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Small-Business Guide: Figuring Out When It’s Time to Add an Employee

August 28, 2013 by

First, he needs more people in the warmer months. He also has to consider where his jobs are and how long it will take his workers to drive from one job to another. Some jobs take longer than others, because vacuuming and scrubbing take more time than chemical treatments. Plus, he said, “Everyone wants their residential pool service on Friday.”

Of course, like most business owners, Mr. Johnson always wants to avoid having too many people and not enough work.

“Determining when and how many employees to hire is a bit tricky for our business as the demand for services varies based on account growth, seasonality, geography of homeowner addresses and customer requests,” said Mr. Johnson, who started the company four years ago.

Many small-business owners remain skittish about hiring. The National Federation of Independent Business reported that nearly 80 percent of small, private companies made no hiring changes in July and 12 percent let workers go.

Especially after the recession, many owners have been reluctant to spend the money to hire workers, especially if there’s a chance demand will recede and the workers will have to be laid off. The on-again, off-again recovery hasn’t helped. And with small businesses representing 49.2 percent of private sector employment, according to the Small Business Administration, this reluctance has inevitably had an impact on unemployment rates.

Some owners have turned to paying overtime. which makes it easier to scale back if demand slips. The downside is that it can be expensive and it can lead to an overworked staff.

For example, the work force at Narragansett Creamery in Providence, R.I., has grown slowly even as more customers are drawn to the company’s homemade yogurt and cheeses, said Mark Federico, the owner. Started in 2007, the company has grown to a staff of 30.

“We found that if we worked too many hours for too long a period of time, people get burned out,” Mr. Federico said. “People need days off. It’s not scientific, and we’re not right all the time.”

Based on the experiences of owners like Mr. Johnson and Mr. Federico, this small-business guide looks how owners determine when it’s time to hire.

HOURS WORKED Mr. Johnson said he ran his employment numbers weekly, as clients were added and lost, to ensure he had enough people. He uses a spreadsheet to help him decide when the company can support the wages of new employees.

He keeps careful count of the number of pools the company cleans and the hours required for each job. He separates residential jobs, which typically require 30 minutes of time, from those at commercial pools, which can take two hours.

To calculate the required number of employees, Mr. Johnson estimates the number of hours required to clean all client pools and divides that by a standard 40-hour workweek. When the result is greater than the number of employees on staff, he makes a new hire.

PAYROLL AS A PERCENTAGE OF REVENUE Earlier this year, when there was a surge in demand for swimming lessons at SwimLabs, in Highlands Ranch, Colo., Michael Mann was taken by surprise. Suddenly, the 15 full-time employees he keeps during the off-season — as opposed to 25 or more during spring and summer — were not enough.

Opened in 2006, SwimLabs offers one-on-one lessons to children and adults. All students are videotaped and analyzed as they take their strokes in small pools equipped with water jets.

The company saw the same surge in business after the 2012 Summer Olympics.

“The Olympics always elevates the sport,” said Mr. Mann, who holds several masters swimming records. His business got an extra boost because the four-time gold medalist Missy Franklin lived nearby.

To decide how many instructors he needed to hire, Mr. Mann looked at monthly gross earnings and calculated that the payroll should consume a maximum of 25 percent of his operating costs. If he generates an additional $10,000 a month in revenue, he knows he can afford another instructor who is paid $2,500 a month. As a result, Mr. Mann started hunting for two more part-time instructors.

CALL VOLUME Growth can be deceptive. Sometimes, efficiencies may keep three times as many customers from meaning three times as much work. That is a lesson learned by Hudl, a company in Lincoln, Neb., that builds video analysis tools for coaches in 20 different sports, allowing them to break down plays and share them with their players.

The company’s big market is high school football. In the 2011 season, its six-person service team went from working with 2,000 teams to working with more than 6,600. “We were staying up all night” to manage problems such as software bugs, said Bryant Bone, who heads the support team. Clearly, Hudl needed help.

Article source: http://www.nytimes.com/2013/08/29/business/smallbusiness/figuring-out-when-its-time-to-add-an-employee.html?partner=rss&emc=rss

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You’re the Boss Blog: Is Obama’s QuickPay Initiative Beginning to Work?

