Samantha Stainburn

(Crain’s Chicago Business, 16 July 2007)

Banking may not be the world’s oldest profession, but it’s close. The earliest banking records stretch back to the 18th-century B.C. in Babylon, where temple priests made loans. Greek bankers in the fourth century B.C. perfected sophisticated financial transactions such as taking deposits and exchanging currencies. Two hundred years later, Roman administrators created public notaries to discharge debts.

Plenty has changed over the past few millenniums — particularly in recent years. There’s the advent of ATMs and electronic banking. Globalization has sparked a host of new services in the areas of international finance and risk management. Toss in revolving lines of credit, “lifecycle leases” for equipment financing and other new financial service products and businesses are faced with a bewildering array of choices.

But are these new services meeting all the demands of small and mid-sized businesses? Put another way: Do businesses still need a traditional bank for all their financial needs?

Increasingly, the answer is no.

According to the Federal Reserve, small-business use of non-depository institutions for financial services jumped 29% between 1987 and 2003. While commercial banks are still the dominant supplier of checking accounts, credit lines, loans, capital leases and financial management services like credit card processing, 54% of small firms now obtain some of these products from non-bank entities.

The beneficiaries of the trend include companies such as American Express Co., Merrill Lynch & Co. and GE Corporate Lending, as well as smaller, more specialized commercial lenders around the country. In 2003, a quarter of small businesses in the United States had credit lines, loans or leases with finance and leasing companies instead of traditional banks.

“When you go below $50 million (in annual revenue) you get no respect from a bank,” says Gary Marcus, managing director of New York-based Ecoban Finance Ltd. LLC. “There’s a gap, and we non-bank financial institutions fill that gap.”

THE ALTERNATIVE

Take, for example, Amelia Case, owner of a Chicago chiropractic clinic. When she applied for start-up capital for her company, Universal Health Institute, the first 46 banks she visited turned her down, put off by her student loans and lack of collateral.

To meet her financing needs, Ms. Case got a $45,000 line of credit from American Express and arranged a five-year, $35,000 loan at 8% interest from a trader who works with her husband. “I don’t consider banks particularly helpful to my business or to helping me grow, so it’s made me seek out alternative financing,” she says.

Ms. Case’s business today employs seven clinicians and this year is on track to bill $1.8 million in services. But she says her dealings with traditional banks have not improved. The bank has told her her credit score is not high enough to qualify her for the $100,000 credit line she needs to increase her staff and handle emergencies. “I make a point to visit my banker regularly,” she says. “But even though she believes in this business and she knows me, she still has to sit there and say, ‘We can’t do anything for you.’ “

‘QUARTERBACKS’ OF FINANCE

Bankers argue that alternative financial services companies are no substitute for the breadth of resources at a traditional depository institution. “What they offer is credit, and that’s about it,” says John Compernolle, senior vice-president for middle-market banking at Bank of America Corp. “We love loans, but at the end of the day, we look at our relationships with businesses as more multiproduct and advisory in nature.”

“A bank is a one-stop shop vs. a specialty market,” agrees David Pfeiffer, senior vice-president for commercial real estate at Harris Bank N.A. “It provides a business owner one primary contact who will act as a quarterback to make the delivery of those services easy. The alternative is that a business owner can go to four different institutions — one for deposit and cash management products, one for equipment financing or leasing, one for real estate transactions and one for personal services — and educate four different individuals.”

While more businesses are looking beyond banks, some are happy to stick with tradition. Robert Masulis, owner of RM Design Studio Ltd., a Bartlett-based company that creates photo-realistic images and animation of buildings for architects and builders, moved all of his business accounts to J. P. Morgan Chase & Co. after a banker there came to his rescue with a commercial real estate loan when another bank bailed on the transaction.

Mr. Masulis’ banker also suggested he open a higher-interest-earning account for business savings and recommended a line of credit for emergencies — advice he values too much to leave. Well, almost. “They’ve got me forever,” Mr. Masulis says of his bank. “Until they screw up.”

