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Digg it UP - Working Capital: Financial Options For Small Businesses
“That product will convert much better if you raise the price to $27. Also, I would drop the screenshot that illustrates how the price point will go up over time. I see what you’re going for with that, but it will actually hurt your sales instead of encouraging your visitors to buy.”Mike Filsaime and I were sitting in a pair of comfortable arm chairs in the hotel lobby. We had been casually chatting for the past twenty minutes, and I had scratched out a full page of notes already.Plus, I had a legal pad full of notes taken during the formal presentations. And at least a couple of paragraphs had been quickly jotted down after the conversation with Gary Ambrose earlier that evening.I was having a real problem keeping up with all the information coming at me from so many directions. It occurred to me that I would need to study my notes and reflect on some of the key points for a couple of weeks before getting an honest grip on all the knowledge I had absorbed during the two day seminar.That’s when it really hit me. It landed square in my lap like a ton of bricks. “It” being the fact that I had almost let the opportunity to attend this conference pass me by. I’m not ashamed to say I felt a little week-kneed at that mo
Much like bank lines of credit, many business owners use their credit cards to fund their businesses. Credit cards offer the ability to make purchases or obtain cash advances and pay them at a later time. It should be noted that credit cards can be a very expensive source of funding. Although most credit cards have reasonably low interest rates for purchases, their cash advance rates can be as high as 17% to 19% due to greater delinquency rates. Furthermore, most credit cards will charge you 2% to 4% of the face value of a cash advance as a "fee". Much like bank lines of cre
In business as in life, never underestimate the importance of being prepared. As the saying goes, you must first plan your work and then work your plan. This is particularly true in trade show exhibiting where trade show display success is largely dependent on proper planning. Without putting the right plan in place, you will encounter a number of what would be easily avoidable blunders. These oversights can cause havoc on your trade show team’s morale as well as your company’s bottom line. In order to avoid these errors, however, you must first know what they are.The five major trade show exhibit mistakes to avoid are:1. Picking the Wrong Show to Exhibit InBy being distracted by an overly hectic work schedule and being short staffed and overworked, hastily made trade show decisions to exhibit in an upcoming trade show can backfire. Because you were unable to put the proper amount of time in to analyze who would be attending and exhibiting in the trade show, you wound up with the wrong targeted audience. Without doing the proper research to learn about the qualifications of the trade show attendees and how they match up with your marketing goals, you are subject to missing your target and having an unrewarding tra
Large companies have always had a number of options that they could depend on to raise capital for their businesses. The have always had access to a number of alternatives such as selling stock, issuing bonds, bank loans and accounts receivable financing among others. Looking at the other side of the coin, smaller companies, those that have between $20,000 and $500,000 of yearly revenues, have always had a challenge trying to find capital to operate their businesses.
The lack of access to capital has prevented many small businesses from growing and capitalizing on the many opportunities that are available to them. It is not uncommon for small companies to reject large deals or opportunities because they do not have the necessary capital to obtain the resources to service the account. However, even when small businesses do take on large contracts, they find that they are never paid immediately upon delivery of services. Most contract terms demand that the supplier provide 30 to 60 days for the customer to pay their invoice - in effect, forcing them to extend them with supplier credit. The lack of adequate capital resources, along with the necessity to offer commercial credit to clients, creates a “perfect storm” that prevents small businesses from growing and that is very difficult to avoid.
A number of these issues could be sidestepped if the company had immediate access to working capital. Working capital could enable the business to add employees and resources to serve new clients and larger contracts. It also enhances a company’s ability to extend 30 to 60 day payment terms to their customers.
This paper outlines the most common sources for working capital and provides an evaluation of each source. Each source has also been assigned a score, which summarizes the availability and flexibility of the source.
Scoring System
Each working capital source that has been evaluated has been given a score from 1 to 10. The following features where considered when assigning a score:
A higher score indicates that the source of capital has a positive outlook on a number of these criteria and is available to small businesses. A lower score indicates that a particular source of capital may not be best suited for most small businesses.
Financial Options
Many books and publications tout the benefits of obtaining venture capital to finance a new or ongoing operation. Venture capital is an option for small companies that have a seasoned management team and very aggressive growth plans, however, venture capitalists will rarely invest in small businesses that have no intention of going public. The venture capitalist objective is to invest in a company for a short period of time – say 5 years – and then cash out of the business while making a significant return on their investment.
An Angel investor is a wealthy individual or group of individuals that typically invest in pre-venture capital companies. That is, companies that don’t meet the current requirements of a venture capitalist but that could meet their requirements with a capital and management influx. However, you should not rule out angel investors completely since there are angel investment groups who focus on the growth of certain communities and will invest in small businesses. The best way to find an angel investment group near to you is to search them on the Internet using a search engine such as Google (www.google.com).
