2013 B USINESS O UTLOOK S URVEY: A N EW R EALITY OF C AUTIOUS O PTIMISM

Transcription

1 13 B USINESS O UTLOOK S URVEY: A N EW R EALITY OF C AUTIOUS O PTIMISM

2 About the EKS&H Business Outlook Survey EKS&H, a Colorado-based audit, tax, and business consulting firm, conducts an annual Business Outlook Survey among middle-market C-level executives representing a diverse mix of business sizes, industries, and growth stages. The survey asks executives to consider both the past reality and the future outlook for their businesses, their industries, and the economy. Furthermore, executives are asked about challenges and goals for the upcoming year, as well as strategies to achieve these goals. Responses are compared to those of previous EKS&H Business Outlook Surveys. Results from the most recent survey represent the opinions of more than 250 business leaders. This report includes those comments we considered most actionable and insightful. For more information, see the methodology section at the end of this document, or contact AJ Steger, Partner Business Consulting.

3 13 Business Outlook Survey: A New Reality of Cautious Optimism Key Findings EKS&H Insights and Opportunities to Consider 12 Review 13 Outlook Economy Business - By Size - By Geography Strategy - Sales & Profit - Capital Funding (Source and Spending) Goals for 13 Challenges for 13 Different or Fundamentally Altered Strategies for 13 Industry Outlook for 13 Construction/Development/Real Estate Healthcare High Tech/Information Technology Manufacturing/Distribution Oil & Natural Gas Methodology 2

4 Key Findings Actual growth in 12, lower than had been expected. Actual capital spending increased over expectations. Profit was the most overestimated with 10 percent fewer respondents reporting actual growth of more than Most popular sales strategy: Offering New Products and Services. New Markets and Increasing Frequency of Sales were the second and third most identified strategies for increasing sales. %. A combined 19 percent fewer respondents indicated revenue growth and employment growth in the lower 3-9% and 10-% categories. Just more than percent fewer respondents reported neutral capital spending, Most popular profit strategy: Increasing Sales. Cost Cutting/Efficiency came in as the second most identified method for increasing profitability. with the majority being redistributed in the increased spending categories. Most popular source of capital: Self-funding. Most popular spending target: Employees. Optimistic regional economic outlook. The average optimism score of executives concerning the world economy was nearly points below than the optimism Bank Debt came in as the second strategy to acquire capital funding. Technology and Property or Facilities were the second and third most identified capital spending targets. for the regional economy. The optimism score for the U.S. economy was more than 10 points below the regional economy. Top goal for 13: Growing Sales. Most increased goal: Improving Management Information. Other highly ranked goals for 13 included Retaining and Finding Great Revenue, employment, and capital spending growth expectations for 13 unchanged from previous year. Talent. Somewhat surprisingly, Planning for Succession returned to the least important goal in the new year. Profit growth expectations significantly decreased. The change in expected growth was less than 3 percent for each of the previously identified three measures. Expected growth in profit for 13 dropped close to 9 percent. Top challenge for 13: Downward Pressure on Pricing/Margins. Most increased challenge: Work/Life Out of Balance. Inability to Differentiate from Competition remained a top challenge for 13 with Loss of Talent/Risk of Losing Top Talent rising to close out the top three. Lower Quality of Customer Service than desired fell from the top three challenges but remained significant. 3

