The Decline of Community Banks
Per published reports, 90 bank institutions have failed this year. All of them had assets of less than $10 billion, and most were significantly smaller than that. The decline of small banks is not a new trend, but has rapidly increased since the recent collapse began in 2008.
The national banking sector has actually been shrinking for years. In 1990, there were more than 12,000 commercial banks, according to the FDIC. Now, there are just over 6,500. Local banks are disappearing through failures due to reliance on commercial real estate, inability to provide services comparable to bigger banks, and consolidation with larger institutions.
So as community banks disappear, where does the local business owner go to refinance his neighborhood grocery store or manufacturing company?
The Small Business Administration still provides an avenue for the small business owner to expand or refinance their business, through the 7(a) and 504 loan programs. Rural owners also can qualify for government guaranteed financing through the USDA loan program.
Just as small business owners previously maintained interpersonal relationships with their community bankers, it is important for them to now foster relationships with national institutions that are government guaranteed lending partners.
“The opinions stated in this article are those of the author and not Ocean Capital, a division of Home Loan Investment Bank, FSB”
Putting Your Best Foot Forward
Let’s face it, we all make assumptions about people we meet based on our initial contact. How many times have we heard our parent or teacher say “you only get one chance to make a first impression”? It isn’t fair and we all know better, but human nature is a hard thing to overcome. So why should your lender be any different? Just like you would make an initial judgment about a potential customer based on your first impression, your lender will also start assessing your company based on their first impression of you. When you are requesting a small business loan and submitting the completed application forms, you will be held accountable for all your misspellings, typos and grammatical errors. You may not know it but your lender is judging your business on your attention to detail even if your lender doesn’t realize they are doing it, because, in the end, you are your business. While you may be an expert in your industry, you may not be an expert in completing the information necessary to apply for a small business loan. Therefore, if you know someone who has better language skills than your own, enlist them to help. Attention to detail also doesn’t apply only to the written word. When preparing financial information, make sure the numbers all add up, and once again, if bookkeeping isn’t your strength, find a professional in that field. Applying for a small business loan is a lot like acquiring a new customer, it’s important to put your best foot forward. Sometimes, our parents really do know best.
“The opinions stated in this article are those of the author and not Ocean Capital, a division of Home Loan Investment Bank, FSB”
When the Tweeting Stops
Small Business Owner #1: “You’re not on Twitter, you have to be on Twitter.”
Small Business Owner #2: “Why?”
Small Business Owner #1: “Because everyone’s on Twitter.”
Small Business Owner #2: “If everyone jumped off the Newport Bridge would you do it too?”
Small Business Owner #1: “That’s good. I’m going to Tweet that.”
Brace yourselves because I am about to establish myself as the Galileo of inbound marketing and declare the world to be round when everyone is saying the opposite. I don’t understand the obsession with Twitter as a marketing tool; it’s a passing fad that doesn’t have nearly the potential that most Marketing Managers would like to make you think. There, I said it, and I feel like a burden has been lifted. It’s out in the open, and now it’s only a matter of time before a flock of tiny blue birds will swoop down and carry me away to be fed to the “fail whale”. Before that happens though, it is my duty to make sure that my last words are put down in blog form to remain for cyber-eternity.
Before getting too far into why I don’t see the marketing benefits of Twitter, let me explain what Twitter is. Now I understand that the chances of you being on the internet and finding this blog, while simultaneously not knowing what Twitter is are slim; but there are some myths and preconceptions about the service to clear up. Twitter is a social networking service that allows users to post messages that can be no longer than 140 characters. Users choose to follow individuals or businesses on Twitter so that they can be up-to-date on whatever information they have to share. Messages can be viewed through your browser, or sent directly to a cell phone.
A post on Twitter is actually referred to as a Tweet. Allow me to clear something up that I know you’ve been thinking about, there is no way to sound professional in a meeting and say the word “Tweet” at the same time. The typical Twitter marketing meeting at some point will have someone utter the phrase, “Well, how often do we think that we really need to (pause … pained expression…) Tweet.”
So there’s how Twitter works in a nutshell. You might be asking yourself, why are marketing professionals so excited about this service? That can be summed up in one word: reach. According to www.alexa.com, a website that analyzes web traffic, Twitter is currently the tenth most visited site on the internet. The exact number of people using Twitter is a bit ambiguous considering the number of people that join Twitter and are not active, but estimates put it somewhere in the range of 18 million. When you tell a marketing person that you have a venue which reaches 18 million people that doesn’t cost a thing to join, their eyes will light up.
So why am I so against Twitter? First off, let’s take a look at who those 18 million people really are. For the most part, they are not the same 18 million people you were talking to yesterday. Twitter has a 40% retention rate, which means that 7.2 million people simply drop off of Twitter every year. Compare that to the 70% retention rate for Facebook and you begin to get the sense that your reach is now 18 million people that are only barely paying attention.
