Here you have seven ways in which you can help small businesses in 2021.
Keep more money in your local economy and support local jobs in 2021 when you decide to shop with small businesses around you.
1-Shop local
Shop local whenever you can. A local small business brings jobs to the area, and the money it earns usually stays in the community, which helps the local economy. Consider a subscription service if it’s offered.
2-Be Social
Help bolster a business’s social media presence by “liking” hardware stores, dry cleaners, and other independent shops on Instagram, Facebook, LinkedIn, and Twitter. When you hear someone say that they will start a business, share their post on social media to your community.
3-Leave reviews
Write positive reviews on Google and Yelp, post photos of purchases, and don’t forget to tag the businesses.
Be supportive! Word of mouth is king. Let your family and friends know about your favorite service providers.
4-Buy gift cards for later.
If you don’t need a product or service now and want to support a local business, you can buy gift cards that you can use later.
Spread the word to friends. If you know an outstanding local business, tell your friends and family members about it. This can generate new customers for the small business, and it could lead to a chain reaction if your friends also tell their friends about the company.
5-Donate
If you have the means, consider donating to small businesses you love.
6-Invest in small businesses.
Seed funding is money collected from investors that small business owners use to start a business. If you have some extra cash to spare, this is a great way to help out a small business while possibly increasing your wealth.
7-Share your expertise
If you have knowledge that could be valuable to small business owners in your area and a little time to spare, you could help by sharing your time and expertise. For example, if you have a friend who’s starting a business, but they don’t know how to create a business proposal, you can help with that.
You could help them establish an online presence to get their business in front of more potential customers if you have marketing skills.
You could also provide branding and product photography services to local businesses.
Final words
The real key to helping small businesses is consistency. A single purchase is a good start, but if you want to make a real difference, make shopping small a lifestyle. Remember, you’re not just helping a business owner. You’re helping their employees and their communities and enabling the company to continue making great products for other consumers to enjoy.
Year-end tax planning with a college-bound kid? Common tax moves for your small business that can save you taxes but may cost your chances for financial aid.
As we approach year-end, there’s no shortage of articles on different tax moves one can make. Your CPA or tax professional may have suggested some to lower your tax bill. When you have a kid about to go to college, however, things can get tricky. Your well-intentioned CPA or tax professional may end up costing you aid and raising the cost of college!
*** Please note that this article is not intended as tax advice. Please consult your own tax professional or financial advisor to discuss your specific circumstances. ***
Before we detail the differences between taxes and financial aid, it’s important to understand how your financial information is used in the financial aid process. Families submit their income and asset information typically using the FAFSA, and for some schools, the CSS Profile form. The colleges then use the information on those forms, applying different formulas, to determine how much the family can afford for college each year, known as the Expected Family Contribution, or EFC. In the formulas, income is a far bigger factor than assets.
Using the EFC, colleges then determine whether the family qualifies for need-based aid. This type of aid can be in the form of grants, loans, or even work-study. Because these types of aid are based on a family’s financials, some families think they “make too much money to get aid”.
Let’s go a little deeper. The income information used on the financial aid forms is based on the family’s tax return (parent and student, if filed). On the surface, then, anything you might do to save taxes – lowering income, increasing deductions, etc. – would be a smart move. As a famous announcer on a well-known sports TV channel says, “Not so fast my friend”.
There are 3 key areas where taxes and financial aid differ for self-employed and small business owners.
First, the most common area for reducing taxable income is to contribute to a tax-deferred retirement plan, such as a 401k, 403b, or an IRA. Lower taxable income, save on taxes today, and save for retirement – it seems to be a smart financial move. For financial aid, this person would have just hurt themselves. In the simple example below, a parent increases their retirement plan contribution:
Before
After
Income
$100
$100
Less: Ret Plan Contrib
10
20
Income after contrib
90
80
Less: Taxes (10%)
9
8
Take-home pay
81
72
Fin Aid: Add back ret plan contribution
10
20
Income for fin aid purposes
$91
$92
In this simplified example with an assumed tax rate of 10%, increasing the retirement plan contribution results in increasing, not decreasing, the income for financial aid purposes. Higher-income equals higher EFC, which lowers your chances of financial aid.
Retirement plan contributions could be amounts put into a 401k, SEP, SIMPLE, or a personal IRA.
Why would retirement plan contributions be added back? Financial aid income counts as income, regardless of what you do with the money.
This effect is also true for Health Savings Accounts (HSA) and Flexible Savings Accounts (FSA) contributions. On the FAFSA, HSA contributions are added back. On the CSS Profile, both HSA and FSA contributions are added back.
Second, it is common for small business owners and self-employed to reduce the amount of net income (or even showing a small loss) for tax savings purposes through depreciation and other expenses. This may not help.
For colleges using only the FAFSA, which is the majority of colleges and universities, business losses are reported as is. Before you go reducing your income to near zero, there’s a catch. If a non-business owner or self-employed family has an Adjusted Gross Income of $50k or less, they qualify for a simplified EFC calculation. Primarily, this means that the family’s assets are excluded.
