May 26, 2018

You’re the Boss Blog: Figuring Out How to Help Small-Business Owners

Staying Alive

The struggles of a business trying to survive.

I get a fair number of e-mails from my readers. A couple of weeks ago one arrived from a gentleman named Michael Bloch He wrote:

I am a senior at the University of California, Berkeley, studying Business Administration Political Science. Three months ago I founded an organization at Cal called Consult Your Community, which provides low-income, small business owners in college communities with pro bono consulting services. We believe that by helping these business owners improve the performance of their companies, we can create tangible, lasting benefits for both their businesses and our community at large.

Although we have enjoyed tremendous growth in the last few weeks (we have chapters opening at schools like Stanford, Harvard, Yale, Notre Dame, UVA, UNC, UMich, and more) I feel that our members don’t fully understand the small business environment in which we operate. After reading your NYT’s article from this month, I wanted to reach out to see it would be possible to speak with you directly to learn from your wide range of unique experiences, so that our members could be better equipped to serve our clients.

Michael and I did speak on the phone, a conversation that started with my congratulating him for getting his organization off the ground. He also outlined what he wants his organization to do. Consult Your Community has very grand goals. It wants to address income inequality and help rebuild the American economy, while providing a way for large corporations to act in a socially responsible manner. And it plans to do all of this by deploying business students to provide free consulting to local businesses.

I agreed to help. Then we discussed the point he raised in his query, how to prepare his student volunteers for the messy reality of running a business. I know nothing about what business students learn in school, and it’s been a long time since I started my business, but I’m going to throw out an idea based on my own experience. Here’s what everyone needs to know about very small businesses: they have very few resources. Particularly when starting up, entrepreneurs have no money and no time.

Forget what you hear about venture capital financing and software start-ups — those are very unusual situations. (My son Peter has been working at a technology start-up in San Francisco, and it’s a different universe from anything I’ve experienced.) My sense from talking to Michael is that he’s more interested in working with business owners who are trying to start a corner store, or a copy shop, or a coffee shop. Most people start companies like this with their own money — and run through much of it just getting the doors open. The owner’s time is completely wrapped up in trying to get the business going — it takes a lot of time to establish basic operating procedures — and also doing the work. For this person to spend even 10 minutes with a student volunteer may be a lot to ask. No matter how well intended, a misguided approach won’t help anyone.

In more than two decades running a business, I have encountered all kinds of unsolicited input from outsiders. When considering these, I have learned to separate them into two categories: advice and actual help. These are very different. Advice is well meant, and often would be terrific if implemented, but is given without any commitment from the giver. It sounds like this: “You should do some difficult project with lofty goals!” I’ve always been a little grateful to get advice, as it does express some concern for my well-being. But I have rarely been able to act on it, as I have been overloaded with existing responsibilities.

Actual help has been much rarer but a lot better. It generally appears only after some effort on the part of the helper to understand what is really happening in the business, generally through time spent with the owner. Actual help sounds like this: “You are weak in some area of concern, and I’m going to take on a specific task for you.” In other words, the actual helper provides not only a thoughtful, customized analysis, but also the resources to put the plan into action.

In my own business, my greatest weakness was understanding my finances. The most useful actual help I received was having my partner’s wife set up my QuickBooks properly. She spent time with me, understanding my make-shift system, rolled up her sleeves, and got it done. This took several months of part-time work. Having my books set up in a conventional manner allowed me to hire a bookkeeper to maintain them. I was still a long way from real profit, but that one act set me on the road to sustained success.

Consult Your Community’s Web site lists four services that it intends to deliver: marketing, finance, environmental, and human resources. Michael and I did not discuss where this list came from, but let’s assume that it reflects course work that the students have done. Presumably, they have an academic understanding of these concepts, and now they have to apply them to real businesses. This, in my opinion, is where it might get tricky. Are those the primary problems that a small-business owner faces?

Based on my own experience, I would immediately remove environmental issues from the list — my clients simply do not care how green we are. And I would change marketing to selling, a related but different problem. Finance and human resources are always good to think about but maybe not in the way they are taught in school. My experience with finance has been about living simply, begging help from relatives, and running a large credit card balance now and then. H.R. has been easy except when it’s dreadful: disciplining and firing workers for things they have done, and sometimes having to lay them off because of bad business conditions.

