Your 2010 Budget Revisited

This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.

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If you follow good business practices, then late in 2009 you made a budget for 2010. With the first quarter of 2010 behind you, the economy in recovery, and a number of new laws on the books, now is a good time to review your budget for the balance of this year and make changes accordingly.

Revise financial projections

How does your sales forecast for the rest of the year look compared with your previous estimates when you set your budget? With the economy improving, your sales could see an upswing.

Also look at the expenditures you budgeted for. Are you seeing higher costs for some things and lower costs for others? Review every item in your budget to see where changes are appropriate.

Consider tax law changes

New tax rules, some positive and some negative, may affect your budgeting decisions. Here are some recently enacted changes for 2010 that could influence your decision-making for the rest of this year:

• Payroll tax holiday for "eligible workers." You won't owe the Social Security tax portion of FICA on wages paid to an eligible worker. An eligible worker is someone hired after February 3, 2010, and paid after March 18, 2010 who was not employed for more than 40 hours during the 60-day period preceding the start of employment with you.
   
• Small business health tax credit. The credit is up to 35% of the cost of premiums you pay for employee health coverage. This credit applies only to businesses that have a limited number of workers with modest average annual compensation.
   
• Expensing of equipment purchases up to $250,000. Instead of depreciating the cost of computers, machines, furniture, and other equipment over a number of years, you can deduct the purchase price this year if you're profitable.

Look at economic signs

Overall signs are looking up, with consumer confidence starting to return. Consumer confidence may translate into higher sales. Some economic factors to work into your budget:

• Rising fuel costs. The price of gasoline, which had been relatively low during the recession, has started to rise again. For example, the gasoline outlook at the U.S. Energy Information Administration at predicts the retail price of gas at the pump this summer to be $2.92 a gallon, compared with $2.44 last summer. Businesses that involve deliveries or other driving could see higher costs for gas at the pump.
   
• Rising health care costs. Despite historic health care reform legislation in March, premiums for small business health coverage and self-employed individuals continue to be high. Depending on when you are up for renewal and what type of policy you have, expect to see higher insurance costs. (Illinois, for example, now posts individual rates, which are paid by self-employed individuals not covered by group plans, and the increases are staggering.) The small business health tax credit may be of some help to certain businesses this year.

Make changes

Given the new information you now have in hand, what changes can be made to your budget for the balance of 2010? Decide whether the time is right to raise your prices or reduce/eliminate discounts. You may want to add higher priced items to your inventory now.

If you expect to bring in more revenue, this can allow you to make some expenditures that you might have put on hold during the recession and hadn't budgeted for in 2010:

• Raises for employees. Many businesses froze wages and eliminated bonuses when times were tough. If revenues can support additional payments, now may be the time to un-freeze wages.
   
• Hiring new employees. If your business growth warrants additional staff, you may be able to afford the move now. With many people still out of work, you can find qualified talent. The payroll tax holiday can provide some tax relief, although it isn't significant enough to base a hiring decision on.
   
• Expenditure purchases. If there is a new piece of equipment you've wanted to acquire, revenue increases means you may be able to afford it now; the tax break for expensing can help.
   
• Marketing activities. Now may be a good time to increase spending on actions designed to support and increase sales.

Final word

Budgeting is a complicated process, involving a good deal of guesswork and some luck. It may be helpful to work closely with your CPA or other financial advisor to re-work your budget now.

This is a guest post by Barbara Weltman. Barbara is an attorney, prolific author, and trusted professional advocate for small businesses and entrepreneurs.