Tag Archives | economy

How to Get a Loan When Banks Aren’t Lending

how to get a loan when banks aren't lending

You need capital, but you’re having trouble securing the financing you need.  So how to get a loan when banks aren’t lending?

This situation reminds me of the famous NBC Television show, “The Office”, the hilarious documentary-style show that comments on the life of a standard corporate office. If you haven’t seen the show, I’d definitely recommend it.

In one of the episodes, the antagonist and regional manager, Michael Scott, has worked at Dunder Mifflin Paper Company for over 19 years and quits (spoiler alert!). He decides to start his own paper company with almost no capital, along with two other employees in the office who also quit. Slowly, he takes clients away from Dunder Mifflin and grows in revenues. As a result of his sudden growth in clients, he buys a van and wakes up at 3 in the morning to distribute the paper in the area.

After consulting with an accountant, he finds out that he has to declare bankruptcy because he was growing the business too fast, and that the revenues would not cover the growth of the business. They required wages, rent, and variable costs associated with manufacturing and distributing the paper. Because of the digital age, the demand for paper wasn’t so hot either.

What happens when we grow ourselves out of business? Michael’s problem was simple: he had no outside investors, and zero loans from the bank. Therefore, he had no money to cover the fast expansion. Sound familiar? In this article, we will discuss how to get a loan from the bank when they aren’t lending.

Don’t lose track of your company’s metrics. For advice on how to identify your KPIs and how to track them, access our free KPI Discovery Cheatsheet!

Bank Lending Cycle: A Recap

Last week, we discussed the bank lending cycle and why banks may tighten their lending. There are two reasons why that might happen…

Loans and the Economy

If the economy is undergoing or overcoming a financial crisis, banks tend to lend less. During this time, businesses might have to look elsewhere for financial assistance.

Conversely, if the economy is booming and the lending environment becomes less risky, banks might lend more. These periods are characterized by lower interest rates and better terms.

But what happens when things are looking up? It’s easier to obtain a loan because of the economy, but with all the capital in the marketplace, an economic bubble builds. After a while, that bubble will burst and we’ll find ourselves in a financial crisis again.

 The Environment affects the Economy

The economy may affect the environment, but the events in the environment also affect the economy. We used the housing market crisis in 2007 as an example. Imagine walking into your job the next day, without reading or watching the news, expecting to make a sale. Yikes! You have to know your environment to make good investment decisions.

How to Appeal to Bankers

We discussed the cyclical nature of bank lending and how to understand the industry. Now, we will analyze how to best appeal to the bankers. Regardless of the economy, the banker still has to evaluate how risky the investment is. What is the best way to appeal to bankers? Preparing a package of these five things will get you there:

1. Know your economics.

Preparing at least three years of business financial statements and one or two years of financial projections goes a long way. In addition, you should also list out how you will use the loan. By preparing a projection of financial statements, this should be easy.

2. Build sound business credit.

Knowing where you stand with your credit is useful. If there are any inaccuracies, you can correct them without having the bank check and deny you a loan. If you have lower credit than you had originally hoped, maybe you can hold off on applying for a loan until you are ready.

3. Provide documentation of personal loans.

Providing documentation of personal loans is equivalent to providing evidence and saying, “I am worthy of your loan!” Personal loans, business loans… they both demonstrate that you owe someone money, and showing the history of your loan relationships indicates the type of relationship you might have with the bank.

4. Prepare questions.

In a way, preparing a package for the bank should answer all the questions they might have. This includes “how much money do you need,” “how long might you need this loan,” “what will you use it for,” etc.

5. Log prior experience.

This is less about numbers and more about character. Logging your experience in companies, vendor relationshipslender relationships, and references shows more than how much money you have or will have. It shows the commitment and effort of a borrower.

Other Sources of Loans

Don’t put all your eggs into one basket. Have a backup plan just in case banks really aren’t willing to loan anything to your company. Smaller businesses are less likely to obtain a large loan from a bank if they are less than 10 years old.

SBA Loans

SBA is the Small Business Administration. They provide loans if you’re starting up a new company, or even if you just want to expand your business. Basic 7(a), Certified Development Company (CDC) 504, and the Microloan program are examples of the loan programs they provide.

Personal Loans

It may not seem much, but $20 from your family members adds up. Using your savings and other means of personal loans, you can finance yourself through startup costs. Just make sure not to forget about your payments, or run your credit too high!

