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.

Small businesses suffering from an overly conservative lending market may find are now looking to hedge funds for asset-backed loans, according to a report by www.businessweek.com.

Banks, rattled by the $400 billion loss in bad investments over the past year, have largely cut off lending to small businesses throughout the U.S, forcing entrepreneurs to explore unconventional financing methods. Hedge funds providing asset-backed loans - commercial loans secured by the business’s inventories, equipment, accounts receivables, real estate or other collateral – have become a popular source of credit.

Since the 4th quarter of 2007 lending from 300 asset-based lenders has dropped substantially. Unlike larger corporations, small businesses don’t have large reserves to float the business through tough times. Asset-backed loans from hedge funds generally cost 2 to 3 percentage points higher than the prime rate, require asset appraisal, and may involve physical inspections. Fortunately, the processing time is only a 2 to 3 weeks.

Texas is the best place to own a small business, according to a study conducted by the Development Counselors International. Thirty-three percent of executives surveyed said Texas’s favorable tax system, low cost of living and business-friendly atmosphere merited the state the number one spot to own a business.

North Carolina came second in the list compiled by site selection consultants, mid-sized companies and large companies. Texas and North Carolina were the only ones chosen by each category of respondents. Executives from mid-sized companies also included Nevada, Georgia and South Carolina in their top five while larger companies opted for Tennessee. Site selection consultants ranked Alabama and Florida in their top five.

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.