On June 30th, the US Congress will vote on whether or not to extend the charter for the US Export Import Bank. Also known as the ‘Trade Bank,” this organization acts as a secondary bank, supporting international trade deals through financing only after private sector options have been exhausted. In 2014, the bank extended nearly $16.6 billion in support of US manufactured exports, making up less than 2% of all exports.

After more than 80 years of existence, the fate of the bank is in jeopardy. Critics label it as “Boeing’s Bank,” citing the staggering amount of loans and guarantees that directly benefit Boeing, Co. According to the 2014 EXIM annual report, $8.4 billion of the $20.5 billion the bank lended in 2014, or 41%, supported the aircraft and avionics industry. Opponents also point to the corruption within the organization as a reason to let the charter expire.

Regardless of your political or economical stance, it is hard to debate the fate of small businesses in the short-term if the bank were forced to halt its lending. Two groups of small businesses in particular could be hard hit.

The first, and more obvious, are the thousands of businesses that will lose business to competitors due to a lack of sufficient financing. EX-IM reported support of $5 billion to small businesses in 2014. Some of this could feasibly be taken on by private banks, but jobs and revenue would be sure to take a hit at small businesses nationwide that rely on international trade. As reported on in more detail in this Washington Post article, small business owners who operate oversees will face a new obstacle, and potentially have to cease operations altogether.

 

“We have a bunch of European competitors that have comparable or better financing options,” said Bowe, president of Baltimore-based Ellicott Dredges, which manufactures dredging equipment used in mines, harbors and canals and sells to clients in more than a dozen countries.

“If Ex-Im isn’t reauthorized, those competitors will be able to go to our customers and offer affordable five-year financing,” Bowe said. “Those customers are going to turn to us and say, ‘What can you offer us?’ Our answer would be ‘Nothing.’ ”

Consequently, without Ex-Im’s financing programs, Bowe expects his company would be in jeopardy of losing between 10 percent and 20 percent of its sales to foreign competitors.

The second group of small businesses to take a hit are the companies who act as suppliers for the likes of Boeing, Co. According to the Wall Street Journal, 15% of Boeing deliveries in 2015 were expected to be covered by deals backed by the Ex-IM Bank.

 

Boeing Chief Executive Jim McNerney has said he expects Ex-Im Bank to be reauthorized, though in lobbying for it also has warned that the company may look to shift some production overseas to countries with export credit agencies if Ex-Im is dissolved.

If Boeing were to move some operations oversees, it would make business sense for them to look for new suppliers as well.

Cheers,

Dan B.

Finding enough money to cover the initial costs of your business can have significant long-term impacts. In addition, poor financial planning can result in unforeseen events hampering the business in a major way. For example, imagine a retail store receives their order from the supplier three weeks later than expected. Coupled with poor inventory management, this could lead to lower sales for the month. Having a sizable cash cushion to deal with unexpected events will prove helpful in the long run. We’ll break down the options for financing your business, along with some of the challenges of each source.

Self-Financing:

High risk = high reward. Using your own personal funds will give you autonomy to run the business any way you seem fit. It will also leave you with no interest payments to be made in years to come.  However, this may mean cashing out your 401(k) and savings, as well as living a more restricted life-style while the business is in its early stages. Be sure to keep your estimates cautious, and don’t underestimate how long the business may go on without any profits.

Small Business Loans:

The SBA Loan program is one of the most popular funding methods for people without sufficient capital of their own. The Basic 7(a) Loan Program is eligible to borrowers for starting, acquiring and expanding businesses. While repayment terms vary depending on a number of factors, the average amount borrowed in 2012 (last year of information) was $337,730. Their is also the microloan program which offers up to $50,000 to cover the costs of working capital, inventory, supplies and the like. Other options are available for specific needs, such as loans for property or disaster relief.

Keep in mind, taking out a loan in excess of what is needed will create a larger liability for the company and servicing the debt will cut into the bottom line.

Selling Equity:

Selling ownership in your business, whether it’s to a venture capitalist or other investor, can be a way to raise significant capital while also acquiring additional expertise. However, this might also mean giving up partial control and compromising on some of your visions for the business. Ensuring that the investors vision for the company aligns with your own should be the foremost important factor when faced with the decision to sell a piece of your company. Discussions about the companies future should include the investors time horizon, or how long they can wait before they want to cash out and sell the business. Ultimately, an investor with industry connections and expertise can help catapult your business to the next level if visions are aligned.

