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  • The Real Reason Why Small Businesses Can’t Get Approved for a Loan

    The Real Reason Why Small Businesses Can’t Get Approved for a Loan

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    Oh no, not again. Yes, that’s right, I’m not going to go there… at least not for today. There’s no shortage of excuses and reasons why small businesses can’t get approved for business loans. It never fails to amaze me the coverage this topic gets especially when the national economy goes into recession or when major political races are at stake. Yes, I agree that small business growth and success is the economic back bone of the US and also, that more than 60% of the US workforce are employed by small businesses. But where I get off the group think is when it comes to the lack of financing for a small business with a business loan. In this article, let’s explore the REAL REASON that small business don’t qualify for loans and the truth may even surprise you.

    It’s Deeper Than Statistics

    I love numbers and even better, I love reading financial statements and the notes. The love for numbers did not become a passion for me in the world of small business lending until I came to understand that the financial statements tell the story of a business. Similar to the story behind the financial statements, there’s a story behind the statistics stating that small business owners can’t get approved for loans especially if they’re of a certain ethnic group, gender, and / or industry. I’m not completely washing away the reality that there’s a shred of discrimination in our world… hey, we live in a broken society with broken people. However, a large part of this thinking (small business owners can’t get a loan because of skin color, gender, etc) is just simply untrue. I’ve been on both sides of the fence so to speak in the world of small business lending. I’ve worked for a big bank, and I’ve worked for a not for profit community development financial institution and it’s always the same. The number one reason why small business can’t (and don’t) get approved for loans is due to the considerably large operating risk that exists in these businesses.

    Operating Risk: It All Starts with You

    What does operating risk mean? Well, here’s a question to bring some clarity. What speaks more to sustainability: a business that’s been operating for at least one year or a business that’s still in the owner(s) mind? I’d go with the first option. Operating risk means that you have and continue to execute on your business plan(s) and that the business is cash flow positive (i.e. returning a sustainable profit margin to cover costs and make you money). Here’s the sad truth: not many small businesses get to this point. Most if any, within two years are still trying to figure things out. OK, granted, there are levels to this particularly when you observe the diversity of businesses. However, I’m speaking to the ones that endeavor to obtain a business loan.

    In closing, I offer a couple of ways to minimize your operating risk and increase your chances of getting approved for a loan. (1) Grow tough skin and learn to survive. The game of business is one of survival. Most days, things will not go your way and you just have to stay the course, be adaptable, and stay true to the business mission. (2) Never forget the 3 P’s – Production, Processes, and Personnel. Become efficient in the production of what you offer for sale, create and put in place processes to enhance production efficiency and ultimately the customer experience, and finally, hire, train, and invest in people who share your vision for the business.

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    Source by Pierre Pinkerton

    Views: 1

  • Problems Encountered by Nigerian Entrepreneur and Possible Solutions

    Problems Encountered by Nigerian Entrepreneur and Possible Solutions

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    The success enjoyed by most industrialized countries can be attributed to the role played by technological innovation and entrepreneurship, both of which continue to drive their economies today. These two factors are seen as key components for the industrialization and development of African countries. The Nigerian government has recognized this fact and has taken measures aimed at promoting and cultivating the entrepreneurial culture in our country. Through the Nigerian Investing Commission (NIC), our government has in the past introduced a policy that required university students regardless of their area of study to take courses in entrepreneurship. While our government is putting extra effort in promoting entrepreneurship in Nigeria, there are still a number of problems that a Nigerian Entrepreneur faces. Below are some of the problems encountered and possible solutions.

    * Diversifying the Economy

    Though our country’s economy has over the last couple of decades relied heavily on its oil production, we must find ways to diversify our economy and avoid the over reliance on oil. Like other developing countries, Nigeria is facing an increase in its unemployment rate that is now at 6 % and is on the increase, with many graduates finding it hard to get jobs while most of those who get jobs are underemployed. This coupled with the global financial crisis in which massive numbers of employees are being laid off; entrepreneurship is seen as an essential key if we want our country to achieve its ambition of being an industrialized nation by the year 2020.

    * Unfriendly Business Climate

    Being an entrepreneur in Nigeria requires great determination as practicing and potential business owners are faced with countless challenges. Nigerian’s business climate should be made welcoming to those in the Micro, Small and Medium Enterprises (MSMEs). The role played by these MSMEs should not be underestimated since majority of the thriving businesses fall in this category and for us to achieve our goals, adequate attention and support must be directed towards these institutions. To be able to help and protect entrepreneurs, we must first have a clear idea of the challenges facing our entrepreneurs in their pursuit of making Nigeria a prosperous country.

