As a Business Owner, Do I Need a Life Coach?

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As a Business Owner, Do I Need a Life Coach?

You’ve just returned from a networking event where you learned that a colleague recently hired a life coach. They told you all about the experience, and it seemed to be a good one. It led you to wonder:”Do I need a life coach?” The more you think of it, the more you’d like to have someone on your side, coaching you through your journey. But you’re not quite sure it’s right for you.

We talked with Jenni Schubring, life coach and speaker, to identify what small business owners can gain from working with someone, how it differs from hiring a business coach, and how to determine if a life coach is the right fit for you. Here’s what she had to say.

Do I Need a Life Coach?

As a small business owner, you’re the heart of your business, whether you’re a solopreneur or have a large staff. You wear all the hats. You work early mornings and late nights. You also determine how much risk you’re willing to take to grow your business. Unless you have a business partner, you’re left bearing the weight of all that responsibility.

Wouldn’t it be nice to partner with someone who can help you determine your strengths and weaknesses? They can help you plan to use this knowledge more in your business – and life – so you can work towards your goals and achieve more.

Schubring explains it by saying, “Small business owners throw everything they have into their businesses. If any part of their life is ‘off’ it can — and will — affect their business. A life coach will address the whole person helping them get from where they are to where they want to be.”

She continues, “People see life through their own lens. That lens is usually tinted by life events. A life coach is an expert in helping people become more self-aware. This is such an important skill as a small business owner because our intent can be misunderstood. Those misunderstandings can be detrimental to our business. We can’t fix what we don’t know. A life coach will speak truth when it’s hard to hear. A life coach will help you see a more accurate picture of your reality.”

But, Wait. Why Not Hire a Business Coach?

Business coaches have their purpose for sure! Schubring says, “A business coach’s focus is on the business and performance. They will give you action steps on how to step up your business and help you meet your business goals.”

She then explains how the two fields differ, and says, “A life coach focuses on the whole person and the coachee’s personal development. A life coach’s process is to work on the coachee as a whole so they can better impact their world, which also includes their business.”

For example, when working with a new client, Schubring might start off with a personal assessment. She says, “My personal favorite is the Gallup Strengths Finder. This tool, and others like them, can help small business owners uncover a personal awareness that can lead to positive change.”

She then shares in more detail, “We know that to have a good business we need to have good relationships. It is important to recognize how we interact with others. We can then make the appropriate changes to positively impact those relationships. While the results of these assessments can help with that personal awareness, having [someone] walk you through the results and teach you how to apply them is a powerful piece that could be missed without a coach.”

How Can Business Owners Find the Right Life Coach?

If you’re wondering, “Do I need a life coach?”, the best approach to finding that answer is to interview life coaches and see how those meetings make you feel. Schubring recommends starting your search by looking for a life coach who is licensed or certified. In addition to that, she says that finding someone who feels “right” is so important, too. But how do you know when there’s a match?

Schubring says, “Find that out by taking coaches up on their free discovery calls, follow them on social media, watch their videos. Do the research. I also highly recommend making sure your life coach has their own life coach. We need to walk the talk.”

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Erin Ollila

Erin Ollila

Erin Ollila graduated from Fairfield University with an M.F.A. in Creative Writing. After a 12+ year careers in human resources – specializing in employee health and dental benefits, as well as wellness programs– she's jumped headfirst into digital strategy and content creation. Erin believes in the power of words and how a message can inform – and even transform – its intended audience. Her writing can be found all over the internet and in print, and includes interviews, ghostwriting, blog posts, and creative nonfiction. Erin is a geek for SEO and all things social media. She lives in Southeastern Massachusetts, neighboring Providence, Rhode Island, one of her favorite small cities.

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Business Loans for Contractors: The Best Choices

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best loans for contractors

Contractors need different types of capital to run their businesses. They use long-term capital to finance equipment purchases and short-term capital to smooth out temporary fluctuations in cash flow. Here are the best loans for contractors with descriptions of their collateral requirements, application procedures and repayment terms.

Line of Credit

A business line of credit is a valuable and flexible source of funds for a contractor. It allows you to make “draws” as needed against the maximum approved line of credit. You will only pay interest on the amount of loan drawn down. If you repay the loan, you can come back later and borrow again. These types of business loans are known as “revolving” lines of credit.

Lines of credit help smooth out short-term fluctuations in cash flow. They can be used to meet payroll expenses, pay suppliers and provide cash during slow periods. They can be drawn down at any time.