Crowd Funding:

One of the more recent innovations in fundraising has been the boom of the crowd funding platforms. Websites like Kickstarter and Indiegogo offer platforms to pitch your business idea, along with the amount you wish to raise. For example, Indiegogo offers an ‘all-or-nothing’ funding plan, in which you only receive the money if the funding goal is met, at which point you will pay a 7% fee. On the other hand, the ‘flexible’ funding plan allows you to keep any money raised, even if you do not hit your goal, but the cost be anywhere between 7% – 12% of funds raised.

The success stories have been well-documented, like this 3D printer, but a successful campaign requires a network of people in the right places.

From the Wall Street Journal:

The commercial-rent tax applies when any commercial tenant below 96th Street pays $250,000 or more in annual rent. The effective tax rate is 3.9% of the yearly rent. A handful of exemptions include nonprofit organizations and tenants in the World Trade Center area.

A bill co-sponsored by Council members Daniel Garodnick and Helen Rosenthal, both Manhattan Democrats, would raise the threshold at which the tax kicks in to an annual rent of $500,000. At the same time, it would raise the effective tax rate on businesses paying annual rent of $3 million or more, gradually increasing it to 4.2% when the annual rent hits $4 million.

In the 2014 tax year, there were 2,476 businesses paying rent between $250,000 and $500,000. If passed, the annual savings for a company paying rent in the middle of that range would be over $14,000. These savings will most likely be handy next year, when rent is expected to increase due to low supply. According to Cushman & Wakefield, New York City is the third most expensive city for office rent in the world, with average occupancy costs at $131 per square foot annually.

With the tax burden being shifted to those paying higher rent, this move is unlikely to net any significant job growth. The aim is to keep some of the local stores in business, rather than being replaced by national chains who can usually afford the commercial-rent tax.

The bill is planned to be introduced by the end of this month.

Cheers,

Dan B.

Imagine your business being seen by over 100 million people simultaneously at no cost to you. Now imagine the type of sales you could expect just minutes after that advertisement aired. Now come back to reality.

For the second straight year, Intuit is offering the chance for 1 small business to win a 30-second Super Bowl Ad in Super Bowl 50. That’s a value of roughly $4.5 million, which is why you are accustomed to only seeing the largest consumer brands televised during the most popular sporting event in our country. This is a chance for the small guy to flex his muscles, so start rolling that camera, because submissions begin on June 1.

Here is the winning submission from last year to give you an idea of the competition out there:

Piece of cake, right?

Cheers,

Dan B.

The average monthly cost to a small business for rent is estimated to be anywhere between $100 – $1,000 per employee depending on the office type and location. Let’s be conservative and say that an average employer could save $300 per month for every employee that they allow to work from home. That equates to annual company savings of $3,600 per employee, and that’s not taking into account the savings to the employee for commuting expenses. On top of that, employee’s tend to show more loyalty to their employer when they are given the opportunity to work from home.

Despite these seemingly clear benefits, only 10% of the US workforce is said to work from home full-time, according to a study conducted by a Stanford University Professor. The study points out that many employers hold the notion that those who are in the office will perform more efficiently than those who are being distracted at home by children or domestic chores. However, the data contradicts this view and instead finds the opposite, that those who work from home actually make more calls on average than their office counterparts. They also seem to have a higher level of overall job satisfaction compared to their peers.

Of course, some jobs cater more to the home office possibility than others, but companies such as gotomeeting.com are making it easier to connect from anywhere in the world. If you are in the restaurant or retail business, it unfortunately isn’t an option for the workers on the floor.

Are you still not sure if this would work for your business? Run your own experiment and allow one employee per day to work from home and if results look good, then try to slowly expand the program to include a more flexible schedule. Even if you want everyone to be physically in the office on most days, having a back up option for business continuity in case of a storm or other emergency is always a good idea.

Until next week!

Cheers,

Dan B.

Small Businesses are said to be the life and blood of the American economy. According to the Small Business Association, in 2011, 48.5% of all private sector employment came from small businesses, defined as a company with less than 500 employees. These businesses are also responsible for 65% of net new jobs since 1995. It’s easy to see just how much our economy relies on these businesses, including over 22 million Americans who are self-employed.

However, the failure rate of these new businesses is discouraging. Some of the experts say that 8 out of 10 new businesses close within 18 months of opening. Imagine seeing your life savings vanish on your failed business venture.

