Education and Jobs
Small business is the lifeblood of American capitalism and entrepreneurs have been the secret weapon of our country’s prosperity. With the surge in unemployment because of the Great Recession, more formerly salaried workers are becoming entrepreneurs.
In this chapter, I’ll show you how to start a business and help it thrive, and how to save money for college—whether school is eighteen years down the road or starting next semester. I’ll also tell you how to find work at home that’s legitimate. There are too many scams out there. Be careful!
STUDENT LIFE
Avoid bad 529 plans
What’s the best way to save money for your child’s education? I like 529 plans, which allow you to save money tax-free that’s spent tax-free down the road on a child’s college expenses.
But 529 plans can be unnecessarily confusing; each one is sponsored by a state and any state can lend its name to multiple plans. So how can you know which plans in a given state are good and which to avoid?
I’ve compiled a list that’s available at ClarkHoward.com. Just search keyword “529 guide” to see my picks. I’ve singled out three particular plans in three states that make my dean’s list (the highest distinction) and others in more than thirty states that are on my honor roll. You can apply directly to the plan of your choice right from the links on my website. Best of all, my picks are all sold commission-free.
Before you view my list online, I want you to understand that you don’t need to put your money into a plan that your state sponsors; you can pick a plan from anywhere in the nation.
However, you may get state tax benefits (if applicable) for contributing to one of your own state’s plans. If that’s the case, a recommended plan in your state that’s on my honor roll generally trumps any of the ones on my dean’s list (for a nonresident). Of course, if you live in a state that doesn’t have an income tax, it doesn’t really matter; you can then just stick with any of my dean’s list picks.
When you set up a 529 account, be sure that it’s in your name and that you put your child down as the beneficiary. If your child doesn’t go to college, the money can later be transferred to another beneficiary and spent tax-free on that person’s college, or you can withdraw the 529 money and use it for anything—after paying tax on the earnings plus a 10 percent penalty.
A 529 is really just a shell and you need to fill it with individual investment picks. I like age-based portfolios best. The risk level is automatically adjusted every two years or so by the plan administrator, allowing you to take a “set it and forget it” approach.
Think about it like this: You need a different investment mix when your kids are five versus when they’re fifteen. Typically, you want to be more heavily invested in stocks during their early years and pick safer options, like stable-value funds, as college approaches. Again, all of this is handled automatically by the fund manager of your age-based portfolio.
Another unique feature of 529 plans is their flexibility. You can put in as little as $15 each month. Or a rich grandparent can pop in as much as $65,000 at once without being eaten alive on taxes. Better still, the grandparents can retain control of the money in case a grandchild decides to major in Harleys rather than attend Harvard!
One final caveat: I always tell people that you shouldn’t save a penny for college unless you are already saving the maximum you can for your own retirement. College can be paid for with grants, loans, scholarships, and work. Retirement happens only if you have saved the dough.
Avoid private student loans
The private student-loan industry is one that really sickens me. Back in 2005, the industry bought off enough politicians to gain the right to do anything short of causing you bodily harm in their efforts to collect delinquent loan payments.
If you’re in default, a private lender is allowed to seize your wages and empty your account without proving you owe the money. And private student loans typically can’t even be dismissed in bankruptcy.
Simply put, private loans are the worst kind of student loan debt to have.
That’s why I advise people who have both federal and private student loans to pay only the minimums on the federal loans and throw every dollar possible at the private ones. The sooner you get the private loans out of your life, the better.
Today’s average student graduates with debt of over $23,000, according to the most recent figures I saw in The Wall Street Journal. Here’s my rule of thumb regarding borrowing for undergraduate studies: Your entire loan burden for four years should be equal to or less than your expected earnings during your first year of employment after school.
If you’re contemplating taking on debt to pay for school—especially if that means taking out private student loans—the alternative is two or even four affordable years of college at a community school. (See “Attend a Community College for the First Two Years” on page 88 for more details.)
Try peer-to-peer lending specifically for the student loan market
The credit crunch leading up to the Great Recession hit all sectors of the economy, including student loans. The tightening of lending made it particularly hard to get a private, nongovernmental educational loan. (Not necessarily a bad thing, as I noted above!)