February 28, 2013 by Leave a Comment
Searching for Capital

A broker assesses the small-business lending market.

If you had to pinpoint the most important financial issue confronting small businesses, what would you say? I suspect many would argue it’s that banks aren’t lending. For many small-business owners, however, I think the primary issue is that their customers are taking longer and longer to pay them, which creates tough cash-flow and working-capital problems.

President Obama took a stab at solving this problem in 2011. He issued an executive order requiring federal agencies to pay small-business suppliers of goods and services within 15 days of receiving a valid invoice, down from 30 days. Because the federal government awards nearly $100 billion in federal contracts to small businesses each year, the potential impact was huge. Initially, however, the program applied only to prime contractors. And critics pointed out that the payment window did not begin until an invoice was actually approved, which could add weeks or even months to the cycle.

Last July, the QuickPay program was revised to include subcontractors. It now holds all federal contractors to the 15-day standard, “with the understanding that those prime contractors will similarly accelerate payments to their small-business subcontractors.” The Office of Management and Budget encourages prime contractors to pay their subcontractors faster, to renegotiate existing contracts to this end and to negotiate all future contracts to this end. Presumably, the federal government will enforce its updated policy by prioritizing prime contractors that pass these quicker payments along to their subcontractors.

The good news is that we are starting to see results. For several months, I have been working with a client who is a defense contractor and is trying to get an asset-based loan secured by his receivables and inventory. As we were moving through the loan process and completing his audit, everything changed. The government began paying him faster than he had ever been paid before, and as a result, his receivables balance fell dramatically.

This actually created an unexpected problem in that he had planned to borrow against those receivables. But this is what I call a high-quality problem. We will solve it by taking out a loan against his equipment, and because his cash is turning over faster, his cost of financing will go down.

I hope that the QuickPay program will become a model for the private sector as well. Last year I spoke at a TedXNewWallStreet program about an idea for a 10-Day Pay Initiative where Fortune 1000 companies would treat their small-business suppliers the same way. Since we wouldn’t be able to require this by law, I suggested we turn to social media and good old-fashioned shame to get the job done. We would do this by creating a Web site where small-business owners could post their invoices as proof of slow payment. Then, as consumers, we could see how suppliers treat small businesses and pick the ones we want to support.

The reality is that if the government and Fortune 1000 companies pay their small-business suppliers faster, it won’t hurt the big companies, and it will open up opportunities for small businesses and entrepreneurs to grow and add jobs.

Ami Kassar founded MultiFunding, which is based near Philadelphia and helps small businesses find the right sources of financing for their companies.

Article source: http://boss.blogs.nytimes.com/2013/02/28/is-obamas-quick-pay-initiative-beginning-to-work/?partner=rss&emc=rss

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You’re the Boss Blog: Why Are Small Businesses Less Optimistic Than Big Ones?

February 13, 2013 by Leave a Comment
Today’s Question

What small-business owners think.

In an article just published by The Times, Catherine Rampell notes that when it comes to optimism about the economy, there is a big gulf between small and large companies. Ms. Rampell reports that while measures of optimism for big companies now exceed prerecession levels, a recent survey from the National Federation of Independent Business found that expectations for business conditions six months from now were at their fourth-lowest level in nearly 40 years.

So why are small businesses so much more pessimistic?

The article offers a number of possibilities:

o Big companies have a larger global footprint and are benefiting from growth in places like China and India.

o Small businesses are more likely to be traumatized by the political confusion and uncertainty in Washington. “Politicians are uniformly quick to offer paeans to small businesses, but their actions have directly held back the sector, to the huge detriment of the economy,” said Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors.

o Owners who sell directly to consumers are concerned about the effects of recent tax increases, like the end of the payroll tax holiday, on their bottom lines.

o While commercial and industrial lending numbers from the Federal Reserve suggest that the credit market for small businesses is healing, many small business are still struggling to have their credit needs met.

The stakes would seem to be high for all businesses. “Until the small-business sector starts to feel better,” Mr. Shepherdson told Ms. Rampell, “the rest of the economy isn’t going to feel much better, either.”

How would you explain the gulf between small and large businesses?

