Raising the Bar, One Employee at a Time
Geoff Williams, AOL Small Business, AOL
Wendy Buckley has a hint for job seekers: When filling out an application, if there’s a question about what makes good customer service, don’t plagiarize a website that has an article about customer service and claim it as your own. Your employer probably has Google, too.
Buckley has been in the hiring process for a couple months now, employing three full-time managers back in September for the Screwtop Wine Bar and now is finishing up interviews as she puts together a part-time staff of 12 servers, gift shop and kitchen workers. But it was that plagiarizer that really stands out in her mind as something that didn’t impress her.
Wow, this sounds really professional, thought Buckley upon first reading the essay answer. But then she suddenly had a sinking feeling, started Googling, and found the incriminating text, word-for-word. Obviously, the applicant didn’t get an interview.
Of course, she was also not thrilled when she set up interviews for her managerial positions and had four no-shows. “Four,” says Buckley. “Four people agreed to interview and didn’t show up. I thought, ‘Are you serious? Don’t people need a job?’”
Still, Buckley managed to find three people to manage the bar, the gift shop and the kitchen--three people she is very pleased with. One applicant, in particular, seemed to be a standout. Buckley had asked her for an example of when she had been able to make a customer’s day, and the interviewee told her how a terminally ill mother and her daughter came into a Cheesecake Factory in Maryland. The mother had left a hospice, with the mission of having a chocolate godiva cheesecake, and the server, now seeking employment with Buckley, had the unpleasant task of telling this sick woman that they were all out. The daughter whispered to bring some other chocolate cheesecake, because her mother wouldn’t know the difference.
And so the server brought out the cheesecake but then decided she had to tell the truth. The woman had her cheesecake, apparently leaving without complaint, but the server naturally felt distressed and called other Cheescake Factories around Maryland, found a place that had it in stock, and then she soon personally delivered an entire chocolate godiva cheesecake to the dying patient.
Buckley listened to the tale, mesmerized. So did she hire her? “I couldn’t afford her,” sighs Buckley. “But what a great story.”
Other challenges
Throughout September and October, most of Buckley’s attention was focused on getting a builder’s permit from her county, which she says took about three weeks, and then overseeing the construction, which is still going on. She plans to open the ScrewTop Wine Bar on December 15.
In the meantime, starting up the business has been predictably screwy.
For instance, the oven arrived a month before it was due. This was a problem, because it’s a 500-pound oven, and with no builder’s permit and no construction started, Buckley had nowhere to put it. She managed to reach someone in customer service from the restaurant supply company and was told, “Refuse the oven.”
“How?” demanded Buckley, literally on her cell phone and racing after a departing UPS truck. “I’ve already accepted it!”
The UPS truck took it back, fortunately, but then two days before it was due, delivered it again. Buckley enlisted her husband, David, and some of the construction crew and managed to find equipment to move the mammoth oven into her wine bar’s kitchen, but the giant deli case was another matter. The next day, a semi-truck delivered the rest of the appliances, refrigerators and dishwashers, filling the sidewalk, and those, too, were moved into the kitchen without too many problems. But not the giant deli case.
“We’ve had architects and engineers measure everything,” says Buckley, “but the deli case, where we keep the cheese, was half an inch too wide for the door.”
Buckley says the company furnishing her doors has an agreement with her that if any other professional touches those doors, they’re no longer under warranty. So she had to hire the company—at $200 an hour—to come and remove the front door and the door frame, in order to haul the deli case into the restaurant. “It’s never coming out of there again,” she vows of the deli case.
Hire education
Then about a week ago, Buckley put out an ad on Craigslist for part-time help. The ad, in its entirety, read:
DO YOU LOVE WINE, CHEESE & CRAFT BEER?
Then come be a part of something very special here in Clarendon.
WE OFFER
*great employee discounts,
*flexible hours, (Day, Evening, Weekend)
*training and
*fun atmosphere where you are surrounded by fellow foodies and wine lovers.
*METRO ACCESSIBLE: We are just a short 2 block stroll from the Clarendon Metro on the Orange line.
WHAT IS SCREWTOP?
Screwtop wine bar is so much more than just a wine bar. It’s a café, a wine boutique, and a gourmet cheese shop as well. We are the neighborhood gathering spot, where all customers are treated like regulars, even if it’s just their first time in.
We are opening in DECEMBER and INTERVIEWING NOW for the following Positions:
*Please email us at the address below, telling us
1. why you’d like to work for screwtop,
2. how many hours you’d like to work and
3. what you are interested in making$
Having been burned by no-shows, Buckley emailed all her aspiring applicants this time, reminding them of the interviews and even offering a map on how to get to her place. “I probably shouldn’t have done that,” concedes Buckley. After all, if someone is a no-show to an interview, that’s a great clue that they aren’t going to be a good worker.
But, says Buckley, “as I’ve gotten further along in this process, I have so little time and so many things to get done, and I’m a very organized person. But every day, I’ll have a list of 20 things to do, and even if I finish them all, the next day, there will be 20 more things to do. I’m sure there will be a long list of things I have to do once I’m open and running, too, of course, but it astonishes me how fast these days are going by. I’ll look up at the clock, and it’ll be 8 p.m., and then I’ll be on the computer until midnight. I couldn’t sleep last night, and so I was up at 3, working on figuring out the schedules.”
The schedules, that is, of the people she hasn’t hired yet. “I have more people to interview tomorrow,” says Buckley. “Part of this not being to sleep, of course, is just this exhilarating excitement going on. There’s so much going on in mind and so many things we have to get done before we open.”
But at least she has her oven.
Tuesday, November 24, 2009
Monday, November 23, 2009
Article: Local SBA lending dropped 17 percent in 2009
IBJ.com
Local SBA lending dropped 17 percent in 2009
Mason KingNovember 20, 2009
Some of the city’s most generous participants in the Small Business Administration loan program barely cracked the doors to their vaults in the past year.
SBA lending in the Indianapolis area plunged by an astonishing 64 percent for three of the city’s four largest banks during 2009, while overall lending in the program slipped 17 percent in the Indianapolis area.
Among the most active participants in the SBA’s popular 7(a) program in 2008, the trio of Huntington National Bank, National City Bank and Chase originated a combined total of $11.2 million such loans during the agency’s 2009 fiscal year, which ended Sept. 30. That was down from $31.1 million in 2008.
The total value of SBA-backed loans originated by Huntington dropped from about $15.3 million in 2008 to $4.9 million, according to agency figures. Chase’s total sank from $8.1 million to $1.9 million, and National City’s lending sagged from $7.6 to $4.4 million.
The declines may not come as a surprise given the horrific year suffered by the financial industry, triggered in large part by imprudent lending. And many small businesses, staggered by the recession, were in no position to plan pricey moves that would require more capital.
“The biggest reason for the decline was that demand was soft,” said Jean Wojtowicz, executive director of the Indiana Statewide Certified Development Corp., a lender in another SBA program for financing fixed assets like buildings and equipment.
The 7(a) program helps small businesses obtain financing when they might not be eligible for loans through normal channels. The SBA does not make loans; instead, it guarantees most of the value of loans made through commercial lenders.
“Businesses were a little bit apprehensive,” Wojtowicz said. “Some of them were not interested in expanding; they were interested in surviving. And banks respond to what businesses are asking for. They don’t peddle loans to people who don’t want them.”
Credit crunch
However, small-business lending by Huntington, National City and Chase declined much more steeply than that of many of their peers. In 2008, the trio accounted for 34 percent of the $91.3 million in total lending for the 7(a) program in the nine-county Indianapolis area. In 2009, their combined lending skidded to only 15 percent of the $75.8 million in loans issued through the program.
“The obvious thing is that we’re in the middle of a credit crunch,” said Marianne Markowitz, Midwestern regional administrator for the SBA.
Markowitz hesitated to draw any conclusions about individual banks. “Every bank is affected differently depending on their loan portfolio,” she said. “Of course they have to be conservative. They got here by not being conservative. They need to be diligent in their underwriting process.”
New York-based Chase, Cleveland-based National City and Columbus, Ohio-based Huntington were the city’s first-, second- and fourth-largest banks in the Indianapolis area, respectively, in 2008, according to IBJ’s most recent list of the region’s largest banks and thrifts. The banks were ranked by number of local full-time employees.
Local Huntington and Chase officials maintain that they haven’t significantly changed their strategies or credit standards for SBA lending. Instead, they point to decreased demand for small-business loans. In addition, some potential clients found themselves in more dire financial straits in 2009, said Mike Newbold, regional president of Huntington Bank in Indiana.
“They may have been credit-worthy 12 months ago, but if they were unable to adjust to the downturn, they may not qualify even under the same underwriting guidelines,” Newbold said.
Tim Oliver, senior vice president and central Indiana market manager for Chase Business Banking, noted that Chase looks at many lending vehicles for its clients, and that, in 2009, SBA loans “weren’t the ideal solution in as many cases [as in 2008].”
Chase recently announced plans to increase small business lending system-wide by $4 billion in 2010, and to hire 325 additional small-business bankers. “We expect demand to pick up,” said Chase spokeswoman Nancy Norris.
The circumstances for National City Bank were slightly different than those of its two compatriots. National City was acquired by Pittsburgh-based PNC Financial Services Group Inc. on Dec. 31. (The 77 Indianapolis-area branches still carrying the National City name are expected to be rebranded in 2010.)
Prior to the Dec. 31 purchase and then as a division of PNC, National City originated 23 SBA 7(a) loans worth about $4.4 million for businesses in the Indianapolis area during the 2009 fiscal year—a 43 percent drop in value from 2008.
PNC spokesman Fred Solomon declined to speculate on the reasons behind the reduction in local 7(a) lending from 2008 or PNC’s level of participation in the program going forward.
“PNC will continue to be an active lender to small businesses,” Solomon said, noting that the bank as a whole originated more than $900 million in small-business loans, including SBA lending, in the third quarter of 2009.
Recovery Act assistance
Like much of the financial industry in late 2008 and early 2009, SBA lending sank in the muck of the recession and spun its wheels. However, it found better traction after the American Recovery and Reinvestment Act went into effect in March.