Previously, the best I could do was suggest that students who needed additional funds petition the financial aid office if they were at a private college or talk to deans and department heads if they attended a state school.
But now I have two new options to share with you. GreenNote.com and People2Capital .com both specialize in peer-to-peer (P2P) lending specifically for the educational market. Students can borrow from friends, family, and strangers alike after creating online profiles that detail who they are and what education goals they have.
Many of the same hazards and opportunities of the traditional P2P world apply here for lenders and borrowers alike. See page 173 for a more detailed discussion of what I mean.
A CLARK FAVORITE
Attend a community college for the first two years
Let’s face it: The cost of college has become prohibitive for many Americans. Even the state schools have run up their tuitions as they face state budget crunches. So how about going to a two-year community college? They can be a great way to start your education on the cheap.
According to numbers I’ve seen, the cost of a community college is one-tenth to one-twentieth that of a private college on average. Of course, that varies widely from school to school.
Let’s say you decide to do your first two years at a community college, and then transfer to a “name” school to complete your degree. People often worry about the lack of prestige associated with the community college. However, most employers look only at the name of the traditional college that issues your degree after you’ve put in your time at a community school.
In fact, I believe an employer might even prefer someone who worked their way through a community college and had to struggle financially. Doesn’t that make for a more compelling candidate than somebody who cruised through a four-year college on the silver-spoon plan?
Historically, community colleges offered only two-year associate degrees. But seventeen states now allow their community colleges to offer four-year bachelor’s degrees, according to the Community College Baccalaureate Association. Florida leads the way with more than a dozen community colleges offering bachelor’s degrees.
So if you’re contemplating borrowing yourself into oblivion to pay for school, perhaps the alternative is an affordable start at a community school.
When I was a high school senior, I was unsure of what my future would hold. With limited guidance and even scarcer financial resources, I began working part-time for a major pharmaceutical company as an entry-level administrative assistant during my senior year in high school.
After graduation, I decided to attend a local community college. The experience was rewarding both in terms of cost and academic opportunities. Making an entry-level salary, I was able to afford the classes, books and fees on my part-time income. I took classes for two years, left without any student loans or debt, and transferred my credits towards a private on-line university bachelor’s program that allowed me the flexibility to complete my degree in Business Administration as a single mother.
The community college charged $100 per credit hour, while the online university charged $372—more than three times the cost! I was also able to transfer my credits from the community college and complete my bachelor’s in two and a half years at a significantly lower cost than had I attended the online school all four years.
Lillian D., NJ
Finish your degree in three years
When we think of college, we typically think of a traditional four-year experience or even longer. But by cramming an education into three years, you can actually save a bundle by eliminating the cost of housing, meals, and transportation for a fourth year.
That move alone will typically reduce the final cost roughly by a quarter. This is exactly what I did when I worked during the day through undergrad school and took classes at night over three years.
More schools are now experimenting with this idea. As just one example, The New York Times reported Hartwick College in upstate New York was offering a three-year undergrad degree. It involves a modified schedule where you go to school for a fall term, followed by a January term (sometimes called a “minimester”) and then a spring semester. This kind of scheduling saves you $40,000 at Hartwick over the course of your education.
State schools can also boost their bottom line by adopting three-year degree programs. After all, the state schools are already bursting with new students who have enrolled in pursuit of a cheap education. So a full-year calendar increases the capacity of a state school by 33 percent without the expense of having to build any new facilities. Now that’s stretching taxpayer dollars!
Rent your textbooks online
I got my introduction to the high-price world of college textbooks when my eldest daughter was a freshman several years ago. At the time, I had to pay $135 for one book for one class! The average student spends $575 to use his or her books for about twelve to fifteen weeks—then they become yesterday’s news at the end of the semester.
Fortunately, the Internet has come to the rescue by offering a number of websites like Chegg.com and CourseSmart.com that rent college textbooks. The latter even gives you digital access to textbooks on an iPhone or iPad.
Several years ago, I talked on my radio show about what a racket it is that professors get paid to revise their textbooks annually and push the updated editions in course syllabi. I heard from an angry science professor saying that the field of science evolves so rapidly that educators would be shortchanging their students if they didn’t update.
