Owning a business has become increasingly complex. Regulation changes often, causing business owners to worry about how they treat their customers, employees and themselves. And because it’s their business, it’s usually the owners who spend the most time dealing with these evolving requirements[i]. Each year brings a whole new set of concerns, and this year is no different. For starters, the tax code will look different. Employee benefits options will most certainly change. And another year means another year closer to executing a succession plan.
Businesses in different industries – retail vs. manufacturing, for example – will change in different ways based on their respective environments. But there are several things business owners must do this year regardless of industry. For business owners who need help identifying those priorities or taking the first step, here are four New Year’s resolutions to put on the list.
Work Out the New Tax Code
While it may take more time to decipher everything in the tax bill, there are certainly things that business owners can evaluate now. Two of the major headlines to come out of the new tax plan are a lower corporate tax rate – 21 percent – and a 20-percent income tax deduction afforded to owners of pass-through entities. Owners should consider whether their business is in the right entity for the current tax code, and if it makes sense to change the corporate structure to a pass-through. The process to change is fairly straightforward, but the decision isn’t. One reason: Specified Service Businesses. Owners of these types of businesses – which involve services in the fields of health, law, accounting and consulting, among others – who make more than $315,000 per year aren’t eligible for the pass-through deduction. Business owners need to look at what kind of business they have, and how much income they have, to determine whether they can gain tax advantages by changing entities.
Depreciation is another notable change in the new tax bill. Business owners can now deduct up to $1 million in Section 179 expenses – qualifying equipment and software – which is double the amount previously allowed. They also have higher bonus depreciation allowances and can deduct 100% of eligible property through 2022 – which is when rates start to fall. Because of these additional business-friendly additions, owners need to look at their strategic plan to figure out if they can take advantage of these conditions. Bonus depreciation isn’t permanent, so business owners would be wise to plan 6-8 years in advance (if possible) to frontload these expenses.
Put a Little More in the Bank
The relationship between business owner and banker is key to the success of the business. One of the first things business owners might do when building their business is open up a working line of credit. However, few of them ever go back to the bank over time and ask for better terms – and banks usually won’t proactively offer such terms. Over time, business owners should look for every opportunity to make their banking relationship more efficient and beneficial – which could mean a larger line of credit, lower interest rates, less restrictive borrowing rules, etc. Sometimes that means looking for a new banking relationship. There are three ways to dig into new opportunities:
Spend More Time Thinking About Benefits
Benefits are expensive for business owners, and the cost is volatile. Business owners need to do their best to control the uncontrollable – i.e. plan for changing costs – even if things won’t drastically change year to year. That means being thoughtful about the benefits offered to employees, and the benefits owners take themselves. This is even more critical for smaller businesses that can use their size to take advantage of some cost efficiencies. For example, some businesses can offer waivers or incentives to staff who don’t need to opt in to their health insurance plans because they are covered by a spouse. That can save thousands. On the retirement plan side, would a cash balance pension plan more broadly support the goals of the owner and staff? These should be part of the annual benefits analysis.
Reorganize Your Strategic Plan
It’s in the business’ best interest to set aside time annually to reflect, and identify areas for improvement and opportunities for expansion. This is especially the case now, with high consumer sentiment leading to increased consumer spending. As a result, more businesses are looking to expand, form strategic alliances or create distribution networks. Business owners should be looking at how they can expand into new markets and how they can make their offering and business more robust. Business owners may not realize it, but their advisor can help them with these conversations. Advisors can challenge them with probing questions and tie the answers back to their personal goals. For example, how will your proximity to retirement affect any expansion efforts? These questions and answers will determine how to best update the strategic plan.
What often plagues business owners with New Year’s Resolutions is the same thing that plagues individuals looking to more frequently head to the gym. They start strong, get distracted and taper off from their established resolutions. Business owners sometimes get so lost in day-to-day operations that they fail to spend enough time executing executive-level priorities. Identifying New Year’s Resolutions is the easy part. Actually following through consistently throughout the year is what takes a business to the next level.
Did You Know? Your advisor can help create specific New Year’s Resolutions for you and your business and keep you on track during the year. For more information, contact Wescott today.
[i] According to the 2017 National Small Business Association Regulatory Survey (http://www.nsba.biz/wp-content/uploads/2017/01/Regulatory-Survey-2017.pdf)
