Capital Comes in Many Forms – And Each One Needs Protection

Capital. For most people that word conjures up visions of dollar signs. Yet entrepreneurs know there's much more to business capital than money. Human capital (your employees), your brand, property and equipment, wealth and investments, even business succession planning, may be regarded as integral capital assets – and all warrant protecting for the good of your business.

Human Capital

No business can succeed without well-trained, motivated employees. They keep things running, bring in new customers and help retain current ones. They open new markets, and – especially important – hold your business’s intellectual capital in their heads. What are you doing to please your employees? Companies with low employee turnover t-end to be known for having excellent healthcare plans, good benefits, and an open door policy so that employees can discuss ideas and concerns with management. They provide training and advancement opportunities and encourage an atmosphere that makes employees feel that they have a stake in the company. All these measures help protect your human capital.

It’s Your Brand

Your brand is more than your logo. It’s a combination of your image, your reputation, and your impact on your customers and the community. Your brand is tied to the quality of your products and services. What do people say about you? Are you perceived as a good corporate citizen? If not, your brand could be affected.

For an example of how events can damage a brand, look no further than what has happened to BP’s image since the oil disaster in the Gulf of Mexico. In an age of identity theft, brand protection is crucial. Do you have in place procedures designed to protect your company’s name and logo, proprietary research, and other intellectual property and products? Some companies take the protection of their intellectual property very seriously. The Hershey Company, for example, is reported to be suing cookware purveyor Williams-Sonoma, claiming that the latter’s new brownie pan mimics the Hershey chocolate bar.

Property and Equipment

The land your company owns, your buildings and vehicles, and your physical property, right down to desks and computers, should be protected. Check that you are properly insured and that your protection covers all types of business risk, including law suits, an accident, arson, flooding or an Act of God.

Wealth and Investments

Cash flow, investments, receivables and profits from sales all make up your company's wealth. A professional financial advisor can help you make well-informed investment decisions and also assist in finding appropriate tax advantages and risk-reduction strategies. A good business attorney can keep you up to date on the latest rules and regulations. A CPA can give you ideas for managing your working capital.

Other cost-saving techniques include backing up all crucial written information so that unforeseen problems, such as severe weather or a lengthy power outage, won't disrupt your business.

Consolidate and cut down on paperwork by redesigning forms, manuals and written instructions. Develop smaller and less wordy marketing materials (people don't read the way they used to). Then send your customers, vendors and allies to your website.

Business Succession

If you want your business to survive after you are gone, put a business succession plan in place now. You needn't immediately name your successor, but you can make it easier for your partners, employees - even vendors - if you spell out how the succession will take place and make known the location of essential business documents like your lease and important contracts.

Make sure you include employee-retention strategies, insurance and health benefit issues for your successor, as well as business continuation plans that include details about dealing with customers, vendors and the media.

Capital in all its forms is synonymous with successful American business. As author Napoleon Hill said, "There is always plenty of capital for those who can create practical plans for using it."

Economic Outlook – Recovery Moves Along, But at a Moderate Pace

An examination of previous recessions both at home and abroad shows that economic downturns caused by financial crises – as opposed to an external event, such as an oil supply or price shock – tend to be more severe and longer-lasting than usual, and are followed by relatively gradual recoveries. The current economic recovery is playing out largely as anticipated.

In the second half of 2009, economic growth was supported by the government's fiscal stimulus and by a shift in inventories (from declining to increasing). In the first half of 2010, the recovery appeared to make the important transition from these temporary supporting factors to growth based more on underlying demand. Consumer spending and business investment in equipment and software have improved. More important, the economy is adding jobs again.

Weak Job Growth

Some of the job growth in the first half of 2010 was due to hiring for temporary positions for the 2010 census. These jobs will continue to be shed during the fall. However, private-sector job growth has returned. The underlying pace of such growth has not been especially strong, but enough to keep the unemployment rate roughly steady over time. Weekly claims for state unemployment insurance benefits have remained stubbornly high, suggesting that the pace of job destruction remains somewhat elevated.

Roughly 8.5 million jobs were lost in the recession and we can expect to add more than 1.4 million people each year to the workforce. It’s clear that if we were to add 250,000 to 300,000 jobs per month, it would take six or seven years to get the unemployment rate back down to 5%. We need to see gross domestic product (GDP) growth on the order of 5% to 6% for a few years.

Unfortunately, growth, generally, is expected to be in the 3% to 3.5% range over the next several quarters. And that’s not enough to put much of a dent in the unemployment rate.

