Five reasons why 2016 will be a challenging year for your business
Now that we’re mostly through January you’re probably making your projections for 2016 like I am. So what can we expect? Here are five things that will impact my business this year…and probably yours.
Market uncertainty that will negatively impact demand.
My company sells sales and marketing database software mostly to small and medium-sized businesses. You wouldn’t think that the stock market has a big impact on me. But it does. That’s because as the market’s value rises, and my clients’ portfolios becomes more valuable, they feel wealthier. So they are more apt to make investments in things like sales and marketing database software. Of course, when the market falls like it has recently the opposite happens. My clients close up their wallets, circle the wagons and wait for things to settle down. Like last year, most of us are bracing for more significant fluctuations in the market this year. We’ve been fearing its over-valuation for years. We are concerned that China is more of a house of cards than was previously considered. And you never know when and where ISIS could strike. Even as our economy continues to stumble along at its less-than-impressive rate, I’m expecting that continuing uncertainty in the markets will also continue to suppress our customers’ demand this year.
However, tax certainty will be a help.
At the end of last year, Congress made certain “tax extenders” permanent, which is a concern for deficit hawks but also a big relief to small business owners like myself. The most significant to me is the Section 179 deduction, which allows many companies to deduct as much as $500,000 of capital equipment purchases right away. In prior years, this deduction was always debated and oftentimes left hanging until the last moment before extended so we couldn’t take full advantage of its benefits. But going into 2016 the debate has ended and the deduction is now permanent. That means that I (and my clients) can make longer term capital investment decisions that take into consideration this important tax benefit. This helps my business, and others who sell capital equipment too because it makes our products more attractive to our customers. In addition to the Section 179 deduction, a good many of my clients will also benefit from the now permanent research and development tax credit. And we’ll all be able to personally enjoy permanent credits and deductions for education, sales tax and retirement contributions too. In short, there will be no tax surprises in 2016 and that’s good because business owners don’t like surprises.
My payroll will go up this year.
This year I will be paying my people more. Sometime by the end of the year new overtime rules will go into place raising the exempt level for salaried employees to $50,440 from $24,000. So those employees who are now making up to $50,440 and aren’t supervising others will soon be eligible for overtime pay. Minimum wage legislation has been passed in many cities and states and more raises are on the table across the country. Even though (like most of my clients) I pay my people well more than minimum wage, an increase at the lowest level will only serve to put pressure to increase all wages above it. There is no national legislation for paid time off, but it’s an election year issue and both governments and many high-profile companies like Netflix, Facebook and LinkedIn are touting their very generous policies. My small company can’t match what they’re doing, but I’ll need to do something if want to compete for good people and keep my existing people happy. And finally, independent contracting is under the microscope (thanks Uber!) which will impact who and how often I outsource work.
The costs of healthcare will continue to rise.
Suffice it to say, the Affordable Care Act is not yet having the expected positive impact on healthcare costs that was promised in 2010. While some cities like Milwaukee will see a decrease in their health insurance costs others, like Nashville, will see their health rates go up more than 38 percent, according to a report from the Kaiser Family Foundation (my company is based near Philadelphia, so I’m getting away lucky with about a 3 percent increase). Unfortunately, things don’t look good on the horizon. Big health insurers are pulling out of the market. The government’s “risk corridor” program, which subsidizes health insurance companies for cost over-runs is likely coming to an end. And the outcome of this year’s presidential election may turn the whole system upside down. So no, we haven’t figured out an answer to the cost of healthcare yet. And I, like many small business owners, will continue to pay more and more until we do.
My operating costs will also rise.
Of course, the price of oil is at historic lows and I’ve been paying less not only for utilities but also for any petroleum-backed product I buy from office supplies to computer equipment. However, where else can the price go but up? And when it inevitable rises, which I predict will start this year, I’ll see my own overhead increase accordingly. I travel a lot and already hotels and airlines have announced price increases for 2016 in a response to strong demand. Many of the communications services I use will also be going up as companies from Verizon and Comcast to AT&T and T-Mobile also enjoy stronger demand coupled with increased regulations. The Fed has already increased interest and, barring any significant jolt to the economy in 2016 we can expect more of the same. And everyone I expect will be paying their people more this year (see above) which to me means higher costs as my suppliers pass on these increases to their customers.
Barring any catastrophic event, I’m expecting 2016 to be a profitable year. But only if I’m smart enough and work hard enough to make it so. That’s because, like everything else life, the profits aren’t going to come easy. You know what I mean.