Factory Tours and Facts

When politicians and pundits talk about small businesses and job creation, many of them seem to rely on Chamber of Commerce created public relations photo opportunities and televised factory tours for their information rather than finding out the facts. Here are some facts that most politicians and pundits ignore in their fantasy world of U.S. businesses.

The Small Business Administration defines a small business as “one with fewer than 500 employees.” Here is the short version of what the SBA says is important about small business to the U.S. economy.

• Represent 99.7 percent of all employer firms.
• Employ just over half of all private sector employees.
• Pay 44 percent of total U.S. private payroll.
• Have generated 64 percent of net new jobs over the past 15 years.
• Create more than half of the nonfarm private gross domestic product (GDP).
• Hire 40 percent of high tech workers (such as scientists, engineers, and computer programmers).
• Are 52 percent home-based and 2 percent franchises.

Want to astound your friends? Ask them, “Who produces 13 times more patents per employee than large patenting firms?” The answer: US small businesses do. Furthermore, you can add, according to the SBA, “These patents are twice as likely as large firm patents to be among the one percent most cited.” You’ll get “wow” and puzzled looks. But I digress.

The National Association of Self Employed adds that of those businesses employing less than 500 people

• 77.6% are non-employers, or self-employed.
• 17.3% employee 11 to 19 people.
• 2% employ more than 20 folks.

Some perspective is in order. Go to the sports page and think about Pro Football for a minute. I am not talking about the sports teams themselves, but about the financial impact the NFL wields on franchise towns like Green Bay, which is not a major market. Business News Daily says an “NFL Lockout Could Sack Small Businesses.” According to the Daily, “The livelihoods of thousands of small business owners and their employees are at stake in each of the NFL’s 32 cities. Restaurants, bars, team apparel stores and other small businesses located within walking distance of NFL stadiums are bracing themselves for a potential lockout and the ramifications it may have.” Would you like to talk about a seasonal business?

So let’s talk about Washington political rhetoric. It continues to suggest that the slow recovery is because banks will not lend to credit worthy borrowers. According to the non-partisan National Federation of Independent Business, that is not the case. The NFIB reports that the economy generated a lot of jobs by making bad loans and they are gone now. Community banks across the country have plenty of money to lend, but “the pipeline of good applicants collapsed in the recession.”

Remember the football lockout I mentioned? The NFIB says that on the job side “it is going to take a rebound in consumer spending, particularly in the service sector to make a significant dent in the number of unemployed. The manufacturing sector is doing very well, but it does not create many jobs.” Factory tours and the Chamber are good for television, not so much for business facts. Facts are boring.

Article first published as Factory Tours and Facts on Blogcritics.

SBA Finance Assistance Scams

There is an old expression that states “you can’t cheat an honest man.” Whether one replaces “man” with “business owner” to be politically correct or not, there is a growing number of scammers out there preying on owners of small businesses. The Alameda County Small Business Development Council (ACSBDC) sent me the following letter from the Small Business Administration (SBA). Let us take heed.

The U.S. Small Business Administration is warning small businesses to use caution if they are contacted by firms offering to help them apply for funds available through SBA programs.

SBA and SBA's Office of the Inspector General have received several complaints from small businesses about abusive marketing practices, scams, and exorbitant fees charged by firms offering to help them obtain a loan, grant, or other federal funds.

Some of these complaints include:

• Firms charging small businesses high fees to provide assistance applying to SBA funding programs. Some firms allegedly guaranteed that the small business would obtain SBA funding if they paid the fee. SBA does not endorse or give preference to specific private companies or their clients.

• Firms charging small businesses for services never requested after the small business gave bank account and routing information to a caller claiming to be a firm offering assistance. SBA recommends that small businesses never provide social security numbers, bank account information, or credit card numbers to anyone; and, never over the telephone.

• Firms alleging that a small business would be issued a "forfeiture letter" that would make the small business ineligible for any SBA funding for three years if the small business refused to use the firm's services.

When electing to use a third party to apply for SBA funding programs, small businesses should also bear in mind:

• Small businesses can get free assistance in person or by calling one of the administration's district offices and from information on SBA's Web site (www.sba.gov). They can also get assistance from Small Business Development Centers (SBDC), Women's Business Centers, Veterans Business Outreach Centers and SCORE Chapters, either free or for a reasonable fee. Location and contact information for the centers can be found on SBA's Web site.

• Small businesses should ask for references and confer with trusted colleagues and institutions, such as the Better Business Bureau, when selecting service providers.

• Small businesses should clearly establish and document: 1) What they are being charged; 2) When they will be charged; 3) What they must do; and 4) What services they will receive.

The administration's inspector general will investigate and respond to all complaints.

What Is Your Plan?

Do you have a business plan? You might be surprised just how many businesses do not. They may have had one in the past but chances are that the business owners have been so busy that they have not written down much of anything. So if you answered “no” quietly and privately to yourself, understand that you are not alone.

Frequently, a business plan is a necessary evil that rears its head only when the business owner is told that they need one because they are trying to get money through something like an SBA guaranteed bank loan or a private investor. The problem is that the business owner is not in the business of writing such documentation. So what does an owner do?

There is the Internet.

One can search and eventually -- maybe -- find a boiler plate business plan for a company kind of like the owner’s business. A little change here, a little change there and a plan is born. However, banks and investors have seen the boiler plates before and have the pesky habit of asking questions about financial projections, ratios, ROI, assumptions, and the interrelationships between the numbers and profitability. Think of it as part of their language.

There is software.

Plug in some numbers and fill in some blanks and out comes a document. However, in addition to the cost of the program, the time it consumes in learning how to use it and the fact that there is a business to run, what does one end up with? Once again, bankers and investors are going to ask their questions. They will at least be polite when they decline the request for money.

There is the hired gun.

Plenty of ghost writers out there will be more than happy to write a plan for you using boiler plates and software. Just look on Craig’s list under your area, services, and “sm bz ads.” Then type “business plans.” Ghost writers are neither bad nor good, as long as an owner knows that questions will be asked, such as “Did you write this plan yourself?”

There are professional business consultants.

At this point I need to explain that the preparation of a business plan is a process. You should also think of a business plan in similarly to the way one thinks of an owner’s manual. Additionally, I also need to point out that a business plan is a working document, subject to change as times and circumstance dictate. At this time, for example, our economy has entered into a recession which is dictating that businesses need to reevaluate their owner’s manuals to adapt to the circumstances.

The purpose of hiring a professional consultant is to facilitate the writing process, not to knock out a binder full of paper and a PowerPoint presentation. A consultant is going to insist on the participation of everyone involved in the decision making process from owners to managers throughout an organization. A consultant’s job is to help owners think through and understand the concepts and assumptions that underlie a business venture.

A consultant’s role in the production of a business plan also is to teach owners and managers the significance of the business numbers and how those numbers affect profitability of the company, not how to build a spreadsheet. Do not forget that the objective of a business plan is to have a metaphoric owner’s manual that accurately reflects what the business is about. This should be addressed not only to a company’s stakeholders, but to people outside of the company in language that they understand, such as told by Profit and Loss statements and Balance Sheets.

The knowledge an owner derives from the process of building a business plan is empowering. It also reduces the cost of borrowed or invested funds.