FastUpFront

When times get tough, companies increasingly look to temporary employees to fill their needs- at least that’s what this recent article over at CNN suggests.

As a small business owner, relying on temporary or contractual hires may seem like a quick and cheap solution to getting a particular job done, and these days with the rise of Internet-based networking and temporary employment services, it’s even easier then before. However, the truth is that sometimes it just pays more to bring in a permanent employee. Here are three reasons why:

1. It may end up costing you more. In a previous post, I offered three reasons why bringing in temporary or contractual help may actually end up costing your business more than a regular employee. That is, your temporary help may be more expensive then you think due to several “hidden” costs, such as bigger wages, a high learning curve, and the need for a lot of directing.

2. Capitalize on employee loyalty. It is a simple fact of human nature that employees will be more motivated to work hard and well, when they themselves are affected by the company’s performance. Temp workers come and go, they may be working with your business today, but a month from now, it could be someone else. They are not as connected to the results of their efforts, and are thus less likely to give it their best.

3. Build up your employee team. While it may take some time for temp workers to familiarize themselves with their new surroundings, the truth is that bringing in temporary or seasonal help can be disorienting for everyone. This includes you, your current workers, and your customers. This can in turn slow down productivity; the inconsistency can make it harder for existing workers to work together and to focus on the job at hand.

In short, while there are many benefits to be had from hiring temp help, you might want to look before you leap.

Even as the stock market continues its heady rally and some economic indicators suggest that the economy is improving (albeit slowly), the surge in commodity prices, many of them unavoidable staples, has wreaked havoc on small business profit margins.

But, the pain is certainly not being felt equally by all. Some industries have been hit harder then others over the past 12 months. Below is a breakdown of the most problematic price increases effecting countless small businesses across multiple sectors:

Oil– Currently trading at almost $114 dollars a barrel, the spike in the cost of crude oil has definitely been one of the most well-publicized commodity price increases- especially as Americans come to grips with their gas pump sticker shock. The rise in oil prices have effected the majority of American small businesses in some way, whether via increased shipping and delivery costs or the increased cost of business travel. Those that operate gas-powered machinery and equipment have also been hit particularly hard. Moreover, the increase in crude oil has led to increase in the cost of oil used for heating.

Corn– With demand outpacing supply, these tiny kernels have certainly played their part in the overall increase in food prices over the past year. Corn and corn derivatives, such as corn meal and corn syrup, can be found in many processed foods, corn is often used as animal feed thus resulting in higher meat and dairy prices, and corn is also used to make ethanol, a bio fuel that has seen a spike in demand as America seeks to lesson its dependency on oil.

Soybeans– South American droughts that have resulted in lower than average soybean yields are behind the increase in the cost of soybeans, and subsequently the cooking oil and other soya-based products that rely on this crop. Most food-related small businesses have been feeling the pinch.

Wheat– Droughts across Europe and Russia are largely to blame for the recent increase in the cost of wheat and wheat products. The price increase has effected the food industry in particular and is partly to blame for the rising cost of staples such as bread and cereal.

Sugar– Though sugar prices have been coming down a bit in recent weeks, it is still priced almost 50% higher than it did at the start of the year contributing to a subsequent increase in the cost of sugar based products from confections to cereals.

Cotton– Like sugar, cotton has also come down in recent weeks from its lofty highs earlier this year. Much of the drop in price is due to an overstock of the commodity that was built up by cotton spinners when the cost of cotton was on an upswing. Industry experts don’t expect the price to fall so far, however, which means the ultimate cost of cotton yarns and fabric will likely remain high. The increased cost of cotton has affected a range of retail apparel businesses as well as clothing manufacturers and craft shops.

Beef– With the cost of fuel and feed on the rise, coupled with a weakened supply of cattle (due to droughts and herd sell-offs), the price of beef has skyrocketed over the past year and is now holding at all time highs. This has significantly cut into food industry profit margins causing price increases across the board.

Bottom line: The increasing cost of commodities has affected a wide range of small businesses- just another headache in a long list of ailments. The consumer is not the only one who is resorting to belt tightening and bootstrapping these days.

The other week over at Small Business Trends, I saw an interesting poll. The sole question: “What’s your biggest business mistake?” Though there are various options to choose from, such as “Failing to market my business,” and “Selling myself short,” the overwhelming favorite response (at the time of writing it is holding at 86% of almost 2,000 respondents) is “Borrowing money.”

While this may come as a shock to those who still believe that the banks should be handing out more credit to businesses in order to jump start the economy, several well-regarded reports, such as this recent one by the NFIB, have pointed to the fact that many small business owners these days are not looking for credit, and a significant amount of businesses are actually focused on dumping the balances they’ve already racked up.

