WSJ.com, WSJ Bogs - Real Time Economics
By Phil Izzo
March 28, 2011
The U.S. Economy is recovering from a severe recession, but some industries are unlikely to ever fully bounce back.
A new analysis by research firm IBISWorld looks at 10 industries that appear to be dying. The list isn't exactly shocking, but it represents a mix of sectors that are being left behind by technology or have been hurt by cheaper overseas competition.
The biggest industry profiled by IBISWorld is wired telecom carriers, largely being supplanted by cell phones and the internet. The dominance of the Web and digital media also puts Newspaper publishers, record stores and video-rental companies on the list. Meanwhile photofinishing also takes its place among the top 10 dying industries thanks to the growing influence of digital photography.
to read the full article, and see the rest of the top 10... click here.
Showing posts with label economy. Show all posts
Showing posts with label economy. Show all posts
Tuesday, March 29, 2011
Saturday, August 14, 2010
Check out The New Abnormal - BusinessWeek
BusinessSherpa: "Great Article!!!!!! Love the term The New Abnormal."
The New Abnormal
By Devin Leonard
Business Week
In March, Ralph Ronzio went to a warehouse in a seedy part of Orange County, Calif., and watched a guy auction off his condo for half what he'd paid for it. Ronzio had bought the place for $329,000 in 2005, when he moved to Southern California from Rhode Island to take a job at a data-storage company. It was the first place he'd ever owned. "It was totally my bachelor pad," he says. "Not much inside other than the usual leather couch and the big screen TV. My fiancée made me sell the couch."
That wasn't the only thing that changed when Ronzio got engaged. His fiancée had two young children, and there wasn't enough room in the condo for all four of them. So last year, Ronzio bought a house nine miles away and they all moved in. He figured he could rent the condo and cover his costs. He figured wrong.
The more he thought about the money he was losing, the more it stressed him out. Finally, Ronzio enlisted the help of a firm called You Walk Away and did exactly that from the remaining $319,000 on his condo mortgage. When the bank foreclosed, he says he felt an enormous sense of relief. He also had more cash. He and his fiancée took the kids to Disneyland. Ronzio, 31, gave himself a treat as well. "I bought myself an iPad," he says.
It used to be that someone like Ralph Ronzio could be fairly certain of the outcome when spending a few hundred thousand dollars on real estate. Housing prices were headed in only one direction. You could surf the boom and borrow against your home equity to pay for all manner of splurges—a vacation, a flat-screen TV, the latest Apple gadget. It may have looked like a lot of debt on paper, but considering that housing prices nearly doubled from 1999 to 2006, there was always an escape hatch: Sell your house and make enough money to pay it all back.
That was the old normal. Last year, Mohamed El-Erian, CEO of PIMCO, the influential bond shop, declared a "new normal," a global realignment in which the U.S. consumer, no longer a hungry monster, became cautious and subdued.
The current circumstances might be better described as the new abnormal, in which no one knows anything.
To read the full article… click here.
The New Abnormal
By Devin Leonard
Business Week
In March, Ralph Ronzio went to a warehouse in a seedy part of Orange County, Calif., and watched a guy auction off his condo for half what he'd paid for it. Ronzio had bought the place for $329,000 in 2005, when he moved to Southern California from Rhode Island to take a job at a data-storage company. It was the first place he'd ever owned. "It was totally my bachelor pad," he says. "Not much inside other than the usual leather couch and the big screen TV. My fiancée made me sell the couch."
That wasn't the only thing that changed when Ronzio got engaged. His fiancée had two young children, and there wasn't enough room in the condo for all four of them. So last year, Ronzio bought a house nine miles away and they all moved in. He figured he could rent the condo and cover his costs. He figured wrong.
The more he thought about the money he was losing, the more it stressed him out. Finally, Ronzio enlisted the help of a firm called You Walk Away and did exactly that from the remaining $319,000 on his condo mortgage. When the bank foreclosed, he says he felt an enormous sense of relief. He also had more cash. He and his fiancée took the kids to Disneyland. Ronzio, 31, gave himself a treat as well. "I bought myself an iPad," he says.
It used to be that someone like Ralph Ronzio could be fairly certain of the outcome when spending a few hundred thousand dollars on real estate. Housing prices were headed in only one direction. You could surf the boom and borrow against your home equity to pay for all manner of splurges—a vacation, a flat-screen TV, the latest Apple gadget. It may have looked like a lot of debt on paper, but considering that housing prices nearly doubled from 1999 to 2006, there was always an escape hatch: Sell your house and make enough money to pay it all back.
That was the old normal. Last year, Mohamed El-Erian, CEO of PIMCO, the influential bond shop, declared a "new normal," a global realignment in which the U.S. consumer, no longer a hungry monster, became cautious and subdued.
The current circumstances might be better described as the new abnormal, in which no one knows anything.
To read the full article… click here.
Friday, June 11, 2010
Sometimes a bailout can actually prevent progress and growth...
I have followed with fascination the debate about whether or not to bailout banks, car companies etc and the long term effects on our economic system.
I was then struck by a recent example of a situation of where there wasn't a bailout for a struggling local business.
A local bar which was in a great location was failing because of poor and inept management--the place was a mess and eventually closed its doors and the owners suffered a significant economic loss. Enter another set of entrepreneurs who picked up the location at a bargain and who went in and did a significant renovation. A new successful and popular establishment emerged--generating lots more revenue and taxes--employing many more people. The question I ask--what would have been gained if the old bar and gotten a "bailout" and had been allowed to stay in business and limp along following its old management ways?
Tell me what you think...
I was then struck by a recent example of a situation of where there wasn't a bailout for a struggling local business.
A local bar which was in a great location was failing because of poor and inept management--the place was a mess and eventually closed its doors and the owners suffered a significant economic loss. Enter another set of entrepreneurs who picked up the location at a bargain and who went in and did a significant renovation. A new successful and popular establishment emerged--generating lots more revenue and taxes--employing many more people. The question I ask--what would have been gained if the old bar and gotten a "bailout" and had been allowed to stay in business and limp along following its old management ways?
Tell me what you think...
Wednesday, June 2, 2010
US money supply plunges at 1930s pace as Obama eyes fresh stimulus
The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history.
By Ambrose Evans-Pritchard
Telegraph.co.uk
The M3 figures - which include broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance - began shrinking last summer. The pace has since quickened.
The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.
"It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly," he said.
The US authorities have an entirely different explanation for the failure of stimulus measures to gain full traction. They are opting instead for yet further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97pc of GDP next year and 110pc by 2015.
To read the full article... click here.
By Ambrose Evans-Pritchard
Telegraph.co.uk
The M3 figures - which include broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance - began shrinking last summer. The pace has since quickened.
The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.
"It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly," he said.
The US authorities have an entirely different explanation for the failure of stimulus measures to gain full traction. They are opting instead for yet further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97pc of GDP next year and 110pc by 2015.
To read the full article... click here.
Thursday, February 4, 2010
Cautionary Tale
Wall Street Journal
Small Investors Lost It All in Memphis
By LINGLING WEI
The commercial real-estate mess is clobbering lots of investors. Few of them are reeling as much as the 27 owners of 1023 Cherry Road in Memphis, Tenn.
The office complex about five miles east of downtown tumbled into foreclosure last fall because the owners couldn't refinance the $14 million loan used to buy the two glass-and-steel buildings in 2004. They also lost all $7.1 million they invested.
Cherry Road's collapse is an ominous sign for thousands of other commercial real-estate deals in which mom-and-pop investors pooled their money to get a tiny piece of the action. As unemployment and fallout from the credit crunch fuel rising vacancies and declining rents, a growing number of small investors are getting wiped out.
"We ended up all losing collectively $7 million of lifetime savings," says Lynn Rogoff, a New York artist who put $213,000 into the Cherry Road deal. Individual losses range from about $100,000 to $700,000, according to Cherry Road investors.
Many such deals were structured as so-called "tenant-in-common" ventures, known by the acronym TIC. Often, the TICs took out commercial mortgages that were packaged into commercial-mortgage-backed securities.
"Now, they're starting to experience problems on the property levels," says Marc Perusse, principal at RSS Advisors, a Denver firm that works with troubled TIC investors. "With the majority of TIC investments being syndicated from 2005 to 2007, the future of many of these assets is extremely bleak."
CMBS delinquencies climbed to about 6.5% this month, an all-time high, according to Trepp, a New York company that tracks the commercial property market. More trouble is looming for small-time property owners because much of the $223 billion of CMBS debt coming due between now and 2013 is in the form of mortgages of less than $50 million.
TICs surged in popularity after the Internal Revenue Service said in 2002 that they could be used by investors to defer capital-gains taxes from the sale of "like kind" properties. More than $14 billion in TIC equity is outstanding, according to Omni Real Estate Services, a TIC brokerage and research firm in Salt Lake City. Unlike deals where large developers overloaded acquisitions with debt, many of the mom-and-pop deals were conservatively underwritten. For example, the Cherry Road group put up a third of the purchase price in equity, and the buildings generated more than enough cash to service the debt.
If the $14 million mortgage had been held by a bank, it might have been refinanced or modified because the owners were current on their payments when it came due.
But the Cherry Road loan, made by KeyCorp, was sold off as CMBS to investors by Merrill Lynch & Co., now part of Bank of America Corp. When the loan matured in April, the owners couldn't refinance the debt, since the CMBS market has essentially been shut down for more than a year. The owners also reached out to about 40 banks, but were rejected by all of them because the property's value had declined.
One problem: The lone tenant, Harrah's Entertainment Inc., moved its back-office operations out of Cherry Road even though its two leases are in effect until 2012 and 2017 and the company has continued to pay rent. The move by the tenant has caused a significant drop in the property's value.
Cherry Road property's manager, TIC Properties Management LLC, contacted the "master servicer" about a loan extension, according to Paul Aiesi, the company's chief investment officer. But the servicer, KeyCorp, was only in charge of passing along interest payments to the CMBS investors every month. According to CMBS rules, a master servicer has no power to modify loans before they go into default. A KeyCorp representative declined to comment.
After the mortgage wasn't paid off when it came due in April 2009, it was transferred to a specialist in troubled loans.
"We put some strong proposals in front of the special servicer, but they showed very little willingness to negotiate at all and seemed content to foreclose and keep the property" in its real-estate-owned portfolio, Mr. Aiesi says.
A spokeswoman at the servicer, ING Clarion, declined to comment.
Mr. Aiesi says the servicer offered to extend the loan if the investors would contribute another $2 million in equity. He recommended against that move.
"The property is worth significantly less than the debt on it," he explains.
Cherry Road investors say they are innocent bystanders who are paying a painful price for the credit crunch.
"We're not going out to fancy dinners and we're not taking vacations or major trips," says Steve Harris, a retired television-advertising executive who lives in Valley Center, Calif. He declined to say how much he invested in the Cherry Road building.
Small Investors Lost It All in Memphis
By LINGLING WEI
The commercial real-estate mess is clobbering lots of investors. Few of them are reeling as much as the 27 owners of 1023 Cherry Road in Memphis, Tenn.