5 EKS&H Insights and Opportunities to Consider 1. Challenge existing information management. Identify Key Performance Indicators (KPI s) that reveal forward-looking opportunities and challenges. Improving Management Information was identified as the most changed goal for 13. Though your business may be relying on traditional, historic financial and operational indicators, determining forward-looking metrics that can inform action may be more useful. 4. Establish best practices for the hiring and onboarding process in anticipation of increased employment. Interview processes, including multiple interviews with different purposes, personality profiling, skills testing, and case-study assessments, may all be new and useful strategies to find the best talent. Develop formal orientation materials and timelines and consider whether cultural changes are necessary before new employees are brought on board. These strategies should 2. Consider implementing process improvement strategies to maximize profit. Assessing Inventory also help address the third most identified challenge in 13, Loss of Talent/Risk of Losing Talent. Levels/Management and Reviewing Manufacturing Workflow were the most commonly cited efficiency strategies. However, a wide variety of other process improvement strategies may help your business maximize profit in 13. Inefficiencies may be costing your business thousands. 5. Determine impact of American Taxpayer Relief Act and implement strategies to mitigate costs. Of greatest long-term significance, the Act made permanent several key items, including the Alternative Minimum Tax (AMT), and extended the Research & Development (R&D) Tax Credit, 3. Assess your sales department and understand which practices really work. With Offering New Products or Services being the most popularly selected method to increasing sales, converting order-takers to several types of energy credits, and bonus depreciation for certain capital expenditures. Business executives should consult a tax planning expert to determine how these changes may affect them and their businesses. salespeople will be critical. Sales staff must be able to identify opportunities to provide additional products and services to current clients. Examine your inside vs. outside sales and develop appropriate compensation plans that motivate and pay for performance. 4

6 12 Review 12 proved to be a disappointing year for many small-to-medium sized business executives. Whether this was based on prematurely optimistic expectations for economic recovery or hopeful expectations for individual business performance is unknown. What is clear, however, is that revenue and profit growth were overestimated, as were expectations for employment growth. Capital spending increased over expectations, perhaps to implement strategies that would combat lower-than-expected revenue and profit. Our fears that this would be a long and slow recovery were confirmed again in 12. With growth being a challenge, Revenue, Profit, and Employment In almost every category, executives reported lower revenue, profit, and employment growth than expected. This was particularly true for those who expected increases of 10-% and more than % in profit and for those who expected increases of 3-9% and 10-% in revenue and employment size. More than 15 percent fewer respondents indicated growth in these measures. a company s best bet is to focus on improving efficiency, opening new sales channels, and looking for opportunities to acquire when value Capital Spending The one metric where executives reported more increases than expected was capital spending. Overall, spending growth increased by more than 15 percent, with the highest increase in the 3-9% growth category. This spending may represent a reaction to unfulfilled business expectations or it may be a result of exploiting unexpected investment opportunities. can be found. - Andrew J. Steger Partner Business Consulting 5

7 Revenue Expected 12 Actual % 10-% 3-9% Neutral 3-9% 10-% % Revenue 12 Expected 12 Actual % 10-% 3-9% Neutral 3-9% 10-% % 0.0% 1.0% 2.0% 15.8% 26.7% 32.7% 21.8% 3.1% 5.4% 8.5% 19.3%.5%.0% 23.2% 3.1% 4.4% 6.5% 3.5% -6.2% -12.7% 1.4% Profit Expected 12 Actual % 10-% 3-9% Neutral 3-9% 10-% % Profit 12 Expected 12 Actual % 10-% 3-9% Neutral 3-9% 10-% % 1.0% 0.0% 6.1% 14.1%.2% 25.3% 33.3% 6.2% 7.3% 10.4%.0% 17.7% 15.4% 23.1% 5.2% 7.3% 4.3% 5.9% -2.5% -9.9% -10.2% 6

8 Employment Expected 12 Actual % 10-% 3-9% Neutral 3-9% 10-% % Employment 12 Expected 12 Actual % 10-% 3-9% Neutral 3-9% 10-% % 0.0% 0.0% 1.0% 39.8% 31.6% 19.4% 8.2% 1.5% 5.4% 7.3% 39.2%.8% 11.2% 14.6% 1.5% 5.4% 6.3% -0.6% -10.8% -8.3% 6.4% Capital Spending Expected 12 Actual % 10-% 3-9% Neutral 3-9% 10-% % Capital Spending 12 Expected 12 Actual % 10-% 3-9% Neutral 3-9% 10-% % 0.0% 5.1% 3.1% 43.9% 26.5% 14.3% 7.1% 1.5% 5.8% 5.4% 23.8% 35.8% 16.2% 11.5% 1.5% 0.7% 2.3% -.1% 9.3% 1.9% 4.4% 7

