Credit crunch hit small businesses

Around 65% of domestic banks say they have tightened their lending standards for commercial and industrial loans to small firms over the past three months, according to the July 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices, released in August from the Federal Reserve System. That's up sharply from the 50% of banks reporting tighter credit in the April edition of the quarterly survey.

Buffett sees economy weak until 2009

By Jonathan Stempel

Warren Buffett said the economy is still in a recession and unlikely to improve before 2009 but that stocks appear better valued than a year ago.

The billionaire investor also said there is a "reasonable chance" shareholders of Fannie Mae (FNM.N) and Freddie Mac (FRE.N) may be wiped out in any government bailout of the mortgage financiers.

Speaking on Friday on CNBC television, Buffett said some housing-related businesses in his Berkshire Hathaway Inc (BRKa.N)(BRKb.N) conglomerate are struggling as the economy works off past excess in making credit available.

"You always find out who's been swimming naked when the tide goes out. We found out that Wall Street has been kind of a nudist beach," said Buffett, who in March was called the world's richest person by Forbes magazine.

He also said Federal Reserve Chairman Ben Bernanke has no "magic wand" to boost an economy facing weak growth prospects, mounting inflation and deteriorating credit. "In my judgment it won't be any better five months from now," he said.

Buffett nevertheless said U.S. stocks are broadly "more attractive" than a year ago. He also said Berkshire has completely unwound a once $21 billion bet against the U.S. dollar, helping boost the greenback in Friday morning trade.

In May, Buffett said Berkshire still had a stake in one currency, the Brazilian real.

The Omaha, Nebraska-based company bought $3.98 billion of stock in other companies in the second quarter, and Buffett said it has added in recent months to its big stake in either American Express Co (AXP.N) or Wells Fargo & Co (WFC.N), but did not say which one.

Shares of both rose in early trading, as did major stock indexes.

Buffett reiterated his support for Barack Obama, the presumptive Democratic nominee, in November's U.S. presidential election, but admires Republican rival John McCain. "President Obama is going to have plenty on his plate in January," he said.

HOUSING EXPOSURE

Since 1965, Buffett has transformed Berkshire from a failing textile company into a $180 billion conglomerate.

Berkshire is best known for insurance holdings such as Geico and sells such products as ice cream and underwear.

But its 76 businesses also include housing-related units Acme bricks, Clayton manufactured homes, Shaw carpeting and the Home Services of America Inc real estate brokerage.

"What we're seeing in business, in our retail businesses, or anything having to do with housing, is even a further slowing down in June and July, both in terms of credit experience where people first got in trouble with house payments, and now credit card payments," Buffett said.

Some economists say a recession occurs when the economy contracts for two straight quarters. Buffett said it occurs when people are doing less well than before.

In morning trading on the New York Stock Exchange, Berkshire Class A shares rose $1,650 to $116,650, and its Class B shares rose $50 to $3,885. American Express shares rose $1.42 to $38.43, Wells Fargo rose 99 cents to $29.43.

The CNBC interview was tied to the national roll-out of the documentary "I.O.U.S.A.," which argues that the nation might face economic disaster if it doesn't curtail mounting debt.

Buffett is interviewed in the movie.

"THE GAME IS OVER"

Fannie and Freddie shares have plummeted as speculation grows about a government bailout of the companies, which own or guarantee almost half of U.S. mortgages. Shares of both have fallen more than 90 percent in the last year.

Buffett called them "too big to fail" and said "the game is over" for them as independent companies. "In a practical sense, as institutions, they don't have any net worth," he said.

Buffett said he has not been approached to assist in any bailout, which he said would be too big to come from the private sector. Though he said "nothing is going to happen" to investors in Fannie's and Freddie's insured mortgages or debt, but "the equity and preferred stock is another question."

Berkshire is trying to reduce the $31.16 billion of cash on its balance sheet, and Buffett said he is being approached by a growing number of "distressed" companies rather than viable takeover candidates.

Buffett said he recently tried to invest $500 million in a Chinese stock he declined to name, but was turned down.

He also said he erred in selling 61 percent of Berkshire's stake in Anheuser-Busch Cos (BUD.N) for $61 to $62 per share, ahead of the U.S. brewer's July agreement to be taken over by Belgium's InBev NV (INTB.BR) for $70 per share.

"It was about valuation and whether I thought the deal would go through," Buffett said. "In retrospect, I was wrong to decide to partially sell."

(Additional reporting by Euan Rocha and Vivianne Rodrigues; Editing by Steve Orlofsky/Jeffrey Benkoe/Daniel Trotta)

Resource conservation

Water Conservation

1. Conduct an indoor/outdoor water usage assessment.

2. Implement all applicable simple conservation measures.

3. Implement industry specific water conservation measures.

Energy Conservation

1. Have your local energy utility or an energy service company conduct a commercial energy assessment.

2. Perform regular maintenance on heating, ventilation and air conditioning (HVAC) system.

3. Implement alternative technologies and behavioral changes.

Monthly cash flow calculations

Starting cash -- This is your starting balance at the beginning of each month.

Cash in -- All cash received during the month, including sales, paid receivables, interest or cash from sales of assets or stock.

Cash out -- Includes all fixed and variable expenses.

Ending cash -- This is your ending balance. Add starting cash to cash in for total cash, then subtract cash out.