Article source: http://boss.blogs.nytimes.com/2013/02/13/why-are-small-businesses-less-optimistic-than-big-businesses/?partner=rss&emc=rss

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You’re the Boss Blog: Why a Victim of Sandy Doesn’t Want an S.B.A. Loan

February 12, 2013 by Leave a Comment

Ralph Lucci: Ozier Muhammad/The New York Times Ralph Lucci: “It took five hours to destroy the business.”

Case Study

What would you do with this business?

Last week, we published a case study about Ralph Lucci, owner of Automobile Film Club of America, a company that has supplied vehicles for film and television productions since 1993. Based in Stapleton, on Staten Island near the waterfront, the company’s lot and 57 cars were flooded last October during Hurricane Sandy’s surge.

Initially, Mr. Lucci estimated that it could cost $400,000 to replace the cars and refurbish his office, the shop and the equipment. He now thinks it could cost as much as $575,000. But with the cars covered just for liability, Mr. Lucci said that insurance would not provide enough money.

As a result, he has wrestled with closing the business for good or borrowing a lot of money and trying to rebuild. He was approved for a $25,000 New York City emergency loan for small businesses, an amount that is less than the cost of repairs on his office. He has debated whether he should apply for a Small Business Administration loan, but it would come with two stipulations that he found difficult. One would be that he obtain flood insurance, which Mr. Lucci estimated could cost up to $25,000 a year. The second stipulation would require that he post his house as collateral, something that seemed especially risky to a 60-year-old man.

In a recent interview, condensed and edited below, Mr. Lucci explained his decision on the S.B.A. loan and responded to some reader comments.

Did you decide whether to take the S.B.A. loan?

It was too expensive. The S.B.A. wanted me to get a $1 million flood insurance policy. That’s $2,100 a month. I could get an equity loan on the building for a lot cheaper and I wouldn’t have to get flood insurance. I could also put an equity line on my house, which is not in the flood zone.

What will you do instead?

I took the $25,000 city loan. And I applied for a $10,000 grant from the city and some others. I’m not going to get all the money that I lost, but I’m making it up. Whatever I don’t make up, I’ll get through grants or some small loans.

So are you scaling back the business?

Actually it grew. I used the $25,000 city loan to buy seven cars. I’m doing a show now and I got called for a TV pilot. The lifts we fixed, the compressor we fixed. I didn’t fix the office. Like somebody said, `don’t do the office.’ Use money to make money. I’m working out of the house. At one TV show they’re crashing a lot of cars. We make money that way.

Some of the readers said you should have learned a lesson from the flooding during Hurricane Irene. What will you do differently?

Next year I’ll make sure I move all my cars out. I’ll do my office differently. I’m raising the heaters, raising the equipment. Everything is going to be off the ground. I’ll evacuate a couple days ahead of time. If I hear there’s a storm, I’ll pick up computers. All the cars are parked five blocks away.

If you stay in the same spot, shouldn’t you get flood insurance anyway?

I’m not sure.

How much can you afford to pay?

Probably $5,000 a year, not $25,000.

A few readers suggested that you become a broker who finds cars for the movie business rather than owning your own. Have you considered that option?

I have a database of 10,000 cars from here to California. I’ve been doing that for years.

Have you thought about selling your property to make some cash? One reader suggested you move to a safer location, perhaps outside the city to lower your costs. Would you do that?

I won’t get the money that the property is worth. There are big plans for this area, including a mall and housing. When the value doubles, then I’ll sell it. I live here, so it’s 10 minutes away from my house. I work to 3 in the morning sometimes.

What will happen to your business in the next year?

I’m planning on rebuilding the fleet. I’m not going to quit. I might do a car museum. I’ll be leasing. I know I’m 60, but I can’t quit. I’ll die. I started this business with zero. I can do it again. Money’s coming in. I’m working hard.

Article source: http://boss.blogs.nytimes.com/2013/02/12/why-a-victim-of-sandy-doesnt-want-an-s-b-a-loan/?partner=rss&emc=rss

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Bucks Blog: Wielding Influence, Even if You’re Small

January 25, 2013 by Leave a Comment

Paul Sullivan, in his Wealth Matters column this week, writes about one of small businesses’ disadvantages — they do not have the resources that the big companies do to wield political influence. But, as Paul points out, that does not mean they can’t wield any influence.

