Niea Milwaukee 2009 Again

By SIMON CONSTABLE

When the financial world looks upside down—and news out of Europe and Washington suggests it is that bad—maybe it’s time to follow suit and turn your money habits topsy-turvy as well.

Contrary to conventional wisdom, there are some regular money moves that are better done at the beginning of the year rather than the end.

Here are five big ones:

1. Tap your flex-spend account early

Opticians routinely urge you to spend your unused medical flexible-spending account in December.

That’s backward. Start the year with a trip to the eyeglass store for a new pair of spectacles or two.

Your FSA is provided by your employer but funded with your pretax dollars. You elect an amount for the whole year (say, $2,400), but it’s funded through equal payroll contributions throughout the calendar year ($200 a month).

Bob Daly

The bonus is that you get to start spending the whole amount (in this case, $2,400) on Jan. 1 as long as it is for eligible medical expenses, like eyeglasses and prescriptions.

If you spend it all by February, then it’s better than a low-interest loan. It’s a no-interest loan and there’s a chance you may not have to “pay it back.” If you get fired or quit before year-end, in general your employer has lost out, not you. (That’s the way the government set up the rules.)

2. Make your charitable donations now

Some people wait until December to make charitable donations. The idea is that you have a better handle on how much money you can spare.

That’s upside down.

If giving to charity is important to you, why wait? Write your check now and feel satisfied. If you are worried whether you will have enough money to live on during the year, then write a smaller check or cut back on other expenses. I’ve never heard of anyone going broke because he gave too much to charity.

You’ll get the same tax deduction making a donation early in the year as you would later, but the charity benefits by having the money sooner.

3. Contribute to your IRA in the spring

It can be tempting to wait and see what money you have left after Christmas before committing anything to an individual retirement account. Don’t wait. Do it as soon as you can.

If you fund the account early, you will find a way to make your remaining dollars stretch. What’s more, the funds in the account will grow tax free. Any interest you earn outside the IRA will be taxed, so the sooner you get your contribution done the better.

If, like many people, you wait until mid-April to contribute to last year’s plan, then this year make a change. Double down by contributing to both this year’s and last year’s accounts at the same time. You’ll get an extra year of earnings inside your plan.

4. Don’t wait for your fitness reimbursement

If your employer is generous enough to reimburse all, or part, of your gym membership (and many do), don’t wait until the end of the year to claim your money. In the first place you might forget, and that’s just throwing away money.

In addition, since everyone else mails claims at year-end, it’s more likely that yours will be lost or delayed.

What you should do instead is start the year with an annual fitness membership. You should pay the full amount upfront rather than monthly. Then you should get it all reimbursed.

In the winter gyms often offer sales, so you may get a discount as well. And if you get fired before the membership expires, you’ll still have a (paid for) place to exercise.

5. Don’t wait to take investment losses

Around Christmas time you often hear people talk of the need to make so-called “tax-loss sales” of stocks. The idea is to lock in the loss before year-end so that it can be used to offset taxable investment gains.

It’s a dumb idea.

The time to ditch a losing investment is when the reasons you originally got into it are no longer valid. For example: You might feel like you made a bad investment if you bought Tiffany last year. Perhaps at the time you thought shoppers would go nuts for luxury goods. Now you could be thinking another stock makes more sense in these austere times, like Wal-Mart.

Well, if that’s what you think, then get out. Take your loss, and use what’s left to choose a better investment.

Email: simon.constable@wsj.com

By SIMONA COVEL

When Alison Nelson opened Chocolate Bar, a New York eatery and candy store, her plan was to eventually open stores in Chicago, Miami and Los Angeles.

But six years later, she ended up expanding to a more distant — and unexpected — place: the Middle East. In October, a Chocolate Bar will open in Dubai, followed by locations in Qatar, Egypt and elsewhere across the region.

“I figured for expansion I’d benefit from similar urban areas” in the U.S., says Ms. Nelson, adding that London seemed a reasonable spot for her first foray overseas. She hadn’t even considered the Middle East — writing it off as a violence-riddled region with little need for stylized, high-end chocolate.

But a call from a Dubai-based investor opened her eyes to a modernizing consumer class in the region — one that’s eager to buy products carrying brand names from the U.S. and Europe.