The office complex about five miles east of downtown tumbled into foreclosure last fall because the owners couldn't refinance the $14 million loan used to buy the two glass-and-steel buildings in 2004. They also lost all $7.1 million they invested.
Cherry Road's collapse is an ominous sign for thousands of other commercial real-estate deals in which mom-and-pop investors pooled their money to get a tiny piece of the action. As unemployment and fallout from the credit crunch fuel rising vacancies and declining rents, a growing number of small investors are getting wiped out.
"We ended up all losing collectively $7 million of lifetime savings," says Lynn Rogoff, a New York artist who put $213,000 into the Cherry Road deal. Individual losses range from about $100,000 to $700,000, according to Cherry Road investors.
Many such deals were structured as so-called "tenant-in-common" ventures, known by the acronym TIC. Often, the TICs took out commercial mortgages that were packaged into commercial-mortgage-backed securities.
"Now, they're starting to experience problems on the property levels," says Marc Perusse, principal at RSS Advisors, a Denver firm that works with troubled TIC investors. "With the majority of TIC investments being syndicated from 2005 to 2007, the future of many of these assets is extremely bleak."
CMBS delinquencies climbed to about 6.5% this month, an all-time high, according to Trepp, a New York company that tracks the commercial property market. More trouble is looming for small-time property owners because much of the $223 billion of CMBS debt coming due between now and 2013 is in the form of mortgages of less than $50 million.
TICs surged in popularity after the Internal Revenue Service said in 2002 that they could be used by investors to defer capital-gains taxes from the sale of "like kind" properties. More than $14 billion in TIC equity is outstanding, according to Omni Real Estate Services, a TIC brokerage and research firm in Salt Lake City. Unlike deals where large developers overloaded acquisitions with debt, many of the mom-and-pop deals were conservatively underwritten. For example, the Cherry Road group put up a third of the purchase price in equity, and the buildings generated more than enough cash to service the debt.
If the $14 million mortgage had been held by a bank, it might have been refinanced or modified because the owners were current on their payments when it came due.
But the Cherry Road loan, made by KeyCorp, was sold off as CMBS to investors by Merrill Lynch & Co., now part of Bank of America Corp. When the loan matured in April, the owners couldn't refinance the debt, since the CMBS market has essentially been shut down for more than a year. The owners also reached out to about 40 banks, but were rejected by all of them because the property's value had declined.
One problem: The lone tenant, Harrah's Entertainment Inc., moved its back-office operations out of Cherry Road even though its two leases are in effect until 2012 and 2017 and the company has continued to pay rent. The move by the tenant has caused a significant drop in the property's value.
Cherry Road property's manager, TIC Properties Management LLC, contacted the "master servicer" about a loan extension, according to Paul Aiesi, the company's chief investment officer. But the servicer, KeyCorp, was only in charge of passing along interest payments to the CMBS investors every month. According to CMBS rules, a master servicer has no power to modify loans before they go into default. A KeyCorp representative declined to comment.
After the mortgage wasn't paid off when it came due in April 2009, it was transferred to a specialist in troubled loans.
"We put some strong proposals in front of the special servicer, but they showed very little willingness to negotiate at all and seemed content to foreclose and keep the property" in its real-estate-owned portfolio, Mr. Aiesi says.
A spokeswoman at the servicer, ING Clarion, declined to comment.
Mr. Aiesi says the servicer offered to extend the loan if the investors would contribute another $2 million in equity. He recommended against that move.
"The property is worth significantly less than the debt on it," he explains.
Cherry Road investors say they are innocent bystanders who are paying a painful price for the credit crunch.
"We're not going out to fancy dinners and we're not taking vacations or major trips," says Steve Harris, a retired television-advertising executive who lives in Valley Center, Calif. He declined to say how much he invested in the Cherry Road building.
Wednesday, February 3, 2010
Article: These space mission cuts will cost us our scientists
These space mission cuts will cost us our scientists
After yesterday's retreat, the US and Europe will fall behind in the space race. The next man on the moon will be Chinese
Colin Pillinger, guardian.co.uk
Monday 1 February 2010
Few people who remember the 1960s can fail to have been inspired by the drama and excitement of the space missions, which pitted the United States against the Soviet Union in a race to land a man on the moon. Today there is still a massively competitive space race; but yesterday the Barack Obama administration cancelled its Constellation programme, which had aimed to put astronauts back on the moon. With the US effectively out of the race to the moon, the field is now clear for India, China and Japan.
The 1960s space race was about military prowess. This time it's about economic and technical leadership, but in terms of our future prosperity it is just as significant.
The US says it no longer wants to spend big money on rockets and will let private industry build them. Nasa also plans to develop ways of refuelling spacecraft in space to cut the costs of taking them there. This might be the best way eventually to get humans to Mars. There will be robotic missions to explore where humans want to go. I hope this means that at last we will get a sample of Mars and the missions won't be an expensive waste of money.
The main costs of the space programme are salaries – in relative terms the components cost very little. But you can't sack everyone in Nasa, because you know that at some future point you'll need their expertise and experience. I fear that in practice Nasa's leaders will be tempted to have their scientists undertake more background studies. But we've done all the studies we need to obtain samples from Mars and know exactly what to do with them.
Why do we need such samples? For a start, it is not possible to have a manned mission to Mars until we can definitively answer the question of whether there is any life there. Without this information, we risk astronauts bringing back microbes to Earth which could wipe out life on our planet. I hope cancelling the moon mission will in fact accelerate humans going to Mars, not mean that something even more inspirational will slip back.
Under George W Bush, the US had planned a manned lunar mission by 2015; this was then pushed back to 2018; now it's gone altogether. And Europe isn't any faster when it comes to going to Mars: the European Space Agency wanted to build ExoMars – a robotic mission to Mars – by 2009. But it's already 2010: they've been going for seven years and seem to have little to show for it.
They've gone for a high-cost failsafe mission which is long in the planning; but I believe they should be doing smaller, faster, cheaper projects – those which require a limited number of people but can be quickly completed, and through which they can learn a lot, even if the mission "fails" – although I believe there's no such thing as failure if you learn something. I headed the Beagle2 Mars mission in 2003, and in my view it's impossible to ensure a mission has a 99.9% chance of success. It's far better to spend the money on, say, three missions that have 95% chance. Europe could have done Beagle again by 2007, but instead we are still waiting.
By contrast, in India and China things are happening quickly – these countries are not afraid of making mistakes and learning from them. They've both had recent lunar missions; they're now planning to land on the surface with a robot; and after that will come a manned mission. I believe that the next man or woman on the moon will be Chinese.
And the importance of this goes way beyond space travel, once a nation shows it has the ambition, the ingenuity and the economic strength to mount such a mission. Just as the launch of Sputnik in 1957 showed that the Soviets were a technological power to be reckoned with, so it will be with India or China. These countries recognise that dynamic economies need to create something for the nation to export – be it providing the innovation for electronic goods, or whatever. Lunar missions – and, beyond that, Mars missions – are hugely effective in bringing young people into science and technology.
In the west, we have now had two generations who have missed out on such inspiration. Indeed, we risk our top scientists migrating to Asia.
If you went into a British classroom and asked how many children wanted to be a scientist, on average 2% would put their hands up. In India, about 30% would say yes. That's the difference between the west and the emerging economies; and that's why, ultimately, if we don't address this situation, it could be us staffing their call centres.
After yesterday's retreat, the US and Europe will fall behind in the space race. The next man on the moon will be Chinese
Colin Pillinger, guardian.co.uk
Monday 1 February 2010
Few people who remember the 1960s can fail to have been inspired by the drama and excitement of the space missions, which pitted the United States against the Soviet Union in a race to land a man on the moon. Today there is still a massively competitive space race; but yesterday the Barack Obama administration cancelled its Constellation programme, which had aimed to put astronauts back on the moon. With the US effectively out of the race to the moon, the field is now clear for India, China and Japan.
The 1960s space race was about military prowess. This time it's about economic and technical leadership, but in terms of our future prosperity it is just as significant.
The US says it no longer wants to spend big money on rockets and will let private industry build them. Nasa also plans to develop ways of refuelling spacecraft in space to cut the costs of taking them there. This might be the best way eventually to get humans to Mars. There will be robotic missions to explore where humans want to go. I hope this means that at last we will get a sample of Mars and the missions won't be an expensive waste of money.
The main costs of the space programme are salaries – in relative terms the components cost very little. But you can't sack everyone in Nasa, because you know that at some future point you'll need their expertise and experience. I fear that in practice Nasa's leaders will be tempted to have their scientists undertake more background studies. But we've done all the studies we need to obtain samples from Mars and know exactly what to do with them.
Why do we need such samples? For a start, it is not possible to have a manned mission to Mars until we can definitively answer the question of whether there is any life there. Without this information, we risk astronauts bringing back microbes to Earth which could wipe out life on our planet. I hope cancelling the moon mission will in fact accelerate humans going to Mars, not mean that something even more inspirational will slip back.
Under George W Bush, the US had planned a manned lunar mission by 2015; this was then pushed back to 2018; now it's gone altogether. And Europe isn't any faster when it comes to going to Mars: the European Space Agency wanted to build ExoMars – a robotic mission to Mars – by 2009. But it's already 2010: they've been going for seven years and seem to have little to show for it.
They've gone for a high-cost failsafe mission which is long in the planning; but I believe they should be doing smaller, faster, cheaper projects – those which require a limited number of people but can be quickly completed, and through which they can learn a lot, even if the mission "fails" – although I believe there's no such thing as failure if you learn something. I headed the Beagle2 Mars mission in 2003, and in my view it's impossible to ensure a mission has a 99.9% chance of success. It's far better to spend the money on, say, three missions that have 95% chance. Europe could have done Beagle again by 2007, but instead we are still waiting.
By contrast, in India and China things are happening quickly – these countries are not afraid of making mistakes and learning from them. They've both had recent lunar missions; they're now planning to land on the surface with a robot; and after that will come a manned mission. I believe that the next man or woman on the moon will be Chinese.
And the importance of this goes way beyond space travel, once a nation shows it has the ambition, the ingenuity and the economic strength to mount such a mission. Just as the launch of Sputnik in 1957 showed that the Soviets were a technological power to be reckoned with, so it will be with India or China. These countries recognise that dynamic economies need to create something for the nation to export – be it providing the innovation for electronic goods, or whatever. Lunar missions – and, beyond that, Mars missions – are hugely effective in bringing young people into science and technology.
In the west, we have now had two generations who have missed out on such inspiration. Indeed, we risk our top scientists migrating to Asia.
If you went into a British classroom and asked how many children wanted to be a scientist, on average 2% would put their hands up. In India, about 30% would say yes. That's the difference between the west and the emerging economies; and that's why, ultimately, if we don't address this situation, it could be us staffing their call centres.
Monday, February 1, 2010
From Denverpost.com...
The redlining of small businesses
Owners feeling starved of debt and equity capital, and tired of being at the bottom of the priority list.
By Henry Dubroff and John Huggins
Politicians trying to figure out why the electorate is so angry and frustrated will find answers in a simple chat with shopkeepers and small-business owners on Main Street.
