Small Business Funding Alternatives

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HOW DID YOU LEARN ABOUT ALL THE DIFFERENT FUNDING OPTIONS AVAILABLE TO PEOPLE EVEN AFTER BANKS TURN THEM DOWN FOR A LOAN?
 
Through hours of study and a training course with the American Cash Flow Association as well as working with a Mentor for the first two years. 

And, it’s been interesting for me to learn that MBA graduates and students and others in the financial services realm you would think would be very knowledgeable about the options available in the cash flow industry for the funding needs of small businesses are not aware of these tools at all (or very little).  Or, they do not give enough import to these options (if they are aware of them) which are so desperately needed by small businesses.  The tools of the cash flow industry seem to be glossed over and not really acknowledged as the option they are. 

For instance, I met with an MBA student (Electrical engineer) who was in her last semester before getting her MBA and she happened to have a class on our funding options that semester and a homework assignment on them the same weekend we met and talked.  So, she told me, “thank you very much!” and took my literature and flyers I brought to our meeting and used to complete her homework assignment!
 
WHO ARE YOUR CLIENTS?

Almost any business that has a piece of paper to leverage.  Construction is sometimes difficult because of retainage fees but it can be done too – by companies that specialize in construction. 

Some examples, though, are:

Medical facilities of all sorts
Manufacturing
Service industries of all types – staffing agencies, trucking, fabricating, engineering, printing, import, export and the list goes on and on…
  
IN YOUR YEARS OF EXPERIENCE, WHAT OBSERVATIONS CAN YOU MAKE ABOUT SMALL BUSINESSES ON THE THRESHOLD OF GROWTH?

I would say that I have observed that oftentimes they are afraid to go for the larger clients and faster growth because of fear of the resultant cash flow issues.  But – that need not be the case! 

Now, the small business owner can do just that and know that the tools offered in the cash flow industry can assist them in accomplishing faster, more rapid growth!  It all goes back to educating and making people “aware” of the options available to them. 

But this, too, is one of the many reasons I love this business I have found!  I like being able to help people and when I can do that and myself in the process, I call that a win/win situation!

WHAT IS THE CASH FLOW INDUSTRY ALL ABOUT AND HOW CAN IT HELP?
 
In a nutshell, it’s about leveraging a businesses “liquid” assets to  self-finance it’s own growth and expansion without incurring debt or giving up equity in the business.  It looks good on the balance sheet  because it is not a “loan” per se but a “sale” of a liquid asset of the business.

The asset-based lending industry is what I call a close cousin to the cash flow industry in that it is more often an actual loan with liquid assets as collateral.
 
WHAT IS THE MOST IMPORTANT PIECE OF ADVICE YOU WOULD LIKE TO GIVE OUR LISTENERS? 
 
Well, at the risk of sounding like I’m promoting myself –  but I think if your listeners agree about cash flow being such an important issue for small business owners – my most important piece of advice would be…..
 
If you have cash flow issues and your traditional funding sources haven’t  been able to help, check with a cash flow consultant — whether that be me or some other cash flow consultant. 

And, I don’t say a funding company that does the actual funding (for example, factoring of accounts receivable), but a “cash flow consultant”, in particular, because there are soooooo many different funding niches/sources in the cash flow industry that a business owner can get lost in it  as easily as in the traditional funding arena.  The cash flow industry  is very, very niche  oriented and that is where a cash flow consultant’s expertise comes into  play — to assess the business owners needs and direct them to the  appropriate funder and save them time and effort and let them do what they  do best…..run their business without worrying about cash flow issues!

So, whether it be me or some other cash flow professional, be sure to check out the funding tools in our industry to supplement the fulfillment of your funding and cash flow needs!
 

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Tags: cash, cash flow, factoring, funding, interest, small business

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Modern-Day Factoring – How it Works

The Vendor submits a particular customer for pre-approval of the factoring of their invoices. 

 Once pre-approved: 

• The Vendor performs a service or delivers a product and has issued the invoice to its client (account debtor) which has signed off on the invoice.

•  A copy of the invoice is faxed to factoring company and the original is overnighted so that the factoring company can begin working right away.

• Upon receipt of the signed original, the factoring company will wire transfer 70 to 80% of the face amount of the invoice into the Vendor’s bank account — generally within 24 to 48 hours.  (70% for construction and 80% for most others.)

•  The factoring company will send the original invoice and an Authorization Letter to the Vendor’s customer advising them that the invoice payment should simply be redirected to the address given.

•  When payment is received by the factoring company, the Vendor is sent the remaining 20 or 30% balance less the factoring fee which is based on the amount of time the invoice takes to pay and was previously agreed upon and acknowledged by the factoring company and Vendor.

