Governments frequently offer financial incentives to businesses that are generating economic impacts in their communities. These businesses are faced with the decision to seek outside professional assistance to secure and structure the incentive or attempt to negotiate their own incentive agreements. The do-it-yourself attitude can help keep overhead low by using existing resources. It can also lead to unforeseen complications caused by the complexity of government incentives and also in stretching staff resources thin during critical times of expansion.
Why put your expansion and government incentives at risk? Baker Tilly assists our clients in navigating the complex world of government incentives on their behalf, avoiding common pitfalls due to our deep experience, and allowing our clients to focus on mission-critical activities associated with their major expansions. Below are five common pitfalls when seeking government incentives:
Every project has a unique development timeline. Every incentive program has its own unique timeline. Companies who consider incentives too late in their project planning, or consider incentives without a prepared strategy, may miss opportunities to negotiate, secure and layer all potentially available incentive sources.
- Public perception
Government assistance is viewed through a critical lens. Government officials, taxpayers and the media must be educated before, during and after the public process regarding the purpose for the incentive as well as the economic impacts of the proposed project. Without a closely monitored and actively managed communications process, a company’s image can suffer due to misrepresentations and misunderstandings.
- Lack of negotiation
Government officials rarely offer the maximum incentive they can to a business in the first proposition. Many incentives can be negotiated. An effective negotiation strategy considers not only the financial requirements and economic impacts of the project but also the financial position of the involved government entities.
- Return on investment
Government officials view their incentive assistance as an investment in your project. They expect to earn a return on their investment through positive community and economic impacts. Demonstrating that a project supports a government’s stated community or economic development goal is critical to a successful incentive negotiation. Stated goals or the sought-after return on investment often include job creation, tax generation, blight removal or other public benefits.
Once government officials agree on a certain level of incentive assistance, they often seek to ensure their projected return on investment by requesting guarantees in incentive agreements. The guarantee may require minimum investment levels, taxes paid or jobs created. Negotiating these guarantees is as critical, if not more so, than negotiating incentive amounts.
There is too much at stake to fall into these common pitfalls. Discuss your project with Baker Tilly today.
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