Portions of the act were designed to make SBA lending more attractive, including eliminating fees for borrowers and raising the agency’s guarantee from 75 percent to 90 percent.
Lending rebounded in a big way—to an average of $8.6 million a month from April to September, compared to $4 million per month from October 2008 to March 2009.
Smaller banks led the way nationwide, SBA’s Markowitz said.
“We’ve seen instant traction at the smaller community banks,” she said. “They have been able to pivot and grab onto these programs more quickly. … In this particular economy, the small banks are the strength of the network.”
Local standouts included Indiana Business Bank, which leaped from $490,000 on four loans in 2008 to $2 million on nine loans in 2009; Bank of Indiana NA, originating $2.9 million on four loans in 2009 after $830,000 on two loans in 2008; and Community First Bank of Indiana, which furnished four loans worth $2 million in 2009 after no activity in the Indianapolis area in 2008.
The federal funding that makes the Recovery Act provisions possible is expected to last through December, Markowitz said.
Central Indiana’s small-business community appeared to fare better than the rest of the country during the SBA’s 2009 fiscal year. The 7(a) program’s total dollar volume nationwide dropped from $12.7 billion in 2008 to $9.3 billion in 2009, a reduction of 27 percent. Indianapolis recorded a 17-percent drop, from $91.3 million to $75.8 million.
'We just gave up'
One local small-business owner who recently sought an SBA loan said his reception from banks was less than welcoming.
“It’s been very hard to get loans,” said Travis Sealls, co-owner of the Pita Pit franchise at 1 N. Pennsylvania St., which opened in March. “We just gave up on the whole thing.”
Looking for a loan to get the business off the ground, Sealls and a silent partner contacted about a dozen banks in mid-2008 to talk about lending opportunities. Only a handful returned their calls, and most said that their terms had become more restrictive. The only serious offer that they received demanded that they deposit $300,000—the full value of the loan—at the bank as collateral, Sealls said.
“It used to be that the worst-case scenario is that you’d only have to put down 30 percent,” he said. The partners had the capital to fulfill the requirement, but decided against taking the loan.
Going ahead with plans to open the eatery, they hired a broker to look for borrowing opportunities. They again received a single offer—an $185,000 loan through Old National Bank in April. Again, they decided to pass.
“We were like, ‘We really don’t need it now,’” Sealls said. “We weren’t in a cash crunch. We were up and running.”•
Local SBA lending dropped 17 percent in 2009
Mason KingNovember 20, 2009
Some of the city’s most generous participants in the Small Business Administration loan program barely cracked the doors to their vaults in the past year.
SBA lending in the Indianapolis area plunged by an astonishing 64 percent for three of the city’s four largest banks during 2009, while overall lending in the program slipped 17 percent in the Indianapolis area.
Among the most active participants in the SBA’s popular 7(a) program in 2008, the trio of Huntington National Bank, National City Bank and Chase originated a combined total of $11.2 million such loans during the agency’s 2009 fiscal year, which ended Sept. 30. That was down from $31.1 million in 2008.
The total value of SBA-backed loans originated by Huntington dropped from about $15.3 million in 2008 to $4.9 million, according to agency figures. Chase’s total sank from $8.1 million to $1.9 million, and National City’s lending sagged from $7.6 to $4.4 million.
The declines may not come as a surprise given the horrific year suffered by the financial industry, triggered in large part by imprudent lending. And many small businesses, staggered by the recession, were in no position to plan pricey moves that would require more capital.
“The biggest reason for the decline was that demand was soft,” said Jean Wojtowicz, executive director of the Indiana Statewide Certified Development Corp., a lender in another SBA program for financing fixed assets like buildings and equipment.
The 7(a) program helps small businesses obtain financing when they might not be eligible for loans through normal channels. The SBA does not make loans; instead, it guarantees most of the value of loans made through commercial lenders.
“Businesses were a little bit apprehensive,” Wojtowicz said. “Some of them were not interested in expanding; they were interested in surviving. And banks respond to what businesses are asking for. They don’t peddle loans to people who don’t want them.”
Credit crunch
However, small-business lending by Huntington, National City and Chase declined much more steeply than that of many of their peers. In 2008, the trio accounted for 34 percent of the $91.3 million in total lending for the 7(a) program in the nine-county Indianapolis area. In 2009, their combined lending skidded to only 15 percent of the $75.8 million in loans issued through the program.
“The obvious thing is that we’re in the middle of a credit crunch,” said Marianne Markowitz, Midwestern regional administrator for the SBA.
Markowitz hesitated to draw any conclusions about individual banks. “Every bank is affected differently depending on their loan portfolio,” she said. “Of course they have to be conservative. They got here by not being conservative. They need to be diligent in their underwriting process.”
New York-based Chase, Cleveland-based National City and Columbus, Ohio-based Huntington were the city’s first-, second- and fourth-largest banks in the Indianapolis area, respectively, in 2008, according to IBJ’s most recent list of the region’s largest banks and thrifts. The banks were ranked by number of local full-time employees.
Local Huntington and Chase officials maintain that they haven’t significantly changed their strategies or credit standards for SBA lending. Instead, they point to decreased demand for small-business loans. In addition, some potential clients found themselves in more dire financial straits in 2009, said Mike Newbold, regional president of Huntington Bank in Indiana.
“They may have been credit-worthy 12 months ago, but if they were unable to adjust to the downturn, they may not qualify even under the same underwriting guidelines,” Newbold said.
Tim Oliver, senior vice president and central Indiana market manager for Chase Business Banking, noted that Chase looks at many lending vehicles for its clients, and that, in 2009, SBA loans “weren’t the ideal solution in as many cases [as in 2008].”
Chase recently announced plans to increase small business lending system-wide by $4 billion in 2010, and to hire 325 additional small-business bankers. “We expect demand to pick up,” said Chase spokeswoman Nancy Norris.
The circumstances for National City Bank were slightly different than those of its two compatriots. National City was acquired by Pittsburgh-based PNC Financial Services Group Inc. on Dec. 31. (The 77 Indianapolis-area branches still carrying the National City name are expected to be rebranded in 2010.)
Prior to the Dec. 31 purchase and then as a division of PNC, National City originated 23 SBA 7(a) loans worth about $4.4 million for businesses in the Indianapolis area during the 2009 fiscal year—a 43 percent drop in value from 2008.
PNC spokesman Fred Solomon declined to speculate on the reasons behind the reduction in local 7(a) lending from 2008 or PNC’s level of participation in the program going forward.
“PNC will continue to be an active lender to small businesses,” Solomon said, noting that the bank as a whole originated more than $900 million in small-business loans, including SBA lending, in the third quarter of 2009.
Recovery Act assistance
Like much of the financial industry in late 2008 and early 2009, SBA lending sank in the muck of the recession and spun its wheels. However, it found better traction after the American Recovery and Reinvestment Act went into effect in March.
Portions of the act were designed to make SBA lending more attractive, including eliminating fees for borrowers and raising the agency’s guarantee from 75 percent to 90 percent.
Lending rebounded in a big way—to an average of $8.6 million a month from April to September, compared to $4 million per month from October 2008 to March 2009.
Smaller banks led the way nationwide, SBA’s Markowitz said.
“We’ve seen instant traction at the smaller community banks,” she said. “They have been able to pivot and grab onto these programs more quickly. … In this particular economy, the small banks are the strength of the network.”
Local standouts included Indiana Business Bank, which leaped from $490,000 on four loans in 2008 to $2 million on nine loans in 2009; Bank of Indiana NA, originating $2.9 million on four loans in 2009 after $830,000 on two loans in 2008; and Community First Bank of Indiana, which furnished four loans worth $2 million in 2009 after no activity in the Indianapolis area in 2008.
The federal funding that makes the Recovery Act provisions possible is expected to last through December, Markowitz said.
Central Indiana’s small-business community appeared to fare better than the rest of the country during the SBA’s 2009 fiscal year. The 7(a) program’s total dollar volume nationwide dropped from $12.7 billion in 2008 to $9.3 billion in 2009, a reduction of 27 percent. Indianapolis recorded a 17-percent drop, from $91.3 million to $75.8 million.
'We just gave up'
One local small-business owner who recently sought an SBA loan said his reception from banks was less than welcoming.
“It’s been very hard to get loans,” said Travis Sealls, co-owner of the Pita Pit franchise at 1 N. Pennsylvania St., which opened in March. “We just gave up on the whole thing.”
Looking for a loan to get the business off the ground, Sealls and a silent partner contacted about a dozen banks in mid-2008 to talk about lending opportunities. Only a handful returned their calls, and most said that their terms had become more restrictive. The only serious offer that they received demanded that they deposit $300,000—the full value of the loan—at the bank as collateral, Sealls said.
“It used to be that the worst-case scenario is that you’d only have to put down 30 percent,” he said. The partners had the capital to fulfill the requirement, but decided against taking the loan.
Going ahead with plans to open the eatery, they hired a broker to look for borrowing opportunities. They again received a single offer—an $185,000 loan through Old National Bank in April. Again, they decided to pass.
“We were like, ‘We really don’t need it now,’” Sealls said. “We weren’t in a cash crunch. We were up and running.”•
Thursday, November 19, 2009
Small Business Loans Article
CNNMoney.com
Small business loans: $10 billion evaporates
Reports to the Treasury confirm what small business owners have known all year: Banks are cutting back on Main Street lending.
By Catherine Clifford, CNNMoney.com staff reporter
Last Updated: November 17, 2009: 10:11 AM ET
NEW YORK (CNNMoney.com) -- Eight months after President Obama began prodding the nation's banks to increase their small business lending, the loan numbers continue to move in the opposite direction.
The 22 banks that got the most help from the Treasury's bailout programs cut their small business loan balances by a collective $10.5 billion over the past six months, according to a government report released Monday.
Three of the 22 banks make no small business loans at all. Of the remaining 19 banks, 15 have reduced their small business loan balance since April, when the Treasury department began requiring the biggest banks receiving Troubled Asset Relief Program (TARP) funding to report monthly on their small business lending.
