Factoring Blog - For Small Businesses

The official figures suggest we are not in a recession. However, commentators, economists and your brother and his next door neighbor are talking about a recession.

OK, so we can debate all day whether it’s a recession — or not. But whether we’re “teetering on the brink of recession” or in a recession, how about being proactive?

The CPA Trendlines blog polled some CPA pros for strategies to beat a recession, in the article “Recession Tips from the Pros.” One of those strategies hit home particularly well, from CPA Brian Brown, who said,

“CASH FLOW, CASH FLOW, CASH FLOW!!! Track it, analyze it and project it. Without it, your business will come to a screeching halt very fast. The best laid business plans and products are worthless if you can’t pay employees and vendors in order to carryout the basic operations of the company.”

Keeping the cash flowing is always important, but becomes doubly so during tight economic times. Why? Because that’s when payables tend to get even slower. Everyone starts watching their own house, and stretching out how long it takes to pay.

All the more reason to pay close attention to your cash situation. If you have done a yearly or quarterly cash budget, make sure you are comparing it to your actual cash situation each month, or maybe twice a month. That budget isn’t any good unless you use it. If you don’t do a cash budget at all, maybe it’s time to start.

For resources on setting up a cash budget, visit:

Prepare a Cash Budget
How to Prepare a Cash Budget

And remember that if your cash situation falls short, contact Facteon for solutions to accelerate payment of your invoices and quickly increase your cash flow.

In some ways, we’ve had it pretty good in the economy for a long while in the U.S. Costs of some things, such as technology (computers especially) and telecommunications, actually came down in recent years. The cost of some consumer goods, including food, stayed steady for a long time.

But in 2008 so much has changed. As the economy has slowed down, we’ve been hit with rising food costs. Restaurant and hospitality businesses are being hit — especially the lower end outlets such as pizza parlors, where the profit margins were not huge to begin with. A 500% increase in the cost of flour really bites.

One recent article says the causes of the problems are many:

“Experts attribute food inflation, the highest in two decades, to a perfect storm of ugly circumstances: A sluggish economy. Record crude oil and gas prices. A robust demand for biofuels and a subsequent decline in corn inventories. Drought-reduced harvests. Commodities speculators. And the rising demand for food supplies in developing countries such as China and India.”

When food goes up, it hits us all in the pocketbook. Even if you are not in a restaurant business, in your personal life you and your employees can’t help but be affected.  We all have to eat.

So, is any relief in sight?  This CNN article suggests the worst may be behind us.  It suggests that the Federal Reserve may soon stop lowering rates (which actually tends to cause inflation due to a weak dollar — long story).  In other words, if the Fed stops lowering interest rates, it may stop inflation.  Lower inflation could be one of the best developments for consumers AND small businesses.

Go to Entrepreneur.com and read Yun Lee’s article, Factor Your Receivables for More Cash. It’s an overview of the factoring topic and points out questions you should ask of a factor.

Here’s one thoughtful note the article makes:

Finally, put yourself in your customers’ shoes and inquire about what the invoice handling process will be like from their perspective. Look for a company that is as focused on customer care as you are. You should know that many factoring companies adhere to “notification factoring” where it is clearly indicated on the invoice that payment should go to the factor.

Another point mentioned in the article is that pricing is crucial. You need to know what the factor charges.

Facteon believes pricing is crucial, too. And you should not have to guess what a factor’s fees are, or be confused by them. One of the ways Facteon is different in making its factoring fee schedule available on the Web. And, the fees are based on a straight percentage and volume of invoices, and are easy to calculate — no complex formulas.

Related: 10 Things to Ask Your Factoring Company.

With National Small Business Week here, let’s take a look at the Small Business Tax Index from the Small Business & Entrepreneurship Council. The SBE Council ranks the States according to how tax friendly they are to small businesses and entrepreneurs. It looks at 16 different tax measures, including: income, property, death/inheritance, unemployment, and consumption-based taxes such as state taxes on gas at the pumps.

SBE Council President & CEO Karen Kerrigan said: “Entrepreneurs and small businesses have to struggle every day with the costs of taxation, which affect a wide array of decisions, including hiring, investment, expansion and location. While the federal tax burden and the complexity of that system is quite heavy, state and local taxes can add significantly to that load. The ‘Business Tax Index‘ captures these tax costs, and provides businesses, investors and political leaders with a measurement of how the states stack up against each other in this regard.”

The 15 best state tax systems are:

1. South Dakota
2. Nevada
3. Wyoming
4. Washington
5. Florida
6. Alaska
7. Texas
8. Colorado
9. Alabama
10. Mississippi
11. South Carolina
12. Tennessee
13. Missouri
14. Ohio
15. Virginia

The 15 worst state tax systems are:

• North Carolina
• Nebraska
• West Virginia
• Hawaii
• Idaho
• Vermont
• Massachusetts
• New York
• Rhode Island
• Maine
• Iowa
• California
• Minnesota
• New Jersey
• District of Columbia

Go to the interactive map to check out the status in your home state.

