Small Business Resource » Downturn

Joe The Plumber & The Small Business Tax Issue

admin — Wed, 04 Jan 2012 06:11:57 +0000

When it comes to taxes this election and Obama vs McCain … just what does it mean to be “Joe The Plumber” or any small business owner for that matter?

If the problem we have in the country is a lack of jobs (unemployment numbers have been increasing, but this is one of many issues), should we be increasing the taxes of the job producers (remember Small Businesses create the most jobs in the US)?

Most small businesses don’t have the mythical $250,000 income (though they may make over $120k at which point McCain’s plan would save them more in taxes). But most small businesses don’t have any employees either. The small businesses that do have multiple employees likely fall into this category (250K earniners).

How much income should the business be throwing off before the owner is comfortable expanding their staff? Probably somewhere around 250k when you consider employee expenses (salary, taxes, insurance, etc), risk of a future downturn, and the owner’s personal income?

If you’re comparing with vs without Obama’s plan, then the number is $250k. But if you compare how much better off you are with Obama vs McCain, then the number is around $120k (see link). For a two income family living in or around a large city, $120k isn’t necessarily our economic elite.

It’s also important to note that only Obama’s plan adjusts personal tax rates, and then, only for people over $250k. All the changes in how much people pay are made with other tweaks to the tax code (which I always thought was too complicated even before we tacked on these new changes).

For McCain, it’s done by increasing dependent exemptions, adjusting corporate taxes, more small business write offs, lower estate taxes, and another bandaid to the AMT. For Obama, he keeps the same tax cuts that McCain does except for people making over $250k, increasing the earned income credit, a new individual credit, a savings credit, and no taxes for the seniors.

If you’re a small business owner, it’s likely that more of McCain’s tax changes will help you than those of Obama.

So for Joe The Plumber and all small business owners …. McCain is defintely who you and your wallet should be voting for.

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Tough Time to Borrow

admin — Sun, 01 Jan 2012 06:07:30 +0000

We're seeing a real downturn in the number of banks interested in doing business loans including SBA loans. If you are in startup mode, its going to be even harder.

The Small Business Administration last week encouraged banks that participate in SBA lending to be more willing to do loans and not rush to call in existing loans. This pitch by the SBA we caused by the clear lack of options to secure funding using conventional loans or the personal equity in their homes as those loans dry up.

According to the National Community Reinvestment Coalition, SBA 7a loans for small businesses were down $160 million between 2005 and 2006.

funding is down in the last few years. Fees on SBA loans have gone up quite a bit since 2005 and have these loans unattractive for some people. Certainly almost all banks has stopped doing start up business loans to lessen their risk. SBA loans worked because they were bundled and sold on the secondary market. Bruce Rossi, vice president heading SBA lending at Provident Bank in Woodbridge, New Jersey, states that insurance companies and pension funds have not been buying the loans as they have in the past. Banks that have made money selling SBA's are not making the money on them that they did in the past.

Banks are citing the low credit quality of their applicants as another reason their SBA lending is down. All this leads to a vicious cycle of small firms seeing their line of credit stripped, using credit cards to keep the business open an try to cover debt, leading to their applying for SBA too late to have any hope for approval.

Good loans are still being done and our client that are receiving bank funding have the following in common:

A solid business plan

Good credit

Collateral

Experience in what they are doing

A plan to pay back the loan

A thorough knowledge of their industry, customers and competition

We can help you put it all together. Click on the logo...

When to Reinvest in Your Business

webkriti — Sat, 10 Sep 2011 04:09:02 +0000

With many businesses feeling the squeeze of a poor economy, you may be asking yourself if now is really the best time to drop more money on a business that might not see the other side of this recession. In truth, if you can’t hold out for at least a couple more years, it may be time to think about cutting your losses and moving back into the nine-to-five yourself. But if you’re keeping your head above water and it looks like you might be able to squeak by with minimal damage despite ongoing financial hardships, then perhaps you are wondering what WOULD be a good time to reinvest in your enterprise. Here are just a few tips to help you determine when the time is right.