With American consumers cutting back on discretionary purchases like chocolate, and increasing food costs eating into profit margins, Ms. Nelson now says she would rather operate in the Middle East than place her bets on strapped American consumers. Chocolate Bar, which posted $2 million in revenue last year, has two New York City locations and one in New Jersey. Other U.S. cities are off the drawing board for now.

Untapped Markets

Small companies typically venture abroad once they have saturated the U.S. market and need a new, fresh customer base. But more businesses are forgoing plans to expand their domestic reach amid the shaky U.S. economy and falling dollar. Some also are eschewing European countries that typically would be a small company’s first foray overseas — many of those nations are experiencing economic woes of their own, are expensive to operate in and already are saturated with well-known consumer products. Instead, an increasing number of small businesses are heading to the less-developed markets of the Middle East and Asia, which offer access to a growing consumer class.

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Developing countries: Is the risk worth the reward for a small company? Read the latest post and share your thoughts.

Small companies that successfully tap into an unmet need in such markets could grow much faster than they would just catering to a domestic market. And the move can help buoy a business during tough times back home. The big risk, however, is spending lots of time and money creating and hawking a product that really doesn’t mesh with a nation’s needs and tastes.

Laurel Delaney, founder and president of GlobeTrade, a Chicago management consulting company that helps small companies expand abroad, cautions that before small-business owners hang a shingle in Qatar, Pakistan or any developing market, they need to do plenty of due diligence, starting with demographic research on sites such as buyusa.gov, which is sponsored by the U.S. Department of Commerce. The World Bank offers “ease of doing business” rankings for many of the world’s nations.

Local Tastes

Ms. Nelson’s journey began when a Dubai-based investor decided the region’s increasingly worldly consumer class was a prime market for stylish, high-end chocolate. “The Arabic consumer is becoming more globalized,” says the investor, Mary Ghorbial. Not only do more Middle Easterners travel abroad, but they’re linked to Western culture through satellite TV and the Internet.

The company

Chocolate Bar’s Dubai location under construction

Ms. Ghorbial did an Internet search for chocolate, and found the small New York company. So in early 2006, she called Ms. Nelson and suggested a partnership — Ms. Ghorbial knew the Middle East market and Ms. Nelson knew chocolate.

But, Ms. Nelson says, “I told them, ‘I’m not interested.’ My first mental image was the [Iraq] war.” She says she recalls thinking, “I haven’t opened a store in Los Angeles. How am I going to open [one] clear across the globe?”

Nevertheless, Ms. Nelson was curious. She had spent recent months watching chocolate futures rise — an indication that her costs were going to keep increasing. The U.S. economy was looking shaky. Ms. Ghorbial had mentioned that despite international turmoil, consumers in many parts of the Middle East were drawn to the cachet of existing American and European brands.

The two parties negotiated for nearly nine months. And in August 2006, Ms. Ghorbial and her husband, Osama Sorial, founded Gourmet Company, which is structured as a Chocolate Bar licensee. Under the deal, they will open 30 stores across the Middle East over 10 years, starting with Dubai. Ms. Nelson received an undisclosed upfront fee and will earn a percentage of the new stores’ daily sales.

With the ink dry on the deal, Ms. Nelson turned her attention to adapting her products and company to a completely new and unfamiliar market. By structuring the deal as a licensing arrangement, rather than a franchise, Ms. Ghorbial was free to adapt the stores’ interiors and menus to each country’s needs.

Middle Easterners eat a lot of chocolate, which is used to celebrate engagements, the births of babies and other occasions. So Ms. Nelson created big platters for gift-giving.

Her new customers’ palates are different, too. While dark chocolate has gained popularity in the U.S. and Europe in recent years, that’s not so in the Middle East. So, Ms. Nelson added more milk to her products, as well as more white-chocolate items — something that hardly sells at her New York stores.

The company

Chocolate Bar’s retro packaging

And after visiting Dubai for the first time, Ms. Nelson saw that figs and dates were “everywhere I went — it’s the quick snack there.” Hoping to invoke a bit of familiarity for the locals, she added chocolate-dipped versions of the fruits to the menu, as well as a fruit-and-nut bar.

“We wanted to have ordinary things they eat every day,” Ms. Nelson says, “but do something special with them.”

