provided by the Federal Emergency Management Agency (FEMA), the report found that every $1 of natural hazard mitigation funded by the FEMA between 1993 and 2003 saved the American people an average of $4 in future losses. That one to four ratio of investment to returns was widely quoted at the time that the report was published, and has been cited repeatedly during the past decade as interest in resilience grown. This report was among the first to demonstrate that investment in mitigation could deliver significant returns.

During the intervening years, as the frequency and severity of natural disasters has intensified, MMC leadership recognized the need to update and expand the 2005 study. Philip Schneider, AIA, Director of the MMC, explains that the “disaster landscape” has changed since 2005, necessitating a new report. “Our hazard maps, particularly, for earthquake and wind, have had several updates based on more research and better data. Our codes and standards are much improved for creating disaster resistance than they were over ten years ago. Our exposure to disasters, especially, building in disaster-prone areas, has increased substantially. We also have better methods for determining vulnerability to disasters than we had then, and more sophisticated economic analysis tools.’’ In fact, as part of the changed “disaster landscape” that Schneider references, 2017 set unwelcome records related to climate and weather events. According to a report released by the National Oceanic and Atmospheric Administration (NOAA) in early January, the U.S. experienced 16 separate billion-dollar disaster events, matching 2011 for the record number of billion-dollar disasters for an entire calendar year. Together, these events cost the country more than $300 billion dollars, a new annual record for the United States. While this data was released after the publication of the MMC report, it underscores the urgent need to lessen the financial impact of these increasingly frequent disasters.

Figure 1. Total costs and benefits of 23 years of federal mitigation grants. Courtesy of the National Institute of Building Sciences.

After a year-long effort, the MMC released its updated report in January of this year. Natural Hazard Mitigation Saves: 2017 Interim Report examined two specific mitigation strategies and found that mitigation is of even greater value now than it was when the first report was released. First, based on updated data on the impact of FEMA grants, the report stated that society now saves $6 for every $1 spent on mitigation. Looking at a second mitigation strategy, the report found a corresponding “benefit-cost” ratio of four to one for spending that exceeded select provisions of the 2015 International Code Council building codes. In summarizing its findings for both strategies, the MMC stated that, “Mitigation represents a sound financial investment.” (For the purposes of this study mitigation and resilience have similar meanings. Schneider says, “For both terms there is no one universal definition; they both are broadly defined with considerable overlap. However, resilience tends to be more community-based, taking into account a wider range of infrastructure, economic, environmental and social issues. Mitigation tends to be more building centric, but still can pertain to a subset or even the same set of wider range issues.”)

The report points out that while mitigation strategies deliver financial rewards, they would also provide other significant benefits. Implementing the two sets of mitigation strategies detailed in the report “would prevent 600 deaths, 1 million nonfatal injuries and 4,000 new cases of post-traumatic stress disorder in the long term.” Additionally, the report projects that designing new buildings to exceed the model ICC building codes would help fuel economic growth, “resulting in 87,000 new, long-term jobs, and an approximate 1 percent increase in utilization of domestically produced construction material.”

Natural Disasters

The report specifically looked at four potentially cataclysmic natural forces: hurricane winds, earthquakes, riverine floods and hurricane surges. Then they looked at five stakeholder groups that would bear the costs and enjoy the benefits of mitigation for the four natural hazards under consideration. These stakeholder groups are:

  1. Developers: corporations that invest in and build new buildings, and usually sell those buildings once they are completed, owning them only for months or a few years
  2. Title holders: people or corporations who own existing buildings, generally buying them from developers or prior owners
  3. Lenders: people or corporations that lend a title holder the money to buy a building
  4. Tenants: people or corporations who occupy the building, whether they own it or not
  5. Community: people, corporations, local government, emergency service providers, and everyone else associated with the building or who does business with the tenant

Figure 2. Total costs and benefits of new design to exceed 2015 I-Code requirements. Courtesy of the National Institute of Building Sciences.

The study reports that when the cost each group bears to mitigate a loss is subtracted from the positive benefits it enjoys, the “net benefit” is positive in each category. In other words, the value of investing in mitigation is spread broadly across the construction business and the people it serves.

