Personal service is just one factor that Florida small businesses consider as they pick and choose among the myriad bank offerings available today. Mega-players such as NationsBank, First Union and SunTrust, community banks and specialized out-of-state banks all are pursuing aggressively the small business market by introducing innovative banking products and pitching banking relationships.
So, what should you consider in selecting a bank?
- Banking Products and Convenience. Look for specific banking products, services and locations that will serve your business now and in the future. If you are an exporter, does the bank offer letters of credit, export financing and other trade products? Does the bank have an Internet product that will let you bank 24-hours-a-day? Are the bank's hours convenient?
- Service. If you want a personal banker who knows your name and your business, does the bank work that way?
- Loans. Sooner or later, most small business owners need a term loan or line of credit. Check the bank's history of small business lending. Find out who makes the decision to approve or reject an applicant. Credit scoring, used by most big banks and many small banks, offers quick turnaround but relies heavily on strict requirements for company financials. Some banks focus more on the personal touch. "We do not have credit scoring," says Dan Honegger, a vice president and senior lender in Palm Beach and Martin counties for Northern Trust, which targets businesses with revenues of $5 million to $100 million. "If you sit down with the owner, that really lets you understand your borrower," Honegger says
- Independent vs. Takeover Candidate. Will the bank you choose today be here tomorrow? There are no sure bets, but look for local ownership, ask the banker, watch business news reports and listen to local scuttlebutt for hints on the outlook for the bank.
Taxes: Relief for Small Business
The 1999 Florida Legislature's $1 billion in tax cuts - an average of $1,600 for each Florida business and $47 for each household - includes several provisions, expected to be signed by Gov. Jeb Bush, of particular interest to small business. The National Federation of Independent Business (NFIB) cites the following:
- Department of Revenue "Lookback." The statute of limitations for Department of Revenue audits has been reduced from five years to three. "It's not a tax reduction, it's a nightmare reduction," says Bill Herrle, NFIB/Florida state director.
- Estimated Sales Tax Payment. Businesses that collect and remit at least $200,000 a year in sales tax now must estimate their tax collections monthly and remit 60% of the estimated amount by the 20th day of each month. Previously, businesses with $100,000 in annual sales tax payments had to estimate and remit 66% by the 20th of the month.
- Unemployment Compensation Tax Reduction. Florida employers will receive a 0.5% unemployment compensation tax cut during 2000.
Getting a Loan: What Really Matters
Wonder how lenders really decide who qualifies for a loan? In most cases, the answer lies in the numbers. Here's the U.S. Small Business Administration's checklist of factors that lenders consider when reviewing loan applications.
1. Equity - How much money has the business owner committed to the company? Lenders want loan applicants to use their own savings before applying for a loan. Low equity makes a lender more hesitant to provide financial assistance. That can be overcome, however, with a strong showing of all other factors, such as little existing debt.
2. Cash Flow - Financial obligations are paid with cash, not profits, so cash management is extremely important.When cash outflow exceeds cash inflow for an extended period, a business cannot continue to operate. A company must be able to meet all of its debt payments, not just its loan payments, as they come due. Loan applicants are generally required to provide a cash flow projection, broken down on a monthly basis, covering at least the first year of the loan.
3. Working Capital - Working capital is defined as the excess of current assets (cash, accounts receivable and inventory likely to be sold within a year) over current liabilities (obligations due within one year). Therefore, working capital measures what is available to pay a company's current debts. It also represents the cushion or margin of protection a company can offer short-term creditors.
4.Collateral - In most cases, collateral is required as security on all loans. Collateral can consist of both business and personal assets. Borrowers can assume that assets financed with borrowed funds (such as property, building and equipment) will collateralize the loan. But, depending upon the size of the down payment, the lender is likely to require other assets as collateral and, perhaps, a personal guarantee by the business owners that the loan will be repaid.
5. Management -Lenders look at management's ability to run the company. They look at education, experience and motivation. Another way lenders measure management is by looking at historical and projected financial ratios that show how the company has fared in the past and is likely to perform in the future. In addition to debt-to-equity and working capital, lenders review the rate at which customers pay (accounts receivable turnover), the rate at which debt is paid, and the rate at which the service or product is sold (inventory turnover).
Who's Winning Federal Contracts?