Every business is different. The problems depend on the particular skill set of the owner. I hope that Michael’s volunteer helpers will work with business owners to identify areas of weakness and then provide actual help, not just advice. But that’s just me.

What would you tell Michael? If some bright-faced young business students showed up at your door, what would you want them to do?

Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside Philadelphia.

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Your Money: The Potential Effect of Obama’s Social Security Proposal

The president has proposed slowing the rate at which benefits increase over time, a change that would ultimately hit the oldest of the old, often single women, many of whom have probably exhausted any other savings. Many members of this group also face higher health costs, have little hope of working again and often live without the support of a life partner.

But advocates for retirees say that what is perhaps the most frustrating about all of this is that Social Security, which is self-financed through payroll taxes, does not contribute to the deficit. Yet it is being lassoed into the broader debate.

“With people facing an increasingly insecure retirement, this is no time to say, ‘Let’s cut Social Security,’ ” said Joan Entmacher, vice president for family economic security at the National Women’s Law Center. “It’s even more disturbing to be having a discussion about how much to cut benefits for people who already struggle to make ends meet — while some lawmakers insist that we can’t ask the wealthiest Americans and large corporations to pay a penny more in taxes.”

The Obama administration proposes to water down one of Social Security’s strongest features: the inflation adjustment, which enables retirees to maintain their purchasing power over long periods. Starting in 2015, the program would switch to a measure of inflation that has risen more slowly than the current index — on the order of about 0.3 percentage point less each year.

That does not sound like much. Nor would it lead to a big benefit cut right away. Moreover, President Obama did include a measure to soften the impact of the change, which we will dissect below. But the rate of slower growth would still compound over time and would ultimately cost many older people thousands of dollars over the course of their retirement.

“When you look at the retirement system, people don’t have anything else,” said Alicia H. Munnell, director of the Center for Retirement Research at Boston College. “And to have the only statement about Social Security solvency being a suggestion that what we need to do is reduce the indexing is not a useful conversation.”

It has been widely reported that if no changes are made to Social Security, its reserves will be exhausted in 2033, according to the latest annual report from the Social Security Administration’s trustees. After that, the payroll taxes collected would be enough to pay about 75 percent of benefits through 2086.

The switch to a different measure of inflation — known as the “chained C.P.I.-U” — would resolve about 20 percent of the program’s current shortfall, according to Social Security’s actuaries. (C.P.I.-U stands for the Consumer Price Index for All Urban Consumers.)

But here is how it would initially hit retirees’ pocketbooks: Workers who retired at age 65 would receive 3.7 percent less in benefits after 10 years than they would under the current system; after 20 years, 6.5 percent less; and after three decades, 9.2 percent less, according to calculations by the Social Security Administration.

The administration has said it will only make a deal that includes some protections, and it incorporated two small benefit “bump-ups” — each equivalent to 5 percent of the average retiree’s benefit check, or about $800 annually in today’s dollars — as part of its proposal. The bumps would be phased in over 10 years, beginning at ages 76 and 95.

So take a woman with an initial benefit of $1,100 a month, or $13,200 a year, which is the median benefit of single women 65 and older, according to the National Women’s Law Center. (This benefit represents about 73 percent of this group’s total income, which is about $18,000.)

By the time she is 75, her benefits would be $41 less a month, or nearly $500 a year less, than under the current program.

“That doesn’t sound like so much,” Ms. Entmacher said. “Well, it’s equal to five days’ worth of food. So if you have your monthly Social Security check and you are trying to figure out how to get to the doctor, how to pay your rent and how you pay your out-of-pocket medical expenses, every dollar counts. So are you going to skip a meal for 15 days, each month, to save five days’ worth of food? Or are you going to cut your pills in half?”

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In Battling Tax Dodgers, Britain Gives Shame a Try

On its Web site, Her Majesty’s Revenue Customs on Thursday published the names and addresses of accused tax cheats, along with the amount the department says they owe. The individuals and small businesses owe a combined £1.8 million, or $2.7 million, in fines and unpaid taxes. The department said the list would be updated every three months.

The campaign is intended to encourage Britons to pay their taxes in full and put pressure on tax dodgers to come forward, the government said, but some lawmakers and pressure groups argued that it failed to address the real problem in Britain: tax avoidance strategies used by large corporations.