He cites, for instance, the owner of a livery service in New York who joined forces with other car service owners to lobby the state to establish a workers’ compensation fund for livery drivers and to repeal a state tax on livery fares. It took a year and a half, with the lobbying costs split among the owners, but they eventually got what they wanted.

Those of you who are small-business owners, tell us about your experiences in trying to get a local or state government to change a law or rule. Did you work on your own, hire someone to lobby on your behalf or, as with the livery drivers, get together with other small-business owners to promote your cause?

Article source: http://bucks.blogs.nytimes.com/2013/01/25/wielding-influence-even-if-youre-small/?partner=rss&emc=rss

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You’re the Boss Blog: Small-Business Tax Incentives Survive the Deal

January 2, 2013 by Leave a Comment
The Agenda

How small-business issues are shaping politics and policy.

Most of the discussion about the last-minute legislation to avert sharp tax increases for 2013 has concentrated on the Bush tax cuts — their permanent extension for most Americans and their expiration for a very few. But the bill also renews dozens of other income-tax provisions for individuals and businesses through a series of provisions that the legislating class calls “extenders.” And though advocates for small businesses were concerned that legislators might overlook their interests in the high-pressure negotiations, it turns out that their pessimism was unfounded. Nearly all of the most important provisions won a reprieve through at least this year. (It just goes to show that an old temporary tax credit almost never dies, it just becomes an extender.)

Here’s where things stand for many of the small-business tax incentives that were on the table:

•Section 179 expensing: This popular provision allows small companies to fully expense many investments in just one year, instead of over five years or more. The amount of investment eligible for immediate expensing grew to $500,000 in 2010 and 2011, but was to fall to $139,000 in 2012 and $25,000 in 2013. The new law extends the $500,000 limit through 2013, and pushes the $25,000 cap to 2014. Section 179 is available only to companies with total capital expenditures for the year under a certain threshold — $2 million through 2013 and $200,000 starting in 2014.

•Bonus depreciation: Since 2008, companies have been able to take advantage of a special depreciation allowance that allows them to write off 50 percent (and sometimes more) of certain kinds of investment in the first year. The provision was set to expire at the end of 2012, but has been extended through the end of this year, or, in some cases, through 2014.

•Research and Experimentation Tax Credit: The RD tax credit, as it’s also known, expired at the end of 2011. The new law extends it through 2013 and increases the potential credit for businesses that acquire other companies.

•Built-in gains tax: Normally, when a company converts from a C corporation to an S corporation, it must retain its assets for at least 10 years or pay a 35-percent tax on the built-in capital gains that occurred before the company made the conversion. (The provision is intended to discourage a corporation from making the conversion simply to avoid double taxation — first at the corporate level, then at the shareholder level — on capital gains.) Since 2009, Congress has shortened the period, ultimately to five years for assets sold in 2011. The new law extends the five-year period through 2013.

•Temporary exclusion of 100 percent of gain on small-business stock: This recent stimulus provision, an incentive to invest in small companies by making the capital gains tax-free, expired at the end of 2011 but has been extended through 2013.

•Work opportunity tax credits: These are tax credits for employers who hire military veterans or people belonging to certain disadvantaged groups (for example, people receiving government assistance or living in distressed areas). Tax credits for hiring the disadvantaged expired in 2011 and those for veterans expired at the end of 2012; both have been extended through 2013.

•Fifteen-year depreciation for qualified improvements to leasehold, retail or restaurant property: Under this provision, which expired in 2011, a renter, retailer, or restaurateur can write off improvements in 15 years, rather than over 39 years (which may be longer than the business would even exist). It has been extended through 2013.

•Adjustment to stock of S corporations making charitable contributions: This temporary provision made it easier for owners of an S corporation to take deduction for making donations. It expired at the end of 2011 but now is extended through 2013.

•Enhanced charitable deduction for contribution of food inventory: This provision allowed companies to donate their inventory of “apparently wholesome food” — that’s a legal term, really — and take up to twice the deduction they would normally get. It expired in 2011, but has been extended through 2013. However, a similar provision that allowed C corporations a bigger deduction for donating computer equipment to schools and libraries was not renewed.