Most small businesses owners will first approach their bank to try and obtain a loan or line of working capital. However, unless the business has been in operation for a number of years, has substantial assets and all the appropriate financial records, their chances of obtaining any financing are minimal. Banks, however, can provide lines of credit if the business owner personally guarantees them. This means that the business owner will be personally liable for the repayment of these loans. These lines of credit can provide the business with the needed working capital; however they can be very risky, especially if the business does not produce the expected results and the owner is unable to repay the bank. Business owners should use this method of financing very cautiously.
Much like bank lines of credit, many business owners use their credit cards to fund their businesses. Credit cards offer the ability to make purchases or obtain cash advances and pay them at a later time. It should be noted that credit cards can be a very expensive source of funding. Although most credit cards have reasonably low interest rates for purchases, their cash advance rates can be as high as 17% to 19% due to greater delinquency rates. Furthermore, most credit cards will charge you 2% to 4% of the face value of a cash advance as a "fee". Much like bank lines of cred
TABLE OF CONTENTS1. The Security Consultant's Perspective...2. The Insider Threat...3. Threats by the Outsiders…4. The Terrorist Threat...5. Protective Measures...1) Security Consultant's Perspective...Traditional techniques at combating Workplace Violence pits the disgruntled employee against the system and the potential victims in a waiting game. It seems that the “Inside Threat” is reduced to monitoring the known potential, the “Ticking Bomb”, while the unknown threats go unmonitored. Threats by "Outsiders" are just as common and equally violent. Complicating this challenge, we now must grapple with the threat of terrorism (political and domestic) in our workplaces. I am reminded of a quote by James Baldwin from his book, "The Price of the Ticket". "No one can possibly know what is about to happen: it is happening, each time, for the first time, for the only time”. Fighting the potential workplace threat requires a change in tactics and training techniques in order to be proactive.2) The Insider Threat...The “going postal” employee is as real in many workplaces as was the case of the rash of Postal Service incidents that gave rise to the phrase by the media. The difference betw
A number of these issues could be sidestepped if the company had immediate access to working capital. Working capital could enable the business to add employees and resources to serve new clients and larger contracts. It also enhances a company’s ability to extend 30 to 60 day payment terms to their customers.
This paper outlines the most common sources for working capital and provides an evaluation of each source. Each source has also been assigned a score, which summarizes the availability and flexibility of the source.
Scoring System
Each working capital source that has been evaluated has been given a score from 1 to 10. The following features where considered when assigning a score:
A higher score indicates that the source of capital has a positive outlook on a number of these criteria and is available to small businesses. A lower score indicates that a particular source of capital may not be best suited for most small businesses.
Financial Options
Many books and publications tout the benefits of obtaining venture capital to finance a new or ongoing operation. Venture capital is an option for small companies that have a seasoned management team and very aggressive growth plans, however, venture capitalists will rarely invest in small businesses that have no intention of going public. The venture capitalist objective is to invest in a company for a short period of time – say 5 years – and then cash out of the business while making a significant return on their investment.
An Angel investor is a wealthy individual or group of individuals that typically invest in pre-venture capital companies. That is, companies that don’t meet the current requirements of a venture capitalist but that could meet their requirements with a capital and management influx. However, you should not rule out angel investors completely since there are angel investment groups who focus on the growth of certain communities and will invest in small businesses. The best way to find an angel investment group near to you is to search them on the Internet using a search engine such as Google (www.google.com).
Most small businesses owners will first approach their bank to try and obtain a loan or line of working capital. However, unless the business has been in operation for a number of years, has substantial assets and all the appropriate financial records, their chances of obtaining any financing are minimal. Banks, however, can provide lines of credit if the business owner personally guarantees them. This means that the business owner will be personally liable for the repayment of these loans. These lines of credit can provide the business with the needed working capital; however they can be very risky, especially if the business does not produce the expected results and the owner is unable to repay the bank. Business owners should use this method of financing very cautiously.
