How Small Businesses Are Getting Squeezed

                                                

According to the Office Depot Small Business Index approximately 40% of small business owners have seen decreased profits this year or have not seen an increase in profits since last year. 

Many small businesses have had a harder time getting approved for business loans.  In some instances business loan limits have been reduced which prevents small business owners from getting additional work and makes it more difficult to pay employees and pay for equipment and supplies.  Small business owners have been forced to apply for business credit cards with higher interest rates.  

I renewed my business license this year and the cost increased by 62.5% with no warning.  I was shocked to see the price increase and called to verify.  The price had increased in January 2012 with no notification sent to business owners.  This seems like poor customer service. This is just one small example of the increased costs required to manage a small business.

Many invoices are paid 45 to 90 days or more after receipt for small businesses which makes it difficult when paying creditors, payroll and other business expenses.  An alternative is to seek non-traditional funding sources such as venture capitalists, angel investors or bank with credit unions.  

However, some credit unions have a cap on the amount of lending they can offer.  Small businesses employ approximately 50% of the private sector and lead in innovation of new products, services and technologies.  Lack of access to bank credit prevents small businesses from becoming innovative by developing new products or services or having resources to grow their business. 

Some small business owners try to offset costs by increasing their prices or selling more products and services but that is just a temporary solution.   Here are 9 tips to prevent getting squeezed.

1. Late fee.  Charge a late fee for unpaid invoices over 90 days late.  Offer discounts and incentives to customers who pay on time.
2. Plan B.  Look for additional ways to increase revenue to offset unpaid invoices and reduced access to credit.
3. Quit.  Fire customers who repeatedly pay invoices late or not at all.  Consider hiring a collection agency to collect on unpaid invoices for large amounts.
4. Sales.  Increase your marketing efforts.  Offer a referral or affiliate program to gain new sales.  Use free ways to advertise such as social media.
5. Service. Provide exceptional customer service.  This will ensure you retain customers and helps to gain new customers.
6. Think Outside. Think outside the box for inexpensive ways to gain new customers and gain exposure for the business.
7. Reinvent.  Revamp email messages, business plan or marketing plan, slogans, mottos, logos, business cards to show off new ideas, products and services.
8. Partner. Partner with local social and civic organizations or other businesses to offer special to members and employees.
9. Verify.  Verify all orders, inventory, customer service levels, etc. to ensure you are providing 100% to customers and suppliers at all times.

How to Establish Business Credit

Two-thirds of new businesses survive at least two years, and 44% percent survive at least four years. Thirty-three percent of self-made millionaires are entrepreneurs. Now is a great time for entrepreneurs to start a business.

It is important to establish business credit when you are running a business because when you apply for business loans or credit, companies will look at your personal credit and your business credit profile to determine: if you will be approved, the amount approved, the terms of the approval and if you will have to give a personal guarantee. It takes about 6-9 months to establish business credit and up to 2 years to establish good to excellent business credit.

When you separate your business and personal credit it makes it easier to file your taxes. Opening a business credit card account provides a professional image for your company and ensures other businesses perceive you as a legitimate company.

There are only a few payments options available when making business transactions such as credit card, PayPal, debit card and checks. Business credit cards provide higher limits and higher rewards than personal credit cards.

Before applying for business credit and to ensure you are approved you will need: two years of financial statements and tax returns, one bank reference, and a good relationship with your local bank. You can do this by opening a CD for 3-6 months. Once it matures take the money out and open a small personal loan. Pay the loan back on time or before the loan end date. This helps establish a relationship with the bank. Now the bank will be more willing to approve you for a business loan or business credit card.

Here are 6 tips to establish business credit:
1. Open a business credit card or trade line with your business tax id to keep your personal credit and business credit separate such as Staples, Office Depot, UPS, FedEx, Office Max, Exxon, etc. You will need 5 trade references reporting to Dunn & Bradstreet.

2. You can apply for a business credit card with your SSN. However, if you make a late payment your personal credit is damaged.

3. Establish a business profile with Dunn & Bradstreet and get a Paydex score (business credit score).

4. Get a credit card with no personal guarantee. This ensures that if the business fails you are not responsible for any debt owed.

5. Get a secured business credit card.

6. Setup business credit reports with at least 3 agencies (Experian, Equifax, Dunn & Bradstreet, TransUnion, etc.)