Why do so many people jump off the Twitter bandwagon each year? Well maybe it has a lot to do with the Tweets that are actually happening. According to San Antonio based marketing firm, Pear Analytic, 41% of tweets are pointless babble and 38% are conversational. According to the same study, only 9% of Tweets actually pass along value. This means that for every Tweet I send, a person will receive 4 tweets of gibberish, 3 tweets of what people had for breakfast, 1 Tweet of spam, and 1 Tweet of breaking news. When you look at it that way, you really can’t blame people for not listening to your message or deciding that they’re done listening all together.
Another issue with Twitter is who people are really following. Twitter is essentially People magazine condensed into 140 characters and sent straight from the celebrity themselves. Currently, the top ten people being followed on Twitter are Britney Spears, Lady Gaga, Ashton Kutcher, The Ellen Show, Barack Obama (that’s right, the President is behind Lady Gaga), Kim Kardashian, Justin Bieber, Oprah, Taylor Swift, and John Mayer. So unless I’m a famous musician, actor, President, or whatever it is that Kim Kardashian does, what chance do I have of getting people to follow my company? It’s also worth noting that the eleventh most followed “Twitterer” (now I’m just making up words) is Twitter. If Twitter can’t even break the top ten of their own list then what hope do I have?
My next issue with Twitter, is that from a marketing perspective, it measures all the wrong things. A follower on Twitter is not a metric that carries weight or can be accurately translated into sales. Someone has chosen to follow you on Twitter because they are already a fan of you as an individual or of your product. Britney Spears has over 5.5 million followers right now, but how many of them bought her latest album because they followed her on Twitter? Or conversely, how many follow her on Twitter because they bought the last album? How many followers hate her music but want to make sure they’re the first to know if she should happen to shave her head again? My point is, people have largely made up their minds on how they feel about a person, company, or product in other ways and 140 characters is not swaying them.
My final beef with Twitter is that there isn’t any actual commerce going on. I’m pretty sure Twitter does not accept credit cards, and there is no way for you to put up a product over Twitter and have someone buy it right then. Not only is nothing being sold over Twitter, but the number one reason for a person to become a follower of a business is to get free stuff. Not only are Twitter followers not buying your product over Twitter, but they’re hoping that you’re going to give them something for free over it. Now I can understand giving away something to try and acquire a new customer, but if someone already feels enough of a connection to your company that they will follow you on Twitter, they’re not really the person that you need to be giving free samples to. These are supposed to be the customers that I’ve already spent money on and can now spend less to retain.
With all of this being said, I could of course be wrong. If you’re company has seen success with Twitter I’d love to hear about it. Maybe I’m not the Galileo of social marketing, but just a crazy person screaming from the sidewalk that the world is flat. I like that…I think I’ll tweet it.
The opinions stated in this article are those of the author and not Ocean Capital, a division of Home Loan Investment Bank, FSB.
Politics as Usual: Candidates Weigh in on 38 Studios
The Rhode Island gubernatorial candidates as well as General Treasurer and Congressional candidates have recently weighed in on their opinions about the $75 million in guaranteed loans from the Rhode Island Economic Development Corporation for 38 Studios. The $75 million loan is exhausting 60% of the $125 million the state has been authorized to lend to high-tech and “knowledge based” businesses in Rhode Island. 38 Studios is currently located in Maynard, Massachusetts, but the RIEDC has given Curt Schilling 75 million reasons to relocate his company to the Ocean State.
Former senator and Independent gubernatorial candidate, Lincoln Chaffee has been vocal about his opposition to the Rhode Island Economic Development Corporation’s decision. He has asked the EDC to suspend its commitment to, 38 Studios LLC and reconvene in order to evaluate proposals from other companies that may prosper in RI. He did not specify companies or industries that he would rather lend the money to, but Chafee criticized the agreement for encumbering more than half of a new state loan guarantee program and risking it “on one company that’s never had a penny of revenue yet.” When Chafee met with Keith Stokes, EDC Director, Stokes indicated that although the board voted on July 26, 2010 to issue a $75 million loan guarantee to 38 Studios, it was not yet a “done deal.” As a result of that comment, he immediately sent a letter to Stokes asking him to reconsider the Board’s decision. Chafee wrote to Stokes, “I call on you and the Board to suspend the commitment to 38 Studios and to conduct a full, fair and far reaching RFP (request for proposal) process to ensure that Rhode Island gets the best possible use of its new loan guarantee fund.” Chafee has continued to question whether or not the EDC evaluated any other proposals from any other companies before deciding to gamble on Schilling’s chances of success in the digital media industry.
