Archive for April, 2010

Greatest Disruption to Air Travel Since 9/11

Friday, April 16th, 2010

German Chancellor Angela Merkel is one of the passengers stranded as much of Europe and the UK remain a no-fly zone after a massive cloud of volcanic ash from Iceland caused European air traffic control officials to cancel roughly 17,0000 flights with more “significant” disruptions in air traffic expected tomorrow. This is one of the most extensive disruptions of commercial flights since World War Two. For those readers who are stranded owing to the flight mayhem, I hope you are comfortable and can make the best of your down time. It is extraordinary to consider how the unexpected, an eruption of volcanic ash in Iceland, can have such profound consequences. Agricultural economists are already forecasting the impact of the volcanic ash on grocery food prices in the spring months.

Nevis Still Reeling From 2008 Hurricane

Thursday, April 15th, 2010
Before the Storm

Before the Storm

The government of the island of Nevis has declared the closure of the Four Seasons resort, one of the top luxury hotels in the Caribbean, a “national emergency”. The Four Seasons Nevis closed in October 2008 when it sustained severe property damage from Hurricane Omar. This week, the Sovereign Government of the Island Nation of Nevis filed a motion asking the Delaware court to abstain from hearing the Chapter 11 bankruptcy case filed by the hotel’s owner, Hotel Equity Fund V, LLC. The Nevis government argues that the bankruptcy filing could prevent the reopening of the hotel, Nevis’ largest employer. The government believes that the continued closure of the Four Seasons constitutes a national emergency for the tiny Caribbean state. Disasters can be devastating for the working poor; sadly, this is a universal phenomenon. I remember that after the terrorist attacks on the World Trade Center, three downtown hotels closed, leaving their wait staff and housekeeping staff without income. These poor souls may not be covered by unemployment insurance and almost certainly don’t have adequate savings to cushion the shock. I am making inquiries to find out if the Nevis resort carried business interruption insurance or other coverage for salary continuation or if the economic hardship experienced by the staff is the result of the loss of tip income that was not indemnified by insurance. Does anyone happen to know the answer?

Help a Disadvantaged Entrepreneur on Tax Filing Day

Thursday, April 15th, 2010

Each year, approximately 20 million self-employed business owners file taxes – two million of them for the first time. Nearly one-quarter of these 20 million self-employed tax filers are eligible and qualify for the Earned Income Tax Credit, making the EITC an approximately $6.5 billion tax credit for low-income businesses. But to take advantage of this easy method to build assets for their businesses, they need easily available guidance and tax preparation assistance.

CFED wants to help more of them. Founded thirty years ago, CFED supports micro-enterprise for job growth in low-income communities. Through a network of local nonprofit organizations, CFED delivers tax preparation and business development services to entrepreneurs in disadvantaged communities. These entrepreneurs are childcare providers, food vendors, landscapers and other workers who seek to advance their dreams through business ownership. Access to entrepreneurial support is particularly important as more and more Americans are becoming self-employed in this difficult economy.

CFED and its partners have saved entrepreneurs close to $6 million in tax preparation fees, and nearly half (48%) of these clients qualified for and received the Earned Income Tax Credit, providing them over $13.5 million in additional capital. CFED is a finalist for a million dollar grant from Sam’s Club which, if awarded, could allow CFED to help an additional 25,000 low-income self-employed businesses save $10 million in tax preparation fees and help 50,000 to 100,000 others with free online tax and business services. If you are a Sam’s Club member and would like to vote for CFED to win this grant, please click here.