Lines of credit are usually secured by the contractor’s assets, such as accounts receivable, inventory and equipment. The amount of the loan is based on the lender’s appraisal of the worth of the company’s assets and its financial leverage. For example, a lender might advance 80% of the value of accounts receivable but only advance 50% of the book value of inventory and equipment. The maximum line of credit would be the sum of these appraisals.

The application and approval process for a line of credit is usually very quick.

Equipment Loans

From vehicles to high-priced heavy equipment financing perform their work. Equipment purchases for large amounts should align with the useful life of the asset. Equipment purchase loans are payable over several years, usually up to five years with monthly payments.

Lenders will require down payments of 10% to 20% but will finance the rest of the purchase price. This enables contractors to buy big-ticket items that may have otherwise been out of reach.

The collateral for an equipment loan is typically the equipment itself. This leaves the contractor’s other assets, such as receivables and inventory, available for collateral for other loans.

Small Business Administration Loan

Because of their long repayment terms and low interest rates, SBA loans are highly desirable. Lenders guarantee up to 85% of loans to contractors. This way, they have solid security in case the borrower defaults.

To finance long-term working capital needs and businesses with seasonal fluctuations, you can use funds from an SBA loan.

The hard part is that SBA loans are difficult to get. Only the most creditworthy applicants receive approval. Borrowers must have several years in business with good revenues and a strong credit history.

SBA loan applications require a considerable amount of paperwork and can take several months to get approved. SBA loans are highly desirable if you have the credentials and time to wait.

Accounts Receivable Financing

Under an accounts receivable financing agreement, the lender agrees to make advances up to a certain percentage, say 80%, of the contractor’s total accounts receivable outstanding. Repayment terms are either weekly or monthly. The contractor retains ownership of the receivables and assumes the risk of non-payment from the customer.

To make up short-term deficits in cash flow as needed, use funds from an accounts receivable agreement.

Invoice Financing

Invoice financing, also known as factoring, lets a contractor receive an advance against the company’s receivables. The factor typically will make an advance to the contractor of up to 80% of the invoice amount and collect the balance from the client at due date. Funds from factored invoices normally go into the contractor’s bank account the next business day.

In a factoring agreement, the lender, known as the “Factor”, purchases invoices from the contractor. They assume the responsibility of collecting the debt. Factoring fees can range from 2% to 4% of invoice value.

Approval for this type of invoice financing for subcontractors is based more on the creditworthiness of the contractor’s customers than the credit rating of the contractors themselves.

Loans for contractors range from lines of credit and receivables financing to meet short-term cash needs to equipment loans and SBA loans for long-term purposes.

James Woodruff

James Woodruff

For over 30 years, James has been a management consultant to more than 1,000 small businesses. As a senior management consultant and business owner, James used his technical expertise to conduct an analysis of a company's operational, financial and business management challenges. He then would create an action plan to maximize profits, improve business performance and propose solutions to solve organizational issues that would impact a companies growth. As an independent writer, James : * has meticulous attention for details, especially grammar, sentence flow, research and use of authoritative references. * commonly uses analogies, anecdotes and metaphors to help his readers understand complex terms and concepts. * is experienced using AP Style. James graduated from Georgia Tech with a Bachelor of Mechanical Engineering and received an MBA from Columbia University Graduate School of Business.

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Loans for Dentists: When a Credit Card Won’t Cut It

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a list of the types of loans for dentists

If you’re one of the nearly 200,000 dentists in the U.S., building and maintaining a thriving practice is certainly a key goal. You might not know where to find the best fit for financing that meets your needs when you’re exploring loans for dentists. You also might wonder if you’ll qualify for any medical practice loans, especially if you recently graduated from dental school.

Credit cards are certainly one way to close funding gaps. Over time, however, your credit score may fall victim to this strategy and might decrease. Maxed-out cards and high credit utilization rates can do a real number on your credit score. Not to mention that the interest rate on credit card debt can also cut into your practice’s profits.

There are a wide variety of loans for dentists to help your practice meet its goals, no matter the stage of your dental careers.

The type of financing you need depends on what’s best for your practice’s needs. From loans to lines of credit, here are your funding options.

Business loans for dental practices

Funding immediate business needs could be satisfied by a rewards credit card with a generous credit limit. If you max out that card, however, you’ll be removing an immediate funding option meant for emergency expenses.

If your dental practice has an established track record, solid financials, and a business plan that charts out a path to continued revenue success, business loans could be an ideal solution to preserve your available credit card buying power.

