How often do small business owners go without a paycheck in order to keep their companies solvent? We reported a few weeks ago on a survey from Citibank that found that 23 percent of 750 small business owners had gone without pay for at least a year during the most recent economic downturn.
That’s shocking to those of us who collect a regular paycheck. But more revealing: 54 percent said they had gone without a check at some time during their entrepreneurial career in order to keep a business afloat.
So we went to members of our Small Business Council — our go-to experts on all things entrepreneurial — to find out how common it is for the owner of a small businesses to go without a paycheck.
“I think it’s very common, says Mitch Free, CEO of MFG.com, an online marketplace for manufacturers. “When I started MFG.com, I paid myself half what I was making previously as an employee for a major corporation. There were numerous times I couldn't even pay myself that.”
Cristi Cristich, had a similar experience. “Although it has been a quite a few years since I have totally missed a paycheck, during my first 10 years in business it was a pretty common occurrence,” says the CEO and founder of Cristek Interconnects, who let us in on how she used credit cards to make payroll.
“Most of the first year of Cristek I couldn’t take a salary," says Cristich, "so while paying employees and creditors out of the cash flow, I kept myself afloat by the credit card shell game. In 1985 I paid my Am Ex Green card off — 90 days past due — by taking an advance on a new Platinum Card credit line they had mailed me. That was back in the days when the computers did not all talk to each other in real time on credit.”
Joseph Dutra, CEO and founder of Kimmie Candy Company says he is still not on the payroll. “I’ll have to talk to the boss about that,” he jokes.
Dutra explains that when he launched the business 10 years ago, it was slow to grow, and some staff did wait for paychecks. He borrowed money from friends and family while he nurtured another venture. That business, an agricultural consulting firm called Westec, has thrived and pays him a salary that allows him to forgo one from Kimmie Candy.
Having multiple sources of income seems to be a common way for entrepreneurs to get by. Beezer Molton recalls living in a "dumpy $175 month apartment" and frequently going without a paycheck after founding Half Moon Outfitters two decades ago. As recently as 2009, he stopped paying himself again, he says, "just to make sure that corporate overhead was as low and debt was being repaid as quickly as possible." Rental properties he'd invested in enabled him to live without tapping savings. "Fortunately those properties remained occupied through the downturn," Molton says.
For many business owners, maintaining good credit is more important than getting paid, says David Greenspon, president and owner of Competitive Edge Advertising Specialty Manufacturing. “Long hours, low pay, if any, and unstable finances were the norm," he says of beginning his business nearly 30 years ago. "I paid my vendors first, in order to achieve and maintain credit," he says. That way, says Greenspan, "I could avoid both SBA and bank financing, which never were friendly to startups. I never missed paying any employee or vendor, but this was because I was always the last in line for payment.”
Starting a business is risky, notes Ronald Barnes, chairman of Midwest BankCentre, who has worked with many small business owners. “In the end, the buck stops with that business owner" says Barnes. "Entrepreneurs deserve to make the big bucks when they succeed because they certainly pay a significant price both emotionally and from a capital at risk perspective when the business fails.”
That risk-reward dynamic may be the opposite of what happens in corporate America. But most of these small business owners wouldn't trade places with the CEOs of major corporations — even if its tough to convince the boss they deserve a raise.
Email us at and follow us on Twitter @SmallBizCNBC.
Breadline Britain: work, poverty and the financial 'cliff edge' - The Guardian
Welcome to the Breadline Britain Live Blog.
Over the next few days online and in the paper the Guardian will be looking at the human impact of recession, benefits reform and cuts to public services.
We are interested in how people are coping - or not coping - with the multiple challenges of dealing with the kinds of social and financial pressures not witnessed in this country for decades.
This is the backdrop: incomes are plunging, while food prices (up 30.5% in the last five years) and utilities bills are soaring. Many households at the lower end of the income scale have been pummeled by job insecurity, benefit cuts and rising housing costs. Many are hamstrung by debt.
We'll be looking very broadly at issues around work, housing, food, and health. We'll be hosting expert guests and featuring datablogs, reportage and commentary from Guardian journalists.
We want you to contribute too: tell us your views and stories.
Today, we are featuring in-work poverty: or how a low to middle income increasingly fails to keep up with the spiralling costs of living.
My colleague Amelia Hill has been investigating a group of people our research suggests are on the financial "cliff edge": families which are in employment but finding it increasingly hard to make ends meet, and who find themselves at high risk of being pitched into poverty.
Here's a taster of her news story:
Almost seven million working-age adults are living in extreme financial stress, one small push from penury, despite being in employment and largely independent of state support, according to the most comprehensive study of the finances of employed households, commissioned by the Guardian.