Over the six months that the reporting requirement has been in effect, the banks have cut their collective small business lending by 4%. Their cumulative balance stood at $258.7 billion as of Sept. 30, according to a Treasury Department report.
The bank with the biggest lending drop was Wells Fargo (WFC, Fortune 500), which cut its loan balances by $3 billion. However, Wells Fargo also remains by far the biggest small business lender, with $73.8 billion lent out to small companies. No other bank comes close to that tally.
Some banks are unapologetic about their cutbacks. Small business defaults are soaring, and banks are under pressure to shore up their balance sheets and reduce their exposure to risky loans. Two key small business lenders, CIT Group and Advanta, filed for bankruptcy this month.
But other banks downplay their dwindling loan numbers.
JPMorgan Chase (JPM, Fortune 500) made headlines last week by announcing that it would increase its small business lending by $4 billion this year. But there's no sign of an increase so far in the reports the bank has been filing to the Treasury. JPMorgan's small business lending total has declined every month since April, falling 2.5% over the period. As of Sept. 30, the balance stood at $25.4 billion, down $664 million from six months ago.
JPMorgan spokesman Tom Kelly said the bank will ramp up its lending as the economy improves. The bank is already starting to see healthier, better-qualified applicants, he said: "Some of the businesses are better than they were six months ago."
He also pointed to JPMorgan's recent move to hire additional small business specialists. "We are going to have 325 more bankers talking to customers, so that means there is going to be more applicants for loans," Kelly said. "We have 325 more people knocking on doors."
Credit crunch: Obama administration officials, including Treasury Secretary Tim Geithner and Small Business Administration head Karen Mills, will host a forum Wednesday in Washington to discuss the lending challenges small businesses face. Bankers, members of Congress, and a selection of small business owners will participate.
While credit conditions have improved in some parts of the financial system, lending remains very tight for businesses that rely on banks for their financing, Federal Reserve Chairman Ben Bernanke acknowledged on Monday.
"Many small businesses have seen their bank credit lines reduced or eliminated, or they have been able to obtain credit only on significantly more restrictive terms," Bernanke said in a speech at the Economic Club of New York. "The fraction of small businesses reporting difficulty in obtaining credit is near a record high, and many of these businesses expect credit conditions to tighten further."
Those in the field back that view. Susan Carlson is president of The International Center for Assistance, a nonprofit organization in Richmond, Va., that assists small businesses seeking capital. Lenders remain very skittish, she said.
"They will look at me and say, 'Susan, we would love to help you, but right now we can't take the risk,'" she said.
Jobs on the line: Frank and Ingrid Brown are a prime example of what happens when entrepreneurs can't get financing. The couple would like to expand their businesses in Auburn, Ala., which currently employ 20 people, but can't land the loan they'd need to do it.
The Browns own two retail art and gift shops, The Villager and AuburnArt.com, as well as a collection of online stores. First they applied at the bank for a loan targeting businesses in underutilized urban areas, but were denied because their sales exceeded the cap for the loan. So they applied with the bank for a Small Business Administration-backed 7(a) loan, but were again rejected.
Next the Browns turned to the America's Recovery Capital (ARC) loan program, a stimulus measure launched this year to get government-backed bridge loans to struggling but viable businesses. After filling out mountains of paperwork, the couple got a bank loan for $14,000 -- less than half the $35,000 they applied for.
"We couldn't get any answers for why we didn't get the full amount, but that is what they came up with. It was kind of like 'take it or leave it,'" Frank said. "By the time you get through everything, it is not even worth it."
The Browns also applied at their local bank, BBVA Compass in Birmingham, for a $50,000 credit line. They were approved for $10,000.
The frustration is taking its toll. "People like us go out and hire people," Frank said. But without the capital it needs to grow, The Villager isn't bringing on new staffers.
That's the nightmare scenario for policymakers as they try to fan the flames of the nation's fragile economic recovery. As long as bank vaults stay slammed shut, fewer startups will launch, successful businesses will have trouble expanding, and struggling businesses are more likely to fail.
"Difficulties in obtaining credit could hinder the expansion of small and medium-sized businesses and prevent the formation of new businesses," Bernanke said on Monday. "Because smaller businesses account for a significant portion of net employment gains during recoveries, limited credit could hinder job growth."
Small business loans: $10 billion evaporates
Reports to the Treasury confirm what small business owners have known all year: Banks are cutting back on Main Street lending.
By Catherine Clifford, CNNMoney.com staff reporter
Last Updated: November 17, 2009: 10:11 AM ET
NEW YORK (CNNMoney.com) -- Eight months after President Obama began prodding the nation's banks to increase their small business lending, the loan numbers continue to move in the opposite direction.
The 22 banks that got the most help from the Treasury's bailout programs cut their small business loan balances by a collective $10.5 billion over the past six months, according to a government report released Monday.
Three of the 22 banks make no small business loans at all. Of the remaining 19 banks, 15 have reduced their small business loan balance since April, when the Treasury department began requiring the biggest banks receiving Troubled Asset Relief Program (TARP) funding to report monthly on their small business lending.
Over the six months that the reporting requirement has been in effect, the banks have cut their collective small business lending by 4%. Their cumulative balance stood at $258.7 billion as of Sept. 30, according to a Treasury Department report.
The bank with the biggest lending drop was Wells Fargo (WFC, Fortune 500), which cut its loan balances by $3 billion. However, Wells Fargo also remains by far the biggest small business lender, with $73.8 billion lent out to small companies. No other bank comes close to that tally.
Some banks are unapologetic about their cutbacks. Small business defaults are soaring, and banks are under pressure to shore up their balance sheets and reduce their exposure to risky loans. Two key small business lenders, CIT Group and Advanta, filed for bankruptcy this month.
But other banks downplay their dwindling loan numbers.
JPMorgan Chase (JPM, Fortune 500) made headlines last week by announcing that it would increase its small business lending by $4 billion this year. But there's no sign of an increase so far in the reports the bank has been filing to the Treasury. JPMorgan's small business lending total has declined every month since April, falling 2.5% over the period. As of Sept. 30, the balance stood at $25.4 billion, down $664 million from six months ago.
JPMorgan spokesman Tom Kelly said the bank will ramp up its lending as the economy improves. The bank is already starting to see healthier, better-qualified applicants, he said: "Some of the businesses are better than they were six months ago."
He also pointed to JPMorgan's recent move to hire additional small business specialists. "We are going to have 325 more bankers talking to customers, so that means there is going to be more applicants for loans," Kelly said. "We have 325 more people knocking on doors."
Credit crunch: Obama administration officials, including Treasury Secretary Tim Geithner and Small Business Administration head Karen Mills, will host a forum Wednesday in Washington to discuss the lending challenges small businesses face. Bankers, members of Congress, and a selection of small business owners will participate.
While credit conditions have improved in some parts of the financial system, lending remains very tight for businesses that rely on banks for their financing, Federal Reserve Chairman Ben Bernanke acknowledged on Monday.
"Many small businesses have seen their bank credit lines reduced or eliminated, or they have been able to obtain credit only on significantly more restrictive terms," Bernanke said in a speech at the Economic Club of New York. "The fraction of small businesses reporting difficulty in obtaining credit is near a record high, and many of these businesses expect credit conditions to tighten further."
Those in the field back that view. Susan Carlson is president of The International Center for Assistance, a nonprofit organization in Richmond, Va., that assists small businesses seeking capital. Lenders remain very skittish, she said.
"They will look at me and say, 'Susan, we would love to help you, but right now we can't take the risk,'" she said.
Jobs on the line: Frank and Ingrid Brown are a prime example of what happens when entrepreneurs can't get financing. The couple would like to expand their businesses in Auburn, Ala., which currently employ 20 people, but can't land the loan they'd need to do it.
The Browns own two retail art and gift shops, The Villager and AuburnArt.com, as well as a collection of online stores. First they applied at the bank for a loan targeting businesses in underutilized urban areas, but were denied because their sales exceeded the cap for the loan. So they applied with the bank for a Small Business Administration-backed 7(a) loan, but were again rejected.
Next the Browns turned to the America's Recovery Capital (ARC) loan program, a stimulus measure launched this year to get government-backed bridge loans to struggling but viable businesses. After filling out mountains of paperwork, the couple got a bank loan for $14,000 -- less than half the $35,000 they applied for.
"We couldn't get any answers for why we didn't get the full amount, but that is what they came up with. It was kind of like 'take it or leave it,'" Frank said. "By the time you get through everything, it is not even worth it."
The Browns also applied at their local bank, BBVA Compass in Birmingham, for a $50,000 credit line. They were approved for $10,000.
The frustration is taking its toll. "People like us go out and hire people," Frank said. But without the capital it needs to grow, The Villager isn't bringing on new staffers.
That's the nightmare scenario for policymakers as they try to fan the flames of the nation's fragile economic recovery. As long as bank vaults stay slammed shut, fewer startups will launch, successful businesses will have trouble expanding, and struggling businesses are more likely to fail.
"Difficulties in obtaining credit could hinder the expansion of small and medium-sized businesses and prevent the formation of new businesses," Bernanke said on Monday. "Because smaller businesses account for a significant portion of net employment gains during recoveries, limited credit could hinder job growth."
Wednesday, November 18, 2009
Article: For Bollywood, the Credit Crunch Means More Slumdog, Less Millionaire
The Wall Street Journal
www.wsj.com
For Bollywood, the Credit Crunch Means More Slumdog, Less Millionaire
By DEEPALI GUPTA
No money, no film; no film, no money. Bollywood is in a tough spot.
Lacking financing, India's movie producers are unable to finish and market their films. It could mean as many as half of the films scheduled for release this year mightn't make it, industry officials say.
The results speak for themselves. Bollywood, an industry that generates annual global revenue of above $2 billion, has released only about 20 major films -- targeted India-wide, with a reasonable publicity budget -- so far this year.
That is down from about 100 for the same period in past years, estimates UTV Software, a large movie production and distribution company.
Without these blockbusters, and the marketing behind them, to lure audiences into cinemas, ticket buyers are staying home. Cinema occupancy in India has dropped to 40%, from as high as 60% at the end of 2007, analysts estimate.