When it comes to small business, the disconnect between reality on the ground and what policymakers are talking about is enormous. Even worse, the aspirations of small-business owners are being eroded not only by economic jitters but also by massive uncertainty about deficits and future government policies.
Many small-business owners feel they've been financially and politically redlined — starved of debt and equity capital, shut out of the political conversation and put at the bottom of the priority list while big companies and unions get huge financial and tax breaks.
What's at stake in this redlining of small business is enormous. Although there are only about 5.5 million small businesses in the U.S., they account for half the jobs in America and the lion's share of job growth. The "jobless recovery" is due in large part to the fact that small businesses have yet to see any advantage at all — and see much risk — in adding to payrolls.
This is a far cry from the situation less than a decade ago, when consistent small-business job growth made the American economy the world's exemplar.
This near-perfect environment for small-business job growth was put into place in the late 1980s and lasted for more than a decade. It included infrastructure in the form of cheap technology, readily available access to basic services at Kinko's and Staples, plentiful capital and a tax environment that favored entrepreneurship. Even the tight job markets of the late 1990s didn't stop the steady stream of entrepreneurial wealth creation.
However, around 2003, small-business formation and job growth began to be taken for granted as policymakers took their eye off the ball. Rising health care costs and uncertainty about individual coverage for people who struck out on their own added to the personal risks of starting new companies. Sarbanes-Oxley reforms, intended to reign in excesses at big companies, reached far into small concerns, touching closely held businesses, adding to costs, paperwork burdens and, most of all, risk.
Failure to permanently fix thorny tax problems — including the alternative minimum tax and the estate tax — added to the uncertainty. The easy money of the housing bubble era had the effect of creating a debt trap for folks starting new businesses. Once the housing market softened, those home equity loans became an albatross that could sink a fledgling company.
As we have seen, the financial sector became the dominant growth engine for the American economy. Too much of our nation's intellectual capital was devoted to trading systems, debt securitization and the creation of toxic derivatives that brought the global financial system to the edge of collapse. Comparatively little capital was spent on building small-business resources.
Once the recession hit and the financial crisis worsened, resources went right to the head of the economy (the financial sector), leaving the heart of the economy (small businesses) with no blood and no oxygen supply.
While the government provided up to $700 billion to big banks and big companies through TARP, SBA guaranteed lending fell nationally by 27 percent from nearly $18 billion to $13.1 billion. In Colorado, the results were worse: SBA-guaranteed lending plunged 41 percent, from $556 million in fiscal year 2008 to $330 million in fiscal year 2009.
The National Federation of Independent Business Small Business Optimism index, which had hovered pretty steadily around the 100 range since the end of the 1993 recession, plunged to the low 80s, well below earlier recessions. The December NFIB index remained stuck at 88, not nearly high enough to trigger job growth. Hiring plans "remain in negative territory," according to Wells Fargo Economics, which reported on the NFIB index in its January 15 economic roundup.
At a recent small-business summit hosted by Sen. Michael Bennet, business owners described the perception gap between small businesses and the financial sector. In an example of how the spiral of redlining has gotten out of control, business owners said they were interested in getting loans but perceived the banks as unwilling to lend. Lenders said they were willing to make loans but perceived borrowers were shy about taking on new risks.
Uncertainties about the true impact of health care reform, cap-and-trade legislation, estate and alternative minimum taxes and even capital gains taxes loom. The perception exists that small-business lending remains shut down. These challenges and news of gigantic bank bonuses strongly reinforce the idea that neither the financial system nor the political system are working for Main Street, especially the thousands of small-business owners who have dipped into or even exhausted their savings in order to keep their employees on the payroll.
Unless government policy begins to tilt back in favor of existing small-business owners and entrepreneurs with dreams of striking out on their own, the political and financial redlining of small business will exact a heavy toll on the economy — and on elected officials in every state.
Owners feeling starved of debt and equity capital, and tired of being at the bottom of the priority list.
By Henry Dubroff and John Huggins
Politicians trying to figure out why the electorate is so angry and frustrated will find answers in a simple chat with shopkeepers and small-business owners on Main Street.
When it comes to small business, the disconnect between reality on the ground and what policymakers are talking about is enormous. Even worse, the aspirations of small-business owners are being eroded not only by economic jitters but also by massive uncertainty about deficits and future government policies.
Many small-business owners feel they've been financially and politically redlined — starved of debt and equity capital, shut out of the political conversation and put at the bottom of the priority list while big companies and unions get huge financial and tax breaks.
What's at stake in this redlining of small business is enormous. Although there are only about 5.5 million small businesses in the U.S., they account for half the jobs in America and the lion's share of job growth. The "jobless recovery" is due in large part to the fact that small businesses have yet to see any advantage at all — and see much risk — in adding to payrolls.
This is a far cry from the situation less than a decade ago, when consistent small-business job growth made the American economy the world's exemplar.
This near-perfect environment for small-business job growth was put into place in the late 1980s and lasted for more than a decade. It included infrastructure in the form of cheap technology, readily available access to basic services at Kinko's and Staples, plentiful capital and a tax environment that favored entrepreneurship. Even the tight job markets of the late 1990s didn't stop the steady stream of entrepreneurial wealth creation.
However, around 2003, small-business formation and job growth began to be taken for granted as policymakers took their eye off the ball. Rising health care costs and uncertainty about individual coverage for people who struck out on their own added to the personal risks of starting new companies. Sarbanes-Oxley reforms, intended to reign in excesses at big companies, reached far into small concerns, touching closely held businesses, adding to costs, paperwork burdens and, most of all, risk.
Failure to permanently fix thorny tax problems — including the alternative minimum tax and the estate tax — added to the uncertainty. The easy money of the housing bubble era had the effect of creating a debt trap for folks starting new businesses. Once the housing market softened, those home equity loans became an albatross that could sink a fledgling company.
As we have seen, the financial sector became the dominant growth engine for the American economy. Too much of our nation's intellectual capital was devoted to trading systems, debt securitization and the creation of toxic derivatives that brought the global financial system to the edge of collapse. Comparatively little capital was spent on building small-business resources.
Once the recession hit and the financial crisis worsened, resources went right to the head of the economy (the financial sector), leaving the heart of the economy (small businesses) with no blood and no oxygen supply.
While the government provided up to $700 billion to big banks and big companies through TARP, SBA guaranteed lending fell nationally by 27 percent from nearly $18 billion to $13.1 billion. In Colorado, the results were worse: SBA-guaranteed lending plunged 41 percent, from $556 million in fiscal year 2008 to $330 million in fiscal year 2009.
The National Federation of Independent Business Small Business Optimism index, which had hovered pretty steadily around the 100 range since the end of the 1993 recession, plunged to the low 80s, well below earlier recessions. The December NFIB index remained stuck at 88, not nearly high enough to trigger job growth. Hiring plans "remain in negative territory," according to Wells Fargo Economics, which reported on the NFIB index in its January 15 economic roundup.
At a recent small-business summit hosted by Sen. Michael Bennet, business owners described the perception gap between small businesses and the financial sector. In an example of how the spiral of redlining has gotten out of control, business owners said they were interested in getting loans but perceived the banks as unwilling to lend. Lenders said they were willing to make loans but perceived borrowers were shy about taking on new risks.
Uncertainties about the true impact of health care reform, cap-and-trade legislation, estate and alternative minimum taxes and even capital gains taxes loom. The perception exists that small-business lending remains shut down. These challenges and news of gigantic bank bonuses strongly reinforce the idea that neither the financial system nor the political system are working for Main Street, especially the thousands of small-business owners who have dipped into or even exhausted their savings in order to keep their employees on the payroll.
Unless government policy begins to tilt back in favor of existing small-business owners and entrepreneurs with dreams of striking out on their own, the political and financial redlining of small business will exact a heavy toll on the economy — and on elected officials in every state.
Monday, January 25, 2010
Nation's Restaurant News Article
8 ways to build full-service sales
By Ron Ruggless
WASHINGTON (Jan. 22, 2010) While full-service restaurant sales aren't expected to rebound as quickly as in other industry segments, the National Restaurant Association offers eight ways that table-service operators can weigh the odds of recovery in their favor and build much-needed sales.
In its "2010 Restaurant Industry Forecast" the NRA expects full-service restaurant sales in 2010 to grow at a lesser pace than the industry as a whole, like it has for years as the segment takes big hits from consumers trading down and quick-service competitors increasing quality offerings.
Full-service sales are expected to total $184.2 billion in 2010, a 1.2 percent increase from 2009, while industry sales are expected to total $580.1 billion, a 2.5 percent jump. Even worse, after accounting for inflation, real full-service segment sales are expected to decline 1.5 percent in 2010. That follows on the heels of a 2009 decline of 6.2 percent.
“One of the primary differences in this past recessionary period compared to historical recessionary periods is that the higher-income households — the prime table-service market — reported substantial decreases in net worth as well as confidence,” said Hudson Riehle, the NRA’s senior vice president of research and knowledge.
Indeed, full-service operators, from lower-priced casual-dining chains to high-end independent operators have bore the brunt of this latest recession. Casual-dining chains have posted the largest same-store sales declines throughout the industry, and high-end independent operations have posted the largest numbers of closures.
Here are eight ways the NRA suggests full-service restaurants can build their business in a flat segment of the industry:
1. Offer value. NRA surveys found operators expected a third of fine-dining customers, 46 percent of family-dining patrons and 40 percent of casual-dining guests to be more value conscious in 2010 vs. 2009. Frequent-dining or loyalty programs are likely to be more popular.
2. Use social media. Among operators not using Facebook, an NRA survey found four of every 10 plan to create a presence in 2010. About a fifth of full-service operators planned to use YouTube or similar video-sharing sites. Users of social sites such as Yelp and Twitter are expected to increase this year.
3. Market via e-mail. Already seven of every 10 fine-dining establishments keep in touch with customers via e-mail, but only half of casual-dining operators and a third of family-dining operations do so. An NRA survey found 41 percent of customers say they try a new restaurant because of e-mailed promotions, and 54 percent learn about restaurants on the Internet.
4. Create events. Restaurants can offer private tastings or events. The NRA found 64 percent of adults surveyed would attend chef’s table dinners and private tastings.
5. Boost off-premise offerings. Nearly three in every 10 adults surveyed by the NRA said take-out food is essential to the way they live, so to-go and catering has sales-growth potential.
6. Market green initiatives. About four in 10 consumers said they were likely to pick a restaurant based on its conservation practices, and about seven in 10 were more likely to choose a restaurant if it featured locally produced ingredients.
7. Tap technology. Online ordering offers room for growth and less than 2 percent of full-service restaurants provide a tableside ordering or payment option.
8. Emphasize health. Half of adults surveyed said table-service restaurants provide easy ways for them to choose portion sizes.
By Ron Ruggless
WASHINGTON (Jan. 22, 2010) While full-service restaurant sales aren't expected to rebound as quickly as in other industry segments, the National Restaurant Association offers eight ways that table-service operators can weigh the odds of recovery in their favor and build much-needed sales.
In its "2010 Restaurant Industry Forecast" the NRA expects full-service restaurant sales in 2010 to grow at a lesser pace than the industry as a whole, like it has for years as the segment takes big hits from consumers trading down and quick-service competitors increasing quality offerings.