Unlike the "squeezed middle", these 3.6m British households have little or no savings, nor equity in their homes, and struggle at the end of each month to feed themselves and their children adequately. They say they are unable to cope on their current incomes and have no assets to fall back on, leaving them vulnerable to something as simple as an unexpectedly large fuel bill.
The findings challenge the argument made by the work and pensions secretary, Iain Duncan Smith, who last week said parents should get a job to ensure their children are not brought up in poverty.
"These figures are a mega-indictment on the mantra of both political parties, that work is the route out of poverty," said Frank Field, the Labour MP for Birkenhead and former welfare minister who is now the coalition's poverty csar.
"What's shocking about this is that these are people who want to work and are working but who, despite putting their faith in the politicians' mantra, find themselves in another cul de sac. Recent welfare cuts and policy changes make it difficult to advise these people where they should turn to get out of it: it really is genuinely shocking."
You can read it in full here.
Throughout this afternoon we'll be publishing more on this story, including the Experian data behind the story, and three powerful case studies in which working families on the financial brink talk about their lives.
The three families are part of an ongoing project between the Guardian and Resolution Foundation. We'll be following the families' fortunes over the next 12 months. More on that later.
Please do post your comments and view below the line, or tweet me @patrickjbutler
The twitter hashtag is #breadlinebritain
My colleague Simon Rogers has prepared some fascinating data on the rising costs of living in Breadline Britain, taking in food, housing, fuel, energy and transport.
Between March and April this year, he explains, we saw the following real terms rises:
• Transport: up by 1.2%. Petrol prices went up by 3.2 pence per litre on the month to reach a record £1.42 per litre. Diesel prices rose by 2.1 pence per litre to also reach a record level of around £1.48 per litre
• Housing costs: prices rose by 0.9% between March and April.The ONS says the big increase was in rents - and for other services
• Alcoholic beverages & tobacco: the increase in excise duties that came into force towards the end of March means prices rising by 2.9%, with tobacco up by 5.1%
• Clothing & footwear: only went up by 0.2% between - but rose by 1.3% between the same two months a year ago.
You can read the datablog post in full here
So who are the 3.6m UK households most at risk of financial stress - and being pitched into poverty?
In my analysis piece I say:
They are proud to have a job and scorn welfare. They are grafters who are proud of doing the "right thing". They put their faith in the government's mantra that work pays. But "cliff-edge" households – perhaps as many as 3.6m in England alone – now find themselves teetering precariously on the brink of poverty.
The "cliff-edgers" work in retail, the service sector, and in seasonal businesses like tourism. They run small firms, often as self-employed tradespeople. Household income is typically between £12,000 and £35,000. The boom times gave many of them modest visions of betterment and security; the recession has engulfed them in financial stress.
I add:
Their lives have become testbeds of frugality and improvisation. Losing their job would be catastrophic. But even comparatively minor setbacks - a broken washing machine; a higher than expected gas bill – trigger a financial crisis.
There's little sense of victimhood or self-pity, however. There's a profound ethos of personal responsibility, a determination to juggle and graft in the face of hardship.
"Their whole ethos is about work; they don't want to end up on benefits or the dole," says Bruno Rost of Experian, the data company which carried out the detailed analysis of in-work poverty for the Guardian, including in-depth surveys of attitudes and behaviours, coupled with a wide range of quantitative data.
But there's also a stressful awareness of the seemingly ever-shrinking gap that separates them from the slide into poverty and homelessness. Unlike the "squeezed middle", group, which is more likely to have assets to act as a buffer against misfortune, the cliff-edge is hugely exposed.
Of course, this is a generalisation: but a broader point is that these households didn't expect to be on the cliff edge: they "played by the rules" (to quote the work and pensions secretary Iain Duncan Smith) and now many find that work at the lower end of the income spectrum isn't paying.
Read the piece in full here.
So which areas have most households at risk of financial stress and of slipping into poverty?
We asked Experian, the data company, to help us and they came up with this table of UK local authority areas.
We see that the cliff edge is not, generally, a predominantly urban or metropolitan phenomenon. It is seaside towns, and rural areas (north Devon, Western Isles); the south west (Torbay, Cornwall); the outer suburbs of London (Hounslow, Harrow).
It shows that in 79 our of 406 areas, at least 20% of households are in danger of falling of the financial cliff edge.