The authors of the report are careful to point out that the cited benefit-cost ratios, or BCRs, are generated from two very specific mitigation strategies: those used by FEMA, and those incorporating designs that exceed provisions of ICC codes. Noting that the results from the 2005 study represented only a single, very narrow set of strategies but were incorrectly used to justify “all types of mitigation strategies,” the authors of the study specifically say that they did not provide an aggregate number in the updated study, but elected to provide BCRs for the two strategies individually. Moving forward, providing an aggregate number is definitely one of their goals: “Once the project team has identified BCRs for a sufficient number of mitigation strategies, it will provide an aggregated number representing the overall benefit of mitigation.” To help achieve that goal, multiple studies are being conducted by the MCC to examine the value of many kinds of natural hazard mitigation at the national level, and more studies are being planned, pending the acquisition of funding.

Focusing on the Roof

What do the results of this study mean for those who focus on the integrity of a roofing system to help create a resilient structure? Schneider underscores the importance of a resilient roof as a component of an overall mitigation strategy. “If the roofing system is compromised in either a windstorm or wildfire, the building or home is subject to total loss.” He also observes that achieving resilience, either in an entire community or in an individual structure, will be a combined effort. “Resilience will be best implemented when states and communities develop and effect resilience plans. Communities, particularly, need to address zoning. Codes and standards organizations need to constantly be updating their documents to address resilience, and architects, engineers, developers and contractors should be building to resilience standards. Manufacturers have their part in providing more resilient products and systems.”

The NIBS report is being praised as an important tool to help in decision-making about investment in resilience, and influential stakeholders are supporting its approach. Executive Director Paul Kovacs of the Toronto-based Institute for Catastrophic Loss Reduction says, “Findings of the 2005 report, that resilience offers a societal payback of $4 for every $1 invested in mitigation, made an extremely important contribution to the argument that building resilience towards natural hazards is not costly in the mid- to long-term and, in fact, offers a solid Return on Investment. The 4:1 ratio became the most commonly cited metric to show that resilience works, that such things as building codes work. The updated study released yesterday puts a finer point on the metrics and continues to offer overwhelming evidence that building resilience is key to avoiding death, injuries, property damage and disruption.”

Mike DuCharme, Chairman of the EPDM Roofing Association (ERA), adds support from the manufacturers’ point of view. “We know that our EPDM products can play an essential role in helping to create more resilient roofing systems. With this new report showing the economic advantages of resilience, we can provide the construction industry with materials that can not only enhance the performance of a resilient roofing system, but also provide financial advantages as well.”

The NIBS report concludes by pointing out that, “Not everyone is willing or able to bear the up-front construction costs for more resilient buildings, even if the long-term benefits exceed the up-front costs,” and suggests that some creative incentives might be needed “to align competing interests of different groups.”

FEMA, the source of the statistics for the NIBS report, is addressing this very issue and has just released its Draft National Mitigation Investment Strategy at the request of the Department of Homeland Security. This strategy is meant to address the lack of coordination in mitigation investment and is organized to achieve these six outcomes:

  1. Coordination of risk mitigation and management improves between and among public, private, and non-profit sector entities.
  2. The private and nonprofit sectors increase their investments in and innovations related to mitigation.
  3. State, local, tribal and territorial governments are increasingly empowered to lead risk reduction activities and share responsibility and accountability with the federal government.
  4. Public, private, and nonprofit sector entities develop and share more of the data and tools needed to make risk-informed mitigation investments.
  5. Public, private, and nonprofit sector entities improve risk communication, leading to more risk-informed mitigation investments by individuals and communities.
  6. The built environment — whether grey or nature-based infrastructure, and including lifeline infrastructure, buildings, and homes — becomes more resilient

This Draft report is now available for comment and FEMA will continue to research the issue before releasing its final recommendations.

This increasing focus on the issue of resilience has moved the debate forward, beyond where it was just a year ago at this time. The question is no longer whether resilience is needed; the daunting statistics of 2017 confirm that cataclysmic weather events are on the increase and can cause staggering damage to the built environment. The NIBS report provides hard evidence that resilience is an investment in the future that will pay dividends for years to come. The debate now moves forward to the best ways to finance these mitigation efforts, so that those future dividends can be realized.

