Wednesday, July 31, 2013

Reuters: Small Business News: CIT's clampdown only affects future shipments: source

Reuters: Small Business News
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CIT's clampdown only affects future shipments: source
Aug 1st 2013, 00:52

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A sign on the jewelry counter at the J.C. Penney store in Westminster, Colorado February 20, 2009. REUTERS/Rick Wilking

A sign on the jewelry counter at the J.C. Penney store in Westminster, Colorado February 20, 2009.

Credit: Reuters/Rick Wilking

Wed Jul 31, 2013 8:52pm EDT

(Reuters) - The tightened credit terms now being offered by CIT Group Inc (CIT.N) to small vendors supplying J.C. Penney Co Inc (JCP.N) only affects future shipments, a source familiar with the situation said on Wednesday.

The commercial lender and J.C. Penney are still in negotiations, according to the source, who declined to be identified as the negotiations are private.

CIT and J.C. Penney were not immediately available to comment.

(This story is corrected to show CIT is in negotiations with JC Penney, not vendors, paragraph 2)

(Reporting by Dhanya Skariachan in New York; Editing by Gary Hill)

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Reuters: Small Business News: CIT cuts off credit to some J.C. Penney vendors: source

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CIT cuts off credit to some J.C. Penney vendors: source
Aug 1st 2013, 00:05

The entrance of a J.C. Penney store is pictured in Arcadia, California in this March 1, 2013, file photo. REUTERS/Mario Anzuoni/Files

The entrance of a J.C. Penney store is pictured in Arcadia, California in this March 1, 2013, file photo.

Credit: Reuters/Mario Anzuoni/Files

By Dhanya Skariachan and Phil Wahba

NEW YORK | Wed Jul 31, 2013 8:05pm EDT

NEW YORK (Reuters) - Commercial lender CIT Group (CIT.N) abruptly stopped funding some future shipments to J.C. Penney Co (JCP.N), a source familiar with the situation said Wednesday, in a move that could disrupt the retailer's holiday shipments and hamper sales.

CIT met with Penney officials on Tuesday and is in talks with the department store chain to resolve the issue, the source said.

Finance companies such as CIT, known in the industry as factors, provide short-term loans to suppliers while they are waiting to be paid by those receiving their goods or services.

The news sent Penney shares down more than 10 percent on Wednesday and created another setback for Chief Executive Mike Ullman, who has been trying to rebuild the company since returning in April.

His predecessor, Ron Johnson, had tried to remake Penney into a more fashionable department store, but shoppers rejected the concept and sales fell 25 percent last fiscal year.

Ullman, who was brought back to succeed Johnson, has largely restored Penney's original strategy focused on deep discounts and coupons.

Penney recently lined up a five-year $2.25 billion financing package to shore up its liquidity, but analysts had said sales growth was likely to return only at the end of the year.

Penney did not respond to several requests for comment about Wednesday's news, and CIT declined to comment.

CIT, which months ago added a 1 percent surcharge on invoices to Penney vendors, may want detailed financial data ahead of the department store chain's quarterly earnings on August 20, said the industry source, who was not authorized to speak publicly about the matter and declined to be named.

Wall Street analysts expect Penney to report that same-store sales declined 6.7 percent in the second quarter, while the larger sector is expected to report a 3.1 percent average increase, according to Thomson Reuters.

CIT's move could disrupt holiday deliveries if Penney suppliers end up sending smaller shipments, or less merchandise, said Mark Cohen, former chief executive of Sears Canada who is a professor of marketing at Columbia University in New York.

Penney will inevitably take a hit at a time its gross profit margin is already under enormous pressure since it reverted to its original pricing strategy in April, Cohen said.

"They may have to pay substantially more for the merchandise one way or another," Cohen said.

CIT, run by Wall Street executive John Thain, temporarily halted loans to Sears Holdings Corp (SHLD.O) suppliers in January 2012 after the company posted dismal holiday results. It resumed funding a few months later after Sears provided assurances about its finances.

The decline in Penney's stock on Wednesday is the latest blow to activist investor William Ackman, whose Pershing Square Capital Management owns an 18 percent stake in Penney.

