Even as many businesses are pulling out of the recession, commercial capital is still difficult to obtain, yet the need for capital abounds.  This is why more companies than ever are turning to factoring as their funding method. Last year domestic companies factored over a hundred billion dollars.  Despite its abundant use today as a successful means of solving cash-flow problems, many companies still view factoring as a last-gasp effort by a business in financial distress. 

Sure, in the past, factoring was used by struggling companies. But now, many businesses use factoring as an anticipation of healthy cash flow and revenues.  Nonetheless, according to Scott Winicour, COO of Gibraltar Business Capital, pessimistic connotations are still associated with factoring for two main reasons: cost and customer perception. However, if you dive into both issues, you can see that in today’s unpredictable economy, factoring should no longer be considered the “F-word” of funding choices. 

Cost:
Factoring has had the reputation in the past as being overly expensive.  However, because of supply and demand, the reality is factoring costs have been on a steady decline since 2008.  There really is an abundance of capital that would like to be working in the market, so today there are more factoring companies than ever before.  This plentiful supply of factoring companies means lower costs as they compete for customers. In addition, the marketplace has become more efficient, allowing prices associated with factoring to be driven down. 

Customer perception: 
Since the process of factoring generally requires that a business’s customer pays the factoring company directly, a business may worry that its reputation may be tarnished if its customers learn that it is factoring. The perception is that if a business has to sell its accounts receivable, it is financially stressed. While that may be true in some cases, most often it is not. In fact, big box retailers, including Wal-Mart and Home Depot, have staff dedicated to working directly with their suppliers’ factoring company. They know that suppliers are able to produce more finished goods when they can more quickly buy raw materials.  
 
In addition, some factoring companies offer a confidential arrangement in that the customer is not notified of the sale of the receivable and the business collects the receivable on behalf of the factor. This is more common in places like the UK, but some US factoring companies are also trying the arrangement.


Despite the common misconceptions about factoring, it can provide a useful means of securing needed capital for thriving businesses.

There  is a variation of factoring which in many cases provides a business with much  needed cash flow, when the company would otherwise not be able to get financing. With this “borrowing base” factoring product, we aggregate all of your invoices to give you a line of  credit based on the total amount of invoices you have outstanding. This becomes  your “borrowing base.” It’s the same concept as borrowing from a bank, but our
method gives you immediate access to daily cash flow, plus the flexibility and  cost controls linked to the size and timing of your advance. With our borrowing  base factoring, you …

*Decide how much cash we advance you
*Decide when we advance it to you
*Pay a one-time discount fee on your advance and an interest charge at the end of each month based on your average cash outstanding
 
Additionally, we do not verify like traditional factors. Instead, we periodically call a select handful of customers to confirm receipt of product or service and  customer satisfaction. Rather than verifying every invoice before paying, our quality-assurance program allows you to receive same-day funding, each and every
day. Our quality controls also help you pinpoint early on any potential problems with your product or service, allowing you to resolve issues proactively with your customer.

The decision to factor involves many criteria but the choice on how to factor is clear. Borrowing base factoring gives you the flexibility, security and speed you need to boost business.

Are you or do you know a business with low cash flow but high receivables, or a client denied by a bank, asset based lender or private equity source? Contact us  today to learn more about why borrowing base factoring could be a smart solution for your cash-flow needs.

Most Certified Development Companies (CDCs) who provide the Small Business Administration (SBA) 504 second mortgage loan programs are open, despite the government shutdown.  The SBA 504 loan rates for October are as follows:

*  20-year fixed rate:  5.451%

Even though rates are inching upwards, it is still very affordable financing.

If you are concerned that that the government shutdown is going to affect business financing, you aren't alone. In the last 2 years, the Small Business Administration (SBA) loan volume was at record levels.  With the government shutdown, SBA loans will come to a screeching halt as the government agency is on furlough.   However, don't be dismayed because nowadays there are so many more funding options for small business than just SBA loans.  Here are some options that don't require the government for financing:

Starting October 1, any business generating $500,000 or more in annual revenue and having at least one employee must notify all of its employees by letter about the Affordable Care Act’s health care exchanges, or contend with fines of up to $100 per day.
   
This rule applies to any company regulated by the Fair Labor Standards Act. There is no exception based on the company’s size.
  
Who will enforce the fines? That duty may fall to the Small Business Administration. If not the SBA, perhaps the Department of Labor will do it. When FOX Business posed the question to White House officials earlier this month, they declined comment.
 
What about new hires after October 1? The DoL gives you 14 days to notify them by letter – 14 days from the day they start working for you.
  
Is there a sample letter you can download & modify? Yes, there is. The Department of Labor offers two such letters on its website.

For employers that offer insurance:
dol.gov/ebsa/pdf/FLSAwithplans.pdf
 
For employers that don’t offer insurance: dol.gov/ebsa/pdf/FLSAwithoutplans.pdf

These are multipage DoL notices, and you can fill them out, print them out, and either mail them to employees at home or distribute them (as physical letters) in the office. Part A (page 1) provides basic information about the exchanges. Part B (the other 1-2 pages) provides details about the health plan you offer, or basics like the EIN and contact info for your business if you don’t sponsor a health plan. Remember:  your deadline is October 1, 2013.
This information is courtesy of Laura Warrnock Carrera  at Carrera and Company   www.CarreraCompany.com

If you are seeking financing, please read this carefully...it's that important.

There are two types of entrepreneurs that prepare
financial projections: 1) the "visionary entrepreneur" who considers financial projections silly, so he makes up numbers that look good in order to get financing; 2) the "intense entrepreneur" who develops a 1200 by 2000 cell spreadsheet that includes the number of software licenses she needs to buy over the five period.

