Business Banking E-Newsletter - September 2011

Putting on the Right Market Cap: Why Stock Size Matters

While there have been many times in history when the U.S. stock market's performance was driven in large part by the successes of large companies, there have been other times when the innovation and high-growth orientation of smaller or midsized firms led the charge during an economic boom. This raises an important question for investors — What role should a company's size play when assembling a long-term equity portfolio?

Defining Market Cap

Market capitalization, or market cap, refers to a company's value. How is market cap determined? By multiplying a stock's current share price by the total number of its shares. For example, if a company has issued 20 million shares that are priced at $20 each, its market cap would be $400 million.

Companies are generally categorized as small-cap, mid-cap, or large-cap. There are also micro-cap stocks — the smallest of the small. The definition of each category can vary, but typically, small caps have market values of $3 billion or less, mid caps have values of $3 billion to $10 billion, and large caps have values of more than $10 billion.*

As you may have guessed, a company's market cap is related to its growth pattern. A good analogy may be family siblings: Small-cap firms are often younger and may be growing at a fast rate; mid-caps (like the middle child) may be experiencing — or expected to experience — rapid growth spurts; and the often older, more mature large-caps might still be growing, but at a slower rate.

Sizing Up Company Size

When it comes to investing, a company's size is an important consideration. Small-cap stocks may offer substantial growth potential due to filling niches in the market, but they may also be subject to higher levels of volatility than other stocks. Add in the above-average rate of small business failures and you're looking at increased investment risk. Even still, small caps can be broken down into several sub categories (e.g., growth or value) and each has historically performed differently and had varying levels of risk.

Similar to small-cap stocks, mid-cap stocks may have the potential to grow quickly. On the risk spectrum, they generally fall somewhere between small caps and large caps. This is an important stage for a company and often determines whether it will become a leader in its field.

Large caps are generally mature companies that are dominant within their industries or markets. They are generally considered less of an investment risk than smaller companies over the long term.

Capitalization and Your Portfolio

So, what does a company's size have to do with investing? A lot, actually. Just as fashion styles change, market caps take turns "leading the pack" during different periods of time. While past performance cannot guarantee future results, maintaining a mix of market caps in your equity portfolio may potentially help reduce risk and enhance returns.

Make sure that the market caps your portfolio "wears" are ones that fit your goals, time horizon, and risk tolerance. A qualified financial consultant can help with an equity portfolio review.

*Source: Standard & Poors. © 2010 Standard Poor's Financial Communications. All rights reserved.
*Securities offered through LPL Financial, Member FINRA/SIPC. Insurance products offered through LPL Financial or its licensed affiliates

Not FDIC insured

No Bank Guarantee

May lose Value

Not a Deposit

Not Insured By Any Federal Government Agency

Coulee Bank and Coulee Investment Center are not registered broker/dealers and are not affiliated with LPL Financial.

Hackers Now Targeting More Small Businesses

There’s No Such Thing as Too Small to Be Hacked

The bad guys have changed their game: Smaller companies are now the new preferred target for cyber crimes.
Verizon and the U.S. Secret Service reported their investigations of attacks on small companies increased by 63% in just one year. Visa estimates that 95% of the credit card security breaches it uncovers come from its smallest business customers (The Wall Street Journal, July 21, 2011).
No small company is immune, and any company that keeps credit card information is now under greater threat—newsstands and clothing retailers, body shops and manufacturers, salons and spas, pizza and burger joints.
Recovery is costly. Remediation, lost revenue, and productivity can often be insurmountable. One recent survey found the average cost to small, victimized businesses was $188,242 (According to a Symantec Survey). Even lesser losses of four to five figures can be enough to cripple a small business. 
But there’s good news: Most breaches are avoidable by simply following the fundamentals of data management and security. Click here to read The Top 10 Hacker-Defense Strategies for Small Businesses.

Article Source:

Build a Website That Drives More Business

The Best Way to Stand Out From the Competition

The best way for your business to stand out is not through a quirky website, but through a value proposition that differentiates you from your competitors and appeals strongly to a well-defined target market.

Since you’re already in business, think about what unique offerings make your company successful. Are you the best-priced option for family tour packages? Do you have personalized service that makes life easier for your corporate clients? Are you a terrific resource for cultural information on visiting India or another destination?

Define your niche and then design your website to maximize your appeal to that niche, making sure that your marketing campaign emphasizes your company’s strengths, says Gabriel Shaoolian, founder and chief executive officer of Blue Fountain Media, a New York website-design and online-marketing agency. "This is not about smoke and mirrors. There are no gimmicks to doing business online. Your website isn’t going to drive your business model. It is your business model that will drive your website," he says.

One trend that you might consider is incorporating mobile Internet applications, such as iPad and iPhone, into your site, says Brian Morgan, CEO of Adventure Life, a boutique travel agency in Missoula, Mont. Especially when they are on the road, your customers are likely to access your site using mobile devices.