Short-term loans for dentists are ideal for bridging cash flow gaps and maybe the occasional building repair or pay raise to retain a key employee. Longer-term loans can help you achieve larger projects like upgrading your practice’s patient management and billing software or even a renovation to your waiting room.

You’ll be looking at flexible terms, loan amounts, and even repayment schedules that can flex with your revenue flow.

SBA dental practice loans

When you need capital for your dental practice, your first thought might not be for an SBA (Small Business Administration) loan. However, SBA loans can offer dental professionals favorable terms, flexible maturity dates, and wide-ranging use of funds to meet a variety of business needs.

SBA loan amounts range from $50,000 to $5.5 million. While terms vary by use of funds, a typical repayment timeline ranges from five to 25 years.

While the SBA guarantees a portion of these loans for dentists (usually around 85 percent), loans are offered through banks and credit unions in your local community and online lending partners like Kapitus.

The qualification process for an SBA loan is rigorous. Business owners need to prepare multiple months’ worth of financial statements as part of the application process. SBA lenders will also typically require collateral to back the loan. It could be equipment or real estate that you currently own. Interest rates will typically be lower than non-collateralized loans.

Dental practice equipment loans

When your goal is to provide the utmost quality in dental care, you’ll have a continuous eye on equipment that can help you deliver.

From patient chairs to cabinetry, and x-ray imaging tools to lights, equipment loans can help you set your office up for success. As your practice grows, loans can help you keep up without feeling a crunch on your cash flow.

There is also the option to finance equipment leases with an upgrade option. This means your practice can keep up with the most current technology to better serve your patients. You won’t have to worry about your financing outlasting the relevance of your equipment.

Working capital and business lines of credit for dental practices

A business line of credit could be a powerful financial tool if you want a stream of capital that can be used for any purpose. Whether you need a working capital infusion for your practice or some cash to help navigate seasonality, a line of credit gives you cash at a moment’s notice.

SBA loans and traditional business loans have more rigorous underwriting processes. But, lines of credit are more flexible in their approval process. A line of credit is also applicable when your dental practice doesn’t have an immediate need for cash. You’ll have it ready when the need arises. You won’t have to endure the approval process when time is of the essence.

An unsecured business line of credit has a higher interest rate than a traditional business loan or line secured by collateral. However, an advantage to a line of credit is only having to borrow exactly as much as you need. This can help you save interest costs long-term. You’re only paying interest on what you’ve drawn on your line.

Helix financing

Like most healthcare businesses, dental practices have specific waters to navigate. As the insurance landscape becomes more nuanced, your cash flow might slow down. Delayed insurance payouts and low premiums can take a bite out of your cash-on-hand.

Helix healthcare financing from Kapitus can help free that cash back up.

Helix financing is designed with the needs of your dental practice in mind. They have an expedited underwriting process. The process infuses anywhere from $20,000 to $500,000 into your business in as little as three days. You’ll be hard-pressed to be caught short for capital again.

Terms for repayment are also flexible and intended to keep you out of a cash crunch as time goes on. Terms range from six months to ten years. Helix can help you shake free of the financial confines related to insurance payout timelines.

Next steps

Review the wide variety of financial tools and loans for dentists available. And, think about what your upcoming financial needs might be.

It might help to organize your business goals by short-term and long-term. Then sort those projected capital needs by dollar amount. This process can help you determine which financial solution will help your practice at the most reasonable cost over the term you need the funds.

Keep in mind that collateral-backed loans will likely offer the most favorable interest rates. They typically have longer approval windows. You’ll need to do some planning if they’re part of your business financing plans. Lines of credit can have shorter approval windows and offer funds at the ready when you need them.

If you’re curious about the above loans for dentists that might be the best fit for your business, reach out to the team at Kapitus. They’ll help you find the best solution for your growing practice while leaving your credit cards out of the mix and in your wallet.

Bernadette Abel

Bernadette Abel

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Decrease Medical Practice Overhead In These 7 Areas

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discussing different ways to decrease medical practice overhead

KEY TAKEAWAYS

  • You may be able to reduce medical practice expenses by ensuring you don’t overpay on malpractice insurance through regular policy reviews and getting new quotes each year, efficiently managing supplies, and streamlining operational expenses, including office leases and utility bills.
  • Enhance cost-efficiency by avoiding overordering, negotiating favorable terms with vendors, and exploring bulk purchasing for frequently used items. Seek out sales and volume discounts to achieve savings.
  • Cut costs and improve efficiency by adopting digital tools to minimize paper usage, streamline billing processes, and Implement energy-saving measures.

