Small Business and the Simple Math of Job Creation

By Carol Roth


There is a realistic solution for creating jobs and turning around our country and it lies with small businesses. Let's talk "simple math," as President Obama noted in his remarks just a few days ago, but my version of simple math has a both a view of the numbers and an outcome that's a bit different.

According to the US Small Business Administration, citing the most recent Office of Advocacy and Census data, there are:

• 27.5 million small businesses in the US (of these, about 6 million have employees and 21.4 million are "Solopreneurs" or businesses with no employees);
• 18,311 business with over 500 employees

The historical unemployment rate is about 4-5%, but just to illustrate how important small businesses are to turning around this economy, consider the following extremely "simple math". With 14 million people unemployed currently, this means that:

• If one out of every two small businesses (50%) hired just ONE person, we would have zero unemployment;
•  If each of the 6 million small businesses that has employees hired just two people, we would only have 2 million people unemployed in the US (1.3% unemployment);  
• In contrast, business with more than 500 employees would need to hire an average of 655 people each to get to hire the same 12 million employees (i.e., to achieve 2 million people unemployed)

What's a more reasonable strategy? Helping the small businesses of this nation to grow modestly by hiring one to two people or trying to get big business to take on massive acceleration in their hiring?

In reality, there needs to be a combination of both, but you cannot ignore the power of what strengthening small business can do for the United States and how completely critical they are to our economy.
Unfortunately, what we have heard about the American Jobs Act proposed by President Obama thus far doesn't fully accomplish this. Neither does the US Chamber of Commerce letter nor the Believe in America plan proposed by Governor Romney.

As a small business influencer and advocate, I have been on the front lines talking to small business owners about what they need for the past several years and what they are saying they need today is no different than what they needed 12 months ago. I believed (as I discussed on MSNBC's Your Business at the end of 2010) that we wouldn't have a recovery in small business this year because of what I had been hearing and continue to hear from the community. So, I want to clarify what small businesses need and what the government needs to do to make the small business math work.

Small businesses need permanent, not temporary, solutions

Small business owners do not have the luxury of making mistakes. Many are working on reasonable margins that if disrupted affect their ability to take home money to their own families. Therefore, small business owners are cautious and think not just about today, but also about tomorrow, when making decisions about their
businesses.

This means that small businesses need certainty and permanence in the operating environment. Proposed solutions like extending the temporary payroll tax cut and first year expensing incentives (as proposed by President Obama's American Jobs Act) or a one-time, low dollar amount hiring credit aren't enough to influence a small business owner- it's just too risky. In fact, we know temporary solutions like the payroll tax cuts and one-year expensing incentives won't work because they didn't work the last time. It's too small in scope and short-term in nature for a small business owner to hang his or her hat on.

There are also far too many temporary tax rules and other legislation that are re-evaluated every year. The small business owner, who blurs the line everyday between his personal and professional life, needs certainty. This means the government should lay out the rules of the game and stop changing them. And to maximize participants, those rules should be as easy to understand and follow as possible.

Moreover, what will influence small business owners to hire would be simplifying the tax code and lowering tax rates for small business owners. Many of the Solopreneurs I spoke with and who responded to queries that I put out on various social media platforms, including Howard Greenstein of Harbrooke Group, wanted to see a permanent lowering or elimination of the self-employment tax as a means to be able to invest in their businesses.

Small business owners need to focus on running their business, not pushing papers

It is clear that those proposing solutions have either never been a small business owner or haven't for quite a long time, because they do not seem to comprehend the amount of administrative work- work that is unproductive and does not generate revenue- that's currently part of a small business owner's duties. For Solopreneurs (as noted above, representing over 21 million small businesses), the amount of additional administration that is required to bring on just one employee is daunting. It requires additional compliance, regulation, forms and headaches.

There are several fixes to this issue. One is to expand the definition of an independent contractor (or 1099 workers) so that small business owners can hire more individuals. If you are not familiar with the difference, per the IRS, "Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors." Anyone can see how that creates a barrier to taking on employees, especially for small business owners. If both parties are in agreement that an independent contractor arrangement makes sense, why would the government stop that? To do so is an impediment to growth for small businesses.

Also, expanding the 1099 definition can encourage individuals to start more businesses. It may be that a small business only needs a person for projects or for part of the year, and having a more lenient 1099 definition would allow an independent contractor to be able to be employed by multiple businesses without having an increased redundancy in administrative work and other paperwork.
Another solution is to eliminate in some cases and minimize in others regulations for small businesses. While many of the proposed plans did talk of streamlining of regulations, the ones that have been discussed (such as EPA regulations) aren't relevant to the majority of small businesses. Small businesses should not have to be subject to regulations that hinder their ability to conduct business, grow and hire.