Lincoln Chaffee is not the only gubernatorial candidate concerned about the high risk nature of the loan to 38 Studios. State Treasurer and Democratic candidate for governor, Frank T. Caprio, also sent a letter to the EDC requesting modifications to the arrangement with 38 Studios. One of his recommendations is to penalize the company if it eliminates the jobs created too quickly, and a stipulation that “indirect jobs” resulting from the video game business be situated in Rhode Island. Caprio has suggested that the state should have equity in 38 Studios and the right to attend the company’s board meetings. Since Schilling wants the state to “bear the risk, we should share in the reward,” said Caprio. As General Treasurer, Caprio would be seeking a stronger agreement in order to protect the Rhode Island taxpayers since the state is taking a substantial risk.
Ken Block, the Moderate Party candidate for Governor, also criticized the EDC’s plan. “The 38 Studios decision is a mistake,” he said. “You can’t fix the economy with silver-bullet solutions. Seventy-five million dollars could go a long way to help many small businesses here in Rhode Island, and we can’t afford to set aside such a large sum of money for specific inducements to special companies.” Not all gubernatorial candidates believe that Rhode Island should focus on the digital media industry.
Gubernatorial candidates are not the only Politicians with opinions. Kernan F. “Kerry” King, the Republican candidate for General Treasurer, began an August 6, 2010 news release by saying, “I am not a fan of the government loaning money to businesses for any reason. We have banks to do that.” But, he said, we wouldn’t need to guarantee loans if we elected “pro-business candidates” who did things like lower taxes. Is he a pro-business candidate or is he implying that the current general treasurer, Frank T. Caprio, is anti-business? He conveniently failed to mention that state leaders just slashed the top personal income tax rate from 9.9% to 5.99%. In addition, King said, “For the first time in a long time, we have a company relocating to Rhode Island that is part of a new, growing industry.” King is accurate in that Rhode Island is not attracting small businesses to relocate to Rhode Island, unless you are Curt Schilling and the EDC has incentivized you with tax credits. King trusts the expertise of the EDC and felt like the state is taking a risk, albeit a calculated risk. “We are talking some of the best and brightest business minds in Rhode Island who did their homework, set appropriate benchmarks and gave their seal of approval on this project,” King said of the EDC board of directors.
Gina M. Raimondo, the Democratic candidate for General Treasurer and Co-Founder of the state’s only venture capital firm, said she’s very familiar with the gamble the EDC is making with taxpayer money, and it’s too risky. “I applaud their creativity, but I cannot support this particular deal,” she said Monday. “This company is highly, highly risky –– they have no revenue and have never released a game.” She noted that there are more than 100 venture capital firms in the Boston area, and it should have been a red flag to the EDC that Schilling’s venture did not attract backing from them. “Right away we should have hit the pause button,” Raimondo said. “And, we structured this strictly as debt with no equity in the company and no seat on the Board of Directors so the state has very little control. It may not be too late to hit that pause button. Since the loan is not a “done deal,” both Chaffee and Caprio have asked the EDC to reconvene and to modify the agreement to benefit the Rhode Island taxpayers since we are the ones assuming the risk, without any reward. Sure the state needs 450 jobs like a desert needs rain, but if 38 Studios fails in their attempt to create 450 jobs by the end of 2012, the penalties, nor the liquidated value of the company’s collateral will recoup the $75 million lent to Curt Schilling’s company.
Republican candidate for Governor, John Robitaille, and Republican candidate for General Treasurer, Kerry King, support the EDC’s decision, yet they both have concerns about the deal. “I had reservations on this project and would have preferred offering smaller loan guarantees to a greater number of existing Rhode Island small businesses,” Robitaille said. “However, now that the EDC has voted to support the project, I hope that Studio 38 becomes extremely successful. …We need to get Rhode Islanders back to work, and cannot let politics get in the way.” Unfortunately, politics will find a way to get in the way, but at least we have candidates for governor and general treasurer who understand the importance of job creation and protecting taxpayers.
Anthony Gemma, the last of four Democrats to enter the 1st District Congressional race is not focusing on generating only 450 jobs in one industry sector. Gemma proposed a new “industrial revolution” for Rhode Island, one that creates 10,000 jobs over five years. His 29-page plan calls for Rhode Island to become the wellness capital of the nation by capitalizing on health-care, education and construction sectors already here, and creating an environment where they can complement a growing wellness industry. And it calls for the state to provide “easier access” to wellness and health-care education programs and allow any Rhode Island adult to attend community college for one year for free. The most important question would then be: who is going to pay for the education? Gemma would seek federal and private dollars to offset the tuition costs, turning to the Federal Community College and Career Training Grant Program as well as the state’s seven largest employers and seven wealthiest corporations, asking each of them to donate $250,000. He has not spoken to all seven of the state’s largest employers yet, but after speaking with one company and receiving a favorable response, he is optimistic. Anthony Gemma knows the importance of creating jobs. As CEO of Gem Plumbing, his family’s small business has been providing jobs to Rhode Islanders since 1949. When he was asked about the jobs his plan would create, Gemma said many would be “middle skill” jobs that require some education beyond high school. He also said that many would have salaries of more than $40,000. The “knowledge-based” jobs created by 38 Studios will have salaries of twice that amount, $80,000, or greater, depending on the job candidates role and responsibilities. Gemma is focused on the wellness industry, because of the way it matches existing local industries and because it is expected to grow by more than $100 billion over the next five years.
