Let’s start at the beginning. The general rule of thumb is that a small business is a business that has no more than 500 employees. That would be 96% of all employer establishments according to the latest information on the Internet. Although the numbers are stale (the 2007 census), they are stable — I’ve watched these numbers for the last 8 years.

Of course, it’s good for the children. HELP is good because it HELPS a lot of voters.

The real definition of ‘small business’ is any business that can get an SBA loan. The new job act increased the eligibility requirements by raising the maximum annual sales and capitalization limits for ‘small businesses’. The rules aren’t simple: different types of businesses have different upper limits. A recent Wall Street Journal article summarized the changes and gave several examples. Architectural firms making up to $4.5 million were eligible for loans before, now the upper limit is $7 million. Private companies having up to 500 investors were eligible, now the limit is 2,000 investors.

17% of small businesses make less than $100,000/year. 43% make between $100,000 and $1 million/year. 17% make between $1 and $7.5 million.

Now, a medium-sized business is ‘small business’ so almost 78% of all businesses eligible for ‘small business’ loans. Did they raise the size of the loan pool? Humm, must have missed it? OK, terrific, now we are competing with the bigger guys for the same amount of money!

Thanks soooo much!

‘New’? GE and IBM started using these systems in the 1960s. The systems are huge. They’re complicated and expensive: they integrate finance, manufacturing, procurement, customer service and other business functions to reduce redundancy and improve accuracy and efficiency. I worked at Pitney Bowes during the transition to SAP and it took years to accomplish.

Here’s the work flow: gather data, make a decision based on the data, measure the effect of the decision and then use the results to make a better decision the next time. This work flow requires planning, measuring activities, gathering data from multiple sources and reducing that data to useful information.

So, what’s ‘new’ about business intelligence? Measuring performance is not new but the supporting technology is. First, it’s cheaper. A transition to SAP can cost millions and that’s way out of reach for nearly all small businesses. Desktop software is in our price range; however, any one package has a single function. The exception is Microsoft Office and it’s everywhere.

The first measurement for a small business is profit, the bottom line of an income statement. Am I making any money? We all make money on the margins – that’s the money left over after everyone else gets paid. Wal-Mart, one of the world’s largest companies, has a 3% margin. This level of precision requires very sophisticated technology.

Bookkeeping software is a logical starting point for gathering business intelligence. Intuit is qualifying value-added vendors that support/use financial information out of QuickBooks. The technology is called SaaS, Software as a Service. Much of the functionality is ‘in the cloud’, that is, it’s web-based. Examples include file hosting/access, planning tools, shopping carts (an E-commerce store front), inventory management (for retail or manufacturing), CRM (Customer Relationship Management) and many other services.

These products are affordable. QuickBooks prices begin at $150 – $200 with most people renewing every 2 – 3 years. Cloud products have usage fees starting at around $50/month and increasing with usage profiles (numbers of users and more connect time) for hosting/access, planning tools, CRM and so forth. Yearly fees start around $200/year for shopping carts. Inventory management system prices vary based on volume (number of items) and complexity.

My clients do one step at a time. We are all learning — I don’t sell anything I haven’t used in my business. I started with QuickBooks, of course. The next addition was a CRM system because my two most important measures are finances and my lead/closure ratio (average number of sales attempts before selling a service).

There are several measures for width with the most common being the width at the widest part of the foot when standing. The difference is about 3/16th of an inch between one width and the next one. Length is length but width is more complicated. Typical North American widths are A, B, C, D, E, EE, EEE, EEEE, F and G. North American variant sizes are 4A, 3A, 2A, A, B, C, D, E, 2E, 3E, 4E, 5E and 6E. The UK has four sizes D, E, R and G. And, of course, there is narrow, medium, regular and wide.

Suppose a shoe store carries 10 styles in two colors. There are 10 typical North American sizes plus 3 more for the North American variant. (I believe that the F width is the same as 5E and G is the same as 6E.) Inventories add up: there are 13 sizes for each style/color combination. 20 choices turn into a big stack of boxes. Some astute cobbler decided to reduce the inventory costs by making fewer sizes and the obvious place to cut sizes is to reduce the number of widths.

Most folks in my family have narrow feet. My father always had to order his shoes from Masons – he wore a size 12 AAAAA. His sister wore a size 7 AAAA. A company called Red Cross Shoes made her size. I can’t remember her wearing any other kind. I am the one with fat feet – I wore a size 8 AAA for many years.

I’ve never compromised on fit – shoes either fit or they don’t. Finding shoes that fit has always been an effort so I buy good quality shoes that last for years. Italian shoes are the best – they look almost new after wearing them for 20 years. Love those Ferragamos and Bruno Maglis!! They are gorgeous and comfortable.

