Monthly Archive for April, 2013

Video - A community bank is not a little big bank

In this week’s video I explain the importance of community banks and small businesses.

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SBA Poll: The taxman cometh

The Question:
This is tax filing week. Will you file on or before April 15, or file an extension?

30% - Already filed our 2012 return

31% - Will file by the April 15 deadline

39% - Will file an extension

My Comments:
When you’re an employee filing an individual tax return, most people get theirs done within a few days of receiving their W-2, 1099s and possibly K-1s.

When you become a business owner - especially as your business becomes larger - the tax preparation and filing process becomes more complicated, and therefore takes longer. Consequently, the ability to file an extension to push your personal tax filing date to October 15 can come in handy.

We wanted to know how small business owners are handling the April 15 tax-filing deadline. (Actually, it should be called a softline, since you can get automatic permission to extend for six months.) As you can see from the poll results below, a little more than 60% have met, or plan to meet, the Ides of April filing date, with the rest filing an extension.

Frankly, I’m surprised the extension filers were not more. I can’t remember when I didn’t file an extension. Unlike in the old days, when you had to write in and ask for permission, today you just go to IRS.gov, fill out form 4868 online, hit enter and ba-da-bing ba-da-bam, the new tax filing date for your personal income tax return is October 15.

But remember, this extension is only for filing, not for paying taxes. If you owe taxes for last year - even if you don’t know how much - you have to make a good-faith estimate and send it in by April 15.

Finally, I recommend you do what I do: Talk to a tax professional and let them advise you on any filing and tax paying.

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Listen to my latest interviews with Peter Sepp on The Small Business Advocate Show. Peter is the Vice President for Communications of the National Taxpayers Union.

The tax code is requiring more time from small businesses with Peter Sepp

U.S. income tax compliance costs businesses 6.7 billion hours with Peter Sepp

Looking forward to Tax Freedom Day with Peter Sepp

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Managing the three clocks of small business

“Time Is On My Side,” is the title of one of the classic rock ’n’ roll songs performed by Mick Jaggerand the legendary English band, The Rolling Stones.

This bold statement works in a song, but for small businesses … not so much. The reason is because of the complicated dynamic between time and our most precious asset, cash.

In the marketplace, there are actually three different clocks at work that every business uses: one for operating expenses, one for sales and one for cash. Let’s take a look at how these three clocks impact your small business.

Operating Expense Clock
Every month like clockwork, regardless of sales volume, cash collections or profitability, payroll must be met, rent must be paid, taxes must be remitted, plus phone, utilities, insurance bills, etc., must also be paid. The Operating Expense Clock is hardwired to Greenwich, England for accuracy within a nanosecond per millennium, and nothing stops it short of a global, thermonuclear holocaust coinciding with a direct hit from Haley’s comet.

The only way to influence this clock is through operating efficiencies – you won’t be billed for what you don’t buy.

Sales Clock
This clock is powered by the customer relationships you’ve created so sales result each month. You project when each sale will occur by qualifying prospects and attributing a clock to each potential transaction so that you can budget future sales volume and meet your cash requirements.

How the Sales Clock operates is completely logical and intuitive, but it only works in your favor when the purchase requirements of customers have been met.

Cash Clock
What is not logical or intuitive is the Cash Clock and its relationship with the other two. Think of it like this: Cash is to sales as snow is to cold: You can have cold without snow, but you can’t have snow without cold. You can have sales without cash receipts, but you can’t have cash receipts without sales. And expenses are like weather – you get some every day.

But what hits small business owners hard is that for every glitch in the mainspring of the Sales Clock, there are 1,000 potential sprocket failures that slow or stop the Cash Clock. Consequently, the Cash Clock requires constant maintenance.

Murphy’s Law lives inside the Cash and Sales Clocks, but the Operating Expense Clock is immune to this insidious law and rocks on just like The Rolling Stones.

Small business success requires understanding the three clocks of the marketplace.

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Check out my latest segment from The Small Business Advocate Show below. I go into more detail about managing the clocks in your small business

Managing the three clocks of small business

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SBA Poll: Are small business owners armed?

The Question:
Regarding the national gun control debate, do you keep a firearm handy when you’re in your business?

52% - Absolutely

32% - Absolutely not

16% - Thinking about it

My Comments:

In our online poll last week we asked this question: “Regarding the national gun control debate, do you keep a firearm handy when you’re in your business?” Almost one third of our respondents said they were, “Never,” armed in their offices. More than half answered, “Absolutely,” they are armed in their business. And 16% admitted that they were, “Thinking about it.”