That might be true at the graduate level but not at the undergraduate level. Most undergrads are just trying to decide what they want to do for a career. As part of that process, they’re required to take a lot of different courses that may have nothing to do with their eventual field of study. So to make underclassmen buy an updated textbook every year is ridiculous.
That’s why renting is such a smart option. In addition to Chegg and CourseSmart, other popular textbook rental sites include BookRenter.com, eCampus.com, and Skoobit.com.
Of course, you shouldn’t forget about the old standby options of eBay and Craigslist. You might be able to score a real deal on some great books—both college textbooks and regular books—that you can buy to keep for extra cheap!
I took Clark’s advice to look for books used online instead of new from bookstores. It’s saved a ton on travel books. Best deal so far, I got Clark’s first book on eBay for $.01! (turns out it was autographed too!) Despite the fact that it sold so low, I think Clark would be pleased that it went to someone who was being Clark Smart!
Chris O., NC
See if you’re eligible for student loan forgiveness
Every time I talk about special loan forgiveness for federal student loans, I get a wild surge of interest from my audience.
Under new rules, public service employees can enjoy full loan forgiveness after ten years of making on-time monthly payments on their federal loans. This is available to teachers, government workers, members of our armed forces, and those involved in emergency management, public safety, law enforcement, and public health, among others.
Visit the U.S. Department of Education’s website at ED.gov and go to the “How Do I Find . . .” module in the upper right corner, then click the “More” button. From there you’ll see a link for “student loan forgiveness” in the college section that has full details of the program as it pertains to teachers.
The folks at Money-Zine.com have put together a compilation of more wide-reaching forgiveness options, including some for Peace Corps volunteers and members of Ameri-Corps, as well as others. Search keyword “student loan forgiveness” at their site to see it.
As I said earlier, these forgiveness options are for federal student loans only. If you have private loans, you’re out of luck!
CAREER CENTER
Don’t fall for rip-off work-at-home ads
Many people want to do part-time work at home, especially when they have a newborn. But most work-at-home offers are scams. One stat that I’ve seen says that for every legitimate offer you might see, you’re going to come across forty-two scams.
So you’ve got to be careful if you’re looking to work at home. Be sure to avoid the ads in the back of women’s magazines about envelope stuffing, doing medical office paperwork, and the like.
One area that has proven legitimate over time is becoming a call center worker from your home. JetBlue was one of the pioneers in the home-based call center industry. Now companies like 1-800-Flowers and J. Crew are also getting in on the action.
I have a list on my website of work-at-home jobs—many of them phone-based—that I believe to be legitimate. You can search “work from home” to see it. It’s routinely one of the most popular searches on ClarkHoward.com.
Recently, SmartMoney magazine compiled a list of five work-at-home scams to avoid. If you’ve listened to my show or watched me on TV, many of these might be familiar to you as “golden oldies.” Others, though, are of a more recent vintage.
1. Assembly and craft work
This is perhaps the oldest on the list, as it dates back to the 1980s. Don’t fall for the pitch that you’ll be able to do assembly work in the comfort of your own home.
2. Medical billing
This one first popped up in the mid-1990s. The gist of it involves buying a software package that allows you to process medical paperwork from home. There’s a small kernel of truth here—some longtime employees of doctor’s offices do this kind of work remotely—but the way it’s being sold is a falsehood.
3. Mystery shopping
Here’s another relative oldie. There are some legitimate mystery shopping sites such as Volition.com, which serves as a clearinghouse for this kind of thing. But most others are a false lead. Never pay anything up front in order to do mystery shopping or get information about it, no matter who is offering you the supposed opportunity.
4. Rebate processing
Here’s a more recent rip-off. Rebate processing is a high-volume, low-margin business that’s done at big processing centers and usually handled internally. This kind of work is generally not farmed out. The only exception might be a handful of hires who live close to a processing center.
