Factoring Blog - For Small Businesses

You probably already have a business if you’re here reading this blog.

But just in case you’re thinking of starting a business (or another one), CNN Money lists the 100 Best Places to Live and Launch 2008.

It’s a list of the places in America with the best mix of great lifestyle and business advantages. The top five places on the list are:

1 Bellevue, Washington
2 Georgetown, Texas
3 Buford, Georgia
4 Marina del Rey, California
5 Bethesda, Maryland

What kind of business advantages are considered sufficient to make the list? The article looks at a host of factors including whether corporate taxes are low; availability of a qualified workforce; accessibility to airports; availability of economic development resources in the area; thriving entrepreneurial scene; access to venture capital.

It’s a good list, although any list like this has limitations. Many of the cities are small. Also, the focus is very much on having the right conditions for tech businesses and high growth businesses — and not for mainstream small businesses such as hair salons, CPAs, restaurants and so on. Still, it’s a worthwhile list.

Go here to see if your city is on the list.

The Internal Revenue Service came out with its list of the dirty dozen tax scams to avoid. The IRS has put out such a list each year for the past several years.

On this year’s list are some ways to avoid being taken in by scams, whether for your personal tax situation or business taxes.

But mostly, I think the IRS just wants to remind people to avoid getting into a mess by engaging in dodgy tax schemes and outright frauds. And if your tax advisor suggests one of these activities, think about getting a new tax advisor. It’s not worth having your life turned upside down by IRS troubles. It’s not only bad for your business, it’s bad for your marriage, your health and your freedom.

OK, the editorial is over. Now here are a few items on that dirty dozen list:

• Phishing scams - you know better than to respond to those emails asking you to send information to the “IRS”, right? Because it’s not really the IRS sending them. The IRS says it NEVER communicates via email about taxes.

• Hiding income offshore — And of course you already know that you shouldn’t be setting up that account in the Caymans to avoid paying taxes. Says the IRS, “Individuals continue to try to avoid paying U.S.taxes by illegally hiding income in offshore bank and brokerage accounts or using offshore debit cards, credit cards, wire transfers, foreign trusts, employee leasing schemes, private annuities or life insurance plans.” As long as people have to pay taxes, there will be a tiny minority who try to hide their money offshore. But with today’s electronic records, I would think it gets increasingly easy for the IRS to track this kind of activity and harder to hide your trail.

• Disguising corporate ownership – Better not use shell corporations to disguise your business activity to avoid paying taxes. This is another technique that’s as old as the hills, but apparently it is still alive and well. The IRS website notes, “Some people are going as far as forming domestic shell corporations in certain states for the purpose of disguising the ownership of a business or financial activity. Once formed, these anonymous entities can be used to facilitate underreporting of income, non-filing of tax returns, engaging in listed transactions, money laundering, financial crimes and even terrorist financing.”

Read the entire Dirty Dozen list over at the IRS website if you want all the details. There’s even a podcast you can listen to.

Tom Nort, the CEO here at Facteon (pictured right), was recently interviewed on Internet radio. It’s 24 minutes in which Tom discusses factoring in a conversational interview format.

Tom notes that speed is probably the number one advantage to factoring. You may think that if your customers pay invoices slowly because their internal payables processes drag on, you have little choice.  But by factoring the money comes in quickly — in hours or days, instead of weeks or months.  You don’t even have to change your business in order to get paid faster.  

An overlooked benefit of factoring is that it takes the place of infrastructure for an accounts receivables department.  As he points out, many small businesses don’t have the staff or systems to adequately track receivables and stay on top of them.  A factoring company can operate as an outsourced receivables department, collecting your receivables in exchange for a fee. 

A typical factoring client is a company a few years old.  The client company may be run by someone who worked for a larger company and went out on their own.  Tom notes in the show, “They are very good at what they do, but don’t necessarily have the resources or infrastructure to stay on top of receivables.”  Engineering firms, software developers, small manufacturers, construction firms — these are just some of the typical companies that use factoring.

He also points out an advantage over a traditional lender:  that factoring does not involve doing a credit analysis on your business.  The focus is on the credit-worthiness of your customer, not on your personal credit as an entrepreneur. 

Tom says many entrepreneurs have suffered dings to their personal credit simply due to starting a business and the cash pressures it imposes.  That’s a fact of life of being an entrepreneur. With factoring, these entrepreneurial dings to your personal credit don’t disqualify you from getting funding.

Tom also mentioned that Facteon is different from other factoring companies in that it publishes its rate schedule right on the Web.   Anyone can see it and know in advance what factoring will cost, and make an informed decision. 

Tom also talked a little about his own experience — that he started a business and would come up short when he has payroll to make. Facteon has now been in business 8 years.

It’s a relaxed and informational interview — definitely worth listening to.

You can listen to Tom Nort’s interview by clicking on this MP3 link.  Or you can head over to the radio show website where there is a write-up and a flash player to listen.

Wilson Ng, who is the CEO of a technology company in the Philippines, is now writing a regular business comic strip along with two of his employees. The comics are called It’s NGenius and they are sponsored by the NGenius chain of computer stores.  The main character is Engy, the General Manager who “reads a lot of management books.”

I thought you’d get a kick out of this comic strip, which points out the importance of prompt billings in order to get paid faster. Of course, just don’t make the same Freudian slip as the comic strip character makes.

Talk about low overhead!

Over at AllBusiness.com they’ve got some short video clips they call Small Business School. Most are only a minute or two in length, so unfortunately they are more entertainment than useful advice. But still, you can find a few good nuggets, such as in one video called “Keep Your Overhead Costs Low.”

It features the owner of a construction company whose first office was “in a phone booth.” Literally.  The company used a phone booth, and the gas station attendant would answer calls. Each week they’d tip the attendant.

