The Economy Is Cooling as the Trade War Drags On

Trade War Drags On

The economy grew at an anemic pace of 1.9% in the 3rd quarter.  As the trade war drags on, American businesses are taking a financial hit. No one even really knows about whether a recession is likely or not. Not even startups and small businesses being spared. With the economy cooling after so much growth, what do we have to do to prepare for the future?

Thinking about making changes to your business? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.

Tariffs Have Increased the Cost of Doing Business

According to the 2019 Small Business Confidence Survey, small business optimism is starting to fall. Nearly 40% of small businesses have experienced an increase in cost due to tariffs.  Over half of these companies have increased prices to cover these costs.  As a result, nearly ½ of those businesses have lost revenue from the price increase. 

As the Economy Cools, the Trade War Gets Less Popular

According to the 2019 Small Business Confidence Survey, small business optimism is starting to fall. Nearly 40% of small businesses have experienced an increase in cost due to tariffs.  Over half of these companies have increased prices to cover these costs.  As a result, nearly ½ of those businesses have lost revenue from the price increase. 

The US-China Trade War is mostly just a fingerpointing campaign between two superpowers

There Are No Good Options

Many small businesses have faced tough choices since the beginning of the trade way in January of 2018.  None of which are great.  We touched on the impact of raising prices. Inventory stockpiling is risky given how we are governing by Twitter. Loans are problematic since the duration of the tariffs are unknown.  Every option increases either the cost to the business or the customer. At the center are politics involving China and more that no one knows what to expect in the first place. The trade war continues and we just have to witness it.

Nothing is Going to Change Until After the 2020 Election... at the Earliest

According to Forbes, the latest truce is a big nothing burger.

The US-China Trade War is one with finance, not with weapons

"a nothing-burger," said Scott Kennedy, who analyzes China's economy at the Center for Strategic and International Studies. "I call it the 'Invisible Deal.'... The only thing that happened Friday was that the U.S. delayed the tariff increase."

"It's curious that Washington and Beijing have not yet put this 'deal' in writing," said Wendy Cutler, a former U.S. trade negotiator now at the Asia Society Policy Institute. "That suggests that the details may not be worked out yet. If that's the case, we should expect more bumps in the road

Forbes

With the impeachment in full swing, the Trump administration is in a very weak negotiation position. Therefore, any deal that we will get is not likely to be a good one.  As a result, Congress will have little appetite to approve it.  If Trump survives and is re-elected, then if past is precedent, the uncertainty will drag on.  If not, then the trade war will likely end.  

In summary, the best we can do is to continue to ride out the storm.  Hopefully, the economy won’t go south before the trade war is resolved.  But every day it continues the risk increases. 

At ProStrategix, we know you have concerns.  We’re designed to help give you the business support you need so you can focus on doing what you love.  If you would like to learn about how we might be able to help you, please contact us.

Tariff Uncertainty Weighs on Small Businesses

tariffs

Tariffs are important, particularly when it comes to trade negotiations. From the US to China to the EU to the UK and beyond, trade and tariffs are important factors in our political system. As we continue to wait for Donald Trump’s perfect trade deal, the Chinese import tariffs are taking their toll on small businesses, dimming the overall business outlook for the economy.

Thinking about making changes to your business? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.

Economic Confidence Falls Among Small Businesses

Economic confidence is at its lowest level since November of 2012.  The monthly survey from the Wall St. Journal reported that 40% of small businesses expected the economy to worsen in the next 12 months, which is up significantly from the prior month (29%) and prior year (23%). 

The Reason? Tariffs.

Slightly less than half of the small businesses said that these tariffs are impacting their businesses. It’s not just the tariffs but the uncertainty that is rattling most owners. They don’t know how long these additional costs will remain.  They also don’t know what else is coming.  These together make it nearly impossible to plan accordingly.

The Ripple Effect

Less investment and slower hiring are the two most tangible short-term effects of this ill-conceived policy. 

