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The Cost of Doing Business

by Stuart Michealson

Published (and copyrighted) in South Jersey Biz, Volume 6, Issue 1 (January, 2016).

As South Jersey’s financial leaders recall 2015’s successes and challenges and gaze at still-young 2016, they see continued growth despite uncertainty spawned by a presidential election and, to a lesser extent, more potential Federal Reserve rate-hike action. And while those interviewed for this article tell optimistic stories of expansion and increased community involvement, profits made and awaited, some, too, underscore the importance of calming customers and clients who can’t shake memories of darker times, two national elections ago.

That observation comes from father-and-son financial professionals, Carl H. and Matthew Bagell.

Carl, CPA, is managing partner, Southern New Jersey, of Friedman LLP accountants and advisors, while son Matthew is financial planner at BJL Wealth Management, both in Marlton.

While the firms are separate entities, the two are strategic partners who work hand-in-hand with clients.

Carl—who paints an otherwise-bright picture of 2016—says the shadow of 2008’s crises still hangs heavy over people, including those with more money than they need; they are still worried about another 2008.

Matthew echoes this, saying that people still think, “Here comes 2008 again.” Beyond that, he says a Democratic presidential victory this fall could cause an uptick in taxes.

As for the Fed’s December announcement of an increase in its target funds rate from 0 to 0.25 percent, to 0.25 to 0.5 percent, Carl sees it as not “that big a deal” and takes a long view on the presidential election, noting the divide between Democrats and their focus on more taxes on the wealthy as compared with Republicans and their anti-tax leanings.

Matthew also weighs the Fed hike’s impact, noting the psychological toll of tracking the countdown to the expected hike and when it would happen. “It affects my business every day, as clients ask how it affects their portfolios and wonder how to get more bang for their bucks and not risk anything.

“The rest of the world looks to the U.S. as a safe haven compared to other countries.”

Carl—whose business started integrating into its practice the Philadelphia-based accounting firm, Shechtman Marks Devor PC in January—says that when it comes to looking at 2016, “We are ready to rock and roll.”

“My perspective,” he says, “is that I see continual growth, with expansion in clients, and at Friedman, we continue to grow and provide specialty audit and insurance work.”

For the South Jersey area, he says clients are loyal to their tax advisors and financial planners, and says they have kept most of their clients despite what he calls the state’s somewhat “stagnant” economy.

Financial Factors

John O’Connor, Southern New Jersey market president for BB&T (Branch Banking and Trust Company), sees challenges ahead in 2016.

BB&T was involved in a change last year with the completion of a conversion with Susquehanna Bancshares Inc., which leaves Susquehanna operating as a division of BB&T. The conversion last November included the openings of 239 branches in Pennsylvania, Maryland, New Jersey and West Virginia and, according to O’Connor, brings insurance possibilities to Susquehanna clients, as Susquehanna didn’t provide insurance before the change.

O’Connor, looking to 2016, says, “[Area] commercial loan demand will continue to be bumpy,” and that commercial and residential real-estate business may present a “struggle, as a function of the economy.”

Less of a struggle, though, is seen for clients, especially techsavvy millennials, as BB&T offers online banking, including the option to transfer money via texting.

He sees no big impact from the Fed rate hike and notes, “Rates have been so low for so long, I don’t see real impact on customers.” He concludes, though, that today’s economic atmosphere is challenging to all banks, with fierce competition.

Also weighing in is Orlando M. Rivera, J.D., principal of ASPIRA Business Brokers, which services business valuations and acquisition financing in New Jersey, Pennsylvania, New York and Colorado, and, in the future, Florida. Rivera started the business last year after spending 15 years with Tannenbaum Business Brokers.

He expects business sales to increase in 2016, noting that there will always be start-ups, business sellers and buyers. “A special nod should be given to a wave of sellers expected to come in the near future, as our profession is expecting an unprecedented number of baby boomers to retire from the companies they created,” he says.

His hope is that, over the course of 2016, ASPIRA will assist more than 10,000 business owners and entrepreneurs. He plans to publish a free, annual report for business people designed to help predict the best time to enter the privately owned business market.

“Our intention,” Rivera says, “is to build the single largest, most efficient, most successful marketplace.” The goal is to unite those who want to buy into small businesses with business owners who want to cash out equity of those businesses through liquidation.

“When an owner is ready to retire,” he adds, “the worst option is to close your doors. Understanding what makes a business highly valued by a prospective acquirer is the same as making a business that is a joy to own.” In pushing to help business owners create profitable enterprises that can be sold at any time, Rivera’s motto is, “You can have your cake and eat it, too.”

Rivera says that while South Jersey has its growing millennial population, that segment doesn’t show up on his radar for business sales, although he describes them as very much an entrepreneurial group.

Like others interviewed for this story, Rivera sees no large impact from the recent Fed rate hike and says the cost of borrowing money will probably move slowly, noting that, “The amount a borrower can get to use in a business purchase or growth will shrink, contracting sales prices ever so slightly, but deals will continue to move ahead.”