The recent cost cutting exercise may have been good for manufactures and retailers but was very bad for me because AAA was one of the sizes they dropped. The shoes I bought in the 80s and 90s finally were wearing out and I couldn’t replace them. The AAAA shoes were too narrow and I get blisters when I wear AA shoes because my feet slide around when I put them on. Unfortunately, now I also need a size 8 ½ instead of a size 8 length. Unhappy feet aren’t any fun. Finally, about six months ago Vanelli and several others started making AAA widths again.

The foot surgeon said that bunions tend to be hereditary but there were no foot problems in my family. So I have the cobblers to thank for all that fun earlier in the year when both of my feet were in bandages. Now I am in sneakers and rehab. Fie upon the cobblers!!

Deregulation is a huge mistake. We started with one utility that generated and delivered power. That’s one business with one profit. Now, they say, let’s make power cheaper by adding ANOTHER company in the generation/delivery system. The second company will bring competition and lower costs to us consumers! Sure, it will.

Now, we get power from two companies, two CEOs, two separate staffs and two companies scrambling to make money. This can’t possibly be cheaper. But wait, you say, they are reducing my electric bill, they save me money!

How can that be? Well, the original utility makes less money so they reduce staff; that means fewer linemen, less maintenance, fewer arborists to trim the trees, fewer support staff. Here come the big storms. The new lean, mean staff struggles mightily to restore power. And it takes much, much longer than it did in the bad old days. So the utility brings in reinforcements; unfortunately, this takes even longer because the reinforcements are qualified to do the work but don’t know how the local company does things. They start rolling 2-3 days after arriving.

In the meantime, power delivery companies spring up everywhere. They build an IT system to monitor utility bills and enlist a sales army of small business owners who are looking for ‘passive’ income. This new sales force makes a commission on our electric bills. Of course they do, they made the sale and should be compensated. I know a dentist who sells electricity, a lawyer, a realtor, a stone mason. Now, selling electricity is a fund raising project for non-profits.

The politicians stand in front of the microphones and demand an answer. They have committee meetings and hearings. They conveniently forget that they are the cause of the problem.

In the next scene, the generating companies approach the legislature asking to raise their rates because they need to recover their payments to the reinforcements and the overtime for the local staff. It’s a huge expense so they got their rate increase.

How’s that for saving money?

We know the car is an expense so we don’t expect to sell it at a profit. However, the real estate agent, the loan company and the media say a house is an asset so we expect it to generate income. Unfortunately, your house is an expense, it’s not an asset because it costs money and doesn’t generate enough income to pay the monthly mortgage, the repairs and  maintenance.

Mortgage brokers say home owners make money because interest is tax deductible.  Actually, mortgage deductions depend on the owner’s marginal income tax rate. There is no interest deduction for some income brackets. For others, the deduction is a PERCENTAGE of the mortgage INTEREST. (At most we can deduct about one-third of the interest.)

Businesses invest in assets to make money. Tradesmen, for example, have trucks or vans for their tools, supplies and spare parts. These trucks are investments – the contents help optimize workflow on the job. Trucks cost money but the tradesmen make more money with the trucks than without them.

Suppose a real estate agent owns commercial property. His office could be on that property and he can rent the rest of the space out to make money. His wants the rent income to be greater than the cost of his loan payments and maintenance/repair expenses. This is an asset because it pays the expenses and can generate income. Furthermore, commercial real estate expenses are deductible as business expenses.

Ok. So a happy home-owner can sell the house for more than it cost. In scene two, at tax time, they list the purchase price, upkeep, improvements and so forth. And, guess what? They had little or no capital gains on the sale (or maybe even a loss!) Furthermore, that little exercise didn’t include mortgage interest because they already ‘claimed’ that as a yearly tax deduction.

Houses generate expenses and may produce a profit at sale but do not produce income. Rental properties produce an income stream along the way and a profit at sale if the rental history is good.

So what about Barney Frank? Does home ownership stabilize neighborhoods? The sale price of a house depends on the house and its neighborhood. That can be a double-edge sword in a neighborhood with high foreclosure rates.  Owning a house does not make sense for everybody. It’s expensive and it can reduce flexibility.

Home is a state of mind: home can also be a rental, an apartment or a trailer. A home is not for making money: it’s for living.

Before Biz 4 the Rest of Us, I was an architect of life-critical systems for defense and energy projects. The systems could not go down so part of my job was finding potential failure points and working around them. I applied my background to Biz because we need to keep running since our services are critical to our customers.

Let’s start with the pre-game show. Disaster planning is all about building viable alternatives and periodically verifying that they work. Our critical areas are customer files, my computer and the telephone. So first, everything has a backup. Most backups are periodic (hourly, daily or weekly) but some are hot backups — that is, they are always in sync with source data.