Full-service sales are expected to total $184.2 billion in 2010, a 1.2 percent increase from 2009, while industry sales are expected to total $580.1 billion, a 2.5 percent jump. Even worse, after accounting for inflation, real full-service segment sales are expected to decline 1.5 percent in 2010. That follows on the heels of a 2009 decline of 6.2 percent.
“One of the primary differences in this past recessionary period compared to historical recessionary periods is that the higher-income households — the prime table-service market — reported substantial decreases in net worth as well as confidence,” said Hudson Riehle, the NRA’s senior vice president of research and knowledge.
Indeed, full-service operators, from lower-priced casual-dining chains to high-end independent operators have bore the brunt of this latest recession. Casual-dining chains have posted the largest same-store sales declines throughout the industry, and high-end independent operations have posted the largest numbers of closures.
Here are eight ways the NRA suggests full-service restaurants can build their business in a flat segment of the industry:
1. Offer value. NRA surveys found operators expected a third of fine-dining customers, 46 percent of family-dining patrons and 40 percent of casual-dining guests to be more value conscious in 2010 vs. 2009. Frequent-dining or loyalty programs are likely to be more popular.
2. Use social media. Among operators not using Facebook, an NRA survey found four of every 10 plan to create a presence in 2010. About a fifth of full-service operators planned to use YouTube or similar video-sharing sites. Users of social sites such as Yelp and Twitter are expected to increase this year.
3. Market via e-mail. Already seven of every 10 fine-dining establishments keep in touch with customers via e-mail, but only half of casual-dining operators and a third of family-dining operations do so. An NRA survey found 41 percent of customers say they try a new restaurant because of e-mailed promotions, and 54 percent learn about restaurants on the Internet.
4. Create events. Restaurants can offer private tastings or events. The NRA found 64 percent of adults surveyed would attend chef’s table dinners and private tastings.
5. Boost off-premise offerings. Nearly three in every 10 adults surveyed by the NRA said take-out food is essential to the way they live, so to-go and catering has sales-growth potential.
6. Market green initiatives. About four in 10 consumers said they were likely to pick a restaurant based on its conservation practices, and about seven in 10 were more likely to choose a restaurant if it featured locally produced ingredients.
7. Tap technology. Online ordering offers room for growth and less than 2 percent of full-service restaurants provide a tableside ordering or payment option.
8. Emphasize health. Half of adults surveyed said table-service restaurants provide easy ways for them to choose portion sizes.
Thursday, January 21, 2010
Entrepreneurship & Employment
It's Time to Elevate Entrepreneurs
By Diana Furchtgott-Roth
WASHINGTON-When President Obama delivers his State of the Union address next Wednesday evening, many Americans will be hoping he will offer help on the employment front. The president could usefully approach job creation by adopting measures to help entrepreneurs, the main drivers of innovation and job creation.
The employment situation is worrisome. Not only are over 15 million Americans unemployed, with the national unemployment rate at 10%, but the ratio of Americans of working age in the labor force - the employed plus those looking for work - is 64.6%, the lowest since 1985. Almost 40% of the unemployed have been out of work for six months or more.
The Labor Department's broadest measure of underused human resources-the unemployed plus the discouraged who have stopped looking for work (and so have dropped out of the labor force) and people working part-time because they cannot find full-time jobs-is 17.2%.
If job creation is the country's paramount economic objective, does it matter if the economy is populated by a few large, regulated firms, or by a broad base of entrepreneurial activity in smaller units? It matters, because entrepreneurship and innovation-the driving elements of economic growth-flourish best in smaller business units.
The key is innovation: introduction of new products and services that displace their predecessors because they yield greater output for any given application of labor and capital. Innovation is vital to sustained economic growth.
Entrepreneurs, determined individuals with new ideas, are most responsible for creating innovations. Not all new ideas are economic successes. Some lead to greater wealth and economic growth, and others fail. The beauty of our economic system is that it separates productive from unproductive ideas, allowing the former to flourish.
On January 19, Carl Schramm, president of the Ewing Marion Kauffman Foundation, which promotes entrepreneurship, gave his annual State of Entrepreneurship Address at Washington's National Press Club. (Full disclosure: the Kauffman Foundation has funded some of my past research.)
Mr. Schramm offered several ideas that President Obama could use to promote entrepreneurship and employment.
Fix our immigration policy. Many entrepreneurs want to hire workers with math, science, and technology skills, but not enough native-born Americans go into these fields. Yet, after we grant college and graduate degrees in these fields to foreigners, we often do not allow them to stay in America. Some education is provided at taxpayer expense, through research grants to universities from the Departments of Energy and Defense.
Hence, we now have the perverse situation where America educates many foreign graduates in math and science and sends them back home to compete against us. Alternatively, Mr. Schramm suggests, "We could start by offering instant citizenship to any of the thousands of bright young people from foreign countries who graduate from our universities."
Let me suggest that the United States could go even further and offer citizenship to foreign graduates who wish to come here from major science universities around the globe, such as China's Tsinghua University and India's Indian Institute of Technology.
Defang Sarbanes-Oxley. Evidence is mounting that the 2002 Sarbanes-Oxley legislation, accounting rules designed to protect shareholders from corporate abuses after the collapse of Enron and Tyco, discourages companies from expanding and going public. Furthermore, some new companies are choosing to locate in London and Tokyo rather than in the United States.
Mr. Schramm proposes that Congress allow shareholders to vote on whether Sarbanes-Oxley applies to their companies. Congress might not buy this, but the accounting requirements would be optional, and companies whose shareholders believed the costs of compliance would be greater than the benefits could choose not to comply. Some firms would be able to operate more nimbly without the SOX regulations.
Develop Commercialization of Academic Research. Mr. Schramm suggests that the government could encourage a free market in the licensing of innovations developed by professors, rather than having these licenses controlled by the university, as occurs now. This would enable the development of a vibrant market to commercialize research. This might require legislation to amend the Bayh-Dole Act, which gave universities ownership of rights to inventions developed through federal funding of research.
Similarly, the government could set up a system of commercialization fellowships to encourage post-doctoral scholars to work on promising ideas.
In addition to Mr. Schramm's proposals, there are drags on entrepreneurship from uncertainty over taxation and regulation.
Remove uncertainty over taxes. Most entrepreneurs file tax returns as individuals. Their highest tax rate is set to rise from 35% now to 40% on January 1, 2011, if Congress does nothing, and their lowest rate is scheduled to rise from 10% to 15%. Small business deductions for equipment would shrink. It's natural that some entrepreneurs will think twice about starting or expanding a business if they don't know what taxes they will face.
More business regulation is clearly on the congressional agenda. Even though Congress's present version of health "reform" may not survive the election of Scott Brown in Massachusetts, environmental and financial regulation are high on the lawmakers' to-do list, adding to uncertainty and to costs of doing business.
We have no way of knowing what auspicious innovations the future holds, and what small businesses will grow from mom-and-pop shops to global powerhouses. But President Obama should know that most innovations and many jobs will be generated by entrepreneurs, and we need more of them, not fewer.
By Diana Furchtgott-Roth
WASHINGTON-When President Obama delivers his State of the Union address next Wednesday evening, many Americans will be hoping he will offer help on the employment front. The president could usefully approach job creation by adopting measures to help entrepreneurs, the main drivers of innovation and job creation.
The employment situation is worrisome. Not only are over 15 million Americans unemployed, with the national unemployment rate at 10%, but the ratio of Americans of working age in the labor force - the employed plus those looking for work - is 64.6%, the lowest since 1985. Almost 40% of the unemployed have been out of work for six months or more.
The Labor Department's broadest measure of underused human resources-the unemployed plus the discouraged who have stopped looking for work (and so have dropped out of the labor force) and people working part-time because they cannot find full-time jobs-is 17.2%.
If job creation is the country's paramount economic objective, does it matter if the economy is populated by a few large, regulated firms, or by a broad base of entrepreneurial activity in smaller units? It matters, because entrepreneurship and innovation-the driving elements of economic growth-flourish best in smaller business units.
The key is innovation: introduction of new products and services that displace their predecessors because they yield greater output for any given application of labor and capital. Innovation is vital to sustained economic growth.
Entrepreneurs, determined individuals with new ideas, are most responsible for creating innovations. Not all new ideas are economic successes. Some lead to greater wealth and economic growth, and others fail. The beauty of our economic system is that it separates productive from unproductive ideas, allowing the former to flourish.
On January 19, Carl Schramm, president of the Ewing Marion Kauffman Foundation, which promotes entrepreneurship, gave his annual State of Entrepreneurship Address at Washington's National Press Club. (Full disclosure: the Kauffman Foundation has funded some of my past research.)
Mr. Schramm offered several ideas that President Obama could use to promote entrepreneurship and employment.
Fix our immigration policy. Many entrepreneurs want to hire workers with math, science, and technology skills, but not enough native-born Americans go into these fields. Yet, after we grant college and graduate degrees in these fields to foreigners, we often do not allow them to stay in America. Some education is provided at taxpayer expense, through research grants to universities from the Departments of Energy and Defense.
Hence, we now have the perverse situation where America educates many foreign graduates in math and science and sends them back home to compete against us. Alternatively, Mr. Schramm suggests, "We could start by offering instant citizenship to any of the thousands of bright young people from foreign countries who graduate from our universities."
Let me suggest that the United States could go even further and offer citizenship to foreign graduates who wish to come here from major science universities around the globe, such as China's Tsinghua University and India's Indian Institute of Technology.
Defang Sarbanes-Oxley. Evidence is mounting that the 2002 Sarbanes-Oxley legislation, accounting rules designed to protect shareholders from corporate abuses after the collapse of Enron and Tyco, discourages companies from expanding and going public. Furthermore, some new companies are choosing to locate in London and Tokyo rather than in the United States.
Mr. Schramm proposes that Congress allow shareholders to vote on whether Sarbanes-Oxley applies to their companies. Congress might not buy this, but the accounting requirements would be optional, and companies whose shareholders believed the costs of compliance would be greater than the benefits could choose not to comply. Some firms would be able to operate more nimbly without the SOX regulations.
Develop Commercialization of Academic Research. Mr. Schramm suggests that the government could encourage a free market in the licensing of innovations developed by professors, rather than having these licenses controlled by the university, as occurs now. This would enable the development of a vibrant market to commercialize research. This might require legislation to amend the Bayh-Dole Act, which gave universities ownership of rights to inventions developed through federal funding of research.
Similarly, the government could set up a system of commercialization fellowships to encourage post-doctoral scholars to work on promising ideas.
In addition to Mr. Schramm's proposals, there are drags on entrepreneurship from uncertainty over taxation and regulation.
Remove uncertainty over taxes. Most entrepreneurs file tax returns as individuals. Their highest tax rate is set to rise from 35% now to 40% on January 1, 2011, if Congress does nothing, and their lowest rate is scheduled to rise from 10% to 15%. Small business deductions for equipment would shrink. It's natural that some entrepreneurs will think twice about starting or expanding a business if they don't know what taxes they will face.
