Small Business News

Tax season is upon us and business owners want to minimize their 2018 tax bill to the extent allowed by law. Fortunately, there is considerable flexibility on tax returns to cut taxes and be better positioned for 2019.  BBVA Compass and Experian have teamed up with bestselling author and small business tax expert, Barbara Weltman for a special small business tax webinar geared toward business owners who want to save on their taxes. EVENT DETAILS: Date: Tuesday, February 12th, 2019 Time: 8 a.m. (Pacific)  10:00 a.m. (Central), 11:00 a.m. (Eastern) Saving on Taxes for Business Owners Now Some of the highlights we will discuss: Making smart tax elections Deciding on retirement plan contributions Figuring estimated taxes for 2019   hbspt.cta.load(464374, 'dceba17b-53ae-4aa2-b7d8-b763a673eafb', {}); [hubspot type=form portal=464374 id=0b178fe9-d832-4ea4-91e2-064a2f313bb2]

Veteran entrepreneurs have always been at the core of American business owners. In May of this year, Experian conducted a series of interviews with veteran business owners and found that the skills and values learned while serving their country naturally prepared them for entrepreneurship. Of those skills and values were leadership, adaptation, discipline, and perseverance. Recently, the New York Federal Reserve Bank, in conjunction with the U.S. Small Business Association (SBA), released a detailed report about veteran business ownership and found that the number of veteran entrepreneurs is declining. With historical numbers revealing strength in veteran entrepreneurship, what are the reasons for the sudden decline? The U.S. Small Business Association (SBA) reports in a series of surveys, 36% of veteran entrepreneurs had no prior interest in business ownership before their military service. Because of the training and experience of serving in the military, veterans seem to be well-fitted for entrepreneurship. According to the Institute for Veterans and Military families, of those who returned home from prior wars, 49.7% of WWII vets and 40% of Korean War veterans started their own businesses. The U.S. Bureau of Labor Statistics also reports that the highest rates of self-employment were those who served in World War II, Korea, and Vietnam. Veteran business formation declining In a 2011 report, however, the U.S. Small Business Association noted a decline in veteran entrepreneurs and began to look deeper into determining factors. Part of the reason was that the older generation was aging out of the workforce. Since 9/11, only 4.5% of veterans have opened businesses, clearly emphasizing that the rate of new veteran entrepreneurs is in steady decline. Also of note, compared to non-veteran-owned small businesses in any industry, veteran-owned companies with 1 - 4 employees seem to be underperforming in sales. Larger veteran-owned businesses, with 5 or more employees, actually outperform non-veteran owned businesses. Does this reveal that newer, veteran-owned small businesses seem to have more challenges than veteran entrepreneurs of decades past? Factors in the decline of veteran entrepreneur success Recent years have seen many corporate initiatives that encourage veteran hiring and could be contributing to the decline of veteran entrepreneurs. The New York Fed’s report on veteran entrepreneurship notes, however, that veterans are underemployed compared to non-veterans and nearly of quarter of returning vets would like to start businesses. Further details of the report reveal that veterans long to “forge their own path” and “showcase skills”. The challenge for many veterans is the lack of a strong business or personal network with which to begin their new ventures. Because they’ve been away and typically relocate fairly often, the lack of social resources could be a factor in the decline of new veteran-owned businesses. The Federal Reserve Bank analyzed data and Small Business Credit statistics of veteran and non-veteran business owners and found that the biggest factor affecting veteran entrepreneurs is access to capital. Small business access to capital According to the New York Fed Small Business Credit Survey, the firms surveyed had less than 500 employees and were asked about their business performance and financing needs. If more than 50% of the business was owned by a veteran, they were referred to as veteran-owned businesses. The report found that the need for small business financing was similar between veteran and non-veteran owned businesses.The difference was that veteran-owned businesses submitted more applications and reached out to banks large, small and online. Even with the greater number of applications and the variety of lenders, veteran-owned businesses typically obtained less financing and saw lower approval rates than non-veteran owned businesses. During a time of economic recovery (2010 - 2017), the SBA loans to non-veteran owned businesses increased to 82% as compared to 48% for veterans, even with relief programs set aside for veterans. Veterans also seem to be asking for smaller loans, something that also affects women business owners’ access to capital. Larger banks are less likely to approve loans under $100K. Because of the frequent traveling and working overseas, some veterans are also struggling with building solid credit or having collateral. As they’re seen as higher risk, some lenders aren’t willing to take the chance. Veterans are still asking for help Even with these challenges and barriers to capital, veterans are seeking out assistance from the SBA and other resources to grow their small businesses after they have been denied capital. With common traits of strength and self-reliance, veteran entrepreneurs may be starting businesses before they’ve met with financial and business advisors. More preparation and knowledge about which lenders would better meet their financial needs and how to prepare for credit and collateral requirements could be helpful for veteran business owners. The New York Fed report suggests for several recommendations for policymakers to help veteran business owners including: Easier debt financing Mentorship Awareness and marketing To learn more about the challenges faced by veteran entrepreneurs and how to help, access the New York Federal Reserve Bank report here. hbspt.cta.load(464374, '45dcab7f-d5d6-4c2d-9b87-ac75916d0d1a', {});

hbspt.cta.load(464374, '56b35dba-be16-490c-8f0b-967408a50da8', {}); The Federal Reserve Banks are conducting a national survey of existing and pre-start small business owners/managers. This survey is a platform through which small businesses can be heard. It is designed to track small business financing conditions and bring them to the attention of service providers, lenders, and policy makers. Individual responses are confidential. Summary results will be shared with you. Take the survey today! The survey closes December 8, 2018. Questions? Contact SFFedSmallBusiness@sf.frb.org. hbspt.cta.load(464374, '1fee3d8a-8ca6-422e-9e96-e0ffab444f46', {});     If you have problems with the link above, copy and paste the following URL into a new browser window: https://frb.co1.qualtrics.com/jfe/form/SV_3mhPesBmhBlL9l3?orgid=Experian&parentid=&reserve_bank=SF

