By Karlene Sinclair-Robinson
Over the years I have asked business owners, “What do you know of Factoring?” Many times the answer is “I have never heard of it”. For those who answered, “I know little about it”, this is for you, too. Factoring your small business receivables is when you sell your invoices. This is considered the sale of an asset at a discount.
This notion of sales has been around for ages. In today’s market, this not-traditional form of financing is keeping many businesses both large and small afloat. Understanding this concept of business financing can take some time. If your business operates without invoicing your clients and waiting to get paid, then this is not for you. For those businesses who allow their clients to pay them on terms, such as pay 30 days, then this could be for you.
Traditionally, most small business owners will go to their banks when they need to access capital. With today’s tight lending due to credit constraints, many of these small businesses are not able to get the necessary capital they need. Banks are unable to finance these business owners’ requests based on a number of reasons. Many will say banks are not lending but that is not really the case. It is the case that many entrepreneurs cannot qualify for traditional bank financing.
This is where factoring as a financing option can play a major role in your small business. If you are a government contractor or doing business-to-business transactions, this is one type of financing that can be beneficial to the growth or survival of your business.
Business Growth – During periods of explosive growth, businesses cannot sustain this increased demand for products and/or services without some outside help. Banks are often not able to facilitate such rapid growth. Here are some growth issues that factoring could solve:
o Increased Payroll
o Larger Purchase Orders
o Increased Production
o Opening New Markets
Business Survival – Surviving through down-times is important as your staying power will be tested. Being a savvy business owner will get you through these tough times. You can come out ahead if you identify these obstacles and the solutions to solving them:
o Pay Taxes
o Unexpected Expenses
o Payroll
o Credit Rating
Factoring your small business receivables gets money into your bank account in less time than it takes to wait 30, 60, or 90 days to get paid. Understanding the “Time Value of Money” will keep you in business. The sale of your invoices allows you to receive money much earlier than the time it takes your clients to pay their bills. On the other hand, your clients pay the invoices at the 30, 60 or more days.
With this financing concept, there are three (3) important factors to consider:
Creditworthy Clients – In order to make this financing option work for you, you must be doing business-to-business or business-to-government transactions. It is all about “Who is Guaranteeing Payment”. If your clients have good paying habits, even if your credit and company’s business credit is not high, it is vital that you are doing business with creditworthy clients.
The Advance – Is the initial upfront amount you receive from the funder. When you sell your business invoices (receivables) the financing source will advance this portion of the invoices. The advance rate could be as low as 60% to as high as 90% of the face value of invoice. This range is based on a number of factors but primarily the industry type plays a big role here.
The Reserve – Is the balance after the payout of the Advance. The financing source will await payment from your clients based on the factoring process. Once your client pays, the financing source will subtract their fees. They will then transfer to you the balance.
With the above information, determine if this non-traditional form of financing will work for you. If it is, do take advantage of factoring your invoices. Before you eliminate Factoring as a financing option, learn all you can, then you can make a sound decision.
Welcome
To all guest visiting this blog for the first time, I welcome you. This blog site will endeavor to post valuable and meaningful articles and information to guide you. It is my hope that you learn something of value from visiting Accessing Alternative Business Capital Blog. I look forward to reading your comments. Do not hesitate to contact me with your questions and thoughts.
"The Fear of Success is just as debilitating as the Fear of Failure. Do not let either one hold you back." ~Karlene Sinclair-Robinson
"The Fear of Success is just as debilitating as the Fear of Failure. Do not let either one hold you back." ~Karlene Sinclair-Robinson
Wednesday, July 27, 2011
Factoring Your Small Business Receivables
Friday, July 22, 2011
Diversifying Your Small Business – Part 1
By Karlene Sinclair-Robinson
Many entrepreneurs learned early on that diversifying their business was a key strategy to their success. Their current success hinged strongly on how well they were able to adapt and change with the shifting tide of the business world and what their clients demanded of them. Without diversification, many businesses can and will go bust.
Why Diversification Is an Important Factor to Consider in Today’s Business Arena
In today’s business arena, such things as personal development, consumer demands, technological and medical advancements, and many other changes are the driving forces behind the need for diversification. Without this concept of changing with the tide, many business owners will be left behind. The need to understand, and act on, what the industry advancements and the demands are is critical. This will determine your business success or failure. Finding solutions to the growing needs of our population and economy is a vital part of how well business owners can grow their business.
Knowing that these changes are required, a business owner cannot allow inflexible attitudes to immobilize them and keep them from using the path of diversification to move their business in the direction that is being demanded of them. Understanding the strengths and weaknesses of the business model can help to impact the necessary changes. This will allow business owners to seize the opportunities presented to them based on the changing needs of the economy and their customer’s buying power.
How to Implement the Concept of Diversification
Implementation of the diversification concept is based on the business, type of industry, current economical changes, customer demands, and the business owner’s ability to change with the tide. Addressing each area of change is vital to this principle of diversifying your small business.
* The Business – Diversifying any business today can be a daunting task. How you achieve this measure of change is important but successfully achieving this change is vital. Your success is dependent on the implementation strategies set forth to move the business in the right direction. You must adapt and change or the business will not succeed or be as successful as it could be.
