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When reading an article in today’s MarketWatch, Chicago Fed President Charles Evans calls for more ‘easing’ in monetary actions. With high unemployment, things are not moving as fast as they should. Ben Bernake said the Fed will do some more bond buying. In summary of the article, this means a rate cut of up to 3/4% might happen. (See the article here.)

The only problem is that rates are extremely low right now. Look at mortgage rates, Prime rate, LIBOR rates, and just about any other rate. Look at CD rates.

The banks are paying virtually nothing on CDs and savings accounts. What this means is that money is sitting around, or available. A further rate cut is like putting a sale on an item already on sale.

Sure everyone needs money, but the demand for loans is down due to uncertainty in the economy, the expiring tax cuts (BTW – a vote was put on hold until after the elections), government control of industry, etc.

What needs to happen is demand needs to increase, and not just demand for handouts as some people think are going to happen in the small business jobs bill. That’s right, people think there is money coming directly to business, when in reality, the bill has to do more with loan guarantees and accounting tax laws for example than funneling money to small business.

Now is a good time to borrow with rates so low; money is cheap to buy. However, why go into debt to lose money? The idea is to go into debt to make money.

In my post about the small business jobs bill, I mentioned the 7(a) and 504 loan guarantees were “stated” good until the end of the year. That part is true, they’re only until the end of the year (3 months).

Is the time frame to finish the loans in the system, begin news ones with a temporary window, or to make politicians look good for one month prior to elections? I’m not sure about the motives, but I do have my opinions.

Aside from opinions, facts are facts.

Taking a look at the highlights of H.R. 5297, the Small Business Jobs Act of 2010, there are some good provisions, such as the tax benefits, for example the extension of the Section 179 expenses.

Aside from all of the technical aspects of the bill and accounting rules, what stood out to me was the potential equity position in small banks. That’s right, the Treasury could purchase equity in small banks, thus making them owners.

The key is that the provision is a voluntary capital purchase program. In other words, when the bank needs capital, they can allow the Treasury to buy into their bank and have the government own a portion of the small bank.

The government already owns big corporations, such as GM and Citibank, now they can get into small business too.

Connecting some dots, or putting the pieces together, I see where this provision of the small business jobs bill ties into the banking reform bill that was passed a few months ago. See my post “How Will Bank Finance Reform Impact America?” and you can see how the voluntary choices may not be so much voluntary after all, especially if small business wants to compete.

Last week, the House passed a $30 Billion small business bill previously passed by the Senate. Obama is expected to sign as well. More help is on the way to small businesses. However, will the bill help, or was the passage and signing more of a political move?

To begin, as I sat in some seminars this past week, cheers went out when news flashed a bill had been passed. On the surface, I would agree, any business assistance is great right now. However, the news may only be temporary.

Coming from a couple of speakers, including one from a branch within the SBA, the comment was made that the bill has a set a specific amount of funding, or will last until the end of the year, whichever comes first. That’s right, December 31 which is only three months – just after the elections. As I see it, the talking points for politicians are:

1. We passed a business bill to help small business. (Too bad no one is mentioning the time frame.)
2. Banks aren’t lending. (They are the bad guys, or fat cats, creating the problem.)
3. With the taxes set to expire December 31 as well, only the rich will be affected.

Pretty lame talking points in my view. Here’s why.

Reducing fees for borrowers as well as upping the guarantees for banks does make borrowing more attractive for both the business and the bank. Unfortunately, as another speaker said at the conference, only about 1 in 5 businesses are safe enough to lend to right now. As a result, banks are not lending to business because of risk and borrowers do not want to take on additional risk either. Kind of a stalemate. In addition, banks have not only regulatory compliance and increased FDIC amounts to pay, for example, which limits activity, but also SBA guidelines to comply which are rarely mentioned in headlines or quick commentaries.

With a risky economic situation (no one except economist believe the recession ended), elections and uncertainty in taxes next year, everyone is really sitting on the sidelines.

Speaking of taxes, are the rich really the ones who will be hit next year? Doubtful. The rich, including politicians, have financial vehicles – legally – such as corporations, charitable trusts, partnerships, etc. to use for limiting taxes – including estate taxes, which many average Americans do not have.

In the end, hopefully business will be helped, yet last week and this week’s headlines may be more political than practical.

While driving in Lubbock, Texas deciding on a restaurant, I was listening to the Texas Longhorn football game on XM radio in the car last Saturday. We decided to go to Rockfish. My thoughts were, since we don’t have Rockfish back home, let’s go there. As it turned out, Rockfish wasn’t the best choice.

Usually, I like going to a Rockfish, but the one in Lubbock, or maybe just that night, wasn’t the greatest. I doubt I’ll go back the next time I’m in Lubbock.

To start, the wait wasn’t long, but the host never said anything to us once the signal had gone off and I handed the seating buzzer to him.

