State of the Small Business Landscape and What You Need to Know

The world is moving at a faster pace today and we all need to find ways to move with it.  For small businesses this means having an understanding of the current business landscape.  The 2013 U.S. Census revealed that the U.S. is home to more than 28 million small businesses.  Yes, that is not a typo; 28 million.  That number seems a bit less startling when you note the fact that approximately 400,000 new small businesses are started each month and 52% of these are home-based.  The turnover for small businesses is also high.  In fact 5 out of 10 new firms will not make it to their fifth birthday.
The best way to prepare for what is ahead, is to do your best to understand where we are at today. The United States Small Business Administration (SBA) is an amazing resource dedicated to helping small businesses with everything from acquiring funding to mentorship.  Earlier this month the SBA released its’ “Small Business Bulletin” which, profiles the important details of the state of small businesses in the United States.
Here are the 8 most surprising facts about startups and small businesses: 
  • Small businesses continue to add more new net jobs than large businesses.
  • Businesses with less than 50 employees added up to 39% of net new jobs in the first three quarters of 2014.
  • New business establishment openings are outpacing business establishment closings.  Q3 of 2013 through 2014 saw quarterly establishment openings of more than 375,000 while closings during that same period were all below 375,000.
  • Small businesses, between 250-499 employees, export value improved by 4.5% between 2012-2013.  Compare this to the growth of U.S. exports during the same period which was a mere 1.4%.
  • The first quarter in 2015 saw the most venture capital raised in a Q1 since 2000.  Traditionally the first quarter is a slow time for venture capital. Q1 2015 investments totaled $13.4 Billion.
  • The top five VC Deals in Q1 2015 were as follows: Uber $1 Billion, SpaceX just under $1 Billion, Lyft $530 MillionPinterest $367 Million, SoFi $213 Million.
  • Q1 2015 became the fifth straight quarter to see VC investments totaling more than $10 Billion.
  • Q1 2015 also saw the lowest number of seed-stage deals since reporting on this began in 1996.  Investors overlooked more early-stage startups in lieu of making investments into more mature small businesses.

To see the full report click HERE.

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Update: Is the War On Net Neutrality Over?

Back in February we reported on the debate surrounding Net Neutrality. On June 14th, a Federal appeals court elected to uphold the ruling to regulate ISPs in a 2-1 vote.  This is a significant victory for regulators who passed a ruling in February to impose strict guidelines on Internet Service Providers such as Comcast.  That ruling allowed the FCC to classify ISPs as utilities and barred them from dictating internet speeds for specific web pages.  Net Neutrality is the idea that everything on the internet should be treated equally.  However, Internet Service Providers like AT&T and Verizon argue that they deserve the right to control internet streaming speeds for specific sites.  For example, Netflix represents a majority of the streaming that occurs on the internet, so ISPs feel that Netflix should be required to pay more to use their services.  Proponents of Net Neutrality fear that if ISPs can pick and choose which sites they show and at what speed, they will be able to dictate what people see on the internet.  It is likely that major Internet and Cable providers will continue to fight the rulings.

For VoIP providers like us Net Neutrality is crucial since we rely on it for our audio streaming.  For a more in-depth look at the decision made Tuesday click here.

If you want a better understanding of what Net Neutrality really is, check out this video.

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3 Ways to Save Money for Your Small Business in 2016

Being a small business owner means you have a lot of tough decisions to make.  When it comes to choosing where to allocate your money, you don’t always have to make big sacrifices to keep your business running smoothly. Here are three great ways to reduce business costs while continuing to grow your small business:

  1. Hire Interns:
          Are you understaffed and looking for some extra hands on deck? Adding a new full time employee can be costly.  Let’s say you decide to bring on a full-time hire and pay them $15 an hour. That’s a $2400 paycheck you are cutting them each month.  That doesn’t include insurance costs, taxes, benefits, not to mention training and overhead costs. On top of that you also have to consider how long it will take for that employee to get up to speed and the associated opportunity costs of bringing that individual on.  If you are
a small, cash-strapped business hiring a full-time employee may not be the best solution for your growing pains.  A great alternative is to start an internship program. Believe it or not many public and private universities require or strongly recommend that students get an internship at some point during their college tenure. Some course curriculums even require one or multiple internships in order for their students to qualify for graduation or in return for school credits.  With more than 2,500 accredited four-year colleges and universities in the United States, it shouldn’t be hard for you to find a few eager students to temporarily join your ranks.
          Bringing on interns can have a number of big benefits for your business.  They can offer new perspectives and help you and your employees with projects that you have been overlooking in lieu of more important tasks.  Having a temporary intern is also the perfect way to find future employees and learn what works and what doesn’t in your organization.  By bringing interns into your business you are also continuing to get your business name known and you create a self-fulfilling recruitment cycle. As a business owner, you are always looking for new ways to bring valuable new people into your organization without having to hire a recruiting company.  Internship programs provide you with driven, low-cost workers who don’t expect much in pay.  And guess what, if things don’t quite work out with you and your new intern, you can part ways after a few months with some new perspective of your own. Not to mention supporting local students is a great move for your business.
  1. Take Advantage of Free Advertising and Marketing:
          Okay this one is huge! And we mean HUGE.  Traditional marketing and advertising can cost your business an arm and a leg.  Nowadays with the internet there are ample ways to run an extremely successful marketing and advertising campaign for an extremely low budget.  We aren’t talking about just setting up a few social media accounts.  This is still going to take some time and attention but the potential outcomes are huge.  Companies today are turning to online discussion forums, email lists, and inbound marketing to find potential customers by leveraging their expertise. Here’s how it works: You provide free value or advice related to your industry which potential customers find you through organic searches, online forums and discussion boards.  As you provide more and more free value to people, your perceived expertise increases along with your familiarity among potential clients.  If you are the industry expert in a given field, you are the clear choice next time someone enters the buying stage.  Here are a few examples of how you can start doing just this. You could start answering questions that people post in pre-existing online communities.  You could start a YouTube channel dedicated to educating people about something related to your business or service.  You could start an email newsletter offering people valuable tips, information or even case studies.  These are just a few ways to market your business on a low budget.
          And hey, maybe you aren’t about the internet or don’t want to deal with email lists or discussion boards, no problem.  You can take the same principles we have discussed here and take them offline.  Get involved in your industry or local area and offer free seminars or meet ups where you are able to offer valuable information or training to people who are interested in what you do!
  1. Outsource:
          For small business owners, the word “outsourcing” may seem like the downfall of their homegrown operation, but outsourcing today can be a lot more valuable and cost-effective for your business than you may think.  And no we do not mean moving all of your production and customer service operations overseas.  You can outsource just about anything to people domestically or internationally for much less than it would cost you to do it in house.  Do you need research done on your competition? Or maybe you need someone to cook up some hot new graphics for your monthly newsletter?  How about that marketing proposal that needs to get finished by next week?  Well guess what, there are thousands of individuals who are excited and willing to do all of those things for less than you think.  Sites like Upwork and Fiverr allow you to connect with individuals who can do just about any task for you.  Describe the project you have in mind, use their networks to get thousands of eyes on your project, get other people to bid on your project and choose the winner to complete the task on a budget that works for you.  And if you thought that these kind of sites only lead to unskilled workers you may want to think twice.  Today, it is not uncommon to find individuals with degrees and a running track record to base your decision upon.
We just wanted to lead you to the rabbit hole, but now it’s up to you to go down it.  If you are willing to get creative and spend a little extra time looking for ways to leverage your available resources, you will surely find ways to keep your business on top.

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Fate of Small Businesses Rests in the Hands of Congress

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.

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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.

Source: 2014 EXIM Annual Report
Source: 2014 EXIM Annual Report

 

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.

 

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4 Ways to Finance your Business

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.

Modern business concept

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.

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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.

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A Proposed Break for Small Businesses in NYC

NEW YORK - MAY 21: A view up Madison Ave during the afternoon rush hour on May 21 2013 in Manhattan. Madison Ave is the capital of the advertising industry in the US.
NEW YORK – MAY 21: A view up Madison Ave during the afternoon rush hour on May 21 2013 in Manhattan.

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.

 

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Win a Super Bowl TV Ad!

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.

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Home is Where the Office is

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.

 

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Small Business Weekly

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.

 

 

 

 

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Net Neutrality Passed but Debate Continues

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.

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