Article source: http://boss.blogs.nytimes.com/2013/01/02/small-business-tax-incentives-survive-the-deal/?partner=rss&emc=rss

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Wealth Matters: Defined-Benefit Plans Allow Fast Retirement Saving, but With Risks

December 1, 2012 by Leave a Comment

So I couldn’t help but be skeptical when I was told about a plan aimed at small-business owners in their 50s who have saved little for retirement but can now afford to put aside a lot of money each year. They can then deduct that money as a business expense, resulting in a significant tax savings.

But I checked with the Internal Revenue Service, and the plan is indeed legitimate.

It is a defined-benefit plan, much like the one large employers once regularly offered their workers, that guarantees a set monthly payment in retirement. In this case, though, the plan works best for really small businesses — those that employ just one or two people.

The I.R.S. allows a maximum annual contribution to the plan of about $255,000 for people in their 50s. (For younger workers, the contribution limit is lower, because the calculation is based on the number of years until retirement. In some cases, the limit is so low that other retirement savings options might be better.) Total holdings in the plan are limited to $2.3 million to $2.4 million, enough to cover the maximum allowed payment in retirement of $200,000 a year.

Advisers said the plans were less effective in companies with more employees, particularly older ones, because the owner would be required to make contributions for all of them, and at a high level, since older employees are typically better paid and closer to retirement. (If the additional employees were young and low-paid, the cost of offering the plan to them might be low enough for it to make sense.)

“It’s not too good to be true,” said Lisa C. Germano, president and general counsel at Actuarial Benefits and Design Company in Midlothian, Va. “But you need to be able to fund the plan and fund it for an indefinite period. It’s a commitment. That’s one of the reasons you get the reward.”

Some advisers like Ms. Germano were worried that, like other generous deductions, this one could be threatened in the current tax and budget negotiations. But regardless of how the talks in Washington turn out, this is still the time of year when many small-business owners need to decide whether to set up a defined-benefit plan or stick with more traditional forms of retirement savings, like SEP I.R.A.’s for the self-employed or a profit-sharing plan.

Here is some of what I learned.

UPSIDE Defined-benefit plans are mainly a way for small-business owners who neglected to save for retirement to catch up. The ideal candidates can put away $100,000 to $150,000 a year for at least 10 years, said Leigh Goldblatt, vice president and chief compliance officer at Glazer Financial Network.

This was the case with John Rogers, a Denver businessman. “I was in my late 50s and I didn’t have a penny saved for retirement,” he said.

He lost his life savings in his 40s, he said, in a recycling company he started with friends. He also raised six children, four of whom he said he put through college.

But by 2006, he was six years into being an independent contractor for Univera, a company that makes nutritional supplements. (The company’s sales model is similar to Amway’s, where people like Mr. Rogers sell to individuals or find other people to sell for them.)

With his business providing steady, predictable income — he and his wife are ranked as top sellers for the company — he wanted to start saving. He said a defined-benefit plan was attractive for both deferring taxes and for saving for retirement.

“Our adviser tells us at the beginning of the year what we have to contribute,” said Mr. Rogers, 63. “We’re very disciplined. We pay our defined-benefit plan first and then our business expenses.”

But even though the I.R.S. assumes the plan will make monthly payments in retirement, which is why it allows people to save so much over a short period of time, owners shut down most of these plans and roll the money in them to a regular retirement account, said Mr. Goldblatt, whose firm advised Mr. Rogers. This reduces expenses and gives the owner control over how to withdraw the money.

DOWNSIDES Such a chance for a retirement savings do-over, as it were, does not come without catches. And skeptics say these plans lure people with the prospect of quick and large retirement savings without discussing the risks.

Article source: http://www.nytimes.com/2012/12/01/your-money/defined-benefit-plans-allow-fast-retirement-saving-but-with-risks.html?partner=rss&emc=rss

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Creating Value: The Joys (and Dangers) of Owning a Microbusiness

November 8, 2012 by Leave a Comment
Creating Value

Are you getting the most out of your business?

Today, there are about 27 million businesses in the United States. Of these, the vast majority are what we call microbusinesses, those that typically have fewer than five employees and less than $1 million in sales. This was where I started my business career and, after having gone through all three stages of business growth, I’m happy to be back there again today with my wealth management and consulting business.

