Economic Forecast 2012 for Small Business

The last three years have been extremely difficult for small businesses.  In 2009 alone, there were nearly two hundred thousand small business closures than business openings.   

The good news is that the economy will not be getting worse.  The bad news is that we are in a stagnate economy.  The growth projections for the next four quarters will not be more than 2.0%.   We need at least 4% quarterly growth to get us out of our economic funk.    With the economic uncertainty going into the election year and no real boom industry on the horizon, 4% will be difficult to achieve.   The US government continues to pile on new regulations, 40,000 pages worth just went into effect on the first of January.  The most significant will be the IRS 1099 reporting requirement.  Obamacare still creates uncertainty and is driving up healthcare costs.  The Bush tax cuts expire at the end of this year.  The Bush Tax cuts will be used for much political theater, with the Democrats opposing the continuation and the Republicans wanting to make them permanent.  There won’t be clarity on this issue until after the election.  The markets will react volatilely until this issue is resolved.

The economy needs a more pro-growth, pro small business governmental policies to see real growth.   So far, small businesses have only received platitudes and false promises.  Currently, a small business with less than 20 employees spends over ten thousand dollars a year just complying with government regulations. 

The ...

Trends in Credit Card Processing for Small Business

The biggest trend continues to be the Durbin Amendment. Small businesses received the biggest reduction in their credit card processing charges in the history of the electronic payment industry.  Most small businesses will not realize these savings unless they take action. 

As part of the Dodd – Frank Wall Street Reform and Consumer Protection Act of 2010 passed by Congress in 2010, the Durbin Amendment was written to give the Federal Government the power to set interchange rates for debit card usage.  Essentially, this amendment significantly lowered the rates beginning October 1, 2011.

In the past, debit card processing rates, or debit interchange rates, were set by  Visa/MasterCard at a rate of 0.95% + $0.20 for Visa and 1.05% + $0.15 for MasterCard.  Under the Durbin Amendment, these rates were reduced to 05% + $0.22 each company.   

Merchants that process debit cards (signature debit or pin debit) have begun to see huge savings on their merchant account processing statements.  Because debit transactions, pin and signature, comprise nearly 50% - 70% off all card transactions, merchants have the ability to see decreases of up to 50% in their credit card processing charges representing real savings. 

Not all merchants have card processing plans that allow for the Durbin Amendment reduction.  For those who do not have these plans and still accept a high percentage of debit cards, their debit interchange savings will be going to their processors rather than themselves.

This is especially true for merchants who are on three-tier and ...

1099 Reporting for Small Business

1099 Reporting.  If any payments to vendors over $600,  you must issue a 1099.  Failure to do so can result in a fine per violation.  This reporting is going to cause a lot of headaches and wasted hours filing reports.  These are the requirements from the IRS website.

IRS FORM 1099 REPORTING REQUIREMENTS

The Internal Revenue Service (IRS) requires businesses (including not-for-profit organizations) to issue a Form 1099 to any individual or unincorporated business paid in excess of $600 per calendar year for services rendered. This is required whether these payments are spread out over the course of the year or are paid in one lump sum payment.  This form is generally not required to be issued to incorporated businesses. The only exception is when payments are made to incorporated law firms. A 1099 must be issued whenever payments in excess of $600 per calendar year are made to law firms.

The most effective way to obtain the information needed to prepare the Form 1099 is by requiring that an IRS Form W-9 be completed prior to any payment being made. Blank W-9 forms can be obtained on page two. The penalty for failure to file Form 1099 can be as much as 50% of the amount paid for services. The responsibility for filing the Form 1099 is on the organization paying for the services (each state component). It is the responsibility of the individual/business receiving the Form 1099 to handle it properly on their tax return. 

The most ...

Trends in Merchant Cash Advance

The great news is that the factor rate of merchant cash advances continues to come down.  A merchant cash advance is like a loan, but based on your businesses future sales.  The industry is unregulated so the advances are made much quicker without all the paperwork, and financials.  The advances are unsecured.  Those are the advantages. 

The disadvantage is that the factor rate is higher than a bank loan interest rate.  Only a few years ago, the factor rate was around 1.35.   Now, the factor rates have come down through market competition.  It is possible to get a 3 month advance at 1.1299 factor.  A ten thousand dollar advance would cost ($10,000 x 1.1299)  = $1299.  That’s not too bad and also in line with a high interest loan or credit card interest rates.   

A good bit of advice is to explore your financing options and choose those that are the least costly in the short and long term.  Please remember that bank loans have low interest rates, but those low interests come with risk.  Usually these loans are securitized.  If you default, then the bank can seize your assets.   This is not the case with a merchant cash advance.  Merchant Cash Advances are unsecured.  Bank loans can take a long time to close.  Do you have that time to wait?  Or do you need money today?   What happens if you get into a cash flow pinch?   In most cases, a bank loan won’t help ...

How small business can exploit Groupon

The Groupon phenomenon has grown like wildfire.  If implemented correctly, a Groupon campaign or a living social campaign can significantly transform your business and increase your bottom line.   Let’s be honest, a successful Groupon campaign is not cheap.  Groupon wants you to give at least 50% off to its members.  Then Groupon splits the upfront money.  So you are giving away 75% of your product and service.   If you have a 50% margin, then the campaign will cost you 25% of the wholesale price minus the percentage of no shows which is usually around 10%.  

For a Groupon campaign to work, you need to run the numbers and see it makes sense.   Let’s say you have a restaurant and you offer a $10 Groupon for $20 worth of food.  The campaign manages to sell 1000 Groupons.  This means you are required to provide $20,000 worth of food if 100% of the groupons are redeemed with the six month period.  Groupon received a total of $10,000 from it members.  (1000 members x $10.00).  Groupon sends your portion in 3 installments during the term of the deal which may be up to a year.   Also Groupon takes out all credit card processing fees.  You can figure 3% for that.   You should receive at the end of your sixth months campaign $5,000 – ($5000 x 3% = )150 = $4850.  10% of the Groupons were never redeemed or $1000 dollars.  That means you save $2,000 in food costs.  You ...