Monthly Archives: March 2012

Inventory Loans

Inventory Loans Business Planning from The Startup Garage

Inventory Loans

Inventory loans, sometimes referred to as “flooring”, uses current inventory on hand as collateral to secure funding.  These loans often have better interest rates than other funding options because they are collateralized and provide the lending agency a more secure position.  These types of loans are useful for distributors and retailers that need inventory on hand for immediate sales and need more than 30 day terms to pay for the product.  Inventory loans allow businesses to increase their inventory, or take out a loan based on current inventory numbers.

Inventory loans are a good short-term funding source for growing businesses that maintain ready to sell inventory and aren’t able to secure traditional funding from their bank. Term lengths are typically one year or less, so a business must have regular turn-over of inventory in order to repay the loan on time.  This type of loan is not recommended for companies expecting to hold inventory for longer durations. 

 

Whether you have a question about Inventory Loans, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Purchase Order (PO) Financing

How to Define Your Target Market from The Startup Garage

Purchase Order (PO) Financing

Purchase Order Financing provides entrepreneurs a means of paying a supplier upfront when cash-reserves are not available to fulfill an order.  This type of funding is useful for growing companies who may secure a sale but lack sufficient funds to purchase the necessary supplies to fill the order.  In this case, a purchase order financing company will supply funds directly to the supplier, typically using a letter of credit. When the end buyers of the product pay the company, the company then re-pays the purchase order financing company for the cost of the material, plus additional fees.  Purchase order financing is sometimes thought of as a twist on factoring that has arose over the last few decades

Purchase order financing is particularly useful for wholesale companies that move product directly from supplier to buyer.  The duration of the loan is typically 30 days and companies typically charge interest on the loaned money at rates as high as 3.5%/month (annual rate equivalent of  more than 40%).  Historically, banks have offered some type of purchase order financing to their longstanding clients, though following the 2008 financial crisis they have become harder for business owners to secure through traditional bank lenders.

 

Whether you have a question about Purchase Order Financing, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Accounts Receivable Financing (Factoring)

Accounts Receivable Financing from The Startup Garage

Accounts Receivable Financing (Factoring)

Accounts Receivable Financing (also known as factoring) involves selling a company’s outstanding receivables to a third party factoring company for cash. With this type of financing, the third party owns the accounts receivable current asset and the right to collect on the invoices but also takes over the risk associated with customer non-payment. Unlike other financing options where invoices are used as collateral for a loan, factoring is not considered a loan but a selling of an asset.   Factoring can be a good source of funding when there are short-term cash flow needs and a large amount of product which has been sold, but the money has not been collected. In many cases this includes “turnaround” firms or rapid growth firms. An added advantage of this type of financing is that the financing decisions rely on the creditworthiness of the debtors, rather than the person credit of the company owner. This makes factoring a good alternative for companies which lack the credit needed to secure other types of financing.

The resulting cost of financing in this case can be expensive as third party companies typically ask for a percentage of the value of the outstanding invoiced based on total amount and average due date.

Fees charged by factoring companies often amount to paying a much higher rate than other more standard forms of financing, but can be good option if a company has exhausted other potential funding avenues and needs cash quickly or has significant variation in cash flow throughout the year.  Factoring is also often used by companies in which cash on hand to invest in the growth of their company significantly outweighs the cost associated with fees and discounts from factoring.  In some cases, the invoices are paid on an advance of 70-85% of the original purchase price paid out immediately.  The remainder, after the deduction of the factor company’s negotiated fee, is paid at the time the company successfully collects on the invoice.

Factoring in Exporting 

Factoring is also often seen in the export market, where companies shipping products overseas look to sell their receivable to a factoring company who in turn mitigates the risk associated with non-payment, helps assess creditworthiness of the international buyer, and establishes lines of credit.  This also eliminates the need for letters of credit for international transactions.