I love being a microbusiness. I have few worries about capital investment, little need for bank loans and no concerns about taking care of a large group of employees. I am able to concentrate on serving clients and don’t spend a lot of time on administrative duties.

Of course, when I’m not able to work, my business suffers. If I were unable to work for more than six months, the business would have a hard time surviving. That’s the biggest down side, one I experienced while going through my cancer treatment four years ago.

The other big challenge with a microbusiness is lumpy sales — when your sales go up and down in a significant way. You move between extremes. One day you’re so busy serving customers you don’t know what to do, and a week later you’re trying to figure out where your next job will come from.

That’s what happens when a microbusiness owner tries to do everything. Among other things, the microbusiness owner is the marketing manager, the sales representative, the service provider and the person who runs the company. It’s the moving from doing work to landing work that causes the roller-coaster ride in terms of cash coming in the door.

Cash flow is king in most small businesses, but this is especially true for those with fewer than 25 employees. Research from Open at American Express shows that about 50 percent of small businesses experience cash flow strains, mostly because they aren’t creating enough in extra profit to allow them to put cash away for a rainy day.

If your business doesn’t have enough cash, you will be under stress. That is something I can attest to from first-hand experience. When you don’t have enough cash, you feel pressure to take any client who walks in the door. But this is usually a mistake. Trying to be all things to all people will cost you money.

Most owners understand this. But when you are under pressure to pay your bills, it’s hard to say no — even if the customer is outside of your target market. You need money, you take the business, and you often end up spending an inordinate amount of time serving the customer. And if you stay in this cycle, you put your business at risk. When you own a microbusiness, burning time is just like burning money.

Several years ago, I did some work with a graphic design firm, Gray Cat Studio. Michelle Bisceglia, the owner, had built a knowledge base working with specialty food manufacturers. She knew a great deal about the businesses and what made them successful.

When I first started working with her, she would take work from anyone. She often lost money when she went outside her knowledge area, but like many microbusiness owners, she was often short on cash.

We worked on developing her niche and I coached her in using a new word: No. Over time, two things happened. She was able to charge higher fees because of her expertise, and it took her much less time to complete projects. This allowed her to create a cash cushion, which made it even easier to say no to customers who didn’t fit her profile.

Ultimately, microbusiness owners have two choices. They can choose to remain a microbusiness, like Ms. Bisceglia, or they can do what I did in my previous business and move into the next level, the traditional small business. In both cases, understanding the drivers that create cash for living and saving is crucial. If you want to grow, you will not only need to finance your own living needs and retirement savings, but you also need to create cash for growth.

There is no good or bad about this decision. It’s truly about an owner’s preferences. Some people decide they want a bigger business, and some are happy just doing what they want without having to worry about managing other people.

If you choose to stay at the micro level, you need to understand that lumpy sales exist and you must have a strategy for dealing with them. You should have a plan in place in case you become disabled. You should have a strategy for saving for retirement, because you will not be able to sell your business.

What do you think? If you’re a microbusiness, what are your challenges? Have you decided to stay at this level?

Josh Patrick is a founder and principal at Stage 2 Planning Partners, where he works with private business owners on wealth management issues.

Article source: http://boss.blogs.nytimes.com/2012/11/07/the-joys-and-dangers-of-owning-a-microbusiness/?partner=rss&emc=rss

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You’re the Boss Blog: A Closer Look at Romney’s Small-Business Tax and Jobs Claims

October 30, 2012 by Leave a Comment
The Agenda

How small-business issues are shaping politics and policy.

At the first presidential match-up in Denver last week, Mitt Romney injected new charges into the discussion of what will happen to small businesses if taxes are raised on the wealthy. Speaking of President Obama’s proposal to let the Bush-era tax cuts expire for those who earn more than $250,000, the Republican candidate told the president that the impact would be felt by only 3 percent of businesses but that those businesses “happen to employ half — half — of all the people who work in small business. Those are the businesses that employ one-quarter of all the workers in America. And your plan is to take their tax rate from 35 percent to 40 percent. … The National Federation of Independent Businesses has said that will cost 700,000 jobs.”

Startling numbers, but are they accurate? Well, the first two are not, and the last is disputed.