So the film industry is being forced to change the way it does business. Song and dance routines may be less flashy. And massive upfront salaries for film stars -- actors' pay accounts for nearly half of a film's typical budget -- are out.
Already, two of Bollywood's top male leads, Shah Rukh Khan and Aamir Khan, have agreed to be paid out of film profits instead of a straight salary. More are agreeing to similar profit-sharing terms.
Total film budgets could be cut as much as 30% to 45%, and more funds will go toward publicity to draw audiences, says Sheetal Talwar, managing director of Vistaar Religare, a $40 million fund that invests in films.
Some are hoping low-cost but high-quality content targeting the urban elite -- pointing to the success of "Slumdog Millionaire" -- will get them out of this spot.
Still, one thing Bollywood mightn't be able to address is cheaper alternative entertainment that has been keeping audiences at home. A key new rival is the TV broadcast of the Indian Premier League cricket tournament.
A spat between the producers and cineplexes that screen their films could make a bad situation worse. The producers have threatened that, unless they get a full half of ticket sales, they will stop releasing films entirely, as of Saturday.
This is a hard bargain to drive. As it is, multiplexes -- which currently share between 38% and 48% of collections, according to the finance chief of one large chain -- are dropping ticket prices. Movie-goers also aren't spending as much on high-margin food and beverages.
The key to combating Bollywood's malaise could be spending more money on promotion to draw in audiences.
The snag: That requires financing to flow again.
www.wsj.com
For Bollywood, the Credit Crunch Means More Slumdog, Less Millionaire
By DEEPALI GUPTA
No money, no film; no film, no money. Bollywood is in a tough spot.
Lacking financing, India's movie producers are unable to finish and market their films. It could mean as many as half of the films scheduled for release this year mightn't make it, industry officials say.
The results speak for themselves. Bollywood, an industry that generates annual global revenue of above $2 billion, has released only about 20 major films -- targeted India-wide, with a reasonable publicity budget -- so far this year.
That is down from about 100 for the same period in past years, estimates UTV Software, a large movie production and distribution company.
Without these blockbusters, and the marketing behind them, to lure audiences into cinemas, ticket buyers are staying home. Cinema occupancy in India has dropped to 40%, from as high as 60% at the end of 2007, analysts estimate.
So the film industry is being forced to change the way it does business. Song and dance routines may be less flashy. And massive upfront salaries for film stars -- actors' pay accounts for nearly half of a film's typical budget -- are out.
Already, two of Bollywood's top male leads, Shah Rukh Khan and Aamir Khan, have agreed to be paid out of film profits instead of a straight salary. More are agreeing to similar profit-sharing terms.
Total film budgets could be cut as much as 30% to 45%, and more funds will go toward publicity to draw audiences, says Sheetal Talwar, managing director of Vistaar Religare, a $40 million fund that invests in films.
Some are hoping low-cost but high-quality content targeting the urban elite -- pointing to the success of "Slumdog Millionaire" -- will get them out of this spot.
Still, one thing Bollywood mightn't be able to address is cheaper alternative entertainment that has been keeping audiences at home. A key new rival is the TV broadcast of the Indian Premier League cricket tournament.
A spat between the producers and cineplexes that screen their films could make a bad situation worse. The producers have threatened that, unless they get a full half of ticket sales, they will stop releasing films entirely, as of Saturday.
This is a hard bargain to drive. As it is, multiplexes -- which currently share between 38% and 48% of collections, according to the finance chief of one large chain -- are dropping ticket prices. Movie-goers also aren't spending as much on high-margin food and beverages.
The key to combating Bollywood's malaise could be spending more money on promotion to draw in audiences.
The snag: That requires financing to flow again.
Thursday, November 12, 2009
The Dish - Fountain Square News
The Dish
11.10.09
Edited by Beth A. Clayton
Hip To Be Square
Those who said Fountain Square wasn't living up to its promised potential may soon have to eat their words—or least give them a nibble. A couple new restaurants, a watering hole or two, and a coffee shop are currently in the works just off the Square.
•The first to come along is Calvin Fletcher's Coffee Company (615 Virginia Ave., 423-9697), which opened October 17 on Virginia Avenue in the Fletcher Place neighborhood. The not-for-profit café serves fair-trade coffee and organic teas, plus sweets from City Sweets and Classic Cakes. Each month, tips are donated to a different charity; this month's recipient is Second Helpings.
•Imbibe (1105 Shelby St.), opened Friday in the Fountain Square Theatre Building between owners Linton and Fern Calvert's other two restaurants, Smokehouse on Shelbi and the Shelbi Street Bistro. The Art Deco-themed bar offers small-plate appetizers, craft beers, specialty cocktails, and wines.
•Across the square in the Murphy Art Center, restaurateur Wally Bolinger plans to open The Red Lion, an English pub, the week of Thanksgiving. Bolinger also owns Britton Tavern in Noblesville, and says this one will offer traditional English favorites, like bangers and mash, shepherd's pie, and fish and chips, plus burgers and a couple of vegetarian options. Bolinger will also serve about a dozen craft beers (including some Sun King favorites), 20 bottled beers, and a short wine list.
•In the coming months, we can look forward the White Rabbit Cabaret (1116 E. Prospect St.), from sisters Debra and Rebecca Silveus, which will feature vaudeville-inspired dance shows and some movie and game nights, plus small-plate offerings and beer and wine. And finally, next door at 1130 East Prospect, Radio Radio owners David "Tufty" Clough and Roni Donaldson plan to open a full-service restaurant known tentatively as La Revolucion sometime next year.
11.10.09
Edited by Beth A. Clayton
Hip To Be Square
Those who said Fountain Square wasn't living up to its promised potential may soon have to eat their words—or least give them a nibble. A couple new restaurants, a watering hole or two, and a coffee shop are currently in the works just off the Square.
•The first to come along is Calvin Fletcher's Coffee Company (615 Virginia Ave., 423-9697), which opened October 17 on Virginia Avenue in the Fletcher Place neighborhood. The not-for-profit café serves fair-trade coffee and organic teas, plus sweets from City Sweets and Classic Cakes. Each month, tips are donated to a different charity; this month's recipient is Second Helpings.
•Imbibe (1105 Shelby St.), opened Friday in the Fountain Square Theatre Building between owners Linton and Fern Calvert's other two restaurants, Smokehouse on Shelbi and the Shelbi Street Bistro. The Art Deco-themed bar offers small-plate appetizers, craft beers, specialty cocktails, and wines.
•Across the square in the Murphy Art Center, restaurateur Wally Bolinger plans to open The Red Lion, an English pub, the week of Thanksgiving. Bolinger also owns Britton Tavern in Noblesville, and says this one will offer traditional English favorites, like bangers and mash, shepherd's pie, and fish and chips, plus burgers and a couple of vegetarian options. Bolinger will also serve about a dozen craft beers (including some Sun King favorites), 20 bottled beers, and a short wine list.
•In the coming months, we can look forward the White Rabbit Cabaret (1116 E. Prospect St.), from sisters Debra and Rebecca Silveus, which will feature vaudeville-inspired dance shows and some movie and game nights, plus small-plate offerings and beer and wine. And finally, next door at 1130 East Prospect, Radio Radio owners David "Tufty" Clough and Roni Donaldson plan to open a full-service restaurant known tentatively as La Revolucion sometime next year.
Article: The Accidental Hero
BusinessWeek
The Accidental Hero
Subway's $5 footlong, the brainchild of an obscure Miami franchisee, is the fast-food success story of the recession
By Matthew Boyle
Stuart Frankel isn't what you'd call a power player in the world of franchising. Five years ago he owned two small Subway sandwich shops at either end of Miami's Jackson Memorial Hospital. After noticing that sales sagged on weekends, he came up with an idea: He would offer every footlong sandwich (the chain also sells 6-inch versions) on Saturday and Sunday for $5, about a buck less than the usual price. "I like round numbers," says Frankel, a brusque New Yorker who moved to Miami in 1972 and owned a drugstore before opening his first Subway outlet in 1988.
Customers liked his round number, too. Instead of dealing with idle employees and weak sales, Frankel suddenly had lines out the door. Sales rose by double digits. Nobody, least of all Frankel, knew it at the time, but he had stumbled on a concept that has unexpectedly morphed from a short-term gimmick into a national phenomenon that has turbocharged Subway's performance. "There are only a few times when a chain has been able to scramble up the whole industry, and this is one of them," says Jeffrey T. Davis, president of restaurant consultancy Sandelman & Associates. "It's huge."
In fact, the $3.8 billion in sales generated nationwide by the $5 footlong alone placed it among the top 10 fast-food brands in the U.S. for the year ended in August, according to NPD Group. That puts the $5 menu's success just a notch behind KFC (YUM) and ahead of Arby's and Domino's Pizza (DPZ). It helped privately held Subway, of Milford, Conn., lift U.S. sales 17% last year at a time when most restaurant chains, save for industry leader McDonald's (MCD), struggled. Actually, make that soon-to-be-former industry leader McDonald's. Subway's low-cost franchising model and mainstream appeal have allowed it to add 9,500 locations in the past five years, for a total of about 32,000 outlets. At its current growth rate of 40 new stores a week, Subway is poised to surpass McDonald's in worldwide locations sometime early next year. (Measured by total sales, McDonald's $30 billion still dwarfs Subway's $9.6 billion, although Subway has now supplanted both Wendy's (WEN) and Burger King (BKC) in market share.)
...cont.
Click on title above, or HERE to view the entire article and video online.
The Accidental Hero
Subway's $5 footlong, the brainchild of an obscure Miami franchisee, is the fast-food success story of the recession
By Matthew Boyle
Stuart Frankel isn't what you'd call a power player in the world of franchising. Five years ago he owned two small Subway sandwich shops at either end of Miami's Jackson Memorial Hospital. After noticing that sales sagged on weekends, he came up with an idea: He would offer every footlong sandwich (the chain also sells 6-inch versions) on Saturday and Sunday for $5, about a buck less than the usual price. "I like round numbers," says Frankel, a brusque New Yorker who moved to Miami in 1972 and owned a drugstore before opening his first Subway outlet in 1988.