Conclusion

In conclusion, banks won’t loan to just anyone… and sometimes that’s not your fault. Sometimes, it’s just bad timing. What happens in your environment isn’t up to you, but it is your responsibility to stay updated on those facts. Creating a package for your business will increase the likelihood that you’ll get a loan because you’ll be making the bank’s life easier. Rather than them scrambling to find your information, you can simply lay it out for them. And if all else fails, banks are not the only source of loans. With a bit of ingenuity, you can get there.

Save your time and prepare for the future now. Know your numbers and where your company is the weakest. The best way to start doing that is to download our KPI Discovery Cheatsheet today!

how to get a loan when banks aren't lending

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how to get a loan when banks aren't lending

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Bank Lending Cycle: Cracking the Code

bank lending cycleSo your cash is tight and your loan renewal is approaching, but sales are picking up and you need additional capital to keep up the pace.  You approach your banker about increasing your line or obtaining new financing and they aren’t willing to take the risk. What now?

This isn’t a new story. In fact, if you’re in finance, either you or the person in the office next to you has experienced this. In this blog we’ll give you some general guidelines on what to watch out for in the bank lending cycle.

What is the Lending Cycle?

After a financial crisis, banks tend to tighten up their loan underwriting making capital more difficult to obtain. During this time, businesses seeking additional sources of funding will likely face an uphill battle convincing their lender that they are a risk worth taking.

As the economy improves and the lending environment becomes less risky, credit structures begin to soften and financing becomes easier to obtain.  These easy-to-borrow periods are marked by lower interest rates, lower requirements and conditions, and a large amount of available credit.

Not surprisingly, with all the new capital in the marketplace, an economic bubble builds. Eventually, the bubble bursts causing another financial crisis and the cycle begins anew.

When determining whether or not a banker wants to lend to you, they usually evaluate how risky the investment is. Obviously, banks do not lend to anyone and everyone. Rather, they calculate how much of their lending is trustworthy. What is this company’s credit history? What other debt do they have? How are their financials?  These are just a few things that a lender evaluates before making the final decision.

Why is the bank playing hard-to-get?

As a business person, you’re probably familiar with how “flirty” a bank can get with you. When you actually need the loan, they don’t want to give it to you. Then they tease you with a good rate and terms when you don’t need the loan. This isn’t just because you walked in wearing the wrong clothes, or even because of your numbers. Sometimes, because of the bank lending cycle, it’s just more difficult to get a loan at that time.

Want to know how to increase the impact you have in your company? Access the three best financial tools we’ve ever created to learn how!

Loans and the Economy

In one of our Wolff Center for Entrepreneurship classes, I asked the question: “Is it a good idea to start a business in a recession? Raise your hand if you think it is.” Only a few people raised their hands. In a way, it is a good idea, and this is why:

Like any product in the economy, prices and rates fluctuate due to supply and demand. When the demand is lower for a loan, banks are more inclined to charge a lower interest rate. When demand is high, banks implement a higher interest rate. During a recession, businesses are more debt-averse, driving down interest rates. When rates are low, there’s pretty much a “discount” to take out a loan. And every entrepreneur loves a discount.

Similar to demand, supply also affects the interest rates for a bank loan. When banks are flush with cash from customer deposits, they need to put those assets into service in the form of loans.  With lots to lend, banks tend to offer more attractive credit terms and interest rates. When the economy is suffering and banks don’t have as much on deposit, the supply of capital is diminished and, consequently, is more expensive.

The Environment affects the Economy

This is why it is crucial to understand the environment and industry your company is associated with. It amazes me how many people conduct business without reading or looking into their industry’s current events. Those current events affect what sale you’re going to make, how cheap your supplier will sell you a part, and… whether or not it will be possible to get a loan.

Imagine walking into work a day after the housing market crisis in 2007 and saying, “I’m going to invest in a condo.” Assuming you’ll still have a job at that point, anyway. If you take away anything from this article, understand this: Stay updated in your industry, because those events directly affect the economy.

Loan Officers are Actually Salespeople

bank lending cycleLoan officers are people who recommend consumer, commercial, and mortgage business loans for approval. They typically work as intermediaries for the bank lenders and the borrowers. A person represents an entity, and promotes a product for a commission… sound familiar?

Loan officers are really salespeople selling loans. They have quotas like salespeople. When there is low demand or availability of capital, loan officers are often less aggressive or even laid off. This is similar to a salesperson who is laid off due to a decrease in revenues. When capital is flooding the market, banks will often hire hoardes of new loan officers to put their money to work.  This explains why your banker rarely calls on you when you really need them but pursues you doggedly when times are good.