 

Whether you have a question about Accounts Receivable, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Dip into Personal Accounts

Funding with Personal Assets from The Startup Garage

Dip into Personal Accounts

There are already accounts in your life that are accumulating money that could be used toward investment in your business. Although it is usually frowned upon to touch these accounts, the money in your 401k, IRA, Securities, SEP, and life insurance policies are still yours and can be taken out if needed.

We recommend that before touching any of these special accounts, that you consult a professional. This can be your lawyer, accountant, tax or bank advisor. They will help you to decide which accounts to dip into to avoid the largest penalties or consequences and help set you up on a financial path that helps finance your new business.
 

Whether you have a question about Personal Accounts, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Overview on Existing Business Source of Funding

Business Funding Overview from The Startup Garage

Overview on Existing Business Source of Funding

When traditional types of debt or equity financing aren’t available, businesses can sometimes look within their own operation to find sources of funding.  Typically this type of funding is available for established businesses currently in operation and looking to expand, as opposed to start-up companies looking for funding to get up and running.

A look within the company financials show potential funding opportunities related to accounts receivables, purchase orders, inventory, and monthly income.  Each of these areas within the business offers a potential avenue for securing funds different from the traditional debt and equity models of funding.

Factoring allows a company to sell their outstanding invoices to a third party in order to receive immediate cash. Purchase order financing provides a means of financing for companies that have customer orders but lack the capital required to purchase the necessary supplies to fill the order. Inventory loans allow companies to secure funding based on current inventory or inventory purchases which can be used as collateral.  And finally, Revenue-Based financing, a unique hybrid between debt and equity financing, allows owners to sell a portion of their future revenue stream while retaining full ownership of the company.

Company expansion also often relies on the purchase of new equipment to stay competitive and gain efficiencies.  Companies looking to make these types of expansion purchases may be able to capitalize on equipment financing options.

 

Whether you have a question about Existing Business Funding, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Investment Groups and Club

Investment Groups and Clubs from The Startup Garage

Investment Groups and Club

An investment club is a group of individual investors who pool their money together to make investments. Typically local, these groups meet regularly to share investing experiences, learn from one another, and make joint decisions in portfolio investing based off of majority vote. These clubs are great ways to meet other business owners, create friends, and make money from your stock investments.

To find an investment club near you:

1)       Do an online search for your city

2)       Look at classified ads in the newspaper

3)       Check out The National Association of Investors Corporation, the number one authority on US investing clubs

4)       Check out The World Federation of Investors, an international community of investment clubs

Whether you have a question about Investment Groups and Clubs, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Maintaining Traditional Customer Service Values Alongside Social Media

Social Media Customer Service from The Startup Garage

Maintaining Traditional Customer Service Values Alongside Social Media

The rise of social media in the world of business, small or large, has changed client to customer relations forever. With platforms like twitter, facebook, linkedin, and tumblr, it is becoming increasingly harder to juggle and manage feedback to your customers due the viral nature of social media. The question becomes, what platform gets prioritized? Is it the customer who left the traditional voicemail to the office, or the customer who asked a question to the company via facebook? We read a great article over at Mashable that highlighted some key factors to think about when trying to balance traditional customer service techniques in this new social media age. Some of the direct takeaways:

  • Know inside and out who your customers are
  • Evaluate how urgent the inquiry really is
  • Social media service instantly reflects on your
  • Don’t ignore traditional channels because you’ve become focused on social media
  • Monitor your social media metrics
  • Bottom Line: Adapt and Evolve

Read the full article at Mashable.

 

Whether you have a question about Traditional Customer Service and Social Media, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Work Part-Time and Offer Consulting

Part-time Contract Work from The Startup Garage

Work Part-Time and Offer Consulting

Work Part-Time

Although time will be tight when starting a new business, money will be even tighter. It’s not an ideal situation due to the time and energy juggling, but sometimes picking up extra part time work can provide you with enough cash flow to keep you going. Entrepreneurs are admired for their constant drive and enthusiasm to what whatever it takes to get their business off the ground.

