I think we can all say with confidence that not that much has changed since our government shifted to a new party in 2008 and quite frankly I don't anticipate a great change when it likely shifts to the other political party in November of this year. The fundamental problem that seems to condemn us to the foibles of human nature is lack of accountability. People who we decry as causing many of our problems seem to continue to pop up like bad wars. But what if we were more simple in our approach? What if, for example, we voted for a candidate only upon the written assurance that they sign an affidavit affirming that they prepared their own federal income tax form and that they have enrolled their children in public schools? How complex would the federal tax code be if the officials that passed these many draconian tax laws were required to interpret them and pay taxes based on their understanding? Do you think the tax laws might change? If the children of our lawmakers attended public schools would the power of change shift from the 150 year old teacher's union to the student and their family? The result would be a windfall for small business, increased innovation and economic prosperity in this country. Anything that simplifies regulation and provides a well-trained work force can only benefit. Be simple and demanding of your representatives.
INSPIRATION
In times like these when life can be so difficult and the future so bleak it is good to deliberately seek out some good old fashion inspiration. One of the great sources of inspiration are people who have already done what we want to do, or walked a path that has meaning for us. I look at Stephen Jobs and see an individual that has accomplished a great deal in his life, but not without serious trials. I encourage you to read or listen to the commencement speech he made at Stanford University in 2006. I am including an excerpt that I think is particularly potent.
"My third story is about death. When I was 17 I read a quote that went something like "If you live each day as if it was your last, someday you'll most certainly be right." It made an impression on me, and since then, for the past 33 years, I have looked in the mirror every morning and asked myself, "If today were the last day of my life, would I want to do what I am about to do today?" And whenever the answer has been "no" for too many days in a row, I know I need to change something. Remembering that I'll be dead soon is the most important thing I've ever encountered to help me make the big choices in life, because almost everything--all external expectations, all pride, all fear of embarrassment or failure--these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart."
Many people fall back on the excuse, "I would do that if I had as much money as Steve Jobs," but the real point is the money makes no difference. Many of the high profile people you hear and read about have been in bankruptcy before. I suggest you look in the mirror in the morning and ask yourself the question, "What would I do today if it was the last day of my life and I have plenty of money?" Of course I can also argue that you wouldn't care how much money you have if it is the last day of your life. So stop waiting and start living.
Newsletter Archives
ECONOMIC ENGINE
Small
business is the engine of the American economy.Consider some of the following facts:
Small
business represents 99% of the employers in the US according to the US Census
Bureau, creating 60 % to 80% of all new jobs annually.The breakdown of businesses in the US
is as follows:
Large - 1,000+ employees8,000
Mid size -100 to 999
employees93,000
Small - less than 100 employees8.1
million
(This does not include home businesses, which doubles this
number)
Small
businesses also account for a significant portion of annual sales in the US.
52% of all retail sales
46% of all wholesale sales
24% of all manufacturing sales
Based
on these statistics, small business should certainly be a priority of the
federal government in rebuilding our ailing economy.In fact, there have been some changes in the policies
related to Small Business Administration guaranteed loans.Considering that 55% of funding for
small business is obtained through loans, credit lines and capital leases the
SBA changes are an important step.
The
SBA does not actually loan money to businesses but rather provides loan
guarantees to banks that fund the SBA loans.The SBA has agreed to waive fees on new SBA guaranteed loans
and has also raised their guarantee to 90% of the loan value on certain loans,
dramatically reducing the risk for the funding bank.The guarantee also creates a more robust secondary market in
which the bank can sell the loan.(See www.sba.gov ) for more information
on SBA financing.
On
May 18th, 2009 the SBA announced the creation of the America's
Recovery Capital loan program (ARC: where would we be without those
acronyms).This program provides
deferred-payment loans of up to $35,000 available to established, viable
for-profit small businesses that need short-term help to make their principal
and interest payments on existing qualifying debt. ARC loans are interest-free
to the borrower, 100 percent guaranteed by the SBA and have no SBA fees
associated with them.