* Type of Industry – The industry type for your small business is important to this concept of change. Identifying the changes within your industry will help your business if you can define a methodology to implement the changes. Take a look at the health care sector as an example. The Health Care Reform Act of 2010 has certainly brought about many changes to how businesses within this sector operate. If they do not adapt to these changes, many businesses end up closing their doors based on compliance issues, income redistribution, and their own inability to adapt and implement these changes.
* Current Economical Changes – Changes in the economy affect every business on a local, regional, national, and sometimes on a global level. Just think of dropping a stone into the ocean and watching the ripple effects. These changes bring about more demands for new products or services. Sometimes these changes encourage new industries or eliminate unadaptable businesses.
* Customer Demands – With the ‘Baby Boomer’ effects, and the coming age of the ‘Echo Boomers’, the demands being levied on businesses for new products and services has grown to an all time high. When a business or an industry cannot handle the demands or changes, this brings about a negative conclusion. Understanding market demands and shifts in the customer’s purchasing habits, will allow for growth in many sectors.
* Business Owner’s Ability to Change – If you are not willing to provide the products or services your clients need, they will go elsewhere. When you do not listen to your customers, they will know it. They decide where they spend their money and what they are willing to spend it on, regardless of the price point.
Diversifying your business does not mean you completely change your model. Being successful in today’s market indicates that you listened to your customers and took action. If you are unable or unwilling to adapt, it will impact your bottom-line.
This is a wake-up call to those small business owners who believe their customers will always buy what they have to sell. This is not the case. Start listening to your customers and implement the changes necessary to keep your business at its optimum cash flow level.
Many entrepreneurs learned early on that diversifying their business was a key strategy to their success. Their current success hinged strongly on how well they were able to adapt and change with the shifting tide of the business world and what their clients demanded of them. Without diversification, many businesses can and will go bust.
Why Diversification Is an Important Factor to Consider in Today’s Business Arena
In today’s business arena, such things as personal development, consumer demands, technological and medical advancements, and many other changes are the driving forces behind the need for diversification. Without this concept of changing with the tide, many business owners will be left behind. The need to understand, and act on, what the industry advancements and the demands are is critical. This will determine your business success or failure. Finding solutions to the growing needs of our population and economy is a vital part of how well business owners can grow their business.
Knowing that these changes are required, a business owner cannot allow inflexible attitudes to immobilize them and keep them from using the path of diversification to move their business in the direction that is being demanded of them. Understanding the strengths and weaknesses of the business model can help to impact the necessary changes. This will allow business owners to seize the opportunities presented to them based on the changing needs of the economy and their customer’s buying power.
How to Implement the Concept of Diversification
Implementation of the diversification concept is based on the business, type of industry, current economical changes, customer demands, and the business owner’s ability to change with the tide. Addressing each area of change is vital to this principle of diversifying your small business.
* The Business – Diversifying any business today can be a daunting task. How you achieve this measure of change is important but successfully achieving this change is vital. Your success is dependent on the implementation strategies set forth to move the business in the right direction. You must adapt and change or the business will not succeed or be as successful as it could be.
* Type of Industry – The industry type for your small business is important to this concept of change. Identifying the changes within your industry will help your business if you can define a methodology to implement the changes. Take a look at the health care sector as an example. The Health Care Reform Act of 2010 has certainly brought about many changes to how businesses within this sector operate. If they do not adapt to these changes, many businesses end up closing their doors based on compliance issues, income redistribution, and their own inability to adapt and implement these changes.
* Current Economical Changes – Changes in the economy affect every business on a local, regional, national, and sometimes on a global level. Just think of dropping a stone into the ocean and watching the ripple effects. These changes bring about more demands for new products or services. Sometimes these changes encourage new industries or eliminate unadaptable businesses.
* Customer Demands – With the ‘Baby Boomer’ effects, and the coming age of the ‘Echo Boomers’, the demands being levied on businesses for new products and services has grown to an all time high. When a business or an industry cannot handle the demands or changes, this brings about a negative conclusion. Understanding market demands and shifts in the customer’s purchasing habits, will allow for growth in many sectors.
* Business Owner’s Ability to Change – If you are not willing to provide the products or services your clients need, they will go elsewhere. When you do not listen to your customers, they will know it. They decide where they spend their money and what they are willing to spend it on, regardless of the price point.
Diversifying your business does not mean you completely change your model. Being successful in today’s market indicates that you listened to your customers and took action. If you are unable or unwilling to adapt, it will impact your bottom-line.
This is a wake-up call to those small business owners who believe their customers will always buy what they have to sell. This is not the case. Start listening to your customers and implement the changes necessary to keep your business at its optimum cash flow level.
Friday, July 1, 2011
Why Small Companies Are Taking Longer to Pay
Small business owners are taking longer to pay their bills.
Five major industries are seeing their average accounts-payable days rising, according to a new study from the Raleigh-based small-business research firm Sageworks. Taking an average 40 days to make a payment, manufacturing firms are delaying the most, while real-estate businesses, which were at 10 days in 2009, are now at nearly 20 days. For retailers, it took 24 days to pay last year, but now it’s more like 34 days.