9 13 Outlook: Economy When asked to rate their overall economic optimism, executive respondents have the greatest hope for the local and regional economy (63 out of 100). They also exhibited the most pessimistic view of the world economy (43 out of 100). Executives ranked their optimism for the national economy in the middle (50 out of 100). It is important to recall the broad uncertainty at the time of the survey concerning such issues as the European sovereign debt and the U.S. fiscal cliff. However, for local optimism to rank a full points higher than that of the international economy is significant and reflects a more positive outlook for business opportunities by executives in Colorado and the Rocky Mountain region. Economic Optimism Ranking (1 to 100) Regional Economy U.S. Economy World Economy Avg. Regional Economy U.S. Economy World Economy

10 13 Outlook: Business Perhaps recognizing the slightly disappointing results of 12, particularly in regards to profit, executives projected slight decreases in growth during 13. This trend appeared in all measured categories including revenue, profit, capital spending, and employment. % of Respondents Indicating Growth Revenue Profit Employees Capital Spending Revenue Profit Employment Capital Spending % 41.4% 23.7% 22.2% % 68.3% 40.5% 42.9% % 81.2% 79.2% 75.9% 78.8% 70.2% 49.7% 59.2% 57.0% 53.1% 47.9% 47.0% 9

11 Revenue, Employment, and Capital Spending Though revenue, employment, and capital spending all decreased very slightly from 12 expectations, the outlook remains considerably more positive than it was in the years following the recession. This may represent a new reality of cautious optimism. During the most recent five-year period, each expected growth category has increased an average of 10 percent. Revenue 100% 90% 80% 70% 60% 50% 40% 30% % 10% 0% Increase % Increase 10% - % Increase 3% - 9% Neutral Decline 3% - 9% Decline 10% - % Decline % Revenue % 7.4% 0.6% 0.0% 0.0% 1.1% 10-% 3-9% Neutral 3-9% 10-% % 6.6% 19.0% 19.0% 25.6% 9.1% 13.2% 4.0% 8.0%.0% 34.3% 14.9% 18.3% 0.7% 3.4% 12.9% 39.5% 22.4% 21.1% 1.0% 2.0% 15.8% 26.7% 32.7% 21.8% 2.7% 3.0% 13.6% 36.0% 22.3% 21.6% 10

12 Employment 100% 90% 80% 70% 60% 50% 40% 30% % 10% 0% Increase % Increase 10% - % Increase 3% - 9% Neutral Decline 3% - 9% Decline 10% - % Decline % Employment % 2.6% 0.0% 1.4% 0.0% 0.1% 10-% 3-9% Neutral 3-9% 10-% % 5.1% 23.9% 46.2% 13.7% 5.1% 3.4% 1.8% 9.5% 45.8% 24.4% 10.1% 8.3% 0.0% 1.4% 44.1% 34.3% 11.2% 7.7% 0.0% 1.0% 39.8% 31.6% 19.4% 8.2% 1.9% 3.4% 37.0% 31.7% 13.6% 11.7% Capital Spending 100% 90% 80% 70% 60% 50% 40% 30% % 10% 0% Increase % Increase 10% - % Increase 3% - 9% Neutral Decline 3% - 9% Decline 10% - % Decline % Capital Spending % 15.3% 4.8% 0.7% 0.0% 4.5% 10-% 3-9% Neutral 3-9% 10-% % 6.8% 16.1% 38.1% 14.4% 4.2% 5.1% 2.4% 6.0% 46.4% 19.6% 13.1% 7.7% 2.1% 3.5% 44.1% 23.1% 14.0% 12.6% 5.1% 3.1% 43.9% 26.5% 14.3% 7.1% 3.8% 8.0% 36.7% 22.0% 11.7% 13.3% 11