5. eBay PowerSellers
This is another newer scam that promises you instant credibility on eBay and the opportunity to make a fortune selling online. But eBay transactions are way down, and the company is going through a midlife financial crisis. One big problem is the credibility factor of sellers and buyers alike. In reality, there’s no insta-biz solution when it comes to eBay. As a seller, you sustain yourself over time only by specializing in a niche market.
Beware of fake government jobs and grants
At a time when jobs are still hard to come by, one employer seems to have continuous hiring needs all around the country. This should actually come as no surprise—it’s the federal government.
As government grows larger, there is obviously a need for more employees. In addition, there are waves of older employees getting ready to retire. Most of them were originally hired during President Johnson’s Great Society initiatives in the 1960s.
The high attrition rate has led to a lot of bogus websites into the business of luring you with promises about having the inside track on federal hiring, usually for a fee. Know this: There is only one legitimate site for federal government hiring and it’s free—USAJOBS.gov.
Once you apply for a position, the federal screening process begins, and it can be very confusing to those in the private sector. I recommend networking with anyone you can find—a relative, a friend, or even an acquaintance at your house of worship—who is already in the system.
While we’re on the topic of the government, I want to say a word about offers you might see that promise to connect you with info about government grant money that’s supposedly just sitting there waiting for you to claim it—again, for a fee.
There is only one legitimate grants resource that I know of online. It’s Grants.gov and it states very clearly on the home page that it does not offer personal financial assistance.
Now, that’s not to say there isn’t government assistance available to some. You’ll see a link on the Grants.gov home page over to Benefits.gov, where you can read about assistance that’s available. In general, you have to apply and then meet specific eligibility requirements. Sometimes the assistance does not come in monetary form. So basically there are a lot of hoops to jump through. It’s not anywhere near as easy as those ads make it seem.
On another note, what about those supposed jobs with the United States Postal Service? While the USPS is independent from the government, it hasn’t been immune from crooks who promise to loop you into a goldmine of jobs if you pay them for their insight.
Not only is the Postal Service not hiring, but it had 160,000 too many employees at the end of the last decade. Remember that the next time someone promises to get you a USPS job in exchange for your hard-earned money.
Fix credit report errors or risk not getting a job
A bad credit reputation might keep you from getting a job in a tough market. The best estimate I’ve seen is that between 40 percent and 50 percent of employers are running credit checks on would-be employees. And we’re not just talking about jobs in the financial sector, which is where this practice started—we’re talking all industries nowadays.
However, a recent study from Eastern Kentucky University found that there’s no correlation between credit score and job performance.
So employers are going into battle with the wrong weapon. They’re listening to the human resources departments that tell them to get a credit score on all potential hires, even though it’s a meaningless indicator. Silly, silly, silly.
The real problem here is that many credit reports have errors. Public Interest Research Group estimates that close to one-third of reports contain serious errors that can cost you a job offer or prevent you from getting new credit.
This is yet another reason why you should visit AnnualCreditReport.com to pull one of your three credit reports every four months. (See “Get Free Credit Reports at the One Legitimate Site” on page 179.) Every year, you can get a credit report from each of the three main credit bureaus—Equifax, Experian, and TransUnion.
Paying off any small nagging debts will immediately help your credit. But if you have legitimate errors, be sure to challenge them both with the individual credit bureau and the credit issuer. You’ll want to file both disputes at the same time by send all supporting evidence via certified mail. Tell the credit issuer that you’ll sue them for damages if the fix is not made in a timely manner.
Get a job in a city where your money goes further
In a time when unemployment is high, people are assessing where they want to live and where they can make their money stretch. After all, Americans have always been a migratory people when the chance to follow opportunity arises.
Salary.com’s Salary Value Index (SVI) surveys American cities to determine where your paycheck will stretch the furthest.
At the top of the list sits a suburb of Dallas called Plano. The No. 2 spot was nabbed by the Denver suburb of Aurora, Colorado. One shocker on the list for me was Seattle at No. 10. I’ve always considered the Emerald City a very costly place to live, but then again, salaries are high throughout the area.
The worst place to live when it comes to stretching a buck? New York City, followed by Washington, D.C., Los Angeles, Honolulu, and San Francisco.
Salary.com also offers a feature where you can plug in the proposed salary of a job offer in another city and see how the cost of living there compares with that of your current home.