When you’ve got a surplus. Saving for a rainy day is well and good in your personal life, but if you need to put money back into your business to stay afloat and you happen to have some extra cash on hand, then what the heck are you waiting for? The only chance you have to pay off your business loans and turn a profit is to keep your doors open, so don’t hesitate to return earnings to your business as needed rather than tucking them away for stormy weather (when it could be too late).
When the economy starts to rebound. It may seem like a pipe dream right now, despite the fact the government and their pundit lackeys keep telling us it’s just around the corner, but the long history of economics tells us that after a downturn there will be an upswing eventually. So if you can scrape by on what you’ve got until things start to pick up, then you should definitely consider beefing up your operation once you see sales begin to increase (before new businesses swoop in to capitalize on the upturn and sweep your proverbial leg).
If expansion is a possibility. If your business is doing well enough that you can begin to think about expanding, or you have been offered the impetus to do so (in other words, you have the means and opportunity to grow), then it’s probably a good time to reinvest in your business. By moving into other locations or increasing your lineup of products or services you have the prospect of solidifying your foothold in the marketplace, taking on new competition, and succeeding beyond what you originally thought was possible when you set out to start your business. So when the door opens, walk through.
When you have investors on the line. Any time you have investors interested in helping you to take your business to the next level you’re going to have to step up and show them that you’re willing to put your money where your mouth is. Most investors are not going to offer everything you need like some financial fairy godmother, so you’ll likely have to put up some funds in order to keep outside investors interested.
When lenders approve. Whether you’ve gained approval from a lending institution with a long history and a stellar reputation or you’re getting funded by relatively new online banks, the time to reinvest in your business may simply be the moment you receive approval, especially if you’re hanging on by a thread.

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Investing’s Basic Rules

admin — Thu, 24 Sep 2009 02:27:00 +0000

Basic Rules in Investing

Do not put up cash that you cannot afford to lose ought to the market take a downturn.

There is a key word in the preceding phrase however. In order to realize what the numbers means, you are required to have a galore of primary surroundings and training. The best investments are proven over time, and therefore it’s best to place your funds in long term choices. One rule that humans seem to refuse to implement in any area of their lives, including the world of investing, is lean not on your own understanding. However, that these rules have withstood the test of time.

As in any form of gambling, there is nothing to be gained and everything to be lost with regards to investing. Check the background of the advisor you choose, as there are galore brokers out there searching for a quick fleece. This reasoning is essentially flawed. Think long term.

Most of the time, this is the outcome of humans balking at entrusting somebody else with their cash, believing that with a small understanding they may work the market themselves. Most humans who invest wisely by making the correct conclusions with their cash follow the same primary investment pattern, altho they may define it by another name. In the primary place,most humans wouldn’t be competent to begin to unravel the roundabout and complicated graphs, pie charts, and statistics by which the investment world relates its information. With the correct investment selections, you may be sure to have cash for emergencies, to put towards the education of your children, and to have available when the time comes for you to retire. If you make the incorrect investment selections, you may just end up where you started or worse, flat broke.

There may come a time after you have had galore experience in the market that you are going to be competent to make sound conclusions on your own,but the primary get-your-feet-wet phase is not the time to try it. Diversification is an oft-flogged truism of the investment world. The dates and details of this are palpable and plain it’s best to forget with regards to this cash in terms of a cash fall back, least ways for more than one years. A good portfolio will include cash and cash equivalents (gics, limited annuities), growth investments(stocks), and growth and income investments such as common funds. It might just be that you are the cynical type who chooses to believe that the primary rules could not perhaps be as easy as they seem, in an area that seems so manifold and complex.

First of all, assure that the cash you choose to invest is without doubt earmarked for the intent and purpose. It is true. Investing your cash may be a great way to assure your financial future. The best brokers are going to have years of experience, a number and variety of investment vistas and backgrounds, and will in all probability cost you much less than you might think. Unless you invest millions of dollars initially, it will take time for your investments to mature and get started to cummulate considerable gains.

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Starting a Business in a Down Economy

admin — Mon, 13 Jul 2009 21:56:00 +0000

There are many of us at the Small Business Development Center who believe that this is a good time to start a business. While it certainly is not a great time to get a bank loan for working capital, there are several key attributes found in businesses that open in a down economy. These entrepreneurs tend to be very committed to researching their idea thoroughly, select partners more carefully and weigh purchases more wisely than free spending business owners earlier in this decade. The established competition may have been weakened by the downturn, making entry into the market easier. Entrepreneurs who start up in a down economy understand fast change and take advantage of that to create new niches and market share.

A recent Inc. Magazine article bears this out. Carl Schramm, President of the entrepreneurship supportive Kauffman Foundation talks about great companies frequently get launched during a recession.

The Silver-lining for Small Business in a Recession.