Let’s look at the share of employment first, Mr. Romney’s charge that letting the Bush tax cuts expire for the top two tax brackets will specifically hit businesses that employ half of all the people who work in small businesses and a quarter of all American workers. The Romney campaign declined to discuss its source, but the assertion closely echoes a figure circulated by the N.F.I.B., when the advocacy group sent a letter to Congress two years ago opposing any tax increases, including on the wealthy.

That letter said, in part: “Based on an N.F.I.B. small-business survey, the businesses most likely to face a tax increase by raising the top two rates are businesses employing between 20 and 250 employees. According to U.S. Census data, businesses with between 20 and 299 workers employ more than 25 percent of the total work force.”

There are two things to say about this statement, as retold by Mr. Romney. First, there is the obvious error of transmission in his retelling — that these companies account for a quarter of the work force, when in fact the Census Bureau cohort included companies with up to 299 employees (not 250). But the bigger issue is the implication that all of these businesses (by Mr. Romney in the debate) or most of them (by the N.F.I.B. in its letter) face a tax increase under the Obama plan.

In fact, the survey (pdf) at the root of the claim suggests the opposite — that a minority of these businesses in this size category, about 22 percent of them, earned more than $250,000 in business income, the threshold for higher taxes under the Obama plan. According to the Census Bureau figures that the N.F.I.B. relied on (available from the S.B.A.), in 2007, when the N.F.I.B. poll was taken, businesses with 20 to 299 employees employed almost 28 percent of the total work force. Assuming that the N.F.I.B. survey results can be extrapolated to the broader small-business population*, 22 percent of 28 percent is 6 percent. That means that, according to the N.F.I.B. survey, the share of the total work force that might be affected by the increase in tax rates is around 6 percent, not 25 percent.

(Interestingly, in an interview for this post, an N.F.I.B. tax lawyer, Chris Whitcomb, seemed to back away from the claim that most of the small businesses likely to face the tax cut are those that employ 20 to 250 workers. Referring to the passage in the N.F.I.B.’s letter to Congress that cited the survey, Mr. Whitcomb said, “All that statement is saying is that looking at this survey data, of businesses that have 20 to 249 employees, 22 percent of those have a business income above $250,000. The conclusion that we’re drawing from that is that this group will be disproportionately impacted by raising those rates.”)

As for Mr. Romney’s suggestion that the tax increase will affect companies employing half of the people who work at small businesses, that also is not accurate. In 2007, according to the Census data, companies with 20 to 299 employees employed 55 percent of the total work force at companies with fewer than 500 workers, a common definition for a small business. But given the N.F.I.B. survey’s finding that only 22 percent of businesses in roughly that size range would actually face a tax increase, those businesses’ share of the small-business work force would be only about 12 percent.

Mr. Romney’s larger point is that the 4 percent increase in taxes on small businesses making more than $250,000 a year will cause these profitable companies to cut jobs — 700,000 employees in all, he said. For this assertion, Mr.Romney again relies on the N.F.I.B., and a recent analysis by the accounting firm Ernst Young, commissioned jointly by the Independent Community Bankers of America, the N.F.I.B., the S Corporation Association, and the United States Chamber of Commerce. The analysis does indeed claim that raising taxes on those making more than $250,000 will cost the economy 710,000 jobs.

But the effect of taxes on investment (and, hence, on hiring) is hotly contested along ideological lines. (The Agenda discussed this earlier this year when the Buffett Rule was the subject of conversation.) Liberal economists see little, if any, effect from taxes on investment. Conservatives see a substantial effect, but even some conservative economists acknowledge that it is impossible to prove the connection using economic data given all of the other variables at work in the economy. Instead, they sometimes make their case on theoretical, or even visceral, terms. Or they publish analyses like the one from Ernst Young, which is not an empirical study, using real-world data, but one making predictions based on the authors’ assumptions about the relationship between taxes and investment. The authors of the Ernst Young report are established conservative economists and the paper relies heavily on the work of other Republican-affiliated economists.

Not surprisingly, liberal economists dismiss it. The study’s authors “get a considerably larger employment response from high-income tax cuts than other standard models or, more importantly, historical experience,” Jared Bernstein, a former adviser to Vice President Joseph Biden, told The Agenda. (Mr. Bernstein also criticized the report in an August blog post.)

