Month: May 2017

Rainy Day Funds: Alaska’s Experience and the Permanent Fund

Most states in the nation have adopted some form of a Rainy Day Fund (RDF) to mitigate downturns in the economy. RDF’s are established to help governments stabilize operating budgets by saving in boom times and using the RDF savings to cover expenses during recessions. The resource-based economy of the State of Alaska has a history of following this sort of a boom and bust cycle. In 1976, the State of Alaska began making payments into the Alaska Permanent Fund in part to save for a rainy day. It would be an understatement to say the fund could now to fund any state fiscal gap. Jackstadt and Lee point out in their paper, Economic Sustainability: The Sad Case of Alaska, that Alaska was one of the few states that could have produced a permanently sustainable economy. The political means to develop this type of economy was never up for the task. It also demonstrates the danger associated with depending on politics to implement long-term economic policy.

Many scholars point out that being fiscally conservative dictates saving for a rainy day when surplus revenues are available. Political conservatives are likely to rebate taxes in situations were there are surpluses to the treasury. Establishment of mechanisms for funding appropriations to a RDF will ensure their success. RDF’s are a double-edged sword for many states. There needs to be political support to establish a RDF and political pressure to spend from the fund increases as the fund grows. States need to judge their vulnerability to recession and how their revenue base is dependant on the economic cycle.

The generally accepted norm for a RDF is 5% of the annual general fund expenditures of a state. Funding formulas that are not constitutionally mandated will allow state legislatures to ignore required appropriations. There are many ways to determine funding levels for RDF’s. Suggestions include spending 99% of the approved budget and retaining 1% to cover the cash reserve and emergencies. States can skim off excess revenue that occur during the year, taking those funds that are beyond forecast revenue into the RDF. One state gauges deposits to its fund based on the growth of personal income. Taxes collected on personal income beyond 2.5% in one year go to the RDF. Literature suggests revenue diverted to a fund will dampen unsustainable growth.

States vary widely on requirements for tapping their RDFs. One method is the use of super majority vote of the legislature. Virginia allows use of its RDF when projected revenues drop below 2% of estimate. The government is then only allowed to recoup half of the shortfall. The purpose of most RDFs is to cushion short-term drops in revenue and not to attempt to recession-proof an economy. Tight constrictions on the use of RDF resources can also mean the loss of other economic opportunities. Virginia, Alaska, Colorado, Delaware, Louisiana, Oklahoma, South Carolina and Texas have instituted constitutional protections to protect the RFDs against all but true emergencies.

Knight and Levinson (1999) summarize the impacts of RDFs on state fund balances. RDF balances boost overall savings. States that have successful RDF programs also have higher rates of savings. RDF balances seem to increase total saving on a dollar-for-dollar basis. States with fully funded RDFs experience less volatile fiscal cycles. Budget stabilization funds have real impacts on state fiscal policy and economic wellbeing

Types of Business Budgets: Understanding Volume, Operating and Capital Forecasts

Businesses need to be able to forecast the future to appropriately allocate resources. Four separate areas need to be budgeted for accurate measurements.

Budgets are an important part of strategy for a company. A business needs accounting to know where it has been, but forecasting is necessary to know the direction it is going.

Volume Budgets

The beginning step in budgeting should be related to volume. Every business needs to have some idea how much in the way of goods or services they expect to sell.

A manufacturer needs to know how many widgets they expect to produce, and in the same way, a hotel has to have some idea how many room nights they will sell.

Expenses and revenues will both follow from the expected volume, so every attempt should be made to have an accurate volume budget. It is not enough to simply take last year’s amount.

That may be an effective starting point, but consideration needs to be made on things that have changed. Is there a new competitor that will take away business, or can this company expand to new markets?

Revenue Budgets

The second component is the revenue budget. Volume helps determine the amount of revenue available, but another component is what price can be charged and received for each items.

In the case of the hotel, the room nights may be budgeted at 3,000, but what price will they fetch? Will each night be the same, or vary based on the day of the week, or holiday periods?

Expense Budgets

Once the revenue is derived, the next step is to calculate the projected expenses. Expenses cannot be allowed to exceed the amount necessary to achieve the expected profit.

If expenses are greater than the revenue generated, many companies inflate the revenue expected, rather than make the hard choices to reduce expenses. This can be short sighted, since revenue is often out of a company’s control, but expenses generally can be achieved, though it may be painful.