After sitting down, we watched Texas Tech on TV in the restaurant. And we watched, and we watched. Nothing against Tech, but the service was really slow. The bartender was our waitress, and we were not at the bar.

As far as the food, the vegetables were terrible, but at least the fish was good according to my wife. My stuffed flounder was okay, but “nothing to write home about” and not nearly as good as I’ve had from other Rockfish locations.

As I sat there eating, I got to thinking about other restaurants we had been to lately such as Chili’s or the Cracker Barrel. No, I wasn’t thinking about food, I was thinking about inflation.

With all of the talk about deflation in the current economy, consider food.

Prices really haven’t fallen all that much; some have risen and some prices haven’t changed. However, if you think inflation has gone away, think again.

Simply because the price of a plate hasn’t declined, consider the portion.

Just from observations of the places I’ve been and not a fact of the aforementioned restaurants’ practices, many portions appear smaller; therefore, the price per ounce or serving can actually rise.

Not uncommon, I have known other products in other industries from companies I have personally dealt with have “shaved” the size of products down slightly.

As a result of price and product modifications – and not just due to businesses trying to get rich – inflation eats away at our money even if the price doesn’t change – and consumers get grilled every time the printing press fires up.

No one likes deductibles and premiums going up, but the Blue Cross Blue Shield model is flat out wrong.

Before I get to the stunt BCBS is pulling, let me say that I have defended insurance companies in the past just to be fair; therefore, check out “Why This Health Care Video Is Wrong“- as much of the hype presented in the video debate is doesn’t hold water.

Now, back to BCBS. We (policyholders at work) new changes would be coming September 1, so no big deal. We make adjustments to what we want to include, discontinue or change in our plan once per year and then the changes a happen later.

What happens is the plan will change, but benefits are on a calendar year – January 1 through December 31 – as stated by the specialist for our company’s policy. BTW, the company is a huge customer of BCBS, so many people are affected. The difference this time in deductibles is that BDBC is only honoring the deductibles for nine months – not the whole year.

Here’s how the deductible works for 2010 and 2011, and their practice is outrageous.

The deductible for 2010 for me is $1,000 per person in my plan and will change to $2,000 for the next year. However, I was told by the Blue Cross Blue Shield specialist that BCBS is no longer using the $1,000 deductible and an extra $1,000 is required for the remainder of the year. Okay, I’m not real happy with this, so I asked if the extra $1,000 goes towards the 2011 policy and now we are on a fiscal year. Here’s the kicker…

Effective January 1, all new deductibles go into effect; therefore, a new $2,000 deductible starts again.

Having described the events, here’s what can happen to me.

In August, I had knee surgery which cost me an out of pocket amount of $1,000 cumulative. However, I may still need a follow up surgery that could happen by the end of the year, costing me another $1,000 when it shouldn’t. As a result my, $1,000 surgery would be $2,000 and if I wait until January, then the surgery would cost $3,000. In addition, right now my therapy is no longer under the fully paid deductible and I am out money for the rehab as well, when I shouldn’t be. Worst case, I could be out as much as $4,000 in just a few months depending on what transpires this fall and early next year.

Even if you do not have BCBS, check your company. If so, check it out. They will be hearing more from me and the State may too.

A friend of mine who is not a banker, yet has been involved in the financial world and is an educator made this comment to me. I think it’s great and worth sharing.

The quote has to do with predatory practices, and with the financial reform taking place, predatory lending is a focal point.

‘I hate the word “predatory” with anything related to economics, as it sort of absolves the “victimized individual” of responsibility for being stupid…’ MW

Predatory lending has a hype factor built into it as well. Lack of knowledge though is the real culprit; that’s why I’ve written “Barking With The Big Dogs”.

Marketing is pretty simple. Sales. Well, not exactly.

I have spoken with many people, from business owners to HR personnel, about the subject of marketing. Many of the people in our conversations have a narrow view of marketing and generally relate marketing to sales.

Now, I would have to say marketing ranks at the top of any subject; and yes, nothing happens without sales.

Without sales, businesses do not need inventory, computers, delivery drivers, stockers and cashiers, computers, engineers, IT departments, accountants, etc. Yet the service of professionals and workers is not limited to business, nor is sales.

Sales must happen in non-profit business, schools and government institutions. These entities must solicit services or products to generate income. To give an example, the University of Texas at the Permian Basin offers a free, four-year education. Dillards, Best Buy and other retailers offer free services too. The idea is to get customers. Customers (students or the public) will spend money.

Other ways to solicit money is to ask for donations, investment money or get a loan. Even getting a loan requires pitching one’s self to the banker by showing personal financial statements or business plans in order for the banker “buy” your idea or needs. If you have ever been on a date or made a marriage proposal, you dressed up (or to the occasion) to promote yourself and asked the other person to go with or marry you.

As you can see, sales is in everything and eventually to close the deal, you must ask for the business, so-to-speak.