An interesting comment below the line from KittyHawk, who says:
Question: Looking at the map, the indicators chosen to calculate the poverty ranking for the map seemed very specific, if not esoteric:
- Often indebted families living in low rise estates
- Older families in low value housing in traditional industrial areas
- Low income families occupying poor quality older terraces
- South Asian communities experiencing social deprivationThese didn't make a huge amount of sense when trying to understand why some areas came out higher than others. i.e. the SE and SW of England have few large concentrations of South Asian communities, or traditional industrial, areas - yet came out badly?
What was the significance of these indicators, and why were these ones chosen?
What other ones might have been chosen? (e.g. the distribution of free school meals as they overlap with housing benefit?)The way this map complicated the old North/South divide was fascinating, and the results rang true in areas I know, but the choice of indicators was curious.
The answer, I think, is that some areas have different types of people at risk. The Mosaic system used by Experian sorts people into eight types who fall into the "at risk" category.
In Torbay, for example, there were three main "types":
• Often indebted families living in low rise estates
• Mixed communities with many single people in the centres of small towns
• Self employed trades people living in smaller communities
While for Hyndburn in Lancashire, for example, the dominant "at risk" types are:
• South Asian communities experiencing social deprivation
• Low income families occupying poor quality older terraces
On Tuesday Bruno Rost of Experian will be online between 1pm and 2pm to take your questions about the data.
We've just published Amelia Hill's longer read on people at risk of falling into poverty. One of the people she speaks to, Laura, is a single parent and civil servant with take home pay of £18,000.
There's some discussion below the line on whether households on the "cliff edge" are "really" in poverty, but Laura illustrates our thesis perfectly: they are not - yet. They are rather people at risk of poverty: people who live relatively frugally but find it increasingly difficult to make their income stretch to the end of the month.
People will no doubt double-take (I did): a civil servant on the breadline?
Laura says:
"It's like there's a conspiracy of silence: who would believe that a civil servant could be living below the breadline?" she asks. But Laura is doing exactly that. After her mortgage, utility bills and monthly shop are paid, every pound is tightly budgeted for: a Marks and Spencer curry is a occasional treat, a glass of wine an impossible luxury.
Her salary is rarely enough. "I'm not 'poor poor' – I can afford to feed my son and myself, but I usually run out of money a few days before the next pay cheque comes in," she says. "And I mean I literally run out: I often don't have a single penny to spend for three or four days."
Amelia goes on (you can read the full article here) to talk to the Charity for Civil Servants, a benevolent fund for civil servants who fall on hard times. Once, hardship funds like this catered mainly for the retired and vulnerable; but now the bulk (85%) of its grants go to beneficiaries in work, often with young families.
I'll come back to the curious re-emergence of hardship funds on Tuesday.
Alison Garnham, chief executive of the Child Poverty Action Group has emailed me to comment on our investigation into households at risk of poverty. She says:
"The Guardian's findings should remind us of just how important it is that we have a strong social security system for families. But with the Coalition pushing through £20 billion of cuts to welfare, our social security system will fail to keep families out of poverty. The IFS have warned that a further 400,000 children will be in poverty by 2015, but as the economic situation worsens this may well turn out to be an underestimate.
"Politicians often talk about people being poor because they've made the wrong choices in life. The truth is that six in ten poor children have a working parent - a child growing up in poverty is much more likely to have a parent who's a cleaner or a care worker than one who's an alcoholic, a drug addict or too lazy to work.
"Despite all the 'work first' talk from politicians, it has never been properly matched by a 'jobs first' approach to prioritise job creation programmes in both the public and private sector. There simply aren't enough jobs, or enough hours of work in the economy. High levels of unemployment and now being compounded by a growth in underemployment, with 1.4 million people classed as underemployed who cannot get the full hours of work they want.
"It's clear that the current approach is not working and time to ask again how it was that in 1946, with worse debt than we have now, our nation was still able to invest in creating the jobs and homes that were needed."
We've just published three detailed interview case studies which, in my view, really get to the heart of who is living on the cliff edge, and how they feel about it.
They are, in my humble opinion, incredibly powerful.
The first is with Paul and Emma Marshall, from Birmingham. Here's a quote from Paul:
Counting every penny is exhausting and frustrating. My lack of job security is frightening. And all the time, the bills just keep going up and up. There's nothing left to cut costs on. Emma had a can of soup for dinner last night. But at the end of the day, we still have our pride.
You can read the full piece here.
The second interview is with Danielle Michalitsianos, from north-east London.
I feel ashamed that my children have had to live under the constant threat of poverty and have had to move home five times to avoid homelessness, but I work as hard as I can, and as many hours as possible, and I simply can't earn enough to move back from this cliff edge. I love my job and I think I'm paid a fair wage for it. But the cost of living makes every day a struggle.
