Our city leaders keep informing us that the Los Angeles budget is in shambles. They tell us that the deficit is large and growing. They say cuts need to be made. They inform us that revenues need to be increased.

In the midst of all these statements, what does our city do? Los Angeles moves forward by doing its best to discourage businesses from doing business in the city. Our fair city enacts unfair business taxes that push businesses away. It appears to me that the Los Angeles motto should be, “The only good business is one that used to be in Los Angeles”.

Why does Los Angeles keep finding new ways to tax the same people that are still in the city? Our City Council only needs to read its own statistics which show that the cities adjacent to L.A. receive twice the sales tax dollars per constituent than those in the City of L.A. Could it be that something is scaring high volume businesses from opening or staying in L.A.

Would it not be better if the City of L. A. were to become business friendly and became proactive by bringing new jobs and businesses to our wonderful city? I have been saying for years most problems usually have simple solutions. Losing local business and their tax generation to nearby and adjacent cities and states is no exception. Los Angeles’ unfair business taxes are the problem and our enemy here. We all agree the City needs revenues to pay its bills, but pushing businesses out of our community by assessing unfair taxes is not the solution. Why can’t our leaders see that less business and fewer employees in our city equates to less tax revenues?

One simple solution would be to revisit the business tax schedule in 2010.

How about offering businesses a 1% business tax credit for each full time employee that lives in the city and ½% for every full time employee who lives outside the city. If a company has 51 employees living inside the city their tax bill would be 50% lower than a company with only one employee. Proof of living in the city would be a copy of the employee’s utility bill when submitting the businesses annual business license fee. We might even encourage employers with over 100 employees to move to L.A.

How about a business tax credit of 1% for every million dollars of taxable revenue a business generates in the city of L.A? That would encourage a lot of high volume retailers or car dealers to move to L.A. rather than a negative tax for doing a lot of business here. This would be a wonderful encouragement for a car dealer to move from Calabasas or Santa Monica to Los Angeles.

Yes, I understand that we would initially be losing a lot of business license fees but it would be good having people working in L.A. and living in L.A. instead of commuting 30 or more miles a day. Over the long haul, this short fall would be made up by businesses opening or returning to our city. Additionally, retailers will be generating hundreds of thousands of dollars in sales tax for the city instead of just a few thousand from business license fees. Councilmember’s are you listening? Or are you just contemplating what new taxes and fees you will create in 2010.

The fourth quarter of 2009 saw an uptick in companies registering to do an initial public offering (IPO). Thirty companies entered the pipeline, considered the most activity in two years, and the average size of proposed deals was $191 million, said Ernst & Young.

A large number of pipeline companies are from California. And two are from the greater San Fernando Valley region, including the Woodland Hills-based Internet marketing firm ReachLocal and Burbank-based healthcare of Today.

Following a sluggish 2009, hopes are high 2010 will see a continued increase in IPO activity. But the first couple months haven’t quite been boom times. Some local companies are still optimistic. But at least one has shelved its IPO plans altogether.

“We are seeing IPOs go through,” said Jackie Kelley, Ernst & Young’s Americas IPO Leader out of Los Angeles. “And there are a number of companies that have re-engaged their filings.” There were 86 active registrants at the end of Jan. 2010, she added.

technology companies, real estate investment trusts, pharmaceutical firms and biotech companies are some of the prominent players. Kelley said it’s a positive sign that the pipeline has a variety of industries represented.

The market is still volatile, she said, but it has stabilized enough to see new entries. There’s a lot of capital interested in investing in IPO companies and there are a lot of companies talking about going public that have not yet entered the pipeline.

But firms need to be rock solid.

“The bar is higher for investors these days and companies need to have strong financials and growth plans,” said Kelley. “As a result, companies have to be well prepared when going into the IPO process.”

Venture backed exits also showed some positive signs of life in Q4 2009, with 13 venture-backed IPOs and 262 merger and acquisition transactions, according to the National Venture Capital Association.

Many VC firms slowed new investment activity in recent years, opting instead to deploy more capital to existing portfolio companies. Increased IPO activity gives them an opportunity to exit companies, realize their return on investment, and re-invest.

ReachLocal officials could not comment for this story, because the company is still in a quiet period following its registration with the Securities Exchange Commission at the end of December. Its proposed IPO is for up to $100 million.

But healthcare of Today, which acquires and develops companies primarily within the healthcare industry, shelved its IPO plans and is attempting to go public via non-traditional means.

In early January the company entered into a definitive agreement and plan of merger with SK3 Group, Inc. (Ticker symbol: SKTO). The two companies plan to merge into a newly-formed Nevada corporation that will apply for the NASDAQ listing.

“The decision doesn’t have to do with the favorability of the current IPO market,” said Lilly Ghahremani, spokesperson for Healthcare of Today, adding going public via merger is simply more appropriate for the company to accomplish its long-term goals.

Principals of Agoura Hills-based BeyondTrust, an information security firm, have their eyes on the IPO markets. The firm, which is not yet in the pipeline, hopes to go public in early 2011.

