Factoring Blog - For Small Businesses

Are Health Savings Accounts (HSAs) and high deductible plans right for everyone? 

According to Dawn Rivers Baker, Editor of the Microenterprise Journal, probably not.  HSAs and high deductible healthcare plans are good for those who are in reasonably good health.  But they are not good for those with chronic conditions with heavy needs to use their insurance.

Dawn joined me on my radio program this week.  We discussed the state of health care in the U.S., including escalating costs for small businesses, tax breaks, and the state of various bills proposed in Congress. 

When you consider how HSAs and high deductible plans work, it stands to reason that they are best for relatively healthy people.  After all, the money you put into an HSA is money you hope to not have to use for out-of-pocket or deductibles under your insurance policy.  For more reading on HSAs and high deductible health insurance policies (the two go hand in hand), read:  Is an HSA Right for You?

This news article is making the rounds, and I couldn’t resist:  IRS Bills Taxpayer Two Cents.

The taxpayer, an immigration attorney, was late with her $64,000 tax payment, so the IRS billed her $14 in late fees, which she also paid.  But it turns out there was an additional 2 cents late fee owed and she got a bill for that.  So she sent in another check, this time for all of 2 cents — and the IRS cashed it.

It’s crazy to think of how much in taxpayer resources were expended to collect that 2 cents ….  I guess it just goes to show, the IRS always gets its man, er, I mean 2 cents.

No wonder this is standard advice:  if you owe the IRS, find the cash to pay them … some way, any way.

At this time of year, starting on Thanksgiving Day and going through the end of the year, we like to give thanks to you, our loyal factoring clients.

From all of us here at Facteon, we want to thank you, our loyal clients, for your business.  We are glad to serve you for your cash management and factoring needs, and look forward to working with you in 2008 and beyond.

– Tom and staff

Do you know how much it’s going to cost to go over the river and through the woods to Grandmother’s house this year, in your state?

The Small Business and Entrepreneurship Council knows. They’ve developed the Small Business Energy Index to show the relative costs of energy in each of the 50 states and District of Columbia. And it’s not just the cost of gasoline that they measure, but also the cost of electricity used in our homes and busineses.

As they point out, government regulation can jack up the energy costs — that’s one reason the costs differ from state to state:

Thanksgiving is a time for families to gather together, usually around a large meal. That will involve a significant use of energy, including for traveling and cooking. No doubt, Thanksgiving is an energy intensive holiday.

However, the cost of that energy - whether filling up the gas tank for a drive to Grandma’s house or powering kitchen appliances or fueling the small businesses that serve consumers on Thanksgiving - varies by state.

Energy costs, of course, are affected by assorted factors. Obviously, it’s about supply and demand. As pertaining to oil, it’s also about various political risks around the globe. The types of energy sources matter as well. For example, is electricity generated from coal or natural gas?

But government intervention in the marketplace also comes into play through taxes, regulations, restrictions and mandates.

These governmental factors explain part of the difference in energy prices from state to state. For example, what taxes are imposed at the gas pump? What fuels are mandated by either the federal government or by the states either directly or indirectly? And so on.    * * *

At the top - or the lowest cost states - are 1) Wyoming, 1) Idaho, 3) West Virginia, 4) Kentucky, 5) Indiana, 6) Arkansas, 7) Washington, 7) South Carolina, 9) Utah, 9) Tennessee, and 11) North Dakota, and 11) Nebraska.

At the other end are the highest cost states (including the District of Columbia) - 39) District of Columbia, 40) Vermont, 41) Maryland, 42) Maine, 43) Alaska, 43) Rhode Island, 45) New Hampshire, 46) New Jersey, 47) California, 48) Massachusetts, 49) New York, 49) Connecticut, and 51) Hawaii.

Read the entire list of state rankings for energy costs. The difference between the lowest ranking states and the highest ranking states is startling. 

How is the cost of energy affecting your business and your bottom line?

We’re smack in the middle of the 4th quarter for most American companies.  And the games have begun!

What do I mean?  Just that at this time of year, it’s likely to take you longer to get paid.  Because all across America large corporations have started holding their payables. 