The fact of the matter is that banks need to lend and assist small business owners while the government needs to stimulate the economy and protect the taxpayers. The government should not be acting like banks and banks should not be acting like the government. Banks, big and small, need to lend more money to support the small business community, and the government should provide the guarantees to incentivize the banks to continue to lend during the present economic climate. The problem is that the banks are not lending enough money to support the small businesses. Instead of lending $75 million to 38 Studios, if the state were share the wealth and lend $75 million to existing small businesses in a variety of industries like health-care, education and construction, Rhode Islanders are more likely to benefit from job creation results in excess of the 450 promised by 38 Studios.
Republican candidate for governor, Victor Moffitt did not respond to the Providence Journal’s request for comments. Independent candidates Todd Giroux, Joseph Lusi, and Christopher Reynolds could not be reached for comment.
The opinions stated in this article are those of the author and not those of Ocean Capital, a division of Home Loan Investment Bank, FSB
Curt Schilling has 75 Million Reasons to Move 38 Studios from Massachusetts to Rhode Island
On July 27, 2010, the Board of the Rhode Island Economic Development Committee, RIEDC, approved $75 million in guaranteed loans to 38 Studios. It is the first use of the $125 million program to create jobs in the Ocean State. The Job Creation Guaranty Program is comparable and a compliment to the Rhode Island Industrial Recreational Building Authority, also known as the IRBA program, established in 1958 to supply lenders with credit enhancements for long-term financing for companies with “hard” assets like buildings and machinery. In exchange for $75 million, 38 Studios has promised to expand their business, relocate to RI and bring 450 jobs to the state by the end of 2012.
Curt Schilling, the former Red Sox pitcher, has dealt with criticism and controversy his entire career. When he announced his plans to move 38 Studios from Maynard, MA to Rhode Island, critics began questioning everything from the viability of his online video game business to the authenticity of the infamous bloody sock. According to a poll on the Providence Journal’s website, www.projo.com, “Do you agree with the EDC’s decision to guarantee a $75 -million loan to 38 Studios?” 641 of the 798 people polled, 80%, said “No.” There are at least a hundred comments posted on the website, both positive and negative, however more of the latter. Apparently, I am only one out of 153 people polled who agree with the EDC’s decision. However, unlike a majority of those who participated in the poll, I am aware of the fact that less than two months ago, a law passed in June that allows the state to guarantee up to $125 million in loans for high-tech and “knowledge-based” companies. The legislation enacted in June established the Job Creation Guaranty Program. The program authorizes the state to support critical economic development projects by backing private loans for innovative companies with primarily “soft” assets like: patents, intellectual properties and licenses, to help them expand and create a significant number of permanent, high paying jobs in Rhode Island.
According to Curt Schilling, Massachusetts was not willing to negotiate with 38 Studios, so he acted as any entrepreneur would and he took charge of his destiny and that of 38 Studios. He also acted just as you would expect any professional athlete to act when faced with a team that doesn’t want them, but instead of moving to a different team, he went to a different state, a state where he felt wanted. Rhode Island certainly made him feel welcome in a Jerry McGuire-esque way. Rhode Island did what Massachusetts was unwilling to do; we “showed him the money”.
As mentioned before in this blog, small businesses are the engines that drive the economy, and job creation is the fuel for that engine to drive the economy forward. Rhode Island has a shortage of fuel, job creation fuel that is. Currently, the jobless rate in the United States is 9.5%, whereas the Ocean State has an unemployment rate of 12%, not because there is a shortage of demand, but rather supply. So the RIEDC is seeking to attract companies like 38 Studios in order to provide jobs for the thousands of college graduates who receive higher education from institutions located in RI, yet seek employment in other states due to a lack of opportunities within RI. The Ocean State needs to retain this human capital that we have cultivated. So if 450 jobs will be created in Rhode Island within the next 29 months, then EDC’s approval of the $75 million loan to 38 Studios will be a catalyst for other companies in the billion dollar digital media and video gaming industries to consider RI the home for their business. According to Governor Carcieri, “We need to make a statement … this gives us the ability to be a real player in the digital-media area,” he said. Currently, Rhode Island is on the outside of the digital media industry looking in. But 38 Studios could help change that.
Building on the creative and technical talent available at Rhode Island colleges and universities, the RIEDC is hoping 38 Studios will be the catalyst for hundreds of additional industry-related jobs in the state. Game Developer Research estimates there are about 45,000 people employed in the U.S. video game industry, with an average salary of close to $80,000. Currently, five states employ more than 16,000 in video game related jobs: Massachusetts, New York, Texas, California and Washington. Rhode Island would like to be the sixth state included on this exclusive list. Among other states pursuing these jobs are North Carolina and Florida, both of which passed tax credit programs in 2010 to attract interactive digital media companies. At least four Rhode Island colleges teach video game design and computer animation, one reason 38 Studios cited for moving here. “It definitely has the students’ attention,” said David Johnson, a game development instructor at the New England Institute of Technology. “It captured their imagination.” About 20 students finish the college’s three-year bachelor’s program in game development each year, Johnson said.. Unfortunately, most of the graduates end up being educated and prepared for life after college, but work out of state due to a lack of opportunities in Rhode Island.