For a family that is self-employed or owns a small business that files a Form 1040, Schedule 1, this simplified EFC formula does not apply. A Schedule 1 would reflect self-employment income and income from a small business via Schedule C, business income via Form K-1 on a Schedule E, and rental real estate income on Schedule E.
Third, being a small business owner or self-employed is less friendly for schools using the CSS Profile form. Any business losses are added back as well as depreciation expense. For example, if one parent works a regular W-2 job earning $100k and the other parent is self-employed and reports a tax loss of $100k per year, the tax return would show a zero net income ($100k in income less $100k in loss). For the CSS, that family would have an income of $200k.
The CSS Profile form has other requirements for business owner families, such as reporting the value of the business as well as submitting business tax returns, if filed separately.
In case you’re wondering, the schools that use the CSS Profile form are the Ivy League, near-Ivy League, as well as public Ivy schools, such as the University of Michigan, Univ of Virginia, Univ of North Carolina Chapel Hill, and UMiami.
Bonus item: One other difference between the two forms, though not tax-related, is the reporting of business bank accounts. On the FAFSA, any bank accounts in the name of the business are not reportable. On the CSS, the bank accounts are reportable. Again, the higher the assets, the less aid a family is likely to get.
Despite the differences, there are advantages that business owners and self-employed enjoy when saving and paying for college; I wrote a prior blog post on some strategies.
The bottom line is that while your CPA or tax professional may be well-intentioned and helpful for taxes, they may not help for financial aid and may raise the cost of college. Understanding these differences can help lead to smart decisions balancing tax savings and financial aid.
Profit First: Transform your Business from a Cash-Eating Monster to a Money-Making Machine
Managing finances is a challenge. Often, being a successful and profitable business owner takes a lot more than being great at making your product or providing your service. You need to be good at the business side of things.
The most crucial step for any business owner is education.
For a healthy financial future, you need to learn and understand the necessary skills needed to run a small business.
I just finished reading Profit First, by Mike Michalowicz. It was everything the reviews said and more. If you are a small business owner or want to manage your finances more healthily, you want to learn about this system.
Michael Michalowicz is an American author, entrepreneur, and lecturer. He is the author of seven business books including Fix This Next, Clockwork, Profit First, Surge, Profit First, The Pumpkin Plan and The Toilet Paper Entrepreneur.
Why Profit First?
At least 50% of businesses fail in the first five years due to a lack of profitability. Many continue struggling, burning cash, and accumulating debt before collapsing. Entrepreneurs start a company to do what they love and gain financial freedom. They work hard, invest their life savings, but, in the end, they still don’t make money.
Most businesses use the traditional formula (Sales – Expenses = Profit).
Profit First is a cash-management system and it proposes this new accounting formula: Sales – Profit = Expenses.
The solution is so profoundly simple and so genius: Take your profit first!
Make profit your focus, not an afterthought.
James Clear summarized the book for us. If you don’t have time to read more, read this.
“Before you pay your expenses, take your profit first. Run your business based on what you can afford to do today, not what you hope to be able to afford someday. When profit comes first, it is the focus, and it is never forgotten.”
Summary
Here, some core ideas from the book, according to James Clear.
Profit First Author“Revenue is vanity, profit is sanity, and cash is king.”
Money is the foundation. Without enough money, we cannot take our message, our products, or our services worldwide. Without enough money, we are slaves to the businesses we launched.
Growth is only half the equation. It is an important half, but still only half.
Remember, your business is supposed to serve you; you are not in service to your business!
Profit is not an event. It is not something that happens at year-end or at the end of your five-year plan or someday. It isn’t even something that waits until tomorrow. Profit must happen now and always. It must be baked into your business. Every day, every transaction, every moment.
Profitability isn’t an event. Profit is a habit.
Take profit first. You can’t grow out of your profit problem. You need to fix profit first, then expand.
You must figure out the things that make a profit and dump the things that don’t.
Sustained profitability depends on efficiency.
The System
Use small plates
When you put all your money in one account, you feel wealthier and spend more. Reduce the amount of available cash, so you’re forced to be smarter and more innovative with how you use each cent.
Change your meal sequence.
Never pay bills first. Allocate your business income into sub-accounts in this sequence: Income => Profit => Owners’ Pay => Tax => Operating Expenses (Opex).
If you get a $1,000 deposit, starting today, transfer $10 into your PROFIT account. If you could run your business off $1,000, you can indeed run it off $990. If you get $20,000 in deposits, you transfer $200 into your PROFIT account. If you can run your business off $20,000, you absolutely can run it off $19,800. You’ll never miss that 1 percent. It is a low bar. But something magical will happen. You will start proving the system to yourself. You won’t get rich overnight this way, but you will get a wealth of confidence.
When less money is available to run your business, you will find ways to get the same or better results with less. By taking your profit first, you will be forced to think smarter and innovate more.