It would be smart if you could find work in the industry you want to start your business in. By finding a complimentary job, you can learn skills and jumpstart ideas from your daily routine that can be applied at your own company. You can also meet people that may have connections that will help you later on in your career – connections to legal advice, web designers, and office supply rentals. If you can build good relationships with your coworkers, they will be far more inclined to help you when your business launches with connections, or even by being your first customers. However, be discreet and conduct yourself with integrity at work; it would be completely unprofessional and embarrassing to get caught using office resources like printers for your business flyers while you are at work.

Many companies can generate extra cash by offering consulting services to other firms. Being an expert in your field, you can use your knowledge to help other struggling small businesses owners through a small fee that you can flip and instead use towards your own efforts.

Besides the obvious extra cash flow, added benefits include learning first-hand what customer needs and desires are. This new knowledge can help to improve your product as well as allow you to create new relationships and networks with other business owners.
 

Whether you have a question about Part-time work and Consulting, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Using Sponsors and Advertising to Finance your Business

Advertising and Sponsorships for Funding from The Startup Garage

Using Sponsors and Advertising to Finance your Business

Sponsors and advertising are a good means of generating additional revenue for companies in need of cash.  This option is particularly popular for internet companies with available space on their websites.  The amount the sponsorship can be sold for is highly dependent on the market reach of your company – that is the number of people likely to see and respond to the advertisement. Highly trafficked website sites are valuable to sponsors given the number of potential views and the ease with which the potential customer can be directed to the sponsor’s website.

Companies can also sell physical advertising and sponsorships space on company property or company produced materials, such as a building, flyers, or placemats.  Securing advertisers or sponsorships typically involves marketing directly to potential sponsors. Having market statistics, including search engine traffic and monthly viewing statistics, are essential in getting sponsors on board and negotiating a good price.  An appropriate sponsor for your company offers a related product, but the product should not be in direct or indirect competition with your own product.  Do your research to find and approach potential sponsors you believe may be a good fit and approach them directly.

 

Whether you have a question about using Sponsors and Advertising for Financing, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Partner Equity Investment and Direct Public Offering DPO

Partner Equity and Direct Public Offering from The Startup Garage

Partner Equity Investment and Direct Public Offering DPO

Using equity as collateral for funds and labor is a simple method to assist your financing efforts.

Partner Equity Investment

By having a partner invest and buy equity in your company, the responsibility of the business’ success is now a shared and joint effort. It is often a concern that bringing in a partner means losing control over the business, especially if your partner provides enough capital to outweigh your share of the company. In some effort to relieve this concern, many companies attempt “sweat equity” trials before fully signing on a partner. With sweat equity, a person will work for your company providing their time and labor, not their money. In return, they receive small portions of equity to the company. By using this method, you can add value to your company with the projects completed as well as test the loyalty and dedication of your potential partner. When all is said and done, if you partner passes all your tests, let them write you check for the rest of the shares you are willing to sell and congratulate them on their new partner position.

Direct Public Offering

A direct public offering (DPO) is a means of raising capital by selling equity shares of the company directly to individuals including customers, employees, vendors and other community members. There is no prerequisite size or profit numbers a company must have for a DPO, though these numbers will likely influence the company’s ability to secure investors and the amount of capital it can raise.

Unlike an Initial Public Offering (IPO), a DPO does not require the use of an investment firm or broker-dealer, is less restrictive, and much less expensive. Because DPO’s market to people more personally familiar with the company, the shareholders tend to have more company loyalty. The downside is that DPOs do not generate as much initial investment because they must market direct, without the help of professional financiers.

DPOs are a good option for businesses that aren’t able to secure representation from a traditional investment banking firm for an IPO or want more control over their mix of shareholders and company decisions.  A DPO can cost between $50,000 and $100,000 and take from 6 months to a year to be completed.  To file a DPO, a company must have both internal and audited financial statements and must file with the Securities and Exchange Commission.  Private firms specializing in DPOs can assist with the paperwork and ensuring compliance with regulations associated with DPOs.

Whether you have a question about Equity Investment and Direct Public Offering, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!