Now that the RI EDC has approved the loan to 38 Studios, Schilling will move dozens of workers he employs from the company’s main office in Maynard, MA to Rhode Island in the coming months. According to their website, www.38studios.com/jobs, there are presently 26 available positions. Seven of the 26 are located in Baltimore, MD, while the remaining 19 jobs were posted in Maynard, MA. In the event that 38 Studios does not create the 450 jobs as promised, the company would be penalized $7500 per job not created. A legitimate concern is that there may not be enough Rhode Island residents and recent graduates that have the skill set necessary to fill the jobs created by 38 Studios. Relocating Massachusetts residents to Rhode Island is not the solution, nor does it fulfill 38 Studios promise to the RI EDC.
There are two sides to every coin. While reading hundreds of comments from the Providence Journal survey, I realized that the RIEDC decision to approve the loan to 38 Studios was not only highly controversial, but risky. The only reason why I agreed with the EDC’s decision is because Rhode Island is in dire need of jobs to employ the 12% of citizens who are presently unemployed. Rhode Island must attract entrepreneurs in knowledge-based industries as well as biotechnology, life sciences, information technology, medical devices and alternative energy industries to the state in order to create jobs for taxpayers and retain recent college graduates. The main reason why I would have objected to the EDC’s decision to approve the loan guarantee to 38 Studios is because the $75 million is 60% of the program’s $125 million allotment. Not exactly a safe bet when you consider the fact that 38 Studios is a video game development company that has not actually released a video game yet and the industry has an 80-90% failure rate. A maximum loan size to one entity should have been established when the legislation was passed. There are thousands of small business owners in Rhode Island who are struggling to survive the present economic climate. The EDC could have utilized the $75 million and created more than 450 jobs, as promised by 38 Studios, by lending a smaller sum of money to numerous small businesses in a variety of industries, rather than give 60% of their total allotment to one company with a lot of potential, yet without a finished product. “Making a bet on one company that has never produced a game, is about the riskiest thing we can do,” said C. Noah Davis, of Wakefield. Davis is a former game developer and one-time chief technology officer at video-game maker THQ Inc. in California. There are thousands of entrepreneurs in the state of Rhode Island, and judging by the feedback from survey polls, I was expecting greater resentment toward Curt Schilling and 38 Studios for receiving such a large guaranteed loan from the RIEDC without having a finished product. “We have been trying for years to get to [the state Economic Development Corporation] for funding. We are going at it on our own. We are struggling,” says Nat Harris, a managing partner at Newport Biodiesel, a four-year-old company that collects used cooking grease and turns it into nontoxic fuel for diesel-powered vehicles. “With $75 million, we could do quite a bit. We are not resentful. I think community-based energy is a lot more relevant to our future than gaming.” 38 Studios is not the only company or industry that will need the EDC’s support. There is a new crop of knowledge-based entrepreneurs that will also need the continued support of state policymakers to succeed. I hope the EDC is able to recognize that there are a lot of companies that could have utilized the $75 million in order to further develop Rhode Island’s “knowledge based economy.” The biotechnology, life sciences, information technology, medical devices and alternative energy industries, to name a few, could also feed off the state’s high concentration of colleges, universities and large hospital networks.
Essentially, Rhode Island is gambling on two software products 38 Studios is developing. One is a single-player game called “Kingdoms of Amalur: Reckoning,” which is scheduled for release in the fall of 2011. Executives from 38 Studios introduced the game last week at the Comic-Con convention in San Diego. The attendees of Comic-Con and bloggers commented on the fact that all they viewed were a few screen shots and a 90 second video about the role playing game, and were not able to actually play the game since it is still under development, something that isn’t unusual however for a game that is more than a year from being released. The more ambitious project is a massive multiplayer online game (MMOG), which can be played by thousands of players simultaneously. The MMOG requires a lot of people to develop, build and maintain the game, so there is a high cost, as well as risk, but also a hefty reward. MMOG games are unique in their ability to create revenue streams even after the player has made the initial purchase of the game. A few of the best multiplayer games have at least 1 million subscribers, each paying about $15 a month to move in and out of these fantasy worlds. That’s about $180 million a year per game. The most popular, “World of Warcraft,” has about 12 million players and generates about $1 billion in revenue annually. The company is developing this game under the codename Copernicus and has yet to release any detailed information related to the game.