In 2009, activity slowed because there was a lot of concern about the economy, said Steve Kelley, executive VP of Corporate Development for BeyondTrust. But in the second half of the year, a number of quality companies that solve “mission critical” needs in their respective markets were able to go public.

“What we see is windows tend to open and close…sometimes rather quickly,” said Kelley.

What seems to be happening now is the IPO markets look better when news about the economy is on an upward trend, he added. Unemployment numbers, among other macro Economic issues, are likely to have a big affect on the markets in 2010.

In the meanwhile, BeyondTrust is focusing on building a strong track record of growth.

The company’s new license revenue growth was 56 percent in its last year over year figures. And it’s expecting 40 percent growth in new license revenue this year. Kelley said the company is also putting all of the necessary corporate governance elements in place for when it does decide to go public.

A Van Nuys hotel, a longtime aviation charter and aircraft management firm, and the designers and manufacturers of elaborate water features are the three finalists for the Economic Engine Award from the Valley Economic Alliance.

Each quarter the alliance recognizes a business that has made a notable contribution to the Valley’s economy, and shown a commitment to hiring in the Valley and working with other local companies.

The three finalists for the award to be presented Feb. 24 are the Airtel Plaza Hotel in Van Nuys; Clay Lacy Aviation in Van Nuys; and WET Design in Sun Valley.

The finalists were chosen from a total of 26 nominees.

A panel of judges reviews all nominations and a silent vote determines who will be the recipient of the award.

Providence Holy Cross Medical Center in Mission Hills was a previous winner of the award for its expansion project that created construction and heath care jobs

This is the Valley Industry & Commerce Association’s (VICA) monthly column for the business Journal. VICA is a business advocacy group representing the San Fernando Valley and surrounding areas.

As news about the city’s budget deficit dominates headlines much of the buzz surrounds layoffs and cuts to city services. But savvy business leaders know that when times are tough creativity is needed to help overcome financial difficulties.

The City of Los Angeles faces a budget gap of more than $200 million and that number is anticipated to double in the following fiscal year. Unless city leaders make sustainable and systemic changes to the way the city operates, the budget crisis will remain chronic.

Significant cuts and layoffs are unavoidable at this point, but there are other ways the city can leverage its assets to help ease the budget shortfall. Over the next several weeks the Los Angeles City Council will consider public-private partnerships as one of the methods to help close the city’s budget deficit.

Public-private partnerships are beneficial to both the city and businesses. There are several types of services currently provided by the city that could be better offered by private companies or even nonprofits. The services would be improved and the city would reduce risks, contain its costs and be allowed to focus on its core functions.

The city is currently looking at two models for incorporating the private sector into city operations, according to reports from the city’s chief administrative officer (CAO). The CAO has identified several areas where the city could enter into public-private partnerships for the operation of parking garages, golf courses and parking meters. There have also been suggestions to privatize the management of the Convention Center, Zoo, El Pueblo de Los Angeles historical monument and Ontario Airport.

The other approach to privatization the CAO has proposed is managed competition. This strategy would create even more opportunities for improved service delivery and efficiency, because businesses would provide the city with competition that it currently lacks being the sole service provider. Services currently under consideration for managed competition include: landscaping, publishing, street and fleet repair, ambulance billings, multi-family trash pick-up, the animal services canvassing function, and operations of cultural affairs theaters and centers.

Under these public-private agreements the city is forced to give up some control, but the benefits far outweigh the costs. The cost savings of privatization alone are too significant to ignore in the midst of this budget crisis.

Under the partnerships proposed by the CAO the city would decrease expenses for operations, maintenance and pension obligations. There are also several cases where privatization would eliminate the city’s debt obligations.

City revenues would be increased by leasing facilities to private entities to operate, and in several instances the revenue would be sustainable. In addition to direct income, handing over control of certain city services transfers the city’s risk to private companies. For example, typical liabilities for parking structure operators, such as injuries to patrons of the lot, would no longer be the city’s responsibility.

The concepts of public-private partnerships and managed competition offer the city effective and long-term solutions for fixing the city budget. Under these agreements the city has the opportunity for significant savings and increased revenues, and businesses are presented with new entrepreneurial ventures.

City officials must face the reality that now is the time for tough decisions and strong leadership. There will always be opposition to innovation, but they must remember that they were elected to make the decisions that are best for all Angelenos.

Before Thanksgiving, I requested a quote on a custom terrarium from a small, local pet store. Three times I checked in, and each time I was given a sincere apology for the delay and a promise of the quote “coming soon.” I finally gave up and ordered the terrarium online. I’m also going to buy the supplies online, rather than drive 30 minutes to the small store. I was ready to pay a small premium in price and even in convenience (the drive) to support an enthusiastic pet store owner, but in the end, I wound up doing business with a business – cold and impersonal, but fairly priced and immediately responsive.