Small business owners need to have certainty regarding the cost of doing business

Healthcare and other costs are top of mind for small business owners. The current health care regulation ("ObamaCare" as it's "fondly" called) is of concern to many small business owners. They are worried that it will not lower healthcare costs and that it actually will make doing business more expensive over time. While the spirit of this regulation had its heart in the right place, the reality of the regulation creates a penalty for growth- the bigger you are, the more you pay. That type of regulation that creates disincentives for growth is completely counter-intuitive. The government should repeal this Act as it is having a direct and indirect effect on growth for small business owners.

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The ABCs of Business Credit

Learn why it's important to establish a business credit report separate from your personal credit and just how to do it.  


As an entrepreneur, did you know you have a unique opportunity to build, maintain and acquire credit both individually and as a business owner? That's good news if you're trying to build and grow a company because you won't have to rely solely on your personal credit to do that.

As a member of the business credit industry, it's been my experience that fewer then 10 percent of all entrepreneurs know about or truly understand how business credit is established and tracked-and how it affects their lives and businesses.

So let's first take a look at how personal credit differs from business credit. Then we'll discuss some steps you can take to build your business credit.

Personal Vs. Business Credit

At the point an individual with a social security number accepts their first job or applies for their first credit card, a credit profile is started with the personal credit reporting agencies. This profile, otherwise known as a credit report, is added to with every credit inquiry, credit application submitted, change of address and job change. The information is typically reported to the credit bureaus by those who are issuing credit. Eventually, the credit report becomes a statement of an individual's ability to pay back a debt.

In some cases, the same is true for businesses. When a business issues another business credit, it's referred to as trade credit. Trade, or business, credit is the single largest source of lending in the world.

Information about trade credit transactions is gathered by the business credit bureaus to create your business credit report using your business name, address and federal tax identification number (FIN), also known as an employer identification number (EIN), which you get from the IRS. The business credit bureaus use this compiled data to generate a report about your company's business credit transactions. In many cases, those issuing credit to you will rely on your business credit report to determine if they want to grant you credit and how much credit they'll give.

The major business credit bureaus that compile and provide copies of the reports are:

• Dun & Bradstreet
• Experian Business
• Equifax Business
• Business Credit USA

Unfortunately, because the information provided to the business credit bureaus is sent in voluntarily--no business is required to send it in--the credit bureaus may never receive all or even any information about your business credit transactions. In fact, you could go for years racking up business credit without any of it being reported to the credit bureaus.

Establishing Business Credit

Let's start by talking about your business credit score. Business credit scores range on a scale from 0 to 100 with 75 or more considered an excellent rating. Personal credit scores, on the other hand, range from 300 to 850 with a score of 680 or high considered excellent.

It's important to note that there are many factors that affect a credit score; it's based on more than just whether you pay your bills on time. Your score can be affected by the amount of available credit you have on bank lines of credit and credit cards, the length of time you've had a credit profile, the number of inquiries made on your credit profile and more. You can find out more about what factors affect your credit rating by visiting www.myfico.com.

The mistake many business owners make is using their personal information to apply for business credit, leases and loans. By doing so, they risk having a lower personal credit score.

Why is that? The average consumer credit report gets just one inquiry per year and has 11 credit obligations, typically broken down as 7 credit cards and 4 installment loans. Business owners are not your average consumer, however, because they carry both personal and business credit. This typically doubles the number of inquiries made to their personal credit profile and the number of credit obligations they carry at any given time, all of which negatively impact their personal credit score. And because business inquiries and personal inquiries aren't separated on their personal credit report, the scores, again, is negatively affected. At the same time, by using their personal credit history to get business credit, they're not able to build their business score, which could help them attain critical business credit in the future.

The key to establishing a business credit profile and score is to find companies that will establish credit for your business without using your personal credit information and then report the payment experiences to the business credit bureaus. By reporting the information to the proper agencies, they'll help you establish your business credit profile.

The following are the basic steps you need to take to establish your business credit profile and score:


1. Form a corporation or LLC to operate your business under and obtain an FIN or EIN from the IRS. You can apply for an EIN number at the IRS website.

I'm suggesting you form a corporation or LLC as opposed to structuring your business as a sole proprietorship or partnership because with a sole proprietorship or partnership, your personal credit information could be included on your business credit report--and vice-versa. In addition, as a sole proprietor or partner in a partnership, you're personally liable for the debts of the business and all your personal assets are at risk in the event of litigation.