Headwinds Remain

Despite improvement in the overall economy, there are a number of headwinds in the near term. Residential and commercial real estate problems will linger.

Credit remains tight, especially for small businesses. State and local government budgets remain under serious strain – leading to higher taxes and cuts in government services, both of which make the recovery weaker than it would be otherwise. The federal fiscal stimulus provided important support for growth in recent quarters, but this will ramp down as we head into 2011. And, on top of everything else, the Bush administration’s tax cuts are set to expire at the end of this year.

Many of these headwinds should decrease over time. They are unlikely to be severe enough to lead us into a double-dip recession, but they will restrain the pace of growth in the next few quarters.

Credit Supply

Credit to small business was especially hard hit during the recession. During the panic in the fall of 2008, banks curtailed or cut completely their lines of credit to small firms. Small companies – those with fewer than 50 employees – accounted for a third of net job growth during the two previous expansions. Now, banks are willing to make small business loans, but most report difficulties in finding good-quality borrowers. However, while the supply of bank credit to small businesses has decreased, so has the demand for such loans. Many small firms are either unwilling to expand or to take on further financial obligations until the economic outlook grows more robust.

The economic recovery is widely expected to continue into 2011, but the pace seems unlikely to be especially strong. GDP growth of 3% to 3.5% would be considered good in normal times, but it’s a bit disappointing considering the depth of the recent economic downturn. Taking a longer view, growth is expected to pick up more in the second half of 2011 and small businesses should be a main beneficiary.

Big Picture? Yes – But Don’t Forget to Sweat the Small Stuff

Trends – and trendy advice – often arrive to thunderous applause, only to be filtered gradually by practical considerations. After the appearance of the late psychologist Richard Carlson’s best-selling book Don’t Sweat the Small Stuff in the late 1990s – a book directed at life in general, not business – it became fashionable for business owners to be advised that their job was to look at the “big picture.” Let others worry about the small stuff.

As attractive as that idea might seem, in practice, most small business owners quickly discover it is unwise to avoid the small stuff. If nothing else, after all, your “big picture” is essentially a compendium of the interdependent little things that require monitoring.

Knowing the general situation and trends in your business model is important, to be sure. You’ll need to constantly assess the position of your business in its field if you wish to stay competitive and grow. Standing back and taking a macro view is the only way to accomplish this. Whether you are looking at simply maintaining your status or fulfilling dreams of expansion, you’re most likely to succeed only if you know the territory completely. That’s a lot of work, and if your business is large enough to have some key employees, you might consider delegating some of it or hiring outside expertise.

Consequential ‘Small Stuff’

But none of that outweighs the value of being alert to the small stuff. To move your business ahead, you’ll need to immerse yourself in its vital details. If you’re in retail, it’s important to know that your blue shirts are outselling your tan ones by a large margin. If you’re a restaurateur, and you know your pasta sauce is superb and your kitchen staff first-rate, it’s nevertheless crucial to be aware of it if the rudeness of your wait staff is undermining the success of your otherwise superior Italian café.

Similarly, it’s vital for you to be knowledgeable about constantly changing federal and state hiring and employment rules, the details of your business disaster plan, and the thousands of other elements that form the foundation of your successful enterprise. A thorough appreciation of the small stuff can help you understand the true nature of that big picture you’re trying to envision.

Is Your Business Eligible for Healthcare Reform Tax Credits?

Under certain conditions, small businesses that offer health insurance coverage to employees may earn a tax credit of up to 35% of the employer's premium expenses for years 2010 through 2013, and up to 50% of those expenses for 2014 and beyond. Several eligibility conditions apply:

• The business must have fewer than 25 full-time employees for the tax year for which the credit is claimed, a figure usually determined by dividing the total hours for which wages were paid for all eligible employees during that year by 2,080.
• The average annual wage must be less than $50,000.
• The employer must pay at least 50% of the qualifying health plan premium cost.

Special rules apply to seasonal and tax-exempt employees, and for purposes of the credit, sole proprietors, partners, 2% shareholders of S corporations and 5% owners of a company are generally not considered employees.

The maximum credit is available to employers with 10 or fewer employees whose annual wages do not exceed $25,000. Credits phase out as eligible full-time employee numbers reach 25 and as average annual employee wages reach $50,000. You can find details concerning other eligibility factors at sba.gov/healthcarereform/index.html or irs.gov.