Small businesses in Florida received 22.6% of the $3.3 billion in federal government contracts awarded to the state's companies in fiscal 1998, according to a recent study by the Small Business Administration. While that puts Florida ahead of the nation, which overall awarded just 18.3% of prime contract dollars to small businesses, the figure is still below the 23% in small business spending mandated by federal agencies. In fiscal 1997, 23.2% of Florida's $3 billion in federal contracts went to small businesses.
As is the case nationally, Florida's small businesses received only a small share of the largest contracts. For example, the U.S. Navy spent $516.2 million in Orlando for electronic and electrical equipment, but only 14% ($73.2 million) went to small businesses. Still, in terms of dollars, that was small businesses' largest Florida award.
One reason that small businesses aren't faring better is that federal acquisition reform policies have led to larger multi-functional contracts that only very mature, mid-size small businesses can handle. "We are losing those prime contracting opportunities that were once considered the 'starting place' for the younger but deserving small company," says Jim Rollins, SBA Procurement Center Representative at Eglin Air Force Base.
One new program for small businesses is the SBA's recently launched HUBZone Empowerment Contracting. It's designed to stimulate economic development and job creation in urban and rural areas that are "historically underutilized business zones."
The first-year goal is to channel at least 1% of overall federal procurement to HUBZone small businesses, which at current federal spending levels equates to about
$2 billion in contracts. By year 2003 that goal rises to 3% or about $6 billion.
To participate, a small business's principal office must be located in a HUBZone - one of more than 7,000 urban census tracts and 900 mostly rural counties - and 35% of the business's workforce must reside there. The SBA's Web site (www.sba.gov/hubzone) includes an application and an interactive database that lets small business owners find out if their company is located in a HUBZone.
Rollins says that small businesses also are using "teaming" and subcontracting to enable them to participate in large contracts. As its name suggests, "teaming" means that small businesses can work together when bidding on contracts set aside for small businesses.
They Might Be Giants
How does a start-up with one product, no clients and negligible revenues raise $2 million and attract experienced management?
It's all about potential, big potential; not just profits, but potentially huge profits. Investors and partners in a new company are more willing to accept the risk that the business could fail if the reward for success is great enough. And the sector offering the most phenomenal returns to investors lately is technology, especially companies tapping the commercial possibilities of the Internet. That trend helps to explain the early money-raising success of Pompano Beach-based Internet Broadcasting Co. (IBC).
Brad Levine, 30, held a variety of positions in financial services companies before starting IBC in 1996 to develop software for that industry. His first product delivered stock quotes and went nowhere, but last year IBC developed InterEngine - software that makes it easy for financial services firms to electronically transmit brokerage statements, trade confirmations and other personal documents directly to their clients' home computers. Transfer agents, mutual fund companies, brokerage firms and the like would pay IBC $100,000 to $500,000 to license the service and a fee for each document delivered; IBC manages the distribution of documents.
Levine knew the product had potential, but he needed two things: money to fund IBC's growth and experienced management. He went out and successfully pitched the product to a number of local people he knew and in the end collected nearly $2 million from about 30 private investors, many of whom serve on the company's board. They were anxious to get in on the ground floor of an Internet company, says Levine.
Management was the next hurdle. A venture capitalist introduced him to Steve MacQuarrie, who previously was president of Boston EquiServe, a stock transfer agent with roughly 1,200 employees. "I bring in people who can do things better than I can," says Levine.
The two hit it off, and Levine convinced MacQuarrie to join IBC as CEO in February, giving him a share of the company. "The technology was already developed and didn't need to be altered much," says MacQuarrie. "I liked what they were doing, and I wanted to be a part of it."
MacQuarrie, 52, focuses on management. "He guides our organization on a day-to-day basis," says Levine, who handles sales and marketing. Techno-savvy Chris Pernicano, 33, is chief information officer. IBC has about 20 employees.
While the company is light on revenues and has yet to sign its first big client, MacQuarrie is optimistic. IBC presented at the Florida Venture Forum's annual conference in January and hopes to raise another $5 million. Looking ahead two to three years, the company will explore other money-raising options, such as going public or being acquired by a publicly traded strategic partner. MacQuarrie thinks it's possible that in four years, 15% of the 119 major companies in the financial services market will use IBC for electronic delivery, which translates into annual revenues of $25 million.