That’s just not right. And that is why we will be posting weekly tips and ideas on how small businesses can cut costs and improve the chances of success. Posts will range from topics on business accounting and finances to ways to attract new customers, whether you run an e-commerce upholstery shop or a French cafe. So stay tuned.

Without further ado, the first weekly small business topic ……… CREDIT CARD PROCESSING FEES!!

It might sound archaic to most, but some business still don’t accept plastic as a form of payment due to the processing fees. It’s true that processing fees cut into profits, but the convenience of using a credit card will increase ‘impulse purchases,’ which will help offset those fees.

Have you ever been to a bar where they had a $10 minimum, meaning you were ‘forced’ to buy two beers rather than one? This is one popular way, made legal in 2010, for merchants selling in volume to protect themselves against transaction fees. While this technique will help lower costs, imagine if it were your local corner store implementing this $10 minimum. If all you needed was a $3 toothbrush, you might bring your business elsewhere. The happy medium here is to suggest a minimum of $10, but not require the customer to meet that minimum. This should result in not only customer retention, but also additional ‘impulse purchases’ for customers who are feeling guilty about staying under the $10 suggested minimum. These minimums can also be suggested on your website, for those of you in e-commerce.

Oh, and one last thing … These processing fees are 100% deductible when it comes time to file taxes.

Next Week: Extending Credit to your Customers … Good or Bad Idea?

Cheers,

Dan B.

The FCC passed new rules, in a 3-2 vote, that will regulate ISPs under title II as common carriers. The decision has been long awaited, and now that it’s here, the next phase in the battle begins. It is likely that Verizon, along with others, will appeal this ruling in coming months. Opponents of the decision accuse the FCC’s new powers as being to broad reaching. Even one-time staunch supporter NetFlix seems to have flipped their views since the decision was made.

The only clear detail in this debate is that the fight over net neutrality will continue for years to come. So sit down and enjoy the unpredictable ride. In the meantime, here are some interesting articles about the debate surrounding the recent ruling:

No One Is Neutral On Title II

Yes, Net Neutrality Passed…But It Might Not Happen

F.C.C. Approves Net Neutrality Rules, Classifying Broadband Internet Service as a Utility

Happy Reading,

Dan B.

James Johnson

I have worked in the tech industry since high school starting with building my first personal PC to creating a online business while in college to working with numerous ISP’s and telco providers.  I have worked in customer service for about ten years now and will be entering my sixth year at VOIPo in 2015.  I’m a recently married homeowner living just outside of city limits which has opened up a wide array of possibilities from gardening, composting, chickens, goats, etc.  My current hobbies are computers, gaming(both digital and board games are still cool), home-brewing, carpentry, and gardening. This year I intend to get into robotics through some of the Arduino boards with the hope that I can learn to automate some of my other hobbies to free up time.  I am an avid Internet reader and love learning new things.

What is your contribution at VOIPO?

What motivates you?

Above anything else family and friends motivate me the most.  They’ve always been there for me and I rely on them more then anything else.

Your 5 dream Jeopardy categories?

“name that IPA”

“what’s Chris G. wearing today”

“Wear are my pants??”

“Is this my hotel room?”

“Y U Lie(inside jokes remain
inside)”.

An interesting article by Jose Fernandez and Eric Lorber in the most recent issue of Foreign Affairs discusses the future of the telecom sector in an embargo-free Cuba. Whether you agree or disagree with the decision to end the embargo, most can find gratification knowing that many more people will have broadband access.

 

Cuba has one of the lowest levels of Internet penetration in the world. According to the International Telecommunication Union, only 25 percent of Cubans have access to the Web, and those connections are slow and often monitored by the government. Meanwhile, Cuban telecom penetration rates are the lowest in Latin America: ETECSA, Cuba’s sole telephone company, serves only 18 percent of Cubans—a lower percentage than war-torn Afghanistan. Increasing Internet access will have economic and political benefits for the Cuban people, as Internet connectivity can drive long-term economic development by facilitating efficient information distribution, lowering transaction costs, and reducing barriers to entry for entrepreneurs. According to the World Bank, there is a 1.3 percent rise in economic growth for every ten-percentage-point increase in a country’s high-speed Internet connections.

. . .

For the development of the telecommunications sector to have the intended effect of bringing Cubans information from the outside world, and for U.S. companies to become involved, Cubans will need the kind of Internet access that the government will be loath to grant. But unlike in the past, Havana will no longer have the U.S. embargo to blame.

Read the full article here.

Cheers,

Dan B.