We’re going to continue our discussion today of the only thing that we, as Entrepreneurs, can do about this most recent crisis. We’ll discuss your response to the tariffs if you’re in the Services Sector.
Again, the Tariffs Issue is primarily an economic one. As such, since we have no control over the economy, the only thing we can do is respond.
This time, Joanne B. Owner owns an Architectural/ Engineering Firm that does drawings and planning only. As such, she has no Cost of Goods Sold, and does no Construction.
Her main expense is the Architects and Engineers working at her firm. She does $1M in sales annually, and takes home about 10% of that in both Salary and Distributions.
Given the fact that these tariffs are on physical goods only, how could the resulting price increases affect her bottom line given the fact that she sells no physical goods?
Payroll
Economists are currently predicting that this new system of tariffs will raise prices somewhere between 2% to 2.5%. Since February’s Rate of Inflation was 2.8%, many are predicting an increase in average prices to between 4.8% and 5.3% somewhere in the next 3 – 6 months.
If Joanne plans on keeping her people, she’s going to need to give them a raise so that they can pay their own bills. Without that raise, her competitors will begin poaching her employees.
Overhead
Like any services business she has overhead, or burden, as it was originally named. This would include line items like Insurance, Utilities, and Rent.
1 – Given the fact that Insurance includes repairing everything from cars to buildings, the price of insurance includes the price increases of physical goods. As such, this certainly isn’t going to go down.
2 – There are tariffs in place on energy, so the cost of her utilities will also increase.
3 – Since the landlord of her office space has to pay for things like insurance, utilities, and payroll for maintenance staff, let’s not act like her rents will decrease either.
I could go on about every line item on her Income Statement, but I’m sure that you get the point. We’d be hard pressed to find any expense item that will either go down or remain stagnant in the next six months.
Again, no one is immune.
But the thing about what will happen in the Services Sector on these pricing increases is that they won’t happen all at once. The cost increases will be slower but gradual in progression over time.
Let’s remember that she only has 10% of her gross to play with. But since she normally quotes jobs one at a time, she’ll be able to institute pricing increases as new jobs come along.
If the contracts with her existing clients don’t have a clause allowing her to increase labor rates over time, then she may get stuck on those. If this happens, she’d need to raise her prices even more on newer jobs to maintain her margins, given her loss of revenue on existing ones.
But she must do something. If she doesn’t do anything, she might end up with a Not-For-Profit Enterprise.
Please realize that your monthly financial statements will show these cost increases. Study them, memorize them if necessary, and do what’s necessary to maintain your profits.
Before my friends on the radical left or right start sending me hate emails, this isn’t a political statement. I’m not talking about what I believe to be right or wrong.
The only thing I care about is the continued financial health of my clients, which is the one and only focus of my firm.
The last major crisis we faced was the Covid-19 Lockdowns. During that period, I only had two clients out of 280 shut down as a result.
With the tens of thousands of businesses that closed in Chicagoland alone, my less than 1% loss rate is nothing. And when you factor in the other 17 other states that we serve, you realize that it wasn’t very much at all.
Please remember that we’re always right there with you. If you need to talk, you know my number.
Let me leave you with this.
If you’re one of our clients who owns a C Corp, an Estate, a Trust, or you have a personal return that’s yet to be completed, an extension has been filed on your behalf. You don’t need to do anything. A copy of the extension will be forwarded to you presently.
This extension automatically gives us another 6 months to complete and file the return.
There are two statutory additions, or what is more commonly known as penalties, that are relevant. One is Failure To Pay while the other is Failure To File.
Extensions do nothing but extend the due date of the “paper” return. If it is filed inside the extension period, a Failure To File Penalty is not assessed.
But extensions do not extend the date of any payment that might also be due. In this instance, if no deposit was tendered on a federal or state return where money was owed and the return was filed inside the extension period, a Failure To Pay penalty will be assessed.
If you’d like to make a deposit for any tax that may be due, it will need to be handled separately, and deposited prior to the original due date of the return which is next Tuesday, April 15, 2025.
Please contact our offices for further assistance.
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
773-267-7500
888-310-0300
www.SalarySolutions.net
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