Ackman's fund took another hit on Wednesday when Herbalife Ltd (HLF.N) shares rose 9.1 percent. Ackman has made a $1 billion bet that the nutritional supplements company is a pyramid scheme and that its shares would fall.

The investor unveiled on Wednesday a $2.2 billion stake, his biggest bet ever, on Air Products & Chemicals Inc (APD.N).

Penney shares closed down $1.66 at $14.60 Wednesday. They have fallen 35 percent from $22.51 over the last year. (For a graphic on the share drop: link.reuters.com/few99t.)

The New York Post first reported about Penney's latest credit problems on Wednesday.

(Additional reporting Martinne Geller in New York and Jessica Wohl in Chicago; Editing by Bob Burgdorfer, Jilian Mincer and Richard Chang)

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Reuters: Small Business News: CIT clamps down on credit to small J.C. Penney vendors: NY Post

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CIT clamps down on credit to small J.C. Penney vendors: NY Post
Jul 31st 2013, 20:42

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The entrance of a J.C. Penney store is pictured in Arcadia, California in this March 1, 2013, file photo. REUTERS/Mario Anzuoni/Files

The entrance of a J.C. Penney store is pictured in Arcadia, California in this March 1, 2013, file photo.

Credit: Reuters/Mario Anzuoni/Files

NEW YORK | Wed Jul 31, 2013 4:42pm EDT

NEW YORK (Reuters) - Commercial lender CIT Group Inc (CIT.N) has abruptly stopped supporting deliveries from smaller manufacturers to J.C. Penney Co Inc (JCP.N), the New York Post reported on Wednesday, citing a source familiar with the situation.

The news sent shares down 10 percent in late trading.

The Post said insiders speculated that CIT got nervous about Penney's financials after meeting with Penney officials on Tuesday. Penney and CIT representatives were not immediately available for comment.

(Reporting by Phil Wahba in New York)

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Reuters: Small Business News: Small business hiring slips for third straight month: NFIB

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Small business hiring slips for third straight month: NFIB
Jul 31st 2013, 20:15

By Paige Gance

WASHINGTON | Wed Jul 31, 2013 4:15pm EDT

WASHINGTON (Reuters) - Small business employment ticked down in July for a third consecutive month, tempering the more positive signals sent by better-than-expected private job gains last month.

The National Federation of Independent Business said on Wednesday the average change in employment came in at negative 0.11 worker per firm.

The survey's findings are at odds with a report by payrolls processor ADP on Wednesday showing private employers added 200,000 jobs in July, after hiring 198,000 workers in June.

The government is expected to report on Friday that employers added 184,000 jobs in July, according to a Reuters survey of economists, down slightly from 195,000 in June.

The unemployment rate is seen falling by a tenth of a percentage point to 7.5 percent in July.

The NFIB survey found that 9 percent of small business owners throughout the country added an average of 2.9 workers per firm over the past few months. About 12 percent of business owners reduced employment. The other 79 percent of business surveyed reported no change in employment levels.

The share of business owners reporting hard-to-fill opening rose one point to 20 percent last month. The portion of businesses that used temporary workers ticked up by three points to 15 percent.

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Reuters: Small Business News: CIT's clampdown only affects future shipments: source

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CIT's clampdown only affects future shipments: source
Jul 31st 2013, 20:41

Wed Jul 31, 2013 4:41pm EDT

(Reuters) - The tightened credit terms now being offered by CIT Group Inc (CIT.N) to small vendors supplying J.C. Penney Co Inc (JCP.N) only affects future shipments, a source familiar with the situation said on Wednesday.

The commercial lender and J.C. Penney are still in negotiations, according to the source, who declined to be identified as the negotiations are private.

CIT and J.C. Penney were not immediately available to comment.

(This story is corrected to show CIT is in negotiations with JC Penney, not vendors, paragraph 2)

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Thursday, July 25, 2013

Reuters: Small Business News: WisdomTree launches small-cap dividend growth ETF

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WisdomTree launches small-cap dividend growth ETF
Jul 25th 2013, 17:52

Thu Jul 25, 2013 1:52pm EDT

(Reuters) - WisdomTree Investments Inc (WETF.O), one of the largest providers of exchange-traded funds, has listed a new ETF it hopes will capture dividend growth through U.S. small-cap stocks.