Rents and food costs are spiralling up and it makes me so angry – how can society have got to a place where a woman with a decent job and a good salary struggles to live and feed her children with dignity? I know the price of sweetcorn and tins of tuna in every shop in my neighbourhood.
The third case study is of Nicola Probert and Tony Hodge from Bristol.
Nicola says:
It shouldn't be like this: we have both always worked and I feel really strongly that work should be rewarded. I don't want to rely on the state.
For me, the last quote is especially significant. These are the very "hard working families" to whom the Coalition - and Labour too - make their pitch: work hard, play the rules and you will be rewarded.
Will Nicola's bemusement that "It shouldn't be like this" turn to something more angry?
We'll be following the fortunes of these three families over the next 12 months in partnership with the Resolution Foundation.
Their journey will be fascinating. As I wrote in my analysis piece:
We'll also be interested in their reflections on the causes, consequences and possible solutions to their predicament.
Politically speaking, that could generate some powerful questions, as families on the cliff-edge begin to digest politicians' rhetoric about hardworking families and ask themselves: "How did we get here?"
Ok, I'm signing off for tonight. It's been a short live blog session today, but it'll be a longer one tomorrow, when we'll be looking at more detail at life on the poverty cliff edge.
@ianjsilvera tweets:
Think some oral history to accompany the blog would be great
Well, we could try, and here's where you can help. If you are living on the cliff edge, tell us about your experiences, hopes and fears. Leave comments below the line or email me at: patrick.butler@guardian.co.uk
On Tuesday we'll look at some of the causes of working poverty, and some of the consequences, from the rise of Wonga to the boom in charity shops and food banks.
We'll be holding a live Q@A between 1pm and 2pm. Our guests will be Bruno Rost of Experian (which crunched the "risk of poverty" data) and James Plunkett, secretary to the Commission on Living Standards at the Resolution Foundation.
Later in the afternoon we'll be launching the second part of Breadline Britain: an investigation into the rising number of children arriving at school hungry.
The comments should be on until 11pm tonight. Thanks for reading!
Patrick
Tough luck, Generation X: Only half of wealthy Baby Boomers to leave money for their kids...and ONE IN THIRD would rather give it to charity - Daily Mail
- Baby Boomers defined as people between the ages of 47 and 66
- Generation X refers to people born between early 1960s and early 1980s
- 55 per cent of Baby Boomers believe it's important to leave money to offspring
- Most Baby Boomers believe each generation should earn its own wealth
- Three-quarters of people younger than 46 favor leaving money to kids
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When members of the Baby Boomers generation die in the next 50 years, they will leave trillions of dollars in wealth behind, but their children should not hold their breath for a large inheritance.
According to the U.S. Trust Insights on Wealth and Worth annual study released on Monday, only 55 per cent of Baby Boomers - those between the ages of 47 to 66 - think it is important to leave money for their offspring.
U.S. Trust commissioned an independent, national survey of 642 high net worth adults, who were not clients, with at least $3million in investable assets.
Givers: A study found that 31 per cent of wealthy Baby Boomers would prefer to leave their money to charity
One of three Baby Boomers surveyed – about 31 per cent - don’t think it is important to leave a financial inheritance and said they would rather leave money to charity than to their children.
By contrast, three-quarters of wealthy people under age 46 said it's a priority to leave inheritance for their children.
The top reason for not wanting to leave money for their kids is the belief shared by some Baby Boomers that each subsequent generation should work to earn its own wealth.
Following closely behind is the thought that it is more important to invest in children’s success while they are growing up.
‘Our survey points to a shift in generational behavior and outlook, most likely shaped by personal experience and societal responses to economic realities,’ said Keith Banks, president of U.S. Trust.
Banks added that well-off parents are concerned that the next generation is not prepared to inherit wealth, which is not surprising considering the fact that most of the Baby Boomers surveyed don't talk to their kids about money: just 37 per cent said they've fully disclosed their net worth to their children.
Kept in the dark: Just 37 per cent of Baby Boomers said they've fully disclosed their net worth to their kids
Those over age 67 said they weren't having this discussion because they were raised to avoid money talk, while younger respondents said they didn't want to inhibit their kids' work ethic.
Unlike the majority of people from her generation, 63-year-old Kathleen Taylor, of Chimacum, Washington, taught her two grown children since they were young to be responsible for their own money.
That is why she plans to leave most of her money to her children and some money to charitable causes, ABC News reported.
One way Taylor and her husband taught their children about responsible spending was providing the value of college tuition, room and board to each of them and putting them in charge of paying the bills.