As an independent practitioner, you focus on providing high quality healthcare to your patients. But, you’re also a business owner with a wide range of expenses. All business owners want to reduce costs, but as a medical professional you want to be sure that your service doesn’t suffer in the process. The average medical practice has overhead between 60% and 70% of its revenue. This includes everything from staff salary and benefits to medical supplies, insurance premiums, rent, technology and more. To decrease medical practice overhead, focus on items that won’t negatively impact your patient or employee experience. Here are seven areas to consider when you want to decrease medical practice overhead.

1. Insurance

One of your largest annual expenditures is likely your malpractice insurance. Depending on your practice type and state, premiums start at about $4,000 a year and can go up to the tens of thousands. The typical practitioner pays about $10,000. To avoid overpaying, make a habit of reviewing your policy and getting new quotes each year. Make sure you’re also taking advantage of available discounts. You may qualify for a lower rate by being a member of an association or for taking a course on reducing your malpractice risk that some insurers offer.

2. Office Lease

Another way to cut costs is to review your office lease and compare it to available properties. If you’re not using your entire space, consider a smaller space or refinancing an office to another provider. Or, use the information you’ve gathered on market rates to negotiate with your landlord. While moving your practice could be inconvenient, it might save you money in the long run.

3. Supplies

Take inventory of your supplies on a regular basis as to not order too much. If you have a contract with a supply vendor, review the terms and renegotiate where possible. And, check prices with competitors with a quick internet search. You may be able to save money by ordering supplies in bulk. If this is the case, make sure you’re only doing this for the things you use most frequently. Also, take advantage of sales. Contact your rep to ask about deals they’re offering this month. Check if you can combine vendors and qualify for a volume discount. You may be surprised at the number of overlapping products your vendors offer, allowing you to streamline your ordering and decrease medical practice overhead.

4. Outside Services

Review the outside services you use each year, like your patient linens supplier or document shredding. You may find providers that are less expensive or that offer multiple services so you can combine and save. Or you may be able to team up with other healthcare providers in your building and request a discount if you agree to use the same service on the same delivery schedule.

5. Paper Usage

Find ways to cut back on your paper usage. In place of paper, a growing online program is HIPAA-compliant digital tools. For example, you could send new patients links to forms that they can download and fill out at home before coming to your office. You can also look into services that allow your patients to complete and securely submit forms online. An added benefit of using online forms is that it speeds up your check-in process. This can improve patient waiting times.

6. Billing

Sending paper bills can be costly. You run the risk that patient payments are delinquent or overlooked and must go into collections. Instead, start asking all patients to keep a credit or debit card on file. This step eliminates the patients’ need to mail in payment and helps you keep costs down by reducing your own billing charges. If a patient doesn’t want to provide a card, require prepayment.

7. Utilities

Finally, watch your utility bills and take steps to reduce them. For example, you can turn off all devices at the end of the day. Take it a step further by unplugging electronics or using power strips that can be turned off at the end of the day. Computers, scanners, copiers, medical devices and other electronic equipment use electricity even when they’re sitting idle or turned off. Also consider the kind of equipment you’re using. Switching from desktop to laptop computers can save 80-90% in electric usage. Whether you lease or purchase equipment, be sure to choose ENERGY STAR devices that automatically power down when inactive. This can help you save as much as 50% on your energy bill.

The Bottom Line

Reducing your costs can free up money to use in other ways. You can possibly provide your staff with higher salaries or more benefits, or invest in new equipment to expand the services you offer. Be sure to share your goals and ideas to decrease medical practice overhead with your staff. Your team probably knows what can be eliminated. Asking for employee input gives your staff ownership over the outcome and increases the chance of implementing these suggestions. And remember, minimizing costs requires everyone’s cooperation.

Stephanie Vozza

Stephanie Vozza

Stephanie Vozza is an experienced writer who specializes in small business, finance, HR, retail and real estate. She has been a regular columnist for FastCompany.com for five years, earning some of the site's highest page views. Her byline has also appeared in Inc., Entrepreneur and Parade, and she has written for companies that include LinkedIn, Staples, Hewlett Packard Enterprises, Capital Impact and Century 21. She was recently named one of the top business writers by HubSpot. Stephanie is also the founder of The Organized Parent, a website that offers product and tips to streamline family life; she sold the company to FranklinCovey in 2011.

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Where Businesses Can Find Small Loans

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choosing small loans for your small business

There may be several financial institutions in your area that offer business bank accounts, but you cannot determine the “best choice” based on the bank’s age, size, or advertising claims. Ultimately, finding the best business bank account for your business starts with identifying specifically what you want to achieve with your banking relationship — now and in the future.