On a related note, according to the Tax Foundation, “Tax Freedom Day” occurs today, April 23 in 2008. Here is an excerpt from the report:

Tax Freedom Day had arrived later for the four previous years, but due to an expected slowdown in the nation’s economy and a massive one-time fiscal stimulus tax cut passed earlier this year, Tax Freedom Day is projected to arrive three days earlier this year compared to last year.

Do you see a relation between the business tax index and the tax freedom day?

One of the joys of building a buisness is knowing that you have created something of value.  Perhaps you want to leave to your children to inherit.  Or maybe you want to sell the business and exit with a nice chunk of money.

If you’re thinking about selling your business — maybe sometime in the future — it’s helpful to know a few statistics about what you can expect.

• 9 months – Nine months is how long it is taking on average to sell a business. That’s from a February 2008 survey

• 10% commission – You’ll likely pay a 10% commission to a businesb broker if you hire one. If a business sells for more than $1 Million, ask for a stepped However, Don’t be tempted to eliminate a broker to save money — it smarter and it could be more cost effective to use a broker.

• 6% — The commission you can expect to be charged on any real estate associated with your business is typically 6%, in keeping with a standard realtor’s commission.

• 10-8-6-4 – This is the Double Lehman scale of charging commissions for businesses that go for more than $1 Million in selling price. The commission scale is 10% on the first million, 8% on the second million, 6% on the third million and 4% on the remainder. As per Ney Grant, a business broker, in his column at AllBusiness.com.

• $250,000 – A quarter million is the median asking price for small busineses in the United States, according to BizBuySell.com as of Q1 2008. (Median means half are above that amount, and half below.) BizBuySell handles about 90% of the broker listings in the U.S.

• $400,000 – This is the median annual revenue of small businesses in the United States listed for sale at BizBuySell.com, as of Q1 2008.

I was actually surprised by the median prices and annual revenues, above.  Somehow I had the idea that businesses being sold would be much bigger.

Anyway, good stats to consider if you plan to sell your business sooner or later.  Be sure to bookmark this post for later reference.

A movement is growing — albeit slowly — to require small businesses to offer sick days, health insurance coverage and other benefits for employees.

Traditionally small businesses under a certain size have been exempt under state laws requiring benefits. Small businesses are also exempted from the Federal Family and Medical Leave Act, requiring employees to grant leave for various family situations such as the birth of a new child.

California joins other states (Ohio and Massachussets, along with a Federal proposal) that are considering legislation to mandate paid sick leave.

Much as we may feel for employees who become ill, the economics are such that many small businesses cannot afford paid sick leave. Consider the business owner interviewed in a recent Sacramento Bee article:

Bill Reed, owner of Reed’s Ribs and More in Sacramento, said he’s sympathetic to workers getting ill, “but there’s really nobody you can pick up to fill in. And you would have to pay that person to fill in. I only have three employees.

“And on top of that, I have workers’ compensation (to pay), so, yeah, it would be tough.”

The plight of this business owner is pretty much the same all over. You only have a few employees to begin with. Profits are not robust enough to bring in replacement workers, let alone have to pay the sick employee, too. It’s an unfortunate situation, but the financial consequences of mandating sick leave could cause some small businesses to shutter. There’s just no leeway to pick up those extra costs. Then where would ALL the employees be if that happened?

The amazing part about the proposed legislation is how the proponent has managed to convince herself that businesses would actually SAVE money by taking on this extra financial burden. Supposedly the lower turnover would save money. The problem with basing your fiscal calculations on lower turnover is that it’s a soft cost, yet your cash flow needs are based on hard numbers — real money you have to come up with each week, here and now.

A lot of Americans are feeling the pinch at the gas pumps, in the grocery stores and in other retail outlets.

Fact is, we’ve been spoiled with cheap goods. But it looks the ride we’ve had with goods produced inexpensively in China is beginning to come to an end. The Voice of America reports that prices are going up in China, too:

“The world’s factory is giving notice: it can no longer provide the planet with cheap goods. Chinese manufacturers say higher production costs, tighter credit and a strengthening yuan are squeezing margins. Some industry experts and economists predict thousands of small factories could shut down this year and leave thousands of workers jobless - creating new problems for China.”

A recent article in Forbes by Michael Marks points out how we can look forward to ricing costs — and we should be careful what we wish for. For years now politicians have been decrying the ‘articifically low” pricing in China that led to the loss of manufacturing jobs.