Conclusion

In conclusion, the economy affects the bank lending cycle. It may seem like common knowledge to stay aware of your industry, but you would be surprised how many clients I meet that have no idea what is really happening in the world. If you understand the economy, then you’ll understand the patterns of what a bank needs. A bank is like a business, so if you start thinking like a bank (which you most likely already do), then you’ll be speaking their language in no time. Catch next week’s blog about how to appeal to your banker, and how to get a loan even when banks aren’t budging.

What do you do when your banks aren’t budging? Now’s the time to really think like a CFO. Download our three best tools in the company to start speaking the CFO language.

bank lending cycle

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bank lending cycle

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The Impact of Brexit

Two months ago, Great Britain voted to leave the European Union (EU).  One of the most frequent questions asked was “What does this mean for me and my company?”  While Brexit hasn’t actually happened quite yet, the past two months has given us time to see the impact of Brexit on local economies and world economies as well as assess all the changes that have occurred since the vote.

brexit-referendum-uk-1468255112FBbBrexit

“Brexit” is the term used as a nickname to Great Britain’s exit from the EU. Some speculate that the entire process of Brexiting will take up to 10 years and will need 10,000 people in order to make it happen (The Guardian).

Should you still care about Brexit? Brexit is just an example of an external factor that can have a huge impact on your company. By completing an external analysis, for example, you’ll be better able to assess all likely outcomes and react accordingly.

Change Happens – Impact of Brexit

It’s simplistic to expect that dramatic changes will occur in a single day, but we can expect things to change in 2 months time. And it’s true that lot of adjustments have been made since the referendum.

David Cameron resigned from his position after the vote came in, vacating the leadership role he filled for 6 years. This resignation is similar to presidential elections or any other change in office due to the different agendas, perspectives, and goals.

The new Prime Minister, Theresa May has already created 2 entirely new governmental departments (or ministries): the Department for Exiting the European Union and the Department for International Trade. Although these ministries are still sorting out the details, we can assume that immigration of labor and trade will be impacted (positively or negatively).

As a financial leader, you must act as the wingman to your CEO and look at the horizon for things like this. What do you see that could potentially help or hinder your company?

If you need help completing an External Analysis to avoid the impact of harmful changes (or take advantage of opportunities), click here to access your free guide.

Where Does Everything Stand Now?

During any time of uncertainty, businesses are bound to be cautious (particularly in the Business-to-Consumer arena). As an entrepreneur, I consistently try to stay ahead of the curve in knowing what’s about to happen. An easy tool to use is called PEST Analysis; this tool allows you to take a broad scope of political, economic, socio-cultural, and technological factors that influence your company, customers, or vendors.

Politically

New Prime Minister Theresa May has some major hurdles to overcome due to the Brexit decision. As the first person to actually organize Britain’s exit from the EU, all bets are on the table as to how she is going to react. Earlier, we talked about how May created 2 new governmental departments. Think about what this is going to impact.

TaxesSomeone has to pay for this to happen, and it’s probably going to be the taxpayers – citizens and businesses.

Labor: People are necessary for operations to run smoothly.

Trade: Restriction on trade might hinder companies from conducting business in or with Great Britain.

impact of brexitEconomically

BBC reported that unlike expectations leading up to the referendum vote, retail sales haven’t seen a major downturn. In August, Great Britain experienced their second upturn in retail sales since Brexit. Moreover, credit card sales were higher in July than the previous 6 months.

Consumers and businesses alike are remaining cautious and conservative in their spending habits, but they are continuing to spend.

Interest rates and the value of currency decreased dramatically, which has a major impact on businesses (particularly with international business).

businessman-1071758_960_720

With the value of the pound having been decreased since Brexit, manufacturers are seeing an increased cost of importing. This could be due to interest, trade regulations, and tax laws.

Socio-culturally

The impact of Brexit hasn’t given rise to many socio-cultural changes in the past 2 months other than the obvious – change in consumer purchasing behavior.

Technologically

Brexit may not have a direct impact of advancement or regulatory changes for technology, but the impact of Brexit may adjust the landscape of how companies optimize technology.

Companies may find that telecommuting and telecommunication are solutions to avoid predicted labor restrictions. Another option would be to adjust manufacturing processes to reduce the weight of product for shipping.

How Can I Prepare for These Types of Environmental Factors?