    * Lack of Credit Facilities

    Potential Nigeria entrepreneurs go through many hardships when trying to access credit for their businesses. Though there is a wide range of financial institutions that offer business loans, they usually charge high interest rates deterring aspiring entrepreneurs. For instance, major banks have pegged their lending rates to as much a 28% deterring potential entrepreneurs who are mostly low income earners. Other obstacles faced by our entrepreneurs include severe collateral conditions set by banks and other lending institutions. Though our government through the Central Bank and the Banker’s Committee came up with guidelines requiring banks to set aside 10% of their profits for funding MSMEs, majority of these banks have been reluctant to do so. This has led to the emergence of micro-finance institutions which though helpful are not sufficient for meeting the financial requirements.

    * Multiple Taxation

    One other sensitive challenge that is encountered by majority of Nigerian entrepreneurs is multiple taxation. Although we have a responsibility of funding the government through paying taxes, most of the taxes charged on entrepreneurs are not lawful and have the effect of increasing the cost of doing business. Although Nigeria’s Companies Income Tax Act (CITA) has approved only 39 taxes and levies, there are over 500 various levies and taxes that are imposed by state and local government agents. These taxes are questionable and in the case where they are genuine, they are mostly duplicated and this has the effect of increasing the cost of doing business.

    * Poor State of the Country’s Infrastructure

    The state of our infrastructure can be deemed to be a nightmare to both entrepreneurs and the rest of the country’s population. With the existing infrastructure deteriorating and in some places it is non-existent; the cost of doing business has tremendously gone up. The state of the country’s road network makes it hard for entrepreneurs in the agricultural sector to transport harvested produce from farms to processing factories. According to a report released by the World Bank, Nigeria’s pace of socioeconomic development and growth is way below what we can achieve. This is mostly because of the erratic supply of electricity which has negatively affected many businesses. The outcome of power problems has prompted entrepreneurs to generate power through expensive ways that have in turn increased their production costs and made their products uncompetitive due to high prices. Our government should put policies in place to perk up Nigeria’s infrastructure so as to promote successful entrepreneurship.

    * Failure to Adapt to the Changing Business Environment

    Majority of those who venture into MSMEs (Micro, Small and Medium Enterprises) do so because of their need to make money and in almost all cases, such entrepreneurs lack relevant and adequate information about the businesses they engage in. In the event where problems arise, most of these business owners lack sufficient problem solving skills and in the end they find it hard to survive. With the telecommunications sector having grown by about 206.5 % between 2002 and 2004 and is continually expanding, Nigeria has become one of the fastest growing ICT market not only in Africa but also worldwide. This presents a challenge to entrepreneurs who have not embraced technology, and who are now finding it hard to remain relevant in the competitive business environment. For existing and potential MSMEs to survive and be relevant, we must adapt to the changing business environment and embrace technology.

    * Addressing the Challenges

    Solving the problems encountered requires a combined effort by both the entrepreneur and all concerned stakeholders. As Small and medium business owners, we need to increase our knowledge and skills of the market by acquiring relevant and up to date education particularly in your area of business. Our entrepreneurs need to collect information about their target market by seeking help from consultants and professionals who have experience in the particular market.

    One strategy that can be used by our small and medium entrepreneurs to remain relevant and competitive in today’s market is to come up with fresh and creative ideas of doing business. Due to the increase in technology, business is fast changing, thus our MSMEs need to constantly re-invent the way they do business.

    There is a great need of creating a strong link between MSMEs and supporting institutions if Nigeria is to fully benefit from such businesses. Though some financial institutions are still reluctant to provide financial assistance to MSMEs, there are some that give out loans at reasonable rates provided the business sounds viable. The key challenge is for our entrepreneurs to prepare sound business proposals. For our country to achieve its goals and stop relying on oil alone, we need to focus much attention needs on the private sector and our government must create a conducive atmosphere for such businesses to thrive and drive the country towards economic prosperity.

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    Source by Peter O Osalor

    Views: 0

  • Entrepreneurship Development

    Entrepreneurship Development

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    Who is an entrepreneur?

    An entrepreneur is someone who manages and organizes any form of business. Who has the capability to take initiatives, motivate others, work in a team, and become a leader. He is a man who starts his own venture not seeking for a job but providing many people a hope of life.

    Why Entrepreneurship?

    Entrepreneurship plays an important role in case of economic development of a country. A lot of problems of our country would be solved if people will start considering entrepreneurship as the first option for their career.

    Employment:

    One of the greatest problems of our country is “Unemployment”. Let’s see how entrepreneurship tackles with this problem.

