Service business may do well in a recession
Dear Karen: Is there such a thing as a recession-sustainable business?
Answer: Business performance varies widely, but in this recession we’ve seen harder-hit industries -- such as construction and automotive -- and less-affected ones, said Brian Hamilton, chief executive of Sageworks, a financial information firm in Raleigh, N.C.
“If your product or service is something people can’t go without, the recession may affect you very little,” he said. “Home improvement, residential and commercial cleaning, hair and nail salons, and software publishing are all growing.”
Other service businesses doing relatively well include computer systems design, child care, home and office painting, and coin-operated laundromats, Hamilton said.
In general, however, he cautions against choosing a business based on macroeconomics.
“You ought to think specifically about your strengths, what you know and what you can offer in a local market,” Hamilton said.
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Lower valuation has silver lining
Dear Karen: I’m discouraged about the prospects for selling my business. Is there an alternative?
Answer: Many business owners are realizing that they won’t get their desired price when they sell their companies.
But there may be a silver lining for those who plan to turn their businesses over to their children, said Lance Hall, president of FMV Opinions, a national business valuation firm in Irvine.
Today’s lower valuations allow entrepreneurs to pass a larger percentage of their business to their heirs without incurring gift taxes, he said.
The rules allow individuals to give as much as $13,000 annually to as many people as they like, with a $1-million lifetime cap.
Even business owners who are relatively young may want to start moving assets, such as family-owned companies, out of their estates now as a way to ensure that their heirs won’t be subject to the 45% estate tax on assets above $3.5 million, Hall said.
“These kinds of recessions don’t happen very often,” he said. “For individuals who are wealthy, they present an opportunity to move that wealth to the younger generation while prices are low.”
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Inform customers about discounts
Dear Karen: You recently discussed lowering prices, but isn’t it difficult to raise prices later?
Answer: The time to prepare customers for a price increase is when you initially lower prices, said Terri Coffel, a certified public accountant with Citrin Cooperman & Co. in New York.
“Communicate that you’ve discounted your fees because you’re making an investment in their business,” Coffel said. Make sure that your invoices show your actual prices, less a courtesy discount.
“You build goodwill by helping customers get through a tough time, but you want them to understand your cost structure,” she said.
Contact your customers directly when the time comes to raise your prices.
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