Capital Budgeting

The three items above make up the operating budget. There is a separate category of capital expenses, that is, items that have a useful life of greater than one year.

Capital items are usually budgeted separately, mainly because they are higher cost. The funds available are not commingled, but sometimes capital purchases are curtailed due to operating budget shortfalls.

Operating budgets are usually annual, but capital budgets are often prepared for multiple years and adjusted each year has necessary. A good capital budget is an important part of a proper long-range plan.

You Need Professional Help – Find a Great Web Developer!

Web sites are becoming more and more important to all businesses each day. Many businesses, however, find building web sites very frustrating. This is for two reasons. First, most businesses are doing things that they have never done before with their sites. Second, many companies do not have the employees that they need, or do not have established relationships with experienced partners that can help them with their web development needs.

As a result of this situation, most web sites are full of major problems. You will find even find that this is the case with major sites by large corporations. Many of these sites are hard to use and unreliable.

How can a business avoid this? The best way is to have clear ideas for what you want to do with your site, and find the best people you can to help you with it. Here are some traits that you should look for when considering a candidate for a web development position, or when looking for an outside web consultant:

  • The candidate should understand and be interested in your business goals.

    This comes first, because you don’t want to be working with someone that doesn’t grasp your business and care about it like you do. For some companies, this will mean working with niche companies that specialize in your area, or looking for very specialized talent. This is also at the top because you shouldn’t look for help unless you know your goals for the site!

  • They should work with your choice of technology and complement your company’s skills.

    Every developer has tools that they are most comfortable working with. It is important that the people you choose work with tools that are compatible with your company’s. You will want to be able to control the site, and if you are dependant on your developer’s skills, you will have a major disadvantage.

  • Anyone you hire should bring new ideas to your project that work with your business plan.

    To be successful, your site must be fresh and you need to be as open to new ideas as you can. You must be able to react quickly to Internet trends, and be able to move to take advantage of them. Someone that can bring new ideas to your project can help you look at your site in ways you may not have thought about, and give you the flexibility that you will need to succeed.

Forget About the Shortage of IT Workers!

Attracting and retaining skilled IT (information technology) workers is becoming one of the key factors to many companies’ e-business success. If your business is like most, you are having trouble getting enough talented help to fill your positions. This means that that you may be delaying or even losing e-business opportunities.

The standard advice won’t work
Unfortunately, most companies are getting inadequate advice on how to solve their IT staffing problems. The standard advice is to hire people away from your competitors, and do everything you can retain your IT employees. For most companies, these tactics won’t do the trick. Why? Because your competitors are following the same exact advice. They are are hiring away your technology workers and will do their best to retain them.

Most companies look at this problem as a shortage of skilled workers, and attempt to solve that problem. Trying to solve the problem of too few workers usually is impossible, because there are just too few good people to go around. At best, this strategy will allow you to tread water.

Forget about the people shortage
Successful companies must look at the problem another way. Yes, there is a shortage of skilled IT people. But this also represents an excess of IT work. Companies need to look at the problem of eliminating some of this excess work. This may be the most important and effective strategy in combating the shortage of people.

At first glance, it may seem like it is impossible to eliminate your needs for computer people. Businesses are becoming more and more computerized and every day e-commerce becomes more important. How can one reduce the need for IT people in an environment like this?

10 Ways to Reduce Excess IT Work

  1. Improve your project efficiency
    There are several ways to reduce your need for more IT staff. One of the first things you should look at is the efficiency of your IT projects. About half of all IT projects fail to meet their goals, budget and schedule. Most of the time these projects fail because of business, not technological, issues. One of the reasons many IT projects fail is because they don’t start with clear business goals. Few projects can succeed without these goals. Make sure that any IT project you start on has clear business goals, and well-defined specifications on how the resulting system should work.

What is E-Business?

What is e-business?

This is a question that many people ask. Many other people have misconceptions about what e-business is.

E-business is not putting your catalog on the web, or even doing business online. Putting your catalog online is just using the web as another form of advertising. Doing business online is e-commerce, but isn’t necessarily e-business.

E-business is integrating Internet technology into your business. It is using Internet technology to do things that were not previously possible.