It
is certainly worth the time and effort to learn more about these loans if you
business is in need of growth capital.
CHANGING
TIMES
It
has always been fascinating to me to look back on the past and compare what has
been to what is today.For
example, in 1970 the Price Index listed gasoline at $.36 per gallon; median
income in the US was $8,734; median rent was $108 per month; a median home
price was $17,000; vitamin D milk was $1.14 per gallon, a first class postage
stamp $.06; and undergraduate Harvard College tuition $2,600 per year.I bought my first new car, a 1974
Chevrolet Camaro, for $3,600.
Many
decry history as boring and perhaps that is why we humans are burdened with
repeating so many horrible mistakes that have been recycled so many times.Perhaps we should reflect on the fact
that in 2005 the median price of a home was 10 times what it was in 1970, but
median incomes were only 5 times what they were in 1970.With the home mortgage/real estate bust
we will likely find that ratio has undergone an adjustment.
Lets
look at some other interesting facts of history.17.9% was the share of median two-income family?s budget
that was spent on federal, state and local taxes in 1958.39% is the share of a median two-income
family budget that went to pay federal, state and local taxes in 1998.In 1913 there were 400 pages of law,
rules and court cases pertaining to income taxes, in the year 2000 there were
46,900 pages of law, rules and court cases pertaining to income tax.In 2007 the federal government
collected $1.1 trillion in income taxes.Small businesses face an annual regulatory burden of over $7,000 per
employee.That is significant
considering the fact that 99% of our countries employers are small businesses
(employing less than 100 people).
We
are entering a period of historic levels of government spending.Discussions in 2009 typically include
the "trillions" word more often than ever before.This unprecedented level of spending will result in historic
budget deficits.There is a
significant risk of long-term negative economic impact.The typical government reaction to this
economic situation is to raise tax rates.That tax increase will likely fall on the shoulders of many small business
owners.Although Hauser's Law
suggests that income taxes as a percent of GNP remains at approximately 19.5%
regardless of the top income tax rate, who shoulders that burden is another
issue.Small business is the
engine of our economy.It is a disincentive
to small business operators to pay higher taxes.It defeats one of the reasons to be involved in the risk of
small business.
The
point of all these fun facts is that our country although prosperous, seems to
have entered an era of higher taxes, more regulation and less input in
government affairs.This
unfortunately means that we as business owners must take on a second job,
minding our public affairs.This
may be even more important given the grim state of our economy and the
increased scrutiny of the federal government on business affairs.The federal government's propensity to
enact ?one-size-fits-all? regulation and legislation makes the issue all the
more important.A recent article
written by Stephen Boyko accentuates the need for regulation that recognizes
the difference between risk and uncertainty so that we do not over regulate
financial markets that successfully price risk versus those in which risk is
indeterminate.
A
good starting point in protecting our public interest, in my experience, is to
join your local Chamber of Commerce and other organized business associations
that can create a multiplier effect for your business interests.My experience in this area has been
telling.As a member of a state
legislative task force of a local Chamber, we were able to successfully lobby
for a review process for administrative rules in our state, and amend a very
poorly written tax bill that was being widely misconstrued by the tax
commission.The time for hoping
that government related affairs will work in your favor are gone, it is time to
become engaged in the process to protect your interests and to use history in
your favor.
HEALTHCARE
One
of the more prominent issues for small business operators is healthcare.It is a concern for us personally and
for our employees.I believe it is
unfortunate that healthcare has evolved into a discussion of entitlement rather
than one of privilege.For those
who believe that healthcare is an entitlement and should be provided by our
federal government should consider the impact of incentives on our
behavior.No one offers to pay for
our automobiles, our homes, or other living costs, why should healthcare be
different?Simply citing the
number of people uninsured in the US is a poor indicator for a nationalized, or
quasi-nationalized system.If you
closely examine the numbers you will see that a majority of those people are
young and choose not to pay for healthcare.Politics is unfortunately a big part of the issue.Special interests shaped the financial
sector bailout and will also shape the healthcare system.Until we reform the election finance
system we will have large special interests, not voters shape our public
policy.