Other changes: Because most Muslims don’t eat pork, prosciutto was removed from the company’s signature salad. Ms. Nelson also planned for more feta and olive flavors in the salads and sandwiches.

Some alterations were more cultural. The Chocolate Bar’s two planned Dubai locations were originally designed like the company’s New York cafe, with long banquettes designed for sharing with fellow patrons. But Ms. Nelson and her designer went back to the drawing board after learning that many Arabs don’t like sitting close to strangers. So the store will have smaller banquettes and tables, designed for individuals or small parties. And they feature gold leather and flashy chandeliers, a shout-out to Dubai’s taste for opulence. In more conservative locations, cafes will feature secluded banquettes so women can be out of men’s view.

Time for Tea

Ms. Nelson also has had to make some adjustments to the way she operates.

A meeting with a supplier about buying a refrigerator and some chef’s tables lasted four hours — an eternity for a New Yorker who liked to get items quickly checked off her list. But “it’s customary that you sit and have tea and talk” over every business meeting. It’s a custom Ms. Nelson says she respects but expects will change in coming years as more Western companies bring their Western ways to the region.

The company

Alison and Adam Nelson outside Chocolate Bar’s East Village location

Problems that could be solved with a simple Google search in the U.S. require hours of phone calls. It took Ms. Nelson several days of calling around to find a regional source for espresso grinders, for example. “It’s like a treasure hunt to find all of the pieces we needed to open a Chocolate Bar without having to send everything from the States,” she says. “In America, you Google or go to Superpages for an item, and you get a list.” In the Middle East, suppliers aren’t online as often. And sometimes, as with the case of the espresso grinder, many vendors had never even heard of the item.

So she’s importing more to Dubai than she originally intended. Pretzel rods for chocolate-dipped pretzels have to be shipped in from the U.S. The first batches of cookies baked in the Dubai kitchen didn’t come out right; Ms. Nelson realized the flour was slightly different. So now she’s shipping premixed bags of dry goods for baking. Rather than mix flour, sugar and eggs, chefs will be instructed to mix the contents of bag #1, for instance, with eggs and milk. The upfront costs are borne by her partner, Ms. Ghorbial.

Despite the additional time setup has taken, Ms. Nelson is more convinced than ever that expanding across the Middle East is the right move. Foot traffic at her New York stores is down, and she expects weak spending this coming holiday season. In past years, store sales have spiked 600% to 700% in December, she says, but that may not happen this year.

“If the economy got really bad here, it’s great to think what we make [in the Middle East] can keep us afloat,” Ms. Nelson says. “I think it’ll be a great kind of American story — a little company that didn’t make it big in America but made it in the global marketplace. It’s like going out West to mine for gold.”

Write to Simona Covel at simona.covel@wsj.com

Printed in The Wall Street Journal, page B4

When Joy Randel set out to build an online retail shop last year, one of the first steps she took was to find companies that could provide the products she wanted to sell.

But Ms. Randel says some of the suppliers she initially struck deals with for her start-up, Dazzle Dog Delight, did a lousy job that cost her sales. “They either sent out the wrong items or the packaging was terrible,” recalls the Oakland, Calif., entrepreneur, who started her business after getting laid off from a large health company.

Ms. Randel, 50 years old, says she now asks prospective vendors for more details about their services, such as the steps they take to ensure quality and make deliveries on time. She also asks friends and relatives to order goods from her store on her dime, such as dog collars, leashes and shampoo, so they can report back to her on when and in what condition the items arrived.

“You have to constantly check,” she says, to ensure that suppliers don’t slack off.

For just about every entrepreneur, running a successful enterprise means having to depend on other businesses to regularly provide goods or services. But identifying top-notch vendors and forming healthy relationships can be challenging for first-time business owners who may not know where to look or what to expect.

“You have to do your homework,” says Michael Marsan, an instructor for the Rothman Institute of Entrepreneurship at Fairleigh Dickinson University in Madison, N.J. “You want to find out what differentiates suppliers.”

Good places to search for vendors are trade shows and magazines, as well as industry-association websites, says Mr. Marsan. He also recommends networking with other entrepreneurs to secure referrals.

“There’s nothing wrong with calling competitors,” he says, particularly ones located outside of your geographic area. “People are willing to share information most of the time.”