©2007 by Crain Communications Inc.

Read this article at Crain’s Chicago Business.

(Crain’s Chicago Business, 08 December 2008)

Gary Heidt didn’t see the recession coming when he decided in 2006 to sell Heidt’s Hot Rod Shop Inc. so he could spend more time with his wife and four grandchildren at home in Palatine.

“Two of them live two miles away, and they were growing up without me,” says the 56-year-old entrepreneur, who was working 12-hour days, six days a week at the company, a maker of parts for classic cars, that he started in his garage in 1986. “I’d come home at 10 o’clock at night, and they were already asleep.”

Sales were strong for most of 2007, and three prospective buyers checked out the business, which had sales below $10 million. But in late 2007, one of the bidders — whose initial offer was so big Mr. Heidt almost dropped the phone upon hearing it — cut that offer by a third.

The bidder was concerned that end-of-year sales were down from a year earlier, Mr. Heidt says. Earlier recessions had slowed sales only slightly — muscle car enthusiasts tend to cut back on other luxuries first — but conditions had changed.

“I said to my wife, ‘We should probably sell now because if we stall and wait to build it up even more, it might be five years before we get back to this point. If I have to wait five more years, I’ll have a heart attack in the back of the shop one night.’ “

Mr. Heidt was up against a dilemma facing many entrepreneurs, particularly baby boomers, who once imagined they’d be selling and hitting the golf course in the next few years.

Many entrepreneurs approaching retirement would rather sell now than slog through a recession. But chances are, if they sell now, they’ll be settling for less than they would have gotten as recently as a year ago — and that’s assuming they can even find a buyer in such a brutal market.

“It’s a Catch-22,” says Dennis Hansmann, a business broker with American Business Acquisitions Inc. in Chicago, who’s been fielding inquiries from entrepreneurs who are out of gas.

“People are calling, wanting to put their business on the market but running up against their own losses,” he says. “To get the highest value, a business owner may need to take time to increase their sales or get their profitability back in check, which could involve layoffs and cutting their inventory.”

Mr. Heidt eventually reached out to entrepreneur Frank Happ, who had shown interest in the business a few months earlier. Mr. Happ and partner Marc Prince bought Heidt’s Hot Rod Shop in February.

Their all-cash deal didn’t match the high offer that fell through, but Mr. Heidt is thrilled nevertheless. “I can’t afford to buy five houses, but it’s enough that I don’t have to work,” he says. He’s back in his own garage, rebuilding a 1932 Ford Roadster.

NOW OR LATER

Forty percent of family business owners, most of whom won’t be passing their companies on to their children, expect to retire by 2017, according to the Family Firm Institute Inc., a Boston-based membership organization. And 42% of CEOs of fast-growing companies surveyed by PricewaterhouseCoopers LLP in 2005 expected to move on by 2010.

With the economy sputtering, buyers are offering less cash. But if business owners hold on, their last years on the job could be their most difficult, dominated by cutting staff, chasing delinquent customers and working with smaller lines of credit. What’s an aging entrepreneur to do?

Chief among reasons to stay is that it’s not a great time to sell, particularly for businesses in sectors that are deteriorating, like the automotive industry and luxury-goods manufacturing.

“You’re going to be getting out at a price that will be lower to reflect the depressed conditions we’re facing and the increased uncertainty about how that business will do,” says Scott George, a managing director at mid-market investment bank P&M Corporate Finance LLC in Chicago. “Even in July and August, an owner of a business would have been able to get a better price.”

Owners who choose to tough it out likely will have to work harder than they have since launching their businesses. But there are potential rewards, notes Thomas Livergood, CEO of Family Wealth Alliance LLC, a Wheaton-based consultancy. In fact, healthy companies with cash on hand can not only survive but grow in a time like this.