    Current employment opportunities can only cater 5 – 10 % of population. Entrepreneurs generate employment both directly and indirectly, directly by self employment as an entrepreneur and indirectly by starting many industrial units where they offer jobs to millions of people. Thus entrepreneurship is the best way to fight with the evil of unemployment.

    National Income

    National Income consists of the goods and services produced in the country. The goods and services produced are consumed within the country and can also be exported to other countries. The domestic demand increases with increase in population and increase in standard of living. The export demand also increases to meet the needs of growing imports due to various reasons. An increasing number of entrepreneurs are required to meet this increasing demand for goods and services. The manufacturing rate of any developed country lies between 60% – 70%. But unfortunately in our country this rate is below 40 %. If you want to become a great entrepreneur or want to do something for your motherland, become a manufacturer not just go for a service industry.

    Dispersal of economic power:

    Industrial development normally may lead to concentration of economic powers in a few hands. This concentration of power in a few hands has its own evils in the form of monopolies. Developing a large number of entrepreneurs helps in dispersing the economic power amongst the population. It may help in weakening the harmful effects of monopoly.

    Better standard of living:

    Entrepreneurs play a vital role in achieving a higher rate of economic growth. They are able to produce goods at lower cost and supply quality goods at lower price to the community according to their requirements. When the price of of the commodities decreases the consumers get the power to buy more goods for their satisfaction. There is a great demand of such entrepreneurs who can make this thought possible.

    Creating solutions for society :

    An entrepreneur is a person who creates solutions not only for the problems of his business but for the whole society. Entrepreneurs play a key role for innovations and creative ideas that solve different problems in the world with the efficient use of technology. What is needed? or desired should be created with appropriate use of technology. This gives a clear thought of “Creating solutions with technology!”

    The benefits and needs of entrepreneurship is endless. The greatest demand of today’s world is simply “Be an Entrepreneur!” that will solve economic problems of your family, your society, your people and your country. Let’s create wealth,not just seek for a salary.

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    Source by Mohammed Faizan Ansari

    Views: 0

  • Cost of Alcohol Abuse is Far Greater Than Drug Abuse in California, Says Study

    Cost of Alcohol Abuse is Far Greater Than Drug Abuse in California, Says Study

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    The misuse and abuse of alcohol and drugs can have various repercussions, not only on the individuals doing that and their families, but also on the society as a whole. One of its major consequences is financial burden. Besides causing health complications and raising concerns for public safety, alcohol and drugs cost the United States billions of dollars every year.

    Like the impact, the economic cost of these substances varies immensely from one place to another. In fact, the cost of alcohol misuse is relatively far greater than the cost of drug misuse in most counties in the U.S. Since studies related to economic and social costs of alcohol and drug abuse are generally conducted at the state and national levels, this allows policymakers to better assess the problems within their jurisdiction and come up with countermeasures.

    Similarly, a study, led by author Ted Miller and conducted at the Prevention Research Center of Pacific Institute for Research and Evaluation, sought to find out the consequences of alcohol and drug misuse in California and was published in the journal Alcoholism: Clinical and Experimental Research (ACER).

    Alcohol abuse cost California $129 billion in 2010

    The study highlighted the eye-opening economic burden of alcohol and drug related problems on the Californian taxpayer’s money across all 58 counties and 50 midsized cities. It was found that alcohol-related problems are more prevalent and costlier than drug-related problems in California. Moreover, both costs and repercussions varied greatly from one place to another. Some other findings are as follows:

    • While alcohol-related problems cost $129 billion in 2010, which comes to $3,450 for every Californian, drug-related problems cost $44 billion in the same year.
    • The highest per capita cost ($7,819) of alcohol problem was more than three times the lowest per capita cost ($2,588). Among the counties with drug-related problems the per capita cost varied between $608 and $3,786.
    • The rates of alcohol and drug-related problems were found to be higher in the Californian cities. The highest per capita cost of alcohol-related problems in a city was $10,734, 11 times higher than the city with the lowest costs. Among the cities, the highest per capita cost of drug-related problems was $7,159, almost 19 times higher than the city with the lowest cost.

    Correspondingly, the breakup of alcohol and drug-related costs are as follows:

    • Crashes and accidents under the influence of alcohol cost $26 billion in 2010.
    • Of the $10 billion cost borne due to violence associated to substance use, 73 percent was attributed to alcohol, while the remaining 27 percent was attributed to drugs.
    • Of the $127 billion expenditure incurred due to other illnesses and injuries, 73 percent of the costs resulted from alcohol-related problems. Similarly, 82 percent of the $4 billion cost incurred due to nonviolent crimes were attributed to drug abuse.
    • 74 percent of $2 billion incurred due to treatment expenditure was attributed to drug-related problems.