13 Profit Profit appears to be the indicator that changed the most between 12 and 13, with expected growth categories dropping a combined average of almost nine percentage points. However, expected profit remains significantly higher than it did during the recession. Profit 100% 90% 80% 70% 60% 50% 40% 30% % 10% 0% Increase % Increase 10% - % Increase 3% - 9% Neutral Decline 3% - 9% Decline 10% - % Decline % Profit % 6.9% 1.2% 0.7% 1.0% 2.7% 10-% 3-9% Neutral 3-9% 10-% % 12.1% 12.1% 27.6% 23.3% 6.0% 12.1% 0.6% 7.8% 22.2% 28.7% 13.8% 25.7% 1.4% 0.7% 21.3% 36.9% 16.3% 22.7% 0.0% 6.1% 14.1%.2% 25.3% 33.3% 3.1% 7.3% 16.8% 31.3% 17.9% 21.0% 12

14 13 Outlook: Business by Size (Sales) A difference of opinion about growth in 13 exists between large and small companies. Large companies, those with more than $100 million in annual revenue, indicated optimism about growth in profit and expect significant increases in capital spending. By contrast, companies with less than $100 million in annual revenue foresee increases in workforce and operational expenses. % of Respondents Indicating Growth Revenue Profit Employees Capital Spending Operational Expenses Less than $100M $100M or More Total of %s Indicating Growth Expectations Less than $100M Revenue Profit Employees Capital Spending Operational Expenses 79.8% 69.9% 57.2% 45.6% $100M or More 80.5% 72.2% 55.5% 55.5% 65.9% 58.3% 13

15 13 Outlook: Business by Geography Domestic vs International Customer Base Companies with a domestic customer base appeared to be more optimistic, expecting higher revenue and profit growth. Businesses with an international customer base, perhaps as a result of ongoing global financial market uncertainty, see lower growth in these categories. In addition, companies with a global customer reach expect significant increases in capital spending. % of Respondents Indicating Growth Revenue Profit Employees Capital Spending Operational Expenses Customers Dom Customers Int Revenue Profit Employees Capital Spending Operational Expenses Customers Domestic 81.1% Customers International 77.0% 72.5% 64.4% 56.8% 57.3% 42.3% 51.4% 64.7% 65.3% 14

16 Domestic vs. International Competitor Base Geography of competitors also appeared to impact growth expectations. Companies competing domestically expected higher growth in profit and operational expenses, whereas companies competing internationally expected higher growth in revenue and capital spending. % of Respondents Indicating Growth Revenue Profit Employees Capital Spending Operational Expenses Competitors Dom Competitors Int Revenue Profit Employees Capital Spending Operational Expenses Competitors Domestic 79.7% Competitors International 80.6% 71.6% 66.7% 57.3% 56.2% 45.3% 51.4% 65.6% 63.0% 15

17 13 Outlook: Strategy: Sales and Profit When asked to identify strategies they intend to utilize for increasing sales in 13, most respondents chose offering New Products or Services followed by Pursuing New Markets and Increase Frequency of Sales. Interest was much lower in the categories of Acquisition, Cross-selling, and Other. Responses under Other included Organic Growth and Investments in Sales/Marketing Teams. Number of Responses New Products or Services New Markets Increased Frequency of Sales Acquisition Other Cross-selling (Respondents were allowed to choose up to two sales strategies.) Respondents chose Increasing Sales more than any other strategy for increasing profits in 13. Perhaps companies plan to use one or more of the methods mentioned above. Cost Cutting/Efficiency was chosen second, and Improved Technology came in third. Finally, companies that selected Other, were most likely to specify Increase Prices as a strategy. Number of Responses Increased Sales Cost Cutting/ Efficiency Improved Technology Acquisition Other (Respondents were allowed to choose up to two profit strategies.) 16

18 13 Outlook: Strategy: Capital Funding Capital Spending Employees and Technology proved to be the top two areas for anticipated capital spending in 13. The focus on spending on employees reinforces answers given under the Goals and Challenges section of the survey. Respondents also displayed high interest in putting money toward Property or Facilities. Investment in Debt Service appears to hold little appeal. Number of Responses Employees Technology Property or Facilities Debt Service Other (Respondents were allowed to choose up to two capital spending strategies.) 17

