Sequestration, Health Care Set Up Road Blocks to Profits

Prepare your construction business to weather both federal budget cuts and higher health care costs.

Don’t you love the way government throws words and titles around? Take the word “sequestration.” How an attempt to reduce or adjust government spending can become sequestration is beyond me.

In case you haven’t looked up the definition, sequestration means “the action of taking legal possession of assets until a debt has been paid or other claims have been met” or “the forcible possession of something... a confiscation.” To put it in terms we all understand, if you show up to work on Monday and that piece of construction equipment or truck you haven’t been able to make payments on for the last three or four months is missing from your yard, it was sequestered.

Terminology aside, the Associated Equipment Distributors (AED) industry analysts are anticipating a flat situation for 2013 in terms of equipment sales. Even the rental companies are cutting back on construction equipment purchases.

We all know housing is picking up some, along with health care and work in the energy sector. The public sector, however, is slow and will probably remain that way until the economy turns around.

Note that I didn’t say “until the government fixes” the economy, because when it turns around, it’s because people like you have invested and worked your butts off to make it happen. I don’t know about you, but I can’t think of one government program where the consequences didn’t wind up costing us more than it was supposed to fix. And I suspect we are in a similar situation.

Don’t Get Caught By Surprise

So up to this point, 2013 seems to be staying the course, meaning you better get out there to get in on what business is available. Sorry to say, that’s the good news. Those comments were on the table before the sequestration talk started, which means there will be even less work available in the marketplace.

There is no doubt you need to find out if any of the work you are expecting will be affected by the sequestration. The thinking is it will kick in throughout 2013 and probably be felt more in 2014. I have to think that just about every contractor, one way or another, will feel a sales reduction. The trick will be to avoid getting surprised after you have geared up to do the work in the timeframe you had planned.

At a minimum, you should communicate with your vendors, general contractors, subs, customers, et al, to see who may be subject to potential revenue shortfalls as a result of sequestration, and when and how those shortfalls relate to your business.

So not only are we discussing a potentially slow 2013, it looks like you can include 2014 in the slow category. This will depend on what you do and where you do it, and whether you rely on public money to fund construction work.

Let’s not forget to consider what all these federal stimulus dollars are going to do to interest rates and inflation. But that’s another topic we can take up next month.

Know Your Requirements Under Obamacare

I would be remiss if I didn’t mention Obamacare, knowing it is staring us in the face. I have been doing my homework to try to figure out how dealers, contractors and rental companies will be affected by the Patient Protection and Affordable Care Act (PPACA). In short, this is going to be one big pain in the you-know-what and expensive to boot.

It would be in each business owners best interest to spend some time to figure out where you stand regarding the PPACA; what you have to do to comply; what it is going to cost you; where you have exposure; and who has to be covered.

Of special interest to contractors will be independent contractor status. This was a tough area to deal with even before the PPACA, and now it will be worse. The bottom line is you better be 100% sure of your position if you are paying “independent contractors” as opposed to “employees.” The penalties are excessive and, to make matters worse, they are not deductible.

Here’s what to expect from the PPACA:

  • Premiums are going up.
  • More employees will opt into coverage.
  • Certain employees may opt out of coverage.
  • Premium savings will be available for subsidy eligible employees.
  • If you have more than 50 employees full-time equivalent (FTE), you must comply.

Just so you know, if you have 100 part-time employees and use independent contractors, you probably fall into the 50 employee category.