It’s important to understand that external environmental factors are going to impact business confidence, causing uncertainty in businesses and consumers. Similar to Brexit, presidential elections and other events can cause businesses to freeze up.

But how do you know if your company is going to be impacted by external events if you haven’t given it thought?  Take a look at your consumers.  Where do you even start to prepare for these types of environmental factors?

impact of brexitDo Your Research

Nowadays, people are tied to their smart phones, tablets, and computers due to the integration of technology into culture, the workplace, and daily life. Information is readily available, so don’t get left behind like the luddites. Your friend Google is a great resource that you can use to do your research.

Doing research of environmental factors that have the potential to impact your company could save you a lot of time or money in the future.

Perform a SWOT Analysis

Performing a SWOT analysis is an important step in preparing for uncertainty. It’s an analysis of your company’s strengths, weaknesses, opportunities, and threats.

Create an External Analysis

An external analysis looks at the opportunities and strengths of a company. This is necessary in order to know what could impact you.

This might be a good time to revisit the notion of the economic dam

 It’s only when the tide goes out that you learn who has been swimming naked. – Warren Buffett

Your external analysis will bring to light factors that may hit you immediately or collide with your company later down the road. By estimating where you are in the river in relation to the dam, you’ll be able to combat uncertainty.

Create Action Plans

Write an action plan or a list of action items that need to be completed upon the occurrence of a particular external event.  This is one of the most important things in order to prepare for any scenario.

The more aware you are of what could impact your company, the better you are able to successfully pull through any situation.

impact of brexit

This emergence of the new CFO is changing the landscape of tomorrow’s financial leader. Financial leadership is no longer simply managing the finances, but rather steering the ship through smooth and choppy waters.

Act Early

One of the biggest mistakes companies make in troubled times is not acting early. Start today and download your free External Analysis whitepaper that guides you through overcoming obstacles and preparing how your company is going to react to external factors.

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Fair Market Value

Fair Market Value Definition

The Fair Market Value definition is the price a specific property, asset, or business would be purchased for in a sale. A company’s fair market value should be an accurate appraisal of its worth.

Calculating Fair Market Value is subject to the following conditions:

  1. Prospective buyers and sellers must be knowledgeable about the asset.
  2. Buyers and sellers must not be coerced or strong-armed into selling or purchasing.
  3. All parties must provide a reasonable time frame to complete the transaction.

In other words, an estimate of the amount of money an industry-educated, interested, unpressured buyer would pay to an industry-educated, interested, unpressured seller is the FMV.

How to Determine the Fair Market Value of Your Company

If you are considering selling your business in the future or are just trying to strategically plan for the long-term, then determining the fair market value of your company is a crucial step. The difference between the fair market value and the purchase price can often be considerable; consequently, many sellers hire professional appraisers for business valuation. This cost can range from a few thousand dollars to $50,000; however, we highly recommend to hire a third party as most owners inaccurately estimate the value of their business, which can lead to disappointed expectations regarding the company’s value or a low sale that leaves hard-earned money on the table.

(Are you in the process of selling your company? The first thing to do is to identify “destroyers” that can impact your company’s value. Click here to download your free “Top 10 Destroyers of Value“.)

What Your Appraiser Will Look For

There are many ways to calculate the Fair Market Value of your business; some of the factors that affect a business’s FMV are the business type, the economic conditions at the desired time of sale, the book value, recent income, dividends, goodwill, and recent prices paid for comparable businesses. During an assessment of your company, an appraiser will look for the following items along with many others:

  1. Future Earnings: An appraiser will forecast future earnings over multiple years, factoring in the discount cash flow and discount residual value by comparing your company to similar ones. The discount rate reflects the diminishing value of money year after year. They will also determine the “capitalization of earnings rate,” which indicates the cost of capital and the company’s risk.
  2. Asset Assessment: They will evaluate the Fair Market Value of all the tangible assets of the company, such as inventory or equipment, as well as the intangible assets, such as brand, reputation, and location.
  3. Comparable Sales Figures: They will analyze recent sales of commensurate companies.
  4. A Partial Purchase Discount: If the buyer is purchasing a minority share of the company, then less than 50%, apply a discount since the other party would still control the business.

Conclusion

Appraisers and valuation experts typically use more than one approach when evaluating the FMV of a company. So start identifying the value of your business today by grabbing your business tax returns and general ledger. Before you start the valuation process, download the Top 10 Destroyers of Value to identify any destroyers of value and maximize the potential value.