Target Specifically and Energetically

By the way, take a look at the Adventure Life website to see how it immediately conveys Morgan’s niche: Latin American destinations for active, adventuresome travelers. His business clearly appeals to a narrow slice of consumers and his website reflects that target audience accordingly. Your clientele may be totally different than his, but that’s the kind of messaging clarity you want to aim for in your own site.

Morgan recommends also that you incorporate social networking into your site from the start. "Use any way that you can to encourage users to share what they find on your website: Cool travel tips, travel journals" and so forth, he says.

Kristin Lamoureux, director of the International Institute of Tourism at George Washington University, agrees. "All the research shows that social media is where the travel and tourism industry is investing its marketing efforts. Your traditional website has to be well done, clean, and neat, but it also has to be fully integrated into social media," she says. "Give people a place to tell their travel stories, share their best photos, and talk about things like their favorite vacation meal. It can even be a quirky thing like a poll on what tourist site has the cleanest restrooms."

Hospitality and travel businesses have introduced a lot of clever ad campaigns in recent years, including contests and charitable tie-ins. Some offer a hands-on volunteer experience as an option for corporate conference attendees or vacation travelers, for instance, Lamoureux says. Others hold competitions that give away trips that are then documented on video and posted online. Once your own site is up and running, take a look at some of these to get ideas.

Since you have some capital budgeted for the website design project, look for an agency that has experience at not only building attractive, functional websites but that also understands how people shop and buy online, Shaoolian says. "They should understand the principles of effective online messaging and the science of online user behavior." You will save money on your website if you can present clear goals and a success strategy up front, rather than paying the design firm to help you define those things.

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The Importance of Cash Management

Business analysts report that poor management is the main reason for business failure. Poor cash management is probably the most frequent stumbling block for entrepreneurs. Understanding the basic concepts of cash flow will help you plan for the unforeseen eventualities that nearly every business faces.

Cash vs. Cash Flow

Cash is ready money in the bank or in the business. It is not inventory, it is not accounts receivable (what you are owed), and it is not property. These can potentially be converted to cash, but can't be used to pay suppliers, rent, or employees.

Profit growth does not necessarily mean more cash on hand. Profit is the amount of money you expect to make over a given period of time, while cash is what you must have on hand to keep your business running. Over time, a company's profits are of little value if they are not accompanied by positive net cash flow. You can't spend profit; you can only spend cash.

Cash flow refers to the movement of cash into and out of a business. Watching the cash inflows and outflows is one of the most pressing management tasks for any business. The outflow of cash includes those checks you write each month to pay salaries, suppliers, and creditors. The inflow includes the cash you receive from customers, lenders, and investors.

Positive Cash Flow

If its cash inflow exceeds the outflow, a company has a positive cash flow. A positive cash flow is a good sign of financial health, but is by no means the only one.

Negative Cash Flow

If its cash outflow exceeds the inflow, a company has a negative cash flow. Reasons for negative cash flow include too much or obsolete inventory and poor collections on accounts receivable (what your customers owe you). If the company can't borrow additional cash at this point, it may be in serious trouble.

What Are the Components of Cash Flow?

A "Cash Flow Statement" shows the sources and uses of cash and is typically divided into three components:

Operating Cash Flow often referred to as working capital, is the cash flow generated from internal operations. It comes from sales of the product or service of your business, and because it is generated internally, it is under your control.

Investing Cash Flow Investing cash flow is generated internally from non-operating activities. This includes investments in plant and equipment or other fixed assets, nonrecurring gains or losses, or other sources and uses of cash outside of normal operations.

Financing Cash Flow is the cash to and from external sources, such as lenders, investors and shareholders. A new loan, the repayment of a loan, the issuance of stock, and the payment of dividend are some of the activities that would be included in this section of the cash flow statement.

How Do I Practice Good Cash Flow Management?

Good cash management is simple. It involves:

  1. Knowing when, where, and how your cash needs will occur.
  2. Knowing the best sources for meeting additional cash needs.
  3. Being prepared to meet these needs when they occur, by keeping good relationships with bankers and other creditors.

The starting point for good cash flow management is developing a cash flow projection. Smart business owners know how to develop both short-term (weekly, monthly) cash flow projections to help them manage daily cash, and long-term (annual, 3-5 year) cash flow projections to help them develop the necessary capital strategy to meet their business needs. They also prepare and use historical cash flow statements to understand how they used money in the past.

Article Source: U.S. Small Business Administration

How to Tap Employee Ideas

Seven Experts Share How to Get The Best Ideas From Your Company

The origin of the humble Post-It Note is perhaps the best-known story about a million-dollar innovation that sprang from an unexpected place within a company.

Spencer F. Silver was working for 3M in the late 60s when he developed a resilient adhesive that would make a piece of paper stick to a surface, but was still weak enough to let the papers be torn apart again. Silver pitched the product over and over again to people around the company for the next few years, but he never caught any traction. Until, that is, another colleague came along, took Silver's adhesive, attached it to a bookmark prototype he was working on, and the Post-It was born.

