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Small Business Optimism Takes a Nosedive Post-Election

December 13th, 2012 ::

By Maria Valdez Haubrich

The recent presidential election seems to have put small business owners into a tailspin—at least, it has if the latest Wells Fargo/Gallup Small Business Index is any indication. In November (post-election), the Index dropped to -11, down from 17 in July. Entrepreneurs have not been this pessimistic about their businesses since July 2010.

The Index measures small business owners’ current feelings about their businesses, including financial status, ease of getting capital and credit, sales, cash flow, number of jobs. In the first two quarters of the year, small business owners were becoming increasingly optimistic, and the Index hit a high of 23 in May. (For comparison, before the Great Recession hit in 2008, the Index was almost always above 100.)

In November, small business owners’ future expectations for their financial situation, cash flow, capital spending and hiring during the next 12 months all worsened significantly, Gallup says. Specifically:

  • One in five small business owners (21 percent) believe the number of jobs at their company will decrease over the next 12 months. That’s the highest percentage Gallup has measured since the Index began in 2003.
  • One in three (34%) predict their company’s capital spending will decrease over the next 12 months — the highest percentage since July 2010.
  • Some 30 percent of small business owners expect “poor” cash flow during the next 12 months — the highest Gallup has measured to date.
  • Some 28 percent expect to be in a “poor” financial position 12 months from now — the highest Gallup has measured to date.

While future expectations were primarily responsible for the overall drop in the Index, the small business owners’ assessments of their current operating conditions also declined in November, falling 9 points to -10.

The results suggest small business owners, who were previously fairly neutral about current operating conditions, have become pessimistic not only about the future but the present as well.

“As entrepreneurs, small-business owners tend to be optimistic by nature, and relatively more optimistic about the future than the present,” Gallup’s results note. Will the small business owners’ outlook lead to a weakened economy going forward? If small business owners live up to their plans to cut capital spending and reduce the number of jobs at their companies, it could do so.

How do you feel about the results? Do they jibe with your outlook?

Image by Flickr user M Hildingh (Creative Commons)

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Posted in Accounting and Taxes, Capital Access, Compliance, Raising Capital, Small Business, small business | No Comments »

Bad News for Small Business: VC Investments Decline

November 15th, 2012 ::

By Maria Valdez Haubrich

Recently, we posted here about the growth in angel capital investments. Now, there’s some not-so-good news for small businesses about venture capital. The most recent MoneyTree survey from PricewaterhouseCoopers and the National Venture Capital Association reports that in the third quarter of 2012, VC investments shrunk both in terms of overall dollars (down by 11 percent from the second quarter of 2012) and in terms of deal volume (down by 5 percent from the second quarter of 2012).

VC dollars and deals also declined year over year. What’s behind the shrinkage? PWC and the NCVA say that venture capitalists are exhibiting extreme caution with the capital they have available. Instead of making new investments, they’re focusing on the companies that are already in their portfolios. Compounding the problem, there are fewer new venture funds, which is cutting into the amount of capital that can be invested.

Of course, the bad news may not affect you if your small business is in an industry that finds it easier than average to attract venture capital. Here’s a closer look:

  • As of Q3 2012, software companies were still the most popular type of VC investment, accounting for $2.1 billion invested in 304 deals. (That’s still a 12 percent drop from Q2 2012, however).
  • Life sciences (which includes biotechnology and medical devices) investing increased in terms of dollars but declined in deal volume compared to Q2 2012.
  • Internet-specific investing (companies whose business model depends on the Internet, regardless of industry) declined by 12 percent in dollars and 8 percent in deal volume compared to Q2 2012.
  • The clean technology sector (alternative energy, pollution and recycling, power supplies and conservation) had a 20 percent decrease in dollars but a 2 percent increase in deal volume.
  • Financial services, healthcare services, business products and services, and retailing businesses saw increasing dollar amounts invested in Q3 compared to Q2.
  • In contrast, companies in the media and entertainment, semiconductors, telecommunications and IT services sectors all saw a decline.
  • Companies in the software, media and entertainment, and IT services industries received the most first-time rounds in Q3 2012.

Your industry isn’t the only thing that matters when you’re looking for VC investments. Where your business is located matters more than you might want to think. Over half (58 percent) of VC funding in Q3 2012 went to businesses in California, Massachusetts and New York.

Image by Flickr user Horia Varlan (Creative Commons)

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Posted in Capital Access, Raising Capital, Small Business, small business, Venture Capital | No Comments »

Is Your Small Business Struggling With Cash Crunches?

October 2nd, 2012 ::

By Karen Axelton

Despite their best efforts to manage their companies’ cash flow, half of small business owners have suffered a sudden cash crunch in the past 12 months, according to a new survey from Citibank.