“The publication of these names sends a clear signal that cheating on tax is wrong and reassures people who pay their taxes — the vast majority — that there are consequences for those who refuse to tell Her Majesty’s Revenue Customs about their full liability,” David Gauke, exchequer secretary to the Treasury, said in a statement.

Executives of Starbucks, Amazon and Google were questioned by lawmakers in November over concerns that the companies were not paying enough tax in Britain, given the sales they generate here. The companies responded that they had been unfairly singled out, but a month later Starbucks bowed to public pressure and said it would pay more corporate tax in Britain.

Going after tax cheats and making it harder for individuals and companies to find loopholes in the tax system is one of Prime Minister David Cameron’s top goals. At a time of austerity — and when average households are increasingly squeezed by rising electricity and food prices — the government is under pressure to be seen as doing more to limit tax evasion and avoidance. In January, Mr. Cameron said those avoiding taxes “need to wake up and smell the coffee.”

Britain missed out on £5 billion in revenue in the tax year that ended in 2011 because of tax-avoidance methods and about £4 billion from tax evasion, according to the tax authorities. The Public Accounts Committee, a group of lawmakers representing the largest political parties, called on the authorities Tuesday to consider naming and shaming those who promote tax avoidance strategies to make them less attractive to individuals and companies.

The nine names published on the Web site also include a wine merchant, a grocery store and a bus operator. UK Uncut, a campaign that combats tax avoidance, said the step showed the authorities “spent time and money going after small companies that avoid tax, but so far we’ve seen no serious action from the government to claw back the billions avoided by global giants.”

Chris Morgan, head of tax policy at KPMG in London, said the naming and shaming campaign was a “perfectly reasonable step” and would help to deter people from not declaring their full income. The tax bills of large corporations are a different matter because companies generally declare their income properly, he said, but their tax obligations can be interpreted in different ways.

Judith Freedman, a professor of taxation law at Oxford University, agreed.

“The people who have been named on the Web site deliberately evaded taxes” and were penalized for it, she said, adding that there was “no penalty you could levy against the big companies.”

“So far, no one has proven that they have done something wrong,” she said. “You might not like what they do, but it is no secret.”

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Economix Blog: Nancy Folbre: Utopian Capitalism


Nancy Folbre is an economics professor at the University of Massachusetts, Amherst.

The blond prince hasn’t renounced his throne, but now criticizes the system that put him there. The superstar capitalist Richard Branson, founder of the global Virgin corporate empire, announced in November that the “short-term focus on profit has driven most businesses to forget about the long-term role in taking care of people.”

His new book urges businesses to embrace morality through “philanthrocapitalism.”

He does have a point. If all owners, bankers and corporate executives were virtuous souls, capitalism might function flawlessly. Adam Smith outlined a similar argument in the mid-18th century, in “The Theory of Moral Sentiments.” The pursuit of economic self-interest, he explained, would generally be tempered by natural morality. The economist Russell Roberts offers a modern version of this argument in his novella “The Invisible Heart.”

Socialists are usually the ones accused of having an overly optimistic view of human nature. Today, some capitalists have started to sound utopian.

Most economists, whatever their political stripes, generally put more emphasis on incentives than on virtue. And most ordinary people understand that the incentives built into the global capitalist system tend to reward some very bad behaviors.

Large corporations can often squelch their competition. They can minimize their costs by dumping waste products into the environment, contributing to pollution and global warming. They can use their profits to buy political influence. If they don’t like the regulatory policies of one nation-state, they can simply shift their operations to another.

Not all capitalists engage in bad behavior. But those who do often outcompete those who don’t. The structure of corporate ownership and governance allows short-term profits to trump long-run efficiency.

Recognition of these problems helps explain why the term “capitalism” doesn’t poll nearly as well as other terms describing our economic system. A Gallup poll conducted last January found that 33 percent of Americans had a negative image of capitalism, but only 10 percent had a negative image of free enterprise or entrepreneurship and only 4 percent a negative view of small business.

Big business and big government were essentially tied for disapproval (49 percent and 51 percent, respectively) – not surprising, since they currently enjoy a symbiotic relationship.

Republicans and Democrats differ far more on their images of capitalism (and socialism) than on free enterprise, entrepreneurship or small business.