Also, eliminate unnecessary expenses. It will bring more health to your business than you ever imagined.
Remove temptations
It’s human nature to seek convenience. Once you’ve taken your profit, remove temptation so you won’t use it for your business or yourself.
Mike suggests opening two bank accounts at a different bank.
Enforce a Rythm
Do your allocations and payables twice a month. Mike suggests doing this task, specifically, on the tenth and the twenty-fifth.
A few extra tips to stay on top of your finances.
Pay yourself first.
Have a good billing strategy.
Spread out tax payments.
Monitor your books.
Focus on expenditures, but also ROI.
Final words
If you apply this approach to a new business, you can make profits from day one. Set up good financial habits from the beginning and establish internal financial systems to protect your business’s financial health.
If you’ve been losing money for years and can’t even pay yourself a salary, then it’s time to transform your business.
It is also a lifestyle. 10/10 I would recommend it for a healthy financial life.
Seriously. Buy This Book. Read this book. Implement this book. You will thank us later.
_______________________________________ Utility Avenue’s Spotlight focuses on promoting inspiring businesses every week. For a chance to be interviewed, contact us at support@utilityavenue.com with the subject Spotlight
Jack Wang is a noted expert in helping US-based families with middle to high school age students lower the cost of and pay for college by navigating the complex, stress-inducing financial aid system while still being able to retire. He’s helped hundreds of families and students (including his own two children) navigate financial aid, student loan options, and payment strategies in the context of overall family finances and retirement plans.
He has joined the Entrepreneur Avenue family and today, he is going to share the best way to save and pay for college.
Best way to save and pay for college? Start a business!
Or…how to get a scholarship from the IRS. No essay required!
Disclaimer: This article is for educational purposes only and should not be construed as tax or financial advice. Please consult your own tax and/or financial professional to discuss your specific circumstances.
One of the most expensive things we buy as a consumer may be college education for our children. I’m sure you’ve seen the headlines about the record $1.54 TRILLION student debt burden (Federal Reserve Bank of NY, Household Debt and Credit Report, Q2 2020) as well as spiraling tuition, now over $80k at the most expensive universities.
I’m not joking (that much) when I ask clients if they would rather buy a Ferrari instead of sending their kid to college. The Ferrari may be cheaper!
As entrepreneurs and small business owners, we have a decided advantage in paying and saving for college – the IRS! More specifically, the tax code. This is probably the only time you’ll ever view the IRS or the 70,000-page tax code in a positive light.
What most people do
When thinking about saving and paying for college, most people think of 529 plans. These savings vehicles are popular for many families to save money, tax-deferred, and then upon using the money for either college or private K-12 education, tax-free.
Think about the money that goes in. It’s after-tax. Meaning, we earn income, have taxes and various deductions withheld, and hopefully have something left over after our bills to put into these accounts.
Some states do offer a state tax deduction or credit for savings. For example, Massachusetts offers a tax deduction for the MA income tax for saving in the MA 529 plan. Other states provide a contribution at birth or a matching contribution. Maryland offers a matching contribution for low-income families.
As good as some state tax incentives are, there is nothing at the federal level.
Using business to save/pay for college
It’s about understanding the tax code. This is really in the category of tax planning instead of tax preparation – which is what most people think of. These strategies below really require working with tax and financial professionals BEFORE you implement.
Hiring your kid
The most basic strategy is to hire your student “on the books” in a business owned by a parent. Meaning, make them a legitimate employee, run payroll, etc. and not pay them under the table. They have to be paid a reasonable wage for good work that is within the capability of the student. In other words, you can’t pay your 5-year-old to perform advanced accounting work at $100/hour!
Let’s suppose you hire your student and pay them $100 (on the books). That salary is now a legitimate, deductible business expense and earned income for the student. Let’s further suppose that your tax rate is 20%, and the student is 0%.
Business
Student
Wages Paid / Earned
$100
$100
Taxes save / paid
$20 (20% of $100)
$0 (0% tax rate)
Net expense / income
$80
$100
Now, your student can use the $100 earned to pay tuition. Think about where that money initially came from – a tax-deductible expense. In this example, the business got an indirect tax deduction for the student’s tuition payment. You and your student got a $20 “scholarship” that didn’t require an essay!
While there’s no age limit on how old your student has to be, the work to be done largely defines the age. Generally speaking, you’re likely considering young teenagers and older for most businesses.
Please note that while FICA taxes are not due for those under age 18, and Federal unemployment (FUTA) for under age 21, there may be state tax obligations that would still be required. Check with your tax person or payroll services provider.
Income earned by the student is tax-free up to $12,400 (standard deduction for 2020), but anything more than $6,970 (FAFSA guidelines, 2020-21) earned will, potentially, impact their college financial aid negatively for the majority of schools in the US.
Where to save the money if your student has a few years before college
Once your student has earned income (i.e., from work, not interest earned on a bank account or similar), your student is eligible to open an IRA. Since their tax rate is 0% for income under $12,400, it pays for the student to save in a Roth IRA up to $6,000 (2020 contribution limit) or a similar tax-free vehicle.
