Archive for September, 2010
Small Businesses Fear Hit From Rise in Tax Rates
By MARTIN VAUGHAN and COREY BOLES
Karen Port of St. Louis fears that President Barack Obama’s plan to let tax rates rise for top earners will be a double whammy for her hot-tub dealership.
Not only would the company—which takes in between $1 million and $3 million annually in gross sales—pay taxes at a higher rate, but the tax increases could leave less money for customers to spend on her high-end products, said Ms. Port, co-owner of Mirage Spa & Recreation, Inc.
“It has a deep impact on us,” said Ms. Port. “People are going to be stepping back and not wanting to purchase luxury items.”
Port is among a dozen small-business owners around the country interviewed by Dow Jones Newswires who said the increase in personal tax rates could hurt their ability to make new investments or hire workers.
Tax cuts enacted under President George W. Bush are slated to expire at the end of this year. Obama has proposed extending the tax cuts for married couples with income of less than $250,000, or single taxpayers with income of less than $200,000. But rates on income higher than that would rise to 36% and 39.6%, respectively, from current levels of 33% and 35%.
The stage is set for a September Senate debate over whether to extend all the Bush-era tax cuts temporarily, or let rates rise for the wealthiest.
Because most small firms are structured so that they pay individual rather than corporate income taxes, some would be caught by an increase in personal tax rates.
But Democrats and Republicans are miles apart when it comes to estimating how large that impact would be.
Treasury Secretary Tim Geithner in a Washington speech this month said the notion that Obama’s proposals would hurt small business was a “myth” spread by the GOP. House Minority Leader John Boehner (R., Ohio) says letting top rates rise would amount to a “job-killing tax hike” on small firms.
Both sides have data to back up their claims. Congress’s Joint Committee on Taxation said in a July analysis that only 3% of taxpayers with business income in 2011 would see their tax rates increased under Obama’s plan.
But Republicans point to data from the same JCT study showing that half of the $1 trillion in income projected to be earned by pass-through entities such as partnerships and S corporations in 2011 would be taxed at the higher rates.
That suggests that even though the majority of small businesses wouldn’t see higher tax rates, the most successful of these businesses would. Democrats dismiss that statistic, saying it is mostly accounted for by hedge funds and law firms, not mom-and-pop storefronts.
Democrats say the tax cuts for the wealthiest must be allowed to expire in order to begin to reduce the federal budget deficit, expected to top $1 trillion next year.
But some business owners—and even some Democratic politicians like Sen. Kent Conrad of North Dakota—are questioning the wisdom of doing so when unemployment remains at a discouraging 9.5%.
“I am the guy who is supposed to be responsible for creating the jobs,” said Ryan Robinson, co-owner of Irving, Texas-based Signal Metal Industries Inc., a maker of heavy machinery for the steel and mining industries.
“When the economy is teetering, and you’re worried about having a double dip [recession], is it really smart to not renew those tax cuts?” said Mr. Robinson.
Mike Ferletic, owner of Irvine, Calif.-based Enterey Life Sciences Consulting, estimated his taxes could rise by as much as $15,000 as a result of the higher rates.
But like St. Louis hot-tub dealer Port, Mr. Ferletic said he worries as much about the impact of the tax increases on his customers.
“There’s kind of a domino effect,” said Mr. Ferletic. Enterey’s eight-person staff provides business consulting services to biotech and pharmaceutical firms.
Some firm owners just want Congress to make up its mind. “It’s August, and we still have so much uncertainty. How can I plan on what I want to invest next year?” said Ron Bullock, owner of St. Charles, Ill.-based Bison Gear & Engineering Corp.
The firm makes gears for machinery used by fast food restaurants and manufacturers of exercise and medical equipment.
Write to Martin Vaughan at martin.vaughan@dowjones.com and Corey Boles at corey.boles@dowjones.com
The Wall Street Journal
“Own your own platform – don’t rely on Facebook being in business in a year.”