1. First, protect customer data! These data are ‘in the cloud’. Data are available from anywhere and the cloud service backs it up.
2. The backup for the desktop is a laptop.
3. There is a remote backup service for desktop data. I also do a weekly redundant backup to jump drives for business critical data like QuickBooks and Act! (Act! is my contact database.)
4. Power backup for the office computers is a UPS that protects the computers from power transients and provides power for up to 2 hours.
5. The backup for the office phones is my Blackberry. Voice over IP is cheaper but I use a land-line for the office phones because land-lines have their own power source and don’t require an ISP (Internet Service Provider).
6. The Blackberry is also a hot backup for my contact list.

And the list goes on and on. All set, right? Wrong! I forgot the obvious: no electricity and that means no Internet.

No power, no Internet and a critical job to do. So the game begins. Laptop on shoulder, I ventured out seeking a power source and the Internet. Searching for ‘free Wi-Fi’ meant navigating around felled trees and power lines. Others did the same thing: every place with ‘free Wi-Fi’ was sea of laptops. The powers that be (by the way, nobody knew who THEY were!) decided that the Trumbull library was a very low priority so that left Starbucks, Panera Bread, Duchess and an assortment of coffee shops with very long waiting lines. I wondered about that – the politicians were next door to the library and THEY had power. Strange –I believe some critical thought would have been more productive during a disaster!

After a day of frustration, I picked up my email a coffee shop and saw a chamber notice. The Greater Valley Chamber of Commerce offered free Wi-Fi and office space to members. I met my deadline working in a spare office at the Chamber. Biz was portable: I had the laptop, access to customer data and my Blackberry. I thanked them profusely and often. Topped it off with a deep dish apple pie.

Now for the post-game show: where are the vulnerabilities? What can we do better?

1. Candles are a poor light source so I need a Colman lantern. It’s boring being at home at night in the dark (I’m not married.)
2. Sent my portable generator to the beauty shop. Last maintenance was a long time ago and I didn’t feel comfortable turning it on.
3. I had not tested the desktop back-up service. I wanted to retrieve a desktop file on to my laptop. Needless to say, the phones at the back-up service tied up for hours. I gave that up and hoped for the best.
4. Other vendor records slipped through the crack. I have put critical information such as contact numbers, etc. on paper in a special notebook.
5. Now Method is backing up critical data for Biz. Will be testing it soon on my Blackberry.
6. All that’s left is an another alternative power source. Humm, perhaps two gerbils on an exercise wheel! Or maybe four gerbils in two cages with two exercise wheels. .  .  .  .

The supply side is too high. Numbers in the 3-4% range are good (for re-elections) and high numbers are bad. The obvious political solution is to ‘interpret’ the numbers.    I’m a fan of shadow statistics at http://www.shadowstats.com/. Williams reports several unemployment rates ranging from 9.1% to 22.3% depending on whom you count and don’t count.  Our politicians (and the media) give us the lowest rate, the percentage of people not working who have looked for work in the last four weeks. The higher number includes discouraged, marginally attached and part-time workers who want full-time work. The highest unemployment rate of 23.6% occurred during the Great Depression. The Depression’s 23.6% number represents the same categories of workers as the Shadow Statistics’ 22.3%. Politicians are savvier now:  Spin, spin, spin those numbers!

And the media help. See the unemployed worker! See the big, bad greedy company hoarding money instead of hiring the worker! Shame, shame, shame! So what is going on??  It’s called a reality check.  Every business has a break-even point and that number is a combination of the profit margins and sales volume.  Companies hire when sales volume goes up and they shed workers when sales volumes drop. Payroll is a long-term commitment funded with an income stream (that means money continues to flow in) from sales, not from money already sitting in the checking account. Payroll is the biggest expense for most businesses so that big, fat checking account won’t last very long.

Employment is a lagging indicator because sales have to go up first. Sales come from people spending money. Who’s buying? Our economic engine is consumer spending: 70-80% of what we buy is made in America. (This ratio is true for most countries –people tend to buy locally.) We had a party: home equity loans and credit cards fueled spending for a while.  We were party animals, today we are party vegetables — it’s payback time. Unfortunately, our trading partners had a party as well.

This is not a quick fix.

The children in Washington have been in the news for weeks and it’s been tedious. They whine, blame, bicker and snarl. The other guy is unfair, the other guy is inflexible and, of course, other guy isn’t a good American. In their defense, they did get the job done: it was the equivalent of reducing drunk driving by raising the legal alcohol limit. Sometimes being an American is a good thing, sometimes it isn’t.

Wikipedia weighs in: ‘Governance relates to the decisions that define expectations, grant power or verify performance.’ The whining, blaming, bickering and snarling didn’t happen overnight, the children came to this point a step at a time. It’s more than Democrats vs. the Republicans: it’s a culture. We, the electorate, share the blame with the children. We put them in office. We don’t expect much of our politicians and that’s exactly what we got.  I despair that many of them will survive the next election.