A question I often receive is whether or not someone under age 18 can open an IRA. Yes, the IRS does not stipulate on minimum age, as long as the requirement for having earned income is met. As a parent, you would sign the account documents, but the student would own the IRA.
I also get asked about saving in a traditional IRA for the tax deduction. But why do it? With income under $12,400, their tax rate is 0%, so you aren’t saving any taxes by using a traditional IRA.
When paying for college, the student can then withdraw the Roth IRA contributions anytime tax-free and penalty-free. Or borrow for college, and then withdraw to pay off the loans after graduation, depending on financial aid specifics.
Think about the potential – if you hire your kid at age 13, paying them $6,000 per year and then save, you’ll have $30k of tax-free money by college time – that’s a nice amount and a bunch of taxes saved!
Section 127 benefit
Otherwise known as the educational reimbursement benefit companies can offer workers. This works better for graduate school if your student is over age 21, no longer a dependent, and is not an owner of the company.
This benefit of up to $5,250 per year would require offering the same to all employees, but that can be an excellent strategy for recruitment and retention. Payments would be deductible to the business and tax-free to the employee.
The recently passed stimulus package, the CARES Act, expanded this program to allow employers to provide benefits for student loan payments, not just educational expenses incurred in the current year. This provision expires at the end of 2020.
Section 132 Fringe benefit
Similar to a Section 127 benefit, though, the difference here is that the education typically has to be job-related. Some companies offer this reimbursement if an employee takes courses to further their career directly or is directly applicable to their job.
Paying for college can be daunting and stressful. Parents and students alike have questions about admissions and financial aid – and both aspects of college planning are extremely complicated.
Final words about the best way to save and pay for college
One of the most common questions I’m asked about is how to get more scholarships and financial aid. Being self-employed or a business owner, the answer is Go to the IRS. The money is there – it’s up to you to get it! No essay required!
Last week, we addressed how the coronavirus pandemic has affected the economy both in the US and globally. We also spoke about its impact on the small business industry and the entrepreneurs. Many of them found themselves in a logjam. Yet, individual businesses have managed not only to stay afloat but also to thrive and grow. In many cases, consumer interest skyrocketed, provoking spikes in sales and services. Some of these businesses will remain even after the pandemic is controlled.
This week, we would like to focus on thriving businesses in times of coronavirus.
Some of them were simply Johnny-on-the-spot. Their products and services became essential during the times of outbreak, confinement, social distancing, and recovery. Others managed to thrive because they were resourceful enough to change their strategies and reshape the focus of their business.
The pandemic put the world at risk. The measures taken by governments to control the infection took a toll on both big and small industries. It took a lot of courage, drive, and imagination for them to find ways to thrive through a health crisis.
The outbreak increased the demand for professional cleaning services to sanitize spaces like offices, business locations, and houses. Commercial buildings and medical facilities also started demanding such services, which led to a growth in business. Of course, safety measures were strict: the health of workers and clients and the reputation of the company were at stake.
Delivery services
Fear of contagion, lockdown, and shelter-in-place measures forced people to stay home. Delivery services were the best choice for those who could not or did not want to leave their houses. Although big delivery companies have benefited from this, small local delivery services also experienced growth because of the high demand.
Drive-in movie theaters
According to the US Chamber of Commerce: “One of the most peculiar small business categories that have recently seen success in the coronavirus era is drive-in movie theaters. People can watch a show from their car and provide a way for families to get out of the house.
Owners of drive-in theaters in California, Kansas, Oklahoma, and Missouri all told the Los Angeles Times recently that business had increased in light of coronavirus. While it’s not clear if these drive-in theaters will remain open as many “non-essential businesses” are closed, the coronavirus crisis may reinvigorate these types of businesses in a new period where keeping your distance is encouraged.”
Grocery stores
The social distancing measures included a lockdown for restaurants everywhere. People who were used to eat in restaurants started stacking up on goods to be able to have a good meal at home. Disregarding the size of the business, grocery stores saw an increase in the demand for their products. Also, people have learned their lesson: they will try to have enough groceries at home for this type of emergency.
Liquor and wine stores
The closing of many bars led people to “build” their own at home. That is, stacking up on wine, liquor, and rum to make cocktails, sip or simply have a shot or a nightcap. Although high alcohol consumption is never recommended, a drink every now and then has proven to be effective in dealing with stress. Interestingly, liquor was also useful for making hand sanitizer because of the alcohol contents.
Meal prep delivery services
Those people who did not want to spend too much time in the kitchen and had to stay at home during the pandemic were the main clients of this type of service. Others who had to work remotely and had to deal with children at home found it very difficult to get to cooking as well. As a result, meal prep businesses, whether big or small, saw a significant surge in their demand. This will probably be a trend even after COVID19 is gone because some people who had never used such services before might become clients.