‘People thought we were crazy,’ she told ABC.
The Taylors plan to start a college fund once their children start having their own kids. And they intend to add to it on their grandchildren’s birthdays as long as Taylor and her husband are alive.
Mrs Taylor said she hopes her own children will do the same for their great-grandchildren.
The U.S. Trust study also has found that 42 per cent of Baby Boomers and 54 per cent of those under age 46 are paying medical costs for their parents or other relatives.
Tech boffins: Spend gov money on catching cyber crooks, not on AV - The Register
The UK government should be spending more on catching cybercriminals instead of splurging taxpayers' money on antivirus software, tech boffins have said.
Blighty goes through around £639m a year trying to clean up after attacks or prevent threats – including £108m it spends on antivirus – but the country is only spending £9.6m on techy law enforcement, a University of Cambridge study found.
"Some police forces believe the problem is too large to tackle," Ross Anderson, professor of security engineering at the University of Cambridge’s Computer Laboratory, said in a canned statement.
"In fact, a small number of gangs lie behind many incidents and locking them up would be far more effective than telling the public to fit an anti-phishing toolbar or purchase antivirus software."
The Cabinet Office said it welcomed "this latest contribution to the debate on cybercrime".
"The government believes the threat is serious and needs to be tackled and that is why we have rated cyber as a Tier 1 threat. Raising awareness and building capacity to resist threats continues to be our focus," a spokesperson told The Reg in an emailed statement.
"That includes investing in law enforcement capability to detect and apprehend cyber criminals. But we also think it is important to make sure people have the information they need to take steps to protect themselves."
The study, which was started after a request from the Ministry of Defence, also said that the amount of money the UK was losing as a result of cybercrime was being exaggerated.
"For instance, a report (PDF) released in February 2011 by the BAE subsidiary Detica in partnership with the Cabinet Office’s Office of Cybersecurity and Information Assurance suggested that the overall cost to the UK economy from cyber-crime is £27 billion annually," the research said.
"That report was greeted with widespread scepticism and [was] seen as an attempt to talk up the threat; it estimated Britain's cybercrime losses as £3bn by citizens, £3bn by the government and a whopping £21bn by companies. These corporate losses were claimed to come from IP theft (business secrets, not copied music and films) and espionage, but were widely disbelieved both by experts and in the press."
Using figures ranging from 2007 to 2012, including some which are "extremely rough estimates" based on data or assumption for the reference area, the study reckoned that all the costs of cybercrime both direct and indirect came out at around £11.7bn.
UK.gov – Cybercrime is expensive
The Cabinet Office spokesman said that Detica was best placed to explain its own methodology, but still disagreed somewhat with the study's conclusions.
"The Cyber Security Strategy was clear that a truly robust estimate would probably never be established, but that the costs are high and rising," he said.
"That said, we think there are grounds for believing that the true cost is higher than the £11bn quoted by Cambridge University.
"For example, the authors say that they can't find any hard evidence of the cost of IP theft and have therefore concluded this doesn't impose any costs beyond the defensive measures they refer to elsewhere in the paper. However, there are suspected cases of IP theft in the public domain and the costs are not nil.”
Aside from differing opinions on the cost of cybercrime, the research team also reckoned that some existing meatspace crime was moving online and being tallied up as part of the cyber cost.
The study pointed out that fraud in the welfare and tax systems, which now often takes place online, is probably costing Brits a few hundred pounds a year on average while card and bank fraud cost a few tens of pounds a year per citizen.
However, what they call 'true cybercrime', scams that completely depend on the internet, are only costing a few tens of pence a year, while the cost of antivirus software can be hundreds of times that.
Basically, the indirect costs of folks trying to protect themselves from cybercriminals actually end up costing them more.
"Take credit card fraud," said Richard Clayton, expert in the econometrics of cybercrime in Cambridge’s Computer Lab. "Direct loss is clearly the monetary loss suffered by the victim.
"However, the victim might then lose trust in online banking and make fewer electronic transactions, pushing up the indirect costs for the bank because it now needs to maintain cheque clearing facilities, and this cost is passed on to society.
"Meanwhile, defence costs are incurred through recuperation efforts and the increased security services purchased by the victim. The cost to society is the sum of all of these," he explained.
The research team concluded that there should be less spent on antivirus and firewalls and other preventative measures and "an awful lot more" on catching and punishing the perpetrators.
The study (PDF, 346KB) is due to be presented at the 11th annual Workshop on the Economics of Information Security (WEIS), which takes place in Berlin on 25 and 26 June. ®
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