The New York-based asset manager said on Thursday its new WisdomTree U.S. SmallCap Dividend Growth Fund DGRS.O was designed to offer exposure to small-cap growth stocks that may be better-positioned for a rising interest rate environment and improving U.S. economy as opposed to large-cap stocks, which are more globally sensitive.

"They're entering a fairly crowded market," said Dave Nadig, president of San Francisco-based IndexUniverse LLC's ETF Analytics. He noted that the new WisdomTree ETF slots "right into the middle of other small-cap value funds" that have performed well so far in 2013.

The Vanguard Small Cap Value ETF (VBR.P), for example, is up 22.7 percent year-to-date, while the iShares Morningstar Small-Cap Value ETF (JKL.P) is up 21.7 percent year-to-date.

ETFs track a basket of shares, bonds or commodities and can be traded in real time on exchanges like stocks. They offer access to indexes without having to buy the individual underlying securities.

Unlike the Vanguard and iShares ETFs, which are heavy in financials, the new WisdomTree ETF is weighted mostly in industrials and consumer discretionary sectors.

(Reporting by Ashley Lau in New York; editing by Matthew Lewis)

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Friday, July 19, 2013

Reuters: Small Business News: Small businesses see growth, but eye interest rates

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Small businesses see growth, but eye interest rates
Jul 19th 2013, 22:13

By Ellen Freilich

NEW YORK | Fri Jul 19, 2013 6:13pm EDT

NEW YORK (Reuters) - Small business owners plan for growth this year but are closely tracking recent interest rate rises and any impact they might have on their business and customers, according to a spot survey of firms in the New York region.

Rates have risen sharply over the last two months, leaving benchmark 10-year Treasury yields about a percentage point above mid-May levels and near the highest levels since August 2011.

If those higher rates hurt consumers, that would "ultimately have a net effect on us," says Michael Muzyk, president of Bronx, N.Y.-based Baldor Specialty Foods.

Baldor senses changes to the economy because it supplies produce to restaurants and hotels in New York City. If the economy weakens, New Yorkers cut back on restaurant spending. Meanwhile, slow U.S. or global growth can dampen the tourism that fuels New York's hotel business.

Baldor has annual revenue above $200 million, over 800 employees, and 200 trucks delivering produce, but the recent rise in rates won't have a direct impact because of the firm's strong cash position, Muzyk said. The company also has access to a credit line should it want to invest or expand, he said.

The recent rise in interest rates - and the parallel rise in mortgage rates - is of more concern to Wheatfield, New York-based Calamar, a real estate firm involved in financing, construction and property management.

Already, with mortgage rates at two-year highs, the Mortgage Bankers Association's seasonally adjusted index of mortgage application activity fell 2.6 percent in the week ended July 12.

Calamar runs on a 15-year strategic plan, says its chairman and chief executive officer, Kenneth Franasiak.

"We saw the peak in 2007. We went to all cash and from that point, we've re-deployed into the market again," Franasiak said. "We see a continuation of slow economic growth and our customers and clients share those views."

Many economists have come around to that view as well with some Q2 GDP growth estimates as low as 0.3 percent following growth of just 1.8 percent in the first quarter and barely positive growth of 0.4 percent in the quarter before that.

The rise in interest rates has not yet affected business at Ring's End, a Darien, Connecticut-based retail lumber, millwork and building specialty company, but since the firm's business is closely tied to housing and construction, its president and chief executive officer David Campbell is watching to see whether rates stabilize or move higher.

"We still have historically low rates, but if they keep going up, it could slow things down a bit," he said.

The rise in interest rates could actually spur some transactions if people "want to lock in" a mortgage before the rates go even higher, Campbell noted.

Meanwhile, rising home prices has encouraged people to begin spending money on home maintenance and improvement projects they might have deferred, he said.

"We anticipate the economy, and business, will gradually get better, but we're not looking for any boom," Campbell said.