61% of Americans Have Started a Business or are Considering Doing So.

admin — Sun, 24 May 2009 12:44:00 +0000

We see lots of people who are considering a business startup. They are either creating a business out of a hobby they love, desire to get out of the rat race and spend more time at home, have discovered a better way to do something, or are “accidental entrepreneurs” who lost their job and feel the need to create something for themselves. This Wall Street Journal article from their Reinvent section, shows the increasing popularity of entrepreneurship.

Ready to be the Boss?

Becoming an entrepreneur seems to be in vogue in this downturn. A 2009 survey by FindLaw.com indicates that 61% of Americans have either started or thought about starting a small business. And according to the Small Business Administration, small businesses employ about half of all U.S. workers and have generated more than half of the net new jobs over the past decade.

Liz Bayer is one of those entrepreneurs. She spent decades in retail management positions for companies like Williams-Sonoma and Bath & Body Works, but eventually grew disenchanted with corporate America.

“I felt that the companies I worked for weren’t invested in growing the company and nurturing the individual,” says Ms. Bayer, now a broker with ProMortgage in San Rafael, Calif. “I had always been interested in the housing market, and knew I had the self-discipline to work for myself, but I was concerned with the amount of self-promotion that was required.”

A Special Mindset

Ms. Bayer’s reservations are quite common — not everyone is cut out to be self-employed. It can take a special sort of mindset. “When you have your own business, no one is giving you direction, and circumstances are always changing,” says Pamela Slim, author of “Escape from Cubicle Nation: From Corporate Prisoner to Thriving Entrepreneur.” “Entrepreneurs are wired to be comfortable with open-endedness and ambiguity.”

Self-employed professionals also are known for being optimistic, competitive, creative and organized. They tend to have a head for business, understand what their customers want and act with integrity. And if they’re passionate about their venture, they work as many hours as it takes to get results.

If you’re tired of leaving your career success in the hands of others and think striking out on your own is a better option, there are steps you can take to ensure that self-employment is a good fit before going too far down the entrepreneurial road.

Start with an online self-assessment or consider consulting with Score, a nonprofit association that provides free and confidential advice to small businesses. Meanwhile, pay attention to the conditions that make you happiest at work.

See How It Feels

“Observe yourself like a bug and note the situations where you feel most creative and excited,” suggests Ms. Slim. “Hang out with entrepreneurs to see if you like the lifestyle, and go through some of the motions yourself — like approaching a customer or advertising your latest project — to see how it feels.”

It’s also important to consider what’s required, personality-wise, of the type of business you want to start. “Entrepreneurship is a continuum, and there are those who feel most comfortable and have the skill set to start new businesses over and over again, whereas others prefer to dip their toe in and then return to work for an established organization,” says Ms. Slim.

Finally, recognize that any kind of self-employment brings with it a host of new accounting responsibilities, from processing invoices to filing endless tax forms. Whether or not you can cope with it should factor into your decision to proceed.

The Economist:Small Businesses Optimistic Worldwide

admin — Thu, 21 May 2009 00:57:00 +0000

Small business executives remain optimistic about the long term despite global recession

Yet most remain very worried about the short-term outlook and say that governments are doing too little to support them, according to a survey by the Economist Intelligence Unit

It is nice to get a worldwide perspective on the state of small business from time to time. We believe that the worst is over here in Northeast Florida and recent studies like this one are bearing this out. the Economist Intelligence Unit is a part of the venerable publication, The Economist.

Growth is a challenge for any business, but never more so than during a downturn—especially one as severe as the global recession currently under way. Despite this, 83% of small business executives report that they are optimistic about their company’s long-term ability to rebound when the economy improves. In fact, 65% expect their company’s market share to have increased by the time the recession ends, and 73% expect revenues to have increased. These findings are the result of a new study, Understanding growth priorities at small and medium-sized businesses, an executive summary published by the Economist Intelligence Unit and sponsored by Verio.

This optimism is somewhat surprising—and perhaps overly inflated—given respondents’ sobering views on the short term: Only 37% of respondents expect their companies to do better this year than last. This is in line with Economist Intelligence Unit forecasts, which predict a contraction of global GDP in 2009 of 1.8%, and only a modest expansion of 1.9% in 2010.

Furthermore, 48% report that local government is “unsupportive” or “not at all supportive” of their business, and 39% say the same of national governments and lenders, respectively. Reasons cited for the lack of support include “mid-size businesses do not attract enough attention,” (39%) “the public at large perceives large companies as more important than small and mid-size companies” (28%), and “small and mid-size businesses have fewer advocates than large companies” (24% globally).