Much like bank lines of credit, many business owners use their credit cards to fund their businesses. Credit cards offer the ability to make purchases or obtain cash advances and pay them at a later time. It should be noted that credit cards can be a very expensive source of funding. Although most credit cards have reasonably low interest rates for purchases, their cash advance rates can be as high as 17% to 19% due to greater delinquency rates. Furthermore, most credit cards will charge you 2% to 4% of the face value of a cash advance as a "fee". Much like bank lines of cre
Surely you know what I mean. Those gangly looking birds that stand on one twiggy looking leg. Their beak (or is it a bill?) is hooked and black. And they flock by the hundreds at the watering hole. Thousands maybe, all together and...THEY ALL LOOK THE SAME!Now I'm not suggesting you run out and paint your shop in day-glow colours, or dress up like Zippo the clown, I just thought I'd draw your attention to something that often gets overlooked.We tend to think of appearances in an external context, we think of what we 'present' to the outside world instead of how we're perceived by the outside world.Here's what I mean, it's called the "Well I should hope so!" test. Try this out on the next statement:"We're honest and we fix your car right the first time. We charge reasonable rates and we guarantee our work."Altogether now... "Well, I should hope so.!"What else would you expect to say? "Hey, we're lousy. We'll fix things that aren't broken and make sure the original problem goes unsolved so you'll bring it back so we can fix it and charge you again."The first statement is a 'pink flamingo'. It says pretty much the same stuff as anyone else could say. It's about as unique as...we
A higher score indicates that the source of capital has a positive outlook on a number of these criteria and is available to small businesses. A lower score indicates that a particular source of capital may not be best suited for most small businesses.
Financial Options
Many books and publications tout the benefits of obtaining venture capital to finance a new or ongoing operation. Venture capital is an option for small companies that have a seasoned management team and very aggressive growth plans, however, venture capitalists will rarely invest in small businesses that have no intention of going public. The venture capitalist objective is to invest in a company for a short period of time – say 5 years – and then cash out of the business while making a significant return on their investment.
An Angel investor is a wealthy individual or group of individuals that typically invest in pre-venture capital companies. That is, companies that don’t meet the current requirements of a venture capitalist but that could meet their requirements with a capital and management influx. However, you should not rule out angel investors completely since there are angel investment groups who focus on the growth of certain communities and will invest in small businesses. The best way to find an angel investment group near to you is to search them on the Internet using a search engine such as Google (www.google.com).
Most small businesses owners will first approach their bank to try and obtain a loan or line of working capital. However, unless the business has been in operation for a number of years, has substantial assets and all the appropriate financial records, their chances of obtaining any financing are minimal. Banks, however, can provide lines of credit if the business owner personally guarantees them. This means that the business owner will be personally liable for the repayment of these loans. These lines of credit can provide the business with the needed working capital; however they can be very risky, especially if the business does not produce the expected results and the owner is unable to repay the bank. Business owners should use this method of financing very cautiously.
Much like bank lines of credit, many business owners use their credit cards to fund their businesses. Credit cards offer the ability to make purchases or obtain cash advances and pay them at a later time. It should be noted that credit cards can be a very expensive source of funding. Although most credit cards have reasonably low interest rates for purchases, their cash advance rates can be as high as 17% to 19% due to greater delinquency rates. Furthermore, most credit cards will charge you 2% to 4% of the face value of a cash advance as a "fee". Much like bank lines of cre
For small-business owners it is important to concentrate on personal strengths. Small business management, that is close to entrepreneurship, is about organizing economic activities and your personal economic background defines the success of these.Production versus networking. The term productivity is not only about producing something, which is the most common and well-known aspect; the producer who is autonomously involved in the development of a product. But productivity is also about networking and involving others. Take for instance the giant auctions on Internet. Their productivity is about matching demand and supply. Ezinearticles.com is another example of the same category where the main productivity role is networking, getting people – demand and supply - together.Support. A next example of productivity is the supporting role. For example the web-serving-business that provides a host for your site. It is nearly invisible, but very nasty if it is not up-and-running.Sales. A last example of productivity is the sales-role. Consultants like me have always problems with that. If it is not your strength you should connect to another parties (matching) your expertise with a demand in the market.
An Angel investor is a wealthy individual or group of individuals that typically invest in pre-venture capital companies. That is, companies that don’t meet the current requirements of a venture capitalist but that could meet their requirements with a capital and management influx. However, you should not rule out angel investors completely since there are angel investment groups who focus on the growth of certain communities and will invest in small businesses. The best way to find an angel investment group near to you is to search them on the Internet using a search engine such as Google (www.google.com).
Most small businesses owners will first approach their bank to try and obtain a loan or line of working capital. However, unless the business has been in operation for a number of years, has substantial assets and all the appropriate financial records, their chances of obtaining any financing are minimal. Banks, however, can provide lines of credit if the business owner personally guarantees them. This means that the business owner will be personally liable for the repayment of these loans. These lines of credit can provide the business with the needed working capital; however they can be very risky, especially if the business does not produce the expected results and the owner is unable to repay the bank. Business owners should use this method of financing very cautiously.