The recent rise in rates is "not a great thing for small businesses, but we've had a nice long run of low interest rates," notes Gale Epstein, president and creative director of Hanky Panky, which manufactures lingerie in the New York City boroughs of Brooklyn and Queens.

If the recent rise in interest rates hurts consumers, her firm could feel it later this year, Epstein said.

The Thomson Reuters/University of Michigan survey showed Americans in early July were more optimistic about current economic conditions than they had been in six years, but had lost some confidence in the recovery's prospects.

FISCAL POLICY MATTERS

Besides interest rates, small businesses are also focused on fiscal policy.

Federal budget sequestration cuts that occurred this year drastically hurt DHS Systems LLC, an Orangeburg, N.Y., company whose biggest product is standard army medium and large command centers - shelters with a trailer that carries a generator and all the equipment a mobile facility requires.

"Our revenues dropped from $210 million to about $110 million," said A. John Prusmack, DHS Systems' president and chief executive officer who started the company in 1984. "That means you have to lay off a lot of people. We had about 500 employees; now we have 180-185. When that happens, you lose a lot of your expertise, your production talent."

DHS Systems is in the process of moving to Huntsville, Alabama, where Prusmack believes elected representatives will be more responsive to defense contractors.

Despite the challenges, however, the owners see some upside potential for their businesses.

"Hope is not a business plan, but a lot of cash is on the sidelines and as people begin to feel more confident, they are doing things they weren't doing 24 months ago or even 12 months ago. They are hiring and increasing capital spending," Franasiak said. "But it takes time. This is a marathon, not a sprint."

(Reporting By Ellen Freilich; Editing by Ken Wills)

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Thursday, July 18, 2013

Reuters: Small Business News: ECB takes lending step to help small business

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ECB takes lending step to help small business
Jul 18th 2013, 15:05

By Paul Carrel and Sakari Suoninen

FRANKFURT | Thu Jul 18, 2013 11:05am EDT

FRANKFURT (Reuters) - The European Central Bank moved on Thursday to get more money to the euro zone's struggling small businesses, letting banks use more of the assets once blamed for triggering the financial crisis as collateral for cheap loans.

The ECB said it was expanding the list of asset-backed securities (ABS) that are eligible for use at its refinancing operations - the facilities banks use to tap the central bank for liquid funds - and reducing the discounts it applies to these assets.

Blamed for triggering the financial chaos that toppled banks and sucked in countries, ABS - which are assets like loans bundled up together - have been undergoing a makeover in Europe where the ECB has backed an initiative requiring a loan-by-loan breakdown in ABS offered as security.

Thursday's move offers hope for small- and medium-sized enterprises (SMEs) that banks will have more funds with which to offer them loans. But it unlikely to be a game changer for these businesses, many of which are cash-strapped and struggling to grow.

Under the collateral changes, the ECB will lower the required credit rating on the "plain vanilla" brand of ABS for which it requires detailed information on the underlying assets - a step that reflects the increased transparency of this ABS.

The change will free up about 20 billion euros ($26 billion) in ABS for use as collateral.

However, this will be offset by a valuation markdown on so-called 'retained covered bonds', which banks issue and then hold themselves. The ECB regards these bonds as more risky.

"I think in the short run this is a tidying up exercise," RBS economist Richard Barwell said of the collateral changes.

To support European efforts to boost lending to smaller firms, the ECB said it was also looking at possibly accepting as collateral ABS that are linked to SME loans and guaranteed by European institutions or national development banks.

Barwell added that this "medium term discussion ... is good news because we can get a little bit more positive on the prospects of a positive solution to the SME problem. But still the key to solving that problem must be fixing the banks."

European efforts to create a banking union with a joint supervisor, a resolution authority for winding up zombie banks and a common insurance scheme are stalling as governments squabble over the design of the plan, and the costs attached.

Small- and medium-sized businesses in the euro zone are more reliant on banks for funding than those in the United States. A dearth of funding makes it harder for SMEs to grow their businesses, holding back a recovery in the 17-country bloc.

The collateral changes will allow banks to offer up more ABS as collateral for ECB funds, freeing them of the securitized assets for which there is still little investor demand and - in theory - giving them more scope to lend to firms.