Customers liked his round number, too. Instead of dealing with idle employees and weak sales, Frankel suddenly had lines out the door. Sales rose by double digits. Nobody, least of all Frankel, knew it at the time, but he had stumbled on a concept that has unexpectedly morphed from a short-term gimmick into a national phenomenon that has turbocharged Subway's performance. "There are only a few times when a chain has been able to scramble up the whole industry, and this is one of them," says Jeffrey T. Davis, president of restaurant consultancy Sandelman & Associates. "It's huge."
In fact, the $3.8 billion in sales generated nationwide by the $5 footlong alone placed it among the top 10 fast-food brands in the U.S. for the year ended in August, according to NPD Group. That puts the $5 menu's success just a notch behind KFC (YUM) and ahead of Arby's and Domino's Pizza (DPZ). It helped privately held Subway, of Milford, Conn., lift U.S. sales 17% last year at a time when most restaurant chains, save for industry leader McDonald's (MCD), struggled. Actually, make that soon-to-be-former industry leader McDonald's. Subway's low-cost franchising model and mainstream appeal have allowed it to add 9,500 locations in the past five years, for a total of about 32,000 outlets. At its current growth rate of 40 new stores a week, Subway is poised to surpass McDonald's in worldwide locations sometime early next year. (Measured by total sales, McDonald's $30 billion still dwarfs Subway's $9.6 billion, although Subway has now supplanted both Wendy's (WEN) and Burger King (BKC) in market share.)
...cont.
Click on title above, or HERE to view the entire article and video online.
Tuesday, November 10, 2009
Article: Political Uncertainty Puts Freeze on Small Businesses
Wall Street Journal (www.wsj.com)
SMALL BUSINESS OCTOBER 28, 2009
Political Uncertainty Puts Freeze on Small Businesses
By GARY FIELDS
W. Michael Brown has scaled back hiring plans in his Virginia auto-parts stores. Carl Redman halted an expansion project at his Oregon contracting business. Bill Hammack is preparing layoffs at his road-construction company in Georgia.
The economy remains unsteady 22 months after the recession began, with banks restricting credit and consumers hunkering down. For these small businesses, and many others across the country, there's an additional dark cloud: uncertainty created by Washington's bid to reorganize a wide swath of the U.S. economy.
The economic contraction is of course the prime force driving companies to lay off workers. But a health-care overhaul grinding through Congress could bring unknown new obligations to insure employees. Bush-era tax cuts are set to end next year, and their fate is unclear. Legislation aimed at tackling climate change might raise businesses' energy costs. Meanwhile, a bill aimed at increasing transportation spending is stalled.
Many companies say they have responded by freezing hiring, cutting benefits and delaying expansion plans. With at least 60% of job growth historically coming out of the small-business sector, according to the government's Small Business Administration, that kind of inertia could impede an economic recovery.
Already, 7.2 million jobs have been lost during the recession, and forecasts show little or no job growth expected for the rest of the year.
Mr. Brown wants to expand Olympus Imported Auto Parts, his 32-year-old business, by adding two stores to his four in northern Virginia. But instead of staffing his new stores with the same number of employees as the older ones -- which would mean 40 new jobs -- he's expecting to hire only 15 people. He'll likely transfer some current workers to new stores.
His business, selling auto parts, has been fine during the recession, he said. "Historically we've been a recession-proof industry," he said, since people are more likely to repair vehicles than buy new ones in tough economic times.
He cut overtime for many of his 150 employees in anticipation of facing fresh health-care costs. He's worried about getting hit by higher taxes next year, which would cut into income to pay for expansion, raises, bonuses, new product lines and delivery trucks.
Company owners have passionate positions on each of these issues, but mostly they say they want more certainty about future costs.
"There's so much trepidation out there," said Mr. Brown. "The thing I'm struggling with is how the potential government takeover of health care coupled with impending taxes will impact my company."
One likely health-care proposal suggests imposing a per-employee fee on companies that have more than 50 workers and don't provide coverage. Mr. Brown currently provides Blue Cross coverage for his employees. He pays 75% of the premium for single employees and 50% for family coverage. With a fight expected over the bill that just passed the Senate Finance Committee, it is unclear how he will be affected.
Employment data released this month showed worse-than-expected job losses. According to a National Federation of Independent Business survey, 16% of small business owners said they plan to cut staff or not fill vacancies, a three-percentage-point increase over August. Only 7% said they planned to create new jobs.
The survey concludes that more business owners are planning to contract than expand. In August, businesses were split equally.
There is little reliable data explaining why companies are retrenching despite signs of life in the economy, including recent increases in production in some industries and rises in housing prices and new home sales. However, a variety of organizations that monitor business behavior, including the NFIB, the Associated General Contractors of America and the National Small Business Association, say political uncertainty is a substantial factor, alongside other more typical problems, such as availability of credit.
"No question, this is a tough issue for a lot of these companies," said David Wyss, chief economist at ratings firm Standard & Poor's. "It's all anecdotal, and it affects everybody differently, but the one common factor is people postpone decisions, and I'm afraid that's going to slow us down coming out of the recession."
Mr. Wyss said the resulting lack of hiring is one reason he's forecasting just 1.5% growth in the economy for 2010. "It's better than going down but it's not going to be fun."
Academic economists have long noted a link between economic growth and the political environment. Fed Chairman Ben Bernanke, in his 1979 Ph.D. thesis, wrote that "increased uncertainty provides an incentive to defer...investments in order to wait for new information."
Wharton School of Business Professor Raffi Amit cites the Obama administration's pending overhaul of banking regulations as another drag. He said it will likely require banks to hold more money in reserve, potentially reducing the pool of funds available to make loans.
That combines with uncertainty about other issues, he said. "Obviously people are worried about what health-care costs are going to be. Nobody knows. Taxes, who knows?"
Rep. Mike Coffman (R., Colo.), a member of the House Small Business Committee, said he hears most often from small-business owners about the financial obligations they will face because of taxes and health care. The transportation appropriations bill is another issue, he said.
"I think there is a lot of cash on the sidelines that isn't going to come until Washington" makes some decisions, he said.
Rep. Nydia Velazquez (D. N.Y.), chairwoman of the House Small Business Committee, said Congress has endeavored to take into account small businesses as it works on health care, climate change and financial regulation. She acknowledged the need for certainty in a recent hearing about the pending expiration of a tax break for first-time homeowners.
"Small firms want to see these matters addressed so they know what the rules are, can make informed decisions and plan for the future," she said in a written statement.
The White House referred calls to the Small Business Administration. SBA spokesman Jonathan Swain said officials there "haven't heard the specific concern" over uncertainty out of Washington. "Of course, we do know it's not been an easy year for small business." He said the agency has been working to help small businesses, which are key to the economic recovery, since they employ more than half of the workers in the U.S. Last week, the Obama administration said it would try to shift its bailout funds towards local banks that would in turn provide financing for small businesses.
Small businesses are generally defined as companies with fewer than 500 employees. However, the designation varies in different sectors and industries, with the number of employees and revenue factored in.
Mr. Redman, vice president of Bear Electric Inc. of Donald, Ore., said he'd rather be expanding his operation during a recession, with prices for things such as land, equipment and construction likely more affordable. He's also thought about adding to his 90-person staff.
"We'd love to step out on the limb and hire more people just to get more folks working, but things are so frightening, and number one on that list is health care," he said. "Second is taxes."
In past downturns, Mr. Redman said, he tried to expand his electrical-contracting business. This time, his company had plans drawn up by a local architect for a 10,000-square-foot addition to the warehouse where it maintains its inventory. Having more inventory on hand means he could handle more jobs quickly without waiting for supplies to come in.
The design had been approved by the city. A contract and construction were next.
"We pulled the plug," he said. "I made the decision based on all the unknowns. I didn't think it would be wise to make the expenditure because I don't know if I will need the money to pay for something else."
Mr. Redman also shelved trying to use the federal "cash for clunkers" program to buy new vehicles, in part because the health-care debate was at full boil. "In a recession, you want to spend cash to get out of the recession. But with this sword hanging over my head, I'm afraid to use my resources to buy more equipment or hire more people."
Often lost in the furor over health care is a transportation-appropriations law that was set to expire last month, leaving in limbo a six-year, $450 billion spending plan for highway construction, mass transit and other projects, as well as an additional $50 billion for high-speed rail. At the last minute, Congress extended the bill for one more month.
But without a reauthorization bill to replace the existing law, transportation funding remains at current levels for an indefinite period. That has made states and companies reluctant to start new, long-term projects until they know how much the future funding will be.
Mr. Hammack, president of C.W. Matthews Contracting Co., one of the largest road-construction companies in Georgia, said the ripple effect of the delay has already reached firms like his. His company had already laid off 700 of its 2,000 employees since 2007 because of the recession.
Now the delay in passage of the transportation-bill reauthorization and the dearth of state contracts means he's planning to lay off as many as 200 more employees by the end of the year.
"You can't proceed under business as normal when there's no clear direction out there," he said. "It's too dangerous to bet on the future and put your company in financial jeopardy."
He said the Obama administration's $787 billion stimulus package, while a positive shot, hasn't provided long-term help for heavy-construction companies such as his. "The stimulus package, at least as it relates to Georgia, isn't putting the heavy equipment to work that moves dirt," he said. "It's been asphalt work. It's not a sustainable cure for what ails the transportation industry."
Paul Campbell, executive vice president of Wheeler Machinery Co., a Caterpillar dealer in Salt Lake City, said Utah's contract work has ground to a standstill as well. "There's a trickledown when you mess with infrastructure," he said. "It has a freezing effect on everything." At his firm, this has meant 221 layoffs. He is considering more among the 629 employees left.
"There's very little private money going into any kind of construction," Mr. Campbell said. "You take the federal contracts out of that and it gets a whole lot worse really quick."