Obtain a patent on the cheap
I don’t have much creativity and inventiveness in this brain of mine, so I’m always impressed by those who do.
Most inventions start with an “Aha!” when inventors realize they can create something that will benefit themselves and other people. Once you have your eureka moment, it’s important to do something that’s so cheap but will be so helpful down the road: Write your thoughts down on paper and mail them to yourself.
For the price of a first-class postage stamp, you’ve now established a time line that proves your claim to an idea if someone else forces you into an intellectual property dispute at any point.
Stay away from any organization with ads on TV telling you to contact them if you have an idea. They’ll trick you into believing they love your idea ... but need several thousand dollars to take the idea to the next level. Before you know it, you’re scammed out of thousands and are no closer to bringing the idea alive. (More on that in the next tip.)
So where can you turn? Try visiting the United States Patent and Trademark Office’s website at USPTO.gov. They do a pretty good job explaining the basics of patent and trademarks in something approximating English, not governmentese.
I also like a book called Patent It Yourself by David Pressman. A new copy runs a little more than $30 at Nolo.com, and you can find it used for less. David explains in simple English how the whole patenting process works. His book will help you decide whether you want to proceed down the self-help path or hire an intellectual property attorney. The latter option can be pretty pricey.
Getting a patent is not the most difficult part; the most difficult part is finding a market for your idea. Building a “looks like, feels like” prototype is very important if you ever hope to bring your idea to market. You need to have more than just an idea on paper.
Think of this whole process as a journey, not just a single pit stop.
Avoid phony inventor sites and scams
It’s such a shame that phony invention groups prey on enterprising, hardworking people who could enrich their own lives and the lives of so many others with a unique idea or product. There was even a law passed a decade ago—the American Inventor’s Protection Act—to safeguard consumers against these fraudulent companies.
The scams usually work in three steps. At first, they send you a free information kit. Then, they hit you up for $500 to $700 to do some “preliminary research” into the viability of your idea. After a few weeks, you receive another, thicker package, with a letter saying your idea is a hit and the company needs more money to start a marketing campaign. Only this time, they hit you up for $5,000 to $10,000! Don’t allow yourself to be taken.
How can you find legitimate groups instead? For general information, HowStuffWorks .com is a good starting point where you can do a keyword search for “patents.” Another good resource is InventorEd.org, which is an informational site for inventors.
Then there is the International Federation of Inventors’ Associations (IFIA) at Invention-IFIA.ch. The IFIA even has information specifically for women, who tend to experience some discrimination from men in the inventing world.
You can stay out of harm’s way by being educated. And when you see those ads on late-night TV promising to take your invention and make you rich, you’d better steer clear.
Consider self-publishing if you’re an aspiring author
Over the years, I have had a lot of questions from people wanting to publish a book. Most didn’t know where to turn after they’d been rejected by all the giant publishing houses. Or else they’d been contacted by fake publishing houses that were more interested in their money than in their book.
Then in the late 1990s, bookstore chains and other legitimate players got involved in the self-publishing business. That trend has grown and grown until today it’s now possible to hire a self-publisher for around $500 and get your book out there. Lulu.com and Blurb.com are just two of the more respected elders in this new world of self-publishing that’s booming thanks to the power of the Internet.
With these kinds of services, you can make any number of arrangements. At Lulu.com, for example, binding your first book can be as low as $4, plus 2 cents a page. Blurb.com has several more features and the costs are a bit higher. But these are legitimate alternatives to the mega-publishers.
Other sites you might want to check out include 1stBook-publishing.com, Xlibris.com, and iUniverse.com.
Remember, these do-it-yourself services are ideal if you’re publishing in small batches, such as a family history for a limited number of relatives. Don’t expect to strike it rich from your self-published book. That takes a lot of market research, a well-conceived marketing plan, and some deep pockets.
Financial enrichment is the wrong reason to self-publish a book. Do it instead for the love of writing and telling a story. And if you do benefit financially, then you’ll be surprised and pleased!
ENTREPRENEURS AND SMALL BUSINESS
Get free help launching a small business
Call me crazy, but I’ve long believed that the best time to start a business is during an economic downturn.