The questions below may help determine which bank can best support both the financial needs of your business, along with your longer term business goals.

Does the bank specialize in businesses like yours?

Not all business bank accounts are the right fit for every type of business. Your business may share commonalities with others in size, region, years in business, and annual revenue, but the challenges and opportunities that come with your business are unique. As you consider different banks, explore what types of businesses they serve. Do they offer solutions geared toward your industry? How familiar are they with your local market? Are they well-versed in SBA loans? The business relationship you have with your bank can influence your ability to reach profitability, maintain adequate cash flow and expand to establish a unique point of differentiation from competitors.

  • If your business is small with little-to-no plans to grow, in start-up mode, or is seasonal in nature, you may not know the average monthly balance you’ll be able to maintain, or the payment tools you’ll need to purchase goods from vendors, and accept payments from customers. Narrow your search to banks that offer business checking accounts with a low (or no) monthly minimum balances and fees, debit cards, online banking, fee-free wire transfers and unlimited incoming deposits.
  • If your business is well-established, in growth mode or operates internationally, consider banks that have an extensive footprint (around the country or world), offer cash management solutions like lockbox, remote deposit capture and fraud prevention for checks and payments, and/or specialize in high-value or cross-border transactions.

Does the bank offer tools beyond traditional accounts?

Javelin Strategy & Research reports that digital solutions and payments services for small businesses have “…lagged significantly behind consumer and commercial banking.” As a result, many small business owners may be hindered by a lack of access to the technology they need to effectively run their business. A bank that offers additional business tools may provide you turnkey solutions to run your business — including the ability to process card payments, offer gift cards, or manage loyalty programs and inventory. Know that having digital and mobile access to your business bank account is a top priority? Narrow your search for a bank only to those brands who are equipped to deliver all of your needs virtually. If you’ll rely on your bank for more than traditional financial services, limit your search to those that offer value-added tools.

Does the bank offer the ability to build credit?

Building a formal business credit history can document your businesses financial responsibility, and could work to your advantage if you intend to bring in business investors, partners, or want to sell your business. Not all banks offer credit cards or similar products for business clients; those that do may be more willing to issue credit to a business customer who has an established relationship with it.

Does the bank assign a relationship manager?

The best business bank accounts establish relationships, much like a consultative relationship between the client and a bank representative. If a personal touch is important to you, look for a business bank account that provides a relationship manager who is vested in understanding your business, and how the bank can help support it. If you’d prefer to handle most of your businesses’ financials online, however, a relationship-based model may not be necessary.

If you do opt for a bank that assigns a relationship manager to your account, consider the level of authority and expertise the person who will support your business holds, and whether the business bank relationship will suit your need for a minimum of 18 months. Meet with relationship managers at a few banks to gain a sense of how they interact with business clients, and to gauge whether their approach aligns with your expectations.

Is the bank preparing for the future?

Technology is changing business payments at a rapid pace, and banking is increasingly moving to a digital environment, allowing for faster processing times. Not all banks are equally invested in keeping up with the technology changes, particularly when it comes to meeting the demands of small business clients. While many banks now offer digital conveniences like person to person payments for consumers, not all have the capability to offer a similar services to business customers. Smaller banks or credit unions may be more flexible with fees, compared to larger banks, but not all have the resources to support the latest banking technology.

Research the business banking solutions that a variety of banks offer; compare what is available in the broader market, and from each specific bank. The bank you choose should offer the benefits most important to you, support the financial needs of your business, and be investing in technology and infrastructure enabling them to be your business banking provider for the long haul.

Liz Froment

Liz Froment

Liz Froment has been freelance writing for five years. She covers topics such as retirement strategies, financial technology, finance, marketing technology, small business, insurance technology, insurance, commercial insurance, and real estate. Liz has written for clients including UBS, CB Insights, AT Kearney, Cake Insurance, Novidea, LoopNet Coldwell Banker, Zembula, and HotelCoupons, among others. Her ghostwritten work has been seen on Social Media Today, Entrepreneur, Search Engine Journal, and Proformative. Before freelancing, she worked in corporate finance focusing on mutual funds and hedge funds for companies such as State Street Corporation, KPMG, and International Investment Group. From there, she worked at Brown University in grants administration. Liz lives in Boston and has a Bachelors of Business Administration with a concentration in management from the University of Massachusetts at Amherst.

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Should I Use Purchase Order Financing? When Does It Make Sense?