Going beyond sales, customer service and promotions, marketing includes more. Obviously, promotion includes sales and advertising, but also give-a-ways, rebates, etc. In order to know what amount of money or items can be given away or discounted, pricing is part of marketing and includes accounting functions.

The accounting side will take into consideration all costs, such as product costs, freight, commissions, rent, cost per mile (for delivery), utilities, depreciation, etc. in order to project the necessary amount of sales in relation to the changing margins from discounts and markup in order to break even or meet a desired financial goal. Therefore, to understand marketing, you must also understand accounting.

Moving from accounting and the pricing side of marketing, the next is place or distribution. The place is not just at the corner of 1st and Main, selling locally, but also includes the distribution of the products. Will you sell locally or regionally? Where does the supply come from? Imports, manufacturers, distributors, etc. Even manufactures must find their sources of materials, just as a bank has a pipeline for money and distributes throughout a channel. Speaking of distribution, will the products come by rail, LTL (less than truck load), ground or air service, etc. Do you buy by the box, case, or truckload. What are the dimensions of the container to know how the shipping will be priced so you can figure your costs? Service companies also distribute their products – fax, phone, e-mail, Fed Ex, online, etc. Can you download it? To sum it up, the place is a physical location but also a distribution method.

From distribution, pricing and promotion, the obvious thing to sell is the product itself. Is the product physical or a service. What makes one product better than another? Does the product satisfy a need or want and/or create a solution to a problem? Is there a demand for the product?

All products have life cycles…the initial or starting point, growth, maturity and decline. As a buyer once told me, “it’s not a sale unless it’s a saleable item” and a supplier stated, “don’t make my close-outs your close-outs”. Good points.

Ultimately though nothing happens without sales, but sales is just one aspect of marketing.

I was listening to a buyer ask the saleman, “Do I get a special non-profit rate?” to which the salesman replied yes.

That question has always been intriguing for a couple of reasons.

First, if I’m in line behind the customer getting the special rate for the same exact thing, why should he get a discount and not me?

We but the same things; we buy the same quantities, etc.

Just because a company says they are non-profit does not mean they do not make money. Non-profit companies have to make a profit in order to survive.  Without a profit on their products and services, payroll can’t be met and the utilities can’t be paid.

I’ve done business plans for non-profit companies and they buy products and resell them at higher prices, which is the gross profit.  Service prices are figured on the amount of people they serve and breakeven points on expenses too.

In reality, a big difference between the two business structures is a non-profit cannot pay shareholders; therefore, a solution is to pay more in salaries, which which is an expense, to disburse the profits.

Next, non-profits do not like to pay taxes.  Thus, the reason to be a non-profit is for tax status, not a goal for losing money.  The irony is for-profit companies pay taxes and can be a financial source for non-profit companies grant money, or subsidies.

Ironic maybe, funny – no.

The non-profit company wants lower costs and tax exemptions, but who doesn’t?  What struggling business wouldn’t want subsidies?  (The ones who realize their taxes pay them, I guess.)  Receiving lower prices and taxes exemptions can allow the non-profit company to stifle or eliminate competition – the very companies paying taxes in the first place.

The next time I see something like this happen, I’ll be seeing the manager of the company for the last time because taxes subsidize many things and people, and so do my purchases.

Cash can do two things…go in one pocket and out the other pocket. This is simply known as cash flow – and it’s huge to know about.

Every one seems to talk about the subject of money, but not necessarily in the right context.

For example, getting out of debt can actually decrease cash. By paying higher payments or accelerating payments, more cash actually leaves the pocket thus decreasing cash flow. On the contrary, once everything is paid off, cash flow would increase once again increase. In the mean time, and before the loans are paid in full, the bank has had increased cash flow. Notice who has more money at the end of the day? The bank.

Actually, many people probably don’t talk about cash flow until times are hard – then, it may be too late.

Take a look at taxes since tax day is coming. People pay estimates all year long and hopefully get a refund, right? Taxpayers have given increased cash flow to the government to use based upon estimated net income. Getting a refund means sending too much money to Uncle Sam.

Have you noticed we don’t get money back quickly? This limits the cash flow to us.

In a business plan, cash flow projections are huge. Why? Money coming in versus outgoing to operate the business.

Why don’t more people think like this personally?

Many people from politicians to talk shows blame business, banks, loans, regulators, etc. all day long, but what about education? Why not make bookkeeping or accounting mandatory in public schools? (Probably so people won’t pay attention to money matters and look to government for help seems to be the trend and maybe the agenda as well.)

Even by not doing anything with the money and sticking it under the mattress, this money goes out your pocket. How so? Inflation.

My kids and I like apple pie. One year the pie cost $1. The next year, the pie cost $1.09 and they are out of luck if all they had was a dollar.

What’s the main point here? Keep cash working in our favor.

If you are going to “pay” alot of something, make sure it’s attention. Otherwise, the money is moving out from one pocket instead into the other.

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