"Favoring asset-backed securities, which includes some backed by SME loans, could help a bit to ease the credit conditions for SMEs in the (euro zone) periphery," said Berenberg bank economist Christian Schulz, describing the move as a "small step".

(Editing by Jeremy Gaunt)

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Friday, July 12, 2013

Reuters: Small Business News: Insight: Fast-growing U.S. craft brewers struggle with worker safety

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Insight: Fast-growing U.S. craft brewers struggle with worker safety
Jul 12th 2013, 18:12

An undated family handout photo shows Mark Moynihan working on his home beer brewing system in Knoxville, Tennessee. REUTERS/Courtesy of the Moynihan Family/Handout via Reuters

An undated family handout photo shows Mark Moynihan working on his home beer brewing system in Knoxville, Tennessee.

Credit: Reuters/Courtesy of the Moynihan Family/Handout via Reuters

By M.B. Pell

NEW YORK | Fri Jul 12, 2013 2:12pm EDT

NEW YORK (Reuters) - Welder Mark Moynihan crawled down a narrow tube into a space the size of a car interior to seal the crack in the fermentation tank at Calhoun's Bar-B-Q & Brewery in Knoxville, Tennessee.

The space was oversaturated with oxygen. He lit his torch, and a flash-fire erupted. His hair and clothing disintegrated instantly.

Moynihan, a contractor for the craft brewery, dragged himself up the tube and out of the vat while still on fire, suffering serious burns over much of his body. He died 75 days after the 2009 accident, just before his 40th birthday, said his widow, Kim Moynihan.

It was not an isolated incident.

From 2009 through 2012, at least four people died in craft brewery accidents in the United States, compared with two deaths at large breweries that make 10 times more beer, according to a Reuters analysis of federal Occupational Safety and Health Administration data and local media reports.

There were also nearly four times as many safety violations at craft breweries in recent years than at large breweries. And brewery experts say the safety oversight at smaller companies is worse than official statistics might suggest because injuries, even severe ones, often go unreported.

"It was horrific," Kim Moynihan said. "It was an accident, but it was an avoidable accident."

She sued Copper Cellar, claiming the owner of the brewery and a small chain of Calhoun's restaurants in the Knoxville area created a dangerous work environment, according to court documents. She settled for an undisclosed amount but said she could not discuss the settlement further because of a nondisclosure agreement.

Nicholas J. Chase, a lawyer at Egerton, McAfee, Armistead & Davis representing Copper Cellar, said neither he nor his client could comment on the accident because the agreement might prohibit it. He said he was unable to immediately provide further details of the agreement.

OVERLOOKED SAFETY

The craft brewing industry has grown from a niche market 20 years ago into a $10.2 billion business in 2012, according to the Boulder, Colorado-based Brewers Association, which represents 1,797 U.S. craft and larger beer makers. The association is not aware of safety issues unique to the craft brewing industry, Chris Swersey, its technical brewing projects coordinator, said in an email to Reuters.

Matt Stinchfield, a brewery safety consultant for insurance companies, said that as the industry scrambles to meet the exploding demand for craft beer, employee safety has sometimes been overlooked. "You have a few eager entrepreneurial spirits, and they don't come with an industrial safety background," he said. "There is still some growing up to do."

Brewers Association board member Gary Fish said craft brewers sometime struggled with safety, as many other small manufacturers do.

Haste causes accidents, and pressure to meet demand causes haste, said Fish, who is the founder and CEO of Deschutes Brewery in Bend, Oregon. "It's a challenge everywhere," he said. "I don't think anyone is deemphasizing safety."

State inspectors and OSHA found 547 violations, including 250 serious ones, at craft breweries from 2003 through 2011, according Reuters' analysis of the data. Officials fined the small brewers an aggregate $220,000 for violations ranging from failing to enclose sprockets and chains to not ensuring machinery was disabled when an employee was inside.

By comparison, large brewers, such as Anheuser-Busch and Coors, had 151 violations, including 69 serious ones, during the same period.

OSHA officials declined to comment.