I’ll let the responses speak for themselves, but here are my thoughts on this issue:

The gun control debate is pregnant with paradoxes that make resolution difficult. For example:

  • The 2nd Amendment to the Constitution gives Americans the right, in the modern vernacular, to keep and bear arms. But one product of this right is millions of firearms in America and many new ones manufactured every year. Consequently, it’s easy for the evil or the mentally ill to gain access to guns.
  • We have centuries-old systems designed to deal with the bad guys, plus newly proposed restrictions. But to them, gun control will always be merely an inconvenience.
  • Sophisticated counseling methods help identify the dangerously demented. But privacy and confidentiality issues impede an effective system to prevent them from hurting someone.
  • In my home I should be able to protect my family from an intruder. But should that extend to being armed in public?

Most of the reforms currently being proposed are a fool’s errand. More background checks wouldn’t have prevented Columbine. Smaller magazines wouldn’t have stopped Aurora. If there had never been gun show sales, Congresswoman Gifford and dozens of others would still have been attacked in Tucson. Nor would banning assault weapons have stopped the unspeakable from happening in Sandy Hook. We now know that with each killer, family and/or professionals were aware of potential violence. Furthermore, none of the currently proposed reforms address the real reasons children are killed as innocent bystanders of gang drive-by shootings.

As I wrote last December in an article titled, What’s worse than evil? my concern is that politicians will legislate control of things, like magazine size, etc., and go home smug in the belief that they’ve prevented another Sandy Hook. But to paraphrase Cassius, from Shakespeare’s “Julius Caesar,” the fault, dear friends is not in our tools, but in ourselves.

Finally, I’m with the 53% of our poll respondents: If someone comes in my home or my office with the intent to hurt me or mine, I will be exercise my 2nd Amendment right - with extreme prejudice.

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A community bank is not a little big bank

Wall Street’s too-big-to-fail banks were the parents of the 2008 financial crisis. But one-size-fits-all reform reaction to the crisis by Congress and regulators is turning Main Street banks into collateral damage, as if they were too-small-to-matter. Here’s why anything that unnecessarily burdens community banks should concern every small business owner.

At the end of 2012, there were 7,092 banks insured by FDIC, of which 6,201, or 87%, were community banks with less than $1 billion in assets. Banks are classified by asset size, and the average community bank has just over $200 million in assets. By comparison, two big banks – Citigroup and Wells Fargo – are each the size of all 6,201 community banks combined.

Small business owners don’t care much about a bank’s asset size. But they care very much about certain bank characteristics that manifest uniquely in a community bank as its special sauce – relationship banking. To a small business owner a community bank…

… is locally owned and managed.

… takes into account a business owner’s character when making loan decisions.

… decides small business loans by a local committee, not credit scoring by a computer.

This definition is important because, by definition, all small businesses are undercapitalized. How this translates out on Main Street is that sooner or later, and more often than not, small business owners will need to avail themselves of a community bank’s special sauce.

According to the Independent Community Bankers of America (ICBA), even though community banks have only 20% of all bank assets, and hold less than 20% of total deposits (FDIC), they make almost 60% of small business loans. This tracks closely with our own research. In a recent online poll we asked small business owners about their banking relationship and 53% told us their primary bank, including for loans, was a community bank.

A recent FDIC study confirmed that community banks serve all Main Streets: Of the more than 3,000 counties in the U.S., about 20% are represented only by community banks.

Bank loans are the largest source of growth capital for America’s small businesses, which just happen to create over half of the U.S. economy and employ over half of its workers. Consequently, regulating Main Street banks the same as Wall Street’s too-big-to-fail banks puts in jeopardy America’s small businesses and the economy.

Small businesses and community banks are the twin pillars of America’s Main Street economy.

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Some thoughts on certainty

As we conduct the due diligence on what’s next for our business, we seek the information that will help us acquire knowledge and create conditions that minimize the risks and maximize the opportunity. After all, we want to be as certain as possible that our next step is the right one, don’t we?

That’s an interesting word, certain. Webster says it means fixed, settled, determined, not to be doubted. But it’s a word that isn’t often found in business plans.

The 19th century president of Harvard University, Charles W. Eliot, said, “All business proceeds onbeliefs, or judgment of probabilities, and not on certainties.”

What do you think the marketplace - indeed, the world - would look like if business had been built more on certainties than beliefs? I think we would probably be closer to holding a stone ax on our hand than a smartphone.

It’s important to understand that on the entrepreneurial scale, each of us resides somewhere between the foolhardy and seekers of certainty. The challenge for entrepreneurs is to know when to seek certainty and when to move forward with our beliefs.

No position on this scale is better than another - the world needs all kinds of entrepreneurs. But understanding where we reside on the entrepreneurial scale helps us make better business plans.

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