If you are like first type of entrepreneur, you are in
danger that the funder won't trust your projections because they are “too good” to be true.  This type of entrepreneur often distances investors and lenders because of his casual attitude. However, if you are the second type of entrepreneur, you run the risk that the funder will think that you actually believe your projections.

Entrepreneurs must remember that there is only one type of funder: a person who doesn't believe your financial projections, whatever they are.  So, what is an entrepreneur to do?

The reason for financial projections is to inform the lender or investor about an opportunity using numbers to create the story.  Financial projections outline the resource requirements, market forces, growth potential, milestone achievements, and profits. Financial projections create a numerical structure that complements and supports the dream you've painted with words in the business plan.

The funder doesn’t really care about the precision of the numbers.  He or she just wants to know what the numbers say about the economics of your business, and what they say about your understanding of your business. The goal is to tell a realistic and credible, as well as exciting, story about what your business could become.

To be realistic and credible, your projections have to make sense on the first glance. If you are implying that your company will sky-rocket and be more profitable than any company in your industry, you lose all credibility. Your figures must support answers to 5 simple questions: 

• Do the capital requirements shown in your projections match the funding you are asking for?
• Do you know how long it takes to breakeven and have you budgeted the working capital requirements to weather this period?
• Do your projections link the number of customers you need in  order to generate the revenues you are projecting?
• Do you know what resources will be required to support customers? 
• Do you know how much you will have to spend to stay ahead of  the competition with your product or service offering?

Create  5-Year Financial Projections
Despite the fact that many lenders and investors only require two or three year projections, it’s a good idea to develop a financial model of your business for five years going forward.  Often a five-year window allows you to make explicit the driving factors behind your revenues and expenses as you go through several stages of product development, market penetration, and organization expansion. As they say, if you don't know where you're going, any road will get you there, but you might not like your final destination.

Most importantly, you need to show funders how you will grow your company from the bottom up rather than from the top down. This means sale-by-sale, employee-by-employee.  No one believes that a profitable business can be built and sustained on getting "only one percent of the target market." It may start that way but there has to be thought shown on how it will grow over time and capture market share. Even if you never end up sharing your plan with investors and lenders, the exercise of thinking through all that goes into financial projections and the business plan are crucial for you to better understand how you are going to run the business once you raise capital. A well thought-out operating plan will reflect your ability to allocate resources-people and money-to the highest priority objectives.

Bottom-Up Projections
The problem with financial projections, however, is that it compels you to present your figures using functional categories, such as sales, marketing, engineering, general, and administrative. But if you are a startup company, you will really operate as projects, with most projects running across functions.

Even a startup needs to present the financials using
the standard framework of accounting. That means that the details of your business plan will exist in projections built around the activities required to achieve your critical milestones. That way, when a funder drills down into why you are planning to spend money the way you are, you can frame your answer in terms of business priorities and deliverable milestones, rather than saying  something like, "Most companies spend X% on sales."  It makes the projections more realistic and you have more credibility.

Nonetheless, structuring your plan from the bottom up based  on projects you need to accomplish is difficult. Almost everyone over-estimates how much can accomplished in a day, a month, a year. Make sure your projections reflect real world experiences. If you have any hope of keeping your funders happy, you want to over-deliver during the early years, not under-deliver. You don't want to have to ask for more money because the business isn’t meeting its target milestones.  

Two Final Lessons
First, don't refer to your projections as "conservative." This is a major red flag. Funders want to see a realistic plan that is well thought-out, if things goes reasonably well, but not everything going perfectly, because that never happens. They don't want to see a fantasy plan either. Show that you have assembled a team with the right experience and insight to substantiate your bold optimism.

Second, pattern your company on other real world successes. No one is asking you to reinvent the wheel, yet don’t be a total copy cat. You can model your financial projections on companies that have already been successful.  Review IPO filings of companies with business natures similar to yours to get an idea of what is realistic. If your projections are wildly different than other highly successful companies, then your assumptions may be out of line.

Concluding  Words
Don’t consider your business plan and projections to
be cast in concrete; it will evolve over time. You will want to periodically test your assumptions and adjust your plan and actions as you learn what works best.  You want to use methods that most effectively utilize your resources –time, people and money- for the highest return, instead of letting apathy perpetuate activities and expenditures that are not productive.

Remember:   The number one reason for business failure is running out of money and  the primary cause of running out of money is the inability to grow revenues faster than expenses are growing.  Have a plan that systemically grows revenues while limiting the expenses it takes to get there and you will have a successful business from the start. 

Beginning January 1, 2013, a new 3.8 percent tax on some investment income will take effect. Since this new tax will affect some real  estate transactions, it is important that all individuals who own investment real estate or who are thinking of purchasing or selling investment real estate clearly understand the tax and how it could impact your investment. It’s a complicated tax, so we aren't able to predict how it will affect every buyer or seller.  You will need to consult your tax advisor to see how your specific situation is impacted.

To help people understand this new tax legislation, the NATIONAL ASSOCIATION OF REALTORS® (NAR) has developed this informational brochure. You can request a copy of the full bulletin here.  This new tax was passed by Congress in 2010 with the intent of generating an estimated $210 billion to help fund President Barack Obama’s health care and Medicare overhaul plans.

According to the NAR Bulletin, this tax WILL NOT be imposed on all real estate  transactions, a common misconception. Rather, when the legislation became effective in 2013, it imposed a 3.8% tax on some (but not all) income from interest, dividends, rents (less expenses) and capital gains (less capital losses). The tax will fall only  on individuals with an adjusted gross income (AGI) above $200,000 and couples filing a joint return with more than $250,000 AGI.