Your business can’t do much without money, but your financial health hinges upon far more than just making the cash register ring. Given the abundance of advice, stats, and other data available, how do you avoid information overload and uncover what’s important to your enterprise?
The Intuit Small Business Blog asked a few financial pros which recent news headlines are most relevant to entrepreneurs like you. Here are four money trends worth watching — and two you can ignore (for now).
Trends to Watch
- Retirement plans are changing. If you offer an employer-sponsored retirement plan, now is a good time to reassess your choices. Likewise, if you have never offered a retirement program, now may be a good time to consider doing so. One reason is the pending implementation of new government rules on how 401(k) fees are disclosed. Financial adviser Sean Dowling, president of The Dowling Group, says the change will give small businesses more investment advisers and plan administrators from which to choose. “This is a boon for business owners and plan participants, because pricing is already growing increasingly competitive,” he says. Dowling recommends that employers review their existing plans, even if they just recently set them up. “Many employers are going to be surprised by the amount of money they are paying.” Meanwhile, financial planner Adam Koos, founder and president of Libertas Wealth Management Group, notes the increasing popularity of adding a Roth 401(k) option to company-sponsored retirement benefits. These plans, once rare, enable participants to save after-tax dollars and withdraw their investment gains tax-free in retirement. And, unlike the Roth IRA, there’s no income limit for eligibility, Koos notes.
- Cutting costs isn’t just for recessions. Brett Anderson, president of St. Croix Advisors, says financial belt-tightening is now a standard operating procedure rather than a short-term survival strategy. When it comes to reaping a profit, keeping costs in check can be just as effective as increasing revenues. “While we all saw the necessity for expense reduction and right-sizing our small businesses in 2008, even four years later this focus on expense reduction for the sake of the bottom line is no less important.”
- Health care, health care, health care. Anderson adds another item you’ve probably heard before: health care. The pending U.S. Supreme Court case and upcoming presidential race bear watching, whether you’re just worried about your own insurance or a group policy that also covers your employees. “As health-care legislation churns, business owners need to keep their ears to the ground to make sure that they, as well as their employees, stay abreast of requirements and potential cost implications, so they aren’t sunk by unforeseen expenses,” Anderson says.
- Interest rates will inevitably rise. An extended period of rock-bottom interest rates may have created a false expectation that they’ll stay that way forever, according to John Hauserman, president of Retirement Quest Wealth Management. He says a variety of factors, including the U.S. government bond market, could cause rapid changes in interest rates — and they don’t really have any place to go but up. “Now might be a fine time for small-business borrowers to lock in financing rates, while avoiding locking in rates for their savings.”
Trends to Ignore
- Consumer spending is up. Economic headlines are continuing to turn a bit rosier in the wake of recessionary doom-and-gloom. Don’t let that wield too much influence in your decision-making. “While studies show that consumer spending is up, this will not necessarily impact every business,” says Patricia Stallworth, author of Squeeze the Most Out of Your Money. “It is important for owners to keep a watchful eye on their own businesses and their cash flow versus what they read in the news.”
- Cash produces paltry returns. Another trend to tune out, Stallworth says, involves the nearly invisible returns business owners are getting on cash. In particular, short-term vehicles like savings accounts, certificates of deposit, and money-market funds haven’t been making anyone wealthy in recent years. “This may cause some owners to wonder if it is worth it to continue to invest their working capital,” Stallworth says, “but there are still options, and stopping investing is never a good idea.” Those options do require you to take on more risk and offer less liquidity, and Stallworth says that owners who can swing it could consider commercial paper, mutual funds, and ETFs as alternatives, while being mindful of related investment fees. Another option: “If businesses really find themselves with extra money, this is a great time to invest directly in the business or even purchase a piece of another company.” The bottom line: Don’t start stuffing cash under your mattress because it’s earning close to zero interest in the bank.
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