    The study authors believe that the findings can assist policymakers and help the state in planning and allocating resources for substance abuse problems. In addition, this study provides a crucial tool for predicting and averting alcohol and drug-related problems, as well as a crucial means to plot localized cost estimates.

    According to Dr. Miller, “Efficient funding of substance abuse prevention, enforcement and treatment hinges upon understanding the variation of alcohol and other drug problems from place to place. Because estimated costs combine data across many health and social issues, they provide an effective, comprehensible, and comprehensive measure for use in understanding how communities shape their distinctive social environments and for monitoring the effectiveness of our intervention strategies.”

    Avoid the death trap

    In 2010, problems related to alcohol and drugs in California led to 22,281 and 5,533 deaths, respectively. In addition, crimes related to alcohol and drugs were responsible for 350,000 and 164,000 deaths, respectively. These large and unsettling numbers are pertaining to only one of the 50 U.S. states, signaling a far greater magnitude of the problem.

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    Source by Susan Navarez

    Views: 0

  • Entrepreneurship and Innovation: The Inconvenient Truth

    Entrepreneurship and Innovation: The Inconvenient Truth

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    Entrepreneurship and innovation: The popular belief

    Entrepreneurs are widely believed to be the agents behind economic growth and innovation. They are, we are told, the movers and shakers who create new industries, unseat current leaders from their thrones, and open new frontiers for everyone. Popular culture tirelessly propagates one success story after another – from Facebook's Mark Zuckerberg, who was glorified in "The Social Network" movie, to Tesla's Elon Musk, an immigrant who became a household name, to Google's Sergey Brin, whose internet search engine name has officially become a verb in English.

    So persuasive is the narrative of the entrepreneurial technological prowess and success, that many countries – including developing countries that feel they are lagging behind – develop comprehensive policies to support and promote entrepreneurship and even set aside sizeable funds to invest in startups via government-run venture capital programs. But is this fascination with and belief in entrepreneurs justified? How likely are entrepreneurs to push the technological frontier and bring about the kind of change that governments want? Entrepreneurship Professor Sergey Anokhin from Kent State University says the hard evidence is far less convincing than the popular culture makes you believe.

    The dark side of entrepreneurship

    In a study of 35 countries over a 7-year period, Professor Anokhin from Kent State and Professor Joakim Wincent from Sweden's Lulea University of Technology show that there is no universally positive relationship between entrepreneurship and innovation. While for the world's leading economies such as the United States the positive link between startup rates and innovation may be true, for the developing economies the relationship is actually negative. Such countries are more likely to see innovation championed by the existing companies, not startups. With few exceptions, entrepreneurs there pursue opportunities of a different kind that are based on imitation and dissemination of others' ideas, and are not equipped to produce truly advanced "grand" innovations. On average, startups are less efficient than existing firms. Accordingly, if local governments support entrepreneurship, economic effectiveness may suffer, and innovation is less likely to occur. In fact, successful technological development in emerging economies is often associated with an aggressive entrepreneurial behavior of large corporations, not individual entrepreneurs. Such is the case, for instance, of South Korea with its chaebols .

    The figure below shows the vastly different impact of startup rates on innovation and technological development (as measured by patent applications) across countries. Only rich countries can expect more entrepreneurship to result in more innovation, says Dr. Anokhin. For the lesser developed countries, as the plot demonstrates, an increase in startup rates will only lead to less, not more innovative activities. The problem, according to Sergey Anokhin, is that developing countries often look up to the leading economies when trying to design their own policies. Moreover, quite naturally, the very textbooks that the students across the world use, are written by the scholars from the world's leading countries, and do not take developing economies' context into account. Taken together, it often locks policy makers in assuming the relationship between entrepreneurship and innovation that will not hold in their particular parts of the world. The pro-entrepreneurship policies will not bring about the effects expected, and the limited resources will be wasted to support activities that are largely detrimental.

    What it all means

    It is time to recognize that the relationship between entrepreneurship and innovation varies across countries, says Professor Anokhin. That is why World Economic Forum's Global Agenda Council for Fostering Entrepreneurship explicitly acknowledges that Silicon Valley success stories do not necessarily resonate in other parts of the world. Broad-strokes policies that aim at fostering entrepreneurship to boost country innovativeness may well be misguided. A contingency approach that takes regional specifics into account should be employed instead.