“It’s hard enough to adjust to price increases, but it’s just more difficult when you are uncertain how the policy will unfold in the future,” said Richard Curtin, a University of Michigan economist. “For small firms that means being more cautious in your investment and hiring plans.” 

Supply chains are feeling the pinch. Customers are ordering less in advance. Fewer are making major purchases. 

“This is the strangest I’ve ever seen it,” said Wiscon President Torben Christensen, who has run the company for the past decade. “It’s busy. The economy is booming, but there is great uncertainty. A lot of it has to do with trade policy.”  

Small businesses can be more nimble, but they also have smaller cash reserves, making it difficult to deal with wild swings in demand 

“Travis Luther, the founder of Queen Anne Pillow Co., a Denver-based maker of high-end bed pillows, said larger competitors have accelerated purchases to get ahead of tariffs, something his six-year-old company can’t afford.”  

Price pressures limit the amount of excess cost that can be passed through to customers. 

Trump is clueless

Mr. Trump continues to reject the notion that his trade policies were hurting the U.S. economy. Instead, he blames the businesses as “badly run and weak companies”.  Neither of which is true.  Alternative facts and propaganda do not pay bills.  With impeachment in full swing, I wouldn’t expect his administration to get their act together anytime soon.  

What Can You Do?

So much of this is outside a small business owner’s control. However, there are a few things you can do.  First, is there anything you can do to increase demand through upselling, bundling, etc.? This can help you boost revenue can help offset some of the costs.  Second, is it possible to remove costs from your organization in other areas? This can help offset some of the increased cost of goods.  Finally, can you increase your price, even a little?  Any off-set is better than none. 

What we really need is stability, and unfortunately, I do not see that happening without a change in the Administration.

At ProStrategix, we know you have concerns.  We’re designed to help give you the business support you need so you can focus on doing what you love.  If you would like to learn about how we might be able to help you, please contact us.

Recession Talk Has Died Down… For Now

Recession

Consumer spending drives the U.S. economy, and for now, it seems to be holding off a recession. However, it may be plateauing, or possibly leading into an eventual downturn. The consumer confidence index was in the 120s for September and Consumer spending was flat in August. It looks like the economy is holding its breath as we deal with both impeachment and looming Chinese tariffs.

Thinking about making changes to your business? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.

The U.S. Economy Is Driven by Consumer Spending

Consumer spending makes up close to 70% of the Gross Domestic Product (GDP). David Geller, a behavioral economist, said “a 5% reduction in spending comes out to 3.5% of the U.S. GDP. This amounts to more than the projected GDP for 2019”. Therefore, we need to keep an eye on consumer spending as we enter the holiday season.

The Money Anxiety Index

Mr. Geller developed this index as an early warning signal for consumer spending. The index includes several economic factors to estimate the worry and stress consumers feel. This index has been around in 1959. 

Its historic high was 135.5, which hit during the major recession in the 1980s, and its historical lows were in the 1960s. The long-term average over this 60-year range was 71. This index has been shown to be a good predictor. For example, it predicted the Great Recession nearly a year before it was officially announced in December of 2007. 

So, Where Do We Stand?

The Index in September stood at 41.0, which is down since the bump-up in June, July, and August. Given, the figures are low and have ticked down, an imminent recession does not appear likely.

An example of our current recession possibility
Image: Money Anxiety Index

The down-tick in September matched with an increase in Michigan Survey of Consumer Sentiment index, reported to be 96.0. 

A second chart showing the possibility of a recession
Image: Michigan Survey of Consumer Sentiment

Summary – No Immediate Threat of Recession, but That Could Change

Based on the numbers, they do not indicate a recession is on the short-term horizon. However, given the impeachment inquiry and likely vote for articles of impeachment, in addition to the potential Chinese tariffs looming in December, things can change rapidly as we end 2019. 

