The latimes.com published a small business makeover plan to help entrepreneurs find affordable financing for expansion plans. The article reported that small business owners in struggling industries like construction and real estate are trying to increase existing credit lines to $100,000 or $200,000 and form joint ventures with larger companies to save face with lenders.

The recent sub prime collapse has stunted credit access for small businesses looking for long-term financing. Banks hesitancy to lend to sectors directly affected by the waning housing market – construction, real estate, mortgage brokerage – has prompted these entrepreneurs to explore alternate financing means. Apart from forming a joint venture or increasing existing credit lines, small businesses can look at leveraging up to 75 percent to 80 percent of their accounts receivables.

For more information on accounts receivables financing or other ways to build business credit read our breakdown of the best business loans according to industry type.

The asset devaluation tipped off by tighter credit markets, rising costs and waning revenues, has not stopped entrepreneurs from posting their companies for sale.

This month the number of businesses for sale spiked by about 66 percent according to bizbuysell.com, the country’s largest listing site. An article published Tuesday in the New York Times revealed personal problems and squabbles behind the selloff.

Additionally, officials predict 2008 to be an optimal buyer’s market with one catch.

Though, sellers will outpace the number of qualified buyers further depressing prices, small business owners will find it increasingly difficult to finance business acquisitions due to depleting home equity lines and commercial credit.

Retail is one of the most prevalent industries in the United States. Basically, there are five factors that determine the valuation of a retail business:

• Nature of Business: Banks tend to avoid lending to certain types of businesses. Typically, they try to steer away from cash-based businesses like delis and restaurants. This lack of access to capital dampers future expansion opportunities and lowers the value of the business.
• Entry barriers: Retail businesses with a barrier to entry over an industry receive higher valuations. For example, franchises are valued more than stand alone retail establishments, which have a high risk of failure.
• Location: Locations for retail establishments can make or break the business. Locations in or near a busy shopping mall or including a drive way or impressive aesthetics can significantly increase the value of the business.
• Lease: Lease terms can influence the valuation of a retail business. For example, longer leases without escalation charges exceeding 4 percent annually improve the value of the establishment. Typically, retail business valuations range from 0.4 to 1.3 times the revenue.
• Revenue Distribution: A corporate client roster can increase the value of a retail business. For example, a restaurant that caters corporate events is highly valued. Supplier terms can also significantly affect business valuation. Terms exceeding 30 days or bulk discounts over 3 percent are extremely favorable.

There are five factors that determine the valuation of most wholesale businesses:

• Nature of Business: Banks tend to avoid lending to certain types of businesses. Typically, they try to steer away from cash-based businesses. This lack of access to capital dampers future expansion opportunities and lowers the value of the business.
• Barriers to entry: Distribution businesses with a barrier to entry over an industry receive higher valuations. For example, company car dealerships have higher valuation multiples than used car dealerships because they’re more exclusive. Therefore, lenders consider the former credit worthy and less risky.
• Location: Businesses in states with a strong economy have higher valuations. Similar businesses located in the rust belt are valued more than their counterparts located on the East or West coast. Generally, banks lend more willingly to businesses in states with higher economic growth.
• Client Mix: Institutional clients add value to a company. Lenders will match 90 percent of Accounts Receivables with a blue chip client roster – much more than if it were solely retail clients.
• Revenue Distribution: Businesses with a client that accounts for more than 15 to 20 percent of revenue lower the company’s value. Also, outstanding accounts receivables should not exceed 90 days, unless the client list consists of blue chip companies.

In the United States, small commercial real estate is classified as property worth up to $5 million. There are five factors that determine the valuation of commercial property:

• Income Expense ratios: Rental income should cover at least 1.2 to 1.3 times the cost of property maintenance, which may include taxes, insurance, sewage charges, etc. Generally commercial property is valued around 8 to 12 times the gross income generated from the property. However, valuation may also depend on the expected capital gains from property acquisition and sale.
• Tenancy Mix: Multitenant commercial property lowers vacancy risk and boosts valuation over single tenant properties. In the case of mixed use tenancy, higher valuation is given to properties with 51 percent of the income generated from the commercial tenancy.
• Anchor Tenant: An anchor tenant with a AAA lease and 25 to 30 percent property occupancy increases the overall value of the property by at least 10 to 15 percent. A well-known principle tenant generates foot traffic and increased sales for all tenants, increasing rent and property value.
• Property Taxes: High property taxes not supported by high rental incomes decrease the value of the real estate. Typically, taxes account for about 1 to 3 percent of the overall property value but vary according to state. For example, taxes in Midwestern states hover around 1 percent, but most property owners in Michigan, Florida and New Jersey pay around 3 percent. However, properties that are more than 51 percent occupied by commercial tenants can qualify for federal and state tax refund programs.
• Location: Like other types of real estate, location is key. Commercial real estate located near a national highway or a big shopping mall is valued more than those in remote locations.