Although the latest survey of small-business economic trends from the National Federation of Independent Business showed growing pessimism among entrepreneurs, the explanation that hard times are causing companies’ accounts payables to creep might not be entirely accurate.
So what’s behind the uptick in accounts-payable days? And is this trend good news or bad? Here are a few theories on what could be driving longer payment cycles:
Client payment slowdown. Major corporations that have small businesses as subcontractors are paying slower. Giant companies are sitting on a big wad of cash right now, and they’re not letting go of it easily. If clients take longer to pay, small businesses, which often function check to check, tend to pay their vendors slowly, too.
READ MORE…
Five major industries are seeing their average accounts-payable days rising, according to a new study from the Raleigh-based small-business research firm Sageworks. Taking an average 40 days to make a payment, manufacturing firms are delaying the most, while real-estate businesses, which were at 10 days in 2009, are now at nearly 20 days. For retailers, it took 24 days to pay last year, but now it’s more like 34 days.
Although the latest survey of small-business economic trends from the National Federation of Independent Business showed growing pessimism among entrepreneurs, the explanation that hard times are causing companies’ accounts payables to creep might not be entirely accurate.
So what’s behind the uptick in accounts-payable days? And is this trend good news or bad? Here are a few theories on what could be driving longer payment cycles:
Client payment slowdown. Major corporations that have small businesses as subcontractors are paying slower. Giant companies are sitting on a big wad of cash right now, and they’re not letting go of it easily. If clients take longer to pay, small businesses, which often function check to check, tend to pay their vendors slowly, too.
READ MORE…
SBA Patriot Express Loans Top $633 Million
Release Date: June 29, 2011
WASHINGTON – In just four years the U.S. Small Business Administration’s Patriot Express Pilot Loan Guarantee Initiative has provided more than $633 million in SBA-guaranteed loans to 7,650 veterans to start or expand their small businesses.
Patriot Express, a pilot loan product, with streamlined paperwork, and based on the agency’s SBA Express program, offers an enhanced guaranty and interest rate on loans to small businesses owned by veterans, reservists and their spouses.
“As Independence Day arrives it is only natural for us to reflect on America’s veterans – men and women who have the leadership skills and experience to become successful entrepreneurs and small business owners,” said SBA Administrator Karen Mills. “The impact of this program the last four years has meant thousands of veterans and their families have had the resources to pursue their dreams as entrepreneurs, and at the same time create jobs and drive economic growth at a critical time for our country.”
Patriot Express was launched June 28, 2007, to expand upon the more than $1 billion in loans SBA guarantees annually for veteran-owned businesses across all its loan programs. SBA also offers counseling assistance and procurement support each year to more than 200,000 veterans, service-disabled veterans, reservists and members of the National Guard and their spouses.
Patriot Express loans are offered by SBA’s network of participating lenders nationwide and feature one of SBA’s fastest turnaround times for loan approvals. Patriot Express loans are available for up to $500,000.
The Patriot Express loan can be used for most business purposes, including start-up, expansion, equipment purchases, working capital, inventory or business-occupied real-estate purchases. Local SBA district offices can provide lists of Patriot Express lenders in their areas. Details on the initiative can be found at www.sba.gov/patriotexpress.
To learn more about additional opportunities for veterans available through the SBA, please visit the website at www.sba.gov/vets.
WASHINGTON – In just four years the U.S. Small Business Administration’s Patriot Express Pilot Loan Guarantee Initiative has provided more than $633 million in SBA-guaranteed loans to 7,650 veterans to start or expand their small businesses.
Patriot Express, a pilot loan product, with streamlined paperwork, and based on the agency’s SBA Express program, offers an enhanced guaranty and interest rate on loans to small businesses owned by veterans, reservists and their spouses.
“As Independence Day arrives it is only natural for us to reflect on America’s veterans – men and women who have the leadership skills and experience to become successful entrepreneurs and small business owners,” said SBA Administrator Karen Mills. “The impact of this program the last four years has meant thousands of veterans and their families have had the resources to pursue their dreams as entrepreneurs, and at the same time create jobs and drive economic growth at a critical time for our country.”
Patriot Express was launched June 28, 2007, to expand upon the more than $1 billion in loans SBA guarantees annually for veteran-owned businesses across all its loan programs. SBA also offers counseling assistance and procurement support each year to more than 200,000 veterans, service-disabled veterans, reservists and members of the National Guard and their spouses.
Patriot Express loans are offered by SBA’s network of participating lenders nationwide and feature one of SBA’s fastest turnaround times for loan approvals. Patriot Express loans are available for up to $500,000.
The Patriot Express loan can be used for most business purposes, including start-up, expansion, equipment purchases, working capital, inventory or business-occupied real-estate purchases. Local SBA district offices can provide lists of Patriot Express lenders in their areas. Details on the initiative can be found at www.sba.gov/patriotexpress.
To learn more about additional opportunities for veterans available through the SBA, please visit the website at www.sba.gov/vets.
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Spank The Bank: The Guide to Alternative Business Financing
The Small Business Owner's Guide to Alternative Funding