Sandy Abalos, of Abalos & Associates PLLC in Phoenix, is cutting benefits at her certified public accountant firm. She still pays 100% of health-care coverage for her 16 employees, but stopped making 401k contributions. She also stopped profit-sharing, a recent step to hold some cash in reserve in case health-care costs and taxes rise. She is trying to maintain staffing levels and leave salaries alone.
"These are people who have worked with me for 15 years. They're like family," she said. "I've told everybody there will not be bonuses, so they can plan their own financial life. Everybody has had to pull back."
SMALL BUSINESS OCTOBER 28, 2009
Political Uncertainty Puts Freeze on Small Businesses
By GARY FIELDS
W. Michael Brown has scaled back hiring plans in his Virginia auto-parts stores. Carl Redman halted an expansion project at his Oregon contracting business. Bill Hammack is preparing layoffs at his road-construction company in Georgia.
The economy remains unsteady 22 months after the recession began, with banks restricting credit and consumers hunkering down. For these small businesses, and many others across the country, there's an additional dark cloud: uncertainty created by Washington's bid to reorganize a wide swath of the U.S. economy.
The economic contraction is of course the prime force driving companies to lay off workers. But a health-care overhaul grinding through Congress could bring unknown new obligations to insure employees. Bush-era tax cuts are set to end next year, and their fate is unclear. Legislation aimed at tackling climate change might raise businesses' energy costs. Meanwhile, a bill aimed at increasing transportation spending is stalled.
Many companies say they have responded by freezing hiring, cutting benefits and delaying expansion plans. With at least 60% of job growth historically coming out of the small-business sector, according to the government's Small Business Administration, that kind of inertia could impede an economic recovery.
Already, 7.2 million jobs have been lost during the recession, and forecasts show little or no job growth expected for the rest of the year.
Mr. Brown wants to expand Olympus Imported Auto Parts, his 32-year-old business, by adding two stores to his four in northern Virginia. But instead of staffing his new stores with the same number of employees as the older ones -- which would mean 40 new jobs -- he's expecting to hire only 15 people. He'll likely transfer some current workers to new stores.
His business, selling auto parts, has been fine during the recession, he said. "Historically we've been a recession-proof industry," he said, since people are more likely to repair vehicles than buy new ones in tough economic times.
He cut overtime for many of his 150 employees in anticipation of facing fresh health-care costs. He's worried about getting hit by higher taxes next year, which would cut into income to pay for expansion, raises, bonuses, new product lines and delivery trucks.
Company owners have passionate positions on each of these issues, but mostly they say they want more certainty about future costs.
"There's so much trepidation out there," said Mr. Brown. "The thing I'm struggling with is how the potential government takeover of health care coupled with impending taxes will impact my company."
One likely health-care proposal suggests imposing a per-employee fee on companies that have more than 50 workers and don't provide coverage. Mr. Brown currently provides Blue Cross coverage for his employees. He pays 75% of the premium for single employees and 50% for family coverage. With a fight expected over the bill that just passed the Senate Finance Committee, it is unclear how he will be affected.
Employment data released this month showed worse-than-expected job losses. According to a National Federation of Independent Business survey, 16% of small business owners said they plan to cut staff or not fill vacancies, a three-percentage-point increase over August. Only 7% said they planned to create new jobs.
The survey concludes that more business owners are planning to contract than expand. In August, businesses were split equally.
There is little reliable data explaining why companies are retrenching despite signs of life in the economy, including recent increases in production in some industries and rises in housing prices and new home sales. However, a variety of organizations that monitor business behavior, including the NFIB, the Associated General Contractors of America and the National Small Business Association, say political uncertainty is a substantial factor, alongside other more typical problems, such as availability of credit.
"No question, this is a tough issue for a lot of these companies," said David Wyss, chief economist at ratings firm Standard & Poor's. "It's all anecdotal, and it affects everybody differently, but the one common factor is people postpone decisions, and I'm afraid that's going to slow us down coming out of the recession."
Mr. Wyss said the resulting lack of hiring is one reason he's forecasting just 1.5% growth in the economy for 2010. "It's better than going down but it's not going to be fun."
Academic economists have long noted a link between economic growth and the political environment. Fed Chairman Ben Bernanke, in his 1979 Ph.D. thesis, wrote that "increased uncertainty provides an incentive to defer...investments in order to wait for new information."
Wharton School of Business Professor Raffi Amit cites the Obama administration's pending overhaul of banking regulations as another drag. He said it will likely require banks to hold more money in reserve, potentially reducing the pool of funds available to make loans.
That combines with uncertainty about other issues, he said. "Obviously people are worried about what health-care costs are going to be. Nobody knows. Taxes, who knows?"
Rep. Mike Coffman (R., Colo.), a member of the House Small Business Committee, said he hears most often from small-business owners about the financial obligations they will face because of taxes and health care. The transportation appropriations bill is another issue, he said.
"I think there is a lot of cash on the sidelines that isn't going to come until Washington" makes some decisions, he said.
Rep. Nydia Velazquez (D. N.Y.), chairwoman of the House Small Business Committee, said Congress has endeavored to take into account small businesses as it works on health care, climate change and financial regulation. She acknowledged the need for certainty in a recent hearing about the pending expiration of a tax break for first-time homeowners.
"Small firms want to see these matters addressed so they know what the rules are, can make informed decisions and plan for the future," she said in a written statement.
The White House referred calls to the Small Business Administration. SBA spokesman Jonathan Swain said officials there "haven't heard the specific concern" over uncertainty out of Washington. "Of course, we do know it's not been an easy year for small business." He said the agency has been working to help small businesses, which are key to the economic recovery, since they employ more than half of the workers in the U.S. Last week, the Obama administration said it would try to shift its bailout funds towards local banks that would in turn provide financing for small businesses.
Small businesses are generally defined as companies with fewer than 500 employees. However, the designation varies in different sectors and industries, with the number of employees and revenue factored in.
Mr. Redman, vice president of Bear Electric Inc. of Donald, Ore., said he'd rather be expanding his operation during a recession, with prices for things such as land, equipment and construction likely more affordable. He's also thought about adding to his 90-person staff.
"We'd love to step out on the limb and hire more people just to get more folks working, but things are so frightening, and number one on that list is health care," he said. "Second is taxes."
In past downturns, Mr. Redman said, he tried to expand his electrical-contracting business. This time, his company had plans drawn up by a local architect for a 10,000-square-foot addition to the warehouse where it maintains its inventory. Having more inventory on hand means he could handle more jobs quickly without waiting for supplies to come in.
The design had been approved by the city. A contract and construction were next.
"We pulled the plug," he said. "I made the decision based on all the unknowns. I didn't think it would be wise to make the expenditure because I don't know if I will need the money to pay for something else."
Mr. Redman also shelved trying to use the federal "cash for clunkers" program to buy new vehicles, in part because the health-care debate was at full boil. "In a recession, you want to spend cash to get out of the recession. But with this sword hanging over my head, I'm afraid to use my resources to buy more equipment or hire more people."
Often lost in the furor over health care is a transportation-appropriations law that was set to expire last month, leaving in limbo a six-year, $450 billion spending plan for highway construction, mass transit and other projects, as well as an additional $50 billion for high-speed rail. At the last minute, Congress extended the bill for one more month.
But without a reauthorization bill to replace the existing law, transportation funding remains at current levels for an indefinite period. That has made states and companies reluctant to start new, long-term projects until they know how much the future funding will be.
Mr. Hammack, president of C.W. Matthews Contracting Co., one of the largest road-construction companies in Georgia, said the ripple effect of the delay has already reached firms like his. His company had already laid off 700 of its 2,000 employees since 2007 because of the recession.
Now the delay in passage of the transportation-bill reauthorization and the dearth of state contracts means he's planning to lay off as many as 200 more employees by the end of the year.
"You can't proceed under business as normal when there's no clear direction out there," he said. "It's too dangerous to bet on the future and put your company in financial jeopardy."
He said the Obama administration's $787 billion stimulus package, while a positive shot, hasn't provided long-term help for heavy-construction companies such as his. "The stimulus package, at least as it relates to Georgia, isn't putting the heavy equipment to work that moves dirt," he said. "It's been asphalt work. It's not a sustainable cure for what ails the transportation industry."
Paul Campbell, executive vice president of Wheeler Machinery Co., a Caterpillar dealer in Salt Lake City, said Utah's contract work has ground to a standstill as well. "There's a trickledown when you mess with infrastructure," he said. "It has a freezing effect on everything." At his firm, this has meant 221 layoffs. He is considering more among the 629 employees left.
"There's very little private money going into any kind of construction," Mr. Campbell said. "You take the federal contracts out of that and it gets a whole lot worse really quick."
Sandy Abalos, of Abalos & Associates PLLC in Phoenix, is cutting benefits at her certified public accountant firm. She still pays 100% of health-care coverage for her 16 employees, but stopped making 401k contributions. She also stopped profit-sharing, a recent step to hold some cash in reserve in case health-care costs and taxes rise. She is trying to maintain staffing levels and leave salaries alone.
"These are people who have worked with me for 15 years. They're like family," she said. "I've told everybody there will not be bonuses, so they can plan their own financial life. Everybody has had to pull back."
Monday, November 9, 2009
Article: The SBA is Ready for Its Close-Up... on YouTube?
The SBA is Ready for Its Close-Up... on YouTube?
By GEOFF WILLIAMS, AOL SMALL BUSINESS
Posted: 2009-11-04 15:24:12
It's a little surreal to imagine the Small Business Administration (SBA) amidst videos of Susan Boyle and animated dancing pandas, but they've been part of the YouTube generation for two months now. While their channel is nowhere near as popular as, say, the dancing wedding entrance that appeared in the summer, it seems to be an effective enough platform for the SBA. It currently has 203 subscribers, and the SBA introductory video has been seen by over 4,000 people. It's not setting the world on fire, but it is there, where the SBA can put its videos within reach of anyone, of course, but particularly those under 35, which the agency has made clear they'd like to reach.
Their joining YouTube has had some critics. Shortly after it debuted, George Cloutier, author of Profits Aren't Everything, They're the Only Thing, told Reuters, "SBA officials should be spending less time worrying about YouTube and more time on the thousands of small businesses that fail every week. We'll lose half a million to a million small businesses while they're worrying about the next generation."
