Small Business Factoring – Remedy For Cash Flow Problems

When starting out as a business owner, no doubt you considered all the aspects of owning and operating a business. One neglected area of business ownership is cash flow. Neglected that is until the business owner realizes outstanding billed invoices are not being paid in a timely manner and ongoing operations can’t be funded since the necessary cash flow is not coming in as expected. What is the solution for a new business or one that does not have enough established credit to get a line of credit from the bank?

Small business factoring is one solution that offers quick access to cash collateralized by your own accounts receivable or outstanding invoices. First. let’s consider the situation and how cash flow problems came about in the first place. Generally, invoices are sent to customers with Net 30 terms, meaning the balance of the invoice should be paid by the customer within 30 calendar days. As many business owners know, seldom do their customers pay within a 30 day time frame with many going unpaid for sixty days or more. Odds are, your customer is experiencing the same cash flow problems as you, their vendor.

So how can small business factoring be a solution for cash flow problems which plague small and mid-size business? Invoice factoring can provide much needed cash within days rather than weeks for your business. This type of business funding is simple in methodology. For example, once a business supplies goods or a service to a customer and an invoice is generated for the total amount due, rather than sending the invoice to the customer, the invoice is sent to a factoring company.

The factoring company will take the invoice and evaluate the financial worthiness of your customer and if they meet the factoring company’s guidelines, they will send you, the business owner, a check for about eighty percent of the total value of the invoice. The other twenty percent of the outstanding invoice is held in reserve until the invoice is paid in full. Once the invoice is paid, the factoring company will send you another check for the remaining twenty percent less their fee.

The small business owner receives needed cash to operate his business within a few days allowing him to continue operating unencumbered by cash flow shortfalls. The factoring company assumes the risk of collecting the outstanding invoice and collects a fee from the total amount of the invoice. Small business factoring is an excellent solution for cash flow problems affecting your bottom line.

Here is What Life is Really Like For Small Business Brokers

Among the most intriguing career choices for business people is to become small business brokers. Many people who have burned out or retired from a corporate or even a small business position are attracted to this field because of its many benefits.

But does the reality match the myths about this work? Here’s a frank look into some of the popular claims about the profession.

1. Make a six figure income your first year.

Actually that’s true. Of course the six figures include all the numbers on both sides of the decimal point.

Sure there are small business brokers making $100k plus. Most likely they’ve been at it awhile. They have proven to the genie who sits on the bag with all the gold that they’re worthy of abundant rewards for mastering the many trials put in their way. Those include, for example, the “clients” who can’t or won’t perform as promised, and the trolls who climb out from under the bridge so they can kill deals.

2. Have complete control over the way you spend your time.

What a privilege to be able to call your day your own, with no one to tell you what to do. Unfortunately it’s not the full day, just those few hours between the 11:00 o’clock nightly news and the rooster’s announcement at dawn.

Guess when that “can’t miss” session with the landlord is going to happen – the very day you had planned to start the vacation trip you’ve long promised your family.

Prospective small business brokers eagerly anticipating the chance to get out on the golf course in the middle of the day don’t know about the owners who will require hours-long meetings about their possible interest in selling out. And there are buyers who somehow get in the mood to make offers only during those holiday weekends when everyone else is at home greeting relatives and firing up the barbecue.

3. The opportunity of working with smart and successful associates.

This is very appealing to the would-be business broker who’s spent years in the workforce dealing with dumbbells and with co-workers so slow that a sloth looks ambitious by comparison.

There are bright, energetic and professional small business brokers who get things done. But don’t expect them to want to do those things with you. And you may be justified in complaining that they’re greedy and rude.

Then, when you’ve been in the business for a while, have some good listings, motivated and qualified buyers and a solid reputation, you’ll be accused of the same things. You may switch from the “for” side to the “against” side of the “cooperation” debate the first time you find out your seller’s confidential information is circulating on twitter, and discover the other broker’s buyer doesn’t understand the meaning of the confidentiality agreement. Or when you get a letter from an attorney asking you to reimburse a buyer or seller for their losses – losses caused by misrepresentations and promises that came from the other broker you agreed to work with.

4. The chance to do meaningful work that really helps people.

There will be times when a seller or buyer will actually say “thank you.” And you’ll feel good about having given the client smart advice and negotiating well on his or her behalf.

Just hope there are enough of those satisfying moments to balance out the frustrations and disappointments caused by those who stand you up, lie to you, change their minds and kill your deals.

