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This week marks the start of one lesser-known provisions in the federal stimulus bill - one that has lots of small business owners griping: the Cobra extension.

Under the terms of the stimulus bill, recently laid-off workers get a discount on their continuing employer-sponsored health-care coverage, known as Cobra. Instead of paying the whole premium – which can easily exceed $1,000 per month – workers pay only 35%. The sticking point for their former employers is that they have to pay the remaining 65%, for up to nine months. The law applies to companies with 20 or more employees.

The companies aren’t expected to bear the cost forever. Businesses can withhold the amount of the payments from their next federal tax bill.

Even so, the temporary payment is a tough pill to swallow for small companies that are staring down cash crunches. “It’s an interest-free loan to the government,” says William Leake, chief executive at online search marketing company Apogee Search. Apogee laid off close to 10 employees early this year, bringing the company’s employee count to 50. “It’s not a problem if you’re a big giant company. If you’re in that 20 to 150 or 200 range, it’s a big compliance pain in the rear,” Mr. Leake says.

The requirement can be more than just a pain in the rear for companies that are truly struggling and desperate to hang onto their cash. “Cash flow is the lifeblood to many small businesses and even more vital to businesses that are struggling,” says Kevin Ryan, a CPA and partner with accounting and consulting company Citrin Cooperman & Company. Cash-flow squeezes from these kinds of provisions can hurt borrowing prospects or delay payments to suppliers, Mr. Ryan says – triggering a wave of serious problems.

Readers, is the new rule fair to small businesses? Has your company been affected?

Photo: AP

It comes as no surprise that Apple Inc. is focusing its new iPhone advertisements on small businesses next. Since the Apple App Store opened 10 months ago for the iPhone and the iPod Touch, it is now approaching its 1 billionth download, which should come as early as tomorrow. Consumer demand caused about 110 million “apps” to be downloaded each month; these apps, from the frivolous to the practical, are free or can be bought for 99 cents or $1.99.

But the new iPhone 3G ads running now on television’s prime-time hours show a small-business bent. Users, the narration says, can use the iPhone to process credit-card transactions using Inner Fence’s Credit Card Terminal application; print a shipping label for a package using the Print & Share app; and check on the status of a delivery with FedEx Mobile app.

The move follows a number of key changes Apple has done to the iPhone’s functionality as it seeks to tap into the business market. They’ve already made business users happy with push e-mail, calendar and contacts capabilities and compatibility with Microsoft Exchange.

“Apple obviously has made some changes to their software earlier this year to include enterprise applications,” Carolina Milanesi, a research director at Gartner, said to NewsFactor.com, adding that Apple has also introduced virtual private network technology and other changes to firm up security issues for businesses. But enterprise adoption success haven’t reach high levels yet, analysts say.

Could Apple also be worried about competition? Research in Motion Ltd.’s Blackberry, whose users are mainly business professionals, started its own version of the iPhone App Store earlier this month, called the Blackberry App World. So far, Blackberry has less than 1,000 applications compared with the 31,000 available for the iPhone. Apple, whose App Store contributes less than 1% to revenues, reports fiscal second-quarter earnings this afternoon, after the closing bell.

Readers, do you think having an iPhone is (or will be) useful to your business with the applications they’re touting? What “app” has been most helpful to you?

- New SBA administrator Karen Mills unveils her new management team. [BizJournals.com]

- Some states are taking small-business struggles into their own hands. Missouri’s House of Representatives passed a bill that would allow small businesses to keep a larger percentage of sales tax and prevent new regulations that burden them over the next three years. [Forbes]

- Small-business optimism dropped slightly again in March, according to National Federation of Independent Business monthly survey. But signs suggest housing and consumer markets are stabilizing, suggesting economy may have “bottomed out.” [WSJ]

- Rep. Nydia Velazquez, chairwoman of the House Small Business Committee, asks IRS to simplify the tax-filing process for small-business owners. [USNews]

- Five ways to dodge a deceptive search-engine optimization firm. [SmallBizTrends]

- Despite cheers that SBA loan volume has risen 20% since mid-March, some local entrepreneurship organizations and small businesses find loans are still near impossible to get. [Orlando Sentinel]

- Even some of the strongest small businesses are being hurt by the credit crunch. How are they responding? A survey of winners by our Top Small Workplaces partner, Winning Workplaces, takes a look. [Winning Workplaces]

- New York City has a plan to find its unemployed financial professionals work again: Train them to be small-business advisers. [NYTimes]

Any other relevant or interesting small-business news we missed this week?

