Archive for the ‘business appraisals’ Category
Small Business Lending Still Considered Sluggish, According to Federal Reserve
Despite recent indications that banks were beginning to lend to small businesses again, which we discussed in a recent blog post, at a recent small-business forum, the Federal Reserve chairman, Ben Bernanke, indicated that he was still concerned about the lack of small-business lending.
A recent New York Times article notes that experts are unsure why small-business lending has continued to decrease. Bernanke was quoted as asking: “How much of this reduction has been driven by weaker demand for loans from small businesses, how much by a deterioration in the financial condition of small businesses during the economic downturn, and how much by restricted credit availability?” He then went on to say that it was likely all three were contributing factors.
The article posits that small business owners believe that lenders are not lending to creditworthy businesses because of heightened paranoia following the economic downturn, while economists cite potential borrowers’ weak economic fundamentals as the reason for sluggish lending.
According the article, lenders say they have returned to basics in terms of lending fundamentals after being too lax, which means conducting more careful due diligence, including taking into account businesses’ collateral and cash flows. Understanding what lenders are looking for and how a certified appraisal fits into lending criteria can help business owners find the funds they need to grow.
By: Present Value
Additional Reading
Glimmers of Hope in Small-Business Lending
5 Cs of Lending (How Appraisal Fits in Even Though It Doesn’t Start with C)
Lenders Turn to Present Value LLC for Pre-Loan Due Diligence
Glimmers of Hope in Small-Business Lending
After more than two years of stagnation, it appears that small-business lending is on the rise. The Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing, increased 4% in March 2010, the first year-on-year gain since October 2007.
A recent Time Magazine article reported that many small and community banks are now seeing more demand for loans, which is a positive sign for the economy. According to the article, economists have expressed concern that despite the 3.2% first quarter economic activity growth, there was a lack of business lending activity. Business lending demonstrates business growth, they argue. Businesses in growth mode need financing to purchase equipment and hire staff, and without that there can’t be sustained economic recovery.
As we have discussed in previous posts, banks are lending money, but they are being more cautious about their investments. This means they are conducting more careful due diligence, which includes their own certified equipment appraisals and business valuations to ensure that they will recoup their losses should a loan default. Having a defensible, impartial appraisal in hand can help increase the chances of getting much-needed money for a small business.
By: Present Value
Additional Reading
5 Cs of Lending (How Appraisal Fits in Even Though It Doesn’t Start with C)
5 Cs of Lending (How Appraisal Fits in Even Though It Doesn’t Start with C)
Although this title may sound a little strange since appraisal doesn’t start with the letter c, most would-be borrowers probably don’t realize the role an appraisal can play in the eyes of lenders. The well-known 5 Cs of Lending consist of:
- Character – Evaluation of the business’ financial performance, credit report, management, and payment trends; trustworthiness
- Capital/Capitalization – Financial position of the business, including resources, fixed assets, net worth, and the owner’s equity
- Capacity/Cash Flow – Funds available to repay the loan, which takes into account whether or not the borrower can continue to pay for all other business expenses, personal needs, etc.; debt ration
- Collateral – Assets that can be used as security should the loan default (For this post, we are going to go into a little more detail about Collateral.)
- Conditions – External market factors, like competition and market trends
The good thing to note is that even in today’s tight economic environment, lenders backed by the SBA are lending money; however, because of this environment, lenders are increasingly more cautious. This means they are conducting more careful due diligence, which includes their own certified appraisals of collateral to ensure that they will recoup their losses should a loan default.
Having all the Cs in a row – including having a defensible, impartial asset appraisal in hand – prior to seeking a loan can help increase the chances of being approved. Or, if there are some areas where a business may be weak in the eyes of lenders, a business owner can use this information to make changes and improve potential borrowing success. Understanding what lenders are looking for and how a certified appraisal fits into lending criteria can help business owners find the funds they need to grow.