Corporations and LLCs, on the other hand, afford business owners liability protection, and you can build a business credit profile that's separate from your personal debts. You may be able to apply for credit under your business's name and obtain credit without a personal credit check or guarantee if the credit grantor will do so--and it's been my experience that often all you have to do is ask.

2. Register your company with the business credit bureaus.

3. Comply with the business credit market requirements. It's extremely important for businesses to meet all the requirements of the credit market in order to ensure a higher likelihood of credit approval. In fact, not being in compliance with the credit market can raise red flags with both credit bureaus and grantors. The red flags include such simple things as not having a business license or a phone line. Most businesses will not grant credit to another business that hasn't taken the steps to set the company up with the proper licenses and local, state and federal requirements. You can research the list of business credit market requirements at iBank.com.

4. Prepare financial statements and a professional business plan. These documents are often required by many credit grantors.

5. Find companies willing to grant credit to your business without a personal credit check or guarantee.

When a company grants your business credit, be certain they report the payment experiences you have with them to the business credit bureau to help build your business credit report and a financial foundation for your company.

6. Manage your debt so you don't fall into trouble making your payments, which will negatively affect your credit score.

7. Make monthly payments to credit grantors to keep your business credit profile active.
At some point, almost every business needs some type of credit. To avoid having to use your personal credit history or guarantees and to obtain the best possible terms, start the steps necessary to build a business credit profile now before you really need it.

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David Gass is the president and owner of Business Credit Services Inc., a Las Vegas-based company that provides credit coaching programs for small-business owners to help them build their business credit. Obtain a free business credit assessment by calling (866) 254-6076. Or go online to www.corporatecredit.biz to get a copy of their free booklet Building Business Credit for Business Owners.

http://www.entrepreneur.com/money/paymentsandcollections/article76886.html

9 Things Business Owners Must Know Before Seeking Capital

By Karlene Sinclair-Robinson

Business owners are always seeking ways to improve their business. These improvements can include updating equipment, hiring new staff, developing a better marketing strategy or figuring out how to improve cash flow.  When cash is not flowing effectively, a business owner must take any and all necessary steps that can and will lead to financial growth.

When the business is in need of a cash infusion, oftentimes the business owner applies for a traditional bank loan.  Sometimes, this is not the best solution to the financing problem.  When a traditional bank loan is not be the answer, obtaining the necessary financing to improve your business can be a challenge.

Due to these challenges, there are a number of factors to consider.  Since traditional financing is not always an option, non-traditional or alternative financing might be the key to solving your business monetary needs. Evaluating your options and being prepared is vital to your business successfully acquiring the much needed capital.

Here are some areas you should address prior to seeking any type of financing:

1.    Know your business and be comfortable talking about it

Knowing your business and being able to talk about is very important. No lender will look on you as a viable candidate for their money if you don’t know what your business is about and you are not comfortable talking about it. If you can’t talk about it, who will? If you have trouble talking to others about your business, consider taking a public speaking class.

2.    Complete your business plan and know what’s in it

You’ve heard this before “Having a completed business plan is your road map to success”. If you have not completed your business plan, you will not be able to borrow from traditional lenders and this is also the case with some alternative financing sources. Your business plan takes your ideas, concepts, goods and/or services out of your head and puts them into written form.  If you allow someone else to write the plan, make sure to familiarize yourself with its contents. If you don’t you will not be able to effectively describe and explain the plan, financials, and other critical details.

3.    Have your financial and other corporate documents ready

Your financial documents, and other business documents, must be in order. They must be current and applicable to your business today. Knowing where to find these items is vital to obtaining the loan or other type of financing that you might need.

4.    Understand your financial statements

You must acquaint yourself with your personal financial statement, business balance sheet, cash flow profit and loss and other necessary financial documents. These documents must be current. You cannot just leave it to your CPA, CFO or business manager to know the importance of these documents nor what they represent.

5.    Know your credit score and what’s on the credit report

Folks, this goes without saying “Know thy credit”. Your credit report is your report for life. Do not hide from it and think that you can borrow other people’s money. They will want to see the report and they are entitled to see it if you want to borrow their money.

6.    Know why you need the financing and how you will spend it

We live in a society with the following mentality: “Must have it now”. When you seek to borrow other people’s money (OPM), you must prove why the amount you are seeking is important and what the funds will be used for. Do not ask for more than you need. Borrow in phases as this shows the lender that you are responsible. It also illustrates that you understand how the system works.

7.    Have a repayment plan and additional exit strategies

You need to have an exit strategy or you may find lenders unwilling to finance you. Lenders want to lend, that’s why they are in business, so be sure you document how you will repay the loan.  Having more than one exit strategy shows the lender that you have thought out the varied possibilities and that you have accounted for them.