Given all the uncertainty, it would be wise to keep our ears to the ground and keep an eye on both these indices in the months to come. While a recession may not be imminent, it’s not a bad idea to have some contingency plans.

Succeed During Downturns with These 4 Proven Tips

Managing a Downturn

Just this summer, we were discussing how growth was challenging small business. A few bad policy decisions, and bam, now, we are looking at the real possibility of a downtown. But there are ways to succeed, even during a downturn.

Unsure of how to take your business from good to great? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.

1. Keep Cash on Hand

Make sure that you have enough cash on hand to cover two months of expenses. You should plan to have enough access to cash to manage a slump in sales. In truth, it is unlikely that you will have two months without revenue. If you avoid wasting your reserves, you are buffering yourself against a revenue shortfall of up to 16.67% of a year. This gives you enough to remain successful during an economic downturn, plus a bit more to pursue opportunities as soon as the storm breaks. 

2. Choose Your Customers Wisely

The last Recession still has effects that are hitting America over a decade later, and a new economic downturn could be just as bad

It may seem counter-intuitive to become more selective in a downturn. But, if you issue any credit, e.g. get paid after the service is provided, you need to make sure that the business you take on isn’t going to stiff you with the bill. It may be tempting to take all the business that you can during a downturn, but if your prospects aren’t serious, well-funded, and/or managed, it is a risk you need to be willing to take in order for success.

3. If Possible, Shift Your Mix into More Countercyclical Areas


While we don’t recommend waiting until you’re in trouble to hire a consultant, the reality is, most people don’t seek help if they don’t believe they have a problem. Therefore, our type of work tends to be somewhat countercyclical. Are there areas in your business where you can focus that are more recession-proof?

4. Don’t Be Afraid to Grow During Downturns

In every downturn, there are still industries that are successful. As long as you have a buffer, as discussed previously, it’s smart to invest if a strategic opportunity or hire comes along. There are plenty of bargains to be had if you are in a position to acquire them.

An economic downturn hitting the country might really change how our country is looking in 2019

Why Planning for a Downturn Will Help you Be Successful

We don’t know what will be happening throughout the rest of the year, or if a recession is likely. In the long-term, it is hard to say what will happen. But if you can keep a hold on your money and be aware of how to prevent issues before they happen, you make be able to get away safely.

At ProStrategix, we know you have concerns.  We’re designed to help give you the business support you need so you can focus on doing what you love.  If you would like to learn about how we might be able to help you, please contact us.

The US-China Trade War — What to Know About It

US China Trade War

Small business confidence has significantly dropped to its lowest level since 2017. It’s now below where it was before the new tax cuts. Why? Concerns about trade, and especially concerns about the US–China Trade War. 

The effect of Trump’s trade war is starting to take its toll. According to poll sponsored by CNBC|Survey Monkey, there’s been a sharp uptick in the expectation of a negative impact from trade policies. But we didn’t need this poll to bring this to light for us. One import/export client of our Miguel has been experiencing concerns, and his story is a good example of how to navigate these trade concerns.

Thinking about making changes to your business? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.

Miguel’s Story

Miguel operates an import/export business here in NYC. He does a lot of work with both Mexico and China. Both countries where uncertainty around trade policies have had a negative impact on his growth. 

“I export and import goods to both to/and from both Mexico and China. I don’t know what’s going to happen from week to week. It’s causing problems for both my suppliers and customers.” 

Miguel haactually seen demand for his US manufactured goods fall as well. He’s not alone. In September, Reuters reports:

An example of the deficit in trade that has led to this conflict between the US and China

The index of national factory activity dropped 1.3 points to a reading of 47.8 last month, the lowest level since June 2009, when the recession was ending. A reading below 50 indicates a contraction in the manufacturing sector…September’s reading marked the second straight month that the index broke below the 50 point threshold.