Canned and jarred goods companies
There is no secret for anyone that canned and jarred goods transmit a sense of sterilization. This increases the level of trust consumers may have, and this causes a high demand. Also, canned food lasts much longer than fruit, vegetables, or meat. As long as you keep an eye on the expiring date, it is genius to stack up and store it for a rainy day. When the pandemic struck, some grocery stores had shortages in supplies and canned and jarred products came to the rescue.
Board Game makers and sellers
Confinement led to family time. Many of the people who are parents today grew up without the privileges of cell phones, internet, social media, or Netflix. For many, it was time to remember some of the adventures they had as children. Board games do foster family and friendship bonds and make people relax and enjoy while spending time together. For the more modern type of consumer, video games—mainly the online ones—became a way to escape the realities of quarantine and also interact with people.
More thriving businesses in times of coronavirus.
However, these small businesses are not the only ones making it through this challenging moment. There are other types of companies that are adapting, reassessing, and some even starting as solutions for the everyday problems people face amid the crisis.
Scrubs, gloves, face masks, etc.
Face masks, by Sub Dog Design.
The need for protective gear for medical staff and people doing risky jobs is permanent. As concerns over the disease increased, people not related to the healthcare system also started using protective gear. Also, some of the businesses that remained open started needing gloves and face masks. Some people will prefer a beautiful looking mask, and will thus pay more money to look cool while protecting themselves.
Wellness
Wellness Kit, by Sprinkle Grace Co.
Okay, maybe some people were not inclined to put perfume on. But what if these manufacturers are offering them something else, something they need, like say, hand sanitizer. Hand sanitizer sales skyrocketed during the first stages of the pandemic, and there is still need. As countries begin to reopen, people have incredibly altered their daily routines, and that includes what they carry when they leave the house. For those who did not have a habit of packing hand sanitizer already, now they do. Businesses that deal with the public directly also need this product. At the same time, some clients will pay more money for a locally-sourced hand sanitizer that is exclusive and on fashion.
Fitness gear and instructors
One of the main concerns was precisely the lack of exercise and physical activity. Others were worried about how obesity could impact their health if the virus struck them. So, fitness instructors and people selling fitness gear had a lot of attention these past few months. For the instructors, given the social distancing measures, it was possible to do their sessions online.
Online book stores
Built to Serve, by Evan Carmichael
A book is, without question, a great friend. Reading a good book has always been useful for relaxation. It has a good effect on people in both their intellect and their mood. In times of pandemic, reading has become a favorite even for those who thought it was a lost habit. People are reading more. Books are being massively purchased either in digital format or in print.
Therapist
Days, weeks, and months in a lockdown can bring very worrisome side effects. Those might include depression, anxiety, mood swings. So, therapists and counselors became more sought-after. Either by phone or video chat, even group sessions can be carried out on video conference calls.
Final thoughts about thriving businesses in times of coronavirus.
Businesses that have less interaction with clients and whose goods or services became crucial during the pandemic are going to succeed. Online entertainment has seen a peak in consumer interest and consumption as people are home. Protection and safety have also skyrocketed, along with the substitutes for daily leisure activities such as restaurants, cafés, and bars.
However, they are not the only thriving businesses in times of coronavirus. Success will always depend on how well they market themselves, how well they understand people’s needs to meet them, and how well they follow safety measures. The latter is arguably the essential key to success for any small company right now. Some business owners and entrepreneurs have refused to let the pandemic defeat them, and have found alternatives to stay afloat. They are thriving in times of coronavirus.
As long as your business understands the importance of following protocols, you will succeed. Your reputation as someone who values the safety of the clients will be as high as the reputation of your service.
COVID19 has caused a challenging situation worldwide, with over 15.5 million confirmed cases and over 634,000 deaths. The United States, for instance, stands at 4.12 million cases and 147,000 casualties (as per last Friday). Although recovering, the US is facing a severe economic problem, which reflects on the rest of the world.
With social distancing measures and the closing of businesses, some people found themselves looking for a way to make ends meet. Some were able to work from home, find side gigs to perform remotely, or had reduced working hours, but continued to make some money. For those who were not considered essential workers, the government approved a relief package. Nevertheless, the economy of the nation needs people to work. The more people are going back to their normal lives, the better for the economy and the faster the recovery.
Impact of the Pandemic-Caused Recession
According to a UN report, the global economy “is projected to shrink by 3.2 percent in 2020. Under the baseline scenario, GDP growth in developed countries will plunge to –5.0 percent in 2020, while the output of developing countries will shrink by 0.7 percent. The projected cumulative output losses during 2020 and 2021—nearly $8.5 trillion—will wipe out nearly all output gains of the previous four years.”
And adds:
“Lockdowns and the closing of national borders enforced by governments have paralyzed economic activities across the board, laying off millions of workers worldwide. Governments across the world are rolling out fiscal stimulus measures—equivalent overall to roughly 10 percent of the world GDP —to fight the pandemic and minimize the impact of a catastrophic economic downturn.”
Is every country affected?