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There is a great deal of misinformation and erroneous assumptions around purchase order financing. You know what a purchase order is but how do you finance it? This is so-called asset-based lending but a purchase order is not an asset. In short, your question is, “should I use purchase order financing and, if so, when?”

Scenario

You are ecstatic that you just landed a huge order from a corporate customer you have been chasing for months. You and your team celebrate this seminal moment in your company’s history. The next day, however, you feel a pit in your stomach. You realize the money your firm has in the bank and the small credit line you can tap are not enough to fulfill even half of this order. You run through the scenarios. You could cancel the order, but you know you will not get an opportunity like this again. You could divide the order in half and wait on pushing the second half until you get paid for the first. Although this is not as poor an option as cancelling, it is not good. You could request a deposit or require that the order be pre-paid, but you remember that your controller already made this request. The response was that the firm would consider it in the future but not right now. You believe that they want to make sure your firm is viable enough to handle orders of this size.

Since you are hitting a mental wall with your options, you convene with your team to brainstorm. You discard accounts receivable financing because you would have to work out an arrangement with your bank to exclude the A/Rs from this customer. That may be doable, but you will not actually have a receivable until you invoice your customer AFTER the product comes in from the manufacturer. Your vice president exclaims, “I wish we could finance the purchase order itself!” Something in that statement resonates with your controller and she googles “purchase order financing” and voila! You discover it does exist.

What exactly is purchase order financing?

Before we go any further, it is important that you understand both what purchase order financing is and what it is not. Purchase order financing is essentially an advance provided to you on a specific customer’s purchase order to purchase readily available inventory or manufactured goods from a supplier. Hence, this is potentially a viable option if you are a reseller or distributor or if you outsource all of your manufacturing. Typically used for a sizable order, your PO financing firm will either advance funds directly to your supplier / manufacturer or issue a letter of credit or payment guarantee to release funds when the goods are delivered. The PO financing then collects payment directly from your end customer, thus acting as an invoice factoring firm.

Basically, the PO financing firm acts as a substitute for you, ensuring payment to the supplier / manufacturer so that you can fulfill your order. PO financing is not a general inventory financing option for you as it does not allow you to buy and hold inventory to sell later. It requires a specific purchase order for a specific customer. Your PO financing firm will need a copy of both the signed PO from your customer and your signed purchase order to the supplier.

What PO financing provides

The PO financing option allows startups and other rapidly growing or cash-restricted firms to accept large, new orders for their products from credit-worthy customers. According to Entrepreneur magazine, “Purchase-order financing can be beneficial to small businesses because it relies mostly on the company that has placed the order with the startup, and not the startup itself.” Although most PO financing firms require the goods to be shipped directly to the end customer, there are some that will allow shipment to a third party warehouse and even to your facility for light assembly, packaging and distribution. In these cases, according to Entrepreneur, “purchase-order financing often covers a large portion of the requisite supplies (needed to produce those goods), and sometimes even all of them.” Furthermore, the PO financing process is often much easier to navigate – and more straightforward – than traditional bank financing.

How does it work?

  • The PO funder obtains a copy of your customer’s purchase order and your purchase order with the supplier / manufacturer. After analysis, the PO funder agrees to finance your customer’s purchase order.
  • The PO funder sends payment or issues a letter of credit directly to the supplier or manufacturer.
  • The supplier receives the letter of credit or outright payment from the PO .
  • The supplier fulfills the order and ships the goods directly to the customer specified in the purchase order.
  • The customer receives the order from the supplier and receives the invoice from you.
  • The customer pays the invoice directly to the PO funder. If the customer pays immediately, the PO funder accepts the payment, takes out its fees, then remits the remaining gross profits from the sale to you. If the customer has terms (typical for large corporations and government entities), the PO funder factors the invoice – buys the invoice at a discount – and provides you with the funds, less the discount.
  • The customer remits full payment in 30 days to the funding company. The funding company releases any reserves to you that had been held.

If your company does light manufacturing such as assembly, printing and/or packaging, additional steps will be necessary as the inventory and supplies will be delivered to you then you will deliver the finished products to your customer. This increases the risk to the PO funder and hence, increases the fees.

Benefits for Your Company

If your customer has a strong credit history and has a record for prompt payment, and if you have a reputable supplier or manufacturer, your lack of business longevity or your weak credit profile will matter little, if at all, to a PO funding company. As outlined above, only the administrative components of the transaction, the purchase order and later, the invoice, rely on you.