How We Advised Miguel

This is a very challenging environment for anyone in the import/export business. A trade war like the one between the US and China is hard to navigate. So what on Earth can you do? Due to all this uncertainty, any option contains risk. There is no easy solution. One more month of contraction, and the US manufacturing sector will be in a recession – so much for bringing manufacturing jobs back to the US.

Cut Expenses

The US-China Trade War is one with finance, not with weapons

Miguel’s business had been growing at a healthy rate, but in the past three months, that growth has slowed. There’s no reason to believe that any sanity will return to the trade policy area any time soon. In the short term, Miguel needed to cut back on some of his expansion plans, and limit his use of overtime. We also suggested looking at other ways to trim expenses.

Build Enough Inventory to Manage the Holidays

While the manufacturing sector seems to be trending towards recession, the consumer sector does not. He, like many others, was diverting his cash from spending to inventory building for the holiday season. It’s risky, as the consumer sector could head that way by Christmas, but better to have enough supply at the pre-tariff rates than have to rush order. Thankfully, Christmas is recession-proof, US–China Trade War-proof, and crime-proof

Explore Other Markets

This is easier said than done. Miguel’s connections are already established in both countries. But we have to be realistic. We decided to spend some money to research other markets unaffected by current trade policy. We began to look at Brazil and other South American markets as potential alternatives to Mexico, and Vietnam and other Southeast Asia countries as alternatives to China. We’ve made some headway, but this is slow and costly. 

The US-China Trade War is mostly just a fingerpointing campaign between two superpowers

How the US-China Trade War Trickles Down to Main Street

“That really bright outlook we saw two years ago has waned,” said Molly Day, vice president of public affairs for the National Small Business Association. “We’ve been pretty concerned with threats of tariffs.”  

Since Miguel is a distributor, he is like the canary in the coal mine. No one knows what the US–China relationship will result in, or how the trade war will play out. We are also concerned about the effect this will have on smaller retailers, as they are least able to absorb cost shocks. No matter what, it is a precarious time for sure.

At ProStrategix, we know you have concerns.  We’re designed to help give you the business support you need so you can focus on doing what you love.  If you would like to learn about how we might be able to help you, please contact us.

Health Benefits: What to Consider and How to Provide Them

Health insurance is one of the main deciding factors when attracting talent. Historically, small business has been at a severe disadvantage. Is it changing? Yes, but as our story about Gerri will show, the devil is in the details.

Your business is doing well. But what’s next? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.

Gerri's Story

Nurse EntrepreneursGerri owns a successful cleaning service. She has been growing her business over the last couple of years. As she has grown, her headcount has risen, and now, she was rapidly approaching the magic number of 50. Once an employer hits 50 employees, that employer must comply with the Affordable Care Act (ACA), also known as Obamacare. She knew she needed to do something, but what? 

The Alphabet Soup of Health Insurance

In order to talk about what Gerri decided to do, we need to take a detour through alphabet soup that is the U.S. Employer-based healthcare system. If you think Universal Healthcare is a new idea, think again. Its origins date back to the 1930s, almost 100 years ago. 

If you want to skip over the history and options, you may. They are there for reference.

Brief History of Employer-Based Healthcare

Employer-based healthcare arose due to the worker shortage caused by World War II. It was a means to attract workers and remains this way until today. In the 1960s, Medicare and Medicaid were instituted. This created the four-tiered system we have today: the poor, the aged, the employed, and the uninsured. With the demise of manufacturing, the share of the uninsured rose and coverage of the employed worsened. This accelerated until the passage of the Affordable Care Act of 2010.

