Category Archives: Business

Business, Valuations

Business Valuation in a Troubled Economy

The following is a quote from a gentleman that I have worked with.  This came out in his newsletter last week where he analyzed GF Data Resources’ report regarding private equity transactions:

“Now that many more of the “B” and “B+” companies had become a part of the mix, the overall pricing on deals (multiple of EBITDA) fell to the lowest level they’d seen in their 6 year history.  In Q3, the average multiple was 5.1 x EBITDA for all of their reported private equity deals.  The change in frequency distribution of “A” vs. “B” companies was dragging down the average, with more of the “B” class in the third quarter deals.”

A “B” company is a company with strong financials and is experiencing steady growth but not strong growth.  Companies working in the construction/housing sector will see their multiples at the low end.  If the buyer is using leveraged debt, the current multiple is ranging from 1.7 to 3.8 for these “B” companies.

These multiples are similar to multiples after the 2000 financial crisis.  It took six years to get the high multiples that we were seeing over the last couple years.

So the bottom line?  Pick a multiple for your forecast that is realistic yet still optimistic.  What does an investor want to see?  Optimism or Realism?

Business, Landlord-Tenant, Leasing

Where to Find the Consumer Price Index – Portland Area

Many leases escalate the lease rates each year based on the change in the Consumer Price Index.  In Oregon and southern Washington, the Portland-Salem index is likely the index cited.

The link to the web page with this information is http://www.bls.gov/ro9/ro9_or.htm.  Go down to the News Releases section and select the “Portland-Salem, OR-WA (Semiannual News Release)” HTML or PDF link.

The semi-annual CPI Index comes out in July or August (for Jan thru June) and the Annual CPI for the each prior year comes out in February or March.

The full list of Western News Releases and Indexes can be found at http://www.bls.gov/ro9/news.htm.

Business

What to do in the down economy.

Survive and Prosper.

How does one position oneself to not only survive a down economy but to prosper during the difficult times?

Evaluate market opportunities. One option for companies positioning themselves to defend against economic pressures is to consider merging or purchasing other companies.  Instead of closing up shop, cutting costs, laying people off, and doing everything else you can do to keep from going under, companies can look for new solutions.  Teaming up with an established company in another market can help shift assets to more meaningful work, and help deflect some of the pressures felt at home.  Establishing a presence overseas is one way to set a company up for more aggressive growth down the road.

Insist on written contracts.  Written contract allow both parties to know the expectations of the other party, the contract is the proof that there is an agreement.  Avoid the expense and uncertainty of having to prove to a judge what the terms of your agreement were by having those terms written.

Enforce the terms of your agreements. If the customer does not pay on time, do not continue doing work or making deliveries to the customer.  If you haven’t been paid in 30 days, do not continue to supply services, material or labor, or you can be getting yourself further indebted to your customers.  You will be more successful if you seek payment early while there is still money and a well written contract will provide that the debtor has to pay attorney fees and interest on contracts that go to collections.

Collateralize your agreements. Protect yourself by collateralizing your accounts receivables where possible and filing the appropriate UCC statements.  Taking a security interest can also help you gain priority against other creditors.

Evaluate you customers. If the customer is a small company or even a one-man operation, consider obtaining a personal guaranty for the work and products delivered.  If a business is having financial difficulties and they have two bills to pay, and one of them is personally guaranteed, the bill personally guaranteed will be paid first–simply because that bill will cause the owner personal liability and therefore is more urgent.

Protect your intellectual property. Require third parties to sign confidentiality agreements.  Protect your ideas by registering copyrights, trade-marks and patents.  Use exclusivity and non-circumvention agreements with contractors, suppliers, customers, and others.

Mind the basics. Take this slow time as a time to get your “house” in order.  Update your minute book.  Review company minutes and ensure that they are all present and complete and make sure owner equity is properly documented.

Take advantage of the opportunity a down economy can offer.  Refine and focus your business and its practices and you and your business will prosper.

Business

Noncompetition Agreements

Many employers require certain employees to sign agreements not to compete with the employer for a period of time (usually a year to two) after leaving employment. These agreements are intended to protect legitimate business interests of the employer, but can stifle economic growth by preventing skilled employees from working where they’re most effective.

Existing Oregon law makes noncompetition agreements unenforceable unless entered into upon initial employment or subsequent advancement. Senate Bill 248 (2007/2008) adds requirements that the employee: (1) be notified at least two weeks before the initial employment that such an agreement will be required; (2) be paid a salary to perform creative, administrative, or managerial work; (3) have access to trade secrets or competitively sensitive information; and (4) be paid at least the median income for a family of four.