How to navigate your business through the election

Economic uncertainty creates jitters. Jitters usually means instability in sales. For small businesses, the impact of the election process has real consequences on the bottom line. 

Here’s what to expect so you can navigate the trenches over the next few months.

Uncertainty creates fear. 

Number one is fear. Customers fearful of Biden winning. Customers fearful of Trump winning. 2020 provides a whole litany of issues in a collision course to create plenty of fear. Again, fear means tighter purse strings.

#1 The Impact of Taxes

In the context of business, taxes are unlikely to change with a Trump victory. With a Biden victory, you can expect a tax increase  if you are filed as a corporation (yes, even if you are a small corporation or LLC that files as a corporation). 

Federal corporate income tax is currently set to 21%, which is the lowest corporate tax rate since 1938 when it was at 19% (which ironically was the all time high at the time). 

Biden’s tax plan calls to increase the corporate tax rate to 28%, which while still below the 35% tax rate set by Clinton in 1993, is a 33.33% gross increase in the tax rate overall. 

Studies done by The Tax Foundation estimate this plan will reduce GDP (Gross Domestic Product) by 1.62% and GNP (Gross National Product) by 1.83%, while increasing tax revenue by $3.33 trillion.

As tax revenues increase, the job impact result is expected to reduce “full time equivalent” jobs by 542,000. This makes sense: if your company has to make up for higher taxes, then the most likely area to be cut is excess employment, whether that’s actual jobs, reduction in salaries (either by slower or stagnant salary increases or replacing staff at a lower rate). 

In the event of a Biden victory, I’d recommend you set aside some extra TLC time with your accountant to figure out the best course of action. It’s worth noting that just because this is the existing plan in place on Biden’s campaign, doesn’t mean that it will be implemented in this exact way and it may not happen immediately. Even with Trump’s tax plan change when he first took office, it took some time to implement. 

#2 Using The Stock Markets To Help Predict Sales Expectations

The stock market hates uncertainty and this year in particular has been wild thanks to the influence of COVID. It crashed down, roared back to hit historic highs in record time and overall has continued to be extremely volatile. While the stock market isn’t a direct indicator of the economy, it does act as a predictor of sales growth for small business. 

For example, most businesses saw a significant drop in sales for at least 30 days right around when COVID first began spreading, in sync with the markets. Most of the small businesses we work with reported at least one 30 day period of extremely low sales. Depending on your industry and your actions as a business owner determined much of what happened after. IT, Tech and companies already doing mostly remote work tended to bounce back very quickly:  even reaching record breaking sales (again in tandem with the stock market). 

Businesses that relied on brick and mortar suffered the most, depending on their own state policies for quarantine. The case that comes to mind most being restaurants that couldn’t adapt digitally, in person event-driven industries (such as entertainment, conferences, other in person events), travel, ‘hands on’ industries like fitness (gyms, personal trainers, massage therapists, day spas) and services commonly viewed as “non-essential” like photography and luxury goods all suffering hits. 

Until the election is over, expect stock market volatility, which implies market volatility. 

Typically 1 day after the election, regardless of who wins, the market is down. The same goes for a week after - with usually a stronger decline. By year end, history has favored stronger gains when the opposing party (in this case, Biden) wins, perhaps fueled by optimism by a change in administration.

In the 6 month to 1 year period after an opposing party won, typically the market is up, but less than half of it being up if the incumbent (Trump in this case) won. This is aligned with changes in administrative policies and uncertainty around them, or else a continuation of the ‘norm’ established in the prior 4 years leading to more market confidence. 

Forbes did a great breakdown of what exactly happens in the case of incumbent vs. opposing party.

If Trump wins, you can expect, in a strictly business context for things to continue as ‘normal’ with no outside policy changes to radically shift or scare consumers.

If Biden wins, you can expect some sales uncertainty as people try to figure out how to navigate policy changes and create new strategies to account for them.

It’s worth noting that this isn’t specific to Trump or Biden, this is historical norms based on Incumbent President winning vs. Opposing President winning. 

#3 Navigating COVID: Looking At The Spanish Flu Pandemic

You’d be hard pressed to find anyone alive in business who has dealt with something like COVID. However, this isn’t the first time in human history that there’s been a pandemic. 

In 1918, off the backs of World War 1, the Spanish Flu pandemic spread throughout the world. The 1918 Spanish Flu pandemic lasted roughly 1.5-2 years and hit over a total of three waves. The first wave hit in the spring of 1918, the second, more lethal wave, hit around September 1918 and the final wave hit in the winter and spring of 1919. Historians suggest there was a fourth wave in the summer of 1920, although significantly less virulent.

Like in 2020, various shut down procedures were taken, in the various states and cities with varying results. The common denominator was that in 1918, like 2020, the states couldn’t keep a tight lid on lock down. The ideal medical response is quarantine and lock down to prevent spread and let it die out. The economic response is we can’t wait that long because the economic damage will outlast the viral damage as business will be slow to recover from the financial loss.

