If you’re in a cash crunch and need to find some financing for your company here are three ways you may have overlooked.
1. Vendor Financing
Stretching out trade payables from, say 30 days to 60 days, is a pretty common method for companies to improve their cash flow. Usually vendors are not very happy when this happens, and some even voice their disapproval in no uncertain terms. Most businesses are small businesses and stretching out payables only hurts everyone in the long run. Think about it: if you are depending on one of your customers to pay you within 30 days, and that customer doesn’t pay for 90 days, it can significantly affect your cash flow. If it’s one of your major customers, the impact can be quite serious. You don’t have the cash to pay your bills and so a ripple effect is caused on down the line.
This suggestion is different. If you’ve established a good relationship with your vendors, sometimes it’s possible to get them to agree to finance part of your company by extending their terms for a particularly large order for an extended length of time. If you’re a new company with little or no history, you could approach vendors showing them your business plan and documentation of orders you’ve already received. If the vendor is convinced that your company will be successful, and one of their better customers in the future, they may be willing to give you a break now.
Another alternative is to guarantee the vendor that they will be your exclusive supplier for an agreed to length of time in exchange for longer credit terms. Or you can offer to pay slightly higher than market price in exchange for longer credit terms. This method can be dangerous, because it sets the precedence of a higher price. When the longer terms are no longer necessary, it may be a challenge to decrease the price you pay the vendor.
Occasionally, it’s possible to convince a vendor to exchange a trade payable owed to them for a note payable instead, or possibly an equity position in your company.
2. Customers That Prepay
If you have successfully demonstrated to your customers that you deliver your merchandise to them on time, as ordered, you may be able to persuade one or more of them to put a deposit on their future orders, perhaps as much as 50%. You can add an incentive by decreasing your price a bit in exchange for the deposit. Or you can throw in a bonus: if they’ve ordered 100 items you give them 10 extra. New customers can also be asked for a deposit, especially if it’s a large or custom order.
3.Trade And Barter
Barter is probably one of the oldest forms of commerce. It is simply the exchange of goods or services for other goods, instead of using cash as the medium. The trade can be directly between the two parties or the trade can go through a barter exchange.
The barter exchange usually works on a point system, one point for every dollar. The exchange has members who have agreed to barter their services and products. Let’s say you need a new lap top, but the computer store doesn’t need your product/service. You earn points by bartering with those individuals and businesses who do need your product/service. You accumulate points through the exchange. When you have enough for the lap top, you ‘buy’ the lap top with your accumulated points. The exchange sometimes takes a small percentage of the points as a fee for their services.
Don’t be limited in your thinking as to what can be bartered. Approach bartering as you would any other sale or purchase. Deal with reputable companies. Don’t feel you have to discount your product. The barter purchase is reflected on your income statement as an expense. The barter sale (what you trade) is reflected as revenue.
Barter organizations can be found on the web, just put in trade and barter organization. Many cities have locally operated barter organizations. Contact your local chamber of commerce. The yellow pages give listings as well.
Use these three methods of coming up with cash for your company.
By: Dee Power
Posts Tagged Business Plan
Venture Capital is a type of private equity that works on the basis of cash being invested into businesses in exchange for a share of a business. Venture Capitalists don’t however just offer their skills to a business; they also provide managerial and technical expertise.
Venture Capital is popular among new companies and new ventures. Many of these Venture Capitalists who invest in your business have a background in being chief executives at firms and investment bankers as well as connections with other firms in corporate investment and finance spaces.
Venture Capital is a viable source of financing for a business. Venture Capitalists have the option of investing at any stage of business, whether it is business start up or investing in an established business; however more typically than not a Venture Capitalist will invest in a more established and on going business.
When is comes to the type of businesses that Venture Capitalists invest in they are free to invest in which ever business sector they please, even though if you look at the trend of Venture Capitalists you will see that the main businesses that Venture Capitalists invest in are high tech such as research and development, electronics and gaming industries. Venture Capitalists also deal in large sums of money, which often run into millions of dollars.
Most Venture Capital arrangements have a fixed life of ten years and it should be noted that a Venture Capitalist isn’t suitable for all entrepreneurs; same as not all businesses get the opportunity to use the help of a Venture Capitalist. The Venture Capital market is very selective; a Venture Capitalist may only invest in one in 400 hundred opportunities that are presented to them, so if you want to attract a Venture Capitalist you need to have a well documented business plan and you need to be able to demonstrate how your business will be able to bring in enough capital after the help of a Venture Capitalist has been invested in your business.
If a business does posses the qualities that a Venture Capitalist is looking for, such as a solid business plan, a good management team, investment and passion from the founders, a good potential to exit the investment before the end of their funding cycle and target minimum returns in excess of 40% per year, you will find it easier to get a Venture Capitalist to invest in your business.
A Venture Capitalist will also consider aspects such as:
• Is your product or service commercially viable?
• Does your business have potential for sustained growth?
• Does your management team have the ability to use this potential and control the business through growth phases?
• Does the possible reward justify the risk involved in the investment?
• Does the potential financial return meet the investment criteria of the Venture Capitalist?
Almost three million people in the UK are employed by companies backed by venture capital, according to the British Venture Capital Association. Many of these companies might not be in existence without the injection of cash and guidance venture capitalists provide.
By: Helen Cox