But 3M almost lost the idea that came from its own employee, even though Silver kept trying to convince his supervisors about its potential. Tapping your employees' creativity can provide you with a wealth of ideas that management may have overlooked, in addition to creating an environment where all workers feel engaged. But what's the best way to get them to open up? Seven experts in tapping employee creativity share these tips to get the best ideas from all parts of the company.

1. Use the Right Motivation. "Money is generally the worst. Pride in company, pride in personal accomplishment, and being able to meaningfully contribute are generally much more powerful and enduring. If you use exigent motivation like money, essentially what you're saying is, 'I'm going to pay you money if you find the cheese.' What happens is that employees will take the shortest route possible to get to the new idea. Innovation and new ideas often require a circuitous route. Brain science shows that the money just means less and less over time, so you just have to keep upping the amount. If you want to get ideas from employees, they need to understand the strategy of company. Only about 10 percent of employees can describe their strategy. Often times employees are asked to have really high quality in their work. Quality is actually sort of the enemy. New ideas and innovation are often sloppy. You have to embrace uncertainty. Innovation by definition is something that hasn't happened before." —Bruce Strong, partner, CBridge Partners, consulting organization for businesses and non-profits

2. Prove Great Ideas can Come From Anywhere. "It's easy for people to think that new ideas are the responsibility of the innovation or R&D teams and have nothing to do with them. By telling the stories of some great everyday innovations such as the Post-It note, Band-Aid or traffic lights, you can prove that game-changing ideas can come from anywhere and are not just the preserve of men and women in white coats. In our business, our employees are also representative of our consumers, which makes them exceptionally qualified to come up with the next big thing." —Philippa Brown, employee communication manager, Tata Global Beverages, makers of Tetley Tea and Good Earth beverages

3. Keep Them on the Same Page. "Nothing is more discouraging to you and your workers than getting overly simplistic or misguided advice. You'll be quick to shoot down suggestions that don't take into account all the variables, which is also a huge turn-off for the contributors. So you have to spend some time explaining the situation as you see it, including the ideas you have already considered and rejected. At my weekly meeting, I'll sometimes talk about a problem for several minutes, in order to explain it as completely as I can, before asking for ideas from my people. This leads to better, more nuanced advice, which leverages the knowledge that they have, and I don't."—Paul Downs, owner of Paul Downs Cabinetmakers and author of the New York Times online column Staying Alive about the struggles of small businesses

4. Ask a Relevant Question and Provide Feedback. "A great place to start is to look at your corporate objectives and pick a challenging business problem for which you do not have all of the answers. The best challenge questions are results-oriented, defining a specific outcome that is desired without limiting the nature of the solution. Providing background information on the problem, its history, and any past attempts to solve it help to keep the ideas focused and relevant. You need to invest some time to thoroughly understand the ideas, ask clarifying questions, cluster them into similar groups, and decide which ones will shape your next actions. Some employees will be disappointed that you did not select their ideas, but if they see that you gave real consideration to all options and made a rational choice, they will be likely to come back and participate in your next challenge."—Matthew Broder, vice president, external communications, Pitney Bowes Inc., provider of business solutions

5. Remember That Employees are Customers, Too. "We realized we could tap our own employees to gather feedback on new ideas before doing formal research and created an on-line employee community called "FOODii." We have used FOODii for many things, including idea generation, packaging guidance, and insights into cooking habits. For example, our Jell-O marketing team turned to FOODii to help find a name for a new flavor of Jell-O Mousse Temptations. Less than 24 hours after the request, the Jell-O Team had 110 naming options to consider. They selected the 10 best names and sent them on to consumers for further evaluation. The final name, Chocolate Mint Sensation, comes from one of the suggestions provided through FOODii. Our employees have a vested interest in our success - they want to be sure we succeed, so their feedback is particularly valuable."—Julie Fleischer, director of consumer relationship marketing content strategy & integration, Kraft Food

6. Make it Fun. "The old suggestion box just doesn’t do it anymore and you can wait a long time to get more than a few scattered ideas from a web site. Make it social: Ideas come from the interplay and free exchange between employees. Create opportunities for employees to get together and brainstorm. The Japanese have long done this informally with their after-work get togethers (though sometimes those involve excessive drinking). It doesn’t really matter how it’s done, as long as it's done together. New ideas come from playfulness and humor. If fun is not a dirty word at your business, you’ll hear a lot more ideas every day. Nothing shuts people up faster than knowing if they offer an idea the boss or company doesn’t like, they’ll pay for it. Really good ideas almost never sound "normal." Imagine how the idea for Post-it notes must have sounded when it was first described—'you stick these little pieces of paper everywhere, then...'"—Steven Farmer, W. Frank Barton Distinguished Chair in Business, Department of Management, Wichita State University

7. Keep an Open Door. "Great ideas don’t keep to a schedule. As a leader, make sure your door —whether physical office or e-mail inbox—is always open to employees. When an employee approaches you and asks "do you have a moment?" make time for him or her, even if it isn’t convenient for you. Keeping an open door builds trust and demonstrates an active interest in what employees have to say. Over time, employees will share their ideas as they appear, knowing that a willing audience is waiting to hear them."