*Source: www.bankrate.com

IRS Audit red flags

According to CNNMoney.com

• No profit.
• Very low revenues.
• Sloppy handwritten business return.
• Return has blank sections.
• Take unlikely deduction (plumbing supply owner claiming too many business trips).
• Outsized and excessive deductions.
• Too much fun, such as excessive travel, car, entertainment, and cell phone expenses.
• As part of its small-business crackdown, the IRS is targeting sole proprietors. Schedule C filers with more than $100,000 in annual revenues were audited at a rate of 3.9% in 2006, up from 1.5% in 2000.
• Nice round numbers.

Small business inventory count

Pareto method

The Pareto method, derived from the Pareto principle, is to cycle count inventory by percentage of inventory value. This leads to the expensive items being counted most frequently.

This traditional approach may appeal to accountants by minimizing the variance in inventory value.

Cycle counting by usage

Cycle counting by usage states that items more frequently accessed should be counted more often, irrespective of value. Every time an employee adds or removes an item, there is a risk of introducing inventory variance. Logical inventory zones can be set up to distinguish items depending on how frequently they are touched. Volume consumed and volume transacted and volume moved are all ways of determining this.

ABC codes

When carrying out an ABC analysis, inventory items are valued (item cost multiplied by quantity issued/consumed in period) with the results then ranked. The results are then grouped typically into three bands. These bands are called ABC codes.

1. "A class" inventory will typically contain items that account for 60% of total value
2. "B class" inventory will have around 20% of total value
3. "C class" inventory will account for the remaining 20%

U.S. Small Business Administration

Here is web link to government site: SBA

The U.S. Small Business Administration (SBA) was created in 1953 as an independent agency of the federal government to aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation.

Accounting methods

The accrual method -

• Income is recognized when the order is made, the item is delivered, or the services occur, regardless of when the money is actually received.
  
• Expenses are recognized when you receive the goods or services. You don't wait until after money is paid out.
  

The cash method -

• Income is recognized when cash/check/money is received.
  
• Expenses are recognized when they are paid out.

Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it, regardless of when payment is received, and deduct expenses in the tax year you incur them, regardless of when payment is made.

Small Business Cash Flow

• Collect cash if possible.
• Avoid getting bad checks - check ID, don't accept 3rd party checks, don't give cash refund to checks not yet cleared, etc.
• Deposit checks to your bank as soon as possible.
• Be persistent in collecting the unpaid receivables.
  
• Good record keeping for your order records, inventory records, and invoices.
• Good book keeping.
  
• Pay bills just before they are due.
• Work out with your supplier for generous payment due dates, methods, or installments.
• Use your business credit cards to get points back.
• Pay off the highest interest loans as soon as possible.
• Maximize tax saving.
  

Funding - sources

• Personal savings
• Borrow from family and friends
• Business partners and investors
• Home equity loan
• Small business loan
• Credit cards
• Suppliers (defer the payments to the suppliers)

The factors to consider are -

• Where would you put the money to best use?
• What is the cost to your business from this funding source?
• Would you get the funding in time when you need it?
• What is your repayment plan?

Funding for small business, business loans factors

According to Financial Web -

When seeking funding for your small business, it can be a tremendous advantage to know exactly what the lender is looking for in a financing opportunity. Generally speaking, there are five basic aspects of your business that every lender will evaluate when considering a loan to you:

Your credit profile and history. This, of course, is one of the primary factors considered in any institutional lending situation. Lenders are going to scrutinize your credit profile – both your business and personal credit. Therefore, before searching for a business loan, it's wise to obtain a copy of your credit report from all three major credit reporting services: TransUnion, Equifax, and Experian (one free annual copy of your personal credit report can be ordered from each bureau through the Federal Trade Commission's website). Check your reports closely for errors and omission of any good credit you may have that wasn't submitted to the credit bureaus, and do your best to repair any discrepancies before you apply for the loan.

Although your personal credit score is tied to your Social Security number, business credit reports are associated with the company's Employer Identification Number, or EIN (also known as a Federal Tax ID Number). If your business doesn't already have one, you can obtain an EIN from the Internal Revenue Service.

Your vested interest in the company. Lenders want you to have a reasonable amount of equity invested in your company. They tend to feel that they're in a more secure position knowing that your money is on the line right along with theirs, and this drives the assumption that you'll work even harder to make the venture a success.

The amount of working capital that the business possesses. Working capital can be defined as the business's cash on hand, the funds available to pay your company's current debts and operational expenses. If cash on hand is below the levels necessary to meet these present needs, it significantly increases the risk (not only to your organization, but to the lender as well) that your business may fail, and greatly reduces the chances that the lender will approve your loan.

Your ability to repay the loan. Virtually all business lenders normally require at least two possible sources of repayment. The primary source is directly from the company's revenues (its cash flow). The second, or alternate, method is through the sale of collateral pledged by the business against the loan. In addition, lenders will require you to provide the company's current and past financial statements and balance sheets, profit and loss statements, and accounts receivable. Records of your personal assets, liabilities, and tax returns (along with those of any partners in the business) will also be necessary. If you can show on paper that your business has consistently made a profit, your odds of getting the requested financing will dramatically increase.

Your own personal business experience. Lenders definitely prefer that loan applicants for new businesses possess experience in the particular business that they're going into. If you do not personally have such experience, the lender will likely want you to partner with (or at least hire) those who have the necessary expertise. Nevertheless, you should at least be able to show the lender that you do possess a keen business insight and management experience.