How Can the New Government & Administration Impact Your Business?
Many colleagues and customers have asked for my take on how the next Administration may impact America's small businesses. In general, policies such as lower taxes, stable inflation, and reduced regulation can create a business-friendly environment. Over time, this can result in expanding profit margins, increased growth opportunities, and, hopefully, higher disposable income for business owners.
Most recently, in response to moderating inflation numbers, we have seen interest rates decline. In mid-September, the Federal Reserve Bank cut the federal funds rate by half a percentage point and then on October 31, they took it down another quarter percentage point. At present, the federal funds rate is now in a range of 4.5 percent to 4.75 percent, with another cut anticipated in December.
Favorable economic conditions, such as lower interest rates and stabilized inflation, can make it more affordable for businesses to access capital to fuel their growth. Given these favorable circumstances, now might be an opportune time for businesses of all kinds to explore financing options. Whether you're looking to expand, invest in new equipment, or address seasonal cash flow gaps, securing additional working capital now could help better position your business for long-term success.
A nuanced approach to forecasting
Amid these encouraging economic shifts, the incoming administration has proposed a broad array of economic reform measures. Gauging the potential impact of these sweeping changes calls for measured evaluation on a case-by-case basis.
Let's use tax policy as an example. A tax cut may be one business owner's blessing, while another entrepreneur will mourn the loss of a federal program cut because of reduced tax dollars. This is just one reason why, when trying to draw a picture of the short- and longer-term future, lumping small businesses together doesn't make sense.
What I've done instead is to answer the huge question of "what now?" with several questions of my own. You can use these to sort out which aspects of your business may need attention in the short- or mid-term.
1. What's your business structure?
Current tax policies, such as provisions under the 2017 Tax Cuts and Jobs Act (TCJA), have provided benefits for individuals and a range of business entities, including sole proprietorships and LLCs. These firms currently enjoy a standard 20% small-business income deduction.
The incoming Administration has signaled that it intends to extend or modify these tax policies, which are set to expire at the end of 2025. For example, current proposals will lower the top tax rate and reduce the corporate tax rate, while increasing tax credits per child. This could be good news for many Americans — the Tax Policy Center estimates that 86 percent of middle-income households would receive a tax cut with a TCJA extension. This extension would be good for just about everyone, particularly business owners. However, concerns over reduced federal tax revenue could result in cutbacks to government programs, with an estimated $4 trillion loss of tax revenue in the next decade.
Given this uncertainty, consider working with your accountant to strategize around potential changes. Understanding the implications for your business's tax obligations will help you prepare, no matter the outcome.
2. How globally connected is your firm?
Policymakers are exploring tariffs and trade incentives to support domestic production. Part of the plan includes a 10 percent to 20 percent blanket tariff on imports; for Chinese imports, that percentage would range between 60 percent and 100 percent. Under this plan, companies using domestic suppliers to manufacture their goods or provide services can benefit — especially if the federal government creates incentives for "Made in the USA" enterprises.
However, businesses relying on foreign imports may find themselves in a compromising position: Paying higher prices for goods and raw materials means they'll need to pass cost increases down to their customers and risk reduced sales. Even if they can replace their imports with domestic materials, these businesses will still need to increase prices, reflecting the higher cost of those domestic goods and materials.
As recent history shows, even "Made in the USA" companies can be hurt by tariffs. Take the case of Kentucky whiskey distillers in the last Trump administration. Though they produce a 100-percent American product, the distillers were stymied by retaliatory tariffs from the EU when exporting their products.
Now is a good time to evaluate your supply chain. Determine what percentage of your essential materials are imported and if it's possible to replace them with domestic materials. Even if trade policies do not drastically change, having a diversified supply chain reduces risk.
3. Are you in a heavily regulated industry?
Some administrations advocate for deregulation in industries such as energy, finance, and manufacturing. While reduced regulations can decrease compliance costs and administrative burdens, they may also eliminate programs that incentivize sustainability or innovation.
What entrepreneur wouldn't want fewer restrictions, right? Sure, but there are pros and cons. With fewer environmental regulations, for example, federal programs that reward businesses for their sustainability and conservation initiatives may be compromised or cut entirely.
If your industry gets deregulated, compare the costs of maintaining or abandoning your present regulatory standards. Say, for example, you manufacture pool chemicals. Deregulation may mean you have fewer rules to follow about the storage and disposing of your chemical ingredients. But might you be better off maintaining your current standards and staving off injuries, lawsuits, and overall ill will for your brand?
If you don't do so already, start following regulatory changes closely on the federal, state, and industry levels. Be ready with a concerted plan for working with deregulation. You may find that the time and expense of "de-complying" isn't worth the added risk exposure.
4. How are you handling your people-power needs?
Changes in labor policies, such as adjustments to overtime rules, worker protections, or gig economy regulations, can directly impact small businesses. While reduced labor requirements might lower costs, they could also make it harder to attract and retain employees in a competitive job market.
After two-plus years of post-pandemic struggling, small businesses are finally filling their open jobs. By adopting a strategy of exceeding federal labor requirements; you can hold on to both your veterans and recent hires, while becoming a more competitive employer.
Immigration policies may also impact your ability to fill important jobs. While much of the policy has focused on undocumented immigrants, if may also impact anyone who's seeking legal temporary working status, including those applying for H-1B visas to work in technology, engineering, medicine, and other skilled professions.
To safeguard your workforce, consider exceeding the minimum requirements for wages, benefits, and workplace protections. Creating a strong employer brand can help you retain talent and maintain operational stability.
5. Are you or your colleagues ACA participants?
The future of the Affordable Care Act (ACA) is a concern for many small business owners. A recent U.S. Treasury Department report reveals that 4.2 million entrepreneurs receive health insurance through ACA marketplaces. Any changes to this system could affect owners' personal finances, as well as those of colleagues or employees also in the ACA.
While adjustments to healthcare policy may occur, any significant changes will likely depend on the availability of alternative systems. For now, businesses and individuals should remain informed and explore contingency plans to ensure continued access to affordable coverage.
Embrace "cautious optimism"
Changes in government leadership often bring shifts in policy, which can create both opportunities and challenges for small businesses. By staying flexible and proactive, you can adapt to these changes and position your business for success.
Since 2008, Fora Financial has distributed $4 billion to 55,000 businesses. Click here or call (877) 419-3568 for more information on how Fora Financial's working capital solutions can help your business thrive.