Mega Money
Central Florida small businesses looking for financing will find lots of information on loans, venture capital and other sources of capital during "Mega Money Day," a day-long series of workshops on June 23. The program, sponsored by the University of Central Florida's Small Business Development Center, the Orlando Regional Chamber of Commerce and Huntington National Banks, will be held at the UCF Downtown Academic Center in Orlando. Other topics on the agenda include going public, leasing vs. buying equipment, Small Business Innovative Research (SBIR) grants, supplier/vendor financing, factoring and micro-loan programs. The cost for chamber members is $75 for the full day, $55 for a half day; for non-members, it is $95 for the full day, $75 for a half day. For more information or to register, call
407/425-1234.
Leadership Change
Lawrence P. Albertson has retired from North Florida Technology Innovation Corp. of Gainesville (NFTIC-GNV) after four years as president of the business assistance program for technology-based start-up companies. He will remain in Gainesville and continue to work with small businesses. Gary W. Myers, on staff as an NFTIC-GNV business advisor for the past two years, is serving as interim president. A search committee has been formed to find a permanent replacement for Albertson.
Small Business Adviser Technology:
Don't Mess With Bill
by Edwin Bailey
Microsoft Corp. of Redmond, Wash., has filed civil software piracy lawsuits against 15 Florida businesses suspected of illegally distributing counterfeit Microsoft products and installing unlicensed software on computers. According to a company press release, this action is one of Microsoft's largest anti-piracy initiatives in any state.
"Florida has a software piracy rate much higher than the national average," says Pam Salzer, Microsoft's public relations and anti-piracy manager for the east region. Naming Florida as a significant future player in the technology sector, she says that Microsoft's efforts to curtail piracy in Florida could actually improve the state's prospects for more high-tech development and allow software developers to flourish. "Software piracy is a real threat to growth." Companies will more readily invest in research & development, according to Salzer, if they know their intellectual property will not be pirated.
Economic data recently released by Microsoft indicates that software piracy in Florida cost the state 7,000 jobs and about $490 million in combined wages, tax revenues and retail sales in 1997. "Florida is a gateway to Latin America, and we are concerned that counterfeit product is easily exported to Latin American countries, harming a large number of consumers and honest businesses," says Tony Viera, a Microsoft corporate attorney. "The overall regional piracy rate in Latin America is 62%, which already seriously inhibits Latin American economies from reaping the benefits of a strong technology sector."
After a recent conference in Florida at which Bill Gates was the keynote speaker, Gov. Jeb Bush reportedly spoke with the Microsoft founder and chairman about the future of technology in the Sunshine State. "The timing of the meeting was coincidental," Salzer says, and their conversation had nothing to do with the impending lawsuits.
Name Dropping: The Alleged Perps
Microsoft's lawsuits allege that the following companies either illegally "hard disk loaded" certain Microsoft programs or distributed counterfeit copies of certain Microsoft programs:
- ACL Computers, Hialeah
- Atlantic Computer Center, Fort Lauderdale
- Azkegen Computers, Sunrise
- BTI Computers, Miami
- Chip Tech, Hollywood
- Computer Parts & Accessories, Miami
- Computer Universe Tech, N. Miami Beach
- Delta International Computers, Tampa
- EZ Software Distributors, Dania
- Jasmine Computer Co., Orlando
- Mu Computers Corp., Winter Park
- Natcom, Orlando
- RMS International, Tampa
- Salco International, Clearwater
- Tech Direct, Clearwater
Buyer Beware: Warning Signs
Businesses looking to buy computers or software should become familiar with the warning signs that can help them identify counterfeit or illegal software.
- Prices that are "too good to be true." These may indicate a counterfeit product, or product that has been "misdirected," such as software authorized for distribution only to educational institutions, but it's being sold to the general public.
- Back-up disks or CD-ROMs with handwritten labels.
- Software marked with a qualifier, such as: "For distribution with a new PC only."
- Manuals that appear to be photocopied or of inferior quality.
When users acquire a new computer system, it should include operating system software. If that software is Microsoft Windows 98, it should be accompanied by a user manual that incorporates a Certificate of Authenticity on its cover. The customer should also receive a CD-ROM with the software program. Also, an end-user license agreement should come up on the computer screen when the program runs for the first time. If any one of these elements is missing, the product is suspect. Businesses or individuals with questions about the legitimacy of Microsoft products can contact the company at piracy@microsoft.com.