He also sees what he calls a major economic shift in the form of a new freelance economy, with more people working from home or as independent contractors to small and medium-sized companies. He also sees improvements in the state’s housing market, and adds that while Atlantic City has suffered of late, “I’d like to think the market along the Shore is in transition.”

Room To Grow

The transition theme certainly applies to Michael Devlin, president and CEO of Cape Bank who plans to retire this year as Cape merges with OceanFirst Bank; he will be a member of the newly merged bank’s board of directors.

The change, Devlin says, cuts Cape’s operating expenses by about a third, with 40 percent of that coming this year and the rest in 2017; cuts impacting current Cape staff are expected, he adds.

Looking to 2016 beyond his bank, Devlin says conditions depend on location, with Cumberland County not a robust commercial area without likely significant growth, and Atlantic County similar.

“The ongoing desirability of the millennial market,” Rehm says, “could cause strategic challenges to housing stock in South Jersey, though that might not be what millennials are looking for, as their vision of success is different, they want more mobility, marry later in life and wait longer to have children.

Kids are less of a priority, and they have huge student loans to pay off and like to walk or bike to work.” Also offering their takes on the Philadelphia market, from their New Jersey locations, are the father and son financial professionals, Carl H. and Matthew Bagell.

Carl, CPA, is managing partner, Southern New Jersey, of Friedman LLP, accountants and advisors, while son Mathew is financial planner at BJL Wealth Management. While the firms are separate entities, the two are strategic partners who work hand-in-hand with financial clients.

Carl—whose firm in January started integrating into its practice the Philadelphia-based accounting firm, Shechtman Marks Devor PC, thus expanding its Philadelphia presence—says it’s too early to tell what changes are afoot for him in the city, but that they are looking forward to that extra expertise expected from the change.

Matthew calls Philadelphia “one of the biggest boom areas” and while noting such challenges as the city schools’ financial together pieces of the puzzle.”

Small business owners, he says, sometimes need guidance in growing their business, and in understanding their businesses’ value as well as finding the right approach when bringing family members into the fold. Also essential, he adds, is assisting such clients on what their firms are worth, and the state of their outside assets.

He also foresees more hiring in the South Jersey area this year, with unemployment dropping, and businesses looking for long-term employees.

He hopes that whomever is elected president this fall promotes small business growth and moves job creation and higher wages to put fire back in the economy.

The Fed rate hike, he says, won’t have a tremendous impact for his business. “It is important that our clients stay focused on the big picture [of their finances],” and that, “[When the market is volatile], we need to look at different strategies.”

“The biggest emphasis,” he concludes, “is risk: How much risk are they willing to take? This has a lot to with whether assets grow, personal or business or property.”

Joseph Rehm, executive vice-president and chief lending officer at Capital Bank of New Jersey, sees a very bullish 2016 for his bank and expects more predictability and stability for business owners.

“There continues to be a lot of disruption in the banking industry,” he says, “with mergers and acquisitions, and there are fewer banks providing the high-quality local delivery that we do,” in targeting small-to-medium sized business owners for commercial banking.

“Clients,” Rehm says, “want to do business with bankers who have the time to understand their clients’ business, their goals and objectives, in trusting relationships.”

Rehm says that the Fed rate hike could be a good thing depending on what pace future possible increases take. “Rates are going to go up in 2016,” he says, “but we are not sure how fast, and how much.” Those details, he adds, could affect housing and real-estate developments.

As for Capital, Rehm says, “There will be no dramatic changes for us and our business in 2016. We will stick to our core and complete banking business, remain bullish. We will stick to our plan, and I see another great year for us.”

South Jersey, meanwhile, is a haven for expansion, in the experience of Robert Worley, senior vice president and market manager, Republic Bank, which is in the process of adding locations in such areas as Washington Township, Moorestown, a second Cherry Hill site, with an eye on Medford.

Worley sees continued growth in South Jersey and reports 25 percent deposit growth last year and strong loan growth at more than 15 percent.

“We will continue,” he says, “to see upward trends, with more occupancies in buildings and businesses doing better. I don’t see any unusual business challenges.”

In the bigger picture, Worley touts the\ notion—as evidenced by his being named volunteer of the year for 2015 by the United Way of Greater Philadelphia and Southern Jersey—of community involvement on the part of financial institutions.

“We see being involved on boards and committees or making charitable donations as excellent ways to get involved in the community,” Worley says. “It helps in tracking employees who share in that vision; we get some great people at value for our organization [through such activities].”

While community involvement is often an asset for financial leaders, many remain careful and circumspect when it came to remarking on specifics of the presidential race.

Gerry Banmiller, president and CEO, 1st Colonial Community Bank, reports a very good year for 1st Colonial in 2015, with $460 million in assets at the end of the third quarter, with an eye to “bumping everything up 10 percent this year.”

“People are doing things they didn’t do in 2013 and 2014,” he says, “like business expansion, like putting pools in their backyards.” Two people have been added to his lending staff, he says.

Banmiller looks to good things in the South Jersey area and expects “a lot of competition for loans.” He sees no impact from the Fed rate hike and no more Fed action soon, as “people have to see how this works and how banks react.”

As we wait to see what unfolds in 2016, it appears local business leaders are well prepared for the ups and downs of the South Jersey business world.