Much like bank lines of credit, many business owners use their credit cards to fund their businesses. Credit cards offer the ability to make purchases or obtain cash advances and pay them at a later time. It should be noted that credit cards can be a very expensive source of funding. Although most credit cards have reasonably low interest rates for purchases, their cash advance rates can be as high as 17% to 19% due to greater delinquency rates. Furthermore, most credit cards will charge you 2% to 4% of the face value of a cash advance as a "fee". Much like bank lines of cre
Acquisition and Expansion StrategiesMachiavelli advocated that a Prince should live in the new territory he has annexed to control the situation on ground and gain respect of the people.“When states are acquired in a country differing in language, customs, or laws, there are difficulties, and good fortune and great energy are needed to hold them, and one of the greatest and most real helps would be that he who has acquired them should go and reside there. This would make his position more secure and durable, as it has made that of the Turk in Greece, who, notwithstanding all the other measures taken by him for holding that state, if he had not settled there, would not have been able to keep it. Because, if one is on the spot, disorders are seen as they spring up, and one can quickly remedy them; but if one is not at hand, they heard of only when they are one can no longer remedy them.” ( Machiavelli, Chapter 4)There are contrary views to this philosophy in the modern business world where a company often have presence into number of countries. The Japanese has successfully exported a Japanese country head to their companies while conglomerate like Nestle believes in developing local talent that understand the ground realit
Much like bank lines of credit, many business owners use their credit cards to fund their businesses. Credit cards offer the ability to make purchases or obtain cash advances and pay them at a later time. It should be noted that credit cards can be a very expensive source of funding. Although most credit cards have reasonably low interest rates for purchases, their cash advance rates can be as high as 17% to 19% due to greater delinquency rates. Furthermore, most credit cards will charge you 2% to 4% of the face value of a cash advance as a "fee". Much like bank lines of credit, the business owner personally guarantees payment of a credit card. Thus, this method of financing can be very risky if the business does not produce the expected results and the business owner cannot repay the credit card company. Business owners should use this method of financing very cautiously.
Business owners who are also homeowners have the option of tapping into their home equity to finance their ongoing business operations. Home equity loans and lines of credit have many advantages, such as low interest rates and the possibility of having some portion of it deducted from taxes . This method of financing gained a lot of momentum between the years 2000 and 2004 when interest rates where at their lowest point in decades and real estate was appreciating in value. A major disadvantage if this financing method is that it directly places the business owner’s home at risk. In fact, the business owner is placing a bet - with their home as the potential wager - that the business will succeed and will be able to repay the loan. Much like lines of credit, business owners should use this method of financing very cautiously.
The US Small Business Administration (www.sba.gov) provides a number of very viable options to finance business operations. Although the whole scope of SBA services is beyond the scope of this paper, the SBA provides a “Microloan” program. The program objective is to stimulate micro-enterprises and provides loans of up to $30,000 to small businesses. These loans are usually provided through a financial institution or a bank. They have higher interest rates than traditional loans, but their requirements are more flexible, making them more accessible to small business owners.
Friends and family are one of the most conventional ways of financing small businesses. Many entrepreneurs have been able to leverage existing relationships and obtain funding, either as a loan or as a capital investment, for their businesses. Although this source of funding can be easier to obtain that others, it does have some inherent problems. First, the business owner runs the risk of placing the relationship in jeopardy if things do not go as expected and the business defaults. Furthermore, these transactions are usually done with little formality and without written agreements, further complicating matters. If you elect to use this funding option, you should consult an attorney and draw some formal documents that describe the intent and responsibilities of each party.
Accounts receivable factoring, also known as invoice factoring, has been a source of working capital for large companies for many decades. It is now becoming mainstream and available to mid-size and small businesses. Factoring enables a company to sell their slow paying accounts receivable to a financial company, who in turn pays for the invoices within a day or two. After the sale, the financial company waits to be paid for the invoices. A key feature of factoring is that the factor will take the credit strength of the business’ customers, as it’s main consideration. Until recently, accounts receivable financing was out of the reach of the small business owner. However, enhancements in technology have now turned this method of financing into a viable alternative for small businesses. This means that a small company with little or no credit can leverage a strong roster of clients, sell their invoices and get funding very quickly. Factoring should be considered as an option for businesses that sell products or services to other businesses, rather than to consumers.
Conclusion
Obtaining working capital for their businesses is one of the most important decisions that a business owner can make. Like all important decisions, it should be carefully thought out and deliberately executed. The old adage that “the best time to look for capital is when you don’t need it” is still true. You should spend some time researching the
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