We all know that times are tough, business is in a terrible slump. As you know we specialize in tools to help the small business owner get the alternate financing they need.
Here is an interesting article that supports the need for alternate financial options for the small business owner.
In a recent article that appeared in the June, 2011, Costco Connection, Don Sadler provided some terrific information on the factoring industry. He cited a Washington Monthly article in which Jeffrey Leonard, CEO of the Global Environment Fund, stated that, “Typically, small businesses lead the way out of recession…” Mr Leonard explained that the reason we are not seeing that this time is due to the fact that small businesses are experiencing cash flow problems.
“Many large companies today have simply announced that as a matter of policy they will be paying their bills late – sometimes as much as four months late,” Leonard noted. This policy results in small businesses essentially making “free loans” to their customers – rendering their working capital unavailable.
Mr. Sadler cited a couple of options that are available to the small business owner: optimizing cash flow and factoring. Sadler quoted Tracy Eden, national marketing director for the Commercial Finance Group, “Factoring is a creative financing solution for businesses that don’t qualify for traditional bank loans but need a financial boost to help manage their cash-flow cycle.”
Factoring allows businesses to sell their outstanding invoices to a finance company, known as the factor, at a discount. According to Ryan, “Instead of waiting up to 90 days or longer to get paid, the business receives most of the cash – typically 70 – 90 percent of the receivable – when the invoice is generated.” When the factor collects the invoice the small business will receive the balance, less the discount.
This scenario is a win – win situation in that the small business can maintain cash flow, allowing them to make payroll, purchase supplies, or whatever they need to focus their working capital on as well as keeping their customers happy and maintaining a positive relationship.
If you would like additional information you can contact our office to see how factoring might be a great option for you to keep your cash flowing during these unsettled economic times.
As I have mentioned in past post CASH IS KING!! If you intend to drive your business to success you have to take charge of your cash flow and ensure that it is ‘flowing’. The issue of cash flow is a multi-faceted gem that needs to constantly be monitored and ‘polished’. You cannot realize business success without hopping in the driver’s seat and driving your cash flow. This is evidenced by the ever increasing number of business that are not thriving… and the number of “going out of business” notices that we are seeing. Yes, we are experiencing economic challenges in both the professional and personal sector, but we do not have to take a wait and see approach.
1. Get busy recognizing where your cash flow challenges are. Are you allowing those that buy your goods or services to adopt a slow pay policy? Whether it is a slow leak or a fast leak, slow payments are an increase in your cost of doing business. Put your customers on notice that they need to pay in a timely fashion. Whether you choose to adopt a policy where you require payment at time of providing goods/services or allow your customers to pay you within a certain time frame you need to maintain control of the process. I recommend the pay as you go option, but realize that may be something you will work with as your comfort level allows. Be aware that, if you allow customers to pay within a certain time frame it is essential that you don’t allow them to ‘forget’ about you. Follow up in the form of a statement – 15 to 30 days after payment was due. You might then try a follow up phone call or letter. It is a good idea to have a plan “B” in place, in the event the slow pay drags on beyond 60 or 90 days; either in-house collector or a collection agency. The phone calls don’t have to be threatening. We find that making calls as a courtesy, “We wanted to ensure you received the invoice and that there is not a problem with the services you received,” is often all it takes.
2. Funding – A revolving line of credit with your lender is a good tool to establish in your business arsenal. A revolving line of credit can open up funds to allow you to take advantage of cash payments to your vendors, when they offer specials, and a plethora of advantages to keeping “cash on hand”. In the event that a revolving line of credit is unavailable to you in your business (often the case with new startups or those that might be extended beyond what the lender feels is a good risk) there are some wonderful alternate funding options open. Factoring is a great option to the traditional lender and is a great way for a business to improve cash flow without incurring additional debt.
3. There is a lot to be said for the tried and true art of putting something away for a rainy day. We all know that in business, as in life, there are ebbs and flows. If you have a program set up with your lending institution where they take out a certain percentage of your deposits, off the top before they even hit your business account, you will find that it is easier to implement a savings program. If you can establish this practice in the good times, then when times are lean, you may have set aside enough to fall back on.
Please contact our office and we can discuss some of our alternate funding options to help improve your cash flow. Or you can email me directly at Kim@Funding4You.com.
I recently read an article by Keith Mabe. The article was an excellent discussion of the recovery of our economy and cited some great information about whether we are actually headed to better times. Mr. Mabe cited comments made by Robert Pollin, an economic professor from the University of Massachusetts-Amherst. Dr Pollin pointed to the fact that an economic recovery can only occur if small businesses can be actively involved in the process. Pollin went on to state that such involvement by the small business sector can be difficult due to the problems inherent in obtaining funding through the regular crediting channels. Mr. Mabe discussed factoring and how it can be used to relieve the cash flow issues business owners deal with.
Mabe pointed out that: “It is critical that businesses acquire a funding source that is readily available and dependable. Factoring (also known as Accounts Receivable Financing) is an often overlooked choice for businesses trying to participate in the recovery. This form of financing is not widely known, but allows businesses to capitalize on the power of their outstanding invoices. Factoring can be a valuable mechanism to turn business invoices into immediate cash, enabling them to fund business operations.”