Nations with strong economies will get severely damaged, but they will find their way back to the right track, as long as they manage to control the pandemic. However, those countries will have worrisome numbers in terms of unemployment and the damage inflicted upon small businesses.
Developing countries, on the other hand, will suffer even more. With the pandemic came travel restrictions, and trade was severely affected. Some small countries, mainly islands in the Caribbean, the Mediterranean, etc., will rely on tourism to increase their GDP. No tourism, no growth. No growth, more crisis.
This situation is not exclusive to countries that have reported cases of the virus. If the economy gets almost paralyzed in most of the planet, there is little to zero chance that any nation will come out of it unscathed. Nearly every state needs trade to survive.
As a result, some countries or regions had to open up for tourism without having completely eradicated the disease. What followed for many was a resurgence of contagion and a return to the lockdown measures.
“In the face of this disquieting outlook, the immediate priority for policymakers is to address the health crisis and contain short-term economic damage. Over the longer term, authorities need to undertake comprehensive reform programs to improve the fundamental drivers of economic growth once the crisis lifts.”
How has this affected the US?
The number of cases in the United States increases dramatically with the day, while mortality rates have gone low. The situation has led to a very high level of concern in America. The government took measures that included a stimulus check. A relaxation of the quarantine made it possible for people to go back to work. Besides, the government announced a second stimulus bill.
– We’re still waiting on new numbers to confirm two consecutive quarters of economic contraction — the definition of “recession” used by most economists.
– According to the World Bank, humanity has experienced 14 global recessions since 1870, the last being the financial crisis of 2007 to 2009. The organization projects that this one will be the worst since World War II.
What to expect? What to do?
With these things in mind, there is room for concern, but also a reason to push forward. The pandemic has generated despair not only because of the infected people and the many casualties. Both the global and individual economies are taking significant hits. Entrepreneurs are among the most affected since some made considerable investments to start or expand their businesses.
Countries that have relapsed should reconsider their reopening strategies and measures because obviously, they did not work—the examples of those that are successfully reopening stand for others to follow.
Without a vaccine, the reopening of the countries should come along with measures in terms of restrictions, social distancing, and sterilization, whether we like them or not. Entrepreneurs will need such measures to resume their business operations. The longer it takes for them to open, the more money they fail to make, and the longer to recover financially.
Some entrepreneurs have found success during the pandemic. This happened because their businesses worked remotely or because they focused on trading essential goods or services. Others decided to readapt to the new reality and add safety protocols so they could stay active. Restaurants, for instance, turned into food delivery, something they can add to their services once the crisis is over.
Others have stopped providing services, but are working on strategies to reopen successfully and with better safety measures. Small business owners always try to figure out ways to get better. This downtime has allowed them to regroup. It has also been useful to find better methods to advertise, provide their services, and make more money.
Final Thoughts about the Impact of the Pandemic-Caused Recession
The impact of the pandemic-caused recession is evident. It is essential to understand that, for the time being, we need to learn to coexist with Covid-19. Even after they find a vaccine, there will continue to be contagion for a while. What is also worth noting is that even with the spread still active, the number of casualties has dropped. This shows that most countries are doing a better job with contact-tracing and testing to stop the disease.
A vaccine will come one day.
This crisis is not going to be over soon. We need to find a way to cut the spread so that we can go back to normal. In the meantime, it is time to plan, redesign, and restructure business strategies, focusing on a post-pandemic scenario. Finding an online side gig might also be a solution, at least for as long as this crisis lasts.
If you find yourself in any of these situations, do not let any of this discourage you.
You are alive, and you are healthy. As challenging as this might be, there will be a way out.
We just need patience, determination, creativity, and drive to find it.
In today’s world, to make things function, there have to be regulations. They are theoretically designed to keep things from getting out of control, but the reality is entirely different. With time, more regulations come to substitute or enhance the existing ones, and they become tools of oppression rather than order.
Regulations are legal instruments to tell you what you can do, how you have to do it, and how far you can go.
This is diametrically opposite to entrepreneurship.
Truth is
– The first goal of a self-employed person is to be their own boss.
– In the United States, there are 57 million freelancers who risk their income monthly to avoid being governed by anyone.
– Ninety-nine percent of the country’s companies are small businesses, hiring almost 50% of the labor force.
The main reason is having no boss.
Nevertheless, regulations grow continuously because the government intends to fix everything by controlling.
For example, a gardener has an accident, and it affects a piece of property. The government issues an order stating that gardeners’ vehicles have to go through two inspections a year. Every mistake a gardener makes brings a new regulation: the kind of tools, the hours, the activities. And then, the prices and the salary of the employees go up.
That is when we start losing authority, and the business starts to go bad.
The saddest part of the story is that those who dictate such regulations are not gardeners. They don’t understand about the smell of fresh grass or petrichor. Above all, legislators never risk their salary or their family. If they are wrong, they don’t suffer.
A gardener can’t make a mistake.
Game of Thrones: the struggles of the entrepreneur:
The entrepreneur is a juggler.