“Fortunes are made during recessions,” Mr. Livergood says. “If you have the cash, this is a great opportunity to snap up companies that are forced to sell.”

On the other hand, weak companies tend to get weaker during recessions. If it’s likely that a bumpy journey through the recession will diminish the value of your company over the next few years, it may be better to sell now.

“If you’re thinking about retiring, and you’re healthy and your business is doing relatively well, it’s a good time to sell because you don’t know what’s going to happen 12 months from now,” says David Kauppi, president of Hinsdale-based investment bank MidMarket Capital Inc.

Exiting early also will help you avoid the glut that’s coming as boomer entrepreneurs sell en masse. “There’s going to be a robust deal flow over the next five to 10 years,” Mr. Kauppi says. “If you’ve got a buyer who has 30 different companies he can buy, he’s going to say, ‘Compete for my dollars,’ and that six times EBITDA goes down to four.”

OVER AND OUT

For some business owners, the answer is in their gut, not their spreadsheets.

Among many of Ryan Linenger’s older clients at Itasca private wealth management firm Balasa Dinverno Foltz LLC, “the bigger question is, ‘Am I ready to take on this slowdown?’ ” he says. “It’s not that they can’t do it, because they’ve been through recessions before. But you have to gear up mentally. Maybe you don’t want to do it again. Maybe your family is a bigger priority.”

Mr. Linenger says his clients often are content to exit for less than top dollar — say, $8 million today rather than a possible $12 million in a few years — if the sale price covers what their financial planner has determined they’ll need to fund the kind of retirement they want.

Another way to get peace of mind about selling now rather than waiting for a bigger payday down the road: “Find other ways to measure your success besides the check you walked away with,” says Gail Golden, a management psychologist with RHR International Co., a Wood Dale-based management consultancy. “Think, ‘I supported my family all these years,’ or ‘I provided excellent service to customers.’ ”

©2008 by Crain Communications Inc.

Read this article at Crain’s Chicago Business. 

(The Wall Street Journal, 18 June 2001)

Karen K. Dils, 53 years old and co-owner of Four Corners Rafting, a river-tour operator in Buena Vista, Colo., spends much of her time on the beautiful Dolores and Arkansas rivers. So when Ms. Dils has time off, what does she do? Surprisingly, she often goes on river-rafting trips — but with family and friends instead of guests. It’s a vacation because “you don’t have to entertain them,” she explains. “You all pitch in, help wash the dishes.”

Other travel-industry entrepreneurs make similar confessions. Vacation doesn’t necessarily mean leaving work behind — just changing their state of mind.

THE ZOO DIRECTOR: As general manager of the St. Augustine Alligator Farm in St. Augustine, Fla., William E. Puckett, 64, works in a lush park surrounded by large numbers of rare reptiles, exotic birds — and tourists. In the summer, “the population of St. Augustine doubles with vacationers,” he notes. So, Mr. Puckett says, he tends to head for sparsely populated, “wide open spaces” on his own vacations — states such as New Mexico, Montana and Colorado. Bu, “wherever I go, I check out the local zoos,” he says.

THE TRAVEL-GUIDE PUBLISHER: Lonely Planet Publications Inc., the series of books for adventurous travelers, keeps Tony and Maureen Wheeler on the road six months out of the year. Tony Wheeler, 54, admits that he fails miserably at separating work and vacation. “Even just in day-to-day life at home, I wouldn’t think of eating out at a restaurant without taking notes on it,” he says. In January, the Australia-based Wheelers spent a week lazing at a beach house they rented outside Melbourne. “That would have to be defined as vacation,” says Mr. Wheeler, “but then I also did some scuba diving there, and I’m working on a scuba-diving guide.”

