Keeping Your Business Profitable in Tough Times

While the economy is slowly starting to improve, many small businesses are getting creative to turn a profit. CNN Money discusses one such creative florist who stopped selling flowers to retail customers. Instead she opted to serve wedding and event planners exclusively. How could reducing her customer pool keep her profitable? By focusing her business, this florist reduced her wasted inventory, only ordering what was needed for each event.

No matter what kind of product you are selling, your first order of business is to get customers to the store. Don’t be afraid to step up your advertising or promotions during rocky economic times. Customers today want value. They want to know they are getting their money’s worth, so smart sales and freebies can go a long way in increasing your profit. (Remember, smart is the key word, you can’t make money giving away the store!)

It will also pay to become technically savvy--whether using point-of-sale software to collect customer information or using social media to get the word out about the promotion you chose. Some businesses even choose to go entirely virtual, eliminating brick and mortar stores and the overhead that comes with it. No matter what your business, you can benefit from harnessing technology to increase your profitability.

Read more on CNN Money.

4th Quarter's Fast Economic Pace Likely to Wane

According to the Associated Press, the economy expanded at a rate of 5.7% during the fourth quarter of 2009. This was the second consecutive quarter of growth, but economists warn that this rate of growth will not likely continue.

Consumer spending, chilled by double-digit unemployment and scant wage gains, remains weak. And the benefits of government aid and higher company output to feed stockpiles will dwindle.

Many analysts predict gross domestic product will expand at a rate closer to 2.5 to 3 percent in the current quarter and 2.5 percent or less for the year.

That won't be enough to significantly reduce the unemployment rate, now 10 percent. In fact, most analysts expect the rate to keep rising for months and to remain close to 10 percent through year's end.

To drive down the jobless rate by just 1 percentage point this year, the economy would have to grow by 5 percent for the whole year. No one thinks that will happen. Until companies step up hiring and raise pay, consumers will feel squeezed. For all of last year, workers' compensation rose by the smallest amount on records going back more than a quarter-century.

"Consumers are walking, not running," said Ken Mayland, president of ClearView Economics.

Continued at Yahoo Finance…

Federal Reserve Makes Record $52.1bn Profit

According to BBC, last year the Federal Reserve made over $51.1 in revenue last year, allowing them to pay a record $46.1 billion to the U.S. Treasury. This number represents the largest payment made to the Treasury since 1914. It was also a massive 47% increase from the year prior. As the BBC article explains, the record figure was largely a result of the Reserve’s attempts to support financial institutions with large bail out loans.

The Federal Reserve funds itself from its own operations and returns any profits to the Treasury department.

The figures suggest that US taxpayers have, so far, gained money from the US government's action in propping up the system. Some of the profit has come from interest earned on government bonds and mortgage-related securities, including those of mortgage giants Fannie Mae and Freddie Mac.

The emergency lending programs instituted by the central bank during the last year's financial crisis helped swell the Fed’s balance sheet to more than $2tn. They were designed to keep down interest rates and get banks lending to each other again, hoping to spark an economic recovery.

The Federal Reserve could also lose money on its holdings if it sells them at a time when they have fallen in value. The Fed also earned money from its emergency loans to banks and other firms, such as the giant carmakers. It charged both interest and fees on these.

Questions for the Tax Lady: December 14th, 2009

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: My husband and I are purchasing a new home. We already own another property, so will we be eligible for the new $6,500 credit if we close before the end of the year?

Yes. The Homeownership and Business Assistance Act of 2009 was signed into law on November 6^th, 2009, and became effective immediately. As long as you and your husband have been living in your principal residence for five years you should qualify for the credit. However, keep in mind that the credit does begin to phase out for couples making $245,000 or more per year.

Question #2: My business had a really profitable month. Do you have any ideas on last minute expenses to help lower my taxable income?

Depending on how many purchases you want to make, you could consider office furniture or computer equipment. Alternatively if you are looking for something cheaper, you could pay your January office rent early, or any other major bills such as your telephone service fee. On the other hand, you could defer some of your income until next year by waiting until after the end of the month to cash a check or two.

Can the Postal Service be Saved?

Over the weekend, the United States Postal Service announced that it had lost $3.8 billion over the past fiscal year, which ended on September 30^th. Their report claimed that they also delivered about 26 billion less pieces through the mail then they had the prior year, which translates to a nearly 13% drop.

The Postal Service, as it is quick to point out, is legally prohibited from taking tax dollars. But in order to stay afloat, the agency has been actively borrowing from the U.S. Treasury: At last count, according to Postal Service spokeswoman Yvonne Yoerger, it owes the government $10.2 billion.