There’s some bad news for people hoping President Obama’s plans to spur small-business lending would reap quick results.

A Government Accountability Office report released yesterday says the Small Business Administration will be a few months late installing some new regulations meant to revive SBA lending, which has fallen considerably over the past year. Two changes mandated by the $787 billion stimulus plan, including cutting loan fees and raising loan guarantees for borrowers, were enacted in the 15-to-30-day window required by the stimulus. But the agency missed two March deadlines to increase guarantees on secondary market SBA real-estate and equipment loans and to issue regulations involving “systemically important” broker-dealers in the secondary market.

SBA officials, including new administrator Karen Mills, told the GAO they hoped to have those regulations issued by June. Enacting such rules was too complicated to complete in the short period the stimulus plan required and need to be executed in a way as to not create taxpayer losses, they said.

The delays could mean it takes longer for the Treasury Department to execute its plan to spend up to $15 billion buying up SBA loans on the secondary market, according to an article in the Dallas Morning News.

But the GAO report wasn’t all bad news. Despite the delay, Ms. Mills told the GAO that SBA loan volume is up 20% since mid-March. What’s more, a Dow Jones Newswires article about the GAO report said it’s unclear how much SBA’s actions would affect SBA lending volumes and secondary market anyway, as the Treasury’s plan to buy up loans on the secondary market could help stimulate lending the most.

Have you applied for an loan recently? Do you see the SBA lending environment thawing?

Just as you recover from tax day, the Small Business & Entrepreneurship Council offers its analysis of the best and worst states when it comes to taxes.

The “Business Tax Index 2009: Best to Worst State Tax Systems for Entrepreneurship and Small Business,” ranks the 50 states and District of Columbia according to the costs of their tax systems for entrepreneurship and small business. The index pulls together 16 different tax measures and combines those into one overall tax score. Among the taxes included are income, property, death/inheritance, unemployment, and consumption-based taxes like gas and diesel levies.

“Taxes matter,” says SBE Council chief economist Raymond Keating. “They matter to
consumers, entrepreneurs, investors and businesses. They matter in terms of a state’s
competitiveness. And they matter when it comes to economic growth and job creation.”

Here’s the ranking, from the state with the best tax system down to the one with the worst, according to the report:

1 South Dakota
2 Nevada
3 Wyoming
4 Washington
5 Texas
6 Florida
7 Alaska
8 Colorado
9 Alabama
10 Ohio
11 South Carolina
12 Mississippi
13 Tennessee
14 Missouri
15 Oklahoma
16 Virginia
17 Arizona
18 Illinois
19 Georgia
20 Michigan
21 Delaware
22 Indiana
23 Arkansas
24 Utah
25 New Hampshire
26 Louisiana
27 New Mexico
28 Kentucky
29 Pennsylvania
30 Connecticut
31 Montana
32 Wisconsin
33 Kansas
34 Oregon
35 Maryland
36 North Dakota
37 Hawaii
38 North Carolina
39 West Virginia
40 Nebraska
41 Idaho
42 Massachusetts
43 Vermont
44 Rhode Island
45 Iowa
46 New York
47 California
48 Maine
49 Minnesota
50 New Jersey
51 Dist. of Columbia

Here’s the full report, which explains the 16 tax types that go into the scoring.

Readers, does your state fall where it should on the list? Have state taxes gotten out of hand where you live?

Photo: AP

Thinking about leasing office space for your small business or start-up? Now might be a good time to shop around.

Corporate downsizing and business closures are leading to much higher commercial vacancies in many U.S. metropolitan areas. Rising vacancies means many landlords are eager to woo new tenants to their space - and small businesses are an obvious choice right now.

Of course, the office real-estate market varies by region, and some cities will provide better deals than others. In the Atlanta area, which has experienced some of the worst job losses nationwide, a report by Grubb & Ellis found small-office transactions – those under 10,000 square feet – rose 7% in the first quarter of 2009, according to the Atlanta Journal Constitution. And that boost in small office transactions came as total office space leasing had fallen by 50% over the previous quarter.

Many landlords are enticing new tenants, the article says, with free rent and improvement packages. “The technology and financial-services sectors were especially active with a number of start-up firms securing office space,” the Grubb & Ellis report said.