So, while there are substantial joys and benefits for those working as small business brokers, it takes guts, determination and perseverance to make the career really yield those rewards. And it’s a good idea, when starting out on this adventure, to have a year’s living expenses in the bank.

Business Bank Account

If you are looking to start a company and are trying to determine if a business bank account is required than ask you need to read this article. I will cover if you need a business checking account and if you do need one what the benefits of having a small company checking account will be.

Do you need a business bank account?

  • You don’t have any employees
  • Your small operation has no significant expenses
  • Most of your clients pay you on a per service basis (for example dog walker, hair cutter) as opposed to a per unit of production
  • Your total income is used annually for personal use
  • You have the ability to easily identify money from your company

If all the business questions above apply to your situation you don’t need to have a business bank account in most states, however it is best to check with a local accountant to confirm.

If you do require a business account at a bank then you will realize the Benefits of a Business Bank Account…

  • Avoid confusion between personal and business transactions
  • Increase your credibility when dealing with other organizations
  • Increase the number of options for you to get paid
  • May help in receiving small business loans
  • Required to incorporate your business(which has additional pros/cons)

Compare Small Business Bank Accounts

Comparing small business accounts is the next logical step in choosing a business account. There are thousands of options for you to choose from including free business checking account options, complete a-z solutions involving funding and extensive personal help.

My recommendation is to choose a free checking account to get you started and then proceed from there as your business grows. Keeping the costs down at the start can be a real benefit to many small business owners.

How to Find a Good Business Broker

Anyone interested in buying or selling a business should always consult with a good business broker because they posses the know-how and resources to get the best price and help you avoid the devastating pitfalls of the buying or selling process. How do you find a good business broker? Well, you go out and look. Where? The internet of course, but asking someone who has sold or bought a business is also a good source and probably the better of the two. Unfortunately not everyone knows someone who has worked with a good business broker and must rely on the expansive web to begin a search.

You should begin your search before you commit to buying or selling a business. I once had a gentleman call me wanting advice on buying a coin laundry and we went through the process of buying the business, a few things to look out for and the general principles behind how a business is priced. After a little exchange of questions and answers between the two of us it started sounding as though this buyer had not done the proper due diligence and that he was possibly overpaying. Problem was… he was already under contract to purchase! At that point even the best business broker can’t help unless you are able to find a way out of the contract, which won’t be easy if the seller is getting a premium on the transaction.

A simple keyword search for business brokers will bring about a plethora of willing brokers but the trick is finding one that is good and easy to relate with. You shouldn’t be afraid to ask questions of the broker, i.e., “What’s your experience?”, “Do you have any credentials?”, etc. It’s always nice to work with someone that clicks with you.

Things process of selling a business and what a business broker can do for you are:

Step 1 is to contact small and medium sized Business Brokers for information about how they charge, what they charge and how you generally feel about them. Select a Small and medium sized Business Broker.

Step 2 is to work with your broker in establishing the most appropriate asking price and put broker and client understandings on paper in the form of a listing agreement. The listing price is the price you agree to sell the business if the broker brings a qualified buyer willing to purchase at that listing price.

Step 3 is to supply your broker with all relevant information about the small and medium sized business so that they can complete an offering memorandum. The broker will discreetly and confidentially make the market aware of your small and medium sized business’s availability including some general information about the site.

The 4th step is for your broker to screen and qualify potential buyers.

Step 5 is for you, with the help of your broker, to negotiate a price and terms agreeable to you and a buyer.

Step 6 is the removal of contingencies explained in the contract to purchase the small and medium sized business.

The final step is to close the transaction.

Your broker will continue to work with you after the sale with any remaining terms and/or conditions of the sale until the seller is completely separated from the business.

  • Educate you regarding the process and issues faced when selling a small and medium sized business.
  • Keeping the transaction confidential.
  • Conduct a pricing analysis to determine the best asking price for your small and medium sized business.
  • Develop an effective marketing strategy to sell your small and medium sized business.
  • Put the offering package of the small and medium sized business in front of the most buyers.
  • Pre-qualify potential buyers prior to divulging sensitive information.
  • Manage transactional details and paperwork.
  • Help establish terms of sale.
  • Assist the buyer in an effort to give the transaction the most potential for a successful closing, i.e. financing.

The most important thing you can do when you are thinking of buying or selling a business is to at least speak with a broker or two. The good one is the one that gets you pointed in the right direction. Most brokers, especially the one that will care for your business, will be happy to spend a half hour to an hour talking to you on the basic points.