Tuesday, October 31, 2006

In Love with Remote Deposit Capture

I visited with one of my success stories last week – a client in the food business that I helped with equipment financing and a bank line of credit. The Century City branch of California Bank & Trust provided the line of credit and other banking services and my client claims they’re doing a great job.

But what brought the biggest smile to my client’s face was when he pointed out the scanner on his desk that accelerates his cash flow through remote deposit capture! He loves it!

Remote deposit capture has eliminated the time it would take him to run back and forth to the bank to deposit checks – it’s freeing up hours a week he can spend on more productive tasks.

And, he’s also receiving improved funds availability. Faster cash and less money tied up in working capital. That’s more interest income and less interest expense. Sounds like a winning formula to me!

Looking to accelerate your cash flow? Think about remote deposit capture!

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans"

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Monday, October 30, 2006

Federal Reserve - Small Businesses Turn to Alternative Financing

A recent study released by the Federal Reserve on the borrowing activities of small business concludes that more small businesses (less than 500 employees) are seeking financing and other credit products from financial institutions other than banks. Given that the study is based upon newly available data from the Federal Reserve's 2003 study of small business finance, I'm not sure that the conclusions are earth shattering.

In the last few months, I've written about how factoring has grown to a $1 trillion industry and how credit unions are offering new products and a focus on relationships.

Am I surprised about the conclusions? No. But it does confirm a trend that shows few if any signs of reversing.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans"

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Monday, October 23, 2006

Improve Cash Flow through Accounts Receivable Outsourcing

Businesses of all sizes focus each day on how to improve cash flow and deal with the challenges of having too much of their cash flow tied up in working capital. As I wrote in September, money tied up in working capital is money not available to grow the business.

So how do you reduce working capital? The most obvious step a company can take is to collect your accounts receivable faster. Easier said then done? Maybe it’s time to get some help. Let me tell you about a conversation I had last week with Neal Gold, Corporate Vice President for STA International, on how to improve cash flow through accounts receivable outsourcing and improve your bottom line. Here’s what Neal said…

Business process outsourcing (BPO) continues to gain momentum as more businesses recognize tangible benefits from outsourcing non-core processes. Operational cost advantages and greater economies of scale, resource utilization efficiencies, enhanced risk management and improved employee morale were all cited as outcomes of effective outsourcing relationships.

An area of business process outsourcing which is getting greater attention is that of accounts receivable outsourcing. More companies, frustrated by lost revenue and related profit opportunities, are increasingly exploring new ways to manage their receivables.

From a customer retention perspective, accounts receivable outsourcing works to sustain and build better customer relations, rather than allowing a contentious situation to arise.

Neal claims that businesses that make a commitment to accounts receivable outsourcing will not be disappointed. Strictly from a financial standpoint, businesses using accounts receivable outsourcing will achieve faster receivables collection, reduce bad debt write-offs and lower debt recovery costs. Companies using accounts receivable outsourcing typically realize improved cash flow by up to 30% on their outsourced receivables resulting in reduced borrowing and lower interest payments.
Let me put that into perspective for you. If your company is borrowing at 9% and can reduce its average days sales outstanding (a common benchmark for measuring effectiveness at collecting your receivables) by even as little as 10%, then you can reduce your annual interest expense by $9,000 for every $100 thousand of accounts receivable you typically carry. Reduce your average days sales outstanding by 20% and the projected annual savings are $18,000. That’s an improvement in cash flow that goes all the way to the bottom line!

If your accounts receivable are eating up precious working capital, give me a call and I’ll put you in touch with Neal.

Click here to read "Matchmaking for Business Loans"

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Thursday, October 19, 2006

Government Receivables - They Took a Holiday

CFO Magazine reports that the federal government put Medicare related vendor payments on hold for nine days at the end of the fiscal year ending September 30th. No doubt, many businesses both small and large took a hit to their cash flow when accounts receivable collections suffered.

Let's put that into perspective for you.

Let's assume that your company generates $10 million per year of revenue. Normally, you collect on accounts receivable in 30 days. If you're collections period (days sales outstanding) increased by nine days for an entire year, your cash flow would significantly decrease and your interest costs would increase by approximately $30,600 for the year if your company is able to borrow money at 9.5%. Thank you, Uncle Sam!

Some banks are uncomfortable about lending to companies that provide products to government agencies. If you're one of those companies, you may be funding those contracts internally or perhaps utilizing factoring and the cost of being stretched out on your accounts receivable might be more expensive.

As I mentioned in my posting on government contracts funding, if you're providing products or services to the government or to a prime contractor fulfilling a government contract, don't get caught in a working capital squeeze. Cost effective financing is available - feel free to give me a call and see if I can help.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans"

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Tuesday, October 17, 2006

Credit Unions - It's the Relationship, Stupid!