Even if you’re not shopping for new office space, it’s worth trying to renegotiate the rent you pay on your current lease. Many landlords are eager to retain tenants in this bad climate and may be willing to provide extra incentives, including lower rent or upgrades to the space. Minneapolis sushi bar Nami recently negotiated a 50% reduction in its rent with its downtown landlord who wanted to help the struggling restaurant stay afloat and keep the space filled, according to an article in the Downtown Journal.

Several other Minneapolis commercial landlords also said rent concessions and discounting – even if temporary - are a common and practical move right now to keep commercial space filled. “It’s principally economically driven because we understand how much it costs to redo the space and leave it empty for six months. … It’s just very basic business sense in our industry to keep people who are paying rent, even if in economic hard times you have to do some accommodations, at least on a temporary basis,” one downtown landlord told Downtown Journal.

Have you shopped around for office space or tried renegotiating your lease in recent weeks? How did it work out?

Warehouse clubs – those big-box stores that charge annual membership fees and sell everything from gigantic plastic jugs of Heinz ketchup to flat-panel TVs and bulk-sized paper products – are aggressively courting small-business owners these days. And it’s no surprise: Small-business growth is seen as inevitable as more laid-off workers start businesses.

Wal-Mart-owned Sam’s Club just launched a “Small Business Savings Drive”, which it claims will help small-business owners save money by comparing what they spend at others stores to what they’d pay at Sam’s. Business owners can complete an online form on the store’s small-business site or call a toll-free number to get a personalized inventory report on how much they’d save on various products they buy. The store is also offering to send an associate out to a small business and is touting a free one-day membership pass for businesses.

Costco, a Issaquah, Wash.-based warehouse club chain, in late March opened its sixth Costco Business Center in Hawthorne, Calif. The centers, which offer services such as photocopying and next-day deliveries for small businesses, are part of Costco’s strategy to focus more on business needs and less on homeowners, according to BNET.com.

BJ’s Wholesale Club, which typically focused more on non-discretionary items than the other two, also offers special discounts for business owners.

Small businesses have always been an important market to warehouse clubs, but they’re becoming even more so as discretionary consumer spending dries up. A Barron’s article said small-business owners are 25% of all Costco members, but account for 40% of all sales. As small-business owners become more cost-conscious like everyone else, these clubs also see new opportunities to woo them with deals.

What does this all mean for you? If you haven’t already, now’s a good time to at least explore what warehouse clubs can offer your business and take advantage of free day passes and other promotions. Of course, don’t get suckered into something that won’t really save you money. Annual memberships to these clubs start around $45 and can go up to $100 for “business” or “executive” memberships, so it can take substantial purchases to recoup that fee through savings.

There are also other considerations, such as what types of products and services you typically buy and whether the club offers it, payment methods available and convenience. You can find some good primers on comparing warehouse club memberships here, here and here.

Readers, do you belong to a warehouse club? Does it actually save you or your business money?

Photo: Associated Press

Consumers aren’t the only ones trading down. With rising food costs, the nation’s restaurateurs and cooks are getting conscientious about what they put on the menu, with some using cheaper cuts of meat and value-friendly ingredients such as rice and hot dogs, according to the third annual chef’s survey by QSR magazine, a trade publication for the quick-service restaurant and fast-casual restaurant industry.

Food costs are already biting off about one third of sales, and about 20% of quick-service operators cite the rising cost of food as the top challenge they’ll face this year, according to the National Restaurant Association. Although food-cost increases are expected to slow this year after 30-year highs in 2007 and 2008, experts say they still expect prices to continue rising nearly 3%.

Even high-end restaurateurs like Alain Ducasse and Daniel Boulud aren’t immune to the fluctuations of commodity prices and the preference of consumers looking to spend less while dining out. They’re making room in their restaurants for more bar space to serve lower-priced dishes, such as sliders, $1 deviled eggs, homemade sausage and hot dogs, while diners buy drinks.

That kind of creative thinking echoes the changes many chefs in the food industry are predicting in many restaurants’ menus for the next two years, as they told QSR magazine in its April 2009 issue:

Pork belly and pork shank are making inroads in fine dining. They lend themselves to long, slow cooking so would probably need to be done by a supplier for a limited-service menu. Chicharrones impart a lot of flavor and texture at a relatively modest cost.
— Nestle’ Professional Culinary Team

Rice lends itself to value pricing. Rice bowls are becoming popular, as well. The bowls usually have a protein, vegetable, and a sauce for a very flavorful and inexpensive meal.
— Dave Fenner, Boneheads Grill Fish and Piri Piri Chicken