SURFING INSTRUCTOR: Living in a surfer’s paradise, Jeremiah J. Dillberg, 26, a former professional surfer and co-owner of the Kauai Surf School in Kauai, Hawaii, is able to catch the waves when he’s not teaching students or helping to manage the business. So, Mr. Dillberg says, when he goes on vacation with his nonsurfing wife, he looks for a different experience — culture shock and city life, such as he’s found on recent trips to England and France. Still, Mr. Dillberg admits he rarely leaves his surfboard at home, even when visiting a destination like Europe, “because you never know” when you’ll stumble across a good beach.

SPA MANAGER: True, when he’s tense, Mark T. Wilkinson, 44, the general manager of Dr. Wilkinson’s Hot Springs Resort and Mud Baths in Calistoga, Calif., can take advantage of the de-stressing treatments — including volcanic mud baths, steam rooms and massages — offered at the family business. But, he says, “it’s like the chef going to his own restaurant — your ears are always open, you’re noticing things” about the enterprise. To really relax, he vacations at other resorts with spas, like the Ritz-Carlton Laguna Niguel in Dana Point, Calif., which has a massage center. “I’m a firm believer in the concept,” he says.

BED & BREAKFAST HOSTESS: Karen Spell Shaw, 42, innkeeper at the Governor’s House Inn, an 11-room B&B housed in an 18th-century mansion in Charleston, S.C., makes it a point to “put the day together” for her guests — suggesting sites to see, organizing boat charters for them, making dinner reservations. When she has a few days off, she heads for South Carolina’s Folly Beach — “an old, hippie beach,” as she describes it, where there’s very little to do, and “when the phone rings, it’s not for me.”

(The Wall Street Journal, 23 April 2001)

Marjorie R. Dial experienced many dark nights in deciding what to do with Suma, her store selling Thai decorative arts and home furnishings, when she followed her fiance to San Francisco from Washington, D.C., last year.

But it wasn’t until after she actually moved the store to California that she lost her composure in public. The store — in the form of its sign, its teak sales counter and the bits and pieces of Thai crafts that didn’t get unloaded at the Washington liquidation sale — arrived in a moving truck all mixed up with her personal belongings. No amount of pleading in the pouring rain would convince the movers that the load should have been separated, as Ms. Dial had asked.

“Kind of a metaphor,” she says, for a cross-country move made for love but with a business she very much loves, too, on her mind. Starting a business and making a marriage, of course, both involve great leaps of faith. Would Ms. Dial, launching her married life with Jeremy D. Fields, 30, also be able to relaunch her business, which had seemed to her so fragile from the start?

Now, a year later, Ms. Dial, 29, takes a break from unpacking a shipment of Thai furnishings bought for her new, 1,200-square-foot retail space to reminisce about the journey. Late-afternoon sunlight tumbles through the windows into the store in San Francisco’s Inner Sunset District near Golden Gate Park. Customers interrupt to ask questions about the merchandise, which ranges from $8 journals handmade from mulberry-tree bark to $2,000 antique armoires.

Ms. Dial’s store in Washington was the embodiment of a dream she had when she first visited Thailand in 1989, during a year off between high school and college. “I was very attracted to the culture,” says the Columbia, S.C., native. “In everyday life, people were doing really beautiful things, kind of incidentally, to honor the fact that they were alive. Like, most houses have water jars: They’ll fill huge containers up with water, and then they’ll cut fresh flowers and float them.” She dreamed about opening a store in the U.S. that would sell Thai goods and allow her to maintain her ties with the country through buying trips. “Basically, the fantasy was that, someday, when I was, like, 54, I would open a shop,” she says.

After a string of post-college jobs “that I just really didn’t like,” the Yale graduate got a part-time sales job at an Asian-imports store in a Washington suburb to see how such a business could be run. After five months, Ms. Dial quit and assembled $80,000 — savings plus a gift from her grandparents. She flew to Thailand and bought objects she liked and arranged for a consolidator to ship them to the U.S. Back in Washington, spurred on by the knowledge that a shipment containing $50,000 of merchandise was steaming her way, she secured a three-month lease in Dupont Circle for a Christmas season trunk show.