Back in August, I wrote When the Bank Says No, Ask a Credit Union after the Los Angeles Times wrote that credit unions were becoming more active in providing business loans. In this month's edition of Entrepreneur Magazine, A Perfect Union describes how credit unions are focusing on old fashioned service and relationship to attract more customers for business loans.

The article highlights three reasons that credit unions may be more successfully competing with banks for business loans.
  • Credit union participation in the SBA's flagship 7(a) business loan program due to a change in SBA rules.
  • The Export-Import Bank has begun to identify credit unions best suited to provide export financing.
  • The credit unions' lending capacity for business loans may get a boost from proposed legislation in Congress.

At the end of the day, the success of credit unions in providing more business loans will be based upon how well it builds relationships with business borrowers. If they prove to be more flexible in their underwriting and lending practices and more attune to the needs of business borrowers, they may be successful in offsetting the lack of breadth of their financial offerings to the business community.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans"

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Monday, October 16, 2006

The Bottom Line of Payroll

In reviewing a business loan proposal, the lender will often ask how much time is spent on making money and how much time is spent on non-revenue generating activities. The processing of payroll is one of those items that is clearly important, but may not be the best use of time for a small business owner.

I spent some time recently with Steve Goldstein of Payroll Management Solutions to get his thoughts on a recent poll from the NFIB which showed that nearly two thirds of the nation’s small businesses process their own payroll due to concerns about cost and control. Here’s what he had to say…

After 23 years in the payroll outsourcing business, the most common misconception I deal with every day is that by processing their own payroll, employers save money or maintain a degree of control they would otherwise have to give up as if their time is worth nothing and there is no risk involved.

Like rent, payroll processing is a task that produces no revenue though it is a necessary evil for business owners who wish to stay in business. Time spent processing payroll is time not available to add to the bottom line, whether that might be increasing sales, collecting receivables, developing new products or strategies, or even taking some time to relax and recharge the batteries. All of these things are more productive than payroll processing which can only create risk for the owner as well as cost time and money.

What’s the risk? Every single paycheck includes at least five required tax deductions in each state which then must be added to other employer taxes and voluntary deductions, and every one of these items is an opportunity for a problem to occur. The late or incorrect deposit of these tax liabilities can result in costly penalties and interest for a business owner.

For a company with as few as five employees, a small boutique provider of payroll services might charge as little as $20 per pay period plus $1.65 per check to completely outsource the task of calculating payroll and properly paying all state and federal taxes. The time spent on payroll can be reduced to simply reporting the hours worked. The payroll service provider shoulders both the workload and the liability of the payroll processing and the business owner can now focus on bottom line - running and growing their business.

The employer maintains complete control over when and how the payroll is processed, wages, raises, reviews, hiring, and benefits. Access to information is also not a valid consideration as business owners have complete access to all reports, history, personnel data as well as report writing capability with our web based service. Since there are no "contracts" in payroll, no employer is ever forced to stay with a service they find unsatisfactory for any length of time. All payroll services can be terminated with a simple letter or phone call.

The biggest benefit of tax filing service is that if ever a notice arrives from the IRS or EDD, a client simply faxes that to their service provider to be handled. These notices often result from a mistake by the IRS or EDD and are cleared up very quickly – all without any effort from the business once that fax is sent. The employer who does it himself (for "free") will spend many hours responding to such notices, hours away from the business that can never be replaced.

By the way, outsourcing your payroll function does not relieve you from your tax responsibilities. Entrepreneur’s October issue gives a business owner three tips to make sure your payroll tax is really paid. Stay in the loop, ask about bonding and confirm payroll tax deposits online.

How do you handle your payroll processing?

Click here to read "Matchmaking for Business Loans"

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Thursday, October 12, 2006

Yahoo! - When the Bank Says No

Yahoo! Finance has a business learning center and I found an article about what to do "When the Bank Says No".

One of the questions this article poses is - was your written business loan proposal realistic? If I had a nickel for each time a borrower called me with unrealistic expectations, I would be a wealthy man. But I digress...

More to the point, I find that few borrowers have a written business loan proposal. A written business loan proposal can provide key advantages to the borrower and can be accomplished in as little as two pages. Here's what I include in the business loan proposals I prepare for clients.
  • Executive summary - A short paragraph to make it easy for the lender to decide if they want to read any further
  • Company overview - What is your business? Who do you serve? What competitive advantages do you have?
  • Financing requirements - How much money do you need?
  • Uses of funds - On what will you spend the money from the loan?
  • Financial history & ratio analysis - How well (or poorly) have you performed in the last 24 to 36 months and why?
  • Financial projections - What does the future look like once you get this loan?
  • Collateral review - What sources of repayment are your offering? Banks typically look for cash flow, business assets, assets outside the business and in many cases, personal guarantees of the owners.
  • Ownership - Who owns the company and how is it legally structured?
  • Management/advisory board - Who helps you run the company?
  • Key issues - What challenges are you currently facing and how do you plan to overcome these challenges?