E-businesses…

  • Use the Internet throughout their business process, including purchasing, marketing and fulfillment
  • Utilize email as a primary method of communicating with their clients and suppliers.
  • Access all of their business information through the Internet or through intranets.
  • Use the Internet to automate work that was previously done manually, such as collecting information and entering it into databases, or answering customer requests.
  • Actively work to give customers and suppliers access to information within their systems, and also the ability to influence the workings of their company and systems. Examples of this are many. For example, a company like Ebay allows anyone to sell anything for any price on their site. Ebay doesn’t control the suppliers or consumers, but instead creates a place where buyers and sellers can work together effectively.
  • Take advantage of the unique qualities of the Internet for communication and interaction.
  • Automate anything and everything that can be automated, and focus their remaining resources on doing well those things that should not be automated..

This list is by no means comprehensive. Most businesses can’t do all of these things yet. As a result, most businesses are not yet e-businesses. It is clear that successful businesses in the future will be e-businesses.

Finally, e-business isn’t really something a company does. It is something a company becomes.

Some of the most insightful commentary about what an e-business is can be found at the Cluetrain site. The authors of the Cluetrain “manifesto” take a half-militant/half tongue-in-cheek view of what companies must do in order to succeed as e-businesses.

Small Business Owners Feel Pain, but Optimistic: Falling Revenues Precipitate Job Cuts

The steep decline of small business revenues are especially worrisome for the American economy, but small business owners remain optimistic with caution.

While Wall Street becomes one of the biggest headlines amid the dismal economy, Main Street, which ended last year with a lengthy list of troubles, is snubbed in the media nationwide.

Yet it is small businesses on “Main Street” that really drive the U.S. economy. As the recession deepens, it is those businesses — which traditionally have led the country out of recessions — that are feeling the pain and getting hit hard as big companies.

While large corporations have laid off mass numbers of employees over the past decade, small businesses — which politicians tout as the engine of U.S. economic growth — have generated 60% to 80% of the total new jobs annually.

Defined by the government as with 500 employees or fewer, small businesses represent 99% of all employer firms, according to the Small Business Administration. Compared with just under 19 million who work at large companies, they employ 50 million people and are the biggest source of non-government employment.

Small Business Revenues Drops

According to the Wells Fargo/Gallup Small Business Index, nearly half of the small business owners say their revenues decreased throughout 2008.

Elpida Kosmidis, owner of Super One Hour Cleaners said in an interview at her store that her revenue was down 50% by the end of 2008 compared to one year ago.

“All slow,” Kosmidis, who has operated the store for 26 years in Brighton, Mass. “It’s very tough… People don’t have money. Customers that used to come every week now come every month.”

According to a study by the National Association for the Self-Employed, 43% of self-employed individuals and micro-business owners said this is the worst economic downturn they have experienced.

The National Federation of Independent Business said the number of businesses reporting declining earnings trends outnumbered those with profits by 42 percentage points, the worst reading in its 35-year history of the survey. More than 25% of small business owners said they fear the recession threatens their survival. And one-third of the business owners said the recession has significantly affected their businesses.

Small Business Owners are Cautiously Optimistic

A survey by Microsoft Office Live Small Business and Elance Inc. found that 37% of small business owners worry about 2009, but that 60% said they believe it will be better than 2008. But despite the undercurrent of tenacious optimism, small-business owners remain cautious about the amount of time it will take for the country to recover from the tumultuous economy.

According to the Discover Small Business Watch, a monthly index of the nation’s 22 million businesses with five or fewer employees, only 23% anticipate that the recovery will take less than a year. Forty-two percent of owners think that economic recovery will take between 12 and 24 months, while 27% believe that it will take longer than two years

Government Small Business Funding for People with Disabilities

Small business money for persons with disability comes in the form of low interest loans, grants, business supplies, education and training. Eligibility to obtain funds or to receive preferential treatment is generally based on disability status of the small business owner. The federal government provides small business funding to people with disability through agencies and no for profits.