 What Modern-Day Factoring does NOT do: 

• It does NOT change the payment terms of the Vendor with its customer.  The Vendor’s Customer does not need to pay any faster and the name on the check stays the same.  The address to which the payment is mailed is all that changes.
• It does NOT change the day-to-day contact between the Vendor and its customer

• It does NOT work as a collection agent.  Even though the Vendor’s customer will be sending payment to the factoring company, the factoring company will not be calling it to collect payment.  If payment is not remitted for some reason, the factoring company will work with the Vendor to reclaim the funds.

 General Advantages: 

• No long-term contracts
• No financials required
• Flexible
• Access to prompt funding
• Fuel for the fast-growing Company 

Now let’s look at an example:

From Bibby Financial:

“Staffing Firm Employs The Right Solution

Founded in 1993, Prime Staff is a fast growing staffing consultancy that provides temporary staff for the construction, industrial, engineering and commercial sectors.

Prime Staff found that the inherent challenges experienced by the staffing industry are often exaggerated by the banks’ inflexibility to provide the higher levels of funding required by firms operating in the high value temporary market.

Prime Staff’s Managing Director, Danny McIntyre explains, “Cash flow is always a major strategic challenge for staffing companies. We pay our temporary workers weekly and also invoice our customers weekly. However, we often have to wait 30 days for payment, so cash flow problems are inevitable.

“We looked at a number of finance options before our accountants recommended receivables funding. Bibby Financial Services impressed us with their commercial awareness and understanding of our industry and we opted for a receivables funding facility. This facility releases up to 85 per cent of the value of our invoices as they are raised, giving us an ongoing supply of cash linked to our sales. They then chase up the outstanding amounts from our customers, paying us the balance of the invoice less their service fee.” 

The benefits of receivables funding within the staffing industry are profound. It has allowed Prime Staff to take on a greater number of contracts with more staff placed because it enables them to pay their temporary staff. The collection service allows the company to focus on its core skill of placing people in jobs while Bibby ensures that payment is received.

Danny adds, “Receivables funding is now incorporated into Prime Staff’s long-term business strategy. Our relationship with Bibby Financial Services has allowed us to develop plans for the future which include the launch of three new offices, and to double turnover in the next three years. Bibby Financial Services are fully supportive of our plans to expand and we are on target to meet our goals.” 

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Tags: access, cash, cash poor, fast-growing company

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So they can go fishing and catch an 844 pound shark!

No, seriously, they sell them for 3 reasons:

• 1. Access to their cash!
  • Sometimes there is a serious need (i.e. pay off credit cards, medical bills, or for a divorce settlement or retirement). 
  • Other times, there is simply a desire to .. purchase a dream home, take a vacation, buy a new car, start a business or put money into someone else’s venture.
  • And, then, in other instances people just want access to their cash for peace of mind. They don’t want to worry about liquidity issues, collection worries, or the finances of the person who owes them the debt.
• 2. Yield/Interest
  • People also sell because they know that with cash in hand today, they can start earning interest or yield. They will oftentimes even sell their income stream for less than face value so that they can begin earning a yield.
• 3. Inflation
  • Lastly, people realize that over time, the payments they receive today will drop in real value.

So, on the other hand, Why do people BUY income streams?

Buying future payments is a very profitable form of investing.

When investors buy future income streams, they do not pay face value and this equates to a high yield on their investment. Also, a nice perk with this type of investment is that they (usually) know in advance EXACTLY what that yield will be (provided the payments come in on time or are not contingency-based).  If they are contingency-based, as in the Cubs example below, this would be factored into the offer by the investor.

Buying income streams is very attractive to investors because it gives them the opportunity to invest their money profitably and relatively securely.

Check out the story on the sale of the Boston Cubs and the income stream their owner is selling.  Here’s a short excerpt:

“Whether Wrigley Field will be sold with the Cubs or separately is unknown. The neighborhood park with its ivy-covered walls is as much part of Cubs tradition as any player in the team’s history.

Donald Levin, the owner of the successful Chicago Wolves minor league hockey team, ticked off the questions surrounding the ballpark.

‘Do you own the field? Do you have to be out in case they renovate? Where are you going to play? What happens to all the income?’ said Levin, who is expected to make a bid for the Cubs. ‘These are more important evaluation questions than the contracts.’

Howard, the Oregon business professor, said an owner typically wants to control the venue where their team plays.

‘If you are paying that kind of money you want to be able to claim and control all income streams it will throw off,’ he said.” (Emphasis added.)

Perhaps the Cubs owner is tired of all the hassles that goes with running a major league club and, as noted above, would prefer to take a vacation and relax.  Sure, he will make a lot of money on the sale, but I imagine it will be far less than what he could make from the various income streams, tax credits and other benefits he would receive as the owner.

Suffice it to say, there will always be income streams available for purchase and investors will always be ready and willing to purchase them and hopefully I have been able to fill in some of the picture as to why that is so.

Until next post….Be Safe.. Debra

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Tags: access, cash, inflation, interest, yield

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