Space, equipment, and staff all come cheap during down times. To give you one example, aspiring restaurateurs have found that they can afford to rent a space with kitchen equipment abandoned by previous tenants during the Great Recession.
Whenever someone asks me for advice about how to secure funding and launch a small business, I refer them to the Service Corps of Retired Executives (SCORE).
SCORE is a group of grizzled “been there, done that” businesspeople who believe so much in capitalism and entrepreneurship that they make themselves available for free guidance when you want to launch a business.
Once you have a written business plan, they’ll shoot it full of holes and then help you put it back together until it’s airtight. Many SCORE people are also experts at securing funding through the Small Business Administration, particularly micro-loans of up to $35,000.
Visit SCORE.org to get hooked up with a representative in your area.
Use a “kitchen cabinet” to help your small business succeed
A “kitchen cabinet” is indispensable for anyone who owns their own business or wants to start one. Much like the president’s Cabinet, a kitchen cabinet is an informal group of advisers who help guide you and develop new strategies to improve your business.
If you don’t have a group of trusted heads readily at your disposal, I recommend seeking out assistance from SCORE, as described in the last tip.
The Wall Street Journal also reports that there’s a group called Athena International, which specifically helps women small-business owners with free mentoring. This particular group operates in many states through local chambers of commerce. Visit AthenaInternational.org to see if there’s a chapter near you.
Finally, small-business development centers that are affiliated with universities in your community might also be of help. Check with the university nearest you to see if there’s one available.
There’s so much emphasis on assisting the entrepreneur who is just starting out. But often you need the most help about twelve to eighteen months after starting your business. That’s the most important time to draw on the experience of your informal kitchen cabinet.
Start a business and work out of your house
An economic downturn is the best time to start a new business. Space, labor, and equipment all come cheap.
In addition, we have something going for us here in America that makes our country one of the best places to start a business: We have the biggest houses on average of just about anybody in the world. Use those underutilized rooms to launch your business! The rent will be free!
The Wall Street Journal reports that more than half of all U.S. small businesses are based in the home rather than in traditional commercial, industrial, or retail space. That’s almost 7 million small businesses being run out of homes across the country.
The average home business employs two people—the entrepreneur, plus one other. And amazingly, more than one in three home businesses generate a six-figure income.
One word of caution: Check on local city ordinances to make sure you don’t run afoul of antiquated zoning policies.
But the benefits of in-home entrepreneurship are clear. No commute, no rent, and you might get a tax benefit by writing off a portion of your home for the business, including utilities. Best of all, the reduction of overhead cost improves your odds of success as a start-up.
So, is there an entrepreneur in you who could use that spare room at home?
Work in a field first before considering franchise ownership
I have a longtime bias in favor of entrepreneurs and often call them the “secret weapon of our prosperity” in America. They’re the ones who really create jobs in our country.
The lure of franchising is powerful during a down economy. Who wouldn’t want to be their own boss and call the shots? But before you get involved in a franchise, you should first work in the industry that you’re considering entering. Sweep the floor or empty the trash cans if you must. Just get in there and learn the ropes—and don’t tell your boss that you’ll be an eventual competitor!
Franchise ownership can be a dicey proposition, with some chains having great success rates and others having abysmal failure rates. Banks will often consult with an industry publication called the Coleman Report to determine if they’ll lend to you as an aspiring franchisee.
Between 2000 and 2009, there were ten franchises that had a zero percent failure rate, according to the Coleman Report: Comfort Inn, Comfort Suites, Christian Brothers Automotive, Sleep Inn, Motel 6, Kiddie Academy, Taco Bell, Baymont Inn & Suites, Chicken Express, and Red Roof Inn.
On the flip side, ten franchises had some of the highest failure rates during the same period: Wings n Things (82 percent), Noble Roman’s Pizza (76 percent), Super Suppers (69 percent), Golf Etc. (59 percent), New York NY Fresh Deli (57 percent), Velocity Sports Performance (53 percent), My Gym (51 percent), Image Sun (50 percent), Steak Escape (50 percent), and Wireless Toyz (47 percent).