Of course these days you could get a mobile phone and a super-powered voice mail system with an automated attendant to answer calls. No need to do the phone booth thing.

But the point remains valid. Keeping your overhead low is especially important as the economy gets tighter. Overhead costs creep up on you. $950 here, $1500 there — keep piling it on and before you know it you’ve eaten up your profit margins.

Yes, everyone agrees, “it’s the economy.” 

In the news:

• Businesses Tightening Their Belts - The Washington Post (03/02/08) writes that businesses large and small and reacting to recent financial news by cutting back, although not nearly as drastically as in 2001.

• Small Firms Are Cautious About Recession - U.S. News & World Report (03/10/08) reports that businesses are becoming more cautious as a result of recent Fed rate cuts.

• Preparing Your Small Business for a Recession - U.S. News & World Report (03/07/08) quotes Jim Blasingame, noting that fear is our worst enemy in a recession.

As the saying goes, it’s the economy, stupid. 

But the question is, what should be done about it?

I think you should be a realist and optimist at the same time. As an article in smart Money points out, not everything is bad news with the economy.  February’s numbers were actually more positive than January 2008.

And, I recommend you to learn from the history and read Lawrence W. Reed’s article, The Times That Tried Men’s Economic Souls, pointing out that in the early years of the United States the financial situation was not the brightest.

During times like these, our first reaction is to want to get the government to do something — anything, we think.  

But perhaps there’s another solution to the problem – to take the government out of the situation and allow businesses to do their business unimpeded.  For more on this stance, read Yaron Brook’s commentary, To Stimulate The Economy, Liberate It.

Are stimulus packages good, or should the government just back off and let businesses work their way out of the current circumstances?  What say you? 

We will make additions to the blogroll in the near future. Please come with your suggestions. Here are a few blogs that we will be adding to the blogroll:

Don’t Mess With Taxes

Don’t Mess With Taxes aims to keep Uncle Sam cranky by providing tax and personal finance tips and advice that will put more money in your bank account, not the government treasury.

Footnoted.org

Takes a closer look at the things that companies try to bury in their routine SEC filings. Some posts are little factoids while others are more serious, like aggressive accounting or the type of questionable self dealing that can often be indicative of serious problems at a company.

Resource: Business blog directory at Blogged.com.

The recent tax stimulus package passed in the United States includes two significant tax benefits for small and midsize businesses in a position to take advantage of them. 

If you are considering big capital expenditures, 2008 would be a good the year to make those purchases so you can take advantage of the added tax breaks.

And no, I’m not talking about those piddly rebate checks.  They’ll put a little extra spending money in your pocket.  But the REAL benefits for business come from two significant depreciation and deduction provisions designed to encourage and reward you for spending in your business:

• The first-year depreciation for equipment, software and other assets you can take depreciation on (except real estate) has been almost doubled for 2008.  If you ”place in service” in 2008 assets that qualify, you can depreciate the entire cost up to $250,000 in the first year, instead of spreading it out over multiple years.  It’s called the Section 179 depreciation deduction and it’s a valuable break that can help you afford to invest in new equipment.

• The second tax break that was passed is a 50% first-year bonus depreciation for new assets, including vehicles. According to an article at AllBusiness.com, your business can immediately ‘immediately deduct half of the cost of a new asset if it’s purchased and placed in service during 2008. Then you can write off the remaining cost via the Section 179 deduction (if available) and/or regular depreciation deductions over the asset’s designated “recovery period.” ‘

For more details, including examples that illustrate how these tax benefits work, see the Allbusiness.com’s New Tax Breaks for Small Businesses.

If you’re looking for information to stay up to date on the economy, I found a site that contains a list of economic forecasts and where to find them:  Economic Forecasts from ValuationResources.com. 

It’s a good list.  Most of the resources listed on the page are free — everything from the Congressional Budget Office reports, to the Federal Reserve Board, to Wachovia’s forecasts.   

I have to warn you, it could be a bit of a downer to read right now, given the state of the economy.  But I find it’s better to be forewarned, than to ignore the situation.  You’re in a better position to take action then.

Mostly on this site we write about factoring, economic news and business finance-related information.  But a related topic I like to focus on is how to operate your business better.  We point out ways that make you more efficient or save you money.  That directly impacts your bottom line.

So I was intrigued by a recent Forbes.com article by Gene Marks.  Gene is very focused on saving money in business, as he writes the Penny Pincher list about ways to save money in your company (I’ve even contributed a Penny Pincher List as a guest writer for Gene). 

Gene’s latest Forbes column is about automating your customer support functions, using self-service tools.  It’s about using technology, especially Web-based technology, that lets customers service themselves as much as possible.  The typical choices we think of include help-desk software and knowledge bases.  But, as Gene writes, other Web features offer a way of helping customers, including articles, videos and an interactive map with directions to your place of business:

“Just ask Jeff Stibel, chief executive of Website Pros (nasdaq: WSPI - news - people ), a 700-employee company that provides Web site hosting, marketing and lead-generation services to more than 250,000 paying customers. How does Stibel keep his sanity? A bottle of Jack Daniels comes in handy, but mainly it’s because he leans on the latest in customer self-service technology.

Self-service software lets customers create their own orders and check on their status — no human intervention required. Those that need instant, interactive troubleshooting without an extended phone call can use online-chat software. Other self-service tools include basic “how-to” and tech-support videos and articles — or something as fundamental as mapping software that offers driving instructions to your office. And don’t forget “wikis” — online information repositories that can be shared and updated by customers.”

Not only does online technology save you money, but it can make your customers happier … less frustrated. Customers  feel empowered because they can get access to information any time of the day or night.

Facteon has invested in Web materials to make it easier for you to find information about factoring and check your account.  What have you done in your business?