Craig G. Francis

Are Small Businesses Growing?

Are small businesses beginning to show growth again after the prolonged Recession? As with most questions, the answer depends on who you ask, how you ask it, and how you interpret the response. It also depends to some extent on how you qualify a “small” business.

A recent article in the Wall Street Journal (“Smaller Firms Still Hesitant to Hire”) would lead one to believe that small businesses are still struggling and, while doing some hiring, continue to hold off on expanding their work force. But a study done by business software and payroll company Intuit, and reported in SmallBusinessComputing.com (“Intuit Study: Small Businesses Are Hiring”), suggests just the opposite. So just where does the truth lie?

The Wall Street Journal article points out that smaller businesses (with 500 or fewer employees) did add 91,000 jobs in November, the most in one month in the last three years, but added that the rate was still smaller than during pre-recession years. Businesses are still taking a wait-and-see attitude to the overall direction of the economy, as can be seen by the fact that 2010 still shows only an average net monthly job gain of 35,000. This is in contrast to an average net monthly gain of 143,000 jobs in 2006 and 73,000 in 2007. Some of the reasons the Journal gives for continuing reluctance to hire are “pending tax legislation, the ongoing credit crunch, and changes that owners made during the recession to stay afloat.” Even those companies that showed growth this year are slow to hire because of questions about future decisions by Congress.

The Intuit report, in contrast, shows some good news on the hiring front. However there are some major differences in the sources of data. For one thing the Intuit Small Business Employment Index is based on data from companies that number only 20 or fewer employees. While the reported job growth of approximately 49,000 new hires sounds good, it is based on growth of 0.24% as reported by 59,000 companies that use Intuit’s business services. Even Intuit’s economist Susan Woodward admits that the companies using the service are growing faster than the average small business. The report also indicates that those small businesses are paying employees less on average than in October, with average monthly pay dropping from $2,600 to $2,592 in November.

What this seems to mean is that, while some businesses are moving forward and hiring some new employees, most companies are still sitting on the sidelines until they have a better idea of where the economy is going. The current haggling over the proposed deal between President Obama and Congress is not going to help this situation, even if legislation is passed in time to preserve the current tax rates. The economy is not going to turn around until businesses begin to hire in real numbers, and that is unlikely to happen while we continue to have the overall uncertainty about Washington’s direction regarding taxes in all forms. The time has come for politicians to get off their soapboxes and do what is needed to repair the economy, not try to make political points with narrow special interests.

Craig G. Francis is the owner of Francis Financial and The SBA Loan Store. He has been a top producer of SBA Loans since 1981, and has worked with Dun & Bradstreet and Bank of Commerce. Craig Francis has the expertise to steer clients through the often confusing rules and regulations associated with SBA Loans, having helped over 2,000 businesses acquire over a billion dollars in loans. He can be contacted throughCraigGFrancis.com, SBALoanStore.com, on LinkedIn, or at 888-666-9722.

A Close Look at the Tax Deal

I have read the particulars of the tax break deal between President Obama and the Congress, and have several thoughts on the situation.  

First, something is better than nothing; having said that, we have only 2 years to work with the present tax laws. This is too short a time period for businesses to make long-term plans.  Businesses work from a position of certainty wherever they can find it. Products, regulations, employee costs, lines of credit, marketplaces and consumer preferences must remain somewhat the same for a period of at least 5 years before a business owner can even begin to  realize a profit, much less expect a return on investment. Most hard assets have an economic life span of 5 years. If tax laws change within an incredibly short two year time period, this creates harsh pressure on the business owner in planning and forecasting anything that reasonably presents a return on investment to the owner and shareholders.

When an entrepreneur invests $500,000 into a business, and that represents his or her lifetime of savings plus a loan to back up the investment, the business must have certainty as to the directions of the economic winds. All tax increases have a negative impact on a business since they are a drain on resources. The unintended partner - called the TAX MAN - will suck the life substance from a business with no thought to its effects. Taxes are easily the largest cost to a business and are generally outside the control of the business owner. Hence my concern of the tax break horizon

If an entrepreneur looks out over the business landscape and sees the looming impact of a potential tax increase of 30-100% on income, capital gains and other taxable revenue sources, this will most certainty give the owner pause as to how much of his substance he invests into this uncertain environment. And what is even more important than the effect on one isolated business owner, the US business economy does not operate in a vacuum. Taxes ripple through the economy from the lowest level consumer to the largest business. This drain easily becomes a hemorrhage to the economy, crushing businesses as certainly as any natural disaster.

