How Will The Fiscal Cliff and the Elections Affect Remodelers?
The threat of a year-end perfect storm of expiring tax cuts and massive defense and domestic budget cuts could push the economy back into a recession. A recent article on the Fiscal Times website offers some insight into this possible reality and points out that many voters are clueless about the cliff and are in for a shock. Another article posted on Reuters warns the cuts could cause the loss of nearly 1 million jobs across the country. Remodelers trying to work on business planning, marketing and budgeting for the New Year may also be in for a shock if they make decisions without first considering the cliff and the outcome of the elections.
Making any business decisions in a down economy can be difficult and risky.
Unfortunately in addition to a bad economy we also have a lot of uncertainty about what the government will or will not do. I think the problem, at least for those who keep an eye on the economy and the political arena, is having any confidence in making long term investments and decisions. The fiscal cliff could really challenge the economy if across the board cuts are made as planned. And because the current administration has not clarified or committed to what will be cut, we don’t know how or in what market areas the economy will be affected most. Unfortunately, true discussion about all this by our elected leaders won’t even get started until after the elections.
The economy and remodeling could take quite a hit if our politicians can’t come to an agreement. And, even if they do come to an agreement, what will it be and how will it affect the economy? If it gets pushed off into the future again, it will leave all businesses including remodelers in this unconfident position for a long time. If consumers remain unconfident, and or get laid off as a result of the cliff, they probably won’t be spending money on remodeling.
Remodelers need to be very cautious about investing in capital assets.
If the current tax deductions for capital asset purchases go away, the cost of those assets will in effect increase. Waiting to make such purchases is a gamble. If remodelers invest in capital assets now before the deduction possibly goes away, the question to ask is whether they will be able to meet the payments on those assets and or actually be able to make use of them if the economy does not improve or gets worse? If they wait to see what happens they may miss out on the tax savings if the deductions are eliminated. Making the right decision is hard without knowing who will be elected or which party will be in control after the election.
Should remodelers consider hiring more staff if they are seeing a work backlog building up?
In my opinion, as long as they are selling work at a price that meets their overhead costs, remodelers must decide if they will use the gross profit to hire office and management staff and reduce their workload, hours and or stress; or work all those hours and keep the gross profit as their own compensation. On the other hand if they are not selling at prices high enough to support the overhead, hiring more staff or buying more assets are not sound financial options. I suggest waiting to see what happens with the elections and the cliff before making any long term business investments. If you have money you are willing to invest, I suggest using it to improve your marketing and sales skills. Those are investments that can help a business regardless of the economy and can even give you an advantage over your competition when it comes to capturing the limited amount of work available during a down economy.