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    Source by Sergey Ahmetov

    Views: 0

  • BSE (Bombay Stock Exchange) – Online Trading System

    BSE (Bombay Stock Exchange) – Online Trading System

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    Gone are the days when you needed a broker to help you buy and sell stocks, shares and make stock market investments. Through online investment you can buy and sell shares with just a few clicks of the mouse. The economic and capital market in India cannot exist without a stock exchange; there are two main stock exchanges where transactions take place; the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). While all the major transactions take place here, there are over 20 different stock exchanges located across the country.

    Online trading in India has changed the meaning of trading in the country. With no requirement for a broker, trading has become easier, faster and far more convenient than earlier days. Some of the major financial products and services offered through online trading are mutual funds, equities, general insurance, life insurance, share trading, portfolio management, commodities trading and financial planning. In online trading, the investor has to pay less brokerage as compare to offline trading. There is no need for any paperwork through online investing and the need for a middle man is eliminated. All the stock accounts are stored in a Demat account where they can be viewed.

    BSE online trading was established in 1995 and is the first exchange to be set up in Asia. It has the largest number of listed companies in the world and currently has 4937 companies listed on the Exchange with over 7,700 traded instruments.

    The only thing that an investor requires for online trading through BSE is an online trading account. The trading can then be done within the trading hours from any location in the world. In fact, BSE has replaced the open cry system with automated trading. Open cry system is a common method of communication between the investors at a stock exchange where they shout and use hand gestures to communicate and transfer information about buy and sell orders. It usually takes place on the ‘pit’ area of the trading floor and involves a lot of face to face interaction. However, with the use of electronic trading systems trading is easier, faster and cheaper; and is less prone to manipulation by market makers and brokers/dealers.

    The BSE provides an efficient and transparent market for trading in debt instruments, equity and derivatives. This is performed through a system known as BOLT – BSE’s Online Trading System.

    In the stock exchange, a key index is used to keep track of the important or the most traded stocks in the exchange. The indice used at the BSE while trading is the SENSEX and is displayed in all major portals, newspapers and magazines. It is India’s first stock market index that enjoys an iconic stature and is tracked worldwide. It is conducted on a free-float methodology and is sensitive to market sentiments and realities.

    There are also indices such as BSE small cap, BSE mid cap and BSE500 to take care of medium and small companies. Furthermore, India index services and Products Limited has indices such as CNX Nifty Junior, S&P CNX Nifty, CNX 100, S&P CNX 500 and CNX Mid cap. The BSE offers 22 indices to suit a multiplicity of needs, inclusive of 12 sectorial indices. For example, the BSE PSU Index tracks the performance of the listed PSY companies and also helps the Central Government to monitor its wealth on the bourses.

    The BSE has become a completely ‘corporatised and demutualized stock exchange’ through the use of online exchanges. With partners such as Deutsche Borse (DB) and Singapore Stock Exchange (SGX) it has a global competitive force. BSE has strategic relationships in almost every part of the world- Europe (DB)), Hong Kong (ETF) and Asia (SGX), prominent public sector undertakings such as State Bank of India, Bank of India, Life Insurance Corporation of India and Central Bank of India.

    Benefits of BSE trading system in India for share brokers or newbies

    There are a number of attractive services to empower investors and facilitate smooth transactions. Some of these include:

    1) Investor Services: A range of services are offered to investors. Being the first exchange in the country to provide an amount of INR 1 million towards the investor protection fund, the BSE had launched a nationwide investor awareness program; ‘Safe Investing in the Stock Market’ under which there were 264 programmes which were conducted in over 359 cities in India.

    2) BSE has an Online trading BOLT system: the online-Trading system (BOLT) facilitates on-line screen based trading in securities. Currently it operates 25,000 Trader Workstations which are located across 359 cities in the country.

    3) The BSE has the world’s first centralized exchange-based Internet trading system – BSEWEBX.com. This system helps the investors anywhere in the world to trade on the BSE platform.

    4) The BSE has an online Surveillance system (BOSS) which monitors on a REAL-TIME basis the price movements, the volume positions and members’ positions as well as real time measurement of default risk, generation of cross market alerts and market reconstruction.

    5) The BSE has a training institute – known as the Bombay Stock Exchange Training Institute (popularly known as the acronym BTI).The BTI imparts capital market training and certification; in collaboration with a number of reputed management institutes and universities. There are over 40 courses to choose from on different aspects of the capital market and the financial Bombay Stock Exchange market.

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    Source by Monish P Kumar

    Views: 0

  • Why Customer Concentration Impacts a Business Sale Transaction

    Why Customer Concentration Impacts a Business Sale Transaction

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    Few owners recognize the major impact that customer concentration has on the sale of their business. Customer concentration represents a significant obstacle and will affect the salability, valuation, and deal structure of a business-for-sale transaction. Not only will it create problems in qualifying buyers but it will impact the ability for any prospective purchaser to obtain third party financing to complete the acquisition. Determining if customer concentration is present in an enterprise is a critical element of the succession planning process.

