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Bright Ideas for Fiscal Year-End

By Dr. Michael Besch | December 3, 2014

For many US firms, 2014 has been very profitable. While we will not know the average increase in corporate profits for the whole year until sometime in spring, third quarter profit was up 2.1% after having gone up 8.4% in the second quarter. Perhaps you too have had a good year. Unlike many publicly traded companies whose main consideration is demonstrating profit growth for their shareholders, many private companies find themselves at year end with an excess of profits and a need or desire to minimize the inevitable tax bite. 
 
At the same time, companies are constantly looking for ways to cut operating expenses by upgrading their facilities. This year, many firms are evaluating their lighting systems, and when they do so, their choice is to go with LEDs. LEDs offer many advantages over both incandescent and fluorescent systems. The greatest advantage is their significantly reduced operating costs – as much as 85% over some traditional lights. This savings translates directly to the bottom line. There are other benefits as well, such as reduced heat output, greater bulb life, a better quality of light (important in office environments), and the virtual elimination of the environmental hazards associated with fluorescent bulbs.
 
A recent analysis of a small local restaurant revealed that with an investment of only a bit over $1000, the operation would realize an additional profit of over $2000 in the second year and a profit of over $19,000 for the life of the bulbs. Similarly, a study of a small manufacturing firm showed that an investment of $39,000 in an LED retrofit would provide an additional $179,000 profit over the life of the bulbs, and have a payback of less than 4 years! And this is at current electrical rates.
 
Now if you factor in the tax savings associated with such an investment, and assuming the company is in the 15% tax bracket, the payback period is reduced to slightly over 3 years and the added profit goes to $184,850!  This does not even begin to factor in operational efficiencies and the employee productivity increase associated with improved lighting.
 
Another good thing is that most LED retrofit conversions are fairly straight-forward and can easily be accomplished yet this year. One Waukesha retrofit firm, Logical Green Solutions, said that December of 2013 was an outstanding month for exactly the reasons listed above. Save money, reduce taxes and increase profits? Not a bad way to end the year!