When asking yourself, “should I use purchase order financing”, consider this. According to Forbes, “purchase order financing provides “sufficient working capital to cover payroll and start-up costs for a new contract.” This funding can also provide you with negotiating leverage to obtain better terms and pricing from suppliers. “Taking the calculated risk of a working capital loan that enables the small business to accept a job and grow is often critical to succeeding in government contracting” and other arenas.

Risks for the Funding Company and Associated Fees

In purchase order financing, there is no interest rate quoted. Instead, you pay a discount rate and fees. This means that you receive less than 100% of the amount the customer pays on the invoice, typically 1.5% to 6% less or, put another way, 98.5% to 94% of the invoice. This embedded interest rate captures the higher risk that purchase order financing typically has for the financing firm. The risks vary. The supplier / manufacturer may not deliver the product. (This risk is greatly reduced if a letter of credit is used.) Your customer could refuse delivery or refuse to pay because of issues with the product. Furthermore, your credit worthy customer could have financial issues. If you take delivery of the product, the risk is even higher as more could go wrong. Thus, rates for light manufacturers that process and repackage the inventory are generally higher, at least initially until a strong track record is created. The PO funder will not get paid in all these scenarios, which drives up the risk and hence, the rate.

The answer to the question, “should I use purchase order financing” is multi-layered. It depends on what type of firm you have, what your growth stage is, and what your current sources of funds are. Be aware of the risks but fully understand the benefits. According to Medium, if you can monetize your inventory by eliminating or reducing what you actually hold onsite, this will allow you “to sell more goods, grow the company, employ more people and feed more families.” Purchase order financing provides an asset-based form of working capital that, if used wisely, ultimately allows you to invest in your firm and its future.

Albert McKeon

Albert McKeon

After writing more than 5,000 bylined articles as a newspaper reporter and receiving leading journalism industry recognition – including the New England Press Association's Journalist of the Year honor – I'm now a freelance writer. I shape organizations' undeveloped and sometimes complicated ideas into understandable and persuasive marketing content, and I continue to write insightful stories for magazines and news services. I've long approached writing and editing with originality, a nuanced curiosity, persistence and creative flair – and that's the way I'd approach writing content for your organization.

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6 Business Alternatives for Bank Loans and When They Make Sense

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Need financing for your business but can’t qualify at a bank? There are various financing alternatives to keep your operations running.

Borrowing money is an essential part of building a small business. But when you need a loan, traditional lenders like the bank might not be an option. They tend to have strict small business lending standards. For example, you need established business credit, collateral and detailed financial statements for bank loan approval. This is a difficult hurdle for companies that have only been around for a couple years.  Fortunately, as a business owner, you have other options, with a number of business alternatives for bank loans on the market today.

These alternative options can be your financing lifeline until you build enough of a financial track record to qualify for more traditional financial products.

LET’S TAKE A LOOK AT THESE BUSINESS ALTERNATIVES FOR BANK LOANS AND WHEN THEY MAKE THE MOST SENSE.

1 – Online Loans

Banks aren’t the only ones lending money. Alternative and online lenders are also a quality source of small business financing. They offer stand-alone cash flow loans that you can invest into your business and spend however you choose. If you want more flexibility, you could also open a line of credit.  A line of credit lets you borrow, pay the money back and re-borrow again as many times as you want.

It’s easier to qualify for loans from alternative lenders because their requirements are not as strict as with banks. Another advantage is you often don’t have to secure the loan with your future business revenue or other collateral. However, your business will need to meet some standards like stable revenue and a good business plan for how you will use the loan proceeds.

Best fit for: A business with stable revenue looking to borrow cash quickly, without putting up collateral.

2 – SBA Loans

Another way to borrow is through the Small Business Association. This government organization assists small business owners and one of their services is to help them qualify for loans. The SBA doesn’t actually lend money. Instead they agree to back a certain percentage of the loan, guaranteeing repayment to the lender. This makes the lenders more likely to accept your application.

SBA loans can be a great tool provided you can qualify. The process does take time and you’ll need to submit, at minimum, similar documents that you would include as part of a bank loan application – such as a business plan, bank statements and your credit report.

Understanding the SBA system can improve your chances of qualifying so be sure to work with a lender that regularly works with these types of loans.

Best fit for: A business that can meet the SBA standards for a loan and also knows a lender that understands the application process.

3 – Equipment Financing

If your small business needs money specifically to buy a new piece of equipment or machinery, then equipment financing could be the answer. These small business loans can only be used to buy an asset, which also counts as the loan’s collateral. This makes it easier to qualify because if you end up not paying off the debt, the lender can take back the equipment as repayment.