Tags: Business, Media, Relate, Social, Strategy
I recently watched a webinar hosted by Maddock Douglas on social media strategy, and the above quote in the presentation made me think about the place that social media has within overall business strategy. I’m relatively new to social media marketing myself, but the above quote reminds me of an article I read (Porter, Michael E., “Strategy and the Internet”, pp 62-78, March 2001, Harvard Business Review) about the role of the internet in business strategy in the mid to late 1990s. I’ll spare you the experience of reading it by providing a very brief and general summary. I hope you keep reading my short article; I’m interested in your thoughts.
The internet ushered in a new way of conducting business. Relationships between buyers and suppliers (B2B) were solidified due to the proprietary nature of e-commerce platforms and database management systems. They were solidified because of the high switching costs inherent in the technology. As such it was often predicted at the time that the internet would contribute to sources of competitive advantage, the key component of business strategy. This did not happen. As internet applications evolved along with internet technology, and implementation as well as hardware costs dropped significantly, it was quickly seen that internet technology would greatly facilitate business processes and transactions, but not result in competitive advantage for any particular firm or sector, simply because everyone now has access to it, and acquisition and switching costs are often not significant. In fact, the internet increased competition because it allowed buyers, whether business or consumer, to access information that was previously unavailable to them (competitors, 3rd party reviews, videos, and more), and quickly. In short, the internet made buyers more savvy.
From a company’s perspective, having access to the internet, as well as a website is seen as a necessity in today’s business environment, as opposed to a competitive advantage, as some predicted a decade and a half ago. This finally brings me back to social media’s place in business strategy.
Adoption of social media platforms is still not ubiquitous. This is simply because the concept is still relatively new, and popular in only some industries. In fact, social media use is also regionalized. By that I mean that some countries have adopted it much more than others, even though they have considerable access to the internet (something to keep in mind when considering your target market while designing your social media strategy). And for those reasons there are many companies specializing in social media-related services, and more are coming because it’s still a developing industry, just like the dot-coms were in the late 1990s. The difference is that the internet was thought to revolutionize the way business is done in general, and many dot-com companies abandoned the fundamentals of business strategy. Very simplistically, this is in part why the dot-com bubble burst early this decade. Not that the circumstances will be repeated, but nevertheless a lesson that today’s social media marketers and service providers should keep in mind when strategically planning ahead. But I’m going off topic.
As industries, companies, and countries adapt and embrace social media, it may also become a necessity, just like the internet did, and not a competitive advantage. This is already happening. I can’t count the number of times I’ve heard someone say that if you don’t use social media in your business you’ll be left behind. So guess what I did. I started using social media. You’re looking at it right now. Adoption of social media is becoming a necessity rather than a differentiating factor in an already competitive business environment.
Internet based technologies develop and evolve quickly. Some become business critical, such as customer relationship management (CRM) systems (eg. Salesforce.com), and communication tools (email). I believe that social media (marketing) is not far from becoming critical to business. All these technologies have something in common: The rate at which they evolve from tools of differentiation to those of necessity in order to compete on level ground. Business corporate strategy, on the other hand, does not change at this pace. Much like other internet applications, social media is a tool and should be part of a business strategy, but alone it is insufficient to be the business strategy. To be successful, a company’s social media strategy should reflect its foundation, which is the corporate or business strategy.
To me, the quote at the beginning mirrors the rapidly changing nature of technological tools, and the need to ground them in solid business strategy.
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Bart Zych is a Vancouver, BC (Canada) based business strategy consultant (www.thestrategydoctor.com) specializing in helping SMEs to survive,compete, and succeed by improving their position in their industry. Bart has been a successful manager of small business, helping to define core strengths, focus, and as a result increase revenue and profitability. For over 10 years he has worked with various organizations and fortune 500 companies such as Canon Canada and Pitney Bowes, helping them grow revenues in their corporate sales divisions.
He earned his MBA from the Schulich School of Business with a focus on Competitive Strategy and Management Information Systems. His passion is combining business and psychology to not only address corporate strategy, but also the various and complex human factors that play a significant role in developing and shaping it.