ACA (Affordable Care Act)

This federal law instituted the employer mandate. It requires companies with at least 50 or more full-time and full-time equivalent employees (ALEs) to provide affordable health coverage or pay a penalty. Much of the other elements were never enacted, and the remainder has been significantly weakened. Leaving us the morass of suboptimal options we have today

A Brief Summary of Options

Non-ALEs

If you have less than 20 employees, your options are limited. Group coverage is usually too expensive. You are likely better off with reimbursing employees, who carry their own coverage. There are two programs available to you. QSEHRA (Qualified Small Employer Health Reimbursement Accounts) and the new ICHRAs (Individual Coverage Health Reimbursement Accounts). Both allow you to reimburse employees for their personal health insurance premiums up to set limits. QSEHRA has maximum limits set by the government while ICHRA is set by the employer.

ALEs

With more employees, more options are available. There are the classic group plans. As much in healthcare these past 4 years, uncertain reigns. Aside from the group plan, the remaining options are uncertain and in legal limbo. 

HRA ChangesDepending on the route you take, there are several options for reimbursement. First, there is EBHRA (Excepted Benefit Health Reimbursement Accounts). These are employer-funded plans used to supplement coverage. EBHRAs can be used by employees to pay for co-pays, deductibles, and other non-covered items. Second, there are HSAs (Health Savings Accounts), which allow tax-free contributions that can be used for qualified medical expenses. Lastly, there is ICHRAs, as discussed above. All have limits, and each varies. They can be used in combination although ICHRAs and EBHRAs are somewhat redundant. 

Back to Gerri and Her Healthcare Benefits

Sorry for the detour, but it was necessary to understand what she chose to do and why. Gerri did want to deal with the uncertainty around the non-ACA compliant plans although the price was steep. The only viable plan was a high-deductible plan. She wasn’t thrilled with it. Therefore, she decided to institute both HSAs for employees to help offset the costs and EBHRA to supplement the policy. Even so, the cost high, and it created a drag on her profitability. Gerri needed to rethink her business model to see how she could drive more profit to offset these costs, which ranged in the hundreds of thousands

At ProStrategix, we know you have concerns.  We’re designed to help give you the business support you need so you can focus on doing what you love.  If you would like to learn about how we might be able to help you, please contact us.

Will 401ks Become Easier for Small Business to Offer?

401ks: not as easy to access as you might hope

401ks are some of the most important retirement plans that are available to employees in 2019. And there is an important question to ask: are 401ks going to be able to be offered by small business owners easily in the near future? 

The answer is… maybe. It’s not simple, and as far as we can tell, it’s not cheap ⁠— especially if you have fewer than 20 employees. 

Thinking about making changes to your business? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.

The New U.S. Department of Labor 401k Rule

What is it?

Well, it broadened the definition of employer associations. On paper, the rule makes it easier for small businesses to group together to offer 401(k) retirement plans. This is done through what is called an Association Retirement Plan, ARP for short. Wow, that sounds great, you may say. But, how are we going to group together? Who’s going to foot the bill or do the work? Ah, and there’s the rub. Like most of the proposals from this Administration, it’s big on words but benefits only a few.

What does it mean to us?

Let me share our story. Like most small businesses, we want to offer healthcare and retirement benefits to our employees, but we can’t afford it. When we heard about this rule, we were encouraged. We thought, awesome, great, let’s check this out. We researched the NYC area for business groups and open plans, thinking surely someone is going to jump on this. What did we find?  

Zilch!  

Yep, nothing. We found myriad Professional Employer Organizations. But they’ve been around for years, as has the Chamber of Commerce. So, we were left with the same choices that we had before.

Professional Employer Organizations (PEO)

What are they?

“Professional Employment Organizations generally contract with employers to handle administrative employment responsibilities, such as payroll and tax withholdings, workers' compensation insurance, and other benefits.”

Jackson Lewis

PEOs have had a somewhat rocky history. While there are plenty of reputable ones. There were laws passed in several states in the early 2000s due to charges of impropriety. At least in New York State, you need to be registered with the State and comply with state regulations, such as requiring yearly financial audits, etc. While under this new rule, small businesses can technically create these groups, the overhead and the expense of running and maintaining one is significant. So, no real win there.

What does it mean to you?