The Citibank Small Business Pulse found that weak sales were causing cash flow concerns for the majority entrepreneurs. Even though 73 percent say they personally manage their cash flow daily—not trusting the job to anyone else—30 percent say they are still struggling with challenges such as slow or delinquent receivables and customer bankruptcies, and 24 percent say late or non-payments have caused their companies an unexpected cash crunch.

Despite their awareness of the importance of cash flow management, small business owners in the survey admit that they struggle to crack down on customers. Some 78 percent say they’ve extended customers’ payment terms in the last 12 months, and nearly one-fourth say that “making a collection call” is the most uncomfortable aspect of managing their business finances.

The cash-flow issues these businesses faced weren’t all due to slow-paying customers. Forty-one percent of entrepreneurs blamed “lackluster consumer spending” for their cash crunch, while 28 percent said it was due to expected sales failing to materialize.  Overall, the need to maintain sales was the number-one concern small business owners expressed, cited by 78 percent.

Still, small business owners in the survey feel hopeful about their own business finances, even if they don’t feel as rosy about the economy as a whole. While 85 percent think the nation might still have a double-dip recession, 43 percent think their business’s 2012 sales will top last year’s, and 56 percent expect their businesses will either meet or exceed their 2012 revenue goals.

Small business owners have reason to feel confident. To achieve those sales goals, more than half of companies surveyed say they have “reinvented” their businesses in the past year, either adding new products or services, overhauling their technology, or both, in order to become more competitive in a tough marketplace.

What can you do to keep your cash flowing? Small business owners in the survey are doing all the right things—except for one. It’s tough, but following up on late-paying customers and doing all you can to ensure you get paid is essential if you want to keep your business in the black.

How is your business’s cash flowing?

Image by Flickr user Alan Cleaver (Creative Commons)

 

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Web.com Small Business Toolkit: Biz2Credit Women in Business (Financing for Women Entrepreneurs)

September 11th, 2012 ::

Biz2Credit Women in Business

Biz2Credit, which has been connecting small and midsized businesses with lenders and other business tools since 2007, has recently launched their Women in Business site. The site targets women business owners whose companies have been in operation for less than three years and have under $1 million in sales and fewer than 50 employees. Owners can take advantage of the small business financing package, which includes a business plan prepared by Biz2Credit’s small business experts; one month of financial consultation by a Biz2Credit case manager; access to a financial snapshot of your company; and recommendations for increasing credit scores, lowering interest rates and more.

 

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Will the Community Bank Crunch Squeeze Small Business? How to Find Out

September 6th, 2012 ::

By Maria Valdez Haubrich

If your small business has received loans or lines of credit from a community bank—or was hoping to do so—you might find it becoming more difficult. Inc. recently reported on a coming crunch that is hitting community banks, with possible ill effects for small business owners who depend on those banks for capital.

The problems stem from the Troubled Asset Relief Program (TARP) which gave banks nationwide funds from the U.S. Department of the Treasury that had to be paid back with interest. While Inc. reports that the nation’s larger banks have already paid back their TARP debt, about 300 community banks across the country haven’t yet done so.

The Treasury Department is winding down the TARP program, raising interest rates for banks that still have outstanding debt to pay back. These banks are being hit with a perfect storm: In addition to the need to pay back principal and higher interest, new federal regulations as a result of the Dodd-Frank Act require community banks to have more available cash for emergencies.

The result? Many community banks are being forced to cut back on lending to small business in order to handle their TARP responsibilities and have enough cash. That’s bad news for small businesses, which rely greatly on community banks for their capital needs.

Inc. cites FDIC data that smaller banks (those with $5 billion or less in assets) made $336 billion in small business loans in the first quarter of this year. By comparison, banks with $5 billion or more in assets made loans of $311 billion to small businesses. Small business loans account for nearly one-fourth of all loans by community banks, compared to just 5 percent of bigger banks’ lending.

How can you know if your bank will be affected by this issue? The best way is to talk honestly with your banker. Ask whether the bank accepted TARP funds and, if so, whether they have paid the money back. If not, try to get the banker’s take on how this responsibility will affect future loans to small business.

Even if your bank is not affected by TARP, be aware that small business owners whose own banks are cutting back on lending may start approaching your bank for loans. In other words, if you were considering applying for a loan or line of credit, the time to act is now.

Image by Flickr user Alan Cleaver (Creative Commons)

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Posted in Capital Access, Raising Capital, Small Business, small business | No Comments »

Small Business Owners’ Economic Outlook: Holding Steady

September 3rd, 2012 ::

By Karen Axelton

As election season begins in earnest, how are small businesses feeling about their own—and the nation’s–economic outlook? Capital One’s second quarter 2012 Small Business Barometer, a quarterly survey of U.S. small businesses, asked entrepreneurs about their current financial conditions and what they expect for the next six months, and found steady, but modest growth.

