Opening or investing in a small business is always a gamble, but investor Jack Stack, who has acquired or invested in more than 60 ventures, has picked up some valuable insights about evaluating the potential success of a new business.

Stack, the founder and chief executive of SRC Holdings in Springfield, Mo., is one of the foremost practitioners of open-book management, which means that all employees are privy to information about a company’s finances. Employees are taught how the business works and how they can be part its success.

While Stack has had a hand in many successful ventures, he’s also seen his share of failures. In a blog in the New York Times, Stack says those failures helped him develop three questions to ask when evaluating a business’ potential.

1. Does the company produce positive cash flow? To be successful, every business needs a steady cash flow, which requires managing the spread between payables and receivables. A business need to get paid before its bills are due.
2. Does the company cover its costs? Ask if the business can absorb its own overhead. That means they must break out the fixed costs from the variable costs. The fixed costs are the ones that don’t fluctuate with volume, like rent.
3. Can it be diversified? Is the company capable of producing different products and services, or can it expand existing products and services to new markets. A businesses shouldn’t put all its eggs in one basket.

Stack says business owners need to ask themselves these questions and look at the business as an outsider would. “If you don’t like what you see,” he says in the blog. “It’s time to begin making some changes.”

The National Federation of Independent Business (N.F.I.B.) has decided to back Cory Gardner, a fast-rising member of Colorado’s House of Representatives in the general election campaign. The N.F.I.B has declared to contribute $5,000 which according to Sharon Sussin is the maximum amount permitted by law. The group has also decided to invest in advertising for the campaign, both in traditional and online media.

In the endorsement announcement, the N.F.I.B. committed itself to inspire its Colorado members so as “to help turn out the small-business vote on Gardner’s behalf on Election Day.” N.F.I.B. has 7,500 members in Colorado out of which 1,700 are in the Colorado’s Fourth district where Gardner is going to contest.

Mr. Gardner describes himself as a “leading conservative in the State House” and is a proponent of limited government and common-sense principles that includes economic growth on the basis of lower taxes. Mr. Gardner also has endorsed renewable energy transmission projects and backed state government loan guarantees. For this he also wrote legislation to launch the ‘Colorado Energy Development Authority.”

Ms. Betsy Markey has also contested from Colorado’s Fourth District and was elected in 2008. She comes from the ranks of small business as she owned and operated two small businesses. Ms. Markey is the most vulnerable in the 2010 mid-term elections as N.F.I.B. has declared her as a Republican opponent.

Mr. Walt Minnick, the Idaho representative is considered the most conservative Democrat in congress. In 2008 presidential elections, he took his seat by just 2 points. He gained support from unlikely sources like the United States Chamber of Commerce and Tea Party Express. Minnick started his political career as a Nixon administration official. But he resigned after the Saturday Night Massacre in which Attorney General Elliot Richardson was assassinated.

In his early years, Walt Minnick remained a successful businessman. He did a job with Trus Joist, a $30 million Boise based forest product company. He served the company for 21 years -16 years as president and now the company’s revenue is $700 million. He says “I realize I liked Trus Joist a whole lot better when it was a $70 million company than when it is 10 times that size, and bureaucratic.” Following this, he started his own business that dealt with nurseries. He comments, “I learned it as boss, but I’d take orders from anybody, depending on what job I was doing. Now, that’s good training for being a congressman.”

While in congress, Minnick introduced a bill meant for resuscitating local banks and to address other small business issues. Minnick points out key issues related to the current recession.

No business, credit demand

Minnick comments that the current recovery is ragged and uneven. Some businesses are going gangbusters, some are seeing small improvements, and others are trying to hang on by cutting costs. So, only businesses that have a sound base to expand and are improving can ask for credit. The rest cannot ask for loans from community banks and other financial institutions and this is the reason why the recovery is faltering.