More business regulation is clearly on the congressional agenda. Even though Congress's present version of health "reform" may not survive the election of Scott Brown in Massachusetts, environmental and financial regulation are high on the lawmakers' to-do list, adding to uncertainty and to costs of doing business.
We have no way of knowing what auspicious innovations the future holds, and what small businesses will grow from mom-and-pop shops to global powerhouses. But President Obama should know that most innovations and many jobs will be generated by entrepreneurs, and we need more of them, not fewer.
Tuesday, January 12, 2010
An Era of "Temp"
The Disposable Worker
Pay is falling, benefits are vanishing, and no one's job is secure. How companies are making the era of the temp more than temporary
By Peter Coy, Michelle Conlin and Moira Herbst
On a recent Tuesday morning, single mom Tammy DePew Smith woke up in her tidy Florida townhouse in time to shuttle her oldest daughter, a high school freshman, to the 6:11 a.m. bus. At 6:40 she was at the desk in her bedroom, starting her first shift of the day with LiveOps, a Santa Clara (Calif.) provider of call-center workers for everyone from Eastman Kodak (EK) and Pizza Hut (YUM) to infomercial behemoth Tristar Products. She's paid by the minute—25 cents—but only for the time she's actually on the phone with customers.
By 7:40, Smith had grossed $15. But there wasn't much time to reflect on her early morning productivity; the next child had to be roused from bed, fed, and put onto the school bus. Somehow she managed to squeeze three more shifts into her day, pausing only to homeschool her 7-year-old son, make dinner, and do the bedtime routine. "I tell my kids, unless somebody is bleeding or dying, don't mess with me."
As an independent agent, Smith has no health insurance, no retirement benefits, no sick days, no vacation, no severance, and no access to unemployment insurance. But in recession-ravaged Ormond Beach, she's considered lucky. She has had more or less steady work since she signed on with LiveOps in October 2006. "LiveOps was a lifesaver for me," she says.
You know American workers are in bad shape when a low-paying, no-benefits job is considered a sweet deal. Their situation isn't likely to improve soon; some economists predict it will be years, not months, before employees regain any semblance of bargaining power. That's because this recession's unusual ferocity has accelerated trends—including offshoring, automation, the decline of labor unions' influence, new management techniques, and regulatory changes—that already had been eroding workers' economic standing.
...
...To view the rest of the article click HERE (or on the title)
Pay is falling, benefits are vanishing, and no one's job is secure. How companies are making the era of the temp more than temporary
By Peter Coy, Michelle Conlin and Moira Herbst
On a recent Tuesday morning, single mom Tammy DePew Smith woke up in her tidy Florida townhouse in time to shuttle her oldest daughter, a high school freshman, to the 6:11 a.m. bus. At 6:40 she was at the desk in her bedroom, starting her first shift of the day with LiveOps, a Santa Clara (Calif.) provider of call-center workers for everyone from Eastman Kodak (EK) and Pizza Hut (YUM) to infomercial behemoth Tristar Products. She's paid by the minute—25 cents—but only for the time she's actually on the phone with customers.
By 7:40, Smith had grossed $15. But there wasn't much time to reflect on her early morning productivity; the next child had to be roused from bed, fed, and put onto the school bus. Somehow she managed to squeeze three more shifts into her day, pausing only to homeschool her 7-year-old son, make dinner, and do the bedtime routine. "I tell my kids, unless somebody is bleeding or dying, don't mess with me."
As an independent agent, Smith has no health insurance, no retirement benefits, no sick days, no vacation, no severance, and no access to unemployment insurance. But in recession-ravaged Ormond Beach, she's considered lucky. She has had more or less steady work since she signed on with LiveOps in October 2006. "LiveOps was a lifesaver for me," she says.
You know American workers are in bad shape when a low-paying, no-benefits job is considered a sweet deal. Their situation isn't likely to improve soon; some economists predict it will be years, not months, before employees regain any semblance of bargaining power. That's because this recession's unusual ferocity has accelerated trends—including offshoring, automation, the decline of labor unions' influence, new management techniques, and regulatory changes—that already had been eroding workers' economic standing.
...
...To view the rest of the article click HERE (or on the title)
Thursday, December 17, 2009
Article: Gas Stations Fume Over Refiners' Sales
The Wall Street Journal
Gas Stations Fume Over Refiners' Sales
Smaller Dealers Complain Big Oil's Practice of Selling Retail Outlets to Third Parties Hurts Business
By RICHARD GIBSON
Big Oil is having trouble with some of its little guys.
Dozens of gas-station dealers are lodging complaints with the major petroleum refiners over changes big producers want to make in the way they do business.
Some oil companies—including ExxonMobil, BP and Royal Dutch Shell—want to stop owning and leasing their own retail outlets, which some of them have said they regard as a low-profit business. They've been selling the properties, often to fuel distributors, who are becoming the dealers' new franchisers.
A spokesman for ExxonMobil, a unit of Exxon Mobil Corp., says such ownership transfers should be "transparent" to its consumers, who will still be "able to purchase gas at Exxon and Mobil-branded stations across the U.S."
But many of the small-business dealers who run those stations are worried about their livelihoods. Under the previous business model, refiners often gave dealers allowances and rebates on fuel prices. But when the station is sold to a third party, such as a fuel distributor, the distributor may mark up the price of fuel in order to recoup costs. The station is contractually obligated to sell only their refiner's brand of fuel, so it has no choice but to buy it from the distributor who owns that brand's supply contracts—and is now frequently also his franchiser.
In New Jersey, 20 BP dealers recently went to court to stop the oil giant from ending their long-standing business relationship. As an alternative to third-party purchasers, BP Products North America Inc., a unit of BP PLC, offered to sell the stations to the dealer-operators, but the dealers allege that the company is asking inflated prices. BP said it doesn't comment on pending litigation.
The U.K.-based company has already disposed of more than 550 stations in several states, including Arizona, California, New Jersey and New York.
The individual dealers say they're at a disadvantage in bidding for their stations against distributors and other bigger entities. "There are less headaches" that refiners have in doing business with a distributor willing to buy a bundle of stations rather than dealing with scores of individual buyers, says Ralph Bombardiere, executive director of the New York State Association of Service Stations and Repair Shops, an industry group.
A BP spokesman says the company has no preference on whether buyers are single-station dealers or multiunit operators.
Such franchise transfers—which have become a national concern among hundreds of small-business station operators—this past summer led to legislation in New Jersey giving dealers a "first right of refusal" in acquiring their stations from oil companies.
Sal Risalvato, executive director of the New Jersey Gasoline-Convenience-Automotive Association, which lobbied for the legislation, believes that the law deterred Shell Oil Co. from selling about 150 company retail outlets.
A Shell spokeswoman said the company would comply with applicable state and federal laws in transitioning from company-supplied stations.
The ExxonMobil spokesman said that while the company is evaluating its plans there, as yet no dealer-operated sites have been sold in that state.
The price they pay for fuel is among the dealers' chief concerns. Two Chicago-area gas station operators, Robert W. Juckniess and Nrupesh Desai, who bought 17 gas stations from BP in the Chicago-northern Indiana market, recently sued BP, alleging they didn't disclose before they bought the station franchises that BP might transfer their fuel-supply contracts to jobbers, or distributor middlemen, which it subsequently did.
The result, the plaintiffs allege in their federal district-court filing in Chicago, was marked-up fuel prices that made them less competitive and their profit projections unrealistic, forcing them on many days "to lose money on every gallon of gasoline sold at the pump... in order to remain reasonably competitive on the street."
The dealers' attorney, Carmen Caruso of Stahl Cowen Crowley Addis LLC in Chicago, says the lawsuit is "a matter of survival" for the station operators, who committed themselves to 20-year franchises that prevent them from changing brands.
In court papers BP denied all of the allegations but declined further comment.
ExxonMobil was named in another fuel-pricing lawsuit brought in New Jersey earlier this month. It alleges that the refiner deliberately manipulates the prices its New Jersey dealers pay for its gasoline, so as to increase revenues to the detriment of the dealers. The complaint also says that some dealers pay more for gasoline than others, depending on what part of the state they're in.
The Exxon spokesman said in an email that "ExxonMobil sets its wholesale price on a number of factors that are designed to allow our dealers to compete with competitors in their local trade area." As to the lawsuit, the spokesman's email said Exxon doesn't comment on pending litigation other than to say they'll defend themselves "vigorously."
Marc J. Gross, an attorney with Greenbaum, Rowe, Smith & Davis LLP, Roseland, N.J., who filed the lawsuit on behalf of nearly 100 Exxon franchisees-dealers, said such suits present a risk to the small-business people bringing them. Besides taking on a deep-pockets adversary able to carry on court battles for years, "it's like biting the hand that feeds you," he said.
Gas Stations Fume Over Refiners' Sales
Smaller Dealers Complain Big Oil's Practice of Selling Retail Outlets to Third Parties Hurts Business
By RICHARD GIBSON
Big Oil is having trouble with some of its little guys.
Dozens of gas-station dealers are lodging complaints with the major petroleum refiners over changes big producers want to make in the way they do business.
Some oil companies—including ExxonMobil, BP and Royal Dutch Shell—want to stop owning and leasing their own retail outlets, which some of them have said they regard as a low-profit business. They've been selling the properties, often to fuel distributors, who are becoming the dealers' new franchisers.
A spokesman for ExxonMobil, a unit of Exxon Mobil Corp., says such ownership transfers should be "transparent" to its consumers, who will still be "able to purchase gas at Exxon and Mobil-branded stations across the U.S."
But many of the small-business dealers who run those stations are worried about their livelihoods. Under the previous business model, refiners often gave dealers allowances and rebates on fuel prices. But when the station is sold to a third party, such as a fuel distributor, the distributor may mark up the price of fuel in order to recoup costs. The station is contractually obligated to sell only their refiner's brand of fuel, so it has no choice but to buy it from the distributor who owns that brand's supply contracts—and is now frequently also his franchiser.
In New Jersey, 20 BP dealers recently went to court to stop the oil giant from ending their long-standing business relationship. As an alternative to third-party purchasers, BP Products North America Inc., a unit of BP PLC, offered to sell the stations to the dealer-operators, but the dealers allege that the company is asking inflated prices. BP said it doesn't comment on pending litigation.
The U.K.-based company has already disposed of more than 550 stations in several states, including Arizona, California, New Jersey and New York.
The individual dealers say they're at a disadvantage in bidding for their stations against distributors and other bigger entities. "There are less headaches" that refiners have in doing business with a distributor willing to buy a bundle of stations rather than dealing with scores of individual buyers, says Ralph Bombardiere, executive director of the New York State Association of Service Stations and Repair Shops, an industry group.
A BP spokesman says the company has no preference on whether buyers are single-station dealers or multiunit operators.
Such franchise transfers—which have become a national concern among hundreds of small-business station operators—this past summer led to legislation in New Jersey giving dealers a "first right of refusal" in acquiring their stations from oil companies.
Sal Risalvato, executive director of the New Jersey Gasoline-Convenience-Automotive Association, which lobbied for the legislation, believes that the law deterred Shell Oil Co. from selling about 150 company retail outlets.