19 Capital Raising By far the greatest source for expected capital-raising in 13 is Self-funding. A distant second was Bank Debt. Strategic Partner, Venture Capital, and Public Market were ranked lower still. The low response to the Public Market option can likely be attributed to the survey s population and today s complex regulatory and compliance environment. Number of Responses Self-funding Bank Debt Strategic Partner 21 Venture Capital 11 Other 5 Public Market (Respondents were allowed to choose up to two capital raising strategies.) 18

20 Goals for 13 Only slight changes in goals were indicated for 13 compared to previous years. Most notable was the ranking of Improve Management Information, which appeared just below the top five goals; in 12 this goal was ninth. This also represents the highest ranking this goal has ever received. Grow Sales and Improve Financial Performance were the most likely to be chosen Important and Very Important. Retaining Great Talent dropped two places to third. Increase Business Value and Find Great Talent also remained high. Increase Trust Among Employees was identified as Important or Very Important only 59 percent of the time, with further drop-off for the final two goals, Reduce Tax Liability and Plan for Business Succession. Grow Sales Improve Financial Performance Retaining Great Talent Increase Business Value Find Great Talent Improve Management Information Increase Trust Among Employees Reduce Tax Liability Plan for Business Succession Other+ Removed in 13: Create a Quality Workplace Meet Your Personal Goals N/A Not Somewhat Important Very % 0% 9% 40% 50% % 2% 8% 48% 42% % 1% 11% 41% 45% % 3% 14% 38% 44% % 2% 16% 36% 45% % 5% 30% 42% 21% % 6% 33% 40% 19% % % 33% 29% 10% % 30% 28% 24% 11% Goals: Important + Very Important Grow Sales Improve Financial Performance Retaining Great Talent Increase Business Value Find Great Talent Improve Management Information Increase Trust Among Employees Reduce Tax Liability Plan for Business Succession 0% 10% % 30% 40% 50% 60% 70% 80% 90% 100% 19

21 Challenges for 13 Downward Pressure on Pricing/Margins and Inability to Differentiate from Competition remained the top two challenges for the fifth year in a row. Loss of Talent/ Risk of Losing Top Talent jumped up to third place, from sixth in 12, reaffirming the third highest goal previously described, Retaining Great Talent. New this year was the category of Compensation Structure/Employee Incentive Issues, which nearly 50% of respondents indicated was Important or Very Important. Another new option, Managing Across Generations, received the lowest ranking. Downward Pressure on Pricing/Margins Inability to Differentiate from Competition Loss of Talent/Risk of Losing Top Talent Compensation Structure/Employee Incentive Issues Lower Quality of Customer Service Than Desired Work/Life Out of Balance Inadequate Access to Capital Unstable, Insufficient, or Out of Date Technology Managing Across Generations Other+ Removed in 13: Inadequate Financial/Management Reporting Inability to Predict Cash Flow N/A Not Somewhat Important Very % 10% 25% 39% 21% % 15% 22% 34% 21% % 19% 26% 27% 22% % 13% 37% 36% 11% % 22% 27% 29% 9% % 22% 38% 28% 7% % 34% 23% 17% 14% % 27% 36% 17% 9% % 30% 33% 17% 5% Challenges: Important + Very Important Downward Pressure on Pricing/Margins Inability to Differentiate from Competition Loss of Talent/Risk of Losing Top Talent Compensation Structure/Employee Incentive Issues Lower Quality of Customer Service Than Desired Work/Life Out of Balance Inadequate Access to Capital Unstable, Insufficient, or Out of Date Technology Managing Across Generations 0% 10% % 30% 40% 50% 60% 70%

22 Different or Fundamentally Altered Strategies for 13 When asked what fundamentally different or significantly altered strategies they will engage in 13, most respondents noted the need to cut costs and increase spending in marketing and sales. Several respondents indicated that tax implications will determine strategy. Also mentioned were investing in international opportunities, increased spending on R&D, and organizational development. The following is a selection of verbatim responses: More aggressive new business development; development of new markets/industries; enhancement of digital/social media skill. More aggressive marketing all sectors, expansion into new product markets, evaluate overseas opportunities. We will consolidate our middle management staff and restructure our organizational chart to increase efficiency, capacity and reduction of costs strategies, with the hope of generating more income and net profits. Government climate is much more uncertain. Closing on private financial markets will yield us huge tax impacts working with EKS&H to resolve these issues. Gearing up recruits for organic growth, focused more aggressively on net profit achievement (profitable growth). Big emphasis on business development and new approaches to client acquisition. 21

