Sunday, March 15, 2009

Update on the ‘Stimulus Act’ and it’s Incentives for Small Business Owners

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

As I’m sure you’ve been following, on February 13th the Congress passed, and the President signed, the ‘American Recovery and Reinvestment Act’.  Included in the Act are incentives targeted specifically for small businesses, and to be administered by the Small Business Administration (SBA).  We are fortunate to be located next to the Santa Ana District Office of the SBA, and they’ve kept us up to date as this legislation has progressed.

Historic in its scope, size, and immediacy, implementing the Act will take time.  Government agencies – Federal, state, and local – are familiarizing themselves with the law and gearing their processes so the new programs can be applied for and delivered.  The volume of details is counterbalanced by the urgent need to stimulate the economy.  In a recent meeting with the SBA, we learned it will likely take another couple of weeks to get the needed processes in-place.

Here are the key features of the Act that are targeted to small businesses:

Loan Guarantees.  The SBA will be guarantee up to 90% (from 85%) for some loans.  This is intended to encourage lenders to extend more capital to small businesses.

Business Stabilization Loans.  A new SBA program, this will provide deferred-payment loans of up to $35,000 to viable small businesses that need the money to make payments on an existing, qualifying loan for up to six months.  These loans will help ensure that small businesses have time to re-focus their business plans in order to succeed in the long run.
Microloans.  Overall funding for SBA Microloans is increased.  These loans provide up to $35,000 and are paired with technical assistance to start-up, newly established, or growing small businesses. 

Loan Refinancing.  The bill gives SBA the power to use the 504 Certified Development Company program to refinance existing loans for fixed assets, providing fresh support for small business expansion.

Surety Bonds.  The bill also raises the maximum contract amount that can be covered by an SBA guaranteed surety bond from $2 million to $5 million.  Small businesses need surety bonds in order to bid on and obtain many federal and other contracts.  SBA guarantees surety bonds to small businesses that private surety companies would not otherwise be able to extend.

In addition to these, the Act includes a number of other provisions intended to enhance the liquidity and reduce the risk involved with small business credit markets, all of which geared towards encouraging banks to begin lending.

Interested?  Tell your SCORE counselor that you need more information, and we’ll work to get it for you.  Not yet counseling with SCORE?  Now is a great time to start.

Knowing Your Breakeven, Critical Anytime but Now More Than Ever

score_tjpg_Ginnaty This article was written by Dick Ginnaty, CPA

Knowing your breakeven (i.e. the amount of sales (annually, monthly, weekly or daily) required just to pay all your bills) is essential anytime but even more so now during this soft economic times. Knowing your breakeven, and knowing the fixed and variable costs that are required to calculate it, is critical.

Step 1 is to analyze your costs and to classify each one as either fixed (i.e. those costs that tend to remain regardless of your sales, such as rent) or variable (i.e. costs which vary directly with sales, such as material costs for a manufacturer, wholesaler or retailer). The keys here are to look hard at your fixed costs to determine if they can be made variable (i.e. will the landlord accept a percentage of sales instead of a fixed monthly rent), and to analyze your variable costs to determine if they can be reduced without suffering quality deterioration.

Step 2 is to divide your fixed costs (either annually or monthly) by your variable cost profit margin (Sales less variable costs). The answer to this calculation is your breakeven sales dollar (i.e. the amount of sales in dollars, so that after paying for all the variable costs associated with the sales, all fixed costs are covered also.)

IF after you make this calculation, you find you are selling at less than breakeven, it is time to act. Look hard at all costs because failure to cure the problem (not generating enough from your sales to cover all your cost is the prescription for disaster.

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)

Crisis? What Crisis? 5 Steps to Help Your Business Survive

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

#1: Warning Signs: take a snapshot in time

  • Can’t pay monthly bills
  • No profit/ paycheck at month end
  • Inventory accumulating
  • Buying patterns are changing- more on that later

Think “big picture”: it’s nice to be optimistic, but…

  • Time to Deal with REALITY: need tactical survival strategies, crisis control
  • What made you successful initially? Is it still applicable?
  • Focus on the next three to six months. Can you make it?
  • Develop a comprehensive cash flow analysis

#2: Reduce overhead: Stop the Bleeding

A) Overhead

  • Review company expenses starting with the largest & work down
  • Downsize? : renegotiate the lease and other costs. Landlords are open to talk
  • Monitor all employee expenses, sign all checks personally
  • Ask employees for suggestions for improvement
  • Eliminate company cars or expense accounts where not required
  • Review advertising and reduce if possible-Consider return on investment

B) Personnel:

  • Consider temporary, flexible, reduced hours for employees, employee leasing, lay off when necessary. Keep your employees informed, eliminate those not performing (Be aware of the legal aspects of employment termination)
  • Consider using contract labor, i.e. 1099 vs. employee (careful here!)
  • Review all salaries, including owners, to see if they can be reduced
  • Reduce vacation time until things improve
  • Cross train your employees: create added value/ knowledge for them and you
  • If you do not have an Employee Handbook create one, let them know your position in all areas

C) Accounts payable

  • Stretch out payables, pay on time, but not early
  • Consider a twice monthly pay schedule
  • Negotiate everything- prices, terms, delivery schedules
  • Use your company credit card-may get 15-25 days extended terms: float
  • If you have the money negotiate early payment discounts
  • On the flip side, try to secure extended payment terms from suppliers
  • Eliminate obsolete inventory - even at a loss. Worthless inventory uses cash, monitor your turnover
  • Find vendors who can supply smaller quantities quickly
  • Keep inventories and assets (such as computers) secure. Have appropriate processes to avoid theft and fraud.

#3: Increase Sales/ income

A) Where’s the money?

  • Improve lead generation process to find new potential customers
  • Revisit old sales leads: easier to keep than to get, convert more potential customers into buyers
  • Find ways to get more repeat business from old customers
  • Target your high profit, lower volume clients
  • Encourage add-on products/ services or related items to increase income 
  • Have a talented, knowledgeable and motivated sales force
  • Consider increasing your marketing budget and try new approaches. There may be less competition out there than ever before
  • Create special promos—buy two get one free, premiums, etc.
  • Increase prices where possible.  Do this gradually, regularly and in small increments.
  • Watch successful competitors prices to stay on par

B) Accounting!

  • Have a solid collection strategy and follow it. Let the customer know you care about payment.
  • Monitor past due accounts: Get statement out quickly, delayed statements delays payment.
  • Minimize accounts receivables: get payment in advance or COD
  • Review credit policy, especially on larger customers.  Sales do not help if you don’t get paid.

#4: Reevaluate your business model

A) STOP! Analyze. Adjust.

  • Distinguish between Strategies vs. Tactics. Create a one year composite history, one year forecast by month, with as much detail as possible
  • Does what you do still WORK? Are others in your business in trouble, too?

B) Restructure Debt- Should you do it on your own?

  • 3 mo or less, you can handle the debt
  • 3-6 mo, you can probably negotiate with your creditors
  • 6-12 mo, you need a restructuring plan
  • 1 year+, seek professional help
  • if you need to terminate, seek legal guidance

Where to go

  • SCORE ORANGE COUNTY  714 550-7369
  • CPA, Lenders
  • Consumer Credit Counseling of OC

Keep your banker informed

  • Let them know you are aware and responsive to the problem
  • Get your accounting up to date and clean
  • Test your credit line- even if you don’t need it. See if your bank will still honor the amount/account
  • Keep an eye on the balance sheet; it shows the degree of relative risk to lenders

#5: Next steps: “The Old Rule book” vs. “The New Rule book”

  • The way it was:
    • easy credit
    • attainable mortgages
      stability of banks
    • faith (?) in Wall Street and Uncle Sam
  • Certain businesses are more prone to failure than others; over 60% of new businesses will not last beyond their fifth year.
  • Changing direction does not mean your direction was wrong

Who is Better at Networking, Men or Women?

score_tjpg_l_mcculloch This article was written by Laurie McCulloch, SCORE Orange County Management Counselor

While men and women are both good at networking they go about the process differently: men seem to focus on the connections they need to make to build their business.  Women seem to be more willing to help those who can’t help them in return at least not immediately or directly.  Perhaps this stems from the reasons people start businesses. 

The Australian Business Women’s Network recently conducted research to gather insights into why women started their business.  Suzy Davis, head of the research group, stated:
"Many women leave the corporate world, working for someone else, and start their own business for similar reasons. These reasons include:

  • Freedom to choose work hours and work location;
  • Working around raising children;
  • Being your own boss;
  • Setting your own salary;
  • Utilizing your creativity to create something new;
  • And financial freedom

A similar study was conducted to find out the reasons men start their own business.  The findings were:

  • Financial success;
  • Being an industry luminary;
  • Creating an institution;
  • Creating a legacy for family heirs;
  • And taking a leadership role

So if the studies are true and men start businesses to achieve financial success and women start their business to get a better work/life balance; perhaps their methods of networking are also different.

I have attended female and male oriented networking activities and the functions are noticeably different.  The men seek out men in position of authority and look to enhance business relationships; and women seem to spend time with women that do not necessarily provide a constructive business relationship.  Men look to develop a business connection; while women are more social.  It could be that women have a more natural tendency to create communities and men are motivated to establish pecking orders. 

Neither method of networking is preferable over the other, they are just different.  But maybe men and women could take a lesson from the other sex and incorporate techniques that enhance the development of a stronger social network made up of individuals that are tied by business interdependency.