By: Present Value
Other reading:
Five Myths of Business Valuations
Lenders Turn to Present Value LLC for Pre-Loan Due Diligence
Five Primary Exit Strategies
We’ve written blogs about exit strategies and the importance of having one in place. You can read those blogs here and here. A recent article at entrepreneur.com gives an excellent overview of the five primary exit strategies, plus the pros and cons of each. In summary:
The “Just Take It” Strategy: More appropriate for private companies than for public, this strategy involves the owner of the company drawing a huge salary, giant bonuses, and special shares worth more than regular shares. The owner then has enough socked away to not be dependent on the company after departure.
The Liquidation Strategy: A simple exit strategy, this is when the business shuts down operations, closes its doors, and sells off all of its assets. After a business valuation, of course.
The “Friendly Buyer” Strategy: This involves selling the business to someone who the owner knows will treat it with respect and dignity. The buyer can be a family member, an employee, or even a customer.
The Acquisition Strategy: Many family owned businesses employ this strategy to save the company from second-generation ruin. The owner finds a company that wants to buy the business and sells it to them.
The IPO Strategy: Something of a last resort strategy, this involves taking the company public and convincing investors to invest. IPOs are not only rare (of the millions of companies in the U.S., 7,000 are public) they’re exceedingly complicated. If the owner fails to convince investors, they’ve lost millions, and if they succeed, they’re forever under analysts’ scrutiny.
To read the full article at entrepreneur.com, click here. And as always, before putting in place any exit strategy, be sure to have a business valuation done.
By: Present Value
Additional Reading:
Thinking about Estate Planning
Recently, in our post, “… And Then Get Back to Living,” we wrote about the importance of succession planning for every business. Last week, in Inc. magazine, there was a great article, “How to Create an Estate Plan,” which provides a step-by-step guide on the most effective ways to start thinking about planning for the future of a company. It emphasizes that this is something that all business owners need to be thinking about because huge legal issues can arise without a plan for how to pass on all the necessary information about the inner workings of a business should something happen to the business owner.
Some of the important takeaways from the article are:
- Keep an open dialogue with those who will be affected by the plan, such as family members and business partners.
- This is a process that lasts as long as the life of a company and it needs to be continuously refined and updated.
- Find people you trust to work with you on planning, including estate planners, attorneys, accountants, insurance providers, and of course business appraisers.
It’s something to think about because no business owner wants their hard work, blood, sweat, and tears to be all for naught. You can take steps now to ensure the future of your company.
By: Present Value
Other posts you might find interesting:
Buying a Business? Make Sure to Do Your Homework
It may seem easier to purchase an established business than to start one from the ground up. While this may be true in some cases, there could be problems with an existing business that may not be clear upon first look. However, oftentimes purchasing a business can end up being just as costly and labor intensive as a startup. Sometimes there are inherent flaws in a business, which is why it is up for sale. As when starting a new business, you need to conduct the proper research and due diligence on any company that you may be thinking about purchasing, which includes getting an unbiased business appraisal of that company.
We’ve written multiple posts on why it’s important for a business owner to know the value of his or her business. It’s equally important for a potential buyer to understand the value of a business that he or she is considering for purchase and to know what he or she is getting in the deal.
Of course there are many things to take into account when contemplating buying a business, such as your own strengths and weaknesses, your understanding of business fundamentals, and your understanding of the potential market in which the business operates. Obtaining a professional business valuation can help you better understand the ins and outs of a particular business, like a business’s cash flow, the value of its assets and/or equipment, how the company acquires customers, and the market in which it operates.
If you’re thinking about buying an established business, get an appraisal. You need to know what you’re getting into.
By: Present Value
Got a Startup? Get a Business Valuation
Most people generally only think about having the value of their business appraised at the time of a potential sale or acquisition. As we have talked about in previous blogs, there are numerous situations in which a business owner must think about getting a business valuation, including when selling a business, for estate planning purposes, and when planning exit strategies. However, something that most people don’t realize is that startup businesses can benefit greatly from undergoing the process of a business valuation.