23 Industry Outlook for 13: Construction/Development/Real Estate More than 30 construction, development, and real estate industry executives completed the 13 EKS&H Business Outlook Survey. These individuals were asked several additional follow-up outlook questions relevant to their industries in particular and their companies plans for 13. Ninety percent of Construction/Development respondents indicated that their most significant source of growth in 13 will remain within the same sector; only 10 percent of respondents indicated they plan to expand into a new sector (new sectors identified for growth were Commercial and Institutional construction). Key External Drivers and Outlook When asked about growth in new construction starts in 13, the average response was 4.9% for 13*. An encouraging sign, this expectation nearly matches the highest annual industry reported growth during the past three years. Outliers were removed. Changes in the Overall Economy, including unemployment, consumer confidence, etc., were listed as the key external drivers with the most impact. Availability of Project Financing/Credit and Cost of Raw Materials were also highly selected. Number of Responses Changes in Overall Economy Availability of Project Financing Price of Raw Materials Labor Costs Other Changes in Overall Economy (Unemployment, Consumer Confidence, Etc.) Availability of Project Financing/Credit Price of Raw Materials Labor Costs Other (Respondents were allowed to choose up to two key external drivers.) *The following national statistics provided by an IBIS World Industry report were provided: 10: 2%, 11: 1%, 12: 5% expected. 22

24 Additional Construction/Development/Real Estate Key Findings Survey respondents expect vacancy rates of all types (residential, commercial, industrial, etc.) to stay about the same or decrease in 13, with the highest decrease expected in apartment and office space vacancy. Similarly, respondents expect rental rates for these properties to stay the same or increase in 13, with the greatest increase in apartment and other residential rental rates. When asked how the political environment would impact the real estate/property management industry, nearly 70% of executives indicated it would be negative. Of those remaining, an almost equal number responded that it would be positive or unknown. Political Impact on Business Positively Negatively Unknown 19% 69% 12% Positively Negatively Unknown 23

25 Industry Outlook for 13: Healthcare Fourteen for-profit healthcare executives completed the 13 EKS&H Business Outlook Survey. (Additional non-profit healthcare executives participated in a separate 13 EKS&H Non-Profit Outlook Survey.) These individuals were asked several additional questions related to the outlook of their industry and their company in 13. Key External Drivers and Outlook The average expected revenue growth for healthcare providers was identified as 4.2 percent for 13. This is a positive sign given that revenue growth has ranged from percent* in the previous three years. When asked to rank the key external drivers that will impact their businesses, Reimbursement Trends and the Continued Implementation of the Affordable Care Act had the highest two scores before a significant drop off in the remaining variables. Other responses provided by executives included, Insurance Costs and a Tight Healthcare IT Labor Force. Rank Key External Driver Reimbursement Rates Continued Implementation of the Affordable Care Act Shortage in Healthcare Labor Force Industry Consolidation Fiscal Cliff Movement Towards Electronic Healthcare Records and Other Technological Developments Other Mean Score *The national statistics on the healthcare industry were provided by an IBIS World Industry report. 24

26 Additional Healthcare Key Findings When asked how the political environment would impact their healthcare business, respondents were fairly evenly split between an unknown and negative response. In fact, only one respondent indicated that they believe the political environment would positively impact the business. Political Impact on Business Positively Negatively Unknown 7% 43% 50% Positively Negatively Unknown 25

