New year, new resolutions. For business owners, it's a perfect time to take stock of their financial situations, explore new investment opportunities and set some financial goals. Here are five money moves that can help businesses better navigate the possibly bumpy year ahead.
1. Earn more interest.
After years of rock-bottom interest rates, the cost of money is ticking up, thanks to steady increases by the Federal Reserve that have pushed the federal funds rate to its highest level in a decade. But the interest rate your bank or money market is paying you might not be moving as fast—the average interest rate on a savings account is 0.10 percent, according to Bankrate, although some banks are offering close to 2.5 percent.
That makes it a great time to shop for a better rate for your savings account—or the capital reserves you have sitting on the sidelines. Credit unions, a form of cooperative that are owned by their members, also tend to pay higher rates. If you can stomach a little less liquidity, one to five-year CDs are a good option, and new players such as C-Note and Worthy Financial pay rates from 2.75 percent to 5 percent, respectively, for short-term savings that they lend to small businesses.
2. Get certified.
Are you a woman or minority-owned business? Think about seeking certification. Local, state and federal governments, as well as corporations, often set aside a certain amount of their contracting for businesses that are at least 51 percent owned by women, minorities and veterans to help counter the economic disadvantages these firms often face.
With growth forecasted for the economy in 2019, and business and consumer optimism still high, now is the time to secure the capital you need for growth opportunities.
—Karen Kerrigan, president and CEO, Small Business & Entrepreneurship Council
Getting certified does not cost a lot, but it involves a lot of time and paperwork. Still, it can be worth the effort. “Getting those certifications can help you get money you may be leaving on the table," says Nicole Farmer, CEO and executive director of Grand Innovation, an entrepreneurial training and coaching organization in Detroit. That's true for small businesses that provide technology, staffing, military gear and catering, but also a surprising range of less obvious businesses. “I would make a plea to the chocolate makers, promotional gear makers, fitness class providers—everything is needed in government and corporate sectors," says Farmer.
The Women's Business Enterprise National Council (WBENC) is the largest certifier of women-owned businesses and is accepted by more than 1,000 corporations. But corporations and government agencies may require different certifications, so do your research.
3. Consult a financial expert.
Last year's Tax Cuts and Jobs Act was largely a boon to businesses. "But certain credits will start phasing out at the end of 2019, including the new markets tax credit, employer credit for paid family and medical leave and the work opportunity credit," says Karen Kerrigan, president and CEO of the Small Business & Entrepreneurship Council, a Washington, D.C.-based small-business advocacy group. In addition, small businesses must plan for the eventual phase-out of the 20 percent tax deduction in 2025, bonus depreciation and other provisions. Therefore, it's imperative to consult a good tax consultant. “The complexity of the tax code definitely got a little more difficult for many small businesses, but there are many advantageous provisions that are helpful for businesses of all kinds," says Kerrigan. “A tax expert can find these, and more importantly, help you plan to use them."
In addition to taxes, a Certified Public Accountant (CPA) can help with accounting and broader financial strategy. “A good CPA is not just going to do your books and go on their way, they should be sitting down with you and helping you project how your next year is going to be," says Farmer of Grand Innovation. One place to look: The American Institute of Certified Public Accountants (AICPA), the national professional association for CPAs.
4. Get your funding lined up.
To invest in growth and take advantage of business opportunities, small businesses need to have funding in place, whether a bank loan, line of credit or other type of financing. “With growth forecasted for the economy in 2019, and business and consumer optimism still high, now is the time to secure the capital you need for growth opportunities," says Kerrigan of the Small Business & Entrepreneurship Council. "Savvy entrepreneurs do this in anticipation of growth or future working capital needs," she adds, "not when a cash or financial crisis hits."
Of course, those rising interest rates may cost you more this year. But the upside is that the higher rates are persuading more banks to expand their small-business lending, says Kerrigan, making traditional small-business loans more accessible.
In addition, the financing options available to small businesses are multiplying. Financial institutions are using the risk assessment technology first pioneered by online lenders to extend credit to more customers. “There are now much more tech-driven solutions for working capital loans or revolving lines of credit," says Geri Stengel, president of Ventureneer, a New York-based small-business research and training firm.
5. Explore stock market alternatives.
Stock market got you down? Don't panic. Volatility is driven by short-term emotional triggers. For business owners, "it's better to stay focused and tuned into the customer as they will provide cues to market and economic shifts," says Kerrigan. Still, with more turbulence likely in store for the public markets, you might want to consider alternatives. The best part: There are new investment opportunities that allow you to support other growing small businesses. In particular, the JOBS Act of 2012 made it easier for individuals to invest in and lend money to private companies—starting with as little as $100—via crowdfunding.
For some small-business owners, such options offer more than a buffer from the public markets. “Just as I'm looking to have mentors and advisors, I mentor and advise. I also invest in entrepreneurial companies," says Stengel of Ventureneer. Stengel has invested in small businesses via crowdfunding portals such as Los Angeles-based StartEngine. She has also invested in Worthy, which loans to businesses. “It's a virtuous cycle of supporting other entrepreneurs," says Stengel.
However, investors beware: Small businesses face a gauntlet of challenges (as you well know!) and investing in them can be risky. In addition, equity investments via crowdfunding may take many years to produce a return, if they do at all.
Consider these money moves in 2019, and set yourself up for success—no matter what the market throws at you.
Photo: Getty Images