FDIC Extends Business Deposit Insurance

Wednesday, April 14th, 2010
FDIC Support Continues

FDIC Support Continues

The Board of Directors of the Federal Deposit Insurance Corporation (FDIC) yesterday approved an interim rule to extend the Transaction Account Guarantee (TAG) program to December 31, 2010 with the discretion to further extend the program to year-end 2011, should economic conditions warrant such action. The program, which was set to expire on June 30, 2010, provides customers of participating depositary institutions full coverage on transaction accounts. The program mitigates the risks that banks would risk unnecessary liquidity failures should businesses diversify their banking deposits among multiple institutions to fall below the deposit insurance cap. Often, as payroll dates or other key payables approach, business banking balances temporarily exceed the account maximum for FDIC-provided deposit insurance. As a consequence of the financial crisis of 2008, small businesses had to consider the possibility of a bank failure occurring at the time of a peak deposit, prompting the FDIC to raise its limits for such business transaction accounts.  The extension of this program is expected to continue a stable funding source for banks to secure low-cost, large, locally-sourced deposits. It will also reassure small businesses that they can maintain their existing banking relationships beyond the June 30 expiry date without fear of the loss of FDIC backing.


Failing Grades in Insurance

Tuesday, April 13th, 2010
Taking the Test

Taking the Test

The Kansas City office of the National Association of Insurance Commissioners conducted an “Insurance IQ” test on 1,000 Americans with discouraging results: only 45% of those tested feel capable of making good insurance choices. Are you feeling more confident than the average American? The following three questions were answered incorrectly by 60% of the people tested in this study:

1. Does automobile insurance cover personal belongings stolen from your vehicle? The answer is no.

2. Can your credit score affect your car insurance premium? The correct answer is yes.

3. At what age do most Americans become eligible for Medicare? The correct answer is 65 years old.

The “Insurance IQ” test consisted of ten questions and was conducted last month. Respondents, on average, correctly answered only four out of ten questions.

Another troubling finding was that 86% of Americans do not completely understand insurance terms frequently used in recent discussions on health care reform. For example, 55% of participants in the study did not understand the term “pre-existing condition”. It refers to a medical condition that existed prior to applying for an insurance policy or becoming a member of a new health plan. The consequences of this lack of understanding of basic terminology not only limit the ability of Americans to fully participate in the public debate over insurance reform and to make informed coverage decisions as consumers, but also expose them to scams. The Kansas State Insurance Department recently issued an alert to consumers about con artists targeting elderly Kansans to whom they attempted to sell phony “ObamaCare” health insurance policies for the federal government.

Now imagine if a comparable test were performed to assess our level of knowledge about commercial insurance coverage. If the results of the consumer test were this dismal, the small business owners, which deal with more complex issues of commercial coverage, would likely do much worse. Clearly we have to do more to improve our national level of financial literacy, particularly with regard to insurance.

FastTrac® to Success!

Monday, April 12th, 2010
Onward and Upward!

Onward and Upward!

FastTrac® is a program of the Kauffman Foundation by entrepreneurs for entrepreneurs. I am delighted to be participating in the program this month and expect to raise my entrepreneurial game by not just learning about business, but living it. The program combines facilitator-led sessions, small group exercises, guest subject matter experts and idea sharing with peers with business coaching and mentoring. My fellow participants are a great network of creative thinkers and I hope I can share as much with them as they have with me. I applied to FastTrac® to structure the launch and acceleration of a new business offering and to benefit from a support network. The program has exceeded my expectations. I highly recommend it.

Californians Get a Wake-Up Call

Monday, April 12th, 2010
Not Unique to California

Not Unique to California

On April 4, a 6.9 earthquake struck Baja California, Mexico, causing high-rise buildings in San Diego and Los Angeles to sway. No fatalities or serious damage were reported, but the event was a wake-up call to remind Californians of their vulnerability. While the earthquake’s epicenter was a rural area, a comparable quake just 70 miles north would cause massive destruction of homes and infrastructure. Yet only 12% of homeowners and small businesses carry earthquake insurance. Inadequate insurance coverage is likely the consequence of both ignorance of the nature of disaster relief aid and concerns about the high cost of coverage. Insurance generally excludes earthquake coverage, but many people may mistakenly believe that they are covered or, if not, that the Federal Emergency Management Agency (FEMA) will assist them should an earthquake strike. Not all disaster victims will qualify for FEMA aid and those that do will find it is mostly low-interest rate loans that must be repaid. Then of course there is a time delay in receipt of the aid and a significant process involved in applying for it. Insurance is a surer bet. But it can be expensive. The state-run California Earthquake Authority provides coverage, but the average policy has a 15% deductible, which must be satisfied before the first dollar of benefits would be paid. Californians should think carefully about their coverage options. It is one thing to elect foregoing coverage (and to set aside savings to replace damaged assets); it is another thing entirely to fail to educate yourself and later find that your assumptions about insurance coverage were incorrect.

