My advice to my small business owner clients in these times of change.
How will small business owners take advantage of the tax savings and invest in their businesses?
Will management consider purchasing new equipment? (The 2018 tax code provides a more favorable depreciation schedule.)
Will companies hire in order to expand their markets and hopefully increase profitability?
Or perhaps they will invest in research and development to stay in front of an everchanging marketplace.
If the tax code will improve the bottom line, management should consider the best options to put the “extra” cash to good use. They should not wait until year end to address the impact the changes will have on their companies.
Strategic planning, both short term and long term is needed.
A financial advisor can provide some insight by projecting year end profits, but a wise management team also examines the ways that good use of the tax savings can improve profitability in the coming years.
Unfortunately, strategic planning is not a priority for most small business owners.
Management is compelled to address the day to day pressures of the business and often neglects planning for future growth.
Their primary concern is making certain there is adequate cash to pay the bills. At year end when they are assured of a favorable EBITDA, they start to think about using the net income for future growth.
Waiting for year-end financial statements is too late.
2018 may offer an opportunity to strategically plan how to use the tax dollars advantageously. Small business owners should prepare strategic plans for both the short and the long term, using realistic cash flow projections that can help them determine the best use of the tax savings along with a consideration of operational changes to improve the profitability of the company.
The year- end tax saving may fund some of the strategic plan for growth, but there may have to be other considerations to ascertain there are adequate funds available to expand a market, or a product line.
Complacency is not an optionMy advice to my small business owner clients in these times of change is:
- Be creative.
- Plan ahead.
- Seek new markets and seek diversity.
- Don’t put all your eggs in one basket.
- Don’t rely on one customer or one narrow market niche.
- Having just an on-line presence may not be enough.
- Having just a local retail presence may not be enough.
- Examine your opportunities and make adjustments accordingly.
- Always evaluate the costs relating to the intended changes.
- Consider your profit margins including your soft costs.
- When you take a new product to market you may have to offer a discounted price to kick off a campaign, but always evaluate costs and determine your break-even point for each market strategy.
- This will assist you in determining a long-term strategy for the future of your company.
Worrying about paying taxes is a good sign. A stabilized company without pre-tax net income is not a healthy company. If a company is on a path to growth, there usually is a positive bottom line after two or three years.
During the first few years of a company that is in growth mode, profits are often re-invested in inventory, equipment, marketing and payroll. That is to be expected and this is readily explained by an analysis of the balance sheet of the company.
Speak with your banker after you have prepared the 2018 year-end projections that reflect the changes the tax code will impact your bottom line and how you intend to reinvest the savings into your company.
Lenders like to provide capital to a company on the move. If you think you are going to have a good 2018, plan now. With the assistance of a qualified financial advisor you can decide if you need working capital, a term loan or perhaps an equity investor.
There are many options available to a growing company, but strategic planning is required to make it happen.
Related articles:
Business Owners Need Tax Professionals, but Here’s Why You Need a Tax Guide
10 Tips to Help You Choose a Tax Preparer
New Tax Year- New Tax Law, Small Business Owners Need to Know
