Factoring Blog - For Small Businesses

Mike Stevens over at AllBusiness.com has an interview with U.S. Presidential candidate Senator John McCain’s chief economic advisor that’s pretty interesting.

McCain’s advisor, Douglas Holtz-Eakin, was asked what government could do to make it possible to keep jobs in America.   His response points out that businesses are going to do what makes financial sense.  If the costs are significantly lower offshore, then that’s where they’ll go.  He then goes on to point out that government can help reduce costs here in the United States:

The basic calculus is pretty straightforward. You look at what it will cost, what your productivity is here, and what it is there, and how you’ll net out. Business people have to do that arithmetic. But the government can do a lot on both sides of that equation. Cutting taxes and alleviating direct cost burdens and, more slowly, [enacting] health care reforms that take some of the cost pressure off, and education reforms that produce better workers in the U.S.

(Stevens said he asked all the candidates the same question and only McCain answered. So that’s why the focus on McCain.)

As long as the cost structure is lower for producing goods offshore, most businesses will make the cost effective decision.

What do you think? Is the right approach to lower taxes, reduce expensive government paperwork and do similar reforms? Will that make any difference to outsourcing?

Tax time is officially upon us.  This week is the deadline (January 31, 2008) for preparing and mailing 1099 forms for miscellaneous payments to independent contractors and W2s to employees.

As you start preparing to file your return, the IRS offers publications designed specifically for small businesses that you might want to check out:

• If you need a refresher on tax filing requirements, deductions, credits and other aspects of tax compliance for your business, check out the IRS’s Tax Guide for Small Business (PDF).

• The IRS also offers a Tax Calendar for Small Business and Self-Employed. This can help you create reminders of when to make estimated tax payments and create tickler reminders for other important tax deadlines.

• Then there’s Retirement Plans for Small Business, a publication that explains the tax implications of SEPs, SIMPLE IRAs and SIMPLE 401ks and other retirement plans.

I am fascinated by online tools that help you value your business. 

You know the ones I am talking about.  They’re interactive tools where you plug in a few bits of information into some text boxes on a website.  Then you instantly get back a valuation range for a business in your industry.  Or you might get back comparable sale data on businesses that have sold recently.

These tools fall somewhere between mere fun and giving you a quick ballpark idea of recent sales amounts:

• CNNMoney.com has a very general business valuation calculator. It calculates multiples of earnings for six broad industry categories.

• BizBuySell.com offers free business valuation comparables. These are much more detailed than the CNNMoney tool. You can break down your inquiry into narrower industry categories and get much more granular. Also, they generate cash-flow multipliers and revenue multipliers. However, they only cover the BizBuySell listings.

Naturally,  I would not recommend relying on these tools in setting or negotiating a sales price, unless you are talking about a very small business (perhaps an ad-based website) where your expectation of a purchase price is $10,000 or something like that. In those situations sellers typically do not get valuations done anyway (because the low price does not justify the expense of a valuation), so I guess a free online calulator is better than nothing.

Most businesses, however, require a true valuation done by a trained professional.  He or she can help get the most for a business should your company go up for sale. 

But that doesn’t mean you can’t have a little fun with one of these online tools. 

One of the facts of business life today is that the law has become complex and the body of law that an attorney must know has become much larger.  There are simply more laws on the books and more legal considerations to take into account.  That makes the attorney’s job much tougher today than in the past, I think.

On top of that, factoring is not as widespread as loans, credit cards and other sources of financing.  As a result, some attorneys may not be as familiar with factoring transactions as with other kinds of financial transactions.  For instance, even experienced business attorneys are more likely to be more familiar with loans and mortgages than with factoring. 

And you have to keep in mind that no attorney (or human being, for that matter) can be expected to know everything.  It just isn’t reasonable to expect.

The folks at Facteon make it a point to keep the paperwork for factoring as straight forward as possible.  A good starting point for an attorney tasked with helping a client review a factoring agreement is to take the Facteon factoring test drive, which is essentially some background information about their factoring process.  If you are an attorney, or if you are a business owner or manager getting your attorney involved, start them there. 

Another good source of general background information is the Wikipedia article on financial factoring.

The better the grasp on the transaction fundamentals and the roles and responsibilities of the players, the better equipped the attorney will be to provide guidance and advice.  And the attorney will also have a better idea of what’s reasonable and customary — and what isn’t — in factoring transactions.

Replacing employees — good employees — can be very expensive.  I think we all know that.

All the time the hiring manager has to spend recruiting, interviewing and bringing up to speed a new employee.  Recruitment fees. It can get expensive.  Consider these costs you might not have thought of (from an article in About.com):

• Time to review resumes
• Time to interview candidates
• Interview expenses for candidates
• Possible travel expenses for new hire or recruiter
• Possible relocation expenses for new hire
• Additional bookkeeping; payroll, 401k, etc.
• Additional record keeping for government agencies
• Increased unemployment insurance costs
• Intellectual property lost
• Corporate history lost

The article quotes one source that claims it costs $58,000 to replace a customer service rep earning $18,000. Regardless of whether you agree with those numbers, I think you’d have to agree that replacing employees is expensive.