More than a third of Americans but more than half of Democrats and Democratic-leaning respondents have a positive image of socialism.

The poll results suggest the political potential to develop a better hybrid system. Can we do something to minimize the perverse incentives that our current form of capitalism creates and move closer to our free enterprise ideals?

In his new book, “America Beyond Capitalism,” and in a recent opinion article in The New York Times, Gar Alperovitz makes a strong case for promoting cooperatives and worker-owned businesses.

A group of essays published during the summer in The Nation provides a longer list of strategies, asking, “If you had the ability to reinvent American capitalism, where would you start?”

Answers ranged from putting public directors on corporate boards to taxing financial transactions to promoting full employment. Overlapping Mr. Branson’s priorities, Jamie Raskin calls for changes to articles of incorporation that would allow companies to pursue social missions without fear of shareholder litigation.

Readers also weigh in with a remarkable variety of suggestions.

Maybe we should get some reinvention under way, just in case Mr. Branson fails to convert all his fellow capitalists to his cause.

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As Fair Trade Movement Grows, a Dispute Over Its Direction

A tempest in a coffee pot is bubbling in the world of “fair trade,” the socially responsible food movement that seeks to lift farmers in the developing world out of poverty by offering them a premium for crops like coffee, cocoa and bananas. And the fight will soon reach your local Starbucks, Wal-Mart and Whole Foods.

Fair Trade USA, the movement’s leading advocate in the United States, angered critics by saying it would cut its ties at year’s end with the main international fair trade group and make far-reaching changes in the sorts of products that get its seal of approval.

The changes include giving the fair trade designation to coffee from large plantations, which were previously barred in favor of small farms. The group is also proposing to place its seal on products with as little as 10 percent fair trade ingredients, compared with a minimum of 20 percent required in other countries.

The group says the changes will benefit more poor farmers and farm workers around the world and make it easier for large corporations to sell fair trade products. Sales of fair trade goods in 2010 were $1.3 billion in the United States and $5.8 billion globally. Fair Trade USA said it hoped to double sales in the United States by 2015.

Critics accuse Fair Trade USA of watering down standards, perhaps motivated by the bigger fees to be earned from certifying a higher volume of products. Some sellers of fair trade products fear small coffee farmers will lose market share to the big plantations and that companies will have an incentive to include only the minimum amount of fair trade ingredients in their products.

“It’s a betrayal,” said Rink Dickinson, president of Equal Exchange, a pioneer importer of fair trade coffee, chocolate, tea and bananas, based in Massachusetts. “They’ve lost their integrity.”

Paul Rice, chief executive of Fair Trade USA, said the fair trade movement was dominated by hard-liners who resisted needed changes. “We’re all debating what do we want fair trade to be as it grows up,” Mr. Rice said. “Do we want it to be small and pure or do we want it to be fair trade for all?”

He dismissed criticism that his group was seeking to increase revenue for its own sake. “The more we grow volume, the more we can increase the impact” of fair trade, he said.

As part of his efforts to expand the fair trade designation, Mr. Rice is cutting ties between his group and an umbrella organization, Fairtrade International, which coordinates fair trade marketing activities in close to two dozen countries. He said his group paid outsize fees to Fairtrade International — about $1.5 million last year — and received little in return. The international group has also rejected the changes put forth by Mr. Rice.

“The best thing we can do is make sure we’re staying true to the principles that got us to where we are,” said Rob S. Cameron, the chief executive of Fairtrade International. “I’m not going to water those principles down.”

The brouhaha has surprised many companies that sell fair trade products and will soon be forced to take sides. For consumers who pay attention to where their food comes from and how it is produced, the result could be confusion as they try to sort through a proliferation of competing fair trade labels with differing claims.

The logo overload will include a redesigned Fair Trade USA seal; a Fairtrade International seal, which previously did not appear in this country; and labels from smaller programs, like one run by Catholic Relief Services.

Coffee, which Mr. Rice said accounted for more than 70 percent of the fair trade market in the United States, is at the center of the dispute.

Green Mountain Coffee Roasters, which calls itself the largest buyer of fair trade coffee in the world, said that it would continue to work with Fair Trade USA as it sought to increase the amount of fair trade coffee it used.

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