Today's post is a guest post from Yu-Fen Chang-Pett who is a business financial coach, certified money coach and the founder of Money Wisdom Empowerment.
Recently, what’s been spreading like wildfire throughout the country is a thorny issue dubbed the “fiscal cliff” - a series of federal spending cuts and tax hikes worth $600 billion that could be phased out in the next year if the government doesn’t take action soon. According to a recent economic survey, confidence plunged in early December as consumers confronted the rising likelihood that political gridlock would push the country right over this “fiscal cliff.”
What could this “fiscal cliff” mean for the economy?
If no deal is reached before December 31, 2012 at midnight, the Budget Control Act states that the following will happen:
- Payroll taxes will be cut: The end of 2011’s temporary payroll tax cuts will result in a two-percent tax increase for most workers.
- Tax breaks: Several tax breaks for businesses will end. Changes in the alternative minimum tax (AMT) could result in more people with incomes between $45,000-$200,000 having to pay more taxes.
- Tax increases: Taxes will increase for those in the higher income brackets to help pay for the Affordable Health Care Act.
- Spending cuts: More than 1,000 government programs will be impacted by spending cuts, such as Medicare, through 2022.
Every Sunday, I read the business section of the Washington Post closely, and I very much enjoy gaining knowledge about the stock market, and the current economy on all levels—personal as well as business. As a business owner, it’s crucial for me to know how well the economy is doing locally, nationally, and internationally, since this will impact my own business plans and decisions.
Let’s employ the issue of the “fiscal cliff” as an example of why you, too, need to pay attention to the economy and how it might impact your business. Depending on how both the national and local economy are doing, especially, you might need to change your revenue expectations, and reduce (or increase) your expenses in looking ahead.
Obviously, whenever people need to pay more income taxes and/or bring in less cash, they’re going to need to cut spending. Yet, in this situation, it might be harder for you to convince people to purchase your services and products. Therefore, if you as a business owner are unable to generate more revenue, but hope to maintain your bottom line and net income, you’ll need to reduce expenses.
Here are few tips to help you do this:
Eliminate late fees/financial charges:
Don’t give your money away! Although you’ve heard this tip repeatedly, there are still so many small business owners who still make this old mistake. The methods I use to pay my business bills on time are:
1. I schedule the bills through online banking right after I receive the bills.
2. I write the due date on the envelopes of my bills if I don’t have time to schedule them online right away.
Reduce membership fees:
Do you know how much you’ve paid in membership fees this year to the organizations you’ve joined? Some of these fees can be expensive! Does your business really benefit from all these organizations? Spending some time evaluating these types of expenses on a yearly basis can often save you more money than you think.
The technology today is so powerful; you can conduct much of your business transactions through online programs, without printing documents or mailing invoices and checks. Spending some time evaluating the operational process of your business, and discovering which transactions can go paperless can really save you time, and money.
Cut payroll expenses & go outsourcing:
Since payroll taxes and healthcare expenses for small businesses are rising higher and higher these days, outsourcing for services might be a way for you to reduce overhead expenses. I completely understand that it’s often extremely time-consuming to work on every single aspect of your business by yourself (it’s not the reason you started the business, right?). For this reason, hiring a consultant or virtual assistant to help you to do things like bookkeeping, financial analysis, or marketing, among many other things, can not only save you time, but money. Their fees might be higher than what you might pay regular full-time employees, but you need to take the cost of employee benefits into consideration when evaluating the expense.
Finally, if you really want to bring your business to a new level of profit, it’s important that you review your financial reports monthly so that you can fully understand where your business stands. After you’ve reviewed the reports, you can then make the right decisions that will either generate more revenue, or reduce more expenses, so you can bring more cash flow to your business.
Yu-Fen Chang-Pett, the founder of Money Wisdom Empowerment, is a business financial coach and certified money coach with 15+ years of experience in financial and accounting management. Yu-Fen teaches entrepreneurs how to better understand the often complicated financial aspects of running their own business. By using the programs she has created, her clients have discovered that they are better able to clarify their business models, and achieve their highest profit objectives. As a certified money coach, she helps entrepreneurs unblock their fear around money because it’s difficult to build a successful business without a strong and clear mind.