Good news for small businesses, sort of


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There was some encouraging news recently on the small business front. The number of small businesses sold in the second quarter dropped. How is that encouraging? It was only the first such drop in a year and a strong first quarter had set the bar unduly high. Hey, I’m trying to be optimistic.

According to online small business marketplace BizBuySell.com, Q2 sales of businesses with fewer than 500 employees tallied 1,603, down from a first quarter total of 1,729. The median sales price stayed steady, but the median asking price dropped about one percent.

Sales of small businesses hit a low point in the second quarter of 2009 at 1,476. Before the fiscal crisis, the run rate was over 2,000 per quarter.

No doubt some sales are being spurred by the potential expiration of the Bush capital gains tax cut at year’s end. But the level of small-business sales does indicate continued economic improvement.

If you’re in the market for a small business and it happens to be a franchise, read the fine print. Franchises are like partnerships with a twist: the franchisor has all the clout. And in tough times, owners of some high-profile franchises have found that not having any clout can be costly.

U.S.-based franchises employ about eight million people, so they represent a fair chunk of the small-business sector. But in tough times, what was once perceived as a cooperative partnership can quickly turn into an “every partner for themselves” scenario. That’s why it’s imperative to thoroughly understand your rights as a franchisee.

Last month, an association of franchise owners filed a lawsuit against Cold Stone Creamery Inc., accusing the ice cream chain of playing fast and loose with funds that were earmarked for marketing.

There is also turmoil at Edible Arrangements. Honestly, I don’t get the mediocre fruit in a floral arrangement thing, but the company has over 1,000 outlets and generated $425 million in revenues last year, so what do I know? But in September 2010, a group of Edible Arrangement franchisees filed suit against the mother ship, claiming management “abused its discretionary authority” by mandating all U.S. locations extend daily operations by two hours and be open on Sundays.

Tariq Farid, president of Edible Arrangements, took umbrage with the lawsuit, claiming any new operating procedures the company implements are intended to benefit its franchisees -- not hurt them. Really?

Did I mention that you need to make sure you understand what you are signing if you decide to buy a franchise?

Expense relief

In other news, small businesses may get some expense relief from a proposed settlement with Visa and MasterCard that would allow millions of businesses to impose a surcharge on credit card purchases. It’s a tempting proposition. I own a small business and it’s irksome when someone whips out plastic to buy a candy bar. I’ve addressed that problem with a minimum purchase, but credit card fees still cost me thousands each year. Still, the question remains -- is imposing a surcharge a good business decision?

Many companies charge a fuel surcharge, so there is precedent. But I find such fees annoying.

Perhaps a better approach is to treat them for what they are: a business expense. As such, a less-controversial strategy may be to simply imbed the cost in the price of your product.

Whether passing these costs on to your customers through a surcharge is a viable option depends on a number of factors, including average transaction size, the competitive landscape, and the value proposition of your products. If the settlement is approved, I’ll revisit this discussion.

 

Entrepreneur, marketing and management expert, economist, author, and professor. Tony Paradiso’s website is tonyparadiso.com.


 

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