The Small Business Jobs Act of 2010, signed into law by President Obama in late September, is designed to tackle America’s continuing high unemployment rate by bolstering that sector of the American economy that has traditionally been responsible for the creation of the most American jobs: the small business sector. Small businesses, defined by the Small Business Administration (SBA) as any commercial concern with fewer than 500 employees, employ slightly over half of all private sector employees and over the past 15 years have generated close to 65% of all new jobs.
It’s no secret that the recent economic downturn has hit business where it hurts. Even in prosperous times, business formation is a risky endeavor: over half of all small businesses fail within their first year, in part because their owners have an incomplete knowledge of the business law necessary to guide them through business formation. In the year 2008, the first year of the recession, almost as many of these businesses closed as were started, and many of those businesses had been in operation over ten years.
The 2008 $825 billion economic stimulus package contained very few provisions aimed at helping small businesses. The Act sought to rectify that situation by extending loan enhancements first put into place by the American Recovery and Reinvestment Act of 2009. Among other things, the Recovery Act allowed the SBA to raise the government-backed guarantee on its 7(a) loans to 90% and it also allowed the SBA to waive its $1,000 packaging fee on both its 7(a) loans and its 504 loans.
While loan modifications such as these make SBA loans a more attractive and useful option for entrepreneurs, it also makes the already complicated process of transacting an SBA loan even more complicated. Dealing with the SBA can already be problematic for startups, particularly those involved in non-traditional commercial ventures such as online businesses. In order to take the best advantage of the loan modifications, tax breaks and accelerated pay-outs offered under the new business assistance bill, startups and other businesses would be well advised to engage the services of an experienced business attorney who understands exactly how the Act can aid business formation.
Provisions of the Business Jobs Act
In addition to the loan modifications the Act contains other provisions designed to help small businesses attain access to the capital they need for operations and expansion. These include:
- A permanent increase in the size of the maximum loan available under the 7(a) and 504 loan programs from $2 million to $5 million; a corollary increase in the maximum loan amount available through the 504 loan program specifically targeted at manufacturing from $4 million to $5.5 million.
- A permanent increase in the microloan cap from $35,000 to $50,000 specifically designed to help entrepreneurs and startups.
- A temporary increase in the loan amount available to SBA Express loan recipients from $350,000 to $1 million.
The bill also introduced eight significant tax cuts for small businesses:
- The elimination of all capital gains taxes for business investments held five years or over.
- An increase in the write off for capital investments from $250,000 in Year One and $25,000 in Year Two to $500,000, and increasing the threshold for these write-offs to $2 million.
- An extension of the 50% bonus depreciation through the close of 2010.
- A health insurance deduction for the self-employed.
- Simplified rules regarding the deduction of cell phones and cell phone-related expenses.
- A temporary increase in the deduction for start-up costs from $5,000 to $10,000 (with a ceiling of $60,000.)
- For certain businesses, the ability to offset taxes – including the Alternative Minimum Tax – through business credits from the past five years.
- A decrease in penalties for tax errors that disproportionately affect businesses and small business owners (particularly sole proprietors.)
An Experienced Business Lawyer Can Help
The Small Business Jobs Act of 2010 provides significant new advantages to small business owners and to entrepreneurs who are in the process of forming a new business. Counterintuitive though it might sound, historically recessions have been excellent times to launch startups. Just ask FedEx.
However, the SBA process is extraordinarily difficult to navigate without the assistance of someone who is well versed in business law. Traditionally, the SBA has been very reluctant to make loans to startups: without a proven track record, the new small business owner is seen as a loan risk. An online business may be viewed as even a greater risk since in many cases it lacks the equipment and other capital that is viewed by the prospective lender as collateral in the worst-case scenario that a repayment schedule cannot be met. If you want to leverage the many benefits offered by the Small Business Jobs Act of 2010 on behalf of your startup, your wisest course is to consult with an experienced business attorney.
Archive for October 3, 2011
The Small Business Jobs Act of 2010
Seven Business Plan Questions to Ask Yourself
Once you present a business plan to an investor or lender, questions may begin to fly at you. If this happens, do not be alarmed! It is evidence that they are truly interested in your business. You can prepare for these questions by running through potential questions, like these seven, ahead of time.
“Why did you choose to begin with this target market?”
“We have to start somewhere” is not a great answer. Consider why the costs are lower or returns greater with your chosen first target market, or, better yet, how tackling that market first will make entry into additional markets easier later on.