“Many of these articles and speeches were aimed at getting our politicians and policymakers to force China and other developing countries to bring their costs into line with those in the U.S. so that we can create jobs at home. While the employment initiative is an admirable undertaking, the debate completely ignores the impact on the pricing of goods in American stores, and the impact that will have on inflation rates and standard of living in this country. (The debate also ignores the substantially positive impact on the economies of developing countries, but that’s for another day.)

Now we are about to find out why we should be careful what we wish for. Brace yourselves for a myriad of articles and speeches complaining about rising costs of products like steel, consumer electronics, and kitchenware, due to rising inflation and appreciating currencies in the developing countries.”

So look out for higher prices, in your personal life and also for raw materials and business supplies.

If you want to check out a place for comparisons of CD rates, credit card offers, bank rates, etc., go to Bankaholic.com (”Bringing you the best in banking”).

As a business owner, you may find the reviews of business credit cards interesting. The design and layout is user-friendly and I think it is a good idea to use the blog platform as a main function of the site.

I like the outspoken attitude in the blog posts. Maybe John Wu has been trained by Jim Cramer of TheStreet.com. The site is “powered by TheStreet.com”.

As an example, read the post, Is Your Bank Safe from Collapse? and watch the embedded YouTube video. Here are some quotes by John Wu in an article (End of Cheap Credit Hits Homes, Businesses) by Steven Mufson of The Washington Post.

For a country of consumers addicted to debt, a possible sign of a change can be seen in places like the Web site Bankaholic.com.

Founded a year and a half ago by John Wu, who turned a project from his student days at the University of California at Berkeley into a rapidly growing business, the site offers a first stop for consumers shopping for credit cards and mortgages. About 750,000 people visit the site every month, Wu says.

But these days, Bankaholic finds that consumers are shopping more for savings accounts and certificates of deposit than credit cards — and, to lure them in, banks have boosted their ad spending on the site. “Banks really need depositors to put money in them,” Wu said. “They’re desperate to get more money.”

That could frustrate the Federal Reserve, which has been cutting interest rates to boost economic activity. But many banks aren’t passing the lower money costs made possible by the Fed along to consumers or businesses. The interest rates on credit cards have dropped modestly at best, and 30-year mortgage rates have not declined substantially, Wu said.

“People have been expecting that credit card rates would come down. But because there’s greater risk now in lending, credit card companies have been raising their rates a little bit as the Fed has been cutting,” Wu said. (Washington Post, 03/18/08.)

Please give us your tips on other interesting sites in the comment section.

P.S., remember, factoring is not debt. You can factor your invoices without taking on any more debt.

In Grant Thornton’s International Business Report you could find payment periods in different countries (page 36). The global average is 46 days for payment of sales invoices. In the United States of America you get paid after 41 days. Could you guess where you get paid after 23 days? In one country in Europe, you have to wait for 83 days. Click here for the list (PDF).

Here is a part of the list, from position 11 - 20:

• Australia - 39 days
• Argentina - 40 days
• Sweden - 40 days
• Canada - 40 days
• Brazil - 41 days
• USA - 41 days
• Thailand - 44 days
• Great Britain - 47 days
• Botswana - 49 days
• Luxembourg - 50 days

So, in the United States it is an average of 41 days to receive payment on invoices. But much better than Spain and Italy, at 73 and 78 days respectively. How does your business compare?

Hat tip to Martin Lindeskog for the links. The PDF article is in Swedish, but it’s pretty easy to figure out the countries.

In the latest newsletter from Forbes.com, one article points out that the debt situation is shifting from home equity to Those Credit Cards. Here are some excerpts from Brian Shniderman’s article that should interest small business owners:

Small-business owners who frequently leverage personal assets to secure credit may find it increasingly difficult to tap into those lines as lenders freeze, reduce or altogether revoke home equity and other personal lines of credit. Before tapping into savings and then into their investments, we can expect this group to increasingly use existing personal and small business credit cards to address short-term cash flow needs. …

Small businesses, truly a major engine in our economy, are at risk in a scenario that features stagflation and a prolonged recovery. Sadly, many could shrink or go under entirely if it plays out that money remains tight. In some cases, even the business owners’ personal assets may have been tapped out. That could certainly cost our country jobs and innovation.

Have you as a small business owner, used your credit card in tough economic times?

In the same newsletter, David Malpass, chief economist for Bear Stearns, paints a more positive picture on a macro level, in his article, Credit Crisis Hits Home.

Funded by millions of U.S. taxpayers, the government will mail checks to millions of households hoping they’ll spend their rebates to lift the economy. Growth is ultimately driven by hard work, innovation and profit. But the first estimate of GDP comes from how much is spent; by that gauge Washington’s gesture is unusually timely.

Will you spend your tax rebate check on personal consumption or will you save it for the future? Or invest it in your business?