Small Business Low Interest Loans for People with Disabilities

The Small Business Administration uses various low rate loans to fund small businesses; including those owned by persons with disabilities. Eligible entrepreneurs can claim disability status to obtain preferential treatment from the SBA. In addition to low rate business loans, SBA provides education and training to entrepreneurs. The following are some examples for funding opportunities from the government through the SBA:

  • SBA 7(a) Loan Programs – This loan facility is available through authorized lenders. Loans under this program can be used for starting a small business, for expansion of an existing business or to purchase a business.
  • CAP Lines – These are lines of credit designed to meet short term small business needs. There are five different lines of credit under this SBA program; all can be designed to meet specific needs. The maximum loan maturity is five years, typically lines have shorter maturities.
  • SBA Patriot Express Loan Initiative – This assistance is for veterans of the armed forces and their qualifying spouses. The money can be used for staring or expanding a business owned by the veteran.
  • America Recovery Capital Loan Programs or ARC – This program has been designed to provide temporary funds to small businesses that are going through financial difficulties. The maximum amount of funding is $35,000 and only one loan is allowed per business.

SBA loans applications are available online at SBA.gov

Social Security Administration’s PASS Program for Persons with Disabilities

PASS or Plan to Achieve Self – Support is a program funded by the Social Security Administration. The program’s purpose is to help persons with disability gain self support through paid or self- employment. PASS money can be used to purchase supplies for starting a business, transportation, training and business equipments such as computers, cars and telephones.

For disabled individuals looking for self employment, PASS requires a business plan document. Help is available to prepare business goals and plans from SSA and non profits organizations involved with SSA. Applications for PASS are available online at SSA.gov/PASS.

Training Assistance for Small Business Owners with Disabilities

The government funds local non profit organizations that provide disabled individuals with training and development to start a small business. This includes technical, operations and marketing training as well as free business plans. These are examples of non profits providing training to small business owners:

  • The Job Accommodation Network, JAN, at askjan.org – This organization provides business resources and business plans software for business owners with disabilities.
  • Start Ups USA at startup.biz – provides self employment assistance, business plan writing and education on starting and operating a small business.
  • T-tap Training and Technical Assistance at t-tap.org – this organization is funded by the US Department of Labor to help persons with disabilities with online and offline local business training.

What Is Small Business Debt Consolidation? Options For Small Business Debt Management

Debt consolidation for small businesses involves a plan that allows for a positive outcome for both the business and its creditors.

Similar to debt consolidation programs that work with individuals, small business debt consolidation focuses on a plan that allows the business to satisfy its creditors without creating further problems. One way to begin debt consolidation for a small business is to use a company that specializes in debt management. This company negotiates with the creditors of the business to secure a more affordable payment option.

Another way to move toward small business debt consolidation is to work with a lender to secure a loan that pays off all of the financial obligations of the business. In exchange, the lender will provide the business with a repayment plan that allows the business to make one payment per month until the debt is paid in full. In many cases, the lender will send payments to each creditor on behalf of the business.

Advantages Of A Small Business Debt Consolidation Loan Plan

There are several advantages that are associated with a lending plan for small business debt consolidation. Because all of the current vendors to the business are paid in full, the business is no longer accruing interest on any outstanding balances.

If the business can secure a lower interest rate over all, the small business will save money over the long-term. In addition, having balances that are paid-in-full reflects positively on the business.

Disadvantages Of A Small Business Debt Consolidation Loan Plan

There are situations in which a small business debt consolidation plan may not advisable. If the interest rate paid to the vendors carries a low interest rate, the small business may end up paying more, depending on the rate of the loan.

In addition to losing money to interest rates, any new balances accrued with the vendor pose a risk of creating additional financial hardship for the company.

Other Small Business Debt Consolidation Options

In addition to working with a lender to consolidate small business debt into one payment, there are other options that may be attractive to business owners, such as business debt management.

In a business debt management relationship, a third party works as a mediator between the small business and its creditors. The mediator seeks to find repayment solutions that may stop interest from accruing, or find a repayment plan that the business can manage more easily. This approach is helpful in buying time for the small business to reorganize or generate additional income. A third party mediator can often help the small business restructure its budget into a more realistic financial plan.

Points To Consider For Small Business Debt Consolidation

Whenever a small business is looking to reduce or consolidate its debts with a third party, it’s important to consider other financial implications that may not be visible outright. Hiring a third party to negotiate or mediate new financial terms comes with an expense all of its own. Some examples of those debt management fees include processing fees or account management fees. When considering a small business debt management solution, it’s important that the total fees be weighed against the total benefit of the debt reduction.

There is never one right solution to a specific financial situation. While some plans may provide immediate financial relief, it is crucial that each small business look to the future and how that plan may impact the business in the long-term.