“While it is not clear if small and medium-size firms believe they would benefit from a greater focus from governments and non-profit agencies, the data suggest a call to action for the public sector to think about programs that may offer greater aid to these companies during this difficult economic period,” says Debra D’Agostino, Deputy Director in the Americas, Industry and Management Research at the Economist Intelligence Unit.

Other findings in the report include:

Only 6% expect the quality of talent in their organisations to decrease once the economy improves and 38% expect it to increase. The data suggest that when it comes to attracting and retaining skilled people, small and medium-sized firms are in adequate shape.
Reaching new customers was cited as the biggest obstacle to growth; 56% of respondents are actively acquiring new customers through new means, such as entering unfamiliar geographical markets. Yet only one-third cited customer service when asked to name the main ways their firms could prepare for economic recovery, signalling a possible disconnect in strategy.
Once the economy improves, 65% of respondents expect their firms will enter new geographic markets. Marketing is seen as the most critical means of helping firms prepare for an improvement in the economy, according to half of respondents. The data suggest that firms are not retrenching, but are actively pursuing new growth opportunities.
Fifty-seven percent agree or strongly agree that that technology will be a critical competitive advantage in bringing their business out of the recession, yet only 20% plan to invest more heavily in innovative technology as a means to outpace competitors. Internal IT departments will be most important in helping their firm achieve these goals, but external or outsourced service providers are also key: 35% ranked outsourced providers of managed IT services and external technology consultants (systems integrators, value-added resellers or application developers) as most important in achieving IT objectives; one-third said the same of outsourced IT services providers (managed services).

Understanding growth priorities at small and medium-sized businesses

is available free of charge at www.eiu.com/verio/smbpriorities

About the survey

In April 2009 the Economist Intelligence Unit conducted an online survey of 328 executives from small and medium-sized businesses worldwide to understand how they are approaching business strategy during the global recession. Of the respondents to our survey, 45% held CEO, president or managing director titles; 66% of all respondents held c-level titles. About 27% were directors, department heads and other managers. Worldwide, 29% work at companies based in North America, 29% in Asia-Pacific, 19% in Western Europe, 10% in Eastern Europe, 9% in the Middle East and Africa, and 5% in Latin America. Forty-eight percent work at firms with less than $5m in annual revenues; 31% have revenues between $5m and $50m; 21% have revenues between $50m and $500m. Respondents represented a range of industries.

Where Should Small Business Owners Focus In Today’s Economy??

admin — Mon, 16 Mar 2009 14:53:00 +0000

The times may be tough, but a lot of businesses are facing all the same issues they were before. And some of us are still very busy. I suspect some of your usual programs could be retooled slightly to help people take advantage of the opportunities that are the flip side of any downturn.

Put it this way …. don’t panic, calm down, and think strategically. A recession provides many opportunities that only happen once every seven years or so.

LEVERAGE low interest rates, low prices, high commercial real estate vacancy rates to reprice your infrastructure and your supply chain.

ENGAGE in carefully calculated risks to finally acquire that competitor who is struggling much harder than you are right now.

TRANSFORM problems like a supplier’s contract breach into an opportunity to renegotiate more favorable terms for the long haul.

Yes, we all need to be wise and frugal, but those who spend this year cowering in fear may later regret missing out on rare windows of opportunity.

Plenty of small business owners are investing in growth and expansion, preparing for new venture launches, and otherwise using this time to make wise competitive moves to come out well-positioned when we reach better days. I believe that the small business sector will drive the recovery again this time, just as they usually do.

To make things simple here’s 2 areas worth focusing in on ……

1st, now is the perfect time to change your routine and stop being driven by the tyranny of the urgent, now is the time to really pay attention to working on your business, not in it. It is time to plan for the future and to position yourself for the recovery before it happens. Now is the time to put your energy, as the leader, into making sure your team is aligned and focused on the right goals …. those things that will be valuable to the business in the long term.

2nd, there has NEVER been a better time to buy another company. No company has ever grown into a large company organically. They all grow into large companies by buying other firms. Whether you are large or small, or want to buy someone smaller or bigger than you are, now is the ideal time to do it.

Fighter pilots like to say that “speed is life.” Likewise, prudent business owners must believe and act as if “cash is life.” Buttressing and improving cash flow should be a business owner’s top priority in good times, and especially in turbulent times.

