Last month I discussed the soft issues that drive most biz owner’s nuts. And I strongly believe it is those types of issues that are holding back our economy and job growth.
Since I wrote that article I have personally encountered four events which support my initial premise.
A young entrepreneur I know wanted to start a new business in Illinois and after he found out how much paperwork he would have to prepare, how many meetings he would have to have with government personnel, how much the taxes would be on the federal, state and local level, being an entrepreneur didn’t sound that exciting as when he formed his original game plan. He concluded he would not have the horsepower to comply with all the government regs and still run a business. Good bye jobs and tax revenue.
Another dealer had an opportunity to improve his gross profit margin and cash flow significantly but avoided the opportunity because making the improvement may push him over the 50 employee threshold and what that means regarding ACA (Affordable Care Act). Good bye jobs and
I attended a town hall meeting for one of the members on the Ways and Means
Committee and had the chance to spend a few minutes to discuss the tax issues facing dealers that I have outlined previously in this publication. He was well aware of the issues but said “Every tax issue is on the table” because they are trying to reduce the corporate rate to 28% and the individual rate to even things out. So, such tax items such as LIFO, MACRS, LKE (Last In First Out, Modified Accelerated Cost Recovery System, Like Kind Exchange) to name a few that directly impact dealers are being looked for revision or deletion. Can you imagine the confusion that will be created, especially if they make the changes without proper supporting regulations. All I see is increased tax risk. Good bye jobs and tax revenue.
A partner in a CPA firm told me the starting salary is now $60,000 plus tips, and when talking to one of the new hires he asked if a new car was on the horizon and the new hire said “No way, I have over $100,000 of student loans to pay off”. Good bye consumption, jobs and tax revenue.
No matter how you look at it doing business these days and taking a risk with invested capital is being discouraged and will stay that way until we reverse the government regulation maze we have allowed to be created. It just seems no matter where you turn there is a roadblock blocking advancement.
The durable goods report for August was released this week with a higher than expected downturn. So, I expect dealers will be getting more of the market share dialog to keep you on your toes. I guess it goes with the territory and will not change soon. I hope I don’t have to remind you that you have to run your business to stay in business which means inventory control should be high on your list for the foreseeable future.
I read a book recently regarding market share and the author basically concluded that many companies made less money chasing market share when compared to those that did not. On the other hand, companies with excess resources could attain market share gains profitably because doing so did not restrict their normal dealership activities. The companies that lost money chasing market share were those that reduced pricing to get that next sale, and reduced pricing to get that next sale, etc. In the end you spend a lot of money to get the additional sales but lose money in the process. Not a smart thing to do in this environment.
What to put on your follow up list:
- Do something to hedge your interest cost. I recently refinanced a deal using a swap to fix the rate on my equipment loans, with the rate reduced by about 30%. Will add significantly to the bottom line.
- Watch for inflation and take steps to delay or reduce the impact.
- Keep current on the ACA issues. From what I am hearing (depending what state you are in) rate increases could range between 20-60%.
- Keep your employees educated about the status of their company benefit plans. With the volatility in the markets it may be time to get rid of the fiduciary liability related to these plans.
If there was ever a time to make sure you are working ON the business instead of IN the business, this is it. And let us not forget….CASH IS KING!
Garry Bartecki is a CPA MBA with GB Financial Services LLC. E-mail email@example.com to contact Garry.