Fair Market Value

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Fair Market Value

See Also:
Adjusted EBITDA
Asset Market Value vs Asset Book Value
Valuation Methods
Goodwill Impairment

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The Hooter Meter: Main Street’s Economic Indicator

On Thursday, natural gas prices hit a 17-year low. Ouch…

We often talk about how to manage your company and the best way to judge what the economy is doing. One of the simplest (and most often overlooked) things to do is to look beyond what’s right in front of you to the hints the economy has left behind.

Main Street’s Economic Indicator

Confession Time…Hooters_logo_1983-2013.svg

About once a month, I go to Hooters because I genuinely enjoy their wings. I love Hooters! (but don’t tell my wife)

The last time I went, I noticed that the Hooters girls were out in the parking lot with hula hoops rather than inside the restaurant serving.  Were things so bad that they had to pay employees to hula hoop in the parking lot as a marketing plea for people to come and eat at Hooters?

“How’s business?”

As an entrepreneur, I’m always curious about how other people view the economy.  My favorite question to ask people is, “How’s business?”  When I put this question to my waitress, she told me how sales had slumped and the restaurant’s business was slow, hence the hula-hooping waitresses.  Not surprising given the number of layoffs in the energy sector over the past 18 months.

What I learned through observation (strictly in the name of economic research, of course) and talking to the people on the ground was that the economic crisis had made its way into other industries.  Something I had expected, but my new economic indicator, the “Hooter Meter”, confirmed it.

Halliburton just announced 5,000 more layoffs this past week. Many other oil & gas companies are struggling to maintain their economic status in the industry. If I had just chosen to eat my wings and watch the game, I would have had little indication that restaurants are now struggling.

In management 101, we learned to walk around and talk to employees before making big decisions. You can apply the same technique to the economy.  When visiting clients, I always ask my standard question: “How’s business?” Often, a client will start talking about how the economy is making business rough and how they are beginning to struggle… or I get a shrug and “it’s good” to avoid further discussion.

(Have you read our recent blog post: Mistakes in Troubled Times? Click here to read more about how you might avoid making mistakes within your company.)

Economic Indicator: Monitoring the Economymonitoring the economy

Although economic indicators are important tools that can and should be used, the extent of their effectiveness is limited. As the financial leader of your company, you must be able to walk around outside your business to observe your external environment. How is the economy affecting your community? Your suppliers (upstream and downstream)? Your customers?

(You can see all of the economic indicators provided by the US Census Bureau here.)

The Strategic CFO often coaches and consults with oil & gas companies. Many of Hooters’ customers work in the oil & gas industry.  By observing the affect of the economy on Hooters, I’m better able to prepare my company to be adapting to the changing economy.

Be an Effective Wingman

A CEO needs a financial wingman who can observe the economy and how it affects the company. The goal of this is to be able to react and prepare the company for anything. One of the ways you can achieve this is by doing what entrepreneurs do: keep your eyes and ears open for non-traditional economic indicators.

(NOTE: Want more tips on how you can be a trusted advisor? Check out our whitepaper How to be a Wingman!)

Wikipedia says this:

The wingman’s role is to add an element of mutual support to aerial combat. The presence of a wingman makes the flight both offensively and defensively more capable by increasing firepower and situational awareness, permitting the attack of enemies, and increasing the ability to employ more dynamic tactics.

With fewer professional jobs being available due to the recession, it’s important to provide the best advice to your CEO to prove your value. Financial people are often seen as overhead, but if they are able to provide insight (even if it’s found over Hooters hot wings),  they will be better able to create value.

HOW TO BE A WINGMAN

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monitoring the economy

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Does fraud follow economic cycles?

Does this sound like your business lately?  Sales volume is down.  Cash is tight. The company is losing money.  And just when you think things can’t possibly get any worse, you discover that one of your employees has committed fraud… Sadly, this scenario is all too common and begs the question of whether fraud is more likely to occur when the economy slows down.

Economy down, fraud up?

A survey conducted by Deloitte & Touche in late 2008 showed that 63% of the firm’s clients expected an increase in fraud related to the global financial crisis experienced in that year.  This would seem to indicate that, at a minimum, people expect more fraud to occur during an economic downturn.

However, it may be that fraud is simply more likely to be discovered during times of economic stress.  When business is good, people don’t tend to question anomalies as thoroughly and small frauds might even be dismissed in an effort to maintain focus on growth, not problems.  But when money is tight and management is kicking over every rock looking for profits, it’s much harder to conceal fraud and companies are willing to go after fraudsters to recover precious lost resources.