Business owners must also recognize that we are witnessing a massive deleveraging of capital – despite the current bargains we see in interest rates. Over the long term, capital will become much dearer. This will drive well-run businesses to insist upon funding only the most robust projects and spending, those that exceed “hurdle” rates in significant excess to the firm’s projected cost of capital.

Finally, business owners must be wary of opportunities predicated upon significant government underwriting (through tax incentives, subsidies, etc.). Many of these will prove to be shorter-lived opportunities than the business can justify. And what the Congress giveth, the Congress can take away – often with breathtaking speed.

What Are The Best Pricing Practices For Small Business During An Economic Slowdown?

admin — Wed, 03 Dec 2008 21:32:00 +0000

In an economic slowdown your pricing is determined by factors like input cost of production or distribution channel cost etc. ….. which are primarily working on market factors. Generally one should be working on a reactive strategy of open price …. which allows for revision in product pricing over a shorter time period instead of quarterly or yearly market driven slashes or increases.

The important consideration is to try to maintain sales, even if some of them yield marginal or no profit (i,e, break even). In other words, so long as you are covering your costs, particularly fixed costs, then there is value in doing so.

However, unless you wish to become the low-cost leader going forward, then this low pricing may create a precedent which customers expect to continue, and it also may devalue the brand.

So pricing strategy must be decided carefully, with all things considered, including unintended consequences. And it may be better to have various incentives rather than simple price cuts in order to sustain sales.

In the article “Pricing in an Inflationary_Downturn”, McKinsey recommends the following actions:

-Watch for sudden shifts in price structure
-Adjust to changing customer needs
-Monitor customer-level profitability
-Update price sensitivity research

Many companies across the nation are on the verge of closing their doors and some have already started liquidating their inventory. This can be a great time to create opportunity for your business. Here are a few items to look at:

Item 1: Renegotiate Your Vendor Pricing:

Go to your current vendors and request price decreases due to the economy. You may be able to receive your inventory at a fraction of your old rates because of the risk of your vendors losing their business. Most agreements can be negotiated when financial conditions are more abundant ….. so this provides the perfect opportunity to turn the financial crises into an opportunity for your company.

Item 2: Create A Customer Loyalty Program:

Many companies started slashing prices to attempt to drive additional business to their company. However in researching the response of the consumers you may find them upset because if those prices were always available why did they not get them before. So you may consider creating a customer loyalty program ….. send a letter and give fliers to every customer saying that you want to retain them as a customer and are now rewarding them with a % off by signing up. What this does is make it look like you are giving an additional perk instead of cutting all your costs.

In any environment, it’s a best practice to price based on your customers’ willingness to pay. To the extent possible, strive to understand if and how your customers’ willingness to pay has changed and also how able you are to meet those customers’ needs relative to your competition. Unless you have a sustainably lower cost business model, you’ll want to avoid competing on price as a price cut is very easy for a competitor to copy but leaving you both with lower margins in the process. The airline industry comes to mind.

Are you in a position of relative strength? If so, that might allow you to innovate, differentiate your offering, and improve your value proposition based on shifting customer needs, thereby taking market share without necessarily changing your price.

If you find that your customers’ willingness to pay doesn’t cover your costs, you’ll have to re-examine your business model.

Keep in mind that there would be different answers for a lot of different situations. First of all strategies may be different in B2B than in B2C. Within each type the following factors will play an important role:

1. Company strategic posture – what you want out of the situation: sail through? Take advantage? Weaken competitors? Portray as socially responsible? Etc.
2. Financial strength/leverage available.
3. Brand positioning
4. Relationships with customers
5. Distribution leverage
6. Product category in terms of price elasticity
7. Cost cutting advantages available.

You should consider the above and more factors before determining how to price during a slowdown.

The only thing I would add is to caution that:

1.Understanding price sensitivity in the current climate is critical – price decreases may not have the expected effect and that’s an expensive mistake.

2. Be aware of potential changes in your value proposition as the market changes. Your product may now be perceived in a different way and the value you deliver will still be the ultimate driver behind what you can charge.

3. Price is a key positioning statement, not just a piece of simple mathematics. Think long and hard about how a price change will be perceived by your customer and the long, as well as short term effects a price change may have.

In the end cutting the customer’s price just for the sake of cutting their costs isn’t the answer. Lower your costs first ….. ensure your product/service maintains “value” …. and focus more on customer loyalty/retention.