27 Industry Outlook for 13: High Tech/Information Technology More than high-tech and information technology industry executives participated in the 13 EKS&H Business Outlook Survey. These individuals were asked three additional questions related to their industry outlook and the plans of their companies. Key External Drivers and Outlook Growth in Usage of Cloud Computing was the key external driver that would have the greatest impact on companies in this industry, followed closely by Increase of Mobile Internet Connection through Smart Phones. In addition to the remaining provided answers, Other answers supplied by participants included Infrastructure Upgrades and Domestic Manufacturing. Number of Responses Growth in Usage of Cloud 13 Increase of Mobile Internet 11 Competitor Technological 9 Evolution Toward More Web 8 Rebounding Consumer 4 Other Growth in Usage of Cloud Computing Increase of Mobile Internet Connection Through Smart phones Competitor Technological Developments Evolution Toward More Web-Based Applications Rebounding Consumer Confidence Other (Respondents were allowed to choose up to three key external drivers.) 26

28 Additional High Tech/Information Technology Key Findings While the tight talent pool is a well-known challenge for the high-tech industry, Colorado and the Rocky Mountain region may be in a better situation than other states and regions. More than percent of respondents believe the local talent pool will increase in 13, while the majority, 62 percent believe it will remain the same. No respondents expect a decrease in this important resource. Access to capital is another commonly cited industry obstacle. While local levels of private equity and venture capital remain lower than they have historically been, close to one-third of respondents expect access to increase in 13. The majority, 50 percent, expect available capital, credit, and financing to remain the same. 27

29 Industry Outlook for 13: Manufacturing/Distribution Manufacturing and distribution represent the industry with the greatest number of participants in the 13 EKS&H Business Outlook Survey. More than 50 executives completed the survey and answered several additional questions about the outlook of their industry and their companies in 13. Operational Plans While outsourcing operations globally was the predominant industry trend for several decades, recently relocating facilities to local or at least American soil has begun. When asked about operational plans, however, survey takers overwhelmingly (nearly 90 percent) indicated that operations would be maintained where they are in 13. This may indicate a hesitation to make drastic operational changes in this economic climate. Additional Manufacturing Industry Key Findings: While the skilled labor pool for manufacturing and distribution continues to shrink in much of the country, Colorado and the Rocky Mountain Region appear to be in better shape. Of industry executives who completed the survey, 82 percent felt local talent would meet their business needs in 13. Local Manufacturing Labor Pool Meeting Needs Yes 82% No 12% Yes No Unknown 6% Unknown 28

30 Though the economy continues to show signs of slow growth, efficiency remains a top priority to maximize profitability. This trend was repeatedly evident throughout survey responses. When asked which process improvement strategies would be implemented in 13, Assess Inventory Levels/Management was the most selected, followed by Review Manufacturing Work-Flow, and Analyze Timeliness of Orders Filled/Delivered. Number of Responses Assess Inventory Levels/ 38 Review Manufacturing Work 26 Analyze Timeliness of Orders Optimization of Machines/ Sustainability or Efficiency Other Assess Inventory Levels/Management Review Manufacturing Work-Flow Analyze Timeliness of Orders Filled/Delivered Optimization of Machines/Stations Sustainability or Efficiency Studies Other (Respondents were allowed to choose up to three key efficiency strategies.) 29

31 Industry Outlook for 13: Oil and Natural Gas More than respondents in the Oil and Natural Gas industry completed the 13 EKS&H Business Outlook Survey. These executives were asked a series of additional questions concerning the outlook for their industry and business in 13. Key External Drivers and Outlook The most impactful external drivers for companies in the Oil and Natural Gas industry were, not surprisingly, World and Domestic Price of Crude Oil/Natural Gas. Also predictably, the top three drivers were rounded out by Government Regulation and Access to Credit or Equity Funding. Changes to Income Tax Laws and Provisions and Access to Human Resources appeared at the end of the list. Number of Responses World and Domestic Price of Crude Oil/Natural Gas Government Regulation 11 Access to Credit or Equity Funding 8 Changes to Income Tax Laws and Provisions 3 Access to Human Resources Other World and Domestic Price of Crude Oil/Natural Gas Government Regulation Access to Credit or Equity Funding Changes to Income Tax Laws and Provisions Access to Human Resources Other (Respondents were allowed to choose up to three key efficiency strategies.) 30