“There’s a lot of hype and a lot of potential,” said James Brightman, editor of Industrygamers.com. “But until there’s something you can physically pick up in your hands, it’s really too soon to tell.” The same could be said for the success of 38 Studios and the decision made by the RIEDC to approve $75 million in guaranteed loans to a company that has not yet released a video game. Rhode Island taxpayers as well as small business owners will be interested to see who will be approved by the RI Board of Economic Development for the remaining $50 million. Since 38 Studios has not produced a finished product, it’s too soon to tell.
Cash Flow is King: The Phone Can Be Your Prince to Collections.
In economic downturns, collecting outstanding Account Receivables can take on a heightened level of importance. According to a report published by The Wall Street Journal in July 2010, about 32% of business owners complain that customers are taking more time to pay their bills, up from 27% in 2008 according to a survey of over 700 entrepreneurs. Many of the small businesses that I speak with on a daily basis are experiencing problems with their new and longstanding customers paying late as well. Often small business owners are working so hard on other aspects of their business that Account Receivable collections take a back seat.
So I set out to research processes that can assist small business owners with their billing issues. Here are some processes to assist with collection efforts.
Step 1: At the start of the relationship with the customer, establish clear guidelines for payment.
Step 2: Establish a system for tracking your receivables. Business accounting programs like Quickbooks® have features that include accounts receivable tracking reports.
Step 3: When a payment is late, call the customer immediately. Nobody likes to call customers asking for money. However, you must make these calls in order for your business to survive and thrive. More often than not, being assertive and taking the initiative to make contact when a payment is late even just a couple days let’s people know you want your payments on time and they will follow your lead. Tell your clients to call you to let you know they are going to be making a late payment going forward.
Getting on the phone with your customer’s also allows you to gauge their current needs and the call can turn into a potential sales call. Do they need more of your products and services?
Step 4: What if this doesn’t work? Contact the supervisor or a person of authority to discuss the billing issue. If the problem is more a matter of reduced cash flow then you will need to try other methods. The essential element to collecting money from customers is to collect the amount owed without hurting the business relationship. First, find out why the customer is late with the payment. Is the customer feeling a temporary financial squeeze? Are they also a victim to late payments from their clients? Are you willing to accept a payment via credit card? Are they willing and able to make a partial payment?
Further questions to ask: Is this customer a longstanding customer? Have they referred you additional business? Emphasize that you value their business, but need to receive payment for the products and services that have already been provided.
Step 5: As a last resort, small businesses can use collection agencies or take a customer to small claims court. Both options, while viable, can permanently damage business relationships and there are significant legal and collection fees associated with these methods.
Establishing these processes can be straightforward but consistently applying them can be the real test. Don’t allow late payments to distort your cash flow. Cash Flow is King and the phone can be your Prince to Collections.
David Canning is a Commercial Loan Officer with Ocean Capital and holds an Economics degree from Boston College. David has worked in commercial real estate finance for the past seven years.
Senate Passes Small Business Jobs Bill
Last Thursday, July 22, 2010, Senate voted on a $30 billion bill to create a loan fund for small businesses designed to cut taxes, increase job creation and provide financial aid to community banks. The small business jobs bill will impact millions of small businesses across America, which are the engines that drive the American economy. The purpose of the $30 billion funding program is to refuel that engine and stimulate lending by community banks to small businesses so that they may obtain the capital necessary to grow their small business as well as hire new employees. The lack of small business lending and job creation will stall our economic recovery indefinitely. Last week, Federal Reserve Chairman Ben Bernanke said banks across the country are systematically denying loan requests from financially credible small businesses. He implored community banks to lend more to small businesses, saying they are “crucial to America’s recovery.”
The Senate would not have been able to secure enough votes, 60 to 39, without cooperation from two Republicans, Senator George LeMieux of Florida and Senator George Voinovich of Ohio, both joining Democrats in support of the bill. The $30 billion bill includes $12 billion in tax breaks for small businesses and an expansion of existing government lending programs, in addition to the community banks provision. One of the key elements to the bill President Obama would like to see passed includes a provision that would eliminate capital gains taxes for key investments in small businesses.
Both critics and supporters of the bill have been vocal about their positions. Senator Mary Landrieu is one of the many supporters of the Small Business lending program that would help community banks increase lending to small businesses. The Treasury Department helped design the program that would allow community banks to potentially leverage the $30 billion into $300 billion in loans to small businesses. “This is something that we want to do to help Main Street, to help small business,” Senator Landrieu said in one of a series of floor speeches. “This isn’t about Wall Street. It’s not about bailouts. It’s not about troubled assets. It’s not TARP. It’s a small business lending fund, a strategic partnership with community banks.”
Todd McCracken, president of the National Small Business Association, said in a statement posted on Landrieu’s committee website that the group is pleased to support the bill and is “particularly gratified that it contains a provision allowing small-business owners to deduct the cost of health insurance incurred in 2010 for themselves and their family members in the calculation of their 2010 self-employment tax.”