If you can completely and succinctly prepare a written business loan proposal, there's a greater likelihood your expectations will be realistic and a greater chance your bank will say "yes".

If the bank still says "no" to your request for a business loan, you may just be knocking on the wrong door. Don't hesitate to give me a call if you feel like you're knocking on the wrong door or still need help telling your story the right way. There are a lot of options even when the bank does say "no"!

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans"

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Monday, October 09, 2006

Working Capital - A $450 Billion Challenge

As I mentioned on September 17, the 2006 Working Capital Survey in the September issue of CFO Magazine shows a wide range of performance in minimizing working capital among the 1,000 largest publicly traded companies in the United States. With over $450 billion of cash unnecessarily tied up in working capital, the chief financial officers of these companies are seeing a stronger focus on working capital and free cash flow by the analyst community.

In reviewing the survey conducted by Hackett-REL, a consulting firm which advises companies on reducing working capital, one notices significant differences in working capital levels between companies. As measured by “days working capital outstanding”, the airline industry is the most efficient user of working capital with the median score of 5.3 days. Not all that surprising given that most airline receivables are in the form of credit card receipts and the real inventory for the airline industry, its seats, are not considered inventory for accounting purposes. By the way, industry stalwart, Southwest Airlines, actually has a negative number for days working capital outstanding!

At the other end of the spectrum, the pharmaceuticals industry sports an 85.5 median score for days working capital outstanding. While there is clearly a difference in performance between the best and worst members of the sector, even the most efficient users of working capital within the pharmaceutical sector are not the fastest collectors of cash.

How does your company stack up? How fast are you collecting your cash?

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans"

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Friday, October 06, 2006

Staffing Slowdown on the Horizon

Is the staffing and temporary help industry slowing down? According to statistics just released by the Bureau of Labor Statistics, it may be doing just that.

According to the Staffing Industry Employment Bulletin, in September, temporary help payroll growth finally stalled altogether — eking out just a slight 0.7 percent growth from the year earlier as reported today by the Bureau of Labor Statistics (BLS). Versus the previous month, temporary jobs were down 11,300; further, the BLS restated downward the temporary job counts for July and August by a combined 15,000. This represents the lowest ebb in growth in what has been a continuing deceleration so far this year.

Nonetheless, temporary help earnings continued strong, up 8 percent in August (these are reported on a one-month delayed basis). The increase reflected a 1.3 percent increase in temporary hours worked and a 6.7 percent increase in average wages paid. These improvements may reflect, in part, a change in mix, as the professional side of temporary staffing, which both works more hours and receives higher pay, is growing faster than the commercial side. At the same time, however, evidence from the Staffing Industry Benchmarking Consortium indicates that temporary help wages have generally been increasing.

Job growth decreasing and wages accelerating. What does this say about the economy for the staffing sector? Sounds like a slight downturn with warning signs of inflation.

If your firm is involved in the temporary staffing and temporary help industry, making sure that you have sufficient working capital is key at this stage of the economic cycle. Revenues may drop off a bit and accounts receivable may be collected more slowly. Factoring is one of the biggest sources of working capital to this industry - now is a good time to make sure that you have sufficient lines of credit to make payroll and meet other operating expenses.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans"

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Wednesday, October 04, 2006

Increased Limits for SBA Business Loans

According to the Los Angeles Times, legislation to boost the limit of SBA business loans to $3 million recently sailed through the Senate Small Business and Entrepreneurship Committee. The 50 percent increase, which is contained in legislation to reauthorize SBA programs, would help the agency's flagship loan keep pace with the increasing costs of real estate, equipment and small-business acquisitions.

According to the article by Cyndia Zwahlen, a proposal to increase the limit on 7(a) loans is contained in the House version of the SBA reauthorization. That legislation, still bogged down in committee, would have to be approved and a compromise between the House and Senate bills reached before the increase would go into effect.

If these increases are implemented, small business loans supported by the SBA would dramatically increase over this past year's record loan volume of $19.1 billion.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans"

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Tuesday, October 03, 2006

Ensuring a Successful Expansion

Expansions can fail. Adding equipment, plant or staff to increase revenue doesn't always translate into a healthier bottom line. And without the expectation that the bottom line will grow after a planned expansion, it will be difficult to attract a business loan to fund your growth.

To help ensure the success of a new business plan, take time to calculate and understand costs, margins and breakeven. To get the lowdown on how to go about conducting your pre-expansion financial analysis, check out Is Expansion Right for You? from the weekly ezine of Hedman & Associates, a CPA firm just north of Los Angeles.

Click here to read "Matchmaking for Business Loans"

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