Make a List, Check it Twice

Sunday, April 11th, 2010
Check It Out

Check It Out

In Prepare for the Worst, Plan for the Best: Disaster Preparedness and Recovery for Small Businesses (Wiley, second edition 2008), I wrote (p. 118) that even the most experienced airplane pilots need checklists in case of an emergency because under stress, they can simply overlook a small, but important, detail. I wrote this in the context of advising codified procedures for your business to provide consistent, reproducible results. This is particularly important to reduce the risk for error when responding to a disruption as stress levels will be high. Harvard Medical School professor and surgeon Dr. Atul Gawande addresses this concept in his book, The Checklist Manifesto: How to Get Things Right. Dr. Gawande describes how the use of a basic five-item checklist in the operating room dramatically reduces the incidence of post-operative infections, which kill close to 100,000 Americans each year. Marshaling examples from other industries, the book makes an impressive case that the incidence of even fatal errors can be reduced with a few tick marks listing critical procedures on a single piece of paper. What I particularly like about this approach is its simplicity; in addition to reducing errors, this systems approach can be the basis of your business operations manual.

Signs of Spring

Saturday, April 10th, 2010
Fresh from Ecuador

Fresh from Ecuador

I took this photograph at the Chelsea Flower Market where I went on an early morning shopping tour with my class from the New York Botanical Garden. The picture shows roses that were grown in Ecuador and had been taken from cargo at JFK Airport within the past two hours. The Flower Market opens at about 3:30 a.m. and closes at noon, so you have to get there very early for a good selection. I always associate the floriculture industry with entrepreneurship. One of my favorite business books, Ploughing the Sea, examines, among other topics, how a country like the Netherlands, with its cold, rainy climate could dominate the flower industry. It did so by investing in horticultural technologies and superior logistics for flower distribution. I had the occasion to tour the Dutch flower market as the cut flowers were delivered directly from the Schiphol Airport in Amsterdam. It was an impressive operation and a reminder that we cannot successfully compete by offering commodity products at the lowest prices. And, of course, in addition to teaching an important lesson in entrepreneurship, the roses are beautiful.

Forecast Calls for An Above-Average Hurricane Season

Friday, April 9th, 2010

Colorado State University’s hurricane forecasting experts predict an above average Atlantic storm season for this year, calling for 15 named tropical storms, of which eight will develop into hurricanes. A storm becomes a hurricane when its sustained wind speeds exceed 74 miles per hour. The CSU experts further expect that four of those eight will become major hurricanes, defined as Category 3, 4 or 5, with wind speeds of at least 111 mph. Historically, ten named storms occur in the Atlantic hurricane season of which six develop into hurricanes, with two major hurricanes. The CSU hurricane forecasts are known for their conservatism, as historically they have tended to underestimate the number of storms more often not. Another forecasting group, AccuWeather, expects an even more severe hurricane season with 16 – 18 tropical storms forming in the Atlantic, leading to seven storms making landfall in the U.S. The U.S. government’s National Oceanographic and Atmospheric Administration releases its forecast closer to the June 1 start date of the hurricane season. The first three named storms of 2010 will be Alex, Bonnie and Colin. With government budgets exhausted, small businesses in the path of Atlantic storms should expect even less in the way of disaster preparedness and recovery support. Begin making preparations now to protect your business. Develop a budget to set aside $1,000 or so over the next two months for an evacuation fund. Should it not prove necessary, you can release the funds after November 30, when the hurricane season ends, for other purposes.