Some Things About Business

creditors are less willing to work with insolvent businesses to return the business to long-term health, and more eager to liquidate and recover whatever they can on their debts immediately.

The evidence for this is anecdotal, to be sure. But most of the people I interviewed said that between the prolonged recession and slim chances of successful workouts for small companies, lenders have ever less patience for turnaround plans.

Here’s one more reason why creditors prefer liquidation: They’re often not the ones who originated your loan. I just came across this data from the a survey of 395 turnaround professionals by the Turnaround Management Association:

Half the respondents said distressed debt trading in bankruptcy or in out-of-court restructurings is stalling negotiations and 40 percent said quicker liquidations and sales result. …

“Buyers of secured distressed debt may be more interested in obtaining the assets of the borrower and turning a quick profit,” [Scott Opincar, an attorney with McDonald Hopkins LLC in Cleveland] said. “On the other hand, a traditional secured lender may be interested in a more conventional workout that leads to a greater recovery over a longer period of time.”

Last year BusinessWeek’s Amy Barrett explored this in a story about what happens when the original lenders sell to third parties. From her story:

Dealing with a hedge fund or other private firm is very different from working with a bank. While some creditors will be willing to work out a deal for companies that seem healthy, others are likely to move quickly to foreclose if a company seems vulnerable. The third option is “loan to own,” in which the loan holder typically agrees to some concessions in return for a sizable chunk of equity.

The world of trading in distressed loans is invisible to most entrepreneurs. Smaller loans are sold in pools; larger ones (usually with unpaid balances of at least $1 million) sell individually. The buyers study each borrower’s file and usually acquire the debt for a fraction of its face value. A loan to a borrower in decent financial health or one that is well collateralize may sell for 90¢ on the dollar, while others may fetch only 10¢. The borrower learns of the transaction via a “goodbye” letter from the bank, which says the loan has been sold. The new holder then sends a “hello” letter announcing the acquisition.

And that was before the financial crisis last fall. I don’t know if there’s any way to find out, but I wonder how much of the increase in business bankruptcies is a result of this trend. Your local banker might be willing to give you the benefit of the doubt and agree to a turnaround plan, if your business has a strong long-term outlook but faces a short-term cash crunch. But if that banker sold your note to a hedge fund investor for 30 cents on the dollar? Probably not so much.

I suspect that far too many people fall into the trap of thinking that an online business is easier to start and run than an offline business. It is possible that an online business could require less money up front to start but I’m not convinced less work is an option – unless you have that so-called “magic selling” product.

Most people starting out with an online business probably do not fully understand what they are getting involved with. They understand the internet, and that they can pretty much access the world from their PC. So then maybe it is true that if one starts an online business by setting up a website then the whole world will see it and buy from it - Right?

Unfortunately this kind of thinking leads many people into a trap, and they fall victim to many online opportunities which are promoted as “Easy Money”. Trust me, if it was easy money they would be making it without you.

Maybe it is easier to understand by comparing an online business startup with an offline business startup.

You don’t want to spend much money with startup costs, so you begin a business from your basement or garage. This would be similar to getting your own domain name or website in the online environment. Initially all you have is an online name with very little content.

Next, your offline business needs a product or service to sell. People are not real likely to just stop by and drop off money without getting something in return. An online business needs a product or service to sell also. “Opportunity” itself is not a product. Direct marketing (an offline business) used this same business model – they sold products as well as offering an opportunity for one to make an income generating business.

Ok, so now we’re legal and have our business started with a good product or service offered. Does the money flow begin now? Not really, since very few people will know that your business exists. You’ll need to do some advertising to make people aware of your business. An online business is very similar. You’re going to need to promote your website so that others will know you are out there.

As your offline business begins to grow, you’ll find the need to bring on other resources to assist with the additional business. You may also outgrow your space or need space with better accessibility for more people. An online business will also require more resources as it grows. More often the needs of an online business are “digital” or “electronic” versus the “physical” needs of an offline business. However, most of these “electronic” products or services have associated costs.

The point of this comparison is simply that an online business does not simply succeed overnight. Sure, there are always exceptions, but most new businesses take time and effort to succeed. If anyone tells you differently, then be careful! Don’t be too quick to pull out the credit card.

An online business can be very rewarding just as an offline business is for many people. Just be realistic as you approach it.

Ken Lewis will be CEO of Bank of America (BAC) forever. Even after being forced into a horrible deal to buy Merrill Lynch by former Treasury chief Paulson. the firm managed to post remarkable Q2 results.

The bank reported second-quarter 2009 net income of $3.2 billion. After deducting preferred dividends of $805 million, including $713 million paid to the U.S. government, diluted earnings per share were $.33. That compared with net income of $3.4 billion, or diluted earnings per share of $0.72 during the year-ago period.

Bank of America increased its Tier 1 common capital by nearly $40 billion through multiple actions during the quarter that included issuing shares of common stock, exchanging certain non-government preferred stock for common stock, and asset sales.

Sales and trading revenue, excluding credit valuation adjustments on derivative liabilities and market disruption charges, rose to a record $6.7 billion.