However, the demographic that takes the biggest hit from pandemic economies are employees. In 1918 this often meant workers who worked in the mines, in factories and often operated without insurance or other means of financial safety. In modern times, this often means employees that work in in-person industries (such as restaurants or office work that isn’t translating to digital) and the gig economy (where workers have zero safety net, much like most workers in 1918).

Human nature by itself prevents the ‘ideal medical’ response from happening, even when forced. People just eventually start going stir crazy and wanting to return to norm, get back to work, get income flowing again. 

But, as pandemics come in waves and move through different geographic regions, it causes an economic seesaw effect. People start going out again, people quarantine again, people get sick of it, then they get terrified. 

This all leads to an inconsistency in sales for the average business. But, business owners in the end will protect their interests to keep the business afloat, even if that means operating at a loss or simply doing what’s necessary to survive. This often translates as cutting off ‘non-essential’ services and product spending and being slow to hire people back.

Lost jobs during the pandemic won’t return right away, even as demand surges, as businesses will have to recover from the financial hit. This directly translates to employees being hardest hit, who will all at once be trying to get jobs again, creating a surplus supply of people seeking jobs and a shortage in available jobs. This means lower wages as things are both competitive and recovering financially. You can look at the recovery from 2008 as an example case. 

Remember that ultimately, your state governor has the most power when it comes to your specific COVID response locally, not the President. The actual economic impact will be determined much by your local government’s response and quarantine policies. 

If either candidate wins, expect another round of stimulus as we continue through the second wave and prepare for a third wave of COVID.

If Trump wins, there is likely to be increased scrutiny on COVID policies (which may indicate a lack of confidence, and ultimately translates to customer fear). You could expect an economic stimulus package to be similar in nature to what was disbursed in spring of 2020. 

If Biden wins, there is likely to be at least initial optimism about the COVID response, as we tend to give people the benefit of the doubt when they’re new in office and doing something different, and you could expect a more aggressive stimulus package, closer to what the Democrats wanted in spring of 2020. 

There’s a careful balancing act in stimulus money: you want to provide the amount necessary for people and businesses to continue to operate, but you also don’t want to be too generous. Eventually, the money disbursed has to be paid for by someone, and that usually comes back around in tax hikes in the future. There’s no such thing as a free lunch.

Either way, expect more COVID for at least another year, regardless of who gets elected. 

#4 What To Expect If There Is Rioting

Trump’s initial election saw protesting, even rioting across the country in major cities, an event not seen for some time in modern history. If Trump is re-elected, it’s reasonable to expect more of the same in major cities, which means if you operate in one of them, expect some turbulent times and disruption to business, even potential property damage. 

Especially in context of the race-fueled protests and riots in the past year, the election result version could be even more severe. Businesses that don’t operate in major cities have less of a concern about this, as typically these kinds of demonstrations happen in major metropolitan areas. 

Conversely, if Biden wins, there’s no guarantee that there won’t be pro-Trump protesting and rioting. The reality is this election is extremely heated and extremely divisive, fueled by media, campaign jargon and pundits alike. 

You’ll have to look at the average demographic around where you operate your business, if the opposite party wins, and you’re in a major metropolitan area, expect some disruption. 

#5 What To Expect If Election Results Become Drawn Out

In the case that the election results get drawn out, we have another historical example to look at: Gore vs. Bush in 2000. What happened in that sense was the markets began to tank because of the uncertainty. 

In 2000, there was a five week period where no winner was known as recount after recount took place, resulting in consumer fear and the S&P 500 dropping 7.8% from election day to year end. 

Business wise, the biggest impact this has is people not knowing what to expect from policies for the next four years and not knowing which directions things will go.

While not necessarily directly negative, economy wise, you can expect generalized freezes in spending while people adopt the ‘wait and see’ approach. In this case, businesses who are well established and well prepared financially will be able to rebound fairly quickly once there is a decisive winner.

Mostly, this is a combination of all the effects listed in 1-4 and just adds an extra ‘cherry on top’ of 2020, if it is to happen.

Conclusion: What To Do As a Business Owner Before And After The Election.

The biggest thing you can do is to be calm and not buy into the fear. Regardless of who wins, the times will continue to be bizarre for the next 6 months to a year as things settle between economic recovery, COVID, new policies and societal changes.

Even if things manage to get worse, remember that betting against the US economy is historically the worst bet you can make - we always come back stronger and find new and innovative ways to grow and prosper. The United States has only 4% of the world’s total population, yet we own 25% of the total global economic power. For perspective, second place China has 16.98% of the world’s total population and 16.38% of total global economic power.

Business is cyclical: there are good times, there are bad times. As long as you can stay in the game, you’ll live through to see the good times again. Many businesses are experiencing historic growth, while others aren’t fairing as well. In the end, use this time to position your business as a market leader.

Takeaways:

1. The internet isn’t getting smaller. Continue to build and invest in your digital infrastructure. This is especially relevant during the pandemic.

2. Keep a cool head, don’t buy into fear. As a business owner, it’s your responsibility to be a leader. 

3. Know what’s coming and that it isn’t the first time in history any of this has happened. This isn’t unique. Be prepared and you’ll do fine.