Factoring Blog - For Small Businesses

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?

Courtesy of the blog at Paymo, a time-tracking software application, I came across the Better Projects blog, which lists important reasons to do track time on projects and deliverables. One recent post, Good reasons to do time tracking, you’ll find this point

There are many reasons that time tracking is important. In order to make strategic decisions, you need data. The only place to get data that can be aggregated is to have the detail that rolls up. The types of decisions that have been made based on the time tracking data I’ve collected over the years include:

* Staffing - Several people avoided layoffs because I could show exactly what they were working on and how long they spent doing it. We also could show that we needed more people in order to do additional projects in the time frame management required it.

* Project delivery dates - Because we had good historical data on actual times vs. estimates, our estimates were given more credibility by management. Instead of management insisting on an unreasonable delivery date, they accepted ours.

* Planning when new projects could be started - When management saw that staff was fully loaded for the next few months, they reprioritized their projects to fit the staffing schedule.

I would add one point to the above: without tracking time, in a service-based business you may not have accurate financial projections and budgets.

Service-based businesses that essentially sell time (law firms, consultants, engineers, marketing, software development, Web design firms, etc.) need to be aware of time spent on offerings on a unit basis. Otherwise, you’ll never understand your true cost structure. What’s more, you won’t have a real handle on the upper limit of your revenue growth or what it will take to grow.

With all the scandals in the field of economics, it is positive to see a bank with sound ideas. Here is an excerpt from a statement by John A. Allison, Chairman and Chief Executive Officer of BB&T Corporation:

BB&T is a mission-driven organization with a clearly defined set of values. We encourage our employees to have a strong sense of purpose, a high level of self-esteem and the capacity to think clearly and logically.

We believe that competitive advantage is largely in the minds of our employees as represented by their capacity to turn rational ideas into action towards the accomplishment of our mission. (Our Philosophy, BBT.com)

Recently, the bank donated $2 million to the department of philosophy at the university of Texas. “The gift will be used to support research on Ayn Rand’s philosophy of “objectivism” for 10 years.”

It is an ongoing debate in academia regarding educational donations and if you the donor should include “attached strings” to the donations with stipulations on how you should use the money. Here is a quote from Craig Biddle’s article, Charlotte Observer Editorial Opposes Academic Freedom Regarding BB&T Grants.

Donating money without strings to universities is not noble; it is irrational and irresponsible. Nor does the attachment of strings to a donation in any way violate the autonomy of the recipient (be it a professor or department or university); he (or it) remains (and should remain) free to accept or reject the offer.

In sum, this is how educational donations should work: Professors and universities seeking funding for their courses should say—and be free to say—in effect, “Here is what we want to teach, and we will accept donations to teach it.” Likewise, businessmen and corporations who want to support higher education should say—and be free to say—in effect, “Here is what we would like to see taught, and we’re willing to donate money to those who are willing to teach it.” To argue against this approach is to argue against academic freedom and moral responsibility. (Capitalism Magazine, 03/31/08.)

What do you say?

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.