    Customer concentration is a situation when one customer represents a significant portion of revenues or when the business has a very small customer base. Based upon the expert one consults, the exact percentage for a concentration to exist varies. In most cases it is recognized when one customer represents more than 10% of sales or when the top five customers comprise greater than 25% of a company’s revenue. In either situation, a huge risk is created from the lack of diversification and steps to mitigate it should be taken years in advance of a planned business exit.

    When evaluating a business sale it is important for an owner to recognize that their client base has a significant impact on the enterprise value of the company. A broad and diverse base of customers where there are a large number of clients contributing to the business’ revenue will achieve a higher transaction value as it reduces the risk that a sizable decrease in earnings will occur if any one customer is lost or a particular industry segment that the business serves encounters economic distress.

    In addition to a lower sales price, businesses with customer concentration issues are more difficult to market for sale. For main street business transactions (those with adjusted earnings of less than $2mm) third party financing is used in the majority of cases. Businesses with high levels of customer concentration are very difficult to get financed. Lenders may provide only partial financing, offer sub-optimal terms, or decline the loan altogether. In situations where third party financing is not available, the pool of available buyers is significantly restricted and the terms of a deal could be heavily weighted on a contingent earn-out based on retaining the revenues derived by the largest customers. “Typically we want no customer concentration over a 10% level when considering financing an acquisition. Higher levels are possible with much more explanation and supporting documentation but remain a major concern” states Steve Mariani, President of Diamond Financial Services.

    Lastly, customer concentration will have a direct impact on the deal structure for the business sale transaction. Buyers will strive to bridge the customer concentration risk through a variety of delayed ‘performance based’ financing methods. For example: Assume both parties agree on a transaction price of $900,000 based upon $300,000 of adjusted earnings (a 3x multiple). If the key account in question represents $75,000 of the $300,000 this would represent $225,000 of the transaction price. A buyer will strive to isolate the $225,000 component to ensure that revenue is maintained post sale. After a period of 12 months, if the customer and income are still in place the seller would receive the funds. If the identified client and corresponding revenue was lost during this period, a pricing adjustment would be made.

    In situations where the buyer is unable to obtain transaction financing due to customer concentration issues, the seller might have to accept a “contingent earn-out” for the revenues derived from the largest customers, or worse, they may also have to finance a major portion of the “non-contingent purchase price” negotiated with buyers.

    Contingent payouts could be structured in a variety of methods:

    Earn-Out:

    Earmark part of the purchase price with payments made over a period of time contingent upon the retention of specific customers or achieving specific revenue targets.

    Escrow:

    A percentage of the acquisition price will be held in an escrow account for a specified time.

    Seller-Financing:

    The seller would be responsible for financing a major portion of the purchase price through a seller note. The seller note could be structured with contingencies for revenues derived from the largest customers.

    With any of these deal structuring techniques, the seller cannot be expected to guarantee the revenue in perpetuity and if the transaction price is based upon retaining one or more key customers, the seller may require more active involvement in maintaining the client relationship during the term of the agreement. Obviously, this brings an additional complexity to the transaction.

    In most cases, buyers will look to discount the amount they are willing to pay for a business (with high customer concentration) unless they receive assurances that the risk is low. While the obvious strategy to reduce customer concentration risk is to diversify and increase the business customer base, there are a number of situations where customer concentration either does not pose a significant risk or could be mitigated.

    Customer Contracts:

    Having a contract in place will not eliminate all of the risk of losing a key customer, but it will provide the buyer with security that the revenue and profits will continue after a change in ownership takes place. When customer contracts are involved, the ability to assign or transfer will be important to understand. In many cases, a stock sale vs. asset sale is elected to preserve these contracts.

    Barriers to Entry or Exit:

    Businesses could have intellectual property, product expertise, or patents that create competitive advantages barring competition. Others are located in geographically remote areas where the supply benefits discourage customers from changing the relationship. Lastly, there could be significant capital requirements for manufacturing and tooling or agency approvals (pharmaceutical or government contracting industry) that creates a barrier to entry from potential competitors.

    Providing a Variety of Products and/or Services:

    Having a broad relationship with a key customer where the relationship is not based solely on one product, one location, and one individual decreases the risk that a singular change will fundamentally impact the future revenue stream and continuity of the account.