Although the bill passed, there are those who criticized the program. Critics said the program would encourage banks to make risky loans. “I believe this is the same old song and dance, expand the reach of the heavy hand of government,” said Senator Richard C. Shelby of Alabama, the senior Republican on the banking committee. “Like TARP, this program does not lend money directly to small businesses; it would have the government take ownership interest in hundreds of banks.” He added, “This is TARP-2.”
But Mr. LeMieux, the Florida Republican, said that was not the case. “TARP went to the big banks who were failing at the end of 2008, a lot of whom were selling mortgage-backed securities and other exotic investments that they shouldn’t have been selling,” he said in a floor speech. “This has nothing to do with that. These are small banks. This is the banker you know down the street – the banker who’s at your rotary, who you see at church or synagogue. This is not some Goldman Sachs banker. This is the community banker who loans to the tailor, to the construction business, the folks that employ people in your hometown.”
The bill is not intended to incentivize the banks that are too big too fail, but rather the small, community banks located on Main Street. Big banks as well as community banks are both guilty of not actively lending to small business located on Main Streets throughout America. Sure, some banks are lending, but not enough to satisfy the demand of small business owners today. Democrats and Republicans put aside their collective differences and agreed that the bill, which would establish a $30 billion loan fund for small-business owners, could not be delayed any further. Time is money. Creating jobs and training new employees cost small businesses both time and money. Small business owners need more assistance from community banks to provide the capital necessary to grow their business, create jobs, and help their community recover as well.
“I hope we can now finish the job and pass the small business jobs plan without delay,” Mr. Obama said in a statement before reporters at the White House on Friday. “We can’t afford any more political games.” The games Mr. Obama is referring to are the “partisan wrangling” and the fact that the bill would not have received the necessary 60 votes unless Senators LeMieux and Voinovich put aside their partisan differences. Republicans and Democrats must work together, not against one another, in order to guide America toward recovery from one of the worst recessions in our nation’s history. Mr. Obama said that American voters “didn’t send us here to wage a never-ending campaign.” The president is trying to wring as many bills as he can out of Congress before lawmakers disappear for the August recess, after which they will return in full midterm election campaign mode, unlikely to get much more done.
http://www.cnn.com/2010/POLITICS/07/23/obama.economy/index.html?iref=allsearch
LeBron James Announcement the Latest in Migration from Hard-Hit Region
“THE DECISION”.
That is how it was billed by ESPN. More people tuned in to see where Lebron James would be playing next season than watched the Major League Baseball All-Star Game. As the long-suffering fan base of Cleveland watched on, self proclaimed “King James” announced to the nation that he would be leaving his lifelong home and the only professional team he had ever played with, for the sun and beaches of southern Florida and the Miami Heat.
Criticized nationally for the decision, and perhaps even more so for the way in which he announced his decision, the young superstar simply did what many others have been doing for years, leaving this region of the country. LBJ stated that he made his choice because he didn’t think he could win a title in Cleveland. The same Cleveland team that won more games than any other in the NBA over the past 2 seasons. This was about location, not team. When the time came to make his announcement, LBJ looked into the camera and said “I have chosen to take my talents to South Beach.” Not to the Miami Heat, but to the glamour and lifestyle of its famed party district. This was definitely about location. Take the exact same players from Cleveland, put them in Miami, and LBJ would have stayed put, no question.
But should the media and fans be so critical of a 25-year old for wanting to choose where he lives? Michael Jordan, widely regarded as the best NBA player of all time, was asked earlier this week about James’ decision. He just shook his head, and said he would never have left his team, that he wanted to compete. Then again, Jordan played in Chicago, left to play baseball when he was still only 30 years old, and played his last two seasons in Washington, but I guess that’s still better than playing in Cleveland.
Similarly, the Big 10 conference, populated by schools from Ohio, Michigan, Indiana, and other parts of the “Rust Belt”, looked to expand earlier this summer. They looked to markets like New York/New Jersey and Texas, plus the largest brand in college sports, Notre Dame. Geographically, some of these choices seem odd but the conference members are located in a region hard-hit by population loss, and need to expand into areas of growth.
The economic impact of LeBron’s move has also been widely discussed. Some have speculated that the move could have between $500 and $600 million of economic impact on the city of Miami. The real question, however, is what kind of impact will the move have on the city of Cleveland? Never mind the $1.5 million in state taxes paid by LeBron, or the 21% of team value he represented, this move will cause decreased spending all over the city as fewer people attend games, go out to restaurants, or spend time in Cleveland.
Cleveland Cavaliers owner Dan Gilbert has made the “personal guarantee that the Cleveland Cavaliers will win an NBA Championship before the self-titled former “king” wins one”. It’s a bold prediction. The only problem is, will anyone be left in Ohio to watch it happen?
Are We Double Dipping?
