Comments (0)

Invoice Financing - Small Business Working Capital

In our last post on Small Business Working Capital, we talked about how small companies can create financial assets like accounts receivables and then use them to secure working capital to finance their operating cycles. Now, let dive into the details with a brief overview and some examples:

When a small business (or any business) creates an invoice to it customers, it can either get paid right away or over some future time like 30, 60, 90 or more days. Now, delaying payment from customers can place some small businesses in a financial bind because while their customers can delay payments to them – the business itself cannot delay items like payroll, utilities, rent, interest, etc.- items that have to be paid now.

In steps in an accounts receivable or invoice factor.

The factor (a financing company) can purchase those invoices – either one at a time (one-off) or the business’s whole set of invoices.

The factor, on average will pay up to 80% of the face amount of the invoice. For example, your business has a single or set of invoices that total $100,000 (future payments from customers). The factor will purchase the invoice(s) for 80% or $80,000 – giving the business needed working capital to push back into the company to cover immediate expenses start the next job(s) or expand the business.

The remaining 20% is retained by the factor until your customer(s) actually pay. This is in part insurance for the factor. When your customer(s) does pay – the factor will remit the remaining 20% to your company less any factoring fees.

Fees:

Read More ...

 Comments (0)

Financing Small Business Working Capital – Accounts Receivable Factoring

So far, in our Financing Small Business Working Capital series, we have looked at the definition of working capital, its effects on a business’s operating cycle and how it can help or hurt your growing business.

Now, let’s look at some of the ways that small businesses can get the working capital they need to continue to properly grow their companies.

Most small businesses, in the course of their operations, create some type of financial asset. A financial asset is essential a business asset that creates a future cash event – like accounts receivables.

Now, since this asset is a future cash event, that usually means that the business has already realized some expenses in creating that asset and still has to wait to collect the revenue from it – revenue that can be used to cover those direct expenses, as well as other business expenses and overhead, and provide the company needed working capital to begin the process of completing other jobs or creating the next financial asset.

Well, these financial assets – these future cash events – can be used to finance needed capital (money) to continue the operations of the business.

And, unlike traditional business loans that look at overall business cash flow, collateral and credit, these financial assets have all of that combined in them – thus making them the only needed requirement to secure outside working capital.

Let’s again look at a typical business’s operating cycle:

Read More ...

 Comments (0)

Financing Small Business Working Capital – Working Capital Management

Last week, we discussed the need for working capital in small business. Now, let’s look at why it is important and how it can make or break your business.

The Benefits:

Having enough working capital or at least access to it allows businesses (all businesses) to operate. Let’s say that your manufacturing business get a new order that will require your business to purchase needed raw materials to complete.

If your business does not have the capital on hand to purchase those materials, it would have to turn down that job. A job that could bring profits into the business to pay employees, cover administration costs like rent and utilities and allow the business to grow.

Or, your retail business (online or not) that needs to purchase the latest fad products. If you don’t have the capital to purchase those products for resell – your small business will not be able to stock its shelves with the products that your customers (current and future) demand.

There is always a delay between doing business (manufacturing products or stocking shelves) and actually getting revenue for that work. This is termed the operating cycle and working capital is the means of financing that operating cycle.

Without proper working capital a business’s operating cycle grinds to halt and the business can no longer operate. Thus, the important of managing your business’s working capital.

The Harm:

Read More ...

 Comments (0)

Financing Small Business Working Capital – The Need For Capital

Last week, in our post - What is Working Capital? - we looked at the definition of working capital in small businesses from its proper definition to its actual use in small firms.

Now, let’s solidify this with a few examples:

Working capital is essentially the flow of funds through a business’s operations – allowing the company the capital, and more importantly, the time it needs to take raw goods or inventory and convert them into cash either through the resale of these goods (inventory in a retail store) or the conversion of raw materials into finished goods and sale of those finished goods (manufacturing).

Example 1 – Retail Businesses:

Let’s say that you are a small retailer that buys inventory at wholesale and resells those goods to local customers at retail prices (for a profit).

Your business has four buying and selling seasons – related to the weather seasons of winter, spring, summer and fall.

Each selling season last for about 3 months – meaning that your business has to buy enough good to sell during that time and then actually sell those goods before the next season.

Read More ...

 Comments (0)

Crowdfunding – From The Investing Side

With the new JOBS Act now on the books, many small businesses have a new opportunity to raise needed capital for growth, expansion, and hopefully hiring.

Our last blog focused on some of the rules that these small businesses will have to follow in order to raise that needed capital – like how much they can raise year-to-year, what and when they have to report to investors and when they can actually collect their funds.

Now, let’s look at the other side – that from the potential investors in these small businesses:

Most of the rules regarding who can invest (who can crowdfund) and how much they can invest are meant to protect these investors – part from themselves (getting caught up in the hype without substance) and part from unscrupulous individuals or companies who may just simply be taking advantage of this situation and these investors and running off with their money.

Crowdfunding – From The Investor Side

The new rules allow for the following:

Read More ...