    Economies of Scale or Synergies:

    The acquisition may be pursued by a strategic buyer where they are bringing new products/services to the enterprise, a broader geographic distribution footprint, or economies of scale in production. Any of these elements would assist in reducing the concentration of revenue risk that an identified key client would represent to the future organization.

    Summary

    Businesses which have high levels of customer concentration are inherently risky and it is important for the owner to appreciate this concern from the perspective of a potential acquirer. Ultimately, the buyer seeks only to retain the customers which have contributed to the success of the business and are factored in the valuation and transaction price. From the position of a buyer a few logical questions and concerns would be:

    1. How does the value of the company change if a customer representing 10% or more of revenue and/or profits is lost in the first year?
    2. How easy would it be for the client representing the customer concentration concern to leave the business?
    3. What unique situations exist within the business to preserve the customer relationship in the years ahead?
    4. What are the logical steps and corresponding costs to mitigate the customer concentration risk?
    5. How do I achieve a win-win transaction? Protecting me, the buyer, against the risk of a near term revenue loss while providing the seller with the proper remuneration for the fair market value of their business?

    While the risk may not be able to be totally eliminated, there are a number of situations where customer concentration is more palatable and a proper explanation should be provided to the buyer at the earliest opportunity. Getting out in front of this potential challenge is critical to achieve a win-win deal. When good communication exists, and two fair and reasonable parties are at the table, there are a number of structuring options available, when necessary, to mitigate the risk and negotiate a fair and reasonable transaction price. Obviously, the best approach for a prospective business seller would be to develop and implement plans to reduce any customer concentration elements years in advance of a business exit. Eliminating this type of risk is just sound advice for any small business owner regardless of whether a sale is contemplated.

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    Source by Michael Fekkes

    Views: 0

  • An Insight Into the Different Sectors of the Healthcare Industry

    An Insight Into the Different Sectors of the Healthcare Industry

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    Health has always been one of the major factors determining the growth magnitudes of the economy of any country. The margin between a developing and a developed country is often drawn based on the progress in the fields of healthcare. A strong healthcare sector refers to a lower death rate and a higher level of life expectancy, which largely influences the growth and development of any economy. Hence, it is critical that a country takes good care of its healthcare sector to cater to its populace in an effective manner and to contribute to the country’s growth index in a positive way.

    As far as India is concerned, it has one of the largest and most diverse population frame comprising of individuals belonging to different social and economic conditions. To cater to the multiple needs arising out of the diverse living conditions in India, we have a healthcare sector that upholds a bunch of services ensuring good health and effective prevention. Though if we segregate the sector based on its functioning, you will find a lot of distinct sectors attached to the main industry. However, if we take a brief insight into the broad categories that serve as the backbone to the industry, we would have four major domains as described in the article below.

    Hospital Services and Facilities

    Hospitals are the primary lifeline of the health sector and the core of the health industry. Comprising of general medical hospitals, surgical hospitals, substance abuse and psychiatric hospitals, specialty hospitals, hospices and palliative care centers, family planning and abortion clinics, emergency and other outpatient care centers, dental laboratories, blood and organ banks, sleep disorder clinics, and more, hospitals form a long chain that binds the entire landscape together in terms of serving health to the people. There are residential and nursing care facilities available as well. Nursing, supervisory, residential care are some of the services that are available through this vertical. The other facilities extended through the hospital services are Urgent Care Centers, In-Home Senior Care, Mental Health and Residential Developmental Handicap Facilities, Community Care for the elderly, and so on. Besides, since it is critical that patients receive ambulance services in time, there are direct and indirect services available for ambulatory patients as well. The outpatient care centers, diagnostic centers, hospitals, and some private players in the field also provide this facility to guarantee uninterrupted health service.

    Healthcare Equipment and Diagnostic Tools

    The present-day advancement in science and technology has rendered the healthcare industry with some of the most innovative and effective equipment and processes to diagnose and treat the ailments as critical as cellular malignancy. There are multiple companies who cater to the rising demand of this equipment. In-Vitro diagnostic substances, ophthalmic goods, surgical appliances and supplies, Mammography Machine, Robotic Surgery Equipment, Venous Access Device, and Glucose Meter are some of the examples that help the healthcare professionals in treating and detecting the diseases in a streamlined manner. To manufacture and supply these, there is a huge industry involved that ensures smooth operations and timely delivery of the equipment and tools.

    Medical/Health Insurance

    Apart from the direct health care industry, there are services attached to it that render value to its being. Medical insurance and other organizations that back up the entire process of operations for the healthcare industry have a major impact on the existence and growth of this industry. With active participation and spontaneous service, medical insurance has become primary support for the majority of the treatments that involve considerable expenses. With facilities like TPA and cashless treatments, the patients can now enjoy a hassle-free treatment at best-facilitated hospitals.