Federal law dictates that the Postal Service can borrow up to $3 billion per year - but the debt cannot grow beyond $15 billion. That means that while the agency, which had revenues of $68.1 billion last year, could potentially borrow another $3 billion in 2010, it will soon no longer be able to legally borrow billions from the government.

Meanwhile, the Postal Service is estimating that without significant changes, it will lose another $7.8 billion in the coming year - and deliver another 11 billion fewer pieces of mail.

Which raises the question: Could the Postal Service be doomed?

"I don't think the Postal Service is in danger of going away totally," said Yoerger, the Postal Service spokeswoman. "But our current business model needs to be reviewed and revised to come up with a sustainable model so that we can get back to profitability while still continuing to meet our mission of serving all of the country with affordable, universal Postal Service."

Continued at CBS News…

Geithner: 'The Credit Crunch is Not Over'

At a small business finance forum in Washington, Timothy Geithner reminded small businesses that the credit crunch is not over yet and warned listeners not to get too far ahead of themselves. He went on to explain that while many big businesses are already seeing profits, small business owners still have more recovering to do. Checkout the following CNNMoney.com article on the event below.

One day after Goldman Sachs' CEO apologized for his bank's role in the financial meltdown, Treasury Secretary Geithner called on the nation's financiers to step up and do more to fix the damage they helped cause.

"This credit crunch is not over," Geithner at a small business financing forum in Washington hosted by the Treasury. "It may feel dramatically better for large companies, but it is not over for small businesses across the country."

The nation's banking system was stabilized with taxpayer dollars, and Geithner said he holds the biggest banks accountable for passing the torch from Wall Street to Main Street.

"Banks bear some responsibility for the extent of the damage caused by the crisis," he said. "And they carry a substantial obligation to help our communities get back on their feet."

Geithner and an assortment of top Washington officials, including Small Business Administrator Karen Mills, met Wednesday with a gathering of bankers and small business owners to address the credit crunch that has plagued small business owners for more than a year. Frozen out by banks unwilling to make risky lending bets on startups and small companies, the nation's 6 million small employers are struggling.

Continue reading at CNN Money.com…

Health Insurer Profits not so Fat

As the reform debate continues in Washington, recent reports have emerged showing that the health insurance industry is not as profitable as many would assume. Calvin Woodward of My Way News has posted this interesting article looking at some of the claims about health care profits and a more detailed look at the numbers regarding those claims. According to Woodward, farm and construction machinery, Tupperware, the railroads, Hershey sweets, Yum food brands and Yahoo are all more profitable than the health insurance industry.

Democrats and their allies have gone after insurance companies as rapacious profiteers making "immoral" and "obscene" returns while "the bodies pile up."

Ledgers tell a different reality. Health insurance profit margins typically run about 6 percent, give or take a point or two. That's anemic compared with other forms of insurance and a broad array of industries, even some beleaguered ones.

Profits barely exceeded 2 percent of revenues in the latest annual measure. This partly explains why the credit ratings of some of the largest insurers were downgraded to negative from stable heading into this year, as investors were warned of a stagnant if not shrinking market for private plans.

Insurers are an expedient target for leaders who want a government-run plan in the marketplace. Such a public option would force private insurers to trim profits and restrain premiums to compete, the argument goes. This would "keep insurance companies honest," says President Barack Obama.

The debate is loaded with intimations that insurers are less than straight, when they are not flatly accused of malfeasance.

They may not have helped their case by commissioning a report that looked primarily at the elements of health care legislation that might drive consumer costs up while ignoring elements aimed at bringing costs down. Few in the debate seem interested in a true balance sheet.

Wall Street Profits from Trades with Fed

From FT.com:

Wall Street banks are reaping outsized profits by trading with the Federal Reserve, raising questions about whether the central bank is driving hard enough bargains in its dealings with private sector counterparties, officials and industry executives say.

The Fed has emerged as one of Wall Street’s biggest customers during the financial crisis, buying massive amounts of securities to help stabilize the markets. In some cases, such as the market for mortgage-backed securities, the Fed buys more bonds than any other party.

However, the Fed is not a typical market player. In the interests of transparency, it often announces its intention to buy particular securities in advance. A former Fed official said this strategy enables banks to sell these securities to the Fed at an inflated price.

The resulting profits represent a relatively hidden form of support for banks, and Wall Street has geared up to take advantage. Barclays, for example, e-mails clients with news on the Fed’s balance sheet, detailing the share of the market in particular securities held by the Fed.

“You can make big money trading with the government,” said an executive at one leading investment management firm. “The government is a huge buyer and seller and Wall Street has all the pricing power.”