The biggest thing that I came away with, from this article, was that we need to be open to alternate ways of doing business. Whether, as a business owner, you need to address cash flow issues so that you can pay your employees in a timely fashion, or get early pay discounts from suppliers, funds that you can obtain without going into debt with a normal lender can benefit your business. By converting your receivables into cash you can regain control of your business and deal from a more financially savvy position. The business owner is left with the control of how quickly he/she wants to grow their business. Factoring can be used for a short term fix, or a long term cash flow tool.
As Mr. Mabe concluded: “Factoring has become an important small business financial tool in the midst of this uncertain economic environment, as it has proven to be a cost effective alternative for working capital to fuel business growth and to timely pay sensitive cash obligations.”
As we discussed yesterday, it is imperative to identify challenges within your company, in order to establish some best practices for your business model. But, what do you do with those policies once you have identified them?
Execute:
If you simply take stock of the issues you will not see much of an improvement. While knowledge is power, you have to implement that knowledge into real action. Turn your ideas into policies, and formalize them. Make a big deal out of introducing them to your employees and explain the rationale behind them. Best practices are intended to improve your company’s financial bottom line. Ideally, this will translate into a positive outcome for everyone. During the meeting to discuss the new policies make certain to emphasize the constructive nature of the changes. You may also want to put the policies in writing and have them available at the meeting.
Here are some examples of best practices that other businesses have implemented.
Invoice for goods and/or services at the time they are provided.
Set a specific time interval to deal with collections, ideally once a week.
Estimate your income tax obligation monthly, not just quarterly. When payments come due, there won’t be any major surprises.
Provide cross training for employees where practical. That way you won’t have downtime if someone is ill or out for a period of time.
Utilize technology where you can (i.e. set us a merchant account to receive payments).
If possible, have employees who incur billable time use a timer. A few minutes lost here and there can add up, and this can be a big ‘leak’ that needs to be plugged.
Review your pricing structure. Ensure that you are building in enough to cover overhead and still realize enough profit to not only sustain but grow your business.
Run inventory reports regularly. This will allow you to keep close tabs on your inventory and not have any surprises. This may also allow you to shop for the items you need at a lower price rather than having to replace something last minute and potentially having to pay a premium.
This is not a difficult process. You simply need to utilize the publicized practices of the most successful businesses and adapt them to your business situation. Also keep in mind that you can network with other business owners that you know to see how they have approached implementing best practices. If cash flow is hampering some of your best practices, such as maintaining your inventory numbers, then please contact us for a solution.
I recently read a terrific article in a newsletter that I think speaks volumes to the business owner; large or small. The article referred to Best Practices models that could be implemented at any stage of your business and would help the business realize some pretty significant improvements. At this time of year – when we are working on getting a fresh start – these suggestions can play a great role in a ‘jumping off point’ for that fresh start. This article caused me to consider how important best practices are to the health of a business and how many business owners are missing out because they simply may not know how to incorporate such policies into their particular business model.
There are three stages you need to address when you decide to apply best practices to your business model.
Identify:
It is imperative that you first identify the problems are you trying to solve. What are you pain points?
• Cash flow
• Collections
• Payroll
• Reduction in your customer base
• Timely payables
• Inventory
It might be helpful if you consult your employees about issues they see in the company. Employees can often see where the disconnect is and will appreciate you taking the time to assist with their pain points.
We at the Factoring Alliance can assist you with cash flow to help with a number of the above issues. From making your payroll on time, to cash flow to keep up with inventory needs we can partner with you to help you grow you business. Please feel free to contact us about our services and products or email Kim@Funding4You.com.
As I posted yesterday, Factoring is a great short term solution to cash flow challenges that sometimes face business owners. There are a number of other products that we offer. Following you will find a brief outline of some other options. If you or someone you know is considering cash flow assistance for their business please feel free to contact our offices and we can discuss your alternatives.
Purchase Order Funding – funding to small businesses to fill their orders before an invoice is created.
Bridge Loans – short term loans of 6 – 8 months that provide time to secure long term financing options.
Vendor Assurance – helping small businesses qualify for credit terms from their vendors by paying their vendors directly; used in conjunction with factoring.
Start-up Loans – unsecured loans specifically for start-up businesses based on personal credit.
A business owner operated a successful business, but his credit score was too low to qualify for the SBA line of credit he needed. His banker referred him to us, as she thought we would be able to assist with his cash flow issues. She was correct. We were able to offer a short term solution by factoring his receivables.
The business owner signed a six-month factoring agreement as a bridge, to help his cash flow until his credit score improved. At the end of the six months, he will have the option to continue factoring or move to the SBA program, which will be a little less expensive.
He continued to have an excellent relationship with his banker, because she offered a solution to his problem, and she will eventually get his loan, once his credit score has been improved.
How was 2010 for you? Though we are just getting into 2011 now is the best time to start anew: fresh slate.
