The business landscape in 2025 is as unpredictable as it is challenging. Inflation has moderated but still affects purchasing power. Interest rates remain higher than historical norms. Consumer behavior is shifting, labor shortages persist, and IRS scrutiny is more aggressive than ever.
In times like these, small and mid-sized businesses must do more than stay afloat — they must become leaner, smarter, and more strategic.
At Riley & Company CPA, we help businesses in Pennsylvania and beyond navigate uncertainty with thoughtful financial management and proactive tax planning. Here’s a guide to positioning your business for resilience and success, no matter what the economy throws your way.
To plan effectively, you first need to understand the forces shaping your environment.
📈 1. Interest Rates Are Still High
The Federal Reserve has slowed interest rate hikes, but rates are still significantly higher than they were in the 2010s. This affects:
⪼ Loan affordability – Lines of credit and new business loans now come with higher interest costs, reducing cash flow.
⪼ Equipment financing – Buying or leasing new assets has become more expensive.
⪼ Working capital – Businesses that rely on short-term debt may find themselves squeezed.
🔍 2. The IRS Is Increasing Enforcement
The IRS has expanded audits, enforcement actions, and data tracking capabilities. Businesses should be prepared for:
⪼ More audit letters – Especially for S corps, LLCs, and contractors.
⪼ Tighter payroll oversight – Payroll tax compliance is a top target.
⪼ Stricter credit eligibility – Refundable credits like the Employee Retention Credit (ERC) are being reviewed aggressively.
👷♀️ 3. Labor Is Expensive and Scarce
With continued labor shortages in many industries, wages remain high — and small businesses must compete with larger employers. It’s critical to:
⪼ Retain key staff – Focus on culture, benefits, and flexibility.
⪼ Avoid costly turnover – Replacing employees costs time and money.
⪼ Offer tax-advantaged perks – Like health FSAs or retirement plans.
Smart financial management helps you absorb shocks and seize opportunities.
💡 1. Segment Your Cash Reserves Into Three Tiers
Having “just enough” cash isn’t enough anymore. Divide your reserves into:
⪼ Operational cash – This covers regular monthly expenses (rent, payroll, utilities). Aim to keep 1–2 months on hand at all times.
⪼ Emergency fund – This is for unexpected setbacks, like equipment failure or client loss. Build up 3–6 months’ worth in a high-yield business savings account.
⪼ Opportunity capital – This pool allows you to act quickly if a new location, bulk inventory discount, or acquisition arises. Think of it as your “growth fuel.”
🔄 2. Review and Restructure Debt Where Possible
Debt is not always bad — but unmanaged debt during a high-interest environment is risky.
⪼ Revisit amortization schedules – Can you switch to a longer term to improve cash flow?
⪼ Refinance cautiously – If interest rates fall later in 2025, you may want to consolidate.
⪼ Prioritize payoff – Eliminate high-interest credit card or revolving debt first, then focus on fixed debt.
📊 3. Move to a Rolling Budget Model
Static annual budgets are too rigid for a dynamic economy. Instead:
⪼ Update forecasts quarterly – Use actual results to refine future projections.
⪼ Involve department heads – Your team can spot cost issues and revenue shifts early.
⪼ Track budget-to-actual variances – Don’t just set the budget — compare it to real performance and adjust accordingly.
📈 4. Monitor Key Performance Indicators (KPIs) Regularly
KPIs aren’t just for large corporations. They help small businesses stay on course.
⪼ Gross profit margin – Shows how efficiently you’re delivering your product or service.
⪼ Labor cost as % of revenue – Keep this ratio in check as wages rise.
⪼ Accounts receivable turnover – Slow-paying customers hurt cash flow. Track how quickly invoices are collected.
⪼ Inventory turnover – Overstocking ties up cash. Understocking risks lost sales.
Tax compliance is only half the battle — strategic planning can save you thousands and reduce risk.
✅ 1. Reevaluate Your Entity Structure
Are you structured optimally for tax savings?
⪼ S Corporations – Can reduce self-employment taxes by paying yourself a “reasonable salary” and taking the rest as a distribution.
⪼ LLCs and sole props – Might be overpaying self-employment tax without realizing it.
⪼ C Corporations – May benefit from lower flat rates but risk double taxation.
Our team can perform an entity analysis and help you switch, if needed.
🧾 2. Use Depreciation Wisely: Section 179 vs. Bonus
Thinking of upgrading equipment or buying a vehicle? Consider:
⪼ Section 179 – Lets you deduct the full purchase price of qualifying equipment up to a certain limit.
⪼ Bonus depreciation – Covers new and used assets but is now phasing down (only 60% deductible in 2025).
We help clients time purchases to maximize deductions without harming cash flow.
🧮 3. Deduct Strategically — Not Aggressively
Avoid red flags by documenting everything:
⪼ Home office – Must be a dedicated space used exclusively for business.
⪼ Mileage – Maintain logs via apps like MileIQ or Everlance.
⪼ Meals and travel – Only 50% deductible and must be business-related with receipts.
The goal isn’t to avoid deductions — it’s to ensure they’re bulletproof under audit.
🧾 4. Stay Compliant with Payroll and Contractors
Employee misclassification is a hot audit area.
⪼ Use the IRS 20-factor test – To distinguish between W-2 employees and 1099 contractors.
⪼ Withhold and remit payroll taxes correctly – Missing deposits or filing late can result in significant penalties.
⪼ Issue accurate W-2s and 1099s – Use payroll software or outsource to avoid errors.
Success requires systems — not just good intentions.
💻 1. Adopt a Cloud Accounting Platform
Manual spreadsheets leave too much room for error. Instead, use:
⪼ QuickBooks Online – The industry standard with bank sync, invoicing, and reporting.
⪼ Xero or Zoho Books – Great alternatives with automation features.
⪼ CPA access – Share access securely so your advisor can help you in real time.
We can assist with setup, training, and cleanup of old data.
👥 2. Work With Your CPA Year-Round
Don’t just “hand off” your taxes each spring. Instead:
⪼ Mid-year reviews – Catch issues before Q3. Adjust estimated payments and fine-tune withholdings.
⪼ Pre-year-end planning – Plan retirement contributions, equipment purchases, bonuses, and tax moves before December 31st.
⪼ Ongoing advisory – A 30-minute quarterly check-in could save thousands.
📂 3. Digitize Your Documentation
Good recordkeeping is audit defense 101. Organize:
⪼ Tax returns and correspondence
⪼ Payroll records
⪼ Vendor contracts
⪼ Receipts and credit card statements
Apps like Dext or Hubdoc can automatically fetch and categorize your financial documents.
At Riley & Company CPA, we offer:
⪼ Forecasting and budgeting tools to make sense of your numbers
⪼ Tax planning and IRS representation for peace of mind
⪼ Bookkeeping and payroll services for compliance and efficiency
⪼ Proactive strategic advice so you’re never caught off guard
Whether you’re a contractor, retailer, service firm, or manufacturer, our tailored solutions help you stay profitable — no matter what the economy does next.
You don’t need to predict the future. You just need to prepare for it.
With smart cash management, thoughtful tax strategy, and the right advisory partner, you can turn uncertainty into opportunity.
