Superperformance World Movement
Don't let your choice of funding slow your growth
Let me describe two competing companies.
Company A decided that they were going to go the traditional way and find "Angel" and then VC money to fund their new business. They had a hard monthly nut to crack and thought this would be the best solution. Prior to going to the "Angel" for the initial money, they built a business plan that included an exit amount of $10M for the owner.
Little did they know that they would have to revise that exit number when the "Angel" decided to buy in. They thought the toughest part was over. Later on down the road Company A's owner discovered that the equity s/he gave the "Angel" essentially forced a multiple on the neccessary growth of the company before s/he could get to the original $10M exit number goal.
Add on top of that they need to meet a long term debt component, and the owners of Company A now had some money to grow for a while. But, when they ran through their initial line of capital meeting their monthly nut eventually that would dry up. They didn't stop growing. The money available just stopped coming.
Now they were in the same pickle as before the "Angel" investor because their toughest need was the monthly nut.
They were meeting short-term needs with long-term debt and equity instead of building a stable business model that would self-sustain.
Company B decided that since they didn't need a huge research budget, and since they didn't need tons of cash to buy equipment, they would build a self-sustaining business model.
They also decided to use long-term debt to meet long-term needs and short-term debt for short-term needs. Their long-term needs would include equipment, and mortgage to keep it simple. Their short-term needs were the more pressing immediately and that included but was not limited to payroll, maintenance, and monthly costs of services used to do business.
They chose to factor Company B's invoices. That means they found a reputable company with a long track record of buying invoices yet to pay for a small discount off the value of the invoices. That way, when their cash flow covered their needs it cost them nothing, and when they needed immediate access to a sum less than their outstanding accounts receivable they could sell the a/r and avoid the cost of lost opportunity.
Company A on the other hand was diluting their equity and when they tapped their long-term debt dry they couldn't find the cash flow necessary to take on those huge deals their star marketer had been working 6 months to get.
Company B didn't have these problems.
In fact, a great side benefit was that easy access to the money in their a/r allowed them to access cash discounts with suppliers saving money. They also found that their larger clients liked knowing Company wouldn't have any trouble handling 2 and 3 times larger deals because they had a verifiable source to go to in order to fund that growth.
Traditional funding could cause you to say no to opportunities to grow that alternative funding sources like factoring wont. They will make you give up equity and tie your successors down with huge debt to pay off. They also force you to give up control of your company. Factors don't want control of your company and instead a good factor will advise you on best business practices at no additional cost.
Especially during this financial crisis when private and VC money are focused on their current investments and has effectively dried up, and when banks have had their credit frozen or effectively turned off due to regulators' uneasiness about the market, there are a large number of startups, emerging and burgeoning businesses that need an alternative source of funding. One such source is factoring with a reputable factor.
Company A decided that they were going to go the traditional way and find "Angel" and then VC money to fund their new business. They had a hard monthly nut to crack and thought this would be the best solution. Prior to going to the "Angel" for the initial money, they built a business plan that included an exit amount of $10M for the owner.
Little did they know that they would have to revise that exit number when the "Angel" decided to buy in. They thought the toughest part was over. Later on down the road Company A's owner discovered that the equity s/he gave the "Angel" essentially forced a multiple on the neccessary growth of the company before s/he could get to the original $10M exit number goal.
Add on top of that they need to meet a long term debt component, and the owners of Company A now had some money to grow for a while. But, when they ran through their initial line of capital meeting their monthly nut eventually that would dry up. They didn't stop growing. The money available just stopped coming.
Now they were in the same pickle as before the "Angel" investor because their toughest need was the monthly nut.
They were meeting short-term needs with long-term debt and equity instead of building a stable business model that would self-sustain.
Company B decided that since they didn't need a huge research budget, and since they didn't need tons of cash to buy equipment, they would build a self-sustaining business model.
They also decided to use long-term debt to meet long-term needs and short-term debt for short-term needs. Their long-term needs would include equipment, and mortgage to keep it simple. Their short-term needs were the more pressing immediately and that included but was not limited to payroll, maintenance, and monthly costs of services used to do business.
They chose to factor Company B's invoices. That means they found a reputable company with a long track record of buying invoices yet to pay for a small discount off the value of the invoices. That way, when their cash flow covered their needs it cost them nothing, and when they needed immediate access to a sum less than their outstanding accounts receivable they could sell the a/r and avoid the cost of lost opportunity.
Company A on the other hand was diluting their equity and when they tapped their long-term debt dry they couldn't find the cash flow necessary to take on those huge deals their star marketer had been working 6 months to get.
Company B didn't have these problems.
In fact, a great side benefit was that easy access to the money in their a/r allowed them to access cash discounts with suppliers saving money. They also found that their larger clients liked knowing Company wouldn't have any trouble handling 2 and 3 times larger deals because they had a verifiable source to go to in order to fund that growth.
Traditional funding could cause you to say no to opportunities to grow that alternative funding sources like factoring wont. They will make you give up equity and tie your successors down with huge debt to pay off. They also force you to give up control of your company. Factors don't want control of your company and instead a good factor will advise you on best business practices at no additional cost.
Especially during this financial crisis when private and VC money are focused on their current investments and has effectively dried up, and when banks have had their credit frozen or effectively turned off due to regulators' uneasiness about the market, there are a large number of startups, emerging and burgeoning businesses that need an alternative source of funding. One such source is factoring with a reputable factor.
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