But this brings up a dilemma of sorts: part of a healthy cash flow strategy when running a business is having options to borrow, both in the short and long term, and without investment (usually of the borrowed kind), growth will typically be impossible.

So how do you know if it is good for you to be borrowing money for your business? Here are a few questions you can ask yourself to help ensure that your business borrowing doesn’t end up being a business blunder:

1. What are you borrowing the money for? While this may seem like a pretty straight forward question, there are actually certain categories of business borrowing that tend to be more problematic then others. For example, aside from short-term microloans or a revolving line of credit, if you are taking out a significant loan to cover your every day expenses, then it could be a red flag that your borrowing will get you in hot water.

On the other hand, if you are investing the funds in a business upgrade, then can you expect that upgrade to pay for itself in either increased productivity, sales, or market reach?

2. How will you repay the amount borrowed? This all leads to the next question which is how you plan on repaying the loan. Are you currently generating enough income to cover the debt? Do you expect your bottom line to increase as a result of the investment and when? Are you able to secure the loan with some kind of collateral? What would happen if you defaulted on the loan and had to lose that collateral?

3. What is your current debt load? A look at your current debt obligations is also vital to avoiding a business lending mistake. If you are already struggling to repay your business debts, then it could be a signal to avoid taking on an additional financing. If the loan is meant to consolidate your debts, then make sure you get qualified financial advice before jumping in.

4. Are there alternatives? If several red flags are going up, then perhaps you should consider any alternatives, such as cost-reduction strategies, or asset-based financing arrangements, such as accounts receivables financing or business cash advances.

As a small business owner, getting unexpectedly caught up in a lawsuit can be both overwhelming and scary, not to mention a tremendous drain on resources. But you don’t have to sit around waiting for it to happen. There are many actions you can make to protect yourself in the event that one of your customers, employees, or suppliers tries to take you to court, and there are several best business practices that will help to ensure you don’t end up in court in the first place.

1. Learn about your insurance options. About a year ago, I put up a post describing the major forms of insurance small business owners should be aware of. It is good business practice to ensure that you and your assets are properly protected- especially if you are running a sole proprietorship or a simple partnership since under these business structures the owners are basically sitting ducks for claims against them or their business. For more information about business insurance, check out Insure U for Small Businesses.

2. Go into business dealings with a solid contract. One way to cover your back against a future claim is to make sure that well-written legal contracts are in place whenever you enter a significant business transaction. Some claim-prone transactions to consider are: the hiring of a permanent employee, the hiring of an independent contractor or freelance worker, when entering into a rental agreement for equipment or real estate, and in some cases when you provide a service or a product to a customer.

3. Read the fine print of any contract you sign. Where you or your business will be signing a contract, make sure that you are clear about the terms and conditions contained within. In many cases, it would be a good idea to have the contract looked over by a qualified professional (see below).

4. Keep your financial and legal documents in order. If a claim is filed against you or your company, then you don’t want to be caught with your pants down. Make sure that your financial and legal documentation is both available and accessible so you have a clear paper trail pointing to your activities.

5. Lastly, know where to get adequate legal assistance. Though the Internet is awash with do-it-yourself legal information and documents, I would be careful about relying on these avenues in most instances. Even if you think that by doing so you will be saving money, that savings can quickly evaporate should a claim arise from an unnecessary oversight. If you are concerned about financing legal fees then take you might want to consider using the services of Prepaidlegal.com where a small monthly fee gives you access to legal advice and assistance from a group of qualified attorneys.

Now that taxes are still fresh on the minds of many small business owners, I figured it would be a good time to write a post on sales tax for online businesses. Countless small online business owners may be uninformed when it comes to properly recording, collecting, and paying state sales taxes on their online sales. Unless your online business is registered and/or selling within the states of Alaska, Delaware, Montana, New Hampshire, or Oregon, there is a good chance that you are conducting taxable transactions and this can prove to be a costly mistake- especially as cash-strapped states seek ways to cover their budget shortfalls.

If you are operating your business online, then here are five things you should know about recording, collecting, and paying state taxes:

1. The sales tax landscape is complex. Currently, there are more than 11,000 tax collection districts in the U.S. (that’s including various cities and counties, each with their own local tax rate), so determining and collecting sales tax on your online transactions can get tricky. For this reason, it is vital that you seek out professional advice on how to pay off your state sales tax obligations. This may mean asking a qualified accountant or tax attorney or consulting with informed members of your state’s Department of Revenue (you just may have to work a bit to find those “informed members”).