Corrupt Banking system

The market value of the commercial real estate does not support loan values that are outstanding. Under such a case, the borrowers are found not to possess the reserve equity that can downsize the borrowed loan. In many cases, borrowers are forced to default on loans. The banks then resell the property at distressed rates. The F.D.I.C. also wants a one-to one ratio and is asking banks not to renew loan terms but to get rid of them.

Federal Government’s Role

Federal Government should quit spending money that it does not possess and restore the banking system. Pump-priming should no longer continue. Minnick says “Quit throwing money at the problem. Balance its budget. Quit digging the deficit hole deeper.”

Possible solution

Minnick says that his bill encourages large financial institutions to buy small loans and compile them into market-sized packages. The bill will also have the provision to allow the treasury to give federal guarantee to investment packages like quality, performing loans, so that they can be sold in institutionalized markets.

This year’s federal income tax rate is highly favorable to small businesses. If your company pays you a dividend in 2010, the maximum federal income tax rate will be only 15%. Likewise, 2010 corporate payouts or stock sales that generate long-term capital gains will be subject to a maximum 15% federal tax rate.

Those rates are set to expire after this year. Wall Street Journal columnist Bill Bischoff suggests three ways to take advantage of these low tax rates.

• Take Low-Taxed Dividends This Year
  If your profitable C corporation has a healthy amount of earnings and profits (or E&P), shareholders should consider taking dividends this year, instead of risking a bigger (though deferred) tax hit down the road.
• Low-Taxed Stock Redemption Deal This Year
  Another way to convert some of your C corporation wealth into cash is with a stock redemption deal, where you sell back some or all of your shares to the company, says Bischoff. To the extent of your corporation’s E&P balance, any stock redemption payment is generally treated as a taxable dividend. The IRS provides several exceptions to this general rule, so you might want to consult your tax adviser.
• Sell Stock This Year
  From a federal income tax perspective, selling shares this year and paying no more than 15% on the resulting gains (assuming you’ve held the shares for over a year) beats paying more than that on gains from sales in later years.

More small banks, credit unions and nonprofit groups are pushing to become Community Development Financial Institutions and that could be a boon for small business, according to the Wall Street Journal.

To qualify for government designation as a CDFI, a lender must direct at least 60 percent of loans to low-income communities or individuals. In exchange, the lenders gain access to grants, SBA financing and other funding that makes it possible for them to extend business loans to borrowers deemed too risky by many larger banks.

For example, the non-profit Northeast Entrepreneur Fund often provides loans to borrowers with less-than-perfect credit histories.
“We look at character, willingness to do the work of the business and willingness to repay the loan,” Mary Mathews, president and chief executive of the organization, told the WSJ. “We’re able to do that by providing training and technical assistance which helps strengthen their request for financing.”
Entrepreneurs who receive CFDI loans face more oversight than they would with traditional bank loans. In many cases, businesses have to demonstrate how they will benefit the community and go through financial and technical training.
There are currently 859 CDFI lenders and growing. Fifty-five institutions were newly designated as CDFIs in 2009, up from 41 in 2008, said the WSJ. A complete list of CDFIs is available on the Treasury Department’s website.

Companies have begun hiring again, but instead of bringing on full-time employees, they are relying more heavily on freelance contractors that don’t receive health insurance and other benefits. As the economy rebounds, some employment experts believe contingency jobs will be the new “normal.”

The employment law firm Littler Mendelson released a report last year called “The Emerging New Workforce,” which predicted that 50 percent of new, post-recession jobs will be contract positions, said MSNBC.com. Monster.com  saw a 46 percent increase in contract job listings in March, according to MSNBC.

Companies save money by hiring on a contract basis, but workers lose the security of a permanent job, including health benefits, paid sick and vacation days, and company contributions to retirement savings accounts.

Faced with this new economic reality, long-term freelance workers should begin thinking of themselves as small businesses. Some issues to consider : How do you formalize a small business? What legal issues are involved? How do you market yourself or organize a bookkeeping system? Where can you find insurance?

Starting a small business takes time and effort but can be well worth it in the long run.