8.    What type of lender best fits your need?

When you decide to get a loan, be mindful of the lender you are planning to approach. Not all lenders have the same “sweet spot”. This term refers to the type of loans a lender likes to make. They have a good understanding of the specific types of loans and business backgrounds that they prefer.

9.    Learn all you can about the lender/source prior to approaching them

Do your homework before approaching a lender for a loan. Whether the lender is a traditional banking institution or an alternative financing source, knowing as much as possible about them is vital to the success of your being approved for a loan or other type of financing. This will eliminate possible compatibility issues and help you from wasting time going after the wrong lender or source.

Financing your business does not have to be so difficult. Use the above items to help you simplify the process. They will make a difference.

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Creative Financing For Small Businesses

By Karlene Sinclair-Robinson

Creative financing is an interesting concept that has many business owners wondering how it could work for them. Many business owners are still not aware of the non-traditional financing methods that are taking the place of traditional bank loans or are working in conjunction with banking institutions. Some of these creative financing methodologies are not loans. They cannot be accessed through traditional financing sources based on their conceptual makeup. The conceptual makeup of some of these options could include the use of your creditworthy clients, government contracting capabilities, current paper or tangible assets, or even the use of your future expected payments.

When small business owners can look “outside the box” to get the financial assistance that they need, this creates a win-win-win situation. A lot of creative options require a banking institution be involved but do not necessary require them to be a part of the process. When these financing options are used effectively, many small business owners, and even large corporations, usually see the benefit.

Banking Risk Tolerance

It is often said that “Banks are not lending”. This is not true. Banks are in the business of lending. Without completed loan transactions, banks would go out of business. The issue you face, as a business owner, is the banks’ tight lending practices, especially in today’s tight lending market. When this affects you negatively, the simple truth is that you and your business do not fit that particular bank’s lending model or their level of “Risk Tolerance”. Banks are averse to risking their capital.

Conservative lending institutions such as banks will not risk their money to support your venture. Your venture or business must show sustainability in advance.  This will make that lender happy to loan you money.

Creative Financing Solutions

This financing model varies across a number of sectors and is not contained in its lending practices like traditional institutions. Creative financing solutions develop based on a demand or the need to solve a financial issue for a large group. When business owners are denied access to capital through the banking sector, not everyone will give up on their dream of moving their business forward or be satisfied simply surviving through economic hardship.

Creative financing sources address the demand for access to capital in a variety of ways. These options are usual provided and operated by private companies. Many have private investors who prefer these types of investment avenues.  These solutions go across all types of business sectors including medical, construction, food, manufacturing, government, and more. When a business owner seeks out this kind of financing, the success factor is dependent on the industry, payment sources, customer or client’s credit report and score, current contracts and much more.

Types of Creative Financing

Factoring – Most companies that must produce an invoice after the delivery of goods or services can use this option.  This model facilitates the sale of your invoices (assets) in exchange for cash. This option is not a loan.

Equipment Lease Financing – is a loan. You are able to purchase the necessary equipment for your business and pay in installment payments instead of having to pay the full price of the product upfront. There are tax incentives, so talk with your CPA.

Micro-Loans – are available both through traditional financing and creative financing sources. The difference between the two is in the terms offered. This option can fill a gap if you need a larger loan. Use it appropriately and you can always reapply.

Peer-to-Peer Lending – This is a loan program that is available online. Through many online peer-to-peer lending sites, you can obtain up to $25,000 depending on your need. This concept takes a crowd of people lending you small amounts equaling the amount you need. The important thing to note is that the risk to the individual lenders is minimal as many choose to lend in small amounts as low as $25.

Crowd Funding – has gotten a lot of attention in the last few months. Two year ago, this option was nowhere on the radar of financing options. Today, between sites such as IndieGoGo and Kickstarter, you can now raise funds for your project or business and do not have to pay it back. Now, this does not mean you do or give nothing in return. It simply means that you will repay the crowd or group of individuals that believed in you enough to give you a set amount with non-monetary items.

This concept simply uses a crowd of individuals to finance you. This is not a loan. It is similar to the “Barter trade” system.  A good case in point – you want to publish your book but don’t have enough marketing capital. When you announce this project to your audience, they will support you based on your pledge to give something in return. An example of this would be someone pledges $25 and once the book is published they get a copy of the book or an ebook version.

Finally, business financing is no longer tied to just the banks.  Individuals and other organizations realize that we must find solutions where there are problems, and that is exactly what these creative financing sources have done.

Remember to do your research before approaching a source so you do not waste your time or theirs. Go make it happen!