Saturday, November 15, 2008

Chairman’s Message

score_tjpg_mcculloch This article was written by Ben McCulloch, Chairman, SCORE Orange County.

Thank you for checking in on our newsletter.  We strive to be relevant to your need for business information.  If you’re here for the first time, welcome.  If you’re returning, we’re glad you did.  Either way, before you leave please tell us what more you are looking for.

As our October edition ‘went to press’, the Congress was about to vote on the ‘financial bailout’ package which, you’ll recall, failed to pass the first time.  What a month it has been since:  the $700 billion financial stimulus package finally passed, the Fed decreased the Fed Funds rate and infused cash into the commercial paper markets, and the FDIC increased the maximum insurable amount for deposits.  The securities markets responded with wild fluctuations, for no apparent reason.  And, we’ve just elected a new President.  That’s just in one month!

At our October SCORE chapter meeting we devoted the bulk of our attention to the economic situation.  We compared notes on what our clients – i.e. you – are experiencing, and discussed ways that we can be even more responsive to your urgent needs.  We also compared notes on what we’ve each learned from running businesses during past severe economic downturns. 

I just want to highlight one theme that emerged from our discussion:  that the uncertainty we are feeling right now may not go away in the foreseeable future.  Let me try that another way:  your approach to the near-future should assume that uncertainty will prevail.  As we’ve seen now that the election is behind us, some uncertainties will be clarified as we move forward; but, you can assume others will emerge to make your planning treacherous, and your risks high.

But plan you must.  Dealing with such pervasive economic uncertainty may not be something you’ve had to contend since 9/11, and before that, all the way back to 1990-91.  Though each downturn is different, dealing with them is helped by proven techniques learned by experience.  If you haven’t ‘been here before’, or if you want someone to help you navigate the path ahead, I encourage you to contact us (714.550.7369) for an appointment with one of our counselors.  Also, be sure to check our workshop calendar from time to time, as we may be tailoring selected topics and content to be more relevant to your current needs.

What do you think?  If you have a lesson or technique that helped you through a similar downturn, please share it with us here.

Buying a New Truck/SUV before Year End Could be a Steal…

...both from a cost standpoint and tax write off standpoint.

score_tjpg_Ginnaty This article was written by Dick Ginnaty, CPA.

The tax act passed in February of this year contained some provisions which could make buying a larger SUV a tax favored purchase. The first requirement though, is the SUV must weigh in excess of 6,000 GWT. It doesn’t have to be new, so used is fine. The write offs would be as follows on a $35,000 vehicle; first, the vehicle qualifies for the instant $25,000 write off under sect. 179, then 50% of the remaining $10,000 of cost can be written off under the new act, and the remaining $5,000 would be eligible for standard depreciation on a 5 year asset (20% for the first year or $1,000). That’s a total first year write-off of $31,000 on a $35,000 purchase. Not bad, considering  the recent run up in gas (although abating lately) has slashed prices of used large SUVs. Remember, the vehicle has to be purchased and put in service before December 31, and the business usage must be 100% to qualify for the total write off indicated above. You will get a pro-rata write off for vehicles with a business usage between 50-99%. For vehicles used in business with usage rates below 50%, the write offs are reduced dramatically. Call your accountant for these calculations.

Second Topic: The Bailout Tax Provisions

The bailout bill (passed in Sept., 2008) as finally enacted contained over 80 pages of extended or new tax provisions. In this brief space, we cannot adequately summarize all the provisions that may apply to you. My best suggestion is to call or visit with your accountant between now and Dec. 15th to see if there are provisions you should act on prior to year end.

In addition, the newly elected national administration has been verbal in announcing its intentions to change the tax code in an unfavorable way for certain high earning tax payers. Therefore, I encourage those who may be affected to visit with your accountant. There may be ways to accelerate income into 2008 instead of waiting to 2009 when higher income and capital gains rates may apply.

Good luck and here’s hoping it “all adds up” for you.

(If there is any area in accounting or tax that you think needs to be addressed in this newsletter please e-mail Dick at and if it is of general interest, he will address it in future articles)

Teleworking Saves Overhead and Improves Retention

This article was written by score_tjpg_lefson Bern Lefson, SCORE Orange County Management Counselor.

In this time of high gasoline costs and increases in office rent, teleworking or telecommuting can be a godsend for small firms that wish to retain key talent or high performers.  There are now 35 million teleworkers with 12% of employees at companies with 21 to 100 people sometimes working remotely.

A study by Robert Half International found that teleworking and flexible schedules were the third most important incentive for attracting new employees.  Teleworking cuts overhead because less space is needed and cuts commuting costs for employees.  In fact, teleworking has been found to offer a slight increase in productivity.