Rising costs mean smaller portions. Rising costs also mean value-added proteins. We are seeing more use of muscles in the center of the plate than we have in the past. I am not sure if it will be a specific flavor or more of comfort foods. … With the economy the way it is and is going, more people will be eating comfort foods, not only because of the nostalgic feeling that it gives people but because the cuts of meat are less expensive.
— Dan Barash, Moe’s Southwest Grill

Mini-dessert portions will gain popularity and help increase check average while helping customers indulge with moderation. Tried-and-true comfort food staples will continue to occupy center stage.
— Jim Villemaire, Schlotzsky’s Deli

Indulgent comfort foods such as home-style mac-and-cheese entrée dishes, possibly with a protein incorporated.
— Jon Miller, El Pollo Loco

Readers, have you already seen some of these changes in your favorite restaurants’ menus? How have you been able to combat the rising costs of food?

Photo: Associated Press

Just when you thought the reality-TV masterminds had nothing left in their arsenal, Fox will air a new reality show chronicling small businesses as they’re forced to lay off employees.

The show is called ‘Someone’s Gotta Go’ and is in production. The show will visit real businesses around the country and let employees vote on who should get the axe.

“It’s ‘Survivor’ meets ‘The Office,’” said Fox reality chief Mike Darnell, in a interview with show-business magazine Variety. “When someone is arbitrarily let go the first reaction usually is ‘How come that person was fired when another idiot is still here?’ This finally gives employees a chance to make that decision instead of a boss.”

According to Variety, the show will visit a different small business - each one generally around 15 or 20 employees - for each episode. All of the businesses are being forced to consider layoffs because of the economy. On the show, employees will learn what their HR file says. In classic reality-show style, employees will have the chance to tell their co-workers just what they think about them. Then, true to the art form, they’ll vote on who should go.

On its Web site, programming company Endemol USA, which is working on the show with Fox, describes ‘Someone’s Gotta Go’ as “a compelling workplace challenge with a difference. Each episode follows a small business adopting a radical approach in these tough economic times. The boss gives the power to the employees to decide who deserves to be paid more, paid less and fired. In the end, someone’s gotta go!” Endemol is behind reality shows ‘Fear Factor’ and ‘I Want to Be a Hilton,’ among others.

“We’re always trying to find the next thing that is topical and timely in the zeitgeist,” said Endemol executive David Goldberg in Variety. “What could be more current than the financial crisis and dealing with the realities of losing jobs? This is an extension of that real-life experience.”

No word yet when exactly ‘Someone’s Gotta Go’ will be available for your viewing pleasure, but it may be late summer or early fall, according to Variety.

Readers, would you watch a show like this? Would you want your business to be on the show?

As stimulus money starts trickling out, some are asking a timely question: Is the federal government doing enough to ensure small businesses get their share?

Lloyd Chapman, president of the American Small Business League – a California-based group that follows small-business contracting issues – argued in an editorial on HuffingtonPost.com yesterday that the Obama administration needs to be more proactive in directing government stimulus work at small companies. President Obama, he says, promised in February 2008 that he would fight for small-business contracting issues, but has mentioned the issue little, if at all, in recent weeks.

The issue at hand: Congress passed legislation in 2003 mandating that federal agencies aim at least 23% of all prime and subprime contracting dollars at small businesses. But several investigations found the government has done a shoddy job of enforcing that rule. And a Washington Post investigation last fall found that 38.5% of all government contracts coded as small were actually being diverted to Fortune 500 companies including Lockheed Martin Corp. and Dell Inc.

Mr. Chapman says that ensuring that money actually went to small businesses would result in $100 billion of government work for them.

“So far, nothing President Obama has proposed to stimulate our nation’s failing economy would be as effective and cost efficient as simply adopting policies and legislation that would redirect over $100 billion, year-after-year, back into the middle class economy,” he writes.

Mr. Chapman has consistently criticized the government (both under former President Bush and now President Obama) for not caring enough about small-business contracting rules, but now more than ever his point seems valid. Companies are looking at the federal government as a potential customer more than ever before. Many are applying for government contracts for the first time and competing against much larger companies with political influence.

If the federal government sees the stimulus money as helping businesses of all size, now seems a ripe time for the federal government to address the issue of contracting fairness and fraud and ensuring small businesses aren’t being overlooked.

So far President Obama has issued a government-wide review of government contracting procedures, and whether they’re as efficient as they can be. But he’s said little about whether he will address small-business contracting issues in particular.

Do you think President Obama needs to be more proactive in enforcing small-business contracting rules? Or is current oversight enough?