Many do it routinely at this time of year.  It’s all part of a variety of techniques to improve financial results to look good for Wall Street and shareholders.  CFO Magazine has an excellent article about fourth quarter financial gamesmanship:

Let the games begin.

The working capital games, that is. Right now, companies all over America, in every industry, are beginning a dash for cash. If past is prologue, many companies will go to great lengths to slash their working capital in the fourth quarter. The goal: to paint a beautiful picture of their cash flows by December 31 — one suitable for framing in the annual report.

To that end, companies will grant extremely favorable terms to customers, and make liberal use of discounts and rebates. They will step up their collection efforts, even as they hold back on paying their vendors. They will push inventory orders back on suppliers. They will do everything they can, in short, to free up cash from receivables, payables, and inventory, the components of working capital.

Notice the part I bolded in the above quote, about holding back on paying vendors. That means you. They’re holding back on paying YOU.

When I was in the corporate world the company I worked for did it all the time. Come mid-November, very little got paid. Certainly not smaller vendors.

It was nothing personal. For a long time in my corporate days as a manager I did not even realize it was happening with the invoices I submitted. The Accounts Payable department routinely held payables and didn’t tell me anything about the invoices for the vendors my department was using. It was only as I gained more experience and moved up higher in the food chain that I realized this game went on — and that it went on every year end.

Not that I could have done anything about it. If Finance was holding payables, they were holding payables. Woe betide the poor manager or director or VP who tried to mess with the CFO’s grand plan at year end.  Best not to get in the firing line.

So, just keep in mind that if you haven’t been paid by now from that large corporate customer, there’s a very good chance you may not get paid again until after January 1, 2008.

AccountingWeb offers a helpful article about cash flow entitled, “Eight cash flow secrets of entrepreneurs.”  The author’s second point is the one that caught my eye, about the value of a customer:

As the owner of your business, you have the choice to run it as you see fit. But no matter how successful and powerful you become, remember that your customers are the reason you exist. So be good to them. Some of my oldest customers are still my best customers. One company can spend millions on your services during the years. If you’re a consumer company, even one person can be worth thousands of dollars over the span of your business relationship. For this reason, you must not let success change your mission to give every client and customer the royal treatment. They are, after all, responsible for the incoming cash you will use to pay your business’s rent, taxes, and other fees. They are the face of your cash flow.

The challenge for most us comes with very large corporate customers.  Big corporations can be your most valued customers.  We do, in fact, give them the royal treatment.  Not only are they valuable for the money they bring you, but they serve as important marketing references. To be able to point to them as a customer often can help you attract other customers.

However much you value them — and, actually, no matter how much they value you —  they will treat your invoices on their own schedule.  Most of the people you deal with in a large corporation have never had to worry about meeting a payroll every month or paying the light bill.  I don’t mean that in a disparaging way. It’s just fact. They don’t think about the state of your accounts receivables. The thought that your business may survive or fail on how quickly they pay does not enter into their day. 

Most of the contacts you deal with do not make a conscious choice to delay payment. They just have a certain bureaucratic process to follow.  Your invoices will get paid — just in their time frame.  It’s inexorable.

This is especially true at this time of year, in the fourth quarter.  Some corporations routinely hold off paying their vendors in an effort to show attractive fourth-quarter results.  When I was in the corporate world, our finance department did that routinely. 

In my next post we’ll take a deeper look into the fourth-quarter gamesmanship among large corporations.

The James J. Hill Library is the largest practical business library in the United States.  They have an extensive Web outreach, with a variety of free sites containing collections of business resources.

One of those resources is a collection of financial calculators.  You can find a Buy vs. Lease, Breakeven Analysis, Profit Margin Calculator, Cash Flow Calculator and more. 

What I like is that they give you more than just the calculator.  For instance, every term or phrase used is defined.  Most of the calculators are remarkably unintimidating.  They have kept the forms simple with just a few inputs on the screen, so that you can take them step by step.

You get graphs and charts that are dynamically created as soon as you input information into the calculators, too.

Bookmark this page for future reference for financial calculators — and calculate that cash flow:   Financial Calculators.