So just remember that the next time you get a little aggravated and are tempted to lose your temper over something one of your employees forgot to do or a task completed a little sloppily. Consider that the cost of coaching that employee and working with him or her to develop better skills could be a much better financial decision.

AllBusiness.com has a quick checklist for developing a business credit rating.  There’s nothing earth-shatteringly surprising on the checklist. 

But you really should pay attention to this aspect of your business. 

For instance, do you check your Dun & Bradstreet profile?  Do you even have a Dun & Bradstreet profile? 

Not that I’m pushing it or anything – but over at the D&B website they have a variety of services to help you establish a Duns number.  Some business partners, trade creditors and insurers may look at it.

Here’s a radical idea.  If you are looking for some funding you never have to repay, consider a business contest. 

Contests and competitions designed for entrepreneurs seem to be in vogue these days.  At any given time there are dozens of high-profile contests going on.

And the cash prizes in some of them are enough to make you sit up and pay attention - $5,000 is routine.  $10,000 a month at Ideablob ups the stakes.  And some contests offer more than that for the grand prize winner.  For instance, Intuit’s Just Start contest is offering a $50,000 grand prize ($40K in cash and $10K in services).

But as you might imagine, the more money at stake, and what with drawing on large numbers of entrants from the Web, the competition can be pretty stiff.  For instance, in the Just Start campaign some of the video entries were clearly the result of many hours, if not days, of work. 

For that reason, I suspect many contests are best suited for startup entrepreneurs   It’s as if you have to work as hard at the contest entry as you do for your business.

But still, for a business in the right circumstances, it is an interesting alternative source of funding.

Michelle at Small Business Buzz has a good, easy-to-skim checklist for how to find a good accountant.  If you don’t have an accountant or just are not satisfied with the one you have, it’s time to take action.  Tax season is upon us. 

I have found that having a good accountant can help you grow your business.  Having a close relationship with an accountant does several things, beyond the obvious of helping you with your books and your taxes:

(1) A good accountant imposes fiscal accountability.  I don’t know about you, but when my accountant sends reminders about estimated tax filing deadlines and 1099 filing deadlines, for instance, it makes me pay attention and not let dates slide.  For some reason I am more inclined to pay attention than if I set reminders for myself in QuickBooks or in my calendar.

(2) Your accountant is a fabulous source of advice on a variety of topics.  Sometimes it helps to discuss an issue with your accountant.  For instance, discussing whether you should draw salary or take distributions.  Or discussing how to structure your business entities.  No matter how much you think you know, a good accountant often provides a new perspective that you haven’t thought of. 

(3)  A good accountant is an excellent source of important contacts in your local area, for important life and business transactions.  Good accountants often know who the “go to” people are in your town.  If you need to sell your business, start with your accountant for recommendations of a good local business broker.  If you need an attorney and don’t have one, your accountant often can recommend a good one.  Need some better health insurance options?  A good accountant can often make suggestions for a good insurance agent.

At this time of year, during their peak season, some accountants may not even be taking on new clients until after this tax season.  If you find that the accountant you want to hire tells you that, then make a reminder to yourself to find one AFTER tax season is over.  Don’t wait until tax season next year, when it will be too late.

The news is plastered with reports about the subprime mortgage implosion and the housing bubble.  It’s hard to avoid either subject.

While subprime mortgages affect big lenders more than they affect independent businesses — and your business may or may not be impacted by housing market troubles — one thing is clear:  home values affect your lifestyle and net worth.

Like most business owners, you probably own at least one piece of real estate — your home. 

Home values depend a lot on the quality of schools.  That’s why you may be interested in this interesting clickable map that shows high school graduation rates.  The higher the graduation rate, the better the school (in general).

Check out the graduation map — very interesting.

The national median salary for a small business CEO is $233,500.  That’s with an average of about 90 employees in the company.  The information comes from a survey by Salary.com.

The US News and World Report adds this information about the survey:

• CEOs in finance, construction, and real estate tend to make even more than their peers. Small-biz owners in the rental and leasing industry, for example, brought in an average of $320,000 this year. (The average salary for their assistants? $46,100.)

• The more their companies earn, not surprisingly, the more CEOs take home. CEOs of businesses with $25 million to $35 million in revenue earned 113 percent of the national median salary (about $263,000). For owners with more than $50 million in revenue, the number jumped to 159 percent (about $371,000).

Of course, there are plenty of owners of small businesses who plow the profits back into the company and take out significantly less in salary. My guess is that more business owners plow their money back into the business, than take out large salaries — especially when the business is young or it is under 20 employees.