“Why can’t competitors imitate your competitive advantage?”
Know the strengths, weaknesses, and branding of your competitors to understand what will stand in their way from doing what you are doing. It could be that your competitive advantage is contradictory to what they are trying to do or that you have protected intellectual property in your business, for example.
“Why is your team best qualified to launch this company?”
Funders know that there are potential managers in the job market who could be hired to run a startup like yours. Know how your chosen team combines industry, functional, and leadership experience with an understanding of startups.
“What best practices of the industry will your business use?”
Study best practices companies in the industry use to become more efficient and know which will translate into your startup, which can be implemented only as you grow, and which will not be possible because of their conflict with your underlying strategy.
“What is your unique selling proposition (USP)?”
If someone asks what makes your new business unique, you had better have an answer. This should be stated explicitly in the business plan.
“What would it take to reach break even sooner?”
Be prepared to defend the time you estimate it will take for the company to break even and to start making a profit. If funders want to see you break even sooner, know what it would take in terms of different staff, additional resources, or increased investment, but do not be too quick to push your schedule up. This only shows funders that your estimates were based on flimsy assumptions to begin with.
“What are your projections of growth based on?”
Be able to explain the assumptions about the market and your company’s conversion rates (of potential customers to actual customers, for example) which led to your projections of growth. You should know how your projections compare to other success stories in your industry and in other industries so you can be sure there is precedent for the growth you anticipate.
Small Businesses – Measuring Performance From the Business Process Perspective
Small business needs to continually grow and evolve. Every business needs to look at its internal business processes and determine a strategy that includes continuous improvement and development. It also needs to determine how to measure that improved process performance.
Typically, businesses using the balanced scorecard, determine their goals and objectives from both the customer and financial perspectives before they determine their intent from the business process perspective. Determining the objectives in this sequence provides the advantage of aligning their business process improvement and process capacity building to support their customer and financial objectives.
So how/what do you measure when it comes to business processes?
First, take a look at the cues your customers are providing. By looking at the types of things that your customers are complaining about, or are shopping for but not finding, you can determine where your focus needs to be in terms of measuring performance. Examples are:
* Product Cost
* Perceived Value
* Quality of Product
* Quality of Service
* Cycle times
* Fulfillment and Delivery Cycle Time
Next, take a look at your financial cues. Examine your financial measures and break them down to measure the performance of each of your business processes, and in so doing, expose the role they play in your overall profitability.
* Manufacture Costs
* Process Yield
* Process Time
* Fulfillment Process and Delivery Cycle
Using the Business Process Value Chain as a Guide
While each business has its own unique set of processes for creating value for customers, Kaplan and Norton, have identified a generic model that businesses can customise. This value chain is an excellent way to break down your business process model into manageable, measurable chunks.
The value chain is broken down into three main areas of concern.
1. Innovation
2. Operations
3. Post Sale Service
The Innovation Process
The innovation component of the value chain, includes the research of the emerging needs of your customers and the subsequent development of products and services to meet these needs.
Research and development is not usually considered ‘important’ by small business owners. But those businesses who embrace being efficient, effective and timely, at this stage, often find competitive advantage early in their life stages and go on to survive and thrive.
Possible measures include:
* Percentage of Sales from New Products
* Improved manufacturing process capabilities
* Time to develop next generation of products
* Break Even Point
The Operations Process
The operations process is the next step in the value chain. This is, traditionally, where organisations have focussed their performance measurement activities. This process focusses on efficient, consistent, and timely delivery of existing products and services.
Traditional measures include:
* Standard Costs
* Budgets
* Budget Variations
* Labour Efficiency
* Machine Efficiency
* Purchase Price Variations
* Product Quality
* Cycle Time
* Waste Management
* Energy efficiency
Post Sales Service
The post sales service process concentrates on those activities that occur after the sale or delivery of the product and service and usually include support, service and warranty processes.
Possible measures include:
* Number of complaints
* Speed of response
* Cost of Post Sales Services
In measuring your business’s performance you need to ensure that you have a balanced set of measures. Focussing on the traditional financial measures can skew your results and dramatically alter your business’s direction. The balanced scorecard approach, by Kaplan and Norton, is just one way to ensure that your business performance is a well balanced, well thought out, aligned approach which will put the reins of business firmly in your hands.
Examine your business today to determine how you start to effectively measure your performance from the business process perspective!