Privately owned companies have been hit hard by the COVID-19 pandemic, but this is just one aspect of the problem. Read our blog about the top five accounting issues facing privately owned companies in late 2021 and beyond.
1. Uncertain Tax Climate
While much news has been made about the possibility of higher taxes for the largest companies in the United States, tax rates could rise for companies making $1 million in profits or more.
One aspect of current legislation moving through Congress would eliminate the current rate on long-term capital gains for individuals with taxable income in excess of $1 million. But the tax rate would rise to the top ordinary rate of 39.6 percent, nearly double that of the current 23.8 percent for C-corporations. Small businesses may bear a larger brunt of tax liabilities at some point in the future and over the next 10 years.
2. Revenue Recognition in Contracts
In June 2020, the Financial Accounting Standards Board (FASB) announced it was deferring the implementation of its accounting for revenue standards regarding contracts with customers. Previously, various industries used different accounting standards. The new guidance establishes principles to report useful information to users of financial statements. The original implementation date was set for Dec. 15, 2020, but that has been moved to 2021.
FASB also deferred its leases guidance, this one until December 2022. The new leases guidance will require organizations and privately owned companies that lease assets— referred to as “lessees”—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with lease terms of more than 12 months. The goal is to give companies a more accurate picture of their finances.
4. Supply Chain Disruptions
A massive supply chain disruption faces the United States, which continues to make prices and inflation climb. This disruption will hit small retailers the most because they have the least buying power and flexibility to alter their supply chain to find alternatives. These supply chain disruptions could last well into 2023, according to experts speaking to CNN. As retail prices for goods increase, so will expenses for privately owned companies.
5. Jobs and Hiring
The job market is still precarious. Many firms are having trouble finding good help, despite near-record amounts of job openings. Another surprising trend occurred in August 2021: A record 4.3 million people, or 2.9 percent of the American workforce, quit their jobs, according to the Washington Post. Reasons vary, from burnout from long shifts caused by the pandemic, unspent vacation days, late nights, and changing perspectives from the public health crisis related to COVID-19.
As such, privately owned companies may be forced to raise labor costs because they can’t find suitable applicants. Employees may decide to leave for better offers elsewhere. Rising labor costs can reduce profits over the short term, but you may need more help to keep productivity high. You might also consider increasing benefits, which would also mean a rise in labor costs.
Contact The Whitlock Co. Today for Business Planning
The CPAs and business advisors at The Whitlock Co. can help you with relevant business planning strategies for your privately owned company.
Contact us for more information.