Blog Posts by Mary Ellen Biery

  • Is Your Business Worth As Much As You Think?

    About two-thirds of nearly 1,000 business owners surveyed recently by Pepperdine University’s Private Capital Markets Project expect to transfer their ownership in the next 10 years. But will those owners be able to sell the fruits of their years of labor for an acceptable amount? Maybe, maybe not.

    The large majority of companies in the U.S. are privately held, and valuing private companies is particularly tricky, because of the difficulty of estimating their future financial performance.

    Investment bankers and business brokers in the Pepperdine survey said that about 1 in 3 of their engagements to sell companies (presumably public and private) terminated without a deal closing last year. The top reason? Investment bankers reported the cause was most often a valuation gap in pricing.

    For business brokers, a valuation gap was tied for the top reason, along with what was described as unreasonable non-price demands by one of the deal parties. In fact, roughly 20 percent of the busted

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  • How healthy is your business? 6 ways to take the “temperature”

    When 1 in 10 entrepreneurs work 70 hours a week, it’s a safe bet that business owners have a lot of issues competing for their attention. Making a great product, generating sales, building customer relationships and managing employees are often the most pressing issues for business owners.

    It can be easy for big-picture questions to slip to the bottom of the to-do list. But it’s important to step back and assess the health of your business from time to time. Knowing how great you are at making money or managing resources is the first step in making sure you spend your time and business resources wisely. Failing to recognize shortcomings early on can have disastrous consequences.

    Indeed, a University of Tennessee study found that nearly half of startup failures could be blamed on “incompetence” – a category that researchers said included “living too high for the business,” no knowledge of pricing and “emotional” pricing.

    Looking at financial metrics that are important to business health

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  • Want new business? Target profitable industries

    Many businesses use benchmarks to assess their own performance or their position relative to competitors, but benchmarks that shed light on the performance of industries outside of your own can also help you decide where to make new investments. Those investments could be in the form of new staff, new equipment or simply additional effort focused on a specific market. For some companies, the target market is narrowly defined or limited – by geography or by a specific industry served by the product or service. Other businesses, especially many of the service-based industries, can have customers across multiple industries.

    Knowing which industries to target can shape marketing efforts, new hires and other operational aspects of your business. But how do you know which industries to target?

    Before targeting an industry for new business, it’s imperative to know whether you can make money in that industry. That may seem obvious, but unfortunately, some people confuse sales growth with

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  • 4 Reasons Private Companies Matter – A Lot

    Private Companies

    Wall Street may get the headlines, but did you know that of the 27 million businesses in the U.S., less than 1 percent are publicly traded on the major exchanges? The rest are privately held, and these private companies represent a vital segment of the U.S. economy.

    Here are four reasons to learn more about private companies.

    Private firms dominate. Out of the 27 million firms in the U.S., nearly all are privately held. Even among the 5.7 million firms with employees, less than 1 percent of them have shares listed on a U.S. exchange. And private firms are a growing majority of U.S. firms. The number of companies listed on U.S. exchanges has fallen from more than 7,000 in 2000 to fewer than 5,000 in 2012, according to statistics from the World Federation of Exchanges.

    It’s true that many private firms are small. But one look at Forbes’ annual list of the biggest private companies in the U.S. shows that some really big companies are privately held. In fact, private firms accounted for 86.4

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  • Could online-sales tax hurt privately held retailers’ already-thin margins?

    Sales Tax

    Privately held retailers are operating with relatively thin profit margins nearly four years after the end of the recession, according to recent data from Sageworks, a financial information company.

    And some analysts say costs could go up and pinch margins even more if Congress approves the latest effort to get more retailers to collect taxes on their online sales.

    Under the “Marketplace Fairness Act” approved by the Senate, states can require sellers generating more than $1 million in “remote” sales, including those via the Internet, to collect and remit to various states and local governments the jurisdictions’ taxes on those sales. Under current law, businesses must collect applicable state and local sales tax from customers only in states where the firm has a physical presence, such as a store, office or warehouse.

    While the House must pass its own version of the bill and both sides would need to work out any differences, much of the debate surrounding the move has focused on the

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  • Looking to apply for a business loan? Three areas of improvement for your small business

    Business Debt

    Debt Service Coverage

    One of the most basic measures of a company’s creditworthiness is the Debt Service Coverage ratio, which shows a firm’s ongoing ability to keep in control both debt and interest. The Debt Service Coverage Ratio, defined as EBITDA divided by a firm’s current portion of long-term debt and interest expense, is an extremely important metric for predicting default. More than half of the banks and asset-based lenders in the Pepperdine Capital Markets survey said this statistic was important or very important in their lending decisions.

    Given its role in lending decisions, an improvement to the Debt Service Coverage Ratio can be beneficial, and it can be accomplished in a variety of ways. Cutting expenses may boost the firm’s EBITDA, even if debt and interest payments stay the same.

    But a business can also improve this ratio by focusing on debt and interest expense. Short of extending the term of a loan or refinancing to lower interest expense, one effective way of tackling

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  • Making transparency a priority in your business

    Transparency, one of the biggest buzzwords in business right now, is about conducting business in an open and forthright way, and it is driven by recent trends in technology, society and financial markets.

    The last 15 years have brought scandals, bailouts, accidents and financial crises that have shaken Americans’ trust in businesses. Enron. Adelphia. Lehman Brothers. AIG. Bernie Madoff. The BP oil spill.

    But the newest trend in business is transparency, and it’s helping companies rebuild and maintain trust with customers and partners.

    Internal transparency to track progress

    Some businesses find that increasing financial transparency within the company can improve the bottom line. For example, Eric Holtzclaw, CEO and founder of marketing and product-strategy firm Laddering Works, began sharing specific dollar amounts for budgets to many employees within his organization, even though he was originally reluctant to do so.

    “I had to learn through trial and error,” Holtzclaw says in a

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  • Three Tips for Getting a Business Loan: What You Need to Know

    Business Loan: Approved

    Applying for a business loan can be intimidating and stressful, and it can be confusing to have an application rejected with little explanation. There are steps company executives can take to avoid some of the possible confusion and to develop a more positive experience while applying for a business loan. Two of these steps are described below, and should be completed prior to approaching a financial institution about a loan.

    1) Research Lender Options

    Like any business operator, financial institutions want to make money in their business. While they want to lend money, they don’t want to approve credit that will ultimately result in loss. Further, regulatory requirements often influence the types of loans that can be approved. As a result, a major concern of any institution considering approving a business loan is whether the owner and the business are good risks.

    “Good risks,” however, can mean different things to different lenders, which is why it is a good idea to do some basic

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  • Private companies’ health heading into sequestration

    Sequestered

    As the deadline for averting major government spending cuts has arrived, several reports have noted that the so-called sequestration will mean a cut in U.S. Small Business Administration loan guarantees that could help small businesses access $902 million in capital.
    One bright spot in the lending picture may be that private companies appear to be better positioned to borrow than they were a year ago, which could help improve their prospects if they seek non-government loans, according to data from Sageworks Inc., a financial information company.

    Sageworks this week released a monthly report on the state of privately held U.S. companies, showing that the average company’s likelihood of credit default has declined over the last year. And private companies have continued to increase sales and improve their net margins in the period ending January 2013, the report said.

    “While the sequester’s impact on businesses remains to be seen, the good news is that private companies are in pretty

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