Public perception of fraud can also make it seem as though there’s an uptick in fraud in lean times.  During a downturn, most economic news coverage is negative.  Discovery of fraud certainly contributes to the tone of the times and is often a lead story during such periods of stress.  Additionally, improved fraud detection measures (think Sarbanes-Oxley) have helped increase the actual number of frauds detected, hence the appearance that more fraud is happening.

So what actually causes a person to commit fraud?

Fraud Triangle

fraud triangle

The Fraud Triangle, first set forth by Donald Cressy, describes three factors that are present in every situation of fraud:

  1. Pressure – the need for committing fraud (need for money, etc.)
  2. Rationalization – the mindset of the fraudster that justifies them to commit fraud
  3. Opportunity – the situation that enables fraud to occur (often when internal controls are weak or nonexistent).

In order to break the fraud triangle, an organization must remove one of the three elements of the triangle.

Pressure

Many things may contribute to the pressure to commit fraud during troubled economic times.

  • Pressure to meet goals
  • Demand for increased productivity
  • Fear of losing job
  • Reduction in salary

Any of these or a host of other factors could pressure a person into biting the hand that feeds them.

Rationalization

How does a person justify theft from their employer?

  • My company can afford it
  • Times are tough
  • My goals are unattainable
  • Revenge

Particularly during a downturn, it’s not terribly difficult for a dishonest person to find a reason to steal.

Opportunity

Times of economic stress present many opportunities to commit fraud that might not be present during better times.

  • Less people doing more work = lack of oversight
  • Same level of supervision over more people
  • Middle managers (supervisors) are generally the first to be cut
  • Battlefield promotions of un- or under-experienced people

It’s important that companies realize the risks associated with cutting resources and take steps to ensure that internal controls aren’t compromised.

(Find out what the 7 Warning Signs of Fraud are!)

An Ounce of Prevention…

So what’s a company to do?  There are several fraud-prevention tactics that can be used, both in good times and in bad.

  • Review internal control policies/procedures
  • Get a handle on crucial resources
  • Monitor key metrics for anomalies

Most fraud prevention scenarios focus on removing opportunity by strengthening internal controls. While this is a great first-line defense against fraud, it’s also important that a company take stock of its resources (like cash) to establish a baseline from which to measure changes.

It’s hard for fraud to hide out when management is tracking key drivers.  Fraud will usually cause a blip in key metrics, but if those metrics aren’t being watched, the blip could slip by unnoticed.  Not sure what you should be tracking?  Check out our free KPI Discovery Cheatsheet below.

does fraud follow economic cycles

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does fraud follow economic cycles

Whether or not fraud actually follows economic trends is up for debate.  The good news is that there are steps that a company can take to minimize the likelihood and impact of fraud.

Leave us a comment with your fraud prevention tips below.

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Hiring Process is Getting Longer

job skills 123rf 10384299_sA recent article in the Wall Street Journal reports that employers are taking longer to pull the trigger on hiring decisions than in years past.  According to the article:

  • the average job in 2014 sat vacant for 27.3 days before being filled; this is compared to only 15.3 days five years ago
  • the average interview process took 22.9 days in 2014, up from 12.6 days in 2010

Hiring Process is Getting Longer

One of the trends cited as a possible cause for this phenomenon is the growth of non-routine jobs requiring judgment and creativity.  As routine, task-based jobs are becoming automated, the need for highly-skilled workers with good judgment is increasing.  To identify applicants best for a certain position, employers are increasingly relying on skills assessments, personality tests, and background checks to assess an individual’s “soft” skills.

Another possible reason for additional time spent in the interview process is the increasing emphasis on culture. This has become a determining factor of company success. Companies such as Zappos, Google, and Starbucks have a highly-defined culture. Therefore, they spend a good deal of time with prospective employees to determine whether or not the individual will “fit”. Zappos offers all new employees $2,000 to quit.  From Zappos.com:

Yes, we do offer new hires $2000 to quit. We really want everyone at Zappos to be here because they want to be and because they believe in the culture. If they know they don’t quite mesh with our culture, we don’t want them to feel stuck here, so we give them an option. Less than 2% of all prospective employees end up accepting the offer.

A company so concerned with fit as to offer to pay people to leave might take their time finding the right person.

Across the economy, the average time it takes to fill open positions is lengthening.  So whether you’re looking for a job or seeking to fill an open position, expect it to take a while.

hiring process

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