The firm did indicate that credit quality continued to drop, a potential Achilles heel going forward. The provision for credit losses was $13.4 billion, flat with the first quarter. Credit losses were higher than the prior quarter and reserves, which were increased by $4.7 billion, were added across most consumer portfolios and the commercial portfolio reflecting the impact of the weak economy. Nonperforming assets were $31.0 billion compared with $25.6 billion at March 31, 2009, reflecting the continued deterioration in economic conditions.

Douglas A. McIntyre

If you’re worried about your small business tax bill increasing, take heart in the fact that there are plenty of ways to spend money and avoid taxation on that money. Some of the expenditures serve you now, some will make your business better down the road, and still others help your employees. Here are five ways take a bite out of your taxes come April.

1. Buy insurance.
Health insurance is expensive. If you don’t already provide quality health coverage to your employees, start. This one action alone will go a long way toward eating up that extra income. And your employees will love you for it.

2. Invest in a retirement plan.
There are many small business retirement plans including SEPs, SIMPLEs, and even 401k plans. Chances are if you’re like most Americans, you’re not saving as much for your future as you could. And if you’ve never considered contributing to employees’ retirement, you should. It’s a huge benefit that can attract high quality employees.

3. Grow the business.
Got extra cash? Buy things to help you expand. This year’s Economic Stimulus Act bumped Section 179 depreciation to $250,000. What that means is that you can purchase certain assets and then subtract them right off your bottom line instead of depreciating them over time.

4. Give.
If you’re adamantly opposed to paying higher taxes to support an expanded governmental role, what better way to avoid the tax and ’spread your own wealth’ to the causes of your choice than to make a charitable contribution? In most cases you can give away half of your Adjusted Gross Income. That’ll take a chunk out of what you owe.

5. Complicate your life.
The more money you’re making, the more important it is to get good tax advice, and general business counsel for that matter. A good accountant will help you plan expenditures and structure businesses to your best advantage. For example, you may need to incorporate to take advantage of certain benefits, or to decrease your personal take home pay.

I'd like nothing more than to give the bailout scandal a rest — but the bankers won't let me! They just keep coming at us with ever-more-clever inventions of greed and deceit.

Their latest bit of hocus-pocus, accompanied by big puffs of smoke, is a dazzling show of profits. Yes, Goldman Sachs, Citigroup, Bank of America, JPMorgan Chase and other financial giants that only yesterday were insolvent basket cases now report that — poof! — in the first quarter of this year, they magically produced blockbuster profits. Absolutely A-mazing!

Of course, it's a con job. After all, magicians don't perform magic. They create illusions.

Hoping to con investors and the public into believing that the wizards running Wall Street have quickly and brilliantly restored these banks to financial health, the wizards did exactly what they've done in the past: They goosed up their books with accounting tricks and sleights of hand.

First — and most obvious — the "profits" are made possible only because you and I have stuffed the banks with massive infusions of tax dollars. Indeed, they wouldn't even be standing without our money. I don't mean merely the $700 billion straightforward bailout approved by Congress, but also the nearly $2.5 trillion in such backdoor subsidies as dirt-cheap loans and government guarantees quietly extended by the Federal Reserve and the Treasury Department.

Second, the banks lobbied for and won a regulatory break that lets them pretend that all of those bad housing investments weighing down their books like a load of toxic waste are worth ... well, worth whatever the bankers say they're worth. So — Shazam! — huge losses are wiped clean by banker fantasy.

-Jim Hightower

All around there is talk of the economic slowdown. In the Interim Management industry, this means planning for increased demand and working with forward thinking business leaders who proactively utilise interim resource to deliver short and medium term results.

It's difficult to not read or hear about the credit squeeze and the latest effects of the recession - we are faced with it on a daily basis. And if we believe the economy is cyclical, then this recession is overdue and likely to be deep. Most companies have entered 2009 with considerably more apprehension than for a number of years and some are already responding by reigning in expenditure and cutting costs.

Within the recruitment industry, recession means being a supplier in an ever-tightening marketplace as companies seek to freeze human capital expenditure at best or make large cuts to staffing levels at worst.

But one thing has changed significantly since the last recession, and that is the growth of interim executive management. With an industry growth rate of over 15% a year and a significantly larger number of CEOs, CFOs and HR Directors now recognising the flexibility and genuine value-add of using Interim Executives, there is every likelihood that, this time around, the call on these resources will reach an all-time high.

During a recession there are many compelling reasons for senior managers to turn to an experienced interim executive.

The most compelling benefit of using interim executives is the rapid (within days) access to quality executives proven in the management of transition and business change and experienced in working in a wide range of sectors and cultures on an intensive project basis. Interims are used to working independently to deliver results but also know part of their role is coaching and mentoring those around them to be able to take over once the Interim has left. This pragmatic use of highly skilled resource makes for a robust business case. Interims can be expensive but for any organisation which has become used to having management consultants around, a cost saving can be shown as an interim executive will be likely to cost about one third of an individual consultant. The comparable level of business experience you gain from an interim executive, 'pound for pound', is usually a clear benefit.

Working with interims requires something of a sea-change in planning but those who plan early will be well rewarded as the pool of high quality, career committed resource is far smaller than many would admit and demand is likely to exceed supply.

So for 2009, this could be an ideal time for organisations to consider introducing interims as part of their overall resourcing strategy.