With this type of financing, you can often buy new equipment with no money down but you’ll still receive the full tax break for the business investment, as if you bought the equipment with cash. You can also set up the financing as a lease which would let you replace the equipment earlier with new versions as they come out.

Best fit for: Buying or leasing new equipment for your business.

4 – Purchase Order Financing

A lack of cash can put even thriving businesses in trouble. 52% of small business owners had to forgo a project or sales worth $10,000 because of insufficient cash, according to an Intuit Quickbooks survey (slide 2). If you’ve got a project lined up but need some extra money to make it happen, purchase order financing could be the answer.

These short-term loans cover up to 100% of your supplier costs if you can show that you’ve got an order that will turn things around. Once you make the sale, the lender will deduct their fees from the proceeds. That way you still fulfill your order without taking on any extra debt. And since you can prove that you’ll be able to pay the money back quickly this financing is easier to qualify for. You just need to prove the upcoming purchase order.

Best fit for: When you’ve almost completed a sale and need a quick cash infusion to reach the finish line.

5 – Invoice Factoring

After you make a sale, your job still isn’t done because you you’ll need to collect payment. This can take between 30 to 90 days, depending on your payment terms.  And, as many know, it could take even longer when customers miss payment deadlines.  Not to mention there’s always the risk they don’t pay.

If your invoices are piling up and you need cash, invoice factoring could be the solution. You transfer over an unpaid invoice to a financing company, called the factor, and they’ll give you an advance on the payment.

From there, the factor takes over collecting from your clients. Once they get paid, they’ll give you the rest of the invoice amount minus their fee, which could be as little as 1.5% of the invoice amount.

Best fit for: A business with unpaid client invoices that wants to improve cash flow.

6 – Revenue Based Financing

Revenue based financing is the last of our business alternatives for bank loans. These loans have a simplified and fast application process, a great solution if your business needs money now. Lenders can approve this financing quickly because they just look at your historic revenue and how long you’ve been in business. They use this to forecast your future cash flow.

Based on that, they’ll give you a lump sum of cash. The lender will then collect a set percentage of your future sales on a daily or weekly basis.

Best fit for: A business with a proven history of revenue that needs money but does not want to go through a lengthy loan application process.

Don’t let a bank loan rejection discourage you from raising the money your business needs. As you can see, there are plenty of alternatives. If you have any questions to figure out which of these solutions is the right fit, reach out to a loan specialist today.

Wil Rivera

Wil Rivera

WD

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3 Ways to Evaluate a Capital Investment

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Small business owners often find themselves in a situation where they have to evaluate a capital investment project and decide whether or not how to expand their company, purchase new equipment or move to a new location. Availability of internal funds and the ability to borrow money are often limited.  So, making the decision on whether or not to move forward with a project or purchase is critical to the health of a business.

Let’s look at an example: Suppose an owner has an extremely popular restaurant and wants to take advantage of its esteemed reputation. Should the owner expand the existing facility or open a new location on the other side of town?

Expanding the existing restaurant will cost $75,000 and is expected to produce additional annual cash flow of $25,000. A new location will require an investment of $300,000. It is projected to have an annual cash flow of $75,000 after it is up and running for a few years.

Which of these projects should the owner choose?

Fortunately, several tools are available to evaluate a capital investment that will help small business owners determine the feasibility of each project:

  • Payback method
  • Net present value of cash flows
  • Internal rate of return

Evaluate a Capital Investment with the Payback Method

The payback method is the simplest to use. It is the time needed for cash inflows to cover the initial cost of the investment. The formula is the initial investment divided by the annual cash flow.

Take the example of the choices facing the restaurant owner. The payback period for the expansion of the existing facility is three years ($75,000 divided by $25,000). Since the restaurant is already operating, the increase in cash flow will take place fairly quickly.

Alternatively,  once there is a steady customer base, the payback period for opening a new location could be four years ($300,000 divided by $75,000). However, the cash flow for the early years after opening is uncertain, so the payback period may be longer.

The payback method has the following weaknesses:

  • The payback method won’t include cash flows beyond the payback period.
  • It does not consider the risk of receiving future cash flows.
  • This method fails to take into account the time value of money.

Evaluate a Capital Investment with Net Present Value

Unlike the payback method, the net present value calculation considers the time value of money. It includes future cash flows after the payback period and for as long as the project generates cash.

NPV takes a stream of future cash flows and discounts them back to their present value at the current interest rate on loans or