Princeton
Professor Uwe Reinhardt, one of the world"s preeminent health-care economists,
stated "the fundamental truth about health care in every country is that
national values, national character determine how each system works."The United States was founded on fierce
platform of independence and self reliance. We do not like to be told what to do.Likewise, when people pay for services
they are historically much more careful with their expenditures, it is human
nature and part of our culture as a country.When people do not have to pay for a service they historically
are less careful about their consumption.There is little incentive for people to take care of themselves if they
incur no monetary cost for not caring for themselves.There is also little incentive to shop for the best
service when we are not financially responsible for paying for that
service.A perfect example is the
mail and freight system in which UPS and Fedex compete profitably and with
exemplary customer service while the US Post Office continues to loose money
and provide a second rate service.How long did you wait in line the last time you visited a US Post
Office?Medicare is another
example in which costs started to spiral out of control after the federal
government originally entered the healthcare industry.The real hockey stick curve initiated
after the implementation of Medicare, a program that was projected to never
cost over $9 billion per year.Now
people on Medicare are subjected to a multitude of tests, because healthcare
providers are paid by the procedure and malpractice liability is also in the
back of the providers mind.
Consider
the following in reforming the current system.
De-couple
healthcare from employment.This
is another outdated paradigm that needs to be changed.
There
must be personal cost for healthcare to maintain an incentive for people to
care for themselves. It is major medical that is the bigger concern, for which
there should be a co-pay
Healthcare
coverage needs to be portable to protect people from losing coverage if they
move
Campaign
finance reform and tax code reform will likely be required to effectively
reform the current system or the new system will be greatly affected by
political interest groups
Some
form of government subsidized care (like Medicaid) is needed to shift the
uninsured from emergency room care to primary care.This may require government regulation so that people do not
take advantage of the system.
The
United States Constitution does not declare health care as a basic human
right.It should be available to
all, but it should bear a cost that requires people to be engaged in their own
health.Being healthy in today's
world takes work, so lets reward people for their work rather than for their
laziness.
Current Affairs What's dark and scary and has no seeming end, a credit crisis? As small business operators, there is a trickle down effect of the subprime mortgage crisis, the limitation and cost of capital. With banks and other financial institutions hoarding cash and even canceling credit cards, the situation is not likely to improve over the next several quarters. We are the unfortunate victims of a system that has been badly mismanaged. Once we recognize the reality of the situation there a few steps that we can take in the short term.
- Develop a detailed monthly cash flow forecast for your business with conservative projections of cash flows. Update the projection on a regular basis to reflect developments with customers and vendors. - Talk with vendors about terms if you are anticipating shrinking receipts over the near term. - Begin discussions with bankers/lenders now if you are likely to need additional credit resources. - Apply the 80/20 rule to your customer list. Are you focusing enough effort on the 20% of customers that are producing the majority of your revenue? Can you be more effective in generating revenue? - Are you maximizing your guerilla marketing efforts? You should be using PR and other low cost efforts to get your product or service in front of customers. - Have you considered flexible work schedules that may reduce payroll costs over the short term?
Periods of tight money can become a powerful time for enhancing the performance of your business. Getting through the challenging period often boils down to your attitude. Use it to your advantage by sharpening your focus and eliminating activities that do not positively impact your business. Peter Drucker, in his timeless book, The Effective Executive, suggests a periodic review of how one spends one's day by recording your daily activities in 15-minute increments. You will be surprised at some of the time wasters in which you indulge. Spending a portion of your time each day to increase revenue can reap significant rewards.