A Shell spokeswoman said the company would comply with applicable state and federal laws in transitioning from company-supplied stations.
The ExxonMobil spokesman said that while the company is evaluating its plans there, as yet no dealer-operated sites have been sold in that state.
The price they pay for fuel is among the dealers' chief concerns. Two Chicago-area gas station operators, Robert W. Juckniess and Nrupesh Desai, who bought 17 gas stations from BP in the Chicago-northern Indiana market, recently sued BP, alleging they didn't disclose before they bought the station franchises that BP might transfer their fuel-supply contracts to jobbers, or distributor middlemen, which it subsequently did.
The result, the plaintiffs allege in their federal district-court filing in Chicago, was marked-up fuel prices that made them less competitive and their profit projections unrealistic, forcing them on many days "to lose money on every gallon of gasoline sold at the pump... in order to remain reasonably competitive on the street."
The dealers' attorney, Carmen Caruso of Stahl Cowen Crowley Addis LLC in Chicago, says the lawsuit is "a matter of survival" for the station operators, who committed themselves to 20-year franchises that prevent them from changing brands.
In court papers BP denied all of the allegations but declined further comment.
ExxonMobil was named in another fuel-pricing lawsuit brought in New Jersey earlier this month. It alleges that the refiner deliberately manipulates the prices its New Jersey dealers pay for its gasoline, so as to increase revenues to the detriment of the dealers. The complaint also says that some dealers pay more for gasoline than others, depending on what part of the state they're in.
The Exxon spokesman said in an email that "ExxonMobil sets its wholesale price on a number of factors that are designed to allow our dealers to compete with competitors in their local trade area." As to the lawsuit, the spokesman's email said Exxon doesn't comment on pending litigation other than to say they'll defend themselves "vigorously."
Marc J. Gross, an attorney with Greenbaum, Rowe, Smith & Davis LLP, Roseland, N.J., who filed the lawsuit on behalf of nearly 100 Exxon franchisees-dealers, said such suits present a risk to the small-business people bringing them. Besides taking on a deep-pockets adversary able to carry on court battles for years, "it's like biting the hand that feeds you," he said.
Tuesday, December 8, 2009
Restaurant Bartering?
The Wall Street Journal
In Lean Times, Restaurants Barter for Trade Services
By JULIE JARGON
Independent restaurants are turning to an old-fashioned method to fill tables—barter.
As they struggle to keep customers and pay the monthly bills, restaurants are swapping food for services like oven-hood cleaning and pest control.
Bartering helps restaurants fill seats, reassuring prospective customers who might be turned off by the sight of a vacant eatery. It also attracts new customers when tradespeople bring friends along, reduces some costs, and helps retain employees who can't scoop tips off empty tables.
It's hardly a permanent fix for ailing restaurants, which still need cash to cover such expenses as rent, mortgages, taxes and utilities. But bartering is an especially useful tool for independent restaurants that, unlike some chains, lack access to corporate credit lines or cash.
Many restaurants are using barter exchanges that track and manage the transactions, which count as taxable income and must be recorded for tax purposes. Rather than traditional bartering, in which services are swapped directly between vendors, most barter exchanges use a "round robin" approach that offers flexibility for both restaurants and service people. For example, a plumber uses trade credits accumulated at an exchange to pay for a restaurant meal. The restaurant owner can use the credits spent by the plumber to "purchase" a variety of services offered by appliance repairmen, electricians and other exchange clients. The exchange acts as a bank, keeping track of credits and collecting fees on each transaction.
Tony Romano, owner of Marcello's Pasta Grill in Tempe, Ariz., where business is off 40% from three years ago, joined the Arizona Trade Exchange in October. Since joining the exchange, he says he's been averaging $2,000 per week in trade credits from tradespeople, which has allowed him to pay for almost all of his monthly expenses—from laundry to fire-extinguisher maintenance—without writing a check.
Although the restaurant doesn't receive cash for the food, the tradespeople usually tip well, Mr. Romano says, which keeps his wait staff happy.
He says his traffic has increased 10% in the last month. New exchange clients also have led to catering jobs. "A lot of small businesses can't afford to take their employees out for a Christmas party, but they can barter it," he says. "I've booked two lawyers' offices and three dentists' holiday parties."
Independent restaurants have fared slightly better in the last year than chain restaurants, though it's hard to say how much bartering has helped. Same-store sales at independent restaurants declined 9% for the year ended Sept. 30, while same-store sales at chains declined 9.7% during that time, according to restaurant consulting firm Technomic Inc.
Rob Miller, president of the Arizona Trade Exchange, says he now has more than 30 restaurants involved in his exchange, up 20% from a year ago. The exchange charges a one-time $495 membership fee as well as a $12.50 monthly fee, and takes a 12% cut of each transaction from the person making the trade purchase.
Ric Zampatti, chief executive of The Barter Company, an Atlanta-based trade exchange with clients in South Carolina, Florida and Georgia, says his business is up 10% in the last year, due partly to signing up 35 new restaurants.
Tradespeople also appear to be spending more when they go out to eat. A trade credit is worth a dollar; Mr. Miller says he used to see tradespeople buy restaurant credits in batches of 100 or 200; lately, he says people are buying restaurant trade credits worth $300 to $500 at a time.
Cody Smith, owner of Dynamic Pest Control in Mesa, Ariz., has been cashing in his trade credits at restaurants more frequently in the past six months. "It's a great way to take the family out, enjoy a meal and walk away with very little cash out of your pocket."
Trading his pest control services for restaurant meals and other services has brought in new clients and boosted his sales by 15% in the last year, due partly to new cash-paying clients who aren't part of the exchange, Mr. Smith says.
Atlanta restaurateur Nancy Castellucci recently opened a fourth eatery called the Iberian Pig in an historic building that needed to be brought up to code. She used barter credits to cover 60% of the refurbishment costs.
"We would have had to go to the bank otherwise and we didn't want to go to the bank. When you have barter dollars, it's a much cheaper way to borrow money because you're not actually borrowing money, you're borrowing goods and services and not paying interest."
Mr. Zampatti of the Atlanta exchange says he's seeing restaurants increasingly use barter for routine maintenance costs. "In the past, restaurant owners would use barter to upgrade their lifestyle, like to go on vacation or buy jewelry, but because of the economy, now they're using it to pay for their business expenses."
In Lean Times, Restaurants Barter for Trade Services
By JULIE JARGON
Independent restaurants are turning to an old-fashioned method to fill tables—barter.
As they struggle to keep customers and pay the monthly bills, restaurants are swapping food for services like oven-hood cleaning and pest control.
Bartering helps restaurants fill seats, reassuring prospective customers who might be turned off by the sight of a vacant eatery. It also attracts new customers when tradespeople bring friends along, reduces some costs, and helps retain employees who can't scoop tips off empty tables.
It's hardly a permanent fix for ailing restaurants, which still need cash to cover such expenses as rent, mortgages, taxes and utilities. But bartering is an especially useful tool for independent restaurants that, unlike some chains, lack access to corporate credit lines or cash.
Many restaurants are using barter exchanges that track and manage the transactions, which count as taxable income and must be recorded for tax purposes. Rather than traditional bartering, in which services are swapped directly between vendors, most barter exchanges use a "round robin" approach that offers flexibility for both restaurants and service people. For example, a plumber uses trade credits accumulated at an exchange to pay for a restaurant meal. The restaurant owner can use the credits spent by the plumber to "purchase" a variety of services offered by appliance repairmen, electricians and other exchange clients. The exchange acts as a bank, keeping track of credits and collecting fees on each transaction.
Tony Romano, owner of Marcello's Pasta Grill in Tempe, Ariz., where business is off 40% from three years ago, joined the Arizona Trade Exchange in October. Since joining the exchange, he says he's been averaging $2,000 per week in trade credits from tradespeople, which has allowed him to pay for almost all of his monthly expenses—from laundry to fire-extinguisher maintenance—without writing a check.
Although the restaurant doesn't receive cash for the food, the tradespeople usually tip well, Mr. Romano says, which keeps his wait staff happy.
He says his traffic has increased 10% in the last month. New exchange clients also have led to catering jobs. "A lot of small businesses can't afford to take their employees out for a Christmas party, but they can barter it," he says. "I've booked two lawyers' offices and three dentists' holiday parties."
Independent restaurants have fared slightly better in the last year than chain restaurants, though it's hard to say how much bartering has helped. Same-store sales at independent restaurants declined 9% for the year ended Sept. 30, while same-store sales at chains declined 9.7% during that time, according to restaurant consulting firm Technomic Inc.
Rob Miller, president of the Arizona Trade Exchange, says he now has more than 30 restaurants involved in his exchange, up 20% from a year ago. The exchange charges a one-time $495 membership fee as well as a $12.50 monthly fee, and takes a 12% cut of each transaction from the person making the trade purchase.
Ric Zampatti, chief executive of The Barter Company, an Atlanta-based trade exchange with clients in South Carolina, Florida and Georgia, says his business is up 10% in the last year, due partly to signing up 35 new restaurants.
Tradespeople also appear to be spending more when they go out to eat. A trade credit is worth a dollar; Mr. Miller says he used to see tradespeople buy restaurant credits in batches of 100 or 200; lately, he says people are buying restaurant trade credits worth $300 to $500 at a time.
Cody Smith, owner of Dynamic Pest Control in Mesa, Ariz., has been cashing in his trade credits at restaurants more frequently in the past six months. "It's a great way to take the family out, enjoy a meal and walk away with very little cash out of your pocket."
Trading his pest control services for restaurant meals and other services has brought in new clients and boosted his sales by 15% in the last year, due partly to new cash-paying clients who aren't part of the exchange, Mr. Smith says.
Atlanta restaurateur Nancy Castellucci recently opened a fourth eatery called the Iberian Pig in an historic building that needed to be brought up to code. She used barter credits to cover 60% of the refurbishment costs.
"We would have had to go to the bank otherwise and we didn't want to go to the bank. When you have barter dollars, it's a much cheaper way to borrow money because you're not actually borrowing money, you're borrowing goods and services and not paying interest."
Mr. Zampatti of the Atlanta exchange says he's seeing restaurants increasingly use barter for routine maintenance costs. "In the past, restaurant owners would use barter to upgrade their lifestyle, like to go on vacation or buy jewelry, but because of the economy, now they're using it to pay for their business expenses."
Friday, December 4, 2009
Money Saving Secrets
Entrepreneurs' Best Money-Saving Secrets
By CHARLOTTE JENSEN, AOL SMALL BUSINESS
Even before belt-tightening became de rigueur, entrepreneurs were building businesses while quietly finding ways to cut costs. So who better to ask in a recession for their smartest, savviest cost-cutting tips? Here are 17 creative, easy and unexpected ways entrepreneurs are slashing hundreds -- and sometimes even thousands -- of dollars from their budgets.
1. When business travel is a must, optimize it. "Drive where possible, use travel as an opportunity to pack in as many meetings as possible, buy your hotels on Priceline, use last-minute flight discounts or take connectors to lower airfare."
