You may not necessarily feel that your tax advisor skills automatically qualify you to discuss recessions and inflation with your clients, but we all know that as tax advisors, our clients come to us with many financial concerns and questions.
Being prepared to point them in the right direction can set you apart from other preparers and put you in the realm of actual advisors. But what is the right thing to tell your clients about the current economy?
Don’t panic is probably the best directive, although easier said than done. Drastic measures are usually not the best-laid plan. But you can direct clients to take specific steps toward protecting themselves and their businesses from a drooping economy.
Three things you can tell your clients that are actually positive moves and not fear-based:
1. Do save for a rainy day
You really cannot go wrong with an emergency savings account. The only downfall I ever see in this is how it’s used while we’re waiting for said emergency. You can help clients by recommending they consider the money market or sweep accounts to hold their funds while not in use.
Sweep products especially can allow clients to earn savings even on their operating checking accounts. What you don’t want is a stockpile of cash not doing any work for their business and then emergency never comes and that money sat their interest and investment free. A good emergency fund is at least 90 days of operating expenses in a short-term money market fund earning interest while not in use.
2. Cut expenses
This one is never fun because the party barge and the box tickets to the local sporting teams are always first to go. But being strategic about where funds are spent right now helps to free up funds to contribute to number one above. Trimming the fat now will streamline an organization to be more flexible later on if things actually do become tighter.
Having a good handle on the expenses hopefully means an organization doesn’t have to make tough decisions about people and longevity because funds were put in the right places at the right time. Be strategic in your choices as well. Don’t cut the marketing budget down to nothing in order to keep the big office when employees can rotate remote schedules.
3. Raise your prices
Raise them now. Before inflation increases more, or the economy slows to a halt, raise your prices before your business feels the effects of what may be coming down the road. Make sure you give this advice to your clients. Their price increases don’t need to jump to unnecessary levels (that’s a panic response) but if we’re seeing a 5% inflationary increase, their margins should reflect that.
Without raising prices, they will inevitably compress their profits since we know their expenses are increasing at a minimum at the inflationary rate.
Don’t forget to help your clients tax plan, too. Cutting expenses, raising prices, and setting savings aside can all impact the money they owe to the IRS at the end of the year. Especially if they are used to spending extra cash on cars and bonuses to save on the tax dollars. Have that conversation now so they have time to pivot their tax strategy before year-end.