In my conversations with the pet shop owner, I learned that he recently converted a long time fish and reptile hobby (his wife said “obsession”) into a small business, buying a failing pet store from someone who I’m guessing had a very similar story. It’s one I’m hearing more in the past few months than at any time in my 25 years in business.

We are all adjusting to the new economy and for many of us our faith in the strength of large companies has been shaken, so we are looking for alternatives. For many, that means turning a hobby, family specialty or long-time passion into a business. A new phrase has even been coined for those moving in that direction – “Hobbypreneurs.”

I certainly applaud those with the courage to open a small business. Small businesses, beginning with family farms, have always been the backbone of the American economy and will likely remain so for the foreseeable future. However, hobbypreneurs need to pay attention to the same dangers and red flags that confront every other business owner.

One of the keys to starting a new business, large or small, is market research. I received a call recently from someone who wanted us to develop a name, logo and website for their new “pie” business. They knew it would successful and were willing to invest some hard earned and long saved money to get their business started.

They came armed with a stack of recipes and testimonials from family members, young and old, attesting to the fact that grandma made the “best pies ever.” What they didn’t have was any idea of the cost (hard or soft) of baking pies, the legalities of selling a food item or a market (outside of family) for the pies. They had a dream, not a plan. Unfortunately, a love of animals does not necessarily make for a successful pet store (though it certainly helps) and even a great pie recipe (especially when made with love), does not guarantee success in the very competitive world of baked goods.

There are another dozen similar stories that have come my way in the past few months, all driven by passion and a belief that a great product will sell itself. My goal with this column is not to discourage people from opening small businesses, especially ones that they feel so strongly about. However, I do want every budding entrepreneur to recognize that starting a business is expensive, consuming and risky. Even some basic marketing research will show if there is a market for the product or service outside your immediate group of friends and family. Of course, you might just hit on the right thing at the right time, and there are few joys in the business world that can equal making a living doing something you love.

Allow me to make a couple of suggestions for those considering a new start-up business. First, talk to a couple of people in that same business. The world is filled with people who love to cook and had no idea of the expense, time commitment and risk of running a restaurant. There are great hosts who never knew what hit them when they opened a B&B, and legions of people who don’t understand why the world did not beat a path to their door to buy a product that the family has loved for years.

If at the end of those conversations, you are still inclined to try, then bring in the experts. Develop a complete business plan, including a full marketing plan. Assess your appetite for risk and hard work and make sure your family can afford the results of failure. If you’re still anxious to move forward – congratulations and the best of luck!

During a recent industrial real estate transaction in Van Nuys, the buyer and seller agreed to a sales price of $2.6 million. And the buyer was planning to obtain bank financing for the deal, according to George Stavaris of Grubb & Ellis, who represented the seller.

Only problem: The initial appraisal came in at $1.5 million. The seller wasn’t willing to budge that much, so the buyer couldn’t afford the property. And Stavaris claimed the appraiser came up with the number by simply taking 50 percent off the building’s market high.

“There was no rationale behind his appraisal,” said Stavaris, adding the 11,500 square foot space is located in a tight industrial market. Vacancy rates in Van Nuys are much lower than most markets nationally.

So a second appraisal was ordered, and the deal eventually closed for $2.4 million.

Stavaris and other local commercial real estate brokers said lenders and appraisers are missing the mark on property values in the Valley. Numbers are often based on broad brush strokes about the market, which is killing some transactions, stalling others and keeping prices down.

But appraisers and lenders said there’s no conspiracy. It’s difficult to find solid sales comps these days, because there have not been many sales in the down economy. Uncertainty about where vacancy and rental rates are headed also factor heavily into appraisals and how much banks are willing to lend.

“The truth is there’s been a tectonic shift in appraising, and these brokers are spoiled,” said Chuck Hershson, a hard money commercial real estate lender with Fidelity Mortgage Lenders in Santa Monica.

The sales comparison approach is all but gone in this market, and lenders are basing their valuations largely on the income approach,” he added. “Income is what pays all of the expenses of commercial real estate and shows yield for owners.”

When commercial real estate was booming, brokers and property owners got used to capitalization rates (a percentage number applied to future income to determine current value ) around four and five percent, said Hershson. Cap rates are now in the 7.5 to 8.5 percent range, which decreases property values.

When appraising the value of commercial real estate, you also have to take into account whether or not old leases are coming due. Because of today’s market conditions, property owners are likely going to have to decrease the rental rate and make other concessions when renewing the lease, said Hershson.

“Our loan to value ratio is 40 to 45 percent,” he said, adding many bank’s loan-to-value ratio is 50-65 percent, if they’re lending at all. “And all of my appraisers use a 10 cap rate. As lenders, we’re the ones who ultimately have liability for loans. And in today’s market you have to be careful. ”

Scott Romick of Lee & Associates, who specializes in office real estate, said one tenant and prospective owner/user recently agreed on a sales price with the property owner. But the appraisal came in 20 percent less than the agreed upon price.

“The comps were not that good, because there wasn’t much to choose from,” said Romick, adding the lender also considered the transaction an investment deal because it wasn’t owner occupied yet.