Following on my post last week pointing out how things are looking optimistic for many small business owners (Is the Economy Booming for YOU?), I carefully read the October 2007 NFIB Small Business Economic Trends report.  This little nugget was hidden in the commentary:

The NFIB indicators suggest that owners have seen the “bottom” and are expecting the economy to gradually improve in the months ahead, even with housing still struggling to find its feet.   ***   Even with all the nonsense from the financial markets and the media, owner optimism improved and spending and job creation plans look better.

And that brings to mind an important point about sometimes NOT listening to the financial news. 

For instance, you can’t turn on the nightly financial news without hearing about the “housing marketing crisis.”  Certainly anything housing-related ranks among the weakest parts of the U.S. economy. 

 However, the other side of the story is that the housing market problems have  geographic differences.  The parts of the United States where housing prices had a huge run-up over the past few years have been hit hardest. They had the most to lose, this being somewhat of a fall after a housing bubble.

Some have argued that the housing bubble is really a series of smaller, regional bubbles that vary by geography. Parts of the country have not been hit as hard. Why? Because they never saw the big run-ups in housing prices and the sizzling real estate activity in the first place. Their gains were more modest during the boom times. Supply and demand tended to stay on a more even keel. As a result, the current housing slow down may not hit as hard in those parts of the country. Also, local regional conditions affect local housing markets to different degrees.

My point? 

Just this:  if you were not in a construction or housing-related industry, you may have remained relatively unscathed through this weakly growing economy we’ve been in during 2007. 

Many small businesses (mine included) react more to micro-economic factors and local or industry-specific conditions, rather than to macro-economic trends.

And so, as you hear the financial news about the housing market blues, or the subprime mess or the stock market plunging one day, consider that those factors may have little impact on your own business. Maybe they will, depending on the industry you are in or on local conditions.  But then again, maybe they won’t.

Sometimes it just pays to take the gloom-and-doom financial news with a grain of salt.  Otherwise, you could just psych yourself into a negative mindset and then it will become a self-fulfilling prophecy.

Instead, concentrate on your business — work it to make it as successful as possible.  Make sure you have sufficient cash to weather any temporary conditions.  Credit is still readily available:

– If you use credit cards to pay business expenses, you will still have those available.

– If you factor large receivables in order to speed up your intake of cash, you’re going to find factoring is available too.  

– If you use a line of credit, you’ll find that available as well.

As of this writing, you have six weeks left to do some year-end 2007 tax planning.  After you sit down to your turkey dinner on Thanksgiving, why not set aside a few hours later that weekend to look at your tax situation?

Now is the time to estimate your full-year profits and expense loads — and consider final strategies to reduce your tax burden.   Key strategies to consider include:

• accelerate deductions to take them in the 2007 tax year

• defer income, if possible, until 2008 so that you can delay your tax liability on that income

• upgrade business equipment to take advantage of liberal one-time expensing provisions (up to $125,000 in 2007)

• set up a qualified retirement plan

This CPA firm newsletter offers a quick list of year-end tax planning strategies for businesses and the self-employed.

See also the Business Owners’ Toolkit for year-end tax planning.

And if you are interested in planning for your personal tax situation, see this Impact Magazine article.

A New York Times article published today suggests that small businesses like yours and mine may not be feeling the effects of current economic troubles, such as the subprime mess. 

In “What Economic Slowdown? Small Businesses Grow Stronger” the article notes that most business owners don’t think things are so bad:

“I travel a lot and speak to a lot of small business groups,” said Joel Prakken, chairman of Macroeconomic Advisers. “What I hear is much more upbeat than what you read in the financial press. Small business owners know about the worries hanging over Wall Street. But they are doing well. Interest rates are low, the stock market is high. They can raise money. The global economy is very strong. They can expand their global reach, and they are doing it.”

My sense is that most business owners are upbeat. And all the studies and statistics suggest so.

However, you can’t deny that the collective confidence among small business owners has been slipping all year long — not precipitously, but slowly and bit by bit. For instance, the NFIB’s Optimism Index is below its historical lows and has been all year during 2007. However, the commentary to the most recent economic report by the NFIB suggests things are positive, although growth can best be described as “weak.”

So, while the economy is not nearly as gloom and doom as the cable new shows would have us believe, right now its temperature is closer to lukewarm, than sizzling.