One of the most significant changes in the Tax Cuts and Jobs Act will be a 20% deduction for all pass-through businesses. (Businesses that pass income to the owner to pay the income taxes.) This means, as an example, if your revenue in 2018 was $500,000, you will pay taxes on only $400,000 of that revenue. In a 15% tax bracket, the savings will be about $4,500 on a gross basis and even on a net basis the savings will get your attention. It is anticipated that this will impact roughly 95% of the small businesses in the United States.
That sounds like good news, and, to be sure, it is! The more important question, however, may be what to do with those tax savings. One possibility is to pour it back into the business in some form of new business development or promotion – i.e. marketing.
Investing in the business when “surprise” funds become available should help to grow the business and increase future revenues for many years to come, thus magnifying the impact of the tax code changes.
That investment could come in various forms that could lead to increased production and sales. Here are some general ideas to consider:
- Hire additional staff who will potentially add operational productivity and increased sales. If the tax savings aren’t large enough to cover the increased salary, don’t forget to measure the value of the increased sales revenue. That increase may make up the difference. Adding staff to a well-run business, meaning one with operational efficiencies that will incrementally benefit from increased productivity and sales, will lead to increased profits.
- Spending a little more on an effective advertising campaign will likewise increase profits, as a result of increased sales.
- Maybe its time to expand the product line. Have customers been asking for something that you just couldn’t afford in the past? Now, with tax savings, perhaps its time to follow through on meeting those customer requests for slight enhancements in the product line.
- Not to be outdone, a service provider can also consider customer requests for additional services. Expanding service offerings that respond to customer needs will certainly increase sales.
- Perhaps a discount or coupon offering will get a lagging product or service into an upward tilting sales line. With some extra funds (tax savings) to cover the costs, perhaps a well-placed promotion will help that lagging product get the notoriety it needs.
- Another direction where tax savings could be spent is in expansion of a sales territory. If a lack of resources has limited your geographic reach in the past, perhaps now is a good time to expand to new territory.
The tax savings for the tax legislation may be the funding source needed to address some growth tactics that have been set aside in the past. Business owners that can take these steps will reap long-term benefits that will far outweigh the short-term increase in personal income.
While considering some of the marketing and promotional steps mentioned here, don’t forget to check out the SCORE/NaperLaunch Marketing Series workshops and meetups available each month at NaperLaunch.