That critique won’t find a sympathetic ear in the Romney campaign. After the debate, Paul Ryan, Mr. Romney’s running mate, mentioned the 700,000 jobs that could be expected to be lost in a speech in Virginia. And it seems likely to come up again in the vice presidential debate Thursday night.

*The N.F.I.B. survey, conducted by Gallup in December 2007 and January 2008, interviewed only 154 businesses with 20 to 249 employees, which statisticians would consider a small sample. The businesses in the survey were randomly selected from Dun Bradstreet lists.

Article source: http://boss.blogs.nytimes.com/2012/10/11/a-closer-look-at-romneys-small-business-tax-and-jobs-claims/?partner=rss&emc=rss

Filed Under: Small Business Tagged With: , ,

You’re the Boss Blog: An Entrepreneur Reviews What Worked and What Didn’t in 2011

January 4, 2012 by Leave a Comment

Thinking Entrepreneur

An owner’s dispatches from the front lines.

The beginning of the year is a great time for reflection, revelation, resolution and even a little celebration. We did do some things right last year, and the results are starting to show. I also did some things wrong, which I intend to rectify in the near future. Move out of the way, 2011.

We hired about 10 new people last year. Nine have worked out extremely well. One quit for “a better opportunity.” Nobody crashed and burned. These are very good results, especially compared with the old days. What changed? I am no longer leading the hiring process. I have a human resources professional who has been with me for several years.

She has come to fully understand the nuances of my different companies, and she continues to fine tune the process. Many small businesses are not big enough to warrant a full time H.R. person — mine wasn’t until I had about 100 employees — but there are a couple of things that anyone can do and that I believe can be game changers.

There is a huge difference between hiring from the best candidates who show up at your door and hiring from the best candidates in the market. Increasing the pool may require placing more ads, placing better written ads and being patient enough to wait for the right candidates. It may also require more creative recruiting strategies, like finding candidates who aren’t actively looking for a job through social media sites like LinkedIn. That’s the first step.

The second step is reflecting on who is doing the hiring. Is it you, the owner? From my experience and observation, the characteristics that make one a successful entrepreneur frequently make one a lousy hirer. Entrepreneurs love their companies and their missions. They talk about them too much, and they don’t listen enough; the candidate should be doing most of the talking. Owners also tend to be in a hurry. They have 10 other things they need to do, and it is very easy to rush through the process and rationalize choosing a less-than-stellar candidate.

If you believe that hiring is not your strong suit, have someone else do it. There are companies like A Hire Authority that offer contract recruiting services for large and small companies. They write and place the ads, do the interviewing and check the references. Miriam Berger, president, told me that she was seeing an increase in the hiring activity of large and small companies. Improving your hiring protocol will not only make your company better for your customers and other employees, it will make your life easier.

So what do I need to fix this year? This was another revelation. While I have five outside salespeople and five inside support people selling art and framing to businesses, I have been a retailer all of my life. I have learned that running and growing a successful outside sales staff requires a very different mentality and skill set.

Retailing is more of a “pull” business. You put everything together and customers come in and keep coming back. Outside sales requires managing the whole process, from prospecting to follow up. We have been using software to keep track of leads for more than 15 years. Our system was pretty progressive — when I bought it 15 years ago. Today, it is outdated and only does a small fraction of what new technology offers.

I have come to recognize (years late) that we need to get one of the new C.R.M. — customer-relation management — systems. We have been looking into salesforce.com. It operates in the cloud and has the ability to track business and customer work flow and to give real-time reports. It also helps build social interaction and community with a feature that looks and feels like Facebook. This will give us better communication among staff members, better ways to interact with customers and better controls to help our sales manager track what is going on. (All advice on choosing and implementing a C.R.M. system is welcome!)

This year, I have decided I’m not setting goals. Goals come and go. Instead, I want a plan. There were numerous things that I wanted to do over the last few years that I put off because of the soft market. It is time to play catch up. I know there are many companies in a similar position. It is this pent-up demand that is slowly increasing business for many of us. Welcome, 2012. Out with the old, in with the bold.

Jay Goltz owns five small businesses in Chicago.

Article source: http://feeds.nytimes.com/click.phdo?i=b52e278149d1949af760adb0c3fe6d81

Filed Under: Small Business Tagged With: , ,
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