-- Aynsley Deluce, partner, Parkingspots.com
2. Examine your balance sheet carefully. "By carefully looking beyond the totals to the details, we cut out $30,000 of expenses without any pain. We cut $10,000 in unnecessary bank fees, $1,800 in paper cups and plates, and $350 in credit card annual fees."
-- Julie Sue Auslander, president, cSubs
3. Think ahead. "We conduct a weekly shipping supplies inventory checklist to track usage. That lets us place larger shipping supply orders about every six to eight weeks, and we save about $1,000/year in freight costs compared to when we placed orders every two to four weeks."
-- Eric Mindel, director, PeppyParents.com Inc.
4. Question everything. "Never, ever be afraid to get four to five different opinions, estimates, thoughts, etc. In my business, I learned a long time ago no price is the final price, so when searching for products or suppliers, I have always asked, 'Can you do better on the price?' I've saved thousands of dollars across the board just by asking."
-- Christian Beebe, owner/founder, Worldwide Graphics & Sign Co.
5. Put an end to unnecessary upgrades. "Technolust can be very expensive--speaking from experience. As long as our existing technology equipment is adequate, we make do. This is a recent change for Geektime and has saved us over $20,000 annually for the last two years."
-- Alexander E. Fowler, president and senior consultant, Geektime Design Studios
6. Give e-learning a try. "For a couple hundred bucks, or sometimes no money at all, we can get schooled on new techniques without leaving our desks for professional development. We saved thousands last year."
-- Colleen Troy, owner, Touchpoint Communications
7. Team up for big savings. "We have substantially cut down on our overhead costs by office sharing with a structural engineering firm that has, like everyone else, had to cut down on staff. It is a win-win for both of us. We get the benefits of a large, fully functioning office, and they get income. We are also co-marketing on several projects since our firms' work is synergistic."
-- Virginia McAllister, principal, Iron Horse Architects
8. Get your green on. "Reduce paper consumption -- it is both green and economical. By changing what we print, we were able to reduce our consumption of paper by 90 percent. That translated to several hundreds dollars a year."
-- Orit Pennington, owner/CFO, TPGTEX Label Solutions Inc.
9. Give new life to items you would otherwise discard. "We save money by using pre-used boxes, newspapers and other scraps for all our packaging."
-- Adrien Edwards, co-founder, TheNakedHippie
10. Hire a college intern. "They will work for experience, are excited to be a part of a startup and will provide insight into their demographic. Give them the opportunity to own their work and see how quickly your company will grow as a result and for nothing more than time, appreciation and a killer recommendation."
-- Colleen Leader, owner, Loose Thread Stitchers
11. Shop around to secure the best deals. "I have begun to use different sites for any travel we do. For example, in the past I might call Avis directly to rent a car. Nowadays I go on RentACarNow.com, which is a marketplace of all vendors, and compare rates. This way I find the cheapest rate for my travel. I also use Hotels.com for hotel booking. It's incredible how much I have saved -- over 40 percent on my travel budget for the year. No longer can we rely on one vendor."
-- Robert Tuchman, founder, TSE Sports & Entertainment
12. Try an alternative compensation structure. "Hire commission-only sales reps and consider giving a sizable commission -- [it's] still cheaper than paying a salary."
-- Bradi Nathan, co-founder, MyWorkButterfly.com
13. Volunteer. "In addition to helping a great cause and gaining a personal sense of fulfillment, you often have the opportunity to meet/network with people who may have an important impact on your business -- including successful business leaders, angel investors, political leaders and members of the media -- that you would likely not have had access to in any other venue, regardless of how much you spend on marketing and PR."
-- Sarah M. Place, CEO, Place Trade Financial
14. Find cheaper ways to network. "A luncheon can easily cost $30 to $45, but you might get away with $5 to $10 to attend a happy hour. You can meet just as many people, if not more, when attending a cheaper event."
-- Ansley Meredith, owner, ENERGIZED Media Relations
15. Create buzz (for free) with social media. "We have developed a loyal following on Twitter and Facebook and have seen traffic to our website continue to grow. We've learned that directly connecting with people in their preferred mode of social communication not only enhances our valuable customer relationships, it doesn't cost a penny."
-- Jeff Avallon, co-founder, IdeaPaint
16. When possible, work virtually. "Maintaining a home office eliminates the costs associated with having office space."
-- Adil Lalani, founder and CTO, TwitVid
17. Keep employees happy (read: prevent turnover). "The costs [associated with] being a person short, running ads, time spent interviewing and the downtime while someone gets trained are huge. And then there are the indirect costs -- a dip in client confidence, burned-out staff because they're picking up the extra load and potential loss of clients. It all adds up to a huge number--a number most small businesses cannot afford to pay." -- Drew McLellan, president, McLellan Marketing Group
By CHARLOTTE JENSEN, AOL SMALL BUSINESS
Even before belt-tightening became de rigueur, entrepreneurs were building businesses while quietly finding ways to cut costs. So who better to ask in a recession for their smartest, savviest cost-cutting tips? Here are 17 creative, easy and unexpected ways entrepreneurs are slashing hundreds -- and sometimes even thousands -- of dollars from their budgets.
1. When business travel is a must, optimize it. "Drive where possible, use travel as an opportunity to pack in as many meetings as possible, buy your hotels on Priceline, use last-minute flight discounts or take connectors to lower airfare."
-- Aynsley Deluce, partner, Parkingspots.com
2. Examine your balance sheet carefully. "By carefully looking beyond the totals to the details, we cut out $30,000 of expenses without any pain. We cut $10,000 in unnecessary bank fees, $1,800 in paper cups and plates, and $350 in credit card annual fees."
-- Julie Sue Auslander, president, cSubs
3. Think ahead. "We conduct a weekly shipping supplies inventory checklist to track usage. That lets us place larger shipping supply orders about every six to eight weeks, and we save about $1,000/year in freight costs compared to when we placed orders every two to four weeks."
-- Eric Mindel, director, PeppyParents.com Inc.
4. Question everything. "Never, ever be afraid to get four to five different opinions, estimates, thoughts, etc. In my business, I learned a long time ago no price is the final price, so when searching for products or suppliers, I have always asked, 'Can you do better on the price?' I've saved thousands of dollars across the board just by asking."
-- Christian Beebe, owner/founder, Worldwide Graphics & Sign Co.
5. Put an end to unnecessary upgrades. "Technolust can be very expensive--speaking from experience. As long as our existing technology equipment is adequate, we make do. This is a recent change for Geektime and has saved us over $20,000 annually for the last two years."
-- Alexander E. Fowler, president and senior consultant, Geektime Design Studios
6. Give e-learning a try. "For a couple hundred bucks, or sometimes no money at all, we can get schooled on new techniques without leaving our desks for professional development. We saved thousands last year."
-- Colleen Troy, owner, Touchpoint Communications
7. Team up for big savings. "We have substantially cut down on our overhead costs by office sharing with a structural engineering firm that has, like everyone else, had to cut down on staff. It is a win-win for both of us. We get the benefits of a large, fully functioning office, and they get income. We are also co-marketing on several projects since our firms' work is synergistic."
-- Virginia McAllister, principal, Iron Horse Architects
8. Get your green on. "Reduce paper consumption -- it is both green and economical. By changing what we print, we were able to reduce our consumption of paper by 90 percent. That translated to several hundreds dollars a year."
-- Orit Pennington, owner/CFO, TPGTEX Label Solutions Inc.
9. Give new life to items you would otherwise discard. "We save money by using pre-used boxes, newspapers and other scraps for all our packaging."
-- Adrien Edwards, co-founder, TheNakedHippie
10. Hire a college intern. "They will work for experience, are excited to be a part of a startup and will provide insight into their demographic. Give them the opportunity to own their work and see how quickly your company will grow as a result and for nothing more than time, appreciation and a killer recommendation."
-- Colleen Leader, owner, Loose Thread Stitchers
11. Shop around to secure the best deals. "I have begun to use different sites for any travel we do. For example, in the past I might call Avis directly to rent a car. Nowadays I go on RentACarNow.com, which is a marketplace of all vendors, and compare rates. This way I find the cheapest rate for my travel. I also use Hotels.com for hotel booking. It's incredible how much I have saved -- over 40 percent on my travel budget for the year. No longer can we rely on one vendor."
-- Robert Tuchman, founder, TSE Sports & Entertainment
12. Try an alternative compensation structure. "Hire commission-only sales reps and consider giving a sizable commission -- [it's] still cheaper than paying a salary."
-- Bradi Nathan, co-founder, MyWorkButterfly.com
13. Volunteer. "In addition to helping a great cause and gaining a personal sense of fulfillment, you often have the opportunity to meet/network with people who may have an important impact on your business -- including successful business leaders, angel investors, political leaders and members of the media -- that you would likely not have had access to in any other venue, regardless of how much you spend on marketing and PR."
-- Sarah M. Place, CEO, Place Trade Financial
14. Find cheaper ways to network. "A luncheon can easily cost $30 to $45, but you might get away with $5 to $10 to attend a happy hour. You can meet just as many people, if not more, when attending a cheaper event."
-- Ansley Meredith, owner, ENERGIZED Media Relations
15. Create buzz (for free) with social media. "We have developed a loyal following on Twitter and Facebook and have seen traffic to our website continue to grow. We've learned that directly connecting with people in their preferred mode of social communication not only enhances our valuable customer relationships, it doesn't cost a penny."
-- Jeff Avallon, co-founder, IdeaPaint
16. When possible, work virtually. "Maintaining a home office eliminates the costs associated with having office space."
-- Adil Lalani, founder and CTO, TwitVid
17. Keep employees happy (read: prevent turnover). "The costs [associated with] being a person short, running ads, time spent interviewing and the downtime while someone gets trained are huge. And then there are the indirect costs -- a dip in client confidence, burned-out staff because they're picking up the extra load and potential loss of clients. It all adds up to a huge number--a number most small businesses cannot afford to pay." -- Drew McLellan, president, McLellan Marketing Group
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.
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."
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.
Thursday, October 22, 2009
Local lenders support small-biz loan initiative
IBJ.com
October 22, 2009
Scott Olson
Click HERE to view the article online
Small business lenders in Indianapolis are supporting a proposal announced by President Obama Wednesday that would increase the size of government-backed loans.
Small-business lenders in Indiana are supporting a proposal announced by President Obama that would increase the size of government-backed loans.
Under the plan announced Wednesday, loan amounts made through the U.S. Small Business Administration’s flagship 504 and 7(a) programs would increase to $5 million. Current maximums are $4 million for 504 loans and $2 million for 7(a) lending.
The initiative would be funded by the Troubled Asset Relief Program and would need to be approved by federal lawmakers.
“I think that increasing the caps on SBA lending is absolutely the way to go,” said Joe DeHaven, president and CEO of the Indiana Bankers Association. “It’s the correct way to spur small-business loans.”
The credit crunch has severely slowed lending activity, although most bankers contend that capital remains available to clients with a solid credit history. Still, the number of SBA-backed loans in Indiana dropped nearly 30 percent in fiscal 2009 from the previous year.
For the fiscal year ended Sept. 30, 1,035 loans totaling $266.8 million were made through the two SBA programs. That compares with 1,460 loans totaling $307 million in the previous fiscal year.
