The Financial Starting Line
This is a scenario we hear many times every week from our potential clients. The story goes something like this:
â€œI started my own business about 18 months ago. It was fairly slow going at first, but in the last seven or eight months, business has really picked up.
Initially I used my savings to finance the start-up, and subsequently, I have â€˜raidedâ€™ my pension fund I had built up while working for someone else and prior to opening my own business. What Iâ€™m seeing is as my business grows, it needs more working capital to constantly fuel that growth.
Recently, I have even resorted to financing some business purchases with credit cards, and now I find I have some permanent credit card debt. I was somewhat reluctant to call my bank for help as I didnâ€™t know what sort of reception I would receive. In the end, I made the call only to find out I didnâ€™t really qualify for any programs. It seems I donâ€™t have a long enough track record, and my financials donâ€™t meet the bankâ€™s criteria at this point in time. I do not want to slow down my expansion plans, reject any orders, or basically plateau out my business at a lower level.
They did say most banks would take the same position as theirs and I should explore the secondary finance market place. They talked about such things as factoring, purchase order financing, invoice discounting, and venture capital. I donâ€™t know too much about any of these areas, so I did the research and found out Iâ€™m too small for the standard factoring companies I contacted. My business, it seems, is not well suited to using purchase order finance as a growth approach either.
The venture capital people I spoke to all wanted a business plan, several yearsâ€™ financial statements, cash flow projects, and more. None of which I had. For me, it turned out invoice discounting – a service I had never heard of – was the only viable solution.â€
Did I Jump The FinancialÂ Gun At The Starting Line?
Invoice discounting allows smaller growing companies the luxury of basically turning their business into a â€˜cash on deliveryâ€™ business. Once the cash flow is accelerated, the growth of the business can easily be handled and financed.
In the current economy, small and medium sized businesses will become victims of their own success. They can create the product or service and they delivery it, but as the order book grows, they canâ€™t finance the growth and either have to slow down or go out of business.
With services such as invoice discounting, there are options to help small businesses climb to the next plateau.