The Brewers Association defines a craft brewery as one that makes 6 million barrels of beer a year or less, with less than 25 percent of the company owned by an alcoholic drink maker that is not a craft brewer. Traditional recipes are also required.

To be sure, the differences in fatality and violation figures partly reflect the larger breweries' greater automation and resources to spend on safety programs, as well as - in many cases - their more extensive experience.

Safety experts say the workplace fatalities are avoidable.

Last year, for example, an employee of Redhook Brewery in Portsmouth, New Hampshire, died when a keg he was cleaning with compressed air exploded and hit him. An OSHA investigation found the air line lacked a device that would keep the pressure in the keg at safe levels. The brewery's owner, the Craft Brew Alliance, was fined $44,000 for that and a series of other safety violations.

Sebastian Pastore, vice president of operations for the Craft Brew Alliance, said the incident was a "freak accident" involving a plastic keg dropped off by a customer to be refilled.

The company subsequently re-examined safety issues at the brewery. It has stopped filling plastic kegs and hired an outside consultant to review safety procedures at its breweries. It now has a dedicated safety consultant for the Portsmouth brewery.

FEW INJURIES REPORTED

Despite the number of violations and deaths, OSHA data only shows two serious injuries at craft breweries since 2002, both at the same one. Two workers were burned in separate incidents at Ballast Point Brewing Co in San Diego in July 2010 and August 2010.

Since then, the company has not had one hospitalized injury despite a fivefold increase in production and employees, said Chief Financial Officer Rick Morgan.

The number of injuries reported to OSHA does not reflect the number of injured employees, consultant Stinchfield said. This is because brewers often do not know that many states require them to report serious injuries.

He knows of four burn cases that were never reported. Each required skin grafts and months of treatment.

In one of those cases, Teri Fahrendorf was working her first job as a rookie brewmaster at a now-closed San Francisco brewery in 1989 when she used a kettle that was too small to cook wort, a pre-beer solution.

The boiling wort spilled out of the kettle and into Fahrendorf's knee-high rubber boots. Doctors took strips of skin from her head to graft onto her foot, she said.

Now Fahrendorf promotes safety standards in the industry as founder and president of the Pink Boots Society, a nonprofit organization dedicated to helping women succeed in brewing. Fahrendorf said the brewery did not report the incident, and it does not appear in OSHA data.

She said she had lacked promised safety and other training. Craft breweries, she said, "don't have experience with big-boy chemicals, and they don't have experience with pots that are filled with 900 gallons of boiling liquid."

TANK EXPLOSION

Bridgewater, Vermont-based Long Trail Brewing Co and its Otter Creek Brewing subsidiary are two of only three U.S. craft brewers participating in a stringent OSHA safety program.

They joined the program, investing millions of dollars in upgrading equipment, developing safety policies and hiring a safety officer, after a 2011 fermentation tank explosion.

The blast did not injure anyone, but was a wake-up call, said Jed Nelson, a Long Trail Brewing Co director.

There are signs of a shift in the industry's attitudes, said Dan Drown, an industrial chemical safety consultant who has been working with craft brewers in San Diego for the last five years.

At least 250 people attended a safety lecture at a craft brewing conference in San Diego last year, he said. More companies also are paying for safety training and classes.

"They are maturing," he said.

The widow, Kim Moynihan, hopes that is true.

"I know it was an accident, but I believe if the employees received proper training, this would not have happened," she said. "I think they just overlook it."

(Edited by Maurice Tamman, Martin Howell and Lisa Von Ahn)

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Tuesday, July 9, 2013

Reuters: Small Business News: Small business confidence slips in June

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Small business confidence slips in June
Jul 9th 2013, 11:33

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A woman searches through shelves in a grocery store in Brooklyn, New York August 27, 2011. REUTERS/Brendan McDermid

A woman searches through shelves in a grocery store in Brooklyn, New York August 27, 2011.

Credit: Reuters/Brendan McDermid

By Paige Gance

WASHINGTON | Tue Jul 9, 2013 7:33am EDT

WASHINGTON (Reuters) - Small business optimism fell in June from its one-year high as an uncertain recovery continues to unfold.

The National Federation of Independent Business said on Tuesday its Small Business Optimism Index decreased 0.9 point to 93.5 last month, changing course from two straight months of growth.

