Question: Trying to keep up with the Joneses becomes more and more difficult when you’re short on staff and long on customer orders. However, I realize it’s important to know what the competition is up to. Got any extra eyes and ears I can borrow?
Answer: Our federal government does.
The IRS actually collects a lot of information that can be readily available. I just read about a service from Schonfeld & Associates Inc., which collects data and puts it out in its Industry Spotlight reports. So you may be in luck.
It uses the IRS’s industry codes to sort through the information and then categorizes the businesses in your industry by type, and then breaks it down into 11 different asset sections. The reports provide various industry comparisons on such items as salaries, benefits, pensions for employees, inventory turnover and sales margins. So it might be worthwhile to check out.
You can reach Schonfeld & Associates by calling (800) 205-0030 or check out its Web site at www.sailbooks.com.
Q: After a lot of soul-searching, my partners and I decided it was time to capitalize our company through an initial public offering. I’m an MBA from USC so it was easy to call on my finance buddies. However, it’s been a long time since graduate school and I’ve spent most of my time managing and operating our business. Do you have some tips that we can consider to help our bankers do the best job?
A: You know, that’s a great question! Not only because it can help other start-ups taking the IPO leap, but as a former banker, I appreciate a company that is thinking about how to get the most out of a financing and not just about turning the keys over to the financiers.
The best thing you can do is get a perspective. Sometimes you get too close to your business so it becomes hard to see the forest for the trees. So for this exercise, why not try and act like you’re back in business school? Look at your company, its financials, projections, and business plan as if it were a case study.
Here are some of things you will need to ask yourself:
? Develop believable sales projections.
Are they achievable or are you just kidding yourself? Now is the time for a reality check. Take a step back and look at historical numbers. Do market research to test whether your forecasts are based on fact or fiction. If your projections deviate dramatically from your sales history, it’s going to cause concern by your bankers. If you feel comfortable with your projections, just make sure you can back them up.
? Calculate realistic cost of sales.
Remember: It takes money to make money. And we all have the tendency of being too optimistic when it comes to how much money it is going to take (or time, or effort, etc.) Plus, make sure you’re also prepared to discuss disasters, delays and other bumps in the road. Sometimes you need to defuse the questions with a well-thought-out answer before it’s asked.
? Spin your profit potential.
Depending on what type of industry you’re in, as a young business, you may not have achieved your full profit potential. (Neither have a lot of multibillion-dollar Internet companies!) So put a positive twist on your story. At the same time, this will give you the incentive to secure a wider gross margin and try to beat the industry average.
? Don’t forget tax costs.
Do some of your banker’s homework. Work with your accountant to figure out what you can deduct so that your company’s projected after-tax income can be comparable to that of other public companies, particularly your competitors.
Q: Doing business overseas is really tough. Besides all of the usual problems currency differences, culture clashes, language barriers, etc. we also have an issue of trust. How can we check out potential customers or joint-venture partners who are thousands of miles away and are not regulated by our system?
A: If you can afford to, I’d recommend hiring a professional consultant.
You can, of course, always go over and check it out for yourself. But you’d better do your homework before you make your travel plans. Here are a few easy phone calls you can make:
? Call the country’s embassy or consultant here in the United States. At least you can get some of the basics: local regulations, taxes, incentives, etc.
? Contact the U.S. Department of Commerce. They have access to useful data on market conditions worldwide. They have agents stationed in almost every U.S. embassy around the world, so they might be able to give you some additional insights.
? Go online, or if you’re lucky and have access to Lexis/Nexis, you can do some quick searches for more detailed information. Of course, the data on companies and individuals in Third World countries are few and far between, but you might get some leads.
A few final words of advice: “Let the buyer beware.” Doing business internationally puts a lot of the responsibility on you to check out whether or not your partners are for real.
Q: Our financial service boutique would like to focus on Europe. What do you see as the opportunities in the new Euroland?
A: Such a big question, so little space to answer it. You’re right to call it “Euroland,” because the consolidation of the 11 European countries’ currency is only the tip of the iceberg for business and financial opportunities in Europe.
The potential is enormous. The euro brings together a combined market of 292 million people it’s the world’s most important trading bloc. As a frame of reference, the United States has 268 million people but our gross domestic product is larger at $8.1 trillion (1997 figures) vs. Euroland’s $6.2 trillion. Euroland represents 18.8 percent of world exports vs. the United States, which has a 14.1 percent market share.
It has been projected that U.S. companies may benefit more than European companies from the Euroland consolidation, so you are wise to jump in early. The euro opens up far more possibilities than just allowing a technical glitch to be fixed. The single currency offers savings, new business opportunities, technology advances (especially relating to e-commerce), increased deregulation, more competition, and so on.
Lorraine Spurge is a personal finance advisor, author of “Money Clips: 365 Tips That Will Pay One Day at a Time,” and business news commentator. She can be reached at (818) 705-3740 or by e-mail at lspurge@spurgeink.com.