How Sales Management Can Hurt Sales

There’s a sales management philosophy in too many companies that is actually working against sales growth. And the salespeople know it. The philosophy goes like this:

  • Walk in 40 doors a day.
  • Make 40 calls a day.
  • Hand your business card to everyone.
  • Gather as many business cards as you can.
  • Sell, sell, sell.

While this is a lot of activity and can look good on a sales report, it isn’t usually productive. And it shifts the goal from getting business to participating in a specific behavior.

This usually happens because the owner or sales manager found great success using these methods. That’s great for them! But it doesn’t mean everyone is going to be successful doing it that way.

sIn addition, today’s business environment doesn’t really offer a welcoming landscape for this kind of behavior. The consumers are very well educated and are really looking for someone they trust. The salesperson is better off working on relationship building rather than tallying the number of doors knocked.

Many companies with this philosophy have a lot of turnover in the sales department. And do you know why? Because people join the company with the best of intentions and in many cases a great method for gaining sales. When they discover that they can’t implement their method, but rather have to engage in behavior that doesn’t work for them, they don’t hit their sales goals. So, they leave — either voluntarily or by request.

Either way, it’s not good for the company. The cost alone of bringing on a new employee is significant. Think about it. You’ve got to run ads, sift through resumes, interview, hire, onboard, train, and then exit. Go ahead and put dollar values on each of those items, then add them up. Now include the lack of sales into the cost. All the business you didn’t do! It’s an expensive proposition.

Building Confidence

Another key concern is the image that develops of the company in the community. Think about things from the prospect or client’s point of view. If, every time they turn around there’s a new salesperson introducing themselves, you’re telegraphing instability within your company. Is that really the message you are trying to send? Customers want confidence that the salesperson they’ve grown to trust will be there for more than a hot minute. If they keep seeing new salespeople, their trust goes down. That’s never good.

So, I ask you, which is more important?

  1. Engaging in a specific activity
  2. Gaining new clients

I’d say No. 2. And if that really is more important, then it doesn’t matter how it is done — as long as it is moral, legal, and ethical.

Sales managers would be better off sharing the vision and the goals of the company with their sales staff while leaving the sales strategy to each salesperson. Empower the sales team to develop their own process and then monitor their results. Give them the resources they need to be successful. Be there for them when they need advice, or training. And communicate with them on a regular basis about their results. As long as the results are there, the process shouldn’t matter.

Think about why you hire someone. Is it because you believe they have the skills and personality necessary to succeed at sales? Probably. And if so, don’t you owe it to them to trust them to do the job? Whenever we tell someone how to do something, we’re really saying that we don’t trust them to do it right. There’s a confidence killer!

It’s like hiring someone for their great attitude and then squashing that attitude. Makes no sense. Respecting the sales staff means talking with them, not at them. It means listening to what they have to say, respecting their ability, and expecting them to deliver. Period. The best way to disrespect the sales staff is to tell them to do things your way. Then you are telling them that you don’t trust them to do it right, or well, or successfully. Believe me when I tell you, you won’t get what you are wanting if you engage in this sort of “management.” Instead, lead your team. Help them be the best they can be.

After all, sales is about relationships, not dialing for dollars. Let your salespeople network and develop relationships with referral partners, prospects, and clients. Their time will be better spent, the results will be there, and everyone will be happier. If one of the salespeople decides to make 40 calls a day, great! That is their preferred method. It should be more important to make sure your salespeople have a strategy that makes sense to them than to have a strategy that only makes sense to the sales manager.

ARMA Honors Top Asphalt Projects With QARC Awards

The QARC Gold award was presented at the International Roofing Expo in New Orleans, where Imbus Roofing received a $2,000. Pictured are Bob Gardiner, CertainTeed; Steve Sutton, Imbus Roofing; Andrew Imbus, Imbus Roofing; Tom Smith, CertainTeed and Ron Gumucio, ARMA.