Six of the index's 10 components fell and two were unchanged. Only job creation plans and the six-month outlook advanced.

This mirrors economists' predictions that the economy will pick up momentum in the second half of this year after a lackluster start.

More owners are reporting negative sales trends than positive ones. "Nothing cheers up a small business owner more than a customer, and they remain scarce and cautious," the NFIB said.

Last month, the share of owners planning to increase inventories fell 4 points, accounting for about 40 percent of the decline in the index.

Job creation plans increased after slipping last month and the percentage of small business owners reporting they could not fill job openings remained the same.

The NFIB reported earlier this month that small business employment ticked down by 0.09 workers per firm. An almost equal proportion of owners hired as opposed to cut jobs, but those firms reducing employment more than offset the gains at other businesses.

(Reporting by Paige Gance; Editing by Andrea Ricci)

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Friday, July 5, 2013

Reuters: Small Business News: UK seeks fairer share for small firms from outsourcing 'oligopoly'

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Reuters: Small Business News
Reuters.com is your source for breaking news, business, financial and investing news, including personal finance and stocks. Reuters is the leading global provider of news, financial information and technology solutions to the world's media, financial institutions, businesses and individuals. // via fulltextrssfeed.com
UK seeks fairer share for small firms from outsourcing 'oligopoly'
Jul 5th 2013, 14:27

By Christine Murray

LONDON | Fri Jul 5, 2013 10:27am EDT

LONDON (Reuters) - When a modest IT firm in southern England won a 13-million pound local authority contract in 1988, it was a huge coup for a business that had annual revenue of just 4.3 million pounds.

Nowadays that company has annual revenue of 3.4 billion pounds thanks to its dominance of the public sector services market - and Britain's government thinks it's time that Capita (CPI.L) returned some of that business to smaller firms.

"We have an oligopoly," said Bill Crothers, the government officer charged with overseeing all central government contracts. "We have a huge concentration of business in relatively few suppliers."

Outsourcing public sector services to private companies has been a controversial issue in Britain since former prime minister Margaret Thatcher introduced compulsory competitive tendering in the 1980s. That forced local authorities to give private firms the chance to run everything from councils' IT systems to hospitals and rubbish collection.

As a result the public services market boomed and is now worth 93 billion pounds, according to figures from market analyst Kable. That makes it second only in size to the U.S. market, says data analyst Information Services Group. Capita, along with Serco (SRP.L) which runs NHS health centers, enjoyed double-digit growth for two decades until the current austerity-focused coalition government was elected in 2010.

Now outsourcing is controversial again, with a recession-weary public quick to get angry about private sector payouts given curbs on welfare spending and bleak growth forecasts.

So David Cameron's government is taking aim at the big contractors to both answer voters' calls for a fairer marketplace and to boost the economy by passing more money to small and medium-sized companies (SMEs) - those with fewer than 250 employees and a turnover of less than 50 million euros.

Cameron terms SMEs the engine of economic growth and wants them handling 25 percent of all government contracts by 2015.

Even Rod Aldridge, co-founder of Capita, says change is due. SMEs can't compete in the current climate given the 25-year-old relationships built up between bigger firms and local councils.

"The industry has now got a problem," said Aldridge, who now runs an education foundation. "Lots of small specialists..can't bid for some of the things which are out there. The government is worried because you haven't got competition."

NEW PRACTICES

Policymakers started changing the landscape earlier this year. In April the Bank of England revamped its "Funding for Lending" scheme to persuade risk-averse banks to lend to credit-starved small businesses.

Now central government is introducing new procurement practices, with the emphasis on smaller and shorter contracts. Extensions and add-ons - which can multiply the size of a deal several times over - are now banned, and a contract limit of 100 million pounds has been introduced, although Crothers conceded this was more a "direction" than an edict.

Britain's competition watchdog is to examine whether government's biggest IT providers like HP (HPQ.N) and CapGemini (CAPP.PA) as well as Capita win too great a share of public contracts.

And government officials are examining outsourcing firms' profit margins, comparing public and private sector work to ensure they are in line, said Crothers, a former consultant at U.S. outsourcing specialist Accenture.

"If we can see that another market in the UK, a company's private sector clients, are paying a lower price or yielding a lower margin than we are, then something's not right."

SMEs are also taking action to increase their chances of winning contracts. Acknowledging the size and experience of the big firms, many of them are scaling up to compete.

IT firm Invenio already competes with and often wins against major IT firms in the private sector. After three years of not winning public sector business the company, which builds tax management software, partnered up with a major government supplier that they declined to name. Invenio is now in advanced discussions to provide its software to HMRC, in what would be its first UK public sector deal, and hopes to win more.

"SMEs can provide so many things but are never considered seriously," Invenio managing director Partho Bhattacharya said. "I think we are seeing the start of a change. When an SME wins business against a big company they have something special to offer and someone takes the risk and can see that special thing."

David Ascott, a corporate finance partner at Grant Thornton who focuses on business services and private equity, forecast the strongest pickup in activity among mid-sized firms providing services like security and cleaning.

"Structurally it's an unusual industry because you've got lots of big guys then not a lot in the middle. There's probably more consolidation to come in that segment of the market - the creation of another one or two larger players rather than big ones buying them," he said.

UPHILL BATTLE

One fact is incontestable: both large and small outsourcing firms will be fighting over less money. The UK faces the deepest budget cuts in Europe over the next decade, according to the OECD, so cuts to local government budgets will likely continue.

That will probably make it even harder to persuade embattled local governments and departments to have faith in smaller, untested firms.

Contracts handed to SMEs can go awry, like a 90-million pound Ministry of Justice contract in 2011, which resulted in court translators failing to turn up and others mistranslating hearings to defendants.

The Ministry of Justice has since announced a tender process that favors bigger firms - 500 million pounds of probation services contracts in 21 regional chunks, with the idea that prime providers then subcontract.

And, as ever, the bigger firms will be able to bargain harder.

"(Capita) has got massive infrastructure," said Aldridge. "The economies of scale they've got from this is enormous. The margins that Capita gets come not from bidding for higher margin but from having the infrastructure."

(Editing by Sophie Walker)

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Wednesday, July 3, 2013

Reuters: Small Business News: Small business hiring falls again in June: NFIB

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Small business hiring falls again in June: NFIB
Jul 3rd 2013, 19:48

By Paige Gance

WASHINGTON | Wed Jul 3, 2013 3:48pm EDT

WASHINGTON (Reuters) - U.S. small business employment edged down for the second straight month in June, sharply contrasting with other data showing an improvement in the tone of the labor market last month.

The National Federation of Independent Business said the net change in employment ticked down by 0.09 workers per firm after slipping 0.04 in May.

"A higher percentage of the owners hired, but those that reduced employment made cuts large enough to put employment growth among existing firms in the red," the NFIB said in a statement on Wednesday.

The NFIB's findings are at odds with other data that have painted a far more upbeat picture of the jobs market.

The ADP National Employment Report on Wednesday showed private employers added 188,000 jobs to their payrolls in June, a step up from the 134,000 positions created in May.

Employment in the service industries touched its highest level in four months in June, the Institute for Supply Management also said on Wednesday.

Added to that, first-time applications for state unemployment benefits held at lower levels for much of last month, giving hope to another month of steady job gains in June.

The NFIB survey found that 11 percent of small business owners throughout the country added an average of 3.6 workers per firm over the past few months.

About 12 percent reduced employment by an average of 4.3 workers. The share of business owners reporting few or no qualified applicants for job openings was 41 percent.

Small business hiring has been sluggish. There has been speculation that the Affordable Care Act, which compels employers with a staff complement of at least 50, was making some small business owners reluctant to add workers.

The Obama administration on Tuesday delayed the employer mandate of the legislation until 2015.

Economists at UBS in New York reckon the one-year delay could prompt small business owners to hire more workers.

"For those employers on the cusp of the 50 employee threshold this delay may prompt them to hire as they may be unwilling to continue to postpone hiring to avoid being subject to the mandate," UBS said in a research note.

(Reporting by Paige Gance; Editing by Chris Reese)

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