Gains that began in 2011 are continuing in 2012, the survey found. Some 45 percent of small businesses say their companies are facing the same economic conditions as last quarter, and 38 percent say their economic conditions have improved. Just 17 percent felt economic conditions were getting worse. Asked about their own businesses’ financial situation, 44 percent say it’s better than it was a year ago, 40 percent say it’s the same, and just 15 percent say it’s worsening.

What’s more, 37 percent of small businesses plan to add jobs in the next six months—a two-year high. Sixteen percent say they have job openings they can’t find qualified people to fill, a slight increase from the previous quarter.

As for the coming six months, small business owners are cautiously optimistic, rating the national business outlook at 6.0 out of a possible 10 points—mostly due to concerns about sales and profit margins. Reflecting this cautious attitude, most of the small businesses surveyed say they plan to keep spending, business development and investment consistent with current levels. Seven in ten will keep spending at the same levels—a two-year high, 9 points higher than last quarter and 5 points higher than last year. Just 15 percent of companies expect to increase business development and investment spending.

One positive sign is that one-fourth of small businesses have tried to obtain financing in the last 12 months—the highest percentage in the past nine quarters of survey data.  While 42 percent of small businesses say getting financing is harder than it was six months ago, that’s down 10 points from the percentage who reported difficulty the previous quarter.

“We’re seeing some hesitancy and concern about prospects for the remainder of the year, as well as a limited line of sight to growth,” said Jon Witter, President, Retail and Direct Banking at Capital One. “Small business owners are moving forward with continued caution and pragmatism as they consider their plans and projections for the coming months.”

How does this outlook compare with your own? Are you feeling optimistic about the months ahead?

Image by Flickr user carlos.a.martinez (Creative Commons)

 

 

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How to Prepare Your Business for Expansion

August 30th, 2012 ::

By Karen Axelton

Do you have big plans for your small business? If you’re gearing up to add a location, expand into new markets, add ecommerce to your offerings or start selling internationally, there are some things you need to consider before you grow. Here’s a shortlist of things to think about to make sure you’ve got all the bases covered.

Your company’s structure. If you need to adjust your legal form of business in order to take on more investors, add partners or meet the requirements of the new state/s where you’ll be doing business, now is the time. Consult an attorney to make sure your company dots all the I’s and crosses the t’s before it’s too late.

Your company’s name. The name that has served you up to this point may not work so well if you’re going national, international or in a different direction. Ask friends, family and customers what they think your current name conveys. If it doesn’t convey what you’re trying to accomplish, brainstorm some new ideas and use surveys and focus groups to test how well they work.

Your company’s trademarks. If you’ve changed your name or logo in preparation for the expansion, make sure you protect them with a trademark. Visit the U.S. Patent and Trademark office’s Trademark section to learn more about applying for trademarks and to apply online.

Your operations. If you don’t have an operations manual for your business, now is the time to create one. You’ll want to standardize your operating procedures so they can guide you in your growth and ensure that all facets of your business—every location, employee and sales channel—deliver the same customer experience.

Your employees. Expansion requires employees you can trust to do what you’d do when you can’t be there. If you’re not comfortable with delegating, you’re going to have a problem. Start now to develop a strong bench of key managers who can be “you” when you’re not around.

Your financing. Given today’s tight lending environment, hopefully you’re financing your expansion from within. But whether or not you’re seeking outside capital, it’s smart to develop a business plan that will guide your expansion and put the money you’ll need in black and white. Develop a “Plan B” you can follow if the financing you seek doesn’t come through. In fact, develop Plan C and D, too.

Image by Flickr user Tatters:) (Creative Commons)

 

 

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Posted in Business Development, Business Law, Capital Access, Compliance, Raising Capital, Small Business, small business, Workforce | No Comments »

Temporary SBA 504 Loan Program Provides Working Capital for Small Businesses

July 19th, 2012 ::

By Maria Valdez Haubrich

Are you looking for cash or working capital to grow your small business? Then you should know about a temporary Small Business Administration (SBA) program that could help. As part of the Small Business Jobs Act passed in 2010, the SBA started a temporary program enabling small businesses to refinance eligible fixed assets through its 504 loan program without having to expand their businesses. This temporary refinancing program will expire on September 27, 2012, so now is the time to see if it can help your business.

Here are some of the benefits of the temporary 504 program:

  • Eligible small businesses can get below-market pricing and long term, fully amortizing fixed rate loans.
  • You can finance up to 90 percent of the property’s current appraised value.
  • In some cases, you can “cash out” proceeds from the refinancing to pay eligible business expenses, including payroll, inventory and accounts payable.