January always brings excitement for the new year and anticipation of great things to come. With the start of every new year we often set goals and make plans. No doubt, you have made a few New Year’s Resolutions for yourself and your business.
I recently read that over half of New Year’s resolutions are forgotten before the end of January – which is very discouraging. The author of the article suggested that we should break our resolutions into smaller, more attainable monthly goals.
For example, if your goal is to add 24 new clients this year, he suggests setting a monthly goal of adding 2 new clients each month. The idea is that smaller, more manageable goals, will, hopefully, help us stay focused and, eventually, help us reach our long-term goal.
In closing, the author also shared a few tips to help you keep your resolutions:
* Write your goals down.
* Set attainable and measurable goals.
* Set a date for each goal.
* Celebrate your success!
If cash flow is a concern in attaining some of your goals then we may be able to help. Please feel free to contact us if we can help you with your goals.
May 2011 bring you health, happiness, and prosperity!
Use ingenuity and your own resources to finance your business without debt.
By Kim Deveney
Entrepreneurs should not overlook bootstrap financing techniques before jumping into debt to raise money—whether their business is a start-up or an existing business that is expanding.
In business, bootstrapping means finding ways to finance your business yourself, without seeking outside financial assistance. Several bootstrap financing options are relatively inexpensive or free. Others are creative and allow you to put your assets to work for your business.
Office at Home
Operating your business from a home office, basement or garage could save a lot of money. It eliminates expensive rent and additional overhead; plus, you could be eligible for various tax deductions. This is especially cost effective in the early stages of a new business.
Accept Credit Cards
Accepting credit cards is an excellent way to improve cash flow and reduce the risk of bad debts–and, it’s a great benefit to your customers. In addition, customers sometimes buy more when paying with credit or debit cards as compared with cash. This option could improve cash flow and increase sales volume.
Customers
Your customers are valuable resources in many ways aside from the obvious. It is very common to ask customers or clients for a deposit, to charge retainers or require down payments to cover your out-of-pocket costs. Other ideas include selling memberships, subscriptions or gift certificates to get paid upfront.
Offer Discounts
Offer your customers a discount for quick payment. Review your profit margin and consider how much you are willing to discount your service or product for quick payment. The most common example is a 1-2 percent discount for payment within 10 to 15 days. This is an excellent way to improve cash flow and is a great benefit to your customers.
Barter
Exchange your goods or services with other businesses. For example, an accountant could prepare the year-end tax return for an IT business in exchange for a new Web site. Both businesses are trading their expertise without incurring out-of-pocket expense. Bartering is one of the oldest forms of commerce and is still a viable option in today’s marketplace.
Suppliers
Ask your suppliers for 30 to 60 day terms. They may be hesitant if you are a new business owner, until you have built a good payment history. If so, work hard to build a relationship and ask for terms after 6-12 months. If you currently have terms, ask for more competitive rates based on your creditworthiness. Many suppliers are agreeable to terms if you have a valid purchase order or contract ensuring payment within the terms.
Factoring
You can improve cash flow by selling your accounts receivable to a finance company, commonly know as a “factor.” Factoring companies will buy your receivables at a slight discount, providing your company with immediate cash. This option can be effective for businesses that have to wait 30, 45 or even 60 days for customer payment, but are concerned with payroll demands, taxes and other monthly expenses. With access to immediate cash, you can take advantage of supplier cash discounts, which will offset the cost of factoring.
As a new business owner, your supplier may require cash upon delivery. Many factoring companies offer a vendor assurance program. The factor will pay your supplier directly on your behalf, once you have delivered the product or service. As an added benefit, the factor can often help negotiate favorable terms with your vendor, which can offset the cost of financing.
Leasing
Free up cash by leasing equipment instead of buying it outright. Most leases provide 100 percent financing and allow you to roll in additional costs, such as installation, warranties, taxes and so on.
Close or Consolidate Locations
Have the demographics of the neighborhood changed, resulting in decreased sales? With more people everyday shopping online, it may be more profitable to eliminate a bricks-and-mortar site and increase your Web presence. Consider the savings from closing a physical location that is experiencing decreased foot traffic and increasing your Internet traffic.
Home Equity Loans
Homes equity lines of credit, second mortgages or cash-out refinances are relatively easy to qualify for, and the rates are often more competitive than traditional business loans. The disadvantage is that your home is used for collateral. If you are unable to repay the loan, you are putting your home at risk. Always get the support of your spouse or significant other before considering this financing option.
Bootstrap financing requires creativity and good financial management of your business. These techniques can help generate funds to start a business or grow an existing business without incurring unnecessary debt or racking up credit cards. Besides being one of the most inexpensive ways to grow your business, bootstrap financing also looks good to outside investors and lenders. Your business becomes more valuable because there is not a lot of debt and no ownership or equity has been given up.
Kim Deveney with The Factoring Alliance LLC, which provides factoring, purchase order funding, and various other working capital finance options to small businesses. You can reach her at (888) 493-3666 or kim@thefactoringalliance.com.