Many Hollywood scripts can be written with the daily life of entrepreneurs. Being an entrepreneur implies high risk. Their bills look like those of a millionaire for a week, and those of a homeless, the next. It’s a rollercoaster.
Restaurant owners work tirelessly to make a dream grow. A client gets there and gets treated like a king. The restaurant is a kingdom, and the owner is the servant. Whether as a jester or a counselor, they have to make that client want to come back.
The entrepreneur spends months, maybe years, building that kingdom. And when everything is going okay, all restaurants get closed because of a virus.
They lose $100,000 in the first month but they hang on and pay. Their employees are friends because they are like a family trying to strive. When they lose another $100,000 in the second month, they can no longer pay. Employees are now delivering food. They now sell precooked and uncooked food and hold online raffles.
They juggle, but they won’t be able to resist the third month.
Clash with the system
When they go see the Mayor, they explain tables meet social distancing requirements, all measures have been taken, and nobody is going to get sick in their castle.
But the Mayor cannot authorize it because not all restaurants are going to do the same. The Mayor is not losing his dream because he has not worked years to accomplish it. He thinks about his political position and what the press will say.
People who don’t take chances, who end up destroying dreams instead of looking out for them are the ones who make regulations. Their decisions are not solutions, at least not for restaurants. The office of the Mayor is a fortress that only protects itself.
And when the year begins, Christmas is over.
The Three Wise Men leave, and another man, the taxman, arrives.
The earnings of three months pay mayors and public employees. Since there are always more regulations, more people have to get paid.
There are over one-third of a million public employees with over hundred-thousand-dollar-a-year salaries in California alone. The people of California—including gardeners, restaurant owners, and locksmiths—pay $45,000,000,000 of salary a year to these government employees. However, in Florida, there are ten times fewer government employees with such wages. California regulates a lot: Florida, not so much.
Forty-five billion dollars to close restaurants: to ruin gardeners.
Entrepreneurship and Regulations: Entrepreneurs pay to get regulated.
And regulators regulate so that entrepreneurs don’t grow.
They believe in good intentions. The truth is power corrupts, and they will not turn in those onerous salaries so easily. It won’t be long before regulations work in their favor. They will ruin the economy if need be, but it will put money in their pockets.
And we are not talking about Venezuela or Argentina.
We are talking about California, with its deficit of $1,000,000,000,000 in pensions; New York, with its budget deficit of $6,000,000,000; Massachusetts, with its per capita debt of $10,000.
An article published in Forbes by Clyde Wayne Crews Jr., says that: “The best news is that countries can learn from both the good institutions that have allowed other nations to prosper, as well as from mistakes those nations have made. Policymakers’ task—and that of entrepreneurs themselves—is to affirmatively reduce existing and avoid new administrative and regulatory constraints beyond the foundations necessary for the maintenance of the rule of law and sustaining property rights.”
Regulations in the Pandemic
In other words, policymakers should find ways to ease the path of entrepreneurs towards success instead of creating so many restrictive regulations. With the coronavirus pandemic, it becomes more necessary to have fewer regulations.
Weeks go by, and the plan to reopen America seems far-fetched. New positive cases emerge, and the country reaches record numbers. Many entrepreneurs find themselves way below breaking even, paying much more money than the one they are getting (if they are getting any at all).
Some entrepreneurs started their businesses just before the pandemic struck. They took hazardous moves: investments to prepare the location, expensive licenses to perform certain jobs, courses to improve their skills and get certified, transportation, marketing. And many did this by taking loans. Loans that they have to pay back with interest.
Others, on the other hand, were already established businesses. But some of these had their problems: they were reinvesting their money to conduct repairs or to improve the services they provide.
Final words about Entrepreneurship and Regulations
Customers pay, but only a small percentage of it goes to the providers. A substantial portion of the money goes away to pay taxes, permits, licenses, and employees. It also goes to the hands of the very people who are keeping business owners from growing faster and better.
Regulators and policymakers are paid, theoretically, to keep the order and avoid chaos. Instead, they keep entrepreneurs from growing by placing more regulations and making them pay more money and go through more legal paperwork.
Entrepreneurs, jugglers, high-risk professionals, don’t let anyone deceive you: the many regulations are only in the way for you to conquer your dreams.
The free market is one of the biggest reasons for the growth of national economies and the global economy. Although it has been demonized, the free market contributes to the development of society and the empowerment of individuals.
Pursuing a free market is a way for governments to relinquish some of the control they have over the economy of their nation. A free market will mean less government control, less red tape, and more empowerment for individuals, groups, and communities. At the same time, it means more net earnings for the people who get the job done.
History does not record a single country getting development without a free market.
There are undeniable examples such as South and North Korea, as well as the Federal and the Democratic Republic of Germany. After the war, those countries were divided into two: one with a free market and one with a centralized economy. Both sides started from the very same point of development, with similar human resources and equivalent natural resources. The results were evident: Volkswagen, BMW, Siemens, Adidas, Nestlé, Samsung, Hyundai, LG, Kia. As we can see, the free market enriched and liberated citizens, whereas a centralized economy impoverished them and restricted their freedom.