Eligible applicants for the 504 refinancing program must:

  • Show that their loans are current
  • Have made all required payments in the last year with no payments more than 30 days past due.
  • Debt to be refinanced must have been incurred at least two years before the date of the loan application

The temporary program is structured like SBA’s traditional 504 loan program (although it’s separate from that program). Small business borrowers work with third-party lending institutions and SBA-approved Certified Development Companies (CDCs) to get financing. The loan is typically made up of three parts:

  • A loan (or first mortgage) secured with a senior lien from a private-sector lender covering up to 50 percent of the project cost,
  • A second mortgage secured with a junior lien from an SBA-approved CDC covering up to 40 percent of the cost, and
  • A contribution of at least 10 percent equity from the small business owner.

For more details about the temporary 504 loan program, visit the SBA website and the 504 FAQs page.

Image by Flickr user vxla (Creative Commons)

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Posted in Capital Access, Raising Capital, Small Business, small business, Uncategorized | 1 Comment »

Bills Would Make It Easier for Credit Unions to Lend to Small Businesses

July 17th, 2012 ::

By Karen Axelton

Small business financing could get easier to find if two pieces of pending legislation pass. Recently introduced by Kurt Schrader (D-Ore.) and Steve Chabot (R-Ohio), the Credit Union Small Business Lending Act (H.R. 4191) would make it easier for credit unions to participate in Small Business Administration (SBA) loan programs.

Another pending bill, H.R. 1418, would raise the cap on how much credit unions can lend to businesses. Currently, credit unions can lend a maximum of 12.5 percent of their assets to member businesses. The bill would raise that percentage to 27.5 percent, significantly expanding credit unions’ ability to make small business loans.

More and more small businesses have been turning to credit unions in the aftermath of the recession, Small Business Trends reports. It’s easy to see why: Over the past year, credit unions have steadily increased the percentage of small business loans they approve, from 51.2 percent in May 2011 to 57.6 percent in May 2012, according to the Biz2Credit Small Business Lending Index. In contrast, the majority of small business loan applications to banks are rejected.

“Allowing credit unions to do more to help small businesses is an important step toward helping our nation recover from the current economic downturn,” says Robert Marquette, at-large director for the National Association of Federal Credit Unions (NAFCU), a national organization that focuses on federal issues affecting credit unions.

The average credit union small business loan is for $185,000—a small enough amount that loans of this size are often difficult to obtain from banks. Testifying before Congress about the need to pass both bills, Marquette told legislators that since the end of 2007, applications to credit unions for small business loans have grown from $87 million to $259 million in 2011.

According to Rohit Arora, CEO of Biz2Credit, there are several key reasons credit unions are increasingly becoming a funding source for entrepreneurs. Credit unions are typically more involved in the local business community than bigger banks, generally have more flexible lending requirements, can make lending decisions more quickly and are less reliant on automated scoring. What’s more, many credit unions even offer better financing rates than bigger banks.

Have you used credit unions to finance your small business?

Image by Flickr user cometstarmoon (Creative Commons)

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Posted in Capital Access, Raising Capital, Small Business, small business, Uncategorized | 3 Comments »

More Small Business Owners Plan to Seek Bank Loans

July 10th, 2012 ::

By Karen Axelton

Where are small business owners turning for financing these days? If you think entrepreneurs have given up on obtaining bank loans, think again. More than two-thirds (68 percent) of entrepreneurs seeking capital for their businesses in the next six months say they will pursue bank loans, according to a survey from Pepperdine University’s Graziadio School of Business and Management, conducted in partnership with Dun & Bradstreet Credibility Corp.

The next most popular source of financing was a business credit card, cited by 40 percent; followed by credit unions or Community Development Financial Institutions Funds (CDFIs), cited by 36 percent.

The First Quarter 2012 Private Capital Access Index study found that business owners with revenue of over $5 million were more optimistic about successfully raising financing from banks than were smaller businesses. Ranked on a scale from 0-4, larger businesses’ confidence in their ability to get a bank loan averaged 2.3, while businesses with sales under $5 million ranked their confidence level at 1.4.

The numbers show significantly higher interest in bank loans compared to the prior survey findings released in December 2011. At that time, just 37 percent of respondents had actually tried to get bank loans in the past 12 months. In contrast, nearly half of respondents (49 percent) had used credit cards. Of course, it remains to be seen if the 67 percent of entrepreneurs planning to apply for bank loans actually follow through. However, the growth in intention alone is a positive indicator.

“As business owners secure more traditional sources of financing and rely less on their own personal resources,“ said Dr. John Paglia, director of the Pepperdine Private Capital Markets Project and associate professor of finance at Pepperdine University’s Graziadio School of Business and Management, “they will have more discretionary money to spend thereby stimulating our economy.”

Image by Flickr user Philip Taylor PT (Creative Commons)

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Posted in Capital Access, Small Business, small business | 3 Comments »

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