Recent tax reform has had the side effect of effectively lowering corporate tax rates. With the resulting increase in cash, you might wonder how companies are spending this windfall. A recent report from RSM has revealed that many business owners are regarding this extra income with caution, missing key opportunities to invest in new opportunities. Nine out of ten middle market managers have said that they regard their capital expenditures (capex) as sufficient–but is it really? With the rapid speed of business developments today, business owners need to be strategic, and not just cautious, when it comes to their capex.

When surveyed before the tax reform, these business owners reveal ambitious and carefully weighed plans. Two-thirds intend to invest in new technologies, such as 3d printers and analytics solutions for their businesses. Meanwhile, half plan to invest in R&D, new equipment, streamlining internal processes, and training. However, if you were to predict that tax reform might shift these goals, you might be surprised.

“Manufacturers in the industrial products sector don’t base their decisions on one thing like tax reform to trigger whether they should spend on capex business improvements. They look at a number of variables to assess spending decisions, from market data to return on investment projections,” says Steve Menaker, RSM’s national manufacturing practice leader. Indeed, the tax reform has been complicated by the recent trade disagreement between the US and Canada.

“If a negotiated trade settlement isn’t reached soon, middle market businesses should begin to prepare for a price shock, driven by large businesses passing their rising input costs downstream,” agreed RSM US Chief Economist Joe Brusuelas. “As the tariffs on imported goods begin to bite, the middle market will bear a disproportionate burden of adjustment.”

Once the impacts of these tariffs are better understood, a substantial number of food and beverage manufacturers plan to increase capex on new technologies. Already, the craft beer industry has seen some of the benefits. As flow-through entities, they’ve experienced a higher federal tax rate reduction (up to 10 percent) and can already utilize those savings for growth and development. 

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