For a startup company, a valuation can be used as a business performance indicator, reflecting the company’s direction. It can help business owners figure out what’s working and what’s not, and where resources should directed or re-directed. A valuation can also give a deeper, more complete understanding about the competitive forces and drivers in the business’s market.
For any company, a business valuation can provide a snapshot of the business within the context of the market and industry in which it operates, in addition to evaluating the health of the market itself. This can help business owners at any level determine if the initial opportunity is still present and/or whether or not an exit from the business and the market is warranted.
It may be a wise decision for startup business owners to incorporate business valuations on a somewhat regular basis to determine if the company is achieving its desired trajectory.
By: Present Value
Professional Business Valuation and Selling Your Business
Last week, there was an interesting article, “How to Sell Your Business,” in The New York Times. As the title suggests, the article covers the numerous things a business owner needs to think about when considering selling his or her business. We will focus on one of the author’s tips, which we have discussed in previous blog posts (you can read them here): make sure you know what your business is worth.
The article highlights the fact that most business owners have no idea how much their businesses are worth. The writer points out that it is necessary for a business owner to know the value of his or her business in order to set realistic expectations for both the seller and potential buyers. Many sellers may be setting themselves up for disappointment if they don’t understand the potential market price of their business. And if an asking price is too high, it could jeopardize the attractiveness of a business to potential buyers.
Here are all the quick tips from the article for anyone who may be thinking about selling a business:
- Put yourself in the buyer’s shoes.
- Don’t go it alone. Assemble a team of professionals, most importantly an attorney and an accountant that you trust.
- Get a professional valuation of your business.
- Make sure your financial house is in order prior to sale.
- Familiarize yourself with the entire selling process, from start to finish.
If you are thinking about selling a business in the near future, contact Present Value LLC for all your appraisal and business valuation needs.
By: Present Value
New Year, New Planning
This year, 2009, has been a tumultuous one. While there is no way of knowing what the future will hold, you can plan for the future. Planning for the future of your business is always a sound move. You need to know the value of your assets and the value of your business.
Over the past year, we have covered a number of issues that can affect your business. Today, more than ever, it is important to know what it’s all worth. As a business owner, it is important to know the true market value of your machinery, equipment, and business, for things such as business planning, succession planning, business insurance, and business valuation.
In the new year, it makes good financial sense to obtain a credible certified equipment appraisal report that will hold up under scrutiny with financial institutions, government agencies, buyers, sellers, shareholders, or partners. Make sure you know what it’s all worth.
By: Present Value
Present Value: More than an Appraisal Firm
Following up on our press release that went out on Tuesday, December 8, 2009, we’d like to focus a little bit more on some of the characteristics that make Present Value a unique full-service appraisal firm.
While lenders and business owners have many choices when it comes to finding an appraisal company, at Present Value, we pride ourselves on being more than just a company that provides appraisals: we act as a trusted resource for lenders and business owners. We can act as consultants to help guide our clients as they make crucial business decisions, whether it be a lender, looking to conduct pre-loan due diligence or auction assets from a loan default, or a business owner, looking to obtain financing or make an acquisition.
In addition to providing appraisal services, Present Value has the expertise and experience to orchestrate other aspects of these deals. The strength of our services comes from the partnerships that we have developed all across the country. We have the capabilities to bring the right people to the table for whatever our clients’ needs may be, such as auctioneer services or brokerage services. We aim to be problem-solvers for each and every one of our clients, helping them make well-informed business decisions.
Present Value prides itself on its turnkey service offerings, and Present Value is happy to act as a resource for its clients as they cope with past mistakes and look toward improving their processes. Our network of professionals will always deliver the highest quality products, backed by a team of experts in their individual market segments.
By: Present Value
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