Many small-businesses owners are feeling good about their prospects these days, with 60 percent reporting that they felt optimistic in a SurePayroll Small Business Scorecard survey in June. Nonetheless, a significant number of owners are worried about situations they can’t control, with 80 percent reporting concerns about slow growth in the U.S. and fiscal turmoil in Europe. Perhaps as a result, their rate of hiring was down slightly.
Given that it’s an election year, many government policies that affect business growth—from taxes to healthcare—are in flux, so that’s adding to the mix of worries.
“It’s crazy. There is a lot of uncertainty,” says Xavier Epps, financial advisor and owner of XNE Financial Advising, a firm in Woodbridge, Va. that helps small businesses and individuals with cash flow management and other services.
The trick to growing your business in today’s turbulent environment is finding ways to prepare yourself for change.
Prepare for higher payroll taxes. Among his clients, Epps says, “The biggest topic is the tax cuts set to expire come January 2013.” Business owners will be affected by the expiration of a two percent payroll tax cut, unless Congress does something to stop the expiration. “That’s an increase in costs that they weren’t seeing every month,” Epps adds.
Plan for increased income taxes—for you and your clients. Middle-class and upper-income taxpayers will also see their income taxes rise, unless Congress takes action. That may lead some of your clients to cut back on purchasing your products and services, Epps warns. That’s especially true if you sell something that’s a discretionary purchase. “If their taxes go up, they are going to cut back the first thing they don’t need,” says Epps.
However, not every expert believes that tax increases are a given, so it’s possible that budgeting for a worst-case scenario may leave you with some extra cash to invest in your business.
“If you think about it, there’s no certainty that income taxes are going to go up,” says Bruce Givner, a Los Angeles tax attorney and wealth advisor. “If President Obama is re-elected, it is very likely that Republicans will have control at least of the House. It’s 50-50 that they will have control of the Senate. It doesn’t matter what a re-elected Obama will propose. It’s not going to get passed.”
Consider ways to reduce overhead—and spark sales. Given all of the uncertainty, Epps suggests that his clients take a careful approach to spending right now. “That may mean scaling back on hiring employees, but it shouldn’t stop you from reaching out to contractors,” he says. If sales start to slow in 2013, you may need to hold a company-wide meeting to scale back overhead or come up with new pricing plans to make your services attractive to clients, he says.
Factor in “Obamacare.” Now that the Supreme Court has upheld the president’s health reform plan, some company owners will face increased taxes, starting in 2013. For instance, the hospital insurance tax rate on wages will rise by 0.9 percent, from 1.45 to 2.35 percent on earnings of more than $200,000 for individuals and more than $250,000 for married couples, according to the Kaiser Family Foundation. There will also be a 3.8 percent tax on unearned income for higher-income taxpayers.
The upshot for those earning $250,000 and above: “Budget for your taxes to go up,” Epps says.
Elaine Pofeldt is an independent journalist and editorial consultant who specializes in small business, entrepreneurship and careers. A former editor at Fortune Small Business magazine, she has written recently for Fortune, Money, Crain’s New York Business, Working Mother and many other publications. She is co-founder of $200KFreelancer, a community for freelance professionals, and Endhousearrest.com, for homeowners looking to sell.
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