If you want to offer healthcare, retirement, and other benefits, you can contract with a PEO. They do offer premiums that are better than you can get on the open market, but they generally charge about $1,000 – $2,000 per employee for their services. It does take the headache of complying with payroll taxes, withholding, etc., so for some, it may be worth it. One might expect premium costs to go down if more people enroll, but as of yet, we’ve not seen it.

Here’s  brief video on what PEOs are and how they can help you

So, Will the Changes Help Us?

The sad truth is nearly 40 million employees, or roughly, 25% of the total workforce lack workplace retirement benefits. One would think that this executive order and subsequent rule would help. However, in the harsh spotlight of reality, that seems unlikely. While the option exists, the cost remains prohibitive. Going to a PEO was an option before as it will be after the rule takes place. It would seem that they, not us, are the real winners in this case. Again, this is no different from the myriad of actions by this political administration(like Tax Cuts), that sounded great but only benefited a few.

At ProStrategix, we know you have concerns.  We’re designed to help give you the business support you need so you can focus on doing what you love.  If you would like to learn about how we might be able to help you, please contact us.

Did the New Tax Law Help or Hurt Small Businesses?

tax law effect

You may have asked yourself if the GOP tax law helped or hurt your small business. Well, it strangely depends on what part of the country you live in. If you are in Professional Services, LLC or S-corporation in a high tax state (“blue”) like New York then no, you probably got hammered. If you lived in a low tax state (“red”) and were a C-corporation, then it likely helped you.

It’s really such a shame that it’s come to this. We are all small businesses who contribute equally to the economy of the nation. Why can’t we all be treated fairly by new tax laws?

A recent house hearing regarding the Tax Cuts and Jobs Act (TCJA), aka the GOP tax law, illustrates this point beautifully. In the hearing, small business owners disagreed over the impact. Unsurprisingly, it ran with this tired red state vs. blue state divide. Let’s go through what you may want to know.

New Tax Laws in Red States:

Red State

Justin Conger, an owner of a C-corp in Ohio attributed much of his company’s success to the TCJA.

“Construction is a lagging indicator of the economy…If our clients or other businesses are not growing, expanding, or re-investing in their facilities, there is no need for commercial construction services. There is a lot of work to be completed before a project can start; from an owner obtaining financing to architectural drawings being completed, to regulatory approval from local jurisdictions. Businesses all over Ohio are growing and expanding by utilizing the benefits of the TCJA and reinvesting additional generated capital into their businesses. In talking with past, future, and current clients, over 80 percent indicate the reason for their investment in construction services is due to the economy and current tax structure.”

He reported increased hiring and offer higher wages and better healthcare benefit as a result of these tax laws. If true, then he’s behaving much better than Fortune 500 C-corporations, which did not raise wages and just repatriated a ton of cash. They’ve been sitting on this due to the current economic uncertainty, which has been the true victory of this tax law.

New Tax Laws in Blue & Purple States:

Blue State

Most small businesses are pass-throughs, sole-proprietorships, LLC’s, and/or S-corporations, not C, which means they had fewer resources and more administrative expenses. From a purple state, Virginia, one owner, Muneer Baig, expressed his doubts.

“Unlike many of the large corporations that use their savings to buy back shares and increase the value of their business, most small businesses are interested in growing their business. Businesses investing their savings now may not have extra cash in two to three years to continue investing and the projects may not get completed. This can result in a total loss of their investment.”

He also went on to say that he found the code more complex. This has been the complaint of many small business owners, who had to pay increased fees to their accountants. This complaint was strongest among non-C-corporations regardless of state.

A CPA from Rhode Island added a more mixed view. He said that there were benefits in the TCJA, but also believed that Congress should ease administrative burdens.

“Twenty-nine percent of small business owners said filing taxes in 2018 and 2019 was more difficult than it was in 2017. I can tell you tax practitioners said the same thing.”

What Does the Data Say?