The Asphalt Roofing Manufacturers Association (ARMA) recognized a historic music hall, a home with a roof built to withstand high-wind events, and a museum dedicated to the United States’ fight for independence as 2017’s top asphalt roofing installations. ARMA’s annual Quality Asphalt Roofing Case-Study (QARC) Awards Program awarded the projects that exemplify the most beautiful, affordable and reliable asphalt roofing systems in North America.

Imbus Roofing Co. Inc. received the Gold QARC Award for its new roof installation on the 225,000 square-foot, 139-year-old Cincinnati Music Hall. The Kentucky-based contractor installed designer asphalt shingles to replicate the Music Hall’s slate tile roof, while also providing crucial durability against Cincinnati’s tough climate.

Reliant Roofing Inc. was honored with the Silver QARC Award for its completion of Topsail Residence, a 10,600-square-foot asphalt shingle roofing system designed to endure high-wind events in Ponte Vedra, Florida. This high-performance roofing system not only provided the homeowners with a durable option, but also a visually stunning roof for years to come.

The Bronze QARC Award was given to Thomas Company Inc. of Egg Harbor Township, New Jersey, for its low-

slope installation on Philadelphia’s Museum of the American Revolution. Designed to achieve LEED Gold certification, the project featured a high-quality modified bitumen roof membrane to prevent water penetration and create a more stable surface for the facility’s vegetative roof.

According to ARMA, the 2018 QARC Award program received some of the most impressive and innovative submissions of asphalt roofing installments to date. “This year’s submissions demonstrated asphalt’s ability to provide a durable and reliable roofing system against harsh weather while simultaneously offering an array of beautiful colors, designs and installation options,” said Ralph Vasami, ARMA’s acting executive vice president. “These projects are true examples of what asphalt roofing can offer commercial businesses and private homeowners alike.”

The 2018 QARC Award recipients are:

Gold
Project Name: The Cincinnati Music Hall
Company: Imbus Roofing Co. Inc.
Project Description: This steep-slope roof was installed with CertainTeed’s Grand Manor luxury asphalt shingles in the colors Stonegate Gray and Brownstone, as well as DiamondDeck and WinterGuard underlayments. The size, complexity and steepness of the project presented a great challenge to the contractor, who managed to install a durable asphalt roofing system that was also visually stunning.

Imbus Roofing received top honors for its work on 139-year-old Cincinnati Music Hall. Photo: CertainTeed

Silver
Project Name: Topsail Residence
Company: Reliant Roofing Inc.
Project Description: GAF Grand Canyon Lifetime Designer Shingles in the color Stone Wood was selected not only for its beauty, but its superior high-wind protection. Hand sealed Timbertex Premium Ridge Cap Shingles and GAF self-adhering Leak Barrier were also installed for added leak prevention.

Reliant Roofing received the Silver QARC Award for its completion of Topsail Residence in Ponte Vedra, Florida. Photo: Justin Alley and Kyle Brumbley

Bronze
Project Name: Museum of the American Revolution
Company: The Thomas Company Inc.
Project Description: The historic project required a high-quality roofing membrane that offered an aesthetic appeal to the building. Thomas Company chose SOPREMA’s SBS Modified Base Ply – ELASTOPHENE Flam with the SBS Modified Bitumen Flashing Base Ply – SOPRALENE Flam 180 to keep the roof water-resistant year-round, protect the roof membrane from foot traffic and add a beautiful appearance to the museum.

The Bronze QARC Award was given to Thomas Company Inc. of Egg Harbor Township, New Jersey, for its work on Philadelphia’s Museum of the American Revolution. Photo: Soprema

Honorable Mentions:
Big House Castle Rock
Jireh 7 Enterprises
Castle Rock, Colorado
Malarkey Roofing Products

Closson Chase Winery Church Roof
AI Anthony Roofing LTD
Hillier, Ontario
IKO Production Inc.

Tiny House & Top Shop
M & J Construction
Erhard, Minnesota
CertainTeed Corporation

West Loch Village Senior Apartments
M & R Roofing
Ewa Beach, Hawaii
PABCO Roofing Products

For more information about this year’s winners or to submit an asphalt roofing project, visit www.asphaltroofing.org.