“We’re still cautious, but I think we are lending to credit-worthy borrowers,” said Scott Burns, vice president of SBA lending at the Indianapolis office of Pittsburgh-based PNC Financial Services Inc. “And you’ll see [lending] starting to step up over the next year.”
Burns thinks Indiana’s large manufacturing base could benefit most from the proposed increase, because a mid-size factory can’t purchase a lot of equipment with a $2 million loan.
The Washington, D.C.-based Independent Community Bankers of America issued a statement supporting the proposal, as did the National Association of Development Companies.
NADCO is the trade association for the nation’s certified development companies that make 504 loans. Jean Wojtowicz, director of the Indiana Statewide Certified Development Corp. in Indianapolis, is chairwoman of Virginia-based NADCO.
“Raising the ceiling on SBA 504 loans to $5 million is a big step toward bringing more job-creation money to Main Street,” Wojtowicz said.
504 loans typically are used to purchase land, buildings and equipment.
The SBA currently guarantees as much as 90 percent of loans it backs through approved financial institutions. The guarantee provides an incentive for banks to lend to small businesses that are more at risk of defaulting.
October 22, 2009
Scott Olson
Click HERE to view the article online
Small business lenders in Indianapolis are supporting a proposal announced by President Obama Wednesday that would increase the size of government-backed loans.
Small-business lenders in Indiana are supporting a proposal announced by President Obama that would increase the size of government-backed loans.
Under the plan announced Wednesday, loan amounts made through the U.S. Small Business Administration’s flagship 504 and 7(a) programs would increase to $5 million. Current maximums are $4 million for 504 loans and $2 million for 7(a) lending.
The initiative would be funded by the Troubled Asset Relief Program and would need to be approved by federal lawmakers.
“I think that increasing the caps on SBA lending is absolutely the way to go,” said Joe DeHaven, president and CEO of the Indiana Bankers Association. “It’s the correct way to spur small-business loans.”
The credit crunch has severely slowed lending activity, although most bankers contend that capital remains available to clients with a solid credit history. Still, the number of SBA-backed loans in Indiana dropped nearly 30 percent in fiscal 2009 from the previous year.
For the fiscal year ended Sept. 30, 1,035 loans totaling $266.8 million were made through the two SBA programs. That compares with 1,460 loans totaling $307 million in the previous fiscal year.
“We’re still cautious, but I think we are lending to credit-worthy borrowers,” said Scott Burns, vice president of SBA lending at the Indianapolis office of Pittsburgh-based PNC Financial Services Inc. “And you’ll see [lending] starting to step up over the next year.”
Burns thinks Indiana’s large manufacturing base could benefit most from the proposed increase, because a mid-size factory can’t purchase a lot of equipment with a $2 million loan.
The Washington, D.C.-based Independent Community Bankers of America issued a statement supporting the proposal, as did the National Association of Development Companies.
NADCO is the trade association for the nation’s certified development companies that make 504 loans. Jean Wojtowicz, director of the Indiana Statewide Certified Development Corp. in Indianapolis, is chairwoman of Virginia-based NADCO.
“Raising the ceiling on SBA 504 loans to $5 million is a big step toward bringing more job-creation money to Main Street,” Wojtowicz said.
504 loans typically are used to purchase land, buildings and equipment.
The SBA currently guarantees as much as 90 percent of loans it backs through approved financial institutions. The guarantee provides an incentive for banks to lend to small businesses that are more at risk of defaulting.
Article/Book Review: Capitalist Liberation
Forbes.com
Book Review
Capitalist Liberation
Carl J. Schramm
10.19.09, 12:00 PM ET
Freedom, Inc. is a subversive book, in the best meaning of that oft-misused and misunderstood phrase. It comes in a non-threatening guise--advice to managers on how to get the most out of their employees--that partially masks its revolutionary theoretical teaching. For this book is really nothing less than a manifesto for "messy capitalism," for the unplanned, unpredictable dynamism that is the root strength of every successful company and economy in history, and that is also the one force that can pull the world out of the economic crisis of our time.
Brian Carney, a business writer and editorialist, and Isaac Getz, a business professor and psychologist, draw on deep wells of learning and dozens of interviews with leading business figures and frontline employees. Their thesis is simple: Companies that painstakingly regulate every minute of worker time and dictate worker tasks down to minute levels, suffer from low morale, lost productivity and, tragically, lost opportunities--many of which are never even imagined. Worse, strict regulation sends all the wrong signals to employees: that management does not trust them, that their jobs could easily be done by robots and that they have no ideas worth listening to.
By contrast, companies that leave their employees free to do their jobs, and that listen to what workers have to say, are more likely to thrive. So why don't more adopt this approach? The authors make an amusing comparison to dieting. How many of us know that we should not have that second cookie but eat it anyway? A deeper problem is the age-old human impulse to control. Once in control, people are loath to surrender any of their power, even if they can be shown that letting go would better serve their interests. Hence, in a few discouraging passages, Carney and Getz describe how managers of top-down companies come to study what goes on at "freedom-based" companies, only to return home and change … nothing.
The key theoretical insights of this book concern innovation--which should be the most urgent priority for business leaders and economists alike right now. Carney and Getz demolish two common myths: first, that innovation is always or mostly the product of some lone genius in a lab or garage; second, that innovation necessarily means some great new scientific or technological breakthrough.
On the contrary: The authors show, in example after example, how innovation rises as often from the factory floor as it emerges from the corner office or R&D lab. They visit a quintessentially "old economy" business--a foundry that makes brass parts for plumbing and for cars--in the most unlikely of places (France) that, by freeing its employees from oppressive regulation, allowed myriad ideas to take root and transform the company. The lesson: Every worker has the potential to be an innovator, if given the chance.
Similarly, they demonstrate how Bill Gore built a $2.5 billion company by finding new uses for a product--PTFE, or "Teflon"--that had been developed but underutilized by his previous employer, DuPont. Gore began by making insulator for electrical cables, but has since applied PTFE to such varied uses as waterproofing for sportswear ("Gore-Tex") and guitar strings (Gore today controls a third of that market).
The common element of the very different companies Carney and Getz discuss is culture. This is not to say that all of these firms have identical cultures, though there are certainly similarities. Rather, it is that all of them recognize the primacy of culture, and their CEOs see their chief task as setting and maintaining an open, inclusive and innovative culture.
The best examples are, in the authors' parlance, "why" companies and not "how" companies. That is, they place at the forefront of their thinking and energies the core reasons for their existence--Why is this company here? What is it here to do?--and let frontline workers take care of the means. The limits of the "how" approach should be readily apparent from the failures of GM and Chrysler, whose byzantine work rules strangled innovation and flexibility. But lest one conclude that the authors have an ax to grind against unions, they show through their account of the turnaround of Harley Davidson how a heavily unionized company in a heavily unionized industry became a paragon of "why" company flexibility.
This book should be a sobering read for policymakers and regulators, who tend to assume that they know more than they do, and that central control can accomplish more than diffuse, unplanned exertion. Convincing them to embrace, or at least not to fear, "messy capitalism" would be a splendid legacy for this readable, insightful volume.
Alas, one should not hope for too much. It would be enough if more "old economy" managers and budding entrepreneurs were shaken in their thinking. Business is still the source of all our wealth and most of our employment. For the world economy to climb out of the current trough, individual businesses need to thrive. This book teaches them how.
Book Review
Capitalist Liberation
Carl J. Schramm
10.19.09, 12:00 PM ET
Freedom, Inc. is a subversive book, in the best meaning of that oft-misused and misunderstood phrase. It comes in a non-threatening guise--advice to managers on how to get the most out of their employees--that partially masks its revolutionary theoretical teaching. For this book is really nothing less than a manifesto for "messy capitalism," for the unplanned, unpredictable dynamism that is the root strength of every successful company and economy in history, and that is also the one force that can pull the world out of the economic crisis of our time.
Brian Carney, a business writer and editorialist, and Isaac Getz, a business professor and psychologist, draw on deep wells of learning and dozens of interviews with leading business figures and frontline employees. Their thesis is simple: Companies that painstakingly regulate every minute of worker time and dictate worker tasks down to minute levels, suffer from low morale, lost productivity and, tragically, lost opportunities--many of which are never even imagined. Worse, strict regulation sends all the wrong signals to employees: that management does not trust them, that their jobs could easily be done by robots and that they have no ideas worth listening to.
By contrast, companies that leave their employees free to do their jobs, and that listen to what workers have to say, are more likely to thrive. So why don't more adopt this approach? The authors make an amusing comparison to dieting. How many of us know that we should not have that second cookie but eat it anyway? A deeper problem is the age-old human impulse to control. Once in control, people are loath to surrender any of their power, even if they can be shown that letting go would better serve their interests. Hence, in a few discouraging passages, Carney and Getz describe how managers of top-down companies come to study what goes on at "freedom-based" companies, only to return home and change … nothing.
The key theoretical insights of this book concern innovation--which should be the most urgent priority for business leaders and economists alike right now. Carney and Getz demolish two common myths: first, that innovation is always or mostly the product of some lone genius in a lab or garage; second, that innovation necessarily means some great new scientific or technological breakthrough.
On the contrary: The authors show, in example after example, how innovation rises as often from the factory floor as it emerges from the corner office or R&D lab. They visit a quintessentially "old economy" business--a foundry that makes brass parts for plumbing and for cars--in the most unlikely of places (France) that, by freeing its employees from oppressive regulation, allowed myriad ideas to take root and transform the company. The lesson: Every worker has the potential to be an innovator, if given the chance.
Similarly, they demonstrate how Bill Gore built a $2.5 billion company by finding new uses for a product--PTFE, or "Teflon"--that had been developed but underutilized by his previous employer, DuPont. Gore began by making insulator for electrical cables, but has since applied PTFE to such varied uses as waterproofing for sportswear ("Gore-Tex") and guitar strings (Gore today controls a third of that market).
The common element of the very different companies Carney and Getz discuss is culture. This is not to say that all of these firms have identical cultures, though there are certainly similarities. Rather, it is that all of them recognize the primacy of culture, and their CEOs see their chief task as setting and maintaining an open, inclusive and innovative culture.
The best examples are, in the authors' parlance, "why" companies and not "how" companies. That is, they place at the forefront of their thinking and energies the core reasons for their existence--Why is this company here? What is it here to do?--and let frontline workers take care of the means. The limits of the "how" approach should be readily apparent from the failures of GM and Chrysler, whose byzantine work rules strangled innovation and flexibility. But lest one conclude that the authors have an ax to grind against unions, they show through their account of the turnaround of Harley Davidson how a heavily unionized company in a heavily unionized industry became a paragon of "why" company flexibility.
This book should be a sobering read for policymakers and regulators, who tend to assume that they know more than they do, and that central control can accomplish more than diffuse, unplanned exertion. Convincing them to embrace, or at least not to fear, "messy capitalism" would be a splendid legacy for this readable, insightful volume.
Alas, one should not hope for too much. It would be enough if more "old economy" managers and budding entrepreneurs were shaken in their thinking. Business is still the source of all our wealth and most of our employment. For the world economy to climb out of the current trough, individual businesses need to thrive. This book teaches them how.
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