2. Register your business with your local Department of Revenue. Assuming that you already have a Federal ID number for your business, the first step in reporting and paying your state sales tax is registering your business with your state’s Department of Revenue. After doing so, you will receive a state sales tax permit which will allow you to begin collecting sales tax from your customers.

3. For multiple locations, use accounting or tax software. If you are selling in multiple locations, you need to calculate the correct sales tax for each location. This includes any cities or counties within your state that have distinct tax rates as well as taxable sales in other states. To assist you in this complicated process, you should use a good accounting software program, such as QuickBooks, which will generate up-to-date sales tax information and calculations.

4. Some transactions are exempt. Many online transactions are exempt from sales tax, but you will need to do your research because the definition of what qualifies and when will be different across state lines. Some examples of exempted transactions include: sales to resellers, food sales, and transactions where the buyer is located out-of-state.

5. Keep accurate and clear records. Though the enforcement of paying state sales tax obligations has been lax up till now, as I mentioned above that may be changing because so many states are hurting for cash. There has also been an initiative, that has been gaining traction as of late, for the establishment of a unified online sales tax system. You can read more about it here.

As the 2011 tax season comes to an end, many small business owners may be learning the hard way that sloppy bookkeeping doesn’t pay- especially when you are dealing with the IRS.

For those looking to make amends in the current year, the below are seven of the most common bookkeeping mistakes to avoid:

1. Not seeking help where needed. Good bookkeeping is a skill, not just a task to get through. Many times it pays to hire an experienced bookkeeper to handle your books properly and efficiently; other cases may require the input of a qualified accountant. At the very least, if you choose to maintain your books alone then set yourself up with a good accounting software program, like QuickBooks. There are even some good, free open source options out there, such as GnuCash and TurboCash.

2. Being lax about recording information. Bookkeeping is best done on a regular basis. Once a month is the minimum suggested period you should take to update your financial records. Anything more and you run the risk of having a demoralising large pile of papers to go through and of misplacing important receipts and documents.

3. Not establishing a set bookkeeping system. Bookkeeping becomes a lot harder if you fail to create and communicate a standard policy for how receipts, petty cash, credit cards, and other financial translations are both handled and recorded. Again, it is recommended that you seek advice when setting up your accounting system.

4. Not saving receipts. Receipts under $75 aren’t required by the IRS, but this doesn’t mean you should throw them away. Those smaller transactions can quickly add up and throwing away your paper trail can prove to be a costly mistake should you find discrepancies or gaps in your financial records.

5. Not communicating with the bookkeeper. If a small business owner hires someone to take care of the books, then it is vital that there be an open and up-to-date flow of communication from the business owner and management regarding any changes to the company accounts or to any financial transactions.

6. Not having up-to-date accounting software and backups. Most accounting software programs are updated on a regular basis by the developers with fixes and other useful improvements or extensions. You should make it a habit to keep your software updated. Moreover, you should set up at least one or two methods of data backup to ensure that your financial data is not lost.

7. Miscategorising or overcategorising financial entries. As I mentioned in number three above, you need to set up a standard system for recording transactions and it definitely pays to get advice on how to go about doing that. Putting your financial transactions in the wrong categories can make it very hard to reconcile your books and accurately determine your tax obligations.

Over the past couple of years, the credit card industry seems bent on shaking up the credit markets so that it comes out in their favor. For small business owners with business credit cards, there has been virtual tidal wave of often unexpected changes- from cut credit lines to closed accounts- that seems to blindly strike irregardless of credit score and payment history.

If you use a business credit card extensively for short-term financing in your small business, then take heed to the following tips:

1. Expect the unexpected. These days, even if you have sterling credit and you’ve been using the same credit card for several years, you shouldn’t take your credit limit for granted. There are countless stories of business owners who watched their credit line virtually disappear without warning or provocation. Thus, pay attention to your account.

2. Be aware of what can trigger a change. There are several common factors that can result in a reduction of available credit: a sudden, significant change to your credit score, a large unusual purchase, “too much” activity (i.e. you keep using the card so you end up staying close to your current credit limit), and “too little” activity (i.e. you don’t use the account so often).

3. Have a backup plan. If you are using your business credit card heavily and/or are dangerously close to your available credit limit, then consider using either a backup credit card (just make sure to make a few charges with it so it shows recent activity) or secure another means of quick, short-term financing, such as business cash advances and accounts receivables financing.

In short, with a little effort and due diligence you can stay one step ahead of any unexpected curve balls your credit card company may throw you.