Do you Live to Work or Work to Live
Years ago as I worked to build one of the businesses I started, I realized that I was filling my days with work rather than filling my days with reward. Then I happened upon an article written by a consultant who suggested that founding and building one's own business offered the opportunity to build your business to meet your personal needs. It was a chance for reflection, to evaluate how I was spending my days and what personal satisfaction I was achieving. From this reflection I developed the simple habit of asking myself on any given day what was important to me and what was my priority, in other words, what would leave me feeling satisfied at the end of the day. I soon found that there were weeks that I no longer worked 40, 50, 60 or more hours per week, but sometimes 20 or less. Time with my family, personal recreation (which is the business I was in) and personal development became a bigger part of my life. I was happier and my business ventures thrived. It helped me to take the internal critic that kept telling me I had to work harder out of the equation and gave me back a rewarding life. I now have that discussion with clients who run their own businesses to help them evaluate their personal motives.
The future of US Small Business
With a national election just behind us, what better time to crystal ball the future of our small business climate in the US? Unfortunately the crystal ball is a bit murky. There is a long list of issues at hand, weak financial markets, tight money, health care costs, energy costs, national security and immigration policy. However, what may be the most critical element in the future success of small enterprise in the US is EDUCATION. So much has changed in our world in the last century. In their lifetime, my grandparents saw the birth of the automobile, telephone, radio, human flight, the atom bomb and people walking on the moon. But with all that change and discovery there is one institution that has not changed with the times, our system of education.
What we possess in the United States today is a system of education patterned after the industrial revolution with the goal of processing the most widgets (students) at the lowest cost with a very minimal deliverable objective. At the turn of the century it was a lofty goal to teach all children in our country basic reading and writing skills. But that paradigm has long since passed. In the free market the US has moved on to industries which are driven by intellectual capital not production efficiency. Production efficiency is achieved by outsourcing to other countries with lower cost natural and human resources. I characterize our current public school system as a "Henry Ford" system of education. This is not a judgment but rather an observation. Students show up at a scheduled time and proceed through a series of assembly line stations (in the form of subjects) until the bell sounds at the end of the day. However, unlike the automobile assembly line, students do not get the benefit of completing a station, if the bell rings they move to the next station whether or not they have completed the current station. The focus is one of efficiency rather than effectiveness. In today's world the lines between subjects are necessarily blurred, yet we still try to teach topics as a stand-alone classes. There have been a number of studies at Harvard University and other respected institutions that show numerous deficiencies in the current system including better learning capacity when school is started later, to better results with greater parental involvement. Add to the mix, one of the few growing labor unions in the U.S., the NEA founded in the 1860's, and you have further stagnation created in an outdated tenure system. I won't delve into the wages, but records show many employees of the union making in excess of $100,000 in salary annually, which is much greater than that of the average teacher.
The current public system was designed to provide a basic level of education to all children in our country. It was designed at a time when the population of the country was a fraction of what it is today, the agrarian population was considerably larger proportionately and the level of technology was at a fraction of its current status. Add the bureaucracy of government and union controls versus free market forces and the result is a very unwieldy system that places the US at a disadvantage to other countries that possess lower costs of production. But what is perhaps most disturbing about our current system is the lack of passion for learning that is fostered in our children, witness the 33% high school drop-out rate in recent years. All too often one hears the mantra, 'I hate school,' when querying today's youth particularly in secondary schools.
In a recent Newsweek article, Michael Bloomberg, Mayor of New York City, commented, 'All have tinkered around the edges of a broken system, and all have fallen short. You can be different, but only if you pursue top-to-bottom change. And as with energy policy, we need an "all of the above" approach, whether the ideas come from the right or the left. That means higher standards, higher salaries, merit pay, tenure reform, school report cards, a longer school day, and more."
In the short term I suggest a more radical approach. Organize parents of a like mind in your area and create your own school with a contracted teacher that is commissioned to meet specified objectives for the year. Pay that teacher at a market rate, which may be twice what a public school may pay, but demand results. Create objectives that value the fun of learning and approach teaching from a more holistic approach one which engages parents in the process as well.
In the long term communicate your desires to your legislators and the need of business to have a workforce that is engaged and prepared for the new millennium.