Once upon a time, we issued 1099s to independent contractors (the workers who did not receive W-2s). Last year, Congress (in its wisdom) decided that we must file 1099s for all payments we make to vendors. Starting this year, AmEx will be reporting the INCOME they pass through to my business. Somehow, the definition of ‘vendor’ has changed. Under the law, I should be sending AmEx a 1099 because I pay them credit card fees.

Yesterday’s thrill was a strange envelope from AmEx — ACTION REQUIRED: IMPORTANT TAX INFORMATION ENCLOSED. Apparently, my business tax ID had a typo. Unless the tax ID on my AmEx merchant account agrees with the tax ID on file with the IRS, AmEx will withhold 28% of all credit card payments I receive from clients. It’s amazing! My credit card vendor is a tax collector for the IRS.

McNeal Enterprises is an LLC. We declare business income on Schedule C every year. Some customers paid by check, some by cash and some by credit card. My clients send me a 1099 because I am their vendor. Now the IRS will get the AmEx 1099 that will include funds reported by another one of my customers. It’s highly unlikely that there will be 1099s for all my income because we don’t file 1099s for vendors earning less than $600 in a year. And, all this goes without saying; we are guilty until proven innocent.

It looks like Congress believes we business owners are making way too much money. This is quite silly: over 80% of small business owners make less than $25,000/year. Now there’s a target of opportunity!!

Thinking like a congressman, what an adventure! Oh yes, I remember the explanation last year – ‘the Senate did it.’

I entered the computer industry as a developer.  We write the software that implements the rule books.  Payroll is uniform enough for automation. Sales taxes present two problems: where does the sale happen and what is the tax? Let’s pretend we are Amazon.com and look at some of the rules.

1. Some goods and services have special sales tax rates. Every state is different.
2. Some states have a tax-free day(s)/ week(s).  When and for what?
3. Some states don’t collect sales taxes from out-of-state residents.
4. Some areas have multiple sales taxes; that is, there is a state sales tax, a county sales tax, a city sales tax and a district sales tax (or some combination of these). There is practically an industry working on this.
5. Non-profits do not pay sales taxes on items they buy and do not charge sales taxes on goods and services they sell. There are over 1.5 million non-profits. Buyers pay sales taxes; however, these rules apply to both the buyer and the seller. Figure that out.

Multiply these rules by 50 states and thousands of towns.  Intuit (they sell QuickBooks and TurboTax) charges sales tax; however, their products are similar. Amazon sells lots of different stuff so things are much more complicated. And, of course, the sale happens on the Internet. Where exactly? It’s probably on a computer in a server farm somewhere east of the sun and west of the moon!

A similar skirmish concerned mail order catalogs in 1992. The Supreme Court said a state could not collect sales taxes unless there is a relationship (a nexus) between the merchant and the state. The lawyers interpreted this to mean that a business was physically present in the same state as the buyer. Amazon pays taxes in states where it has major distribution centers. The other 45 states are searching for a loophole!

No worries, now the politicians and lawyers are helping out. In the real world, I can go on vacation and buy something in another state. I pay the sales tax when and where I buy. Now, is the Internet sale location at Amazon’s corporate headquarters, at one of the distribution centers or at the address on the buyer’s credit card? Amazon’s policy is to charges sales tax when the ship to address is in one of the five states with a distribution center. Theoretically,  several states can claim the purchase and they all need the money.

Believe it or not, selling a product is the simple case. What about advertising? Let’s say I do a web search for a garden hose. The search page will most likely have an ad in the right column about buying books on gardens at Amazon.com. Advertising is a service so should there be a sales tax on pay-per-click? Does Amazon collect a tax if someone in Fiji clicks on my ad? Does Fiji get the sales tax? Affiliates will pay income taxes on the referral fee. Remember the old routine ‘Who’s on first, what’s on second, .. . . ‘? This is a ‘cloud’ activity and ‘the cloud’ doesn’t do geography.

The Governor of Illinois claims that the location of an affiliate constitutes a physical presence. They make money with pay-for-click (that is, a referral) to the Amazon.com website.  Illinois needs the money so I think he means Illinois can collect sales taxes on all of Amazon’s sales to residents of Illinois if there is affiliate in Illinois. Isn’t he clever?

Connecticut has to balance the budget every year. Our ‘business friendly’ state budget says we will raise $18.8 million in sales taxes from online retailers. Last week Amazon.com and Overstock.com severed all relationships with their Connecticut affiliates. ‘Business friendly ‘ – tell that to the small businesses who just took one to the gut (or worse!).  Collections should be interesting.