And more recently, Susan Wilson Solovic blogged about the SBA star turn at Small Business Television and was equally dubious about the merits of marrying the government organization with YouTube. "There are countless sites on the Internet that provide training videos and other 'how-to' information, so why doesn't that SBA focus its energy on figuring out a strategy to get financing into the hands of small business owners?" wondered Solovic, whose essay appeared across the blogosphere, including prominent sites like The Huffington Post and AllBusiness.com.
"Small business lending is up only slightly after plummeting last year, and entrepreneurs remain unable to get the funds they need to keep their doors open," continued Solovic. "You'd think this would be the top priority at the SBA -- not posting videos and sending out news releases."
I can see the critics' point, but I think it was a smart decision on the SBA's part and don't see this as a sign that the corporate apocalypse is upon us. I seriously doubt that YouTube is actually the SBA's top priority, as Solovic suggested, and it doesn't bother me that some tax dollars from the estimated $825 million SBA budget for 2009 are being diverted to produce these videos. (The Huffington Post huffed, "Your Tax Dollars Are Paying for the SBA to Post Videos on YouTube!") If the SBA weren't on YouTube, you could easily make the argument that the government agency is out of touch and not concerned enough with reaching those young, twentysomethings operating startups.
Sure, plenty of the SBA's videos are self-serving, but there are educational videos about how to market yourself better and financing a business. It's hard to fault that.
Once these videos are posted, like everything else on the Internet, they're there presumably until the apocalypse. And while that means some information will be outdated, the SBA seems to be working on building a video library of educational and historical content that might be useful for years to come. Some may consider it unseemly to start producing videos for YouTube at a time when the business community looks to the SBA for economic guidance, but on the other hand, the folks being hired to produce these videos have been getting some relief from the recession. They probably wish every government agency and corporation would be so unseemly.
By GEOFF WILLIAMS, AOL SMALL BUSINESS
Posted: 2009-11-04 15:24:12
It's a little surreal to imagine the Small Business Administration (SBA) amidst videos of Susan Boyle and animated dancing pandas, but they've been part of the YouTube generation for two months now. While their channel is nowhere near as popular as, say, the dancing wedding entrance that appeared in the summer, it seems to be an effective enough platform for the SBA. It currently has 203 subscribers, and the SBA introductory video has been seen by over 4,000 people. It's not setting the world on fire, but it is there, where the SBA can put its videos within reach of anyone, of course, but particularly those under 35, which the agency has made clear they'd like to reach.
Their joining YouTube has had some critics. Shortly after it debuted, George Cloutier, author of Profits Aren't Everything, They're the Only Thing, told Reuters, "SBA officials should be spending less time worrying about YouTube and more time on the thousands of small businesses that fail every week. We'll lose half a million to a million small businesses while they're worrying about the next generation."
And more recently, Susan Wilson Solovic blogged about the SBA star turn at Small Business Television and was equally dubious about the merits of marrying the government organization with YouTube. "There are countless sites on the Internet that provide training videos and other 'how-to' information, so why doesn't that SBA focus its energy on figuring out a strategy to get financing into the hands of small business owners?" wondered Solovic, whose essay appeared across the blogosphere, including prominent sites like The Huffington Post and AllBusiness.com.
"Small business lending is up only slightly after plummeting last year, and entrepreneurs remain unable to get the funds they need to keep their doors open," continued Solovic. "You'd think this would be the top priority at the SBA -- not posting videos and sending out news releases."
I can see the critics' point, but I think it was a smart decision on the SBA's part and don't see this as a sign that the corporate apocalypse is upon us. I seriously doubt that YouTube is actually the SBA's top priority, as Solovic suggested, and it doesn't bother me that some tax dollars from the estimated $825 million SBA budget for 2009 are being diverted to produce these videos. (The Huffington Post huffed, "Your Tax Dollars Are Paying for the SBA to Post Videos on YouTube!") If the SBA weren't on YouTube, you could easily make the argument that the government agency is out of touch and not concerned enough with reaching those young, twentysomethings operating startups.
Sure, plenty of the SBA's videos are self-serving, but there are educational videos about how to market yourself better and financing a business. It's hard to fault that.
Once these videos are posted, like everything else on the Internet, they're there presumably until the apocalypse. And while that means some information will be outdated, the SBA seems to be working on building a video library of educational and historical content that might be useful for years to come. Some may consider it unseemly to start producing videos for YouTube at a time when the business community looks to the SBA for economic guidance, but on the other hand, the folks being hired to produce these videos have been getting some relief from the recession. They probably wish every government agency and corporation would be so unseemly.
Thursday, November 5, 2009
BizBuySell in the News
BizBuySell.com
Third Quarter 2009 Data Signals Improving Business-for-Sale Market
Business-for-sale transactions begin to increase after hitting bottom in recent months
San Francisco, CA - October 6, 2009 - BizBuySell.com -- the Internet's largest marketplace for buying or selling a small business -- today released economic data for the third quarter of 2009. After multiple quarters of declining business-for-sale transactions, the new numbers suggest that the state of the small business economy is finally beginning to improve.
BizBuySell.com's new Third Quarter 2009 Insight Report shows a 24% year-over-year drop in closed small business transactions. While still lagging behind year-ago transaction numbers, BizBuySell.com's previous report -- which included data for the second quarter of 2009 -- showed a dramatic 50% decline in closed business-for-sale transactions when compared to the same time period in 2008. Closed transactions are reported to BizBuySell.com by business brokers nationwide.
BizBuySell.com's quarter-over-quarter data also supports the rebound in the business-for-sale marketplace. The number of closed transactions reported in the third quarter increased by 7.4% as compared to second quarter transactions. Just one year earlier, when the recession was hitting its stride, that same quarter-over-quarter statistic dropped 30%.
"After many bleak months for the small business-for-sale economy, the market seems to have hit bottom and is fortunately now beginning to turn around," says Mike Handelsman, General Manager of BizBuySell.com. "As credit eases, business fundamentals recover and SBA lending criteria change with respect to goodwill, we are optimistic that the fourth quarter of this year and the first quarter of 2010 will show increased signs of recovery and growth."
Closed Transactions Increase as Pricing Drops
BizBuySell.com's third quarter data suggests that business sellers are dropping their prices, which is making it possible for more deals to close. For example, the median sale price for closed transactions fell to $149,000 from $189,500 year-over-year, a 21.4% decline in price.
The metrics used to value companies have seen a similarly dramatic downward trend. Revenue multiples on reported closed transactions dropped 9.6% to .62 in the third quarter of 2009, and cash flow multiples dropped to 2.44, a 12.2% year-over-year decrease. The revenue and cash flow multiples are calculated by dividing the selling price of the business by its reported annual revenue or cash flow.
"These year-over-year price declines are dramatic, and suggest there are good deals out there for potential business buyers," says Handelsman. "With unemployment at record high levels, and SBA lending loosening beginning in Q4, this decrease in pricing and valuation numbers has made the prospect of purchasing a business much more achievable to buyers."
Business Brokers Optimistic About Business-for-Sale Transactions
A recent BizBuySell.com survey of business brokers around the country similarly revealed that they are positive about the future of small business transactions:
•34% of business brokers reported expecting to close their next deal within the next few weeks.
•75% of survey respondents expect to close their next small business transaction within the next three months.
•47% of survey respondents believe small business transaction levels will not fall any further than they were during the second quarter of 2009, which leads 78% of survey respondents to believe that business-for-sale transactions will begin to increase again before Q2 2010.
For more information on the BizBuySell.com Third Quarter 2009 Insight Report, visit http://www.bizbuysell.com/news/media_insight.html.
Third Quarter 2009 Data Signals Improving Business-for-Sale Market
Business-for-sale transactions begin to increase after hitting bottom in recent months
San Francisco, CA - October 6, 2009 - BizBuySell.com -- the Internet's largest marketplace for buying or selling a small business -- today released economic data for the third quarter of 2009. After multiple quarters of declining business-for-sale transactions, the new numbers suggest that the state of the small business economy is finally beginning to improve.
BizBuySell.com's new Third Quarter 2009 Insight Report shows a 24% year-over-year drop in closed small business transactions. While still lagging behind year-ago transaction numbers, BizBuySell.com's previous report -- which included data for the second quarter of 2009 -- showed a dramatic 50% decline in closed business-for-sale transactions when compared to the same time period in 2008. Closed transactions are reported to BizBuySell.com by business brokers nationwide.
BizBuySell.com's quarter-over-quarter data also supports the rebound in the business-for-sale marketplace. The number of closed transactions reported in the third quarter increased by 7.4% as compared to second quarter transactions. Just one year earlier, when the recession was hitting its stride, that same quarter-over-quarter statistic dropped 30%.
"After many bleak months for the small business-for-sale economy, the market seems to have hit bottom and is fortunately now beginning to turn around," says Mike Handelsman, General Manager of BizBuySell.com. "As credit eases, business fundamentals recover and SBA lending criteria change with respect to goodwill, we are optimistic that the fourth quarter of this year and the first quarter of 2010 will show increased signs of recovery and growth."
Closed Transactions Increase as Pricing Drops
BizBuySell.com's third quarter data suggests that business sellers are dropping their prices, which is making it possible for more deals to close. For example, the median sale price for closed transactions fell to $149,000 from $189,500 year-over-year, a 21.4% decline in price.
The metrics used to value companies have seen a similarly dramatic downward trend. Revenue multiples on reported closed transactions dropped 9.6% to .62 in the third quarter of 2009, and cash flow multiples dropped to 2.44, a 12.2% year-over-year decrease. The revenue and cash flow multiples are calculated by dividing the selling price of the business by its reported annual revenue or cash flow.
"These year-over-year price declines are dramatic, and suggest there are good deals out there for potential business buyers," says Handelsman. "With unemployment at record high levels, and SBA lending loosening beginning in Q4, this decrease in pricing and valuation numbers has made the prospect of purchasing a business much more achievable to buyers."