There are five factors that determine the valuation of an accounting firm:

• Client Roster: A well diversified customer base of over 500 to 600 small to midsize businesses raises an accounting firm’s valuation – in some cases up to 1 to 1.25 times the revenue.
• Service offerings: Accounting firms that offer a wide range of services like tax preparation, payroll management and consultation have a higher valuation than companies with a one-dimensional revenue model. Multiple revenue streams stabilize the business’s cash flow and can boost valuation to around 1.25 times the revenue.
• Accounts Receivables: Outstanding accounts receivables over 90 days hurts an accounting firm’s valuation (except if client list is primarily composed of blue-chip companies). Ideally, company should strive to keep it under 60 to 75 days.
• Client/revenue concentration: Ideally, an accounting firm should not have a single client account for more than 5 to 10 percent of the total revenues. A revenue model surrounding one client can seriously lower an accounting company’s valuation.
• Liability issues: Unlimited liabilities, INS violations while filing work visas for employees, and a lack luster D&B report can significantly affect a business’s valuation.

Propelled by globalization, IT staffing and IT consulting is one of the fastest growing businesses in the United States. Over 73 percent of the Fortune 2000 companies outsource some part of their IT needs.*

There are five factors used in the valuation of IT staffing businesses:

• Roster: A client list with Fortune 2000 companies across different industry verticals boosts company valuation. Businesses receiving about 75 percent of revenue from Fortune 2000 companies across 3 or more industries can command a valuation of up to 2 to 3 times the revenue.
• On shore VS Offshore delivery: IT companies with onshore and offshore delivery and sourcing capabilities are valued more. Ideally, a model that is 70 percent offshore helps increase EBIDTA margins by at least 15 to 20 percent.
• Accounts Receivables: Typically, IT staffing and consulting businesses incur high initial costs with long client payment cycles. Ninety percent of accounts receivables concentrated within 90 days is ideal. Outstanding amounts over 90 days can lead to a cash flow crunch.
• Client/ Revenue concentration: Businesses with a single client that accounts for over 10 to 15 percent of the revenue have a lower value than businesses with a highly diversified client mix. Too much dependency on one revenue source is risky.
• Liability: Unlimited liabilities, INS violations while filing work visas for employees and a lack luster D&B report can significantly affect a business’s valuation.

* 2005 Duke University CIBER/Archstone Consulting study

Strip malls are one of the most common types of commercial real estate in United States. Generally, five factors determine the valuation of the strip mall.

• Income expense ratio: Rental income should cover at least 1.2 to 1.3 times the cost of property maintenance. Expenses include property taxes, insurance, sewage charges, etc.
• Tenancy Mix: Multitenant strip malls mitigate and diversify vacancy risks and are valued more than single tenant property.
• Anchor Tenant: A principle and well-known tenant in a strip mall generates foot traffic and can even boost neighboring store sales, pushing up rentals. Anchor tenant occupancy of around 25 to 30 percent can increase property values by at least 10 to 15 percent.
• Property Taxes: High property taxes not supported by high rental incomes decrease the value of the real estate. Typically, taxes account for about 1 to 3 percent of the overall property value but vary according to state. For example, taxes in Midwestern states hover around 1 percent, but most property owners in Michigan, Florida and New Jersey pay around 3 percent in property tax.
• Location: Like other types of real estate, location is key. Strip malls located near a national highway or a big shopping mall are valued more than those in remote locations.

There are 5 key factors to value a liquor store:

• Location: Liquor stores located in busy shopping centers, strip malls or near major tourist attractions generate more foot traffic and sales per unit than stores in remote areas.
• Margin: Typically, liquor stores located in economically disadvantaged neighborhoods obtain higher profit margins. Generally, smaller liquor units are sold more frequently in low-income neighborhoods. Liquor bottles typically have about a 75 percent profit margin compared to wine’s profit margin of 25 to 35 percent.
• Store lease: Leases should be at least 10 years and with a maximum escalation clause of around 4 percent a year. The less economically developed the area, the less rent will be. For example, in Manhattan, New York average rental space for a liquor store ranges 3 to 4 times as expensive as in neighboring bureaus.
• Lottery: Liquor stores with lotteries bring in more customers and as a result experience higher sales figures. Additionally, lotteries account for about 6 percent of store profits.
• Warehouse: Liquor stores including inventory storage warehouses can save business owners anywhere between 5 to 8 percent through wholesale discounts. With a large storage space, businesses can buy in bulk and take advantage of vendor discounts. Also, owning a large warehouse with inventory creates more capital raising options in the future.

Recently, big gas companies (Shell, Mobile, etc.) have been selling the real estate component from their gas station enterprises, making it an opportune time for entrepreneurs to vertically expand their existing gas station business or break into the industry altogether. However, because of environmental concerns, gas stations are categorized as high risk investments, making it a difficult business to value.

There are five factors which determine the valuation of a gas station business.

• Branding: Branded gas stations have a higher valuation.
• Additions: A convenience store, truck stop and food mart can boost profit margins by around 25 to 30 percent. These facilities increase valuation.
• Service type: Self service gas stations have 30 to 40 percent higher store sales than full service, increasing the valuation.
• Location: If located on a national or state highway, the valuation is higher.
• State Programs: For states like Connecticut and Indiana, funds are set up to cover environmental spillage risks. This boosts valuation.