The benefits have varied based on where you live. First, growth has been mixed. In Ohio, construction was growing faster than Maine. According to the Bureau of Labor Statistics, Ohio was up 3.5%, while Maine shrank by 4.8%. Second, the same is true with unemployment. Ohio’s rate fell the most 0.7%, the rest ranged between flat to down 0.4%.

What Do Experts Say?

Most economists say it’s a bit of a sugar high, where it will help the economy in the short-term but hinder it in the long.

“Longer-term economic growth would arise from investment, but any incentive effects increasing investment would likely be offset by crowding out from increased deficits,” said

Jane Gravelle.  She went on to say. “Longer-term economic growth would arise from investment, but any incentive effects increasing investment would likely be offset by crowding out from increased deficits,”

“The Congressional Budget Office (CBO) projected a 2018 real growth rate of 2.7 percent without the tax cut and 3 percent with it, for a 0.3 percent growth increase due to the tax revision. Real GDP growth in 2018 was 2.9 percent. This growth rate is consistent with a relatively small first-year effect.”

The New Tax Laws, in Summary

From looking at the data, it’s hard to make an argument that this bill helped everyone equally. It’s also hard to argue that it will have any real lasting and significant effect on the economy as a whole since the places and companies it helped will likely be canceled out by those it did not help. It looks like it is just part of the never-ending saga of Blue vs. Red that’s dividing the country. This cannot go on without negatively impact us all at some point. As part of the business community, we need to stop thinking of us vs. them. Instead, we should think more about making investments in what would help us all.

Is it infrastructure? Or maybe training? Education? It is for us to learn.

4 Key Small Business Issues in 2019

Business Issues 2019

We are nearly ¾ of the way through the year, and while the first half of the year was a good year with a healthy economy and high growth, the back half appears to be becoming one of increasing instability. It has been a long year of lots of changes to the political landscape, and your small business may be facing some issues that are really based on how 2019 has been going so far. What are the four key issues facing small businesses in 2019? Well, it’s a mix of managing growth, costs, your rainy-day fund, and staffing.

Your business is doing well. But what’s next? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.

1. Unemployment Remains Low… For Now

The economy is still growing so people are needed. It now becomes a question of how you can use your team effectively and efficiently. If it weren’t for the clouds of uncertainty on the horizon, we recommend continuing to hire so not to hamper your growth. Our best focus now would be to figure out how to retain our current workforces. It is significantly less expensive and less disruptive to retain an employee than to hire a new one. Until these uncertainty clouds pass, it may be better to focus on increasing worker productivity than expansion.

2. Regulations Are on the Horizon

While we may depart from others on this point, that not all government regulation is bad, full stop. However, we must also recognize the fact that they do tend to affect us as small business owner disproportionately.

Federal regulations … are growing and have a disproportionate impact on small business and free enterprise in America. Federal regulations alone are estimated to cost the American economy as much as $1.9 trillion a year in direct costs, lost productivity, and higher prices. The costs to smaller businesses with 50 employees or fewer are nearly 20% higher than the average for all firms.

U.S. Chamber of Commerce Foundation Tweet

This isn’t the end of the world, but to keep your small business alive in 2019 you’re going to need to be smart about how you go about your financial saving, especially for remaining strong in the long term.

3. Minimum Wage Hikes Impact Everyone

Again, we may differ from others, but a living wage is important for retention. You cannot make the argument on retaining employees and still push for low wages. The two don’t work. Many of the ‘pundits’ pay lip service to retention but shout over minimum wage hikes. Look, labor cost are real expenses. We get it. But, there are no two ways around it. But, you can’t have happy and engaged employees, who are struggling to pay the rent. The minimum wage will likely increase. We argue that we should plan for it.