Be careful out there and do your research first!
A CLARK FAVORITE
Consider moving small-business operations to a low-tax state
I’ve long believed that states that tax the most lose population because residents and businesses exit—even if the state has a sunny climate or is otherwise a desirable place to live.
The 2010 State Business Tax Climate Index released by the Tax Foundation bears me out. It tracks the best and worst places to do business in America every year.
New Jersey, New York, and California are win, place, and show as the worst places for businesses. If you still think it’s a weather issue, consider that New Hampshire has the seventh-best taxation environment. And Vermont right next door? No. 41 and losing economic vitality all the time.
The best states to do business in include South Dakota, Wyoming, and Alaska. Not exactly sunny climes.
The lowest-tax states generally have the greatest economic growth. And states with the highest burden on citizens and businesses suffer the greatest economic declines.
In a separate study, Barron’s reported that high-tax states like California, New York, New Jersey, and Ohio saw an average of 11,000 people move out every single day during a ten-year period—including weekends and holidays—to lower-tax states.
In one pointed example, the low-tax state of Texas gained almost 750,000 residents from 2000 to 2008. That was at the same time that almost 1.5 million people left California. That’s no accident.
Cyber-thieves are targeting small businesses
If you own your own business, you are at risk of being bankrupted by sophisticated criminal operations that have become experts at exploiting the antiquated technology used by the banking industry.
The nation’s banks are still doing wires and Automated Clearing House (ACH) transfers to move money around. Both of these procedures predate computers in the financial industry. The criminals know how to have money wired out, and you’re generally liable for any losses under current rules—even though it’s the banks that are forty years behind the times with their technology!
The FBI, the FDIC, and the Federal Reserve have all issued warnings about this danger and have suggested an easy way to protect your business: Use a dedicated computer that’s only for financial transactions, including payroll and bill paying. No surfing the Web on your dedicated computer. No e-mailing. No visiting Facebook, MySpace, or Twitter.
This will reduce but not eliminate the risk of a security breach. High-net-worth individuals might also want to consider using a dedicated computer for all financial transactions.
Computers have become so affordable that it’s possible to get a fully functional laptop for around $279. Compare that cost with the cost of possibly having your account emptied out!
As a side benefit, taking this step will likely save your business even if your business account does get hacked. That’s because you can demonstrate that you’ve taken what’s called “due care” under the Uniform Commercial Code to secure your account.
One final suggestion: Contact your bank and request double or dual authentication on any wires. That means a wire won’t automatically take place when someone requests it. The bank must take the additional step of getting a second go-ahead from someone at your business—preferably you—before completing it.
Avoid business credit cards and use a personal card instead
What’s the difference between small-business credit cards and personal credit cards? One can decimate the revenue of small businesses, while the other offers a great work-around and protections for entrepreneurs.
Politicians pay a lot of lip service to small business, but they really stab this economic engine in the back with their actions; everything they do is for the big guys who line their pockets. An example of this is a loophole in the Credit Card Accountability Responsibility and Disclosure (CARD) Act that offers some great protections for individuals but leaves small businesses high and dry.
Perhaps you’ve heard that the interest rate can’t be raised on existing balances under the much ballyhooed new rules? Well, that rule applies only to personal credit cards. Small businesses have been exempted from this protection and others, leaving them exposed to retroactive rate increases, shorter billing cycles, and more.
In fact, small-business credit card interest rates went up six times faster than interest rates on consumer cards in 2010, according to BillShrink.com.
But wait, there’s more! There’s also a second level of liability specific to small-business cards. When you use one of these cards, the lender can do what’s called “piercing the corporate veil.” In plain English, that means if your business can’t pay the bill, the bank comes after you personally.
And what happens when you lose a business card or it gets stolen? The liability of a small business can be unlimited under current law. Contrast that to the fact that an individual’s liability on a stolen or lost personal card is capped at a maximum of $50.
No matter how you slice it, business cards absolutely stink for small businesses! So I have a simple work-around strategy: Use personal credit cards for your business. You can pay the bill out of your business funds but don’t actually use any business cards. This is a surefire way to protect yourself.