A centralized economy imposes excessive control over big industries, leaving little to no room for small businesses to thrive and develop. In the process, private companies receive high taxes and very few guarantees, and the growth of the economy slows down. Workers in the big industries don’t make enough money, as the government pays their salaries. Also, they don’t have enough incentive for better production.
Countries with free market economies
The following were all socialist countries, with centralized economies, and they developed after freeing the economy: Czech Republic (2009), Slovakia (2009), Slovenia (2010), Estonia (2011), Latvia (2016) and Lithuania (2019). Another interesting element is the response to Covid-19. The countries with the highest indexes of economic freedom, except for some, have had outstanding responses:
Hong Kong, 0.5% of deaths
Singapore, 0.05%
New Zealand, 1.43%
Switzerland, 5%
Australia, 1.2%
Impact of the free economy market.
The free market empowers the individual.
It also minimizes social frictions. Aunt Jemima, being black, had her pancake debut in 1889, and in 1915 it was the most recognized brand in the United States. Madam C. J. Walker was born in poverty, and by 1916 she was a millionaire. Although it’s generally said that she was the first black female millionaire, it actually was Annie Malone. The index of gender inequality shows how the free market promotes gender equality.
The cultural factor is another influence. It’s no surprise that eight out of the top ten are nordic countries: they are all capitalist and with high degrees of economic freedom. To confirm that, the countries with the most significant freedom are:
Hong Kong
Singapore, 11
New Zealand, 34
Switzerland, 1
Australia, 25
The free market rewards those who create solutions.
It is society the one judging the effectiveness of the proposal, and the one paying its price. As a result, innovation grows indefinitely, increasing productivity and wealth generation.
The graph shows the growth experienced with the emergence of the free market economy. In contrast, those countries or sectors that lack competence get little development. This happens even within free-market economies. Education, for instance, is usually a public benefit. As a result, it hasn’t changed most in a century, even despite the technological advances that could have boosted it.
A free economy reduces armed conflict.
A free economy, contrary to what some say, reduces armed conflict. In primitive societies, tribes would fight each other to get what they needed, until they realized they could trade. One example was the US-Mexico conflict. After the war, the US was seen as Mexico’s worst enemy. A seemingly endless hatred made Río Grande look like an ocean. How was this huge difference solved? With trade. Today, Mexico is one of the member states of NAFTA, and they all benefit from it.
The opposite of the free market is a centralized economy, in which the State has full control. Although the idea of the State being responsible for looking after its people is good, real-life shows something diametrically opposite: the states with too much power restrict freedom, increase poverty and minimize innovation and development. On top of it all, they generate costly wars. The French Revolution created the concept of Levée en masse, which is the popular mobilization to form an army. Not long after, Napoleon had his big campaigns in Europe. The States become more dangerous, the more powerful they are. Nazi Germany is another clear example of this.
A successful business within a free market economy will impact its community.
It will
bring service to locals
create new sources of employment
and even get involved and invest in the improvement of the living conditions of such communities.
They will ultimately help fund a new school, conduct repairs in the local hospital, or repair the streets and roads. And the more it grows, it can become a reason for the community to be proud of, and even a symbol of prosperity.
Walmart’s headquarters are in Bentonville, Arkansas. This is a small town of about 45,000 inhabitants, but unemployment and crime are very low. It also has good schools and affordable housing. So, this is a clear example of how a free market company can have a positive impact on its community.
The free market promotes freedom.
Human rights are born in free societies.
Big centralized States often censor-free media, have significant taxes and blame those who have accumulated wealth for all social issues. This creates a sense of rivalry and contradiction between the working class (the proletariat) and small business owners (the bourgeoisie, the new bourgeoisie, or the new rich). They will pay their employees better than government-run companies or industries.
As a centralized state, there will barely be any criticism about those issues, because all the mainstream media will be government-controlled. Therefore, the possibility of change is slim. Significant taxes on small private businesses will be allegedly used for the development of the nation’s economy. In reality, the objective is keeping those individuals from getting too powerful or too financially independent.
The free market, on the contrary, promotes freedom of speech and thought, reduces taxes, and celebrates wealth generation and innovation.Jemima, Steve Jobs, and Alva Edison are examples of how wealth generates progress.
Final words about the impact of the free economy market
Victor Hugo said, “A day will come when there will be no battlefields, but markets opening to commerce and minds opening to ideas.” The free market is aiming for peace and more development based on ideas and innovation.
A centralized economy will continue to stagnate. This happens, mainly, because such governments tend to become totalitarian, and the citizens will be in a permanent obligation of obedience towards the State so they don’t lose their jobs.
A free-market economy, on the other hand, will grow and strive for a better well being for its citizens. It will grant people full control of their lives and their destiny, and they will depend less on the government. In other words, they will have true freedom.