It may be true that, as the Congressional Budget Office projects, that a federal wage hike to $15/hr could put “nearly 1.3 million U.S. citizens out of a job, reduce business income, and raise prices as businesses would be forced to pass on higher labor costs”. In also equally true, that the current workforce making minimum wage, being trained by us and gaining experience, will leave us for hiring paying wages. Thus, leaving us to foot the bill for additional recruitment, for lost productivity, and for training costs. The small business world of 2019 is one that requires different ways of going about our understanding of wages and the economy.

4. Raising Productivity Requires New Ideas

We agree with the pundits that the government could do more for both workers and small business by providing training incentives and programs that by raising the minimum wage. This helps both parties. It has the net effect of raising wage because of increased skill sets. Also, it has the benefit of increasing productivity, which would offset the increased labor costs. Instead of trade wars, lower interest rates, and higher minimum wage, this would be a much better use of government stimulus and resources.

Conquering 2019’s Small Business Issues

We do face an uncertain the next twelve months. Hopefully, after the election in 2020, we may return to some sense of stability and predictability. However, until then, we need to be ready for almost anything. Making smart choices in people, productivity, and cash management, we should be able to ride out the storm.

The New SBA Bill: What You Need to Know

SBA legislation

The SBA reauthorization bill is making its way through Congress. This legislation may be a boom for entrepreneurs in the technology, biotechnology, medical, and any other research-intensive industries. So learn what you can do to prepare. And tell us if you will need help in managing your small business before it is too late.

Your business is doing well. But what’s next? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.

R&D Funding Enhancements is the Potential Biggest Boon for Entrepreneurs

Senator Mark Rubio (chairman of the Small Business and Entrepreneurship Committee in the Senate) said during a recent speech at Cape Canaveral

[Access to] “patient capital” [for] “the new industries, the new ideas that fuel sustainable, long-term growth, and it comes particularly concerning when it is not happening in sectors that are critical to our national security and our national economic security.”

“We view it as an opportunity not just to conduct oversight and our proper role to reauthorize, but also as an opportunity to modernize and sort of adjust the SBA to the 21st century needs of our country, and to sharpen it as a tool that serves our national interest,” There are some provisions in the current bill that would enable the SBA to provide capital for R&D intensive industries. It’s unclear if it will make it into law, but it is encouraging.

Marco Rubio spoke about investments and entrepreneurship for small businesses in Florida recently.

Concern From Abroad – SBA Bill Could Level an Unfair Playing Field

There has been concern highlighted in Congress about foreign government subsidies, namely China, negatively impacting domestic markets. This isn’t Trump slapping on tariffs willy-nilly. This is a bit more grounded in reality.

“When a Chinese train-maker, whether it’s for urban mass transit or whatever, bids on a project, they are going to be able to undercut any domestic competitor, not to mention any international competitors, because they don’t have the same profit motives that our companies would,” Rubio said in the interview. “They are prepared to bid on projects that make no financial sense because they want to dominate that industry.”

“We are not competing against private-sector firms. We are competing against companies with the full backing of the Chinese government,”

– Sen. Marco Rubio

It’s unclear what the SBA’s bill can do about this situation, but it is encouraging that there is recognition. Subsidies do alter the economic realities that small businesses and entrepreneurs face which is important for everyone to know.

A Bill Strengthening Small Strengthens the Community

The Small Business Administration helps to protect small businesses and campaign for their needs in congress

Nealy ½ of Americans work for small businesses. There simply isn’t a
group that is more closely tied to the communities they serve and expand.
Congress has talked about strengthening the competitiveness of small
businesses against large corporations and foreign competition, though
not much has been done. There has been some draft language in this
legislation that could help improve access to capital, reduction of
security threats, as mentioned in our post about small business cyberattacks. However, no one can say if they make it into the final bill, or whether they are able to deliver what they promise.

In summary, there are a lot of potentially beneficial programs and initiatives in the SBA reauthorization bill. There are reasons to be hopeful, especially if you are in the medical and or technical fields and are looking to expand beyond what you assumed were your limits.