Pricing pressure from cost-conscious consumers is squeezing profit margins of consumer businesses.
Key takeaways
Businesses are seeking to hire and retain employees while balancing process improvement investments.
Tax implications from credits and incentives to compensation and benefits exist.
What key business issues are affecting middle market consumer businesses in 2024, and furthermore, what are the tax implications related to these trends? The following outlines challenges and opportunities this year for retailers, restaurants, food and beverage companies and consumer goods businesses.
Profitability and pricing pressures
Pricing pressure from cost-conscious consumers is squeezing the profit margins of consumer businesses already burdened with increased material costs and production expenses. Managing cost volatility can be challenging without a proper data strategy to forecast future costs and understand profitability.
Tax implication: Credits and incentives
Identifying, negotiating, claiming and filing potential incentives and credits can help offset some of the high costs of doing business. While some incentives may be statutory in nature, many others must be negotiated before a project begins to realize the largest potential. The number of incentives available varies from jurisdiction to jurisdiction and often requires extensive applications, proof of relocation or other data to qualify. It is important to align your approach with capital investment life cycles and manage the entire process, from planning and negotiation to implementation and filing.
The evolving consumer
Understanding your customers and anticipating demand for products can help define success for your business. Businesses that respond timely to changing consumer preferences and social responsibility can increase market share and obtain a competitive advantage. Consumers expect a great experience whether they are purchasing online or in-store and make purchasing decisions based on brands that are sustainable and transparent.
Tax implication: New technologies
Businesses adopting new technologies to meet consumer expectations and integrating new systems with modern tax applications can help effectively manage complex tax and financial data. For example, retailers that automate sales and use tax processes can improve the accuracy of collections and remittance, free up personnel and resources and protect margins. It’s critical to involve the tax function at the outset of any project to promote effective integration.
Cost of capital on growth
Interest rates continue to be high, and market share costs are increasing more than ever. As consumer businesses search for economical ways to finance operations and organic growth, growth through takeovers can strengthen market share and propose cost solutions through synergies and enhanced infrastructure integration.
Tax implication: Due diligence
Consumer businesses pursuing growth through acquisitions can avoid costly surprises by planning for tax outcomes. Structuring a transaction without considering tax implications at the outset could diminish the buyer’s return on investment and may require significant time and resources to rectify. Get additional M&A insights.
Compliance and regulations
Compliance and regulations can help enhance the reputation and trustworthiness of consumer businesses, as well as avoid legal liabilities, fines or sanctions for violating the laws and standards that apply to their products. Implementing product testing and quality management systems, as well as maintaining product documentation and staying current on regulatory changes, safeguards consumers and businesses alike.
Tax implication: Enterprise nexus study
Nexus is ever-evolving through changes in business and tax law. A routine review of nexus can limit exposure and identify opportunities for savings. By utilizing technology, a nexus review enables taxpayers to efficiently identify material nexus exposure and provide actionable information without burdening their internal resources.
Evolving workforce dynamics
Consumer businesses seek to hire, train and retain employees while balancing opportunities to invest in process improvement and automation. Businesses must find the right mix of in-house talent and outsourced solutions.
Tax implication: Compensation and benefits
Developing a compensation philosophy centered on total rewards instead of just cash salary may help companies balance costs with offerings that match workers’ preferences. Retirement programs, equity compensation, education opportunities or assistance and subsidized transportation benefits are just a few common offerings. It is important to understand the tax implications so your company can implement plans that are advantageous to both the employees and the employer.
RSM contributors
Perspectives for managing middle market labor and talent challenges
To navigate an increasingly complex talent environment, middle market companies need to stay ahead of the trends affecting labor and workforce.
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