Business Growth Friday - Comparing Funding Strategies

This is a textual version of components from the September 18 Business Growth Friday broadcast. The full show is archived for your listening pleasure at http://www.blogtalkradio.com/PeterPocklington

ATTITUDE OF GRATITUDE

Thank You to Richard Shapiro, Master Broker and Expert Coach, whose patience and generosity provided the learning envornment for so many of us.

Thank You to Kendall Summerhawk, the other half of the Shapiro-Summerhawk team, for her marketing wisdom and her patient generosity.

Thank You to Paul Pintarch, for agreeing to share his wisdom and experience on an upcoming Business Growth Friday broadcast.

COMPARING FUNDING STRATEGIES?

In our Business Growth Friday segments we have been considering two of the critical components for accelerating your business' growth - cash flow and information flow.

This week I came across a summary of a 2004 Wall Street Journal article that indicated that 62% of small business owners had cited managing cash flow as a top priority for them in order to take advantage of growth opportunities.

Of these 35% said that getting their customers to pay is their main concern, with a detailed breakdown of their concerns being:

• 35% - Accounts Receivable


• 6% - Meeting Payroll


• 11% - Tracking cashflow


• 22% - Having cash available to win new business


• 28% - Paying their bills on time.

As a result of these concerns, when asked what they would do

• 30% responded that they would delay purchases


• 24% were looking to get a line of credit


• 18% were looking to use their own credit card


• 10% were looking for short-term loans, and


• 6% were looking to lease instead of buy new equipment.

In short, growth delaying, risk increasing solutions.

I grant you that these numbers may be somewhat dated. While I do not have available to me the updates for 2008 - I would have to hypothesise that in today's risk-averse, credit crunch environment the situation has probbably gotten worse rather than better.

And this for small business - the life blood of our economy!

So for today's segment I thought I would consider and compare various funding strategies according to criteria that we have found pertinent to the business owner considering his financing options.

Consider first the traditional sources of funds - the places where businesses in need of cash most commonly turn.

Loans - The most commonly considered source of business capital is a bank loan.

The problem here is that most banks want to see at least two years of profitable tax returns before lending business money. Since it usually takes two to five years to see a profit this effectively shuts the door on new businesses for at least two years and more usually four.

By strange co-incidence this is also the time when businesses see their greatest growth.

Venture Capital - the next most common approach that is taken traditionally is to look for venture capital.

This essentially means selling a piece of your business in exchange for working capital - either through taking on a "silent" partner, taking on an active partner through any of the investor networks - through to going public and raising capital by selling stock.

So, in addition to the incurring of significant legal expenses - depending on the complexity - you are beginning to give up a piece of control of your business. The more successful you are the longer the interest someone will have in retaining their piece of control.

Also you will be incurring on-going expenses for external auditing and additional reporting requirements. All this takes time to acquire and get set up.

Grants and Gifts - our third source.

There are programs out there and I encourage business owners to use them where possible. Googling SBIR (Small Business Innovation Research) and STTR (Small Business Technology Transfer), for example, will take you to information on just a couple of the Federal R&D programs designed to increase private sector commercialization of technology.

However, you should be aware that the money can be difficult to get. THe grant proposals have to adhere to strict guidelines and it will take time, usually 6 to 12 months, for the funds to be released.

There are grants available from Private and Public Corporations. These require research and it might be worth your while to acquire the services of a business that specialises in this area to understand the situation more fully.

Of course, a gift is a gift and should be accepted gratefully where no strings are attached.

Asset-based lending.

Our final class of traditional lending is that of asset-based lending,most commonly lending against:

• Land and Buildings - a percentage of the appraised value of the property (so that will have been going down recently)


• Inventory or Finished Goods - typically bringing up to 50% of the wholesale value


• Raw Materials - possibly bringing in ten cents of the dollar, and


• Furniture, Fixtures and Equipment - which realistically has little value unless you have very large pieces of equipment that are owned free-and-clear.

That brings us to our friends from prior programs - available from the archives at www.blogtalkradio.com/PeterPocklington - The Alternative Financing Solutions

The most common of these being Factoring (a.k.a. Accounts Receivable Financing) and Purchase Order Funding.

The advantages of these being:

• they are debt-free - they are not a loan


• they grow as your business grows - so are virtually unlimited in scope, and


• they are based on the credit-worthiness of the businesses you are doing business with.

So they are particularly useful for young, growing businesses - both from the availability of cash they provide as well as the security of knowing you are doing business with creditworthy businesses.

So, in conclusion, by considering each of the strategies mentioned

• Equipment Leasing


• Going Public


• Obtaining Venture Capital


• Obtaining Bank Loans


• Taking on Private Investors


• Participating in a Government Program


• Alternative Financing via Factoring or Purchase Order Funding

and looking at them in regard to features such as

• Simplicity of the Application Process


• Time taken to fund


• Approval based on your creditworthiness


• Funding tied to sales


• Having to give up equity


• Having to give up control


• Whether the amount available to you is limited by the value of your Fixed Assets


• What the lender's requirement is of your profitability


• What type of on-going monitoring of your operations you can expect, and


• What impact it will have on your business overheads (will they increase or will they decrease?)

you will obtain a better picture and make your well-informed decision for your business' circumstances.

For a free report "Putting you in control of your cash flow" please feel free to contact me with your request to prp@m7enterprises.biz .

For now,

I am Peter Pocklington
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Contact me any time. My organization is built to help you help yourself by helping others.

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