Heading into a new year? Make sure to plan to budget! (Credit: mohamed_hassan, Pixabay)
Heading into a new year? Make sure to plan to budget! (Credit: mohamed_hassan, Pixabay)

Now that we’re in the fourth quarter of 2019, it’s time to craft your budget for the coming year. This is an annual chore that should not be overlooked or delayed. As author and businessman Dave Ramsey has said: “A budget is telling your money where to go instead of wondering where it went.”

In preparing your budget for 2020, be sure to consider the following projections:

1. Payroll

Are you planning to give raises? The average pay increase for 2020 is projected to be 3.3% for non-management employees. As the owner, are you giving yourself a pay increase? Be sure to consider the impact of a greater payroll in 2020 on the amount of the qualified business income deduction (QBI) that you can take on your 2020 personal tax return.

[Related: Is Your Business Ready for a $15 dollar Minimum Wage?]

The percentage for Social Security and Medicare taxes (FICA) remains unchanged for 2020. But payroll taxes will increase due to pay raises, as well as an increase in the Social Security wage base to a projected $136,800 (up from $132,900 in 2019) for companies with employees earning up to or more than this new amount.

If you provide health insurance for your staff, expect to see premium increases of 5% or more. The 6% increase is related to large employers; there are no stats for small businesses (anticipate that premiums increases will be greater for them). Consider the new Individual Coverage Health Reimbursement Arrangement (ICHRA) to enable employees to pay for their individually-obtained health coverage.

And workers compensation premiums may change. The good news is that premium for employers in some states, such as California and Florida, could drop by as much as 5.4% (depending on the state). The bad news is that employers in some other states, such as New Jersey, face increases.

2. Borrowing

If you have a line of credit or anticipate the need to borrow money in the coming year, don’t overlook the continued increase in interest rates and build it into your budget. The Federal Reserve cut rates in September 2019 to a range of 1.75% to 2%, which was the second cut in three months. Whether there will be additional cuts remains to be seen. Consider the impact of lower interest rates on your 2020 budget (e.g., lower repayment costs on lines of credit).

[Related: 5 Ways Higher Interest Rates May Affect Your Business]

3. Energy costs

Whether it’s your utility bill or what you pay at the pump to gas up your cars and trucks, expect energy costs to be a little higher next year. The government is projecting that the price per gallon of gasoline will rise slightly, but global events (e.g., bombing of the Saudi oil field) could dramatically change projections. Keep in mind that states may increase their taxes on gasoline (e.g., Alabama and Utah have a scheduled increase in 2020).

4. Travel costs

Traveling on business is likely won’t cost much more in 2020 than this year. Hotel costs are projected to rise by 2.3% and airfare also by 2.3%.

5. Professional fees

It’s projected by Kiplinger’s that legal fees may rise by 2%, but accounting fees could jump by 5% to 10% (likely the result of all the changes made by Tax Cuts and Jobs Act and the ongoing guidance being issued on these changes).

Bottom line

While projections are only guestimates, you need to factor them into your 2020 budget. Setting up your budget now enables you to make decisions on pricing, salary, and benefits for the coming year, as well as whether to give year-end bonuses for 2019.

[Related: How to Prepare Your Business for the Holiday Rush]

Barbara Weltman is the founder of Big Ideas for Small Business, Inc., which publishes Idea of the Day. She is the author of J.K. Lasser’s Small Business Taxes 2019 and other books that inform the small business community of tax, financial, and legal information they should know about.