Dell Inc. has spent the last year trying to improve its small business sales, and it appears the strategy is paying off for the PC maker and small business owners, says the Wall Street Journal.

Dell is the number one provider of personal computers to small businesses, and in an effort to maintain that customer base, the company is offering more credit and discounted services to small businesses. Some of those deals include interest-free credit on purchases over $25,000 and free or discounted computers if a small business buys other products, says the Wall Street Journal.

Those efforts seem to be working, as Dell’s small and medium business units posted a 10 percent gain in revenue in the fiscal fourth quarter over last year, said the Journal.

Bank lending to small business has been tight, and Dell extends most of its $7 billion of available credit directly instead of through traditional loan providers. The company told the WSJ that about 22 percent of its small business customers rely on store credit for purchases.

The strategy may prove risky for Dell if those customers default on their loans. To minimize that risk, Dell asked some of its customers to teach salespeople about small business budgets. A Dell spokesperson told the WSJ those training sessions have helped the company evaluate credit risks.

What makes a small business thrive even during a recession? CNNMoney.com contributor Vern Harnish gives advice on six ways to grow your small business.

• Get an edge on competitors. Harnish says to look at the biggest cost and time constraints in your industry and challenge the conventional thinking in those areas.

• Own a phrase. Brand your company so you “own” the phrase to describe your product. How do you know if you own the phrase? Google it and see if your company shows up.

• Hyperfocus. Align the entire company around a single measurable priority each quarter. Whether it’s organizing inventory or raising your Google ranking, focusing on one overarching goal for 90 days will ensure you’re getting things accomplished.

• Control your cash. Growth sucks cash, so construct a business model that fuels growth without requiring outside capital. Advanced payments, tighter billing practices, and shorter sales and delivery cycles are a few strategies, says Harnish. To stay focused, look at your cash position daily.

• Write. Flood the digital market space with blogs, white papers, YouTube videos, and Twitter messages that align with the phrase you own (check out The Shipping Bloke blog).

• Pulse faster. Successful executive teams meet daily or weekly to go over priorities, metrics and data.

Fast-advancing technology threatened to make answering services staffed by live people obsolete, but the industry pulls in $2.5 billion a year in revenue. Answer 1, a small answering service based in Pheonix, is an example of a small business that thrived by embracing the technology that was supposed to put them out of business, said an article on MSNBC.com.

Voicemail was the first threat to answering service businesses, but the owner of Answer 1 said she spun the new technology to market the business.

“When we installed the voicemail system, the first thing we did is we sent out a blast to all of our clients, telling them ‘You can now pick up your messages and never, ever, ever, have to wait on hold.’ They all signed up,” Answer 1 owner Mary Jones told MSNBC.com.

She believes text messaging offers a similar business-boosting opportunity. “The caller has no idea that once the agent is done taking the call, (she) will send a transcript of that message out to the client via text to his cell phone,” Jones said to MSNBC.com

Jones also said that having a live person answer the phone is irreplaceable. “No matter what new, wonderful technology comes along…People like to talk to people. They don’t want to talk to a recording, she told MSNBC.com.

Capitalizing on technology and customer service Jones and her family have grown their 50-employee operation into a $4 million a year business.

New data from payroll companies suggests that small businesses are slowly beginning to add employees, even as the most recent Labor Department report shows the unemployment rate held steady at just under 10 percent. Some economists believe these numbers indicate the recession is bottoming out.

Based on data gathered from Intuit’s online payroll service, companies with less than 20 employees have added jobs since June 2009, said Business Week Additionally, data from SurePayroll shows the average paycheck for workers at businesses with fewer than 100 employees has stabilized, said Business Week.

President Obama has put forth a number of measures intended to get people back to work, including tax incentives for businesses that hire new employees and pushing banks to free up more credit for small businesses.

John Bishop, a labor economist at Cornell University, told Business Week that temporary incentives like tax credits could create more than 2 million jobs in a year.
“It potentially has a huge effect, and small business would be the primary beneficiary of that,” Bishop told Business Week.