Business Brokers Optimistic About Business-for-Sale Transactions
A recent BizBuySell.com survey of business brokers around the country similarly revealed that they are positive about the future of small business transactions:
•34% of business brokers reported expecting to close their next deal within the next few weeks.
•75% of survey respondents expect to close their next small business transaction within the next three months.
•47% of survey respondents believe small business transaction levels will not fall any further than they were during the second quarter of 2009, which leads 78% of survey respondents to believe that business-for-sale transactions will begin to increase again before Q2 2010.
For more information on the BizBuySell.com Third Quarter 2009 Insight Report, visit http://www.bizbuysell.com/news/media_insight.html.
Monday, November 2, 2009
Article: Anderson gas-station chain sues BP after 32-store deal sours
October 31, 2009
Peter Schnitzler
Click HERE to view the original article
Ricker Oil's Oct. 22 suit claims British petroleum giant BP is charging unjustified royalty fees while delivering no boost from its national advertising, its proprietary IT system or its bulk purchase pricing. Anderson-based Ricker Oil Co. a year ago bought all 32 of London-based BP’s Indianapolis-area locations, a blockbuster deal that gave Ricker access to the state’s largest market and made it the biggest Indiana-based gas-station chain.
But now that deal has soured, and Ricker is suing BP in federal court over poor performance of the 19 gas stations and mini marts that operate under BP’s franchised am/pm brand.
The Oct. 22 suit claims BP is charging unjustified royalty fees while delivering no boost from its national advertising, its proprietary IT system or its bulk purchase pricing.
The family-owned company claims it is now losing “thousands of dollars per month” as a result of the deal and that problems related to the am/pm stores are “crippling Ricker’s economic stability.”
“BP has continued to hold Ricker at bay from moving forward with this lawsuit by promising to remedy these issues but, to date, BP continues to fail to do so,” the lawsuit reads.
Jay Ricker, a former gasoline tank wagon driver, and his wife, Nancy, launched Ricker Oil in 1979. In addition to its Indianapolis locations, the 700-employee company operates 29 convenience stores along the Interstate 69 corridor in northeastern Indiana, and supplies 25 independent operators. Locally, Ricker Oil this year was the title sponsor of Conner Prairie’s $2.2 million “1859 Balloon Voyage” exhibit, and offered coupons for rides at its stores.
Ricker Oil didn’t disclose terms of its deal when it bought BP’s Indianapolis locations, and they aren’t listed in the lawsuit. Both Jay Ricker and his attorney declined to answer IBJ’s questions. So did a BP spokesman.
However, in court documents, Ricker Oil complains it expected to enjoy special discounted pricing, but soon found BP’s goods cost much more than it had been paying, with far longer delivery times.
Ricker Oil also grumbles about capital expenses it considers unnecessary, such as cigarette display cases it had previously obtained for free from tobacco manufacturers, or red product shelving BP demanded be replaced with white in every store.
And Ricker alleges BP requires it to order bulk quantities of items such as condiments, regardless of a store’s size or average traffic, most of which are wasted, “thereby costing thousands of dollars per month.”
BP’s “Retalix” pricing system also hasn’t worked properly for Ricker Oil, according to the suit. Under its own legacy IT system, Ricker Oil argues, it can quickly change prices across its chain for all its products. BP’s system requires a manager to make every change manually, which “costs Ricker thousands of man hours per year and provides larger error rates.”
The company alleges that system also can’t accurately track inventory. Under a buy-one-get-one-free promotion for candy bars, for example, the suit alleges Retalix counts only one bar, leaving managers to guess whether losses are legitimate or from shoplifting.
And Ricker Oil claims Retalix regularly fails to process credit card transactions, allowing customers to drive away from the pump without paying for their gas.
Businesses operating in less competitive industries might be able to ignore such problems—or at least wait longer to work them out before filing suit. But even before the recession, gasoline stations’ margins were incredibly thin, according to the Indiana Petroleum Marketers and Convenience Store Association.
Executive Director Scott Imus said that last year his members made just 3.9 cents on every gallon of gas they sold, and that’s before the cost of credit and debit card transactions is factored in.
And because drivers are highly price-sensitive, stations wait to increase their gas charges until their competition moves en masse, even if they’re squeezed when the wholesale cost of fuel rises dramatically.
“If the market is below cost, you have to be there,” Imus said. “If not, you might as well send your employees home for the day, because nobody’s going to buy fuel from you.”
Typically, card companies charge 2.5 percent to 3.5 percent off the top line, said Kelly McClure, president of Marion-based McClure Oil Corp., which operates 35 gas stations with 375 employees in northern Indiana. That makes a huge difference when you’re mainly selling magazines, soda pop and gum, all available from nearby competing groceries or drugstores.
“The credit card companies made far more off our business than we ever thought about making off our business last year,” McClure said. “And they didn’t do anything but clear the transaction.”
Even in the face of such challenges, companies with thin profit margins can prosper—a point Wal-Mart has proven—said Richard Feinberg, a consumer sciences and retailing professor at Purdue University
Feinberg expects BP to settle, allowing Ricker Oil to put aside the legal distraction. But if the case goes to trial, Ricker will need to prove BP over-promised and under-delivered under the terms of its franchise agreement, he said.
“Any franchise agreement spells out the contributions of the franchisee and franchisor. That relationship is like a marriage. Sometimes it’s tough,” Feinberg said. “There have been a lot of suits just like this. Usually, they’re settled. Usually, the franchisor says, ‘Let’s kiss and make up and go to bed together.’”
Peter Schnitzler
Click HERE to view the original article
Ricker Oil's Oct. 22 suit claims British petroleum giant BP is charging unjustified royalty fees while delivering no boost from its national advertising, its proprietary IT system or its bulk purchase pricing. Anderson-based Ricker Oil Co. a year ago bought all 32 of London-based BP’s Indianapolis-area locations, a blockbuster deal that gave Ricker access to the state’s largest market and made it the biggest Indiana-based gas-station chain.
But now that deal has soured, and Ricker is suing BP in federal court over poor performance of the 19 gas stations and mini marts that operate under BP’s franchised am/pm brand.
The Oct. 22 suit claims BP is charging unjustified royalty fees while delivering no boost from its national advertising, its proprietary IT system or its bulk purchase pricing.
The family-owned company claims it is now losing “thousands of dollars per month” as a result of the deal and that problems related to the am/pm stores are “crippling Ricker’s economic stability.”
“BP has continued to hold Ricker at bay from moving forward with this lawsuit by promising to remedy these issues but, to date, BP continues to fail to do so,” the lawsuit reads.
Jay Ricker, a former gasoline tank wagon driver, and his wife, Nancy, launched Ricker Oil in 1979. In addition to its Indianapolis locations, the 700-employee company operates 29 convenience stores along the Interstate 69 corridor in northeastern Indiana, and supplies 25 independent operators. Locally, Ricker Oil this year was the title sponsor of Conner Prairie’s $2.2 million “1859 Balloon Voyage” exhibit, and offered coupons for rides at its stores.
Ricker Oil didn’t disclose terms of its deal when it bought BP’s Indianapolis locations, and they aren’t listed in the lawsuit. Both Jay Ricker and his attorney declined to answer IBJ’s questions. So did a BP spokesman.
However, in court documents, Ricker Oil complains it expected to enjoy special discounted pricing, but soon found BP’s goods cost much more than it had been paying, with far longer delivery times.
Ricker Oil also grumbles about capital expenses it considers unnecessary, such as cigarette display cases it had previously obtained for free from tobacco manufacturers, or red product shelving BP demanded be replaced with white in every store.
And Ricker alleges BP requires it to order bulk quantities of items such as condiments, regardless of a store’s size or average traffic, most of which are wasted, “thereby costing thousands of dollars per month.”
BP’s “Retalix” pricing system also hasn’t worked properly for Ricker Oil, according to the suit. Under its own legacy IT system, Ricker Oil argues, it can quickly change prices across its chain for all its products. BP’s system requires a manager to make every change manually, which “costs Ricker thousands of man hours per year and provides larger error rates.”
The company alleges that system also can’t accurately track inventory. Under a buy-one-get-one-free promotion for candy bars, for example, the suit alleges Retalix counts only one bar, leaving managers to guess whether losses are legitimate or from shoplifting.
And Ricker Oil claims Retalix regularly fails to process credit card transactions, allowing customers to drive away from the pump without paying for their gas.
Businesses operating in less competitive industries might be able to ignore such problems—or at least wait longer to work them out before filing suit. But even before the recession, gasoline stations’ margins were incredibly thin, according to the Indiana Petroleum Marketers and Convenience Store Association.
Executive Director Scott Imus said that last year his members made just 3.9 cents on every gallon of gas they sold, and that’s before the cost of credit and debit card transactions is factored in.
And because drivers are highly price-sensitive, stations wait to increase their gas charges until their competition moves en masse, even if they’re squeezed when the wholesale cost of fuel rises dramatically.
“If the market is below cost, you have to be there,” Imus said. “If not, you might as well send your employees home for the day, because nobody’s going to buy fuel from you.”
Typically, card companies charge 2.5 percent to 3.5 percent off the top line, said Kelly McClure, president of Marion-based McClure Oil Corp., which operates 35 gas stations with 375 employees in northern Indiana. That makes a huge difference when you’re mainly selling magazines, soda pop and gum, all available from nearby competing groceries or drugstores.
“The credit card companies made far more off our business than we ever thought about making off our business last year,” McClure said. “And they didn’t do anything but clear the transaction.”
Even in the face of such challenges, companies with thin profit margins can prosper—a point Wal-Mart has proven—said Richard Feinberg, a consumer sciences and retailing professor at Purdue University
Feinberg expects BP to settle, allowing Ricker Oil to put aside the legal distraction. But if the case goes to trial, Ricker will need to prove BP over-promised and under-delivered under the terms of its franchise agreement, he said.
“Any franchise agreement spells out the contributions of the franchisee and franchisor. That relationship is like a marriage. Sometimes it’s tough,” Feinberg said. “There have been a lot of suits just like this. Usually, they’re settled. Usually, the franchisor says, ‘Let’s kiss and make up and go to bed together.’”
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Son Isaac on Camel in Tangiers