The Association of Certified Fraud Examiners has released their 2018 Report to the Nations: Global Study on Occupational Fraud and Abuse and small businesses should take heed. The annual report, which began in 1996, was implemented to identify cases of fraud in order to best address the problem. The Report to the Nations identifies: how fraud is committed, how it is detected, who commits it and how organizations can protect themselves. One of the key findings is that small businesses lose almost twice as much per fraud incident as larger businesses. Other key findings will be addressed in this article. Experian spoke with Andi McNeal, co-author of the report and ACFE’s Director of Research, to dive deeper into the reports’ findings. How is Occupational Fraud Harmful to Small Businesses? Occupational fraud is when someone steals from their own company. For small businesses, fraud can be more impactful than in large businesses. In the Report to the Nations, small businesses are identified as those with less than 100 employees as compared to larger businesses with 100 or more. According to the report, the median loss for small businesses is $200,000 versus $104,000 for large businesses. With the average amount of each incident nearly double, and with revenues likely much less than in larger businesses, this loss can be quite devastating to the business. ACFE’s Director of Research, Andi McNeal, points out that the report doesn’t necessarily cover all industries, only 23 industry categories are included, so the average amount per industry can vary. However, considering the average size of small businesses, one single employee stealing $200,000 could wipe out the whole company. How is Fraud Committed and Detected? According to McNeal, the report was built on a survey of ACFE fraud examiners sharing case information from the prior 2 years. The current report looked at 2,690 cases of occupational fraud from all over the world, including 28% that were perpetrated in small businesses. The report revealed that fraud is typically found because there are few if any, internal controls to prevent and detect it. In a small business, fraud can be perpetuated by: a co-owner one owner running personal purchases through the company or to family members the person controlling the bank account With the average median duration of a fraud scheme lasting 16 months, corruption is the most common with 70% of cases perpetrated by a business leader. McNeal stated that the lack of internal controls contributed to almost half of all frauds. Most organizations, including those without reporting hotlines, are more than twice as likely to detect fraud only by accident. The unfortunate truth for small businesses is the “risk of fraud can be easily overlooked and quite devastating”. In small businesses, owners are less likely to detect and report fraud. Owners and leaders operate on trust, even when formal policies are in place. Small business leaders are focused on operations and not necessarily concerned that someone is stealing from them.  The Report to the Nations states that only 2% of owners will detect and report occupational fraud compared to 53% of employees. So having these conscientious whistleblowers among your ranks is your best line of defense. How Can Small Businesses Protect Themselves from Fraud? McNeal recommended internal controls to prevent and detect fraud.  Small businesses have half the implementation rate of internal controls than larger businesses if they have any at all. Some of the internal controls that can help include: A Code of conduct Anti-fraud training Data analytics to control fraud 3rd party audits of financial statements The best way to prevent fraud is to emphasize that fraud will be reported right away. McNeal recommended sitting down with staff to look over the company’s anti-fraud policy. This management procedure sends a strong message to staff to let them know that fraud will be taken seriously. In other cases, employees did have suspicions of fraud but didn’t know what to do about it. Setting up a formal procedure of transparency, including a hotline program, allows employees to know there’s someone they can talk to. Empowered staff will speak up if given a directive of reporting concerning behaviors, including pressure or frustration. Some employees need an outlet instead of resorting to fraud. Build a layer of management review. McNeal stated that if the small business owner opened the monthly bank statements, it could stop most small business fraud. Surprise accounting audits can also ensure the accounting procedures are truthful and accurate. Final Thoughts on Detecting Small Business Fraud Andi McNeal shared that there are many third-party businesses available to help detect fraud. ACFE Membership is made up of anti-fraud professionals, including many boutique firms. Some consultancies specialize in helping small business implement scaled anti-fraud programs. Business owners can decide which firms fit their need or make sense for the number of resources they have available. There are also resources online to help detect fraud and build internal controls. Business owners need a clearer understanding of where their risk is, and which parts of their company are most vulnerable to fraud. Small business needs to pay special attention to their accounting department, including implementing processes and procedures. For instance, McNeal recommends that staff is cross-trained when someone is going on vacation or that more than one person is reviewing the accounting. Surprise audits are most effective. “Also,” said McNeal, “Management behaving in an ethical manner. If employees are watching management making ethical decisions in a grey area, then they may do the same. The tone is set from the top.” Running background checks is also helpful, so small business owners do not hire those who have stolen before. According to McNeal, only 4% of fraudsters have been convicted of fraud prior to the cases in the report. 89% had no criminal background. Unfortunately, after the fraud is detected, fewer organizations are actually prosecuting the fraudsters. So businesses could be hiring first-time offenders or those who simply weren’t prosecuted because of cost if the previous victim was afraid of bad publicity or they believed the internal justice was sufficient. There should be appropriate consequences to help stop the propagation of fraud. You can download this fascinating report from the Association of Certified Fraud Examiners website.