Mike Stenke, owner of Klausie’s Pizza in Raleigh, N.C., says he did this and now recommends vendors to others looking to start food-truck businesses like his. “We’ve all been in the spot where we were brand new,” says the 41-year-old.

Mr. Stenke launched his business in 2010 after demand for his expertise as a contract technical writer began to dry up. He now relies on about 15 vendors to operate his roving start-up—including merchants that provide the ingredients he needs to make everything on his menu.

One of the most important lessons Mr. Stenke says he learned early on about striking deals with vendors is to stand your ground. Don’t settle for a lesser product or one you don’t need just because a supplier doesn’t have the merchandise you’re seeking, he says.

For example, some of the food vendors Mr. Stenke approached when he was starting out told him that the type of cheese he wanted wasn’t available and that he should buy a different kind from them instead. But after making a few calls to dairy farmers that he found online, Mr. Stenke says he was able to track down the cheese he wanted and he convinced one of the vendors to start carrying it.

Buying the cheese direct from a dairy farmer, Mr. Stenke says, wasn’t a convenient option because of the logistical demands involved. But in some cases, he and other entrepreneurs have discovered that it’s possible to purchase certain items straight from manufacturers or local retail stores for less and without hassle.

Barry Greenstein came to this realization after a supplier that his Boston start-up had been using disclosed that it didn’t keep an item he needed in stock.

Mr. Greenstein, co-founder of bGreen, a retailer of eco-friendly products, says he called the company that made the item and was told that he could buy it at wholesale without having to go through a middleman. As a result, he avoided paying the fee the supplier would have charged to provide the same item.

“Go direct whenever possible because you’re almost always going to save money,” says Mr. Greenstein, who decided to take up entrepreneurship after getting laid off in 2008 from a marketing firm. The 32-year-old adds that about 20% of the products his business sells are now purchased straight from manufacturers.

When striking deals with vendors, keep in mind that it may take several months to secure the kind of rates and terms you’d like. Start-ups “usually don’t have a sufficient track record to justify any kind of extended credit or preferred customer pricing,” says Dennis J. Ceru, an adjunct professor of entrepreneurship at Babson College in Wellesley, Mass.

He suggests offering to initially make payments faster than what a vendor requires in exchange for a better price. Or, if you have a line of credit, offer to pay more than the fee the vendor proposes to get a few extra days or weeks to pay off the amount you owe.

“A lot of times, starting entrepreneurs think they don’t have negotiating ability,” says Mr. Ceru. “But they do.”

Write to Sarah E. Needleman at sarah.needleman@wsj.com

By LAURA SAUNDERS

The Internal Revenue Service estimated that Americans underpaid their taxes by $385 billion for tax year 2006 in its latest report on the nation’s “tax gap”—an estimate of taxes owed but not paid.

As in the last report, released five years ago, the largest single element of noncompliance was unreported income from small businesses.

The agency said U.S. taxpayers—both individuals and corporations—paid 85.5% of what they owed in 2006, compared with 86.3% for 2001, when the tax gap stood at $290 billion. It typically takes the IRS five years to complete a tax-gap study.

IRS spokesman Frank Keith called the change “statistically level,” because the new report found the gap was 14.5% of taxes owed but not paid, compared with 13.7% in the 2006 report.

According to the report, the net tax gap for individuals, $235 billion, was more than three times that for all corporations. The largest single element of noncompliance, $122 billion, was attributable to undeclared income by businesses reported on Schedule C and F of individual returns—that is, small businesses and farms.

Mr. Keith noted that the report didn’t include recent efforts to address the tax gap though laws requiring credit-card firms and others to tell the IRS about payments to merchants. The law has also been changed to require cost-basis reporting by brokers after investment sales, in order to prevent underreporting of investment income.

“All our research indicates that if income is subject to third-party reporting or withholding, compliance improves significantly,” Mr. Keith says.

The report also doesn’t incorporate knowledge gleaned from the IRS’s limited amnesty programs of 2009 and 2011 for U.S. taxpayers with undeclared offshore accounts, Mr. Keith says.

For more information on underpayments, including a Tax Gap Map, see IRS notice IR-2012-4 at www.irs.gov.

Write to Laura Saunders at laura.saunders@wsj.com