How to Prepare Your Business for the 'Fiscal Cliff'
CREDIT: Taxes ahead sign via Shutterstock
As a drop off the fiscal cliff potentially looms, many are questioning the effect it could have on small businesses. While no one knows exactly what the impact will be, there are ways for small business owners to ensure they are well-positioned should the worst happen. Here are several tips from financial experts on how businesses can best handle the uncertain situation.
With so many unknowns regarding how a drop off the fiscal cliff will affect each business, Thomas Balcom, founder of 1650 Wealth Management, advises businesses to focus on strategies that will have long-term success.
"Businesses should look into investments, such as research and development or capital expenditures, that will provide them with a competitive advantage or position them for long-term growth without focusing on whether or not the fiscal cliff occurs," Balcom told BusinessNewsDaily.
One good strategy is for businesses to pay out out bonuses before the end of the year rather than after Jan. 1, said Taylor Aldredge, ambassador of buzz for virtual phone system provider Grasshopper.
"Instead of waiting until 2013 to make the bonus payments for 2012, just make them before the year ends," Aldredge said. "You'll guarantee the tax breakdown for employees and avoid an uncertain tax increase that may happen in 2013."
Aldredge said most businesses use accrual accounting during the year and already know exactly what their employee bonuses will be.
The strategy, which Grasshopper is using this year, is a win-win because it boosts employee morale while making sure everyone knows what their tax rates will be, he said.
Brian Miller, president and chief operating officer of The Entrepreneur's Source, counsels businesses to focus on marketing and generating top line revenue in the face of the fiscal cliff uncertainty.
"The best medicine for small businesses facing extra regulations is to grow their revenue so they have better cash flow," Miller said.
Keep employees informed
Since an increase in taxes is expected if a deal can't be reached, smart employers will tell their employees in advance how their paychecks will be affected, said Charles Read, president of Custom Payroll Associates.
"Education will reduce a lot of headaches for the employer or human resources teams," Read said. "And, if Congress avoids the fiscal cliff with some speedy negotiations this year, the employer has demonstrated that they care about their employees' welfare by giving them accurate information to avoid a financial crisis by some advance planning."
Have a plan
David Lyon, principal at Main Street Financial, advises businesses to lay out a plan that focuses on how their company performed during the previous economic downturn between 2007 and 2009.
Lyon said laying out a plan is the best way to take emotion out of having to make tough decisions in extraordinary circumstances.
"Identifying one or two key areas for a business owner to focus on will help lessen the noise, take emotion out of making tough decisions and provide a foundation in which the business owner can adapt their operations to continue to succeed and survive another economic downturn," Lyon said.
John O'Donnell, an expert in the financial markets and instructor for the Online Trading Academy, said businesses should consider playing things safe until they see exactly what comes from a fall of the fiscal cliff — if it happens.
"Do not panic, but be prudent financially and wait until the smoke clears and you have definitive clarity on the impact of the raise in taxes," O'Donnell said.