To make teleworking be viable for your business, it is important to write a policy that spells out what is expected, who is eligible, which jobs can be done remotely and how often and how productivity will be measured.  For example, jobs that don’t require much face time, or those that require longer periods of concentration are excellent candidates.  Many firms permit teleworking by customer service employees. 

A good practice is to write a contract for the employee working remotely that spells out which hours are required, which days will be remote based, what sort of home office is required, who pays for and owns the equipment needed, and how productivity will be measured.  Customer services jobs can be measured by the number of complaints are resolved per day.  Others may send an email each day specifying what is to be accomplished that day. 

Many firms will provide a laptop computer pay for the internet connection and for a router.  Some also require that a video camera be installed on the computer for teleconferences.  Other firms simply ask that the employee be responsible for providing the equipment in order to be able to work remotely. 

As those with experience in teleworking state, good employees will perform under any conditions – whether at home or at the office.  But do remember that some employees need the environment of an office or do not want to work at home.  If starting this strategy, do it first on a trial or pilot basis.  In this way any problems can be addressed without wrecking the concept.  If it fails to work for your situation, a pilot approach does not bind you and cause issues with expectations being denied.  One key to success with teleworking is excellent communication between everyone.

How Long Can I Hang in There?

score_tjpg_bour This article was written by Norm Bour, SCORE Orange County Management Counselor.

During the past 10 years (actually for much longer) money has been easy to get. Lenders were everywhere, home equity was abundant and increasing at unseen rates and money literally was flowing in the streets. With this perception of easy capital came opportunities not seen for many years and many took this new horizon to start a new business. Some of them had a good solid foundation, but many did not.

So what do we do now?

If you look at all the businesses out there, you cannot deny that the odds of success are sometimes overwhelming. Certain businesses are far more prone to failure than others, but statistics show that over 60% of new businesses will not last beyond their fifth year. Restaurants, transportation and clothing boutiques generally have a higher failure rate than the norm, but these are just averages. Many factors can contribute to your success or failure, including experience, financial backing, and location. With all that being said, now that the economy is in a downturn (aka Recession) with the third quarter of 2008 having negative GNP of .03%, the first time since 2001, you cannot escape the concern and fear in the public’s mind.

How do I survive?

If you are one of those businesses that are barely hanging on, you must make an honest assessment of your situation, especially your cash flow and debt structure. SCORE counselors  can help you with that. If you already have a business line of credit, now is the time to “test it out” which means, try to tap into it to make sure it’s still available. You should also have a sincere conversation with your banker or lender to get their take on how they view you. If you do not have a business line of credit and you have no credit available through other sources including equity (or lack of equity) in your house you have to ask yourself, “how do I survive if things go wrong?”

When do I cry “UNCLE?”

As much as we strive to be optimistic and as much as we have faith in our abilities to survive any downturn, sometimes valor is best achieved by crying Uncle and cutting your loses. In military terms you cannot always win the war, but sometimes you can get more done by winning the battles. If you see that you have no fallback position and your business is losing more money every month it may be time to throw in the towel.

Recovering and moving forward

Worse case, it’s time to call it quits, so you must try to salvage what you can. In order that would be; your sanity, your family unity, your money, and your credit. Again, this may not always be possible so you must think not just of your current situation, but down the road and to your next venture. Is it time to get a job? Is it time to redirect into a new career? Only time will tell, but make every effort to not let this failure determine your life or your future. Most every successful businessperson has had their share of failures and that typically is the price of future success.

Man It Is Tough!! The Thrift Store Operation.

score_tjpg_reich This article was written by Chuck Reich, SCORE Orange County Management Counselor.

As far back as 1964 there were thrift shops in Orange County. Today just about every community has a thrift shop business. Operating a thrift shop whether for profit or non profit is similar to running a retail business. The poor can not help the poor; they too have to pay and need to make money to promote their organizations mission.

That brings us to the place where everyone seems to think that operating a Thrift Store Operation should be a piece of cake. I mean donations are free, aren’t they? You have volunteers that take the place of paid workers, don’t you?

At first blush you would think that in tough times the thrift stores would much better, I mean people are watching their dollars. They want to get the best buys for their money.

The truth is the Thrift Store Operation is just like any retail business. The merchandise is not free! Even dropped off donations can be expensive to handle. A good portion of the donation is junk, of no value to anyone. This costs to trash this stuff. Next a portion of the donation will be fair, you still have to process and that cost labor. Then what’s left should be very good merchandise (unless the donor held their own sale and the very good stuff is gone).

Some volunteers have their own addenda. The only reason they volunteer is to get the first look at the real goodies first. Don’t get me wrong there are some volunteers that are worth their weight in gold, you got to love them.

My suggestion for anyone thinking about getting into the Thrift Store business really think it through, and get some good advice from the counselors at SCORE114 Orange County.