Therefore, the decision of the president to extend the present tax rates is little more than a craven attempt to please all portions of his constituency and ends up doing little to help the business owner. Of course, this is all that can be expected from a naive, untested political animal who never had to write a payroll check in his life. He was trapped by the new Congressional profile and has done little more than put a poison pill into the profile of taxes in the near future

The fact that the estate tax is back is just a bone thrown to his pack of collectivist jackwagons.   The government steals 50% of your substance for every year of your productive life span and then tells you that you have to disgorge half of your remaining savings as a reward for 40 years of thrift - a reward for doing something that all of us will do eventually, which is going on to your great reward.

And then there is the additional 13 months of unemployment benefits going to the newly minted Mooch Class of unemployeds who are living off the government largess. So what is fair to unemployeds? Five years of unemployment payments? Ten years?  A lifetime of unemployment compensation?  You can make more off unemployment than Social Security.

But this is a subject for another essay.

Craig G. Francis is the owner of Francis Financial and The SBA Loan Store. He has been a top producer of SBA Loans since 1981, and has worked with Dun & Bradstreet and Bank of Commerce. Craig Francis has the expertise to steer clients through the often confusing rules and regulations associated with SBA Loans, having helped over 2,000 businesses acquire over a billion dollars in loans. He can be contacted throughCraigGFrancis.com, SBALoanStore.com, on LinkedIn, or at 888-666-9722.

Reviewing the New Tax Deal

Much is being made on both sides of the debate over President Obama’s deal with Congress to extend the Bush-era tax cuts for another two years in exchange for extending unemployment benefits, plus all of the side issues involved. Depending on which ear you listen out of, this could mean that the President is backing down on his pledge to “soak the rich” with increased taxes, or it could mean that the Republicans are backing down on their pledge to cut government spending. Or it could mean all or none of the above. So what are some of those “in the know” saying about the plan?

An article from The Heritage Foundation sees the deal as “a step in the right direction for the struggling American Economy,” but also sees problems that will need to be dealt with in the future. Among the more critical issues is the decision to allow the “death tax” - the estate tax - to return, albeit at a lower rate than Obama wanted. Beyond the idea of taxing money that has already been taxed at least once before, The Heritage Foundation argues that this tax will continue to stifle investments and job creation, two elements greatly needed to turn the economy around. The Foundation also disagrees with the wisdom of only temporarily extending tax rates, arguing that not making them permanent will discourage savings and investment because of the lingering uncertainty of what will happen in 2012. Additionally, the extension of jobless benefits without identifying a funding source adds to worries about the deficit and future tax calls.

On another side of the debate, the New York Times devoted several articles and opinion pieces to the subject. Predictably, most of the pieces look at the agreement from a decidedly liberal point of view, and some even dismissed it as a failure. In an opinion piece on Monday, David Leonhardt suggested the deal would benefit the economy and increase job production and hints that it is, in effect, a back-door stimulus bill. He cites liberal and liberal-leaning economists who feel the plan will result in a positive outcome for the economy. In contrast, Catherine Rampell argues that the deal will actually be less effective in producing jobs, based on estimates by the liberal Center for American Progress.

Finally, USAToday writers John Waggoner and Paul Davidson suggest that the deal will be good for the economy in as much as it will prevent the slide back into deeper recession and could “give the recovery the jolt it needs to become self sustaining.” The article quotes several economists with varying views on the possible results. Mark Zandi of Moody’s Analytics now predicts a growth in GDP of 4% for 2011, in large part due to the results of the deal. In contrast, Ken Goldstein of the Conference Board disagrees with the 4% prediction and David Wyss of Standard and Poor’s sees the continuing multi-trillion dollar deficit as a bigger drag on the economy than this deal can balance out.

So where does that leave us? Well, first of all this “deal” is not yet a done deal and many things could still go wrong. However, it is unlikely that either party wants to be seen as the reason tax rates jump in the middle of a recession, which argues toward a final agreement soon. What the final results of the agreement will be will not be known for some time. What is known is that a recession, although difficult, can be an excellent time for risk takers who can also plan out their strategies. If you are looking to start a business, get some good advice from someone who has done it before. If you are looking to finance your business, contact someone who has the experience to give you straight answers. With over 30 years in the field, I can provide you with the straight talk you need and deserve to move ahead. Contact me and we can set up time to discuss your project. Plus you will receive two complementary reports.

Craig G. Francis is the owner of Francis Financial and The SBA Loan Store. He has been a top producer of SBA Loans since 1981, and has worked with Dun & Bradstreet and Bank of Commerce. Craig Francis has the expertise to steer clients through the often confusing rules and regulations associated with SBA Loans, having helped over 2,000 businesses acquire over a billion dollars in loans. He can be contacted throughCraigGFrancis.com, SBALoanStore.com, on LinkedIn, or at 888-666-9722