32 Additional Oil and Natural Gas Industry Key Findings Executives were asked to compare expectations for 13 vs. 12 related to well activity, acquiring property, and hedging. The highest percentage of respondents indicated they would Hedge Oil and Natural Gas more in 13 (91 percent). This activity was followed by Drilling Additional Horizontal Wells (83 percent) and Drilling More Vertical Wells (71 percent). Coming in fourth place, Acquiring Acreage was still, however, identified as something that would happen more in 13 by 57 percent of respondents. Industry-specific expenses are generally expected to increase in 13, with the greatest number of executives identifying Wages and Labor to increase (82 percent), followed by Equipment and Supplies (68 percent), and the Costs of Information Systems/ Technology coming in third (38 percent). Almost two-thirds of respondents felt the Costs of Information Systems/Technology would remain the same. When asked how the political environment would affect their businesses in 13, the majority (nearly 70 percent) indicated that it would be negatively affected. Almost 10 percent indicated a positive impact, and over percent indicated the impact was unknown. Political Impact on Business Positively 9% Positively Negatively 68% Unknown 23% Negatively Unknown 31

33 Methodology The EKS&H Business Outlook Survey is an annual survey of C-level executives and owners of EKS&H clients and prospects. The 13 survey sample included more than 250 executives at a variety of private and public companies located primarily in Colorado and the Rocky Mountain region; however, businesses throughout the United States were represented. The goal of the survey is to provide our clients insight into their peers outlook and strategies for the upcoming year. The 13 survey covered both the general economic outlook and business-specific expectations. It collected data on revenue, profitability, and capital investment strategies. Executives were also asked to rank goals and challenges for the coming year and identify new or different strategies they will incorporate. Finally, in 13, select industry-specific questions were asked of executives in those areas. In early December 12, more than 5,000 individuals were sent an containing a link to an online survey hosted by a third party. The responses were collected throughout December but ended prior to resolution of the fiscal cliff. Attendees are provided a report at events in Denver, Boulder, and Fort Collins, Colorado. 32

34 EKS&H has six partners and more than twenty professionals dedicated to business consulting services. We are committed to asking the hard questions and giving honest answers. We have a collaborative and facilitative process that emphasizes actionable solutions and are supported by a comprehensive consulting methodology and toolset. Our consultants bring to the table a wide variety of backgrounds and experience beyond traditional accounting expertise. Financial Strategy Managing your company s financial and tax structure Planning & Analysis Financial Planning Models Balance Sheet & Cash Flow Management Capital Structuring & Financing Inventory Management Tax Effectiveness Cost Segregation R&D Tax Credits Specialty Tax Credits Financial Optimization Accounting Dept. Assessments Speed & Quality of Financial Reporting Internal Controls Human Capital Recruiting Team Effectiveness Management Compensation Transaction Services Evaluating acquisition targets and structuring deals Business Valuation Fair Value Measurement Fair Market Value Measurement Corporate Finance Mergers & Acquisitions Buy-Side Due Diligence Sell-Side Transition/Preparedness Post-Transaction Integration Tax Structuring Purchase Agreement Support Entity Tax Structuring Business Technology Solving problems and creating efficiency through technology IT Infrastructure System Evaluation Network Engineering Support Services Business Systems Business Requirements Software & Vendor Selection Project Management & Implementation Process Documentation & Improvement IT Strategy Long-Range Planning 33

35 EKS&H LLLP is a Colorado-based public accounting firm providing audit, tax, and business consulting services to clients locally, nationally, and internationally. Our commitment to excellence has resulted in sustained growth since we began 35 years ago. Currently, we have the largest number of CPAs of any firm in the Rocky Mountain region. We have more than 440 employees including 51 partners in three offices. We are ranked as one of the top 50 U.S. firms in Accounting Today s 12 Top 100 Firms and we have been named a Best Place to Work by the Denver Business Journal, Great Places to Work Institute, and Entrepreneur and Fortune Magazines

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