In spite of the fact she had no formal business training, Ms. Dial’s concept proved it had staying power, and she reopened the store in the same location after the trunk show. In a town filled with well-traveled international types, customers recognized and valued authenticity and liked to hear the personal stories behind the objects, which Ms. Dial, as the buyer, could provide. She floated flowers in enormous earthen water jars — just like the ones that captured her attention on her first trip to Thailand.

Mark S. Thompson, 38, a former co-worker from the Asian-imports store, joined her as the store designer. “I was impressed with her approach — she’s a thorough researcher,” he says. By October 1999, Ms. Dial made back her initial investment. Soon after, her fiance, Mr. Fields, learned that he had gotten into medical school — in San Francisco. Moving Suma to San Francisco was the last thing Ms. Dial wanted to do. Or the next-to-last. “I didn’t have it in me to ask him not to go,” she says of Mr. Fields. “I made the choice early on that it would be my issue.”

They had lived apart before during their romance and didn’t want that again. For his part, Mr. Fields attempted to defer his admission for a year to give Ms. Dial more time to build up her business, but he was unsuccessful.

Ms. Dial feared that “by closing the store it would cease to exist — it would go back into my brain.” Better to save the store, she felt, even if she couldn’t be the owner. So, she tried to sell it. The potential buyers, she asserts, tried to lowball her, and she grew indignant. Without much more thought than that, she resolved to move the store to San Francisco.

She sold about 85% of its merchandise at a 30% to 50% discount in a liquidation sale.

Ms. Dial’s intentions were to get right back on the horse in San Francisco. She went on a buying trip to Thailand shortly after moving, even though she hadn’t yet found a retail space, in an effort to recreate the momentum that she experienced the first time around.

But she was exhausted by the feeling that, after all her work in Washington, she was back to square one — looking for space in a much more expensive rental market, studying a retailing environment she didn’t know.

And, planning a wedding now, her heart wasn’t in the store project. She paid her consolidator to hold her merchandise at the dock in Bangkok. Two months slipped by, then August was taken up with her wedding. Come September, there was still no Suma. Her parents started asking whether she was going to get a real job.

It was a lonely feeling. But Mr. Thompson, the store designer, provided her some unexpected motivation. He visited San Francisco, ostensibly on vacation, and essentially asked for a job. If she truly planned to relaunch Suma, he was willing to move and work with her.

She says he told her: “I want to come, and I’m looking forward to it, but I need a start date and I need to know how much money I’m going to be making.”

“He basically woke me up at 8 o’clock in the morning and said, `Let’s go look for the store,’” Ms. Dial recalls. Suddenly responsible for someone else, Ms. Dial felt energized.

She needs to be. Ms. Dial observes that San Francisco doesn’t have the shopping neighborhoods with clusters of retail outfits that Washington does. So she has been developing strategies to draw people to Suma, such as reaching out to local interior designers and offering to shop for specific pieces for customers on buying trips.

And she hasn’t forgotten her original customers. “We really want to put together a catalog on our second year in business” in San Francisco, she says. “And the first recipients of that will be our mailing list of 400 people from D.C.”

But perhaps the biggest change is that Ms. Dial no longer feels like a tourist in retail land. “I feel more serious about the business endeavor here — that it’s not just my dream store. It’s a real business. It’s something separate from my own personal life,” she says.

Mr. Fields, now a second year medical student at the University of California at San Francisco, says, “I think Marjorie went through a transformation in terms of figuring out that, ultimately, what makes the store work is her.”

In retrospect, says Ms. Dial, the logistics of moving were actually not all that terrible. “The worst part was feeling like I had to choose between Jeremy and Suma,” says Ms. Dial. “It was a false choice, and one that I didn’t have to make.”

This is never clearer than in the afternoons when Mr. Fields runs in Golden Gate Park. He usually swings by the store to say hello, and for 10 minutes or so, the two things Ms. Dial loves most are in one place.