You may recall the famous Seinfeld episode where the hapless George attends his girlfriend’s relative’s funeral, only to be ostracized for dipping his already half-eaten tortilla chip into the salsa at the wake. As we know, and George should’ve known, double dipping is not only socially unacceptable, it can cause enough tension to destroy anything good you may have built. Now the question is raised — “Is this true of our economic recovery?”
For those of you who haven’t heard economists panicking on the business channels about our economy’s double dip, here is a basic definition. An economic double dip is when the economy begins to recover from a recession, showing positive growth with stabilizing and/or declining unemployment, only to slide back into a recession. The truth is, most economists don’t agree what the term “double dip recession” technically means. Most economic classes do not spend much, if any time, discussing the phenomena, and the term itself did not surface until the 1980s. But while you are listening to the talking heads discussing the perils of this event, the question every small business owner needs to ask is, “What does this mean for me?” You might be surprised to find the answer is “not much.”
Remember, economists — especially the ones of note — have become entertainers as well. I know it is hard to wrap your mind around the fact that any economist could be entertaining, but in our digital, five-minute-attention-span society, there are news junkies out there who thrive on the latest analysis from a renowned source. The times of having an economic forecast issued quarterly and having to wait until the next quarter for any updates have long passed. The difference now is we mistake opinion as new information. Three economists can all read the same reports and give three different interpretations of what they mean, and now these economists are battling out on the airwaves to see which one will get the most exposure and which one is going to get broadcast the most? Probably the one who is predicting your worst fears, which in this economy, would be that we are sliding back into a recession and all our gains were for not.
So, where does this leave the small business owner? You may not have a Master’s degree in Economics, but you would be surprised at just how qualified you are to judge the economic health of your community. You talk to your customers to gauge their needs. You speak to you suppliers and assess your access to inventory and credit, and you probably have a family and experience all the same day-to-day economic struggles as the rest of the country. So, why would you think an economist looking at a bunch of reports knows more about what is going to happen to your business than you do? And when you apply for credit from any lending institution, it is up to you to convince them of your expertise. At the end of the day remember, you may not be an expert on the U.S. economy, but you are an expert on your business and the influence the economy has on it. So you be the judge.
Economic Impact of Fireworks in Rhode Island
This Fourth of July was a big one for us here in the state of Rhode Island. In early June of 2010, the state legislature passed a law allowing the sale and use of certain types of fireworks in the state. This new law made Rhode Island one of the last states to move away from a complete ban on fireworks, leaving only Massachusetts, New York, New Jersey, and Delaware as the only states which do not permit the sale of consumer fireworks of any kind.
As a resident of Rhode Island, I can say that the new law has had anything but a lackluster reception. In late June, one could hear the far off sounds of isolated fireworks with the frequency increasing as it grew closer and closer to the Fourth of July. By the night of the Fourth, it seemed as though every backyard in the state was aglow with sparklers, snakes, and snappers. The law was passed with the intention of letting Rhode Islanders celebrate the Fourth of July by enjoying fireworks in much the same way that the rest of the country does, in a safe and responsible manner, as Democrat Majority Whip O’Neil said:
“Fireworks are an Independence Day tradition just as much as parades and cookouts are. Used properly, small fireworks like these are a fun, exciting way for families to celebrate the holiday. Rhode Islanders shouldn’t have to sneak them over the border from another state and use them in some corner of their back yard where no one will see them. We should encourage people to buy them here, enjoy them safely and celebrate the 4th of July just like other people all over the country do.”
All of this talk about celebrations and patriotism begs the question: was it really just about letting Rhode Islanders enjoy the holiday in the same way as most of the country, or was there more at play here? For a state that has been one of the hardest hit by the current economy, the new law was definitely about more than just revelry. In 2009, the fireworks industry generated $945 million in revenue, up from the $940 million in 2008. That’s right, up. Even in a weak economy a non-essential consumable like fireworks saw an industry increase in revenues. It only makes sense that Rhode Island would look to get a piece of the tax revenue generated by those sales and allow certain fireworks to be sold. The lawmakers who passed the bill expect it to generate over a million dollars annually in tax proceeds.
Not only could this move be seen as a revenue generator, but it may also be considered a cost saving measure. Many cities across America were forced to abandon long standing traditions of fireworks displays because they just simply didn’t have the money. Considering that the large fireworks displays put on by many cities can generally cost over $100,000, this is an expense that most communities can’t justify when they’re laying off workers. Rhode Island’s new law may have been a way of encouraging people to celebrate in their own backyards while public displays are cut back.
Most of the numbers for the past weekend aren’t available yet. It will be a while before we know just how much revenue was generated for the state, how many people were injured using fireworks, how many responses to fires and public disturbances there were, or what the long term effects of the law will be? Was the law a success or a failure is yet to be determined, but I can tell you that sitting on the back porch on a hot July night, it certainly sounded like the new law was a success.
I’d love to hear your comments about the impact that the fireworks laws in your area had on your enjoyment of the Fourth of July and any thoughts you have on the economic impact of their sale.
