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
I am a Good News Merchant
I am a purveyor of prosperity, and
I am my own personal guarantee.

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

Thank you, thank you, thank you for listening

Invest in yourself, YOU ARE SO WORTH IT.

Is your business cashflow clogged. Thinking of banks, venture capital? ... There is another way!

Historically, when businesses are in need of cash they have turned to traditional funding sources. The most common of which being a bank loan or line of credit. Many otherwise viable companies are, however, turned down by conventional lenders due to their limited credit history, lack of personal or corporate net worth, excessive outstanding debt or their assets being encumbered by liens. This is especially true in their first four years of business, which is, coincidentally, their time of greatest growth.

When these newer businesses must seek other financing, the next most common option is the search for venture capital. This may be as simple as taking on a silent partner, or locating an active partner through so-called ‘Angel Capital’ networks. In this case the owner is selling a piece of their business and their control in exchange for working capital.

Both the use of banks and of venture capitalists create debt and involve a decision process that is based on the companies credit-worthiness and can take anywhere from 60 to 180 days to secure funding, during which the owners’ focus may be taken away from their core business.

The good news is that the above-mentioned funding sources are not the only options. There is another way. Record numbers of fast growing companies are turning to funding sources offering alternative programs to solve critical cash flow problems, problems that can effect or prevent contract execution, business and/or facilities expansion, meeting payroll, taking advantage of cash discounts on purchases and even for acquisitions.

One example of such a program is the selling of a company’s interest in invoices to a private funding source at a discount, which is known as a factoring. Factoring’s roots are in the garment and textile industries, however, since the 1990s there has been a rapid growth in such factoring companies – resulting in increased price competition and making this form of increasing working capital efficiency available to small to medium sized businesses in nearly all industries that may not qualify for traditional loans or grants.

The most important aspect of this method of financing is that the credit criteria are based not on the company’s ability to pay but instead on the credit worthiness of their clients. Through the utilization of this method of financing these businesses can compete for large contracts and business that might otherwise have been beyond their reach.

Consider, for example, the case of a manufacturing company purchasing the raw materials for production on a just-in-time basis. Its sales department is rapidly increasing orders, the manufacturing division is cranking out the product and the freight handler is delivering the orders on time. If the customers, however, are not paying in a timely manner, this will result in a large portion, if not all, of the cash flow being tied up in receivables and therefore limiting growth.

In cases such as this, the businesses are turned down by traditional lenders due to their lack of lienable hard assets and they find themselves searching for the funds needed to continue their growth.

By using the services of a factor they can get what amounts to a continuously expanding line of credit, continue to take on and fill orders, and expand as planned. By combining their bank line of credit with this factoring line of credit, a business can be optimally positioned to take advantage of opportunities that present themselves in their marketplace and therefore accelerate their growth.

If you know a business that is experiencing clogged cash flow call me at 610-781-2392 or email prp@m7enterprises.biz because adding value is what we do.