    Pharmaceuticals Sector

    The pharmaceutical industry manufactures, markets, and innovates licensed drugs that are effective and integral for better healthcare facilities. This is a huge sector employing a large percentage of population to cater to the market requirements. From drug wholesalers to over the counter stores, the pharmaceutical industry is a major player in this domain. With the rise in the health consciousness in the general public, nutritional supplements have also taken a major share of the healthcare industry, which are again the products of the pharmaceutical sector only.

    As the days have walked into modern times, the increasing level of dependency on technology along with the rising pollution levels have worked to make the diseases even more complicated and varied. Hence, it is imperative that there exists an equally strong healthcare sector guiding the mass to cure. With government interventions and private sector initiatives, the number of hospitals has increased over the years catering to a larger crowd. The other sectors like pharma, insurance, and medical equipment have also grown in parallel to support this emerging sector in every possible way. Covering a large landscape encompassing villages as well as the urban corners of the country, the healthcare sector promises high to keep up with the upcoming challenges and demands of the time.

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    Source by Alok Mishra

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  • Youth Leadership and Entrepreneurship Development Mentorship – The Perspective

    Youth Leadership and Entrepreneurship Development Mentorship – The Perspective

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    The youth are the leaders of the future and deserve to be treated like we would treat any candidate of a succession planning in any organization, institution, and company. Such candidates are often enrolled in some sort of development programme in preparing them for the future challenges they would face. Such programme could and should include mentorship development programme.

    The Mentorship Development Programme could include projects that expose the youth to the opportunity to practice leadership as early as possible in their lives. The most effective programmes are those that are designed by the youth, for the youth, under the mentorship of the elderly and/or experienced members of the society, the institution, the organisation or the company.

    The progressive members of the society see the mentorship of the youth as their responsibility and they take the ownership. They would contribute to the formulation of the youth leadership development mentorship. They go all out to also oversee the successful implementation of such a programme. The programme should create the opportunity for the contribution by the parents and guardians where practical.

    The effectiveness of the youth leadership development mentorship programmes is seen in the evolving leadership qualities of the youth. Hence, the need to create the space in the NGOs, Community Organizations, and Clubs for the youth to practice their leadership. Countries are encouraged to introduce national youth development organizations, projects and programmes to absorb those youth that are truly committed to taking their leadership development to the higher level.

    The mentorship guidelines for the youth leadership development programmes are the basis on which to package the programmes. These guidelines are based on experience over many years, but also the lessons from benchmarking local and international programmes. They evolve over time. They are genuinely supporting the youth initiative.

    The youth leadership development programmes that requires mentorship intervention could cover diverse areas as education, community development, art, culture, sport, entrepreneurship, business, etc. They therefore genuinely form part of the country’s real sectors and areas of development need. It is therefore expected that the mentorship programmes be informed by the needs of the society under these sectors and areas. Making resources available for such programmes, including the mentorship programme, should be viewed as investment in the future.

    The youth leadership programme could take a specialist dimension, for example entrepreneurship development. Developing the youth in entrepreneurship early in their lives caters for the supply of future businessmen and women. The majority of the youth respond positively to the mentorship programmes dedicated to the entrepreneurship development. The entrepreneurship opportunities for the youth are mostly in the technology sector. The 4th Industrial Revolution is the main reason why this is the case. The start-ups in technology by the youth is becoming a norm. This, however, provides a challenge to a number of mentors, as they require the understanding of the context from which these youth are functioning.

    Entrepreneurship will always be the most direct option to employment for the youth. As more companies are shedding jobs, more people would see entrepreneurship as the direction to follow. This makes demand for youth entrepreneurship mentorship to grow. The mentors assist the youth entrepreneurs in accessing the markets through their network. Most governments have entrepreneurship support programmes and incubators. These incubators are making mentors available to the youth entrepreneurs.

    It is important for the youth to make a shift and consider entrepreneurship not as a survival means but an opportunity to innovate solutions that mitigate the challenges in the society. Since they are the youth, they are expected to continue paying attention to their holistic development. Involvement in the youth entrepreneurship development initiatives must not become replacement of their education and development. The mentors must continue to challenge the youth to explore many options about their future. We do not expect them to jump certain stages of their development and become adults too soon. They must enjoy their life journey.

    The business case for early youth leadership and entrepreneurship development is very strong. They are laying strong foundation for future responsibilities as entrepreneurs and leaders in the society. They could become serious value chain additions in the various economic sectors of their countries and international. They are the future ambassadors of their countries.

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    Source by Sam Tsima

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