In a recent release from the United States Census, it was reported that 9% of all U.S. Businesses are Veterans Owned. These Veteran owned businesses had an impressive sales receipts of $1.2 trillion, 5.8 million employees, and an annual payroll of $210 billion. Clearly, veterans are major contributors to the US economy. Construction companies were just behind the largest veteran owned sector of “professional, scientific, and technical services.” California, Texas, Florida, New York, and Georgia had the largest numbers of veteran-owned businesses.
Of the total number of veteran-owned businesses, only 8.3 percent had service connected disabilities. 94.8 percent of veteran business owners were male, and 89.7 percent were white. Only 7.6% of the total veteran owners were African American, and 4.6% were Hispanic American. An interesting statistic is that about 75% of the owners were over the age of 55. It seems most of the veteran owners today came from the Viet Nam War era. This means there is a lot of opportunity for younger veterans to build up their businesses now as the older veterans retire. How did these veterans get their money to start their company? 61.7% reported using personal or family savings. In a very distant second place were banks or other commercial lenders at 9.8%. We imagine that the percentage of veterans helped by banks will be reduced in future years because banks really aren’t yet participating in our economy.
The economists at the Association of Builders and Contractors released data last week that shows that although private nonresidential construction spending was down in January, it was up 16.6 percent compared to January 2011. Public nonresidential spending remains pretty flat and was up only 0.4% from a year ago. The slow growth in public spending reflects the turmoil states and local governments are having in balancing their budgets as a result of lower property tax receipts from the recent real estate meltdown.
The fact that total nonresidential construction spending was down in January by 1% is actually viewed as disappointing. January was so warm countrywide, so the economists had anticipated a possible increase in construction spending. On the other hand, transportation, water/sewer and public safety segments of the construction economy experienced growth in January which is a hopeful sign that state and local government capital budgets are stabilizing. Many economists expect that the US economy will continue to expand moderately during the second quarter of 2012. This should result in modest gains in construction. If business spending continues to slow, then construction will remain flat. In other words, as almost every economic report actually reads, things will get better, unless they get worse.
The government is one of rules. They follow their rules whether they make sense or not. One of the rules that can trip up a potential 8(a) contractor is that you cannot qualify if your business is economically dependent on one commercial client for 70% or more of its revenue during the last months. The Federal Government is excluded as a “commercial client”. If, however, you are a business that deals with a large construction manager like United Space Alliance or Lockheed Martin in order to access Federal Work, that could disqualify you if 70% or more of your work was with one of those firms. If you find that you follow one General Contractor for much of your work, you could be in trouble. We work with a lot of 8(a) contractors. Give us a call if you would like to discuss getting set up as a bondable 8(a) in your future.
Surprisingly, the answer is no. The surety’s first responsibility is to make good on the bonds issued. They have to deal with their obligations related to the performance and payment bonds. Their second responsibility is to conserve the assets of their surety. They actually have no obligation to finance any contractor. They may do so if it is in the best interest of your surety to meet it’s obligation and or conserve assets.
Normally, a surety’s interests and a contractor’s interests are one and the same. The surety normally understands and uses the defenses and rights the contractor might have to any potential claim. Generally, the surety will do well if the contractor does well, so the surety should have a relationship that encourages the profitability of the contractor. There are times, such as contractor financing, where the goals of the contractor and the surety might not be the same. It is good to understand how a surety might react under different circumstances. If you have questions about your surety relationship, feel free to give us a call.
According to figures released by the Associated General Contractors of America, raw material prices have risen 8.1% in the past year, while the price contractors have been able to charge for new nonresidential construction has risen by only two or three percent. In other words, in this tough economy, contractors have been forced to eat most of the raw material price increases.
Diesel fuel has risen 39.4% from September 2010 to September 2011. Copper and brass mills shapes rose 14.8% over the same period. Steel mill products rose 13.5% for the year. Aluminum mill shapes rose 10.4% .
The biggest reason for these price hikes is worldwide demand for those products. AGC indicated that materials that were produced and used only in the US have not changed much in price. For example, concrete products have risen only 0.3% for the year.
These price increases are a concern for contractors and sureties. Contractors have been bidding work at very thin margins over the past three years. These raw material price increases could cut into the already thin margin.
The U.S. Treasury is scheduled to stop stimulating the economy in June, 2011 through the purchase of U.S. Treasuries. They will have completed a record stimulation by purchasing $600 billion by that point. What will happen if this stimulus suddenly stops?
Some think the stock market might drop after being “artificially” supported by the Treasury. Others think that the support should stop to avoid undue inflation. Certainly, we have seen significant inflation in commodities in recent months. Federal Reserve Bank of Atlanta President, Dennis Lockhart said the central bank should take its time in withdrawing economic stimulus. He thinks that the moderate economic growth we have been experiencing, as well as the recent inflation, will probably be temporary. In a speech he gave on April 8th, 2011, Lockhart said, “I think the process of restoration of full economic strength with higher employment continues to require support.”
When do we take the foot off the gas? There isn’t agreement, apparently, even among the most educated policy makers. Lockhart noted that manufacturing has made a good rebound, while the labor market is “improving gradually.” Overall, he sounded pretty optimistic that the economy would generally, but gradually, experience a “moderate pace of expansion.”
The new Women-Owned Small Business (WOSB) Federal Contract Program will be fully implemented over the next few months. This program will provide greater access to federal contracting opportunities. Check out www.sba.gov/wosb for more information.
According to Carr, Riggs, & Ingram, CPA’s, last year, congress passed legislation that would expand the mandatory filing of Form 1099. The provisions to do so were found in last year’s Patient Protection and Affordable Care Act (PPACA), and the Small Business Jobs Act (SBJA). What would you call a bill that would streamline the use of the 1099? The “Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011.” This was signed into law by President Obama on April 14, 2011.
A 1099 is usually filed if payments of $600 or more are made to a single payee by a payor’s trade or business. Exceptions in the past have included payments to most corporations and payments for supplies and merchandise. The PPACA would have expanded reporting to include vendors that exceeded $600 in a calendar year. The SBJA would have included taxpayers who receive rental income from a “passive” real estate investment. That means if you owned a second home, a cabin, condo, or vacation home that you rented out from time to time, that you might have to file a 1099. Before this law, only those who were in the trade or business of rental properties would have to file. These two changes would have dramatically increased the number of 1099′s that would have to be filed and would have been a real burden to businesses as well as individuals.
It is important to note what was not repealed by this legislation. The SBJA dramatically increased the penalties for failing to timely file a proper 1099. As an example, the calendar-year maximum penalty for failure to provide timely information was increased from $15 to $30, and the calendar-year maximum was increased from $75,000 to $250,000. That is a hefty increase. Similar increases were made across the board giving the IRS even more powerful teeth on the proper reporting of 1099′s.
So even though it is not as bad as it could have been, be very careful that you abide by the rules for filing a 1099. We would advise you contact your CPA to be sure you are properly doing so to avoid a costly penalty by the IRS.
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