Business Topics

Recession or Not, Here’s How to Cope

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MCN Editor Dan Markham Gene Marks doesn’t know if there will be a recession in the next 12 months. He’s not an economist, so he can only help you prepare in case one happens. (To be a fair, there’s a good chance the economist doesn’t know either).

Marks is an accountant turned author who speaks regularly with the leading U.S. companies in all industries and shares their winning strategies with others, as he did at the recent Steel Summit from Steel Market Update. 

On the big question of an economic downturn, Marks said there are conflicting signs, allowing the observer to choose the path that best suits him or her. On the one hand, unemployment remains at a 40-year low; markets are near record highs and consumer spending remains healthy. Signs pointing downward include layoffs in tech and construction sectors, mortgage rates rising and overall wealth declining. 

“If we do enter a slowdown, it’s going to hinge on these three things: inflation, interest and capital. And some things are concerning me,” he said.

Inflation has been officially ebbing, though it remains above the Fed’s target rate and costs for most goods remain much higher than they were before the pandemic. Continued inflationary conditions, in turn, can lead to still more interest rate hikes. And even if the Federal Reserve puts a halt on increases, the rate will remain high for a while. 

And that will make it more difficult to either obtain capital or deter the decision to try to secure it in the first place. Banks have been tightening credit offerings. “When you go to refinance your working capital loans or equipment debt, any property or machinery you want to buy, you’re going to pay at least 8.5 percent. That has become too costly for many businesses, particularly small and midsized businesses.”

Marks offered a few tips for steering through the current conditions: 

1. Embrace Bidenomics
Some business owners may be philosophically opposed to the spending plans that have come out of the current administration, but that ship has long since sailed.
 
Since assuming office, President Biden has pushed through the $280 billion CHIPS Act, the $391 billion Inflation Reduction Act and the $1.2 trillion Infrastructure Investment and Jobs Act.
“When there is $1.7 trillion coming into the economy, my smartest clients, some diehard Republicans, are putting that aside and  saying I have an obligation to go after this money,” Marks said.

And there’s a lot of that money still to be allocated. Only 30 percent of the money thus far has been committed. 

2. Diversify Cash
For many business owners under the age of 40, today’s interest rate environment is an entirely new experience. They may not be the most suited to navigate the situation. 

Marks advocates a few older techniques, such as buying treasury bonds. 

“Same with CDs (Certificates of Deposit). I see a resurgence in popularity. Take restricted cash you don’t need to be liquid and ladder CDs. Spread them out among a few different banks,” he advised.

And for those who may still be concerned about cash flow, the CDs can be purchased with different maturity dates to have quicker access.

3. Invest in Technology
ChatGPT may be the butt of numerous jokes, even at a Republican presidential debate, but it’s already a valuable resource for business owners. 

The technology can be used in a number of ways. It can write blogs for companies, perform search engine optimization, handle automatic chat on a website or perform market research. 

Additionally, it can help with legal forms, tax forms and with HR questions, though Marks cautions that professionals should still be consulted before making decisions on these issues. 
“It’s limited, but it’s powerful stuff,” he said of ChatGPT. 

Another new development from Microsoft, Copilot, will provide email/word suggestions, aid with spreadsheets and even allow users to attend two meetings at once.
 
Marks recommended talking to the software provider to learn what AI functions they have coming.

4. Make Tax Moves Now, not in December
There are a number of tax options available now that may not exist next year. Marks, the former accountant, outlined a few of them. 
  • Talk to an accountant and HR to see if you’re eligible for an Employee Retention Tax Credit. Companies partially shut down during COVID can be eligible for deductions up to $7,000 per employee. 
  • If you’re buying capital equipment, do it this year. As a result of the 2017 Tax Act, deductions on equipment depreciation have begun to decrease. If equipment is purchased this year, you can still deduct up to 80 percent. Next year, it drops to 60 percent and continues to decline after that. 
  • Consider a sales leaseback. Property values are up, so some owners are selling the property and leasing it back long turn, taking the capital gains and the tax deductions for lease payments over time. 
  • Do a wash sale. “If you have a stock that’s a loser, sell it. You can sell it and offset the loss against any capital gains you have. Wait 30 days and buy it back,” he recommended.
  • Move money to a Roth Account. With Roth Accounts, money put in into the account is after taxes, but it grows tax free forever.”
5. Hire With Care
With demographics working against business owners, now and for the foreseeable future, companies will have to be creative and forward thinking when it comes hiring.

First, be open to look beyond the traditional outlets. The formerly incarcerated, long-term unemployed or retired military are all worth considering, particularly given the incentives available. There are grants available through nonprofits and tax credits for hiring some of these people, and the money saved can be used in the form of hiring bonuses after certain milestones have been reached. 

Among other benefits, Marks recommended prioritizing mental health, which is increasingly important to today’s younger workers. There are digital options available to small and midsized employers that can be used by employees. 

Additionally, items such as same-day pay have become popular for those living paycheck to paycheck, and can be implemented rather painlessly.