There are more financial incentives than ever for mid-sized businesses to go green. Mid-sized business owners are taking notice and many are recalculating whether going green could increase their bottom line.
So is 2012 the year your business should go green?
“Being considered a ‘green company’ can increase the marketability of your products or services,” says Gary Price, tax partner for Sensiba San Filippo, LLP.
Smart Business spoke with Price about recent developments in clean technology and why going green could make sense for you.
What is clean technology?
Clean technology refers to energy sources that are renewable, provide a reduced environmental footprint and are not fossil fuel based. Solar and wind are two of the best-known examples of clean tech, as are lesser-known sources such as geothermal and biomass.
Why should a mid-sized business take interest in clean technology?
As well as environmental benefits, clean tech can increase the marketability of your products or services. Many businesses are reaping the benefits of green initiatives through increased opportunity and positive publicity.
Still, for most businesses, economic conditions necessitate that the return on investment of a project dictates viability. Mid-sized businesses can benefit from green incentives that arose from social and economic developments of the last five years. There has historically been a gap between the cost of investing in green initiatives and the financial benefits. However, a few things have come together to close that gap. First, concern about the environment has increased. Second, the increased price of gasoline has made everyone rethink our energy dependence. What has emerged is the incentivizing of clean tech through state and federal incentives.
How can clean technology incentive programs be used to create financial benefit?
Businesses of all sizes can utilize incentives such as grants, tax credits and low-interest rate loans to create positive ROI, clean tech projects. Also, sustainable energy is seen as important enough that many government programs were enacted to subsidize a much-needed green movement in the economy.
The federal government provides a renewable energy credit, which offers a 30 percent credit against tax liability for investments into qualifying projects. Many states passed renewable energy programs as well. Mid-sized businesses looked at combining federal credits with state opportunities and began to say, ‘Wow, this really works.’
State opportunities such as the California Solar Initiative offer a 40 percent up-front cash grant, with up to $400,000 for the purchaser of equipment for qualifying projects. As an example, if a California company spent $1 million on solar equipment, the state would pay up to $400,000 of the bill. On the remaining $600,000, the 30 percent federal renewable energy credit could be taken. This would give a credit of $180,000. Total cost after incentives: $420,000. Add in the energy savings and that’s a very attractive offer.
However, businesses should use some caution regarding incentives. A CPA needs to ensure that requirements are met for incentive and grant programs and that the benefit from those programs is correctly considered in tax, cash flow and ROI calculations.
Where should a business start?
With multiple parts required to ensure a positive project, it is essential to work with the right team. Clean tech often requires many areas of expertise. For example, not all business owners are in the finance, real estate or contracting business — all major parts of the clean tech setup — so business owners who try to go it alone can find the process confusing, frustrating and time-consuming.
Business owners should put together a team that understands the many components of clean tech and work with them closely. An experienced, trust-worthy contracting partner is the most important ingredient for success. Most projects require a bit of construction to install and business owners should find contractors who specialize in renewable energy devices or other energy sustainable retrograding or installations. These contractors are usually general, electrical or roofing contractors and often have an energy department with a really savvy leader.
Also turn to a trusted advisor with previous experience before starting a project. Your attorney or CPA is a great place to start. If they don’t have experience personally, they will almost certainly be able to point you to someone who will. Having a trusted third party providing guidance will help ensure that the result meets expectations.
Is there any way to simplify clean tech projects?
Things are evolving quickly and today clean tech can be a remarkably smooth process. Green developers are putting together turnkey solutions for consumers. In some cases businesses don’t even have to purchase equipment. They simply enter into agreements that allow for equipment to be installed on their property in return for buying energy in the future at a set, reduced rate.
What is the future of clean technology?
With a national election approaching, the future of existing incentive programs is murky. President Obama remains committed to the promotion of a green economy, recently promoting the extension and enhancement of existing federal energy credits, but not all lawmakers are as enthusiastic. In many cases, the best opportunities involve combining federal and state incentives, so the outcome of this election season could have a large impact.
Ultimately, however, the savings are real and they’re available now. As a business owner, you don’t have to be a guru, just find the right advisors to help and you’re well on your way.
Gary Price is a tax partner at Sensiba San Filippo LLP, a regional CPA firm based in the San Francisco Bay area. He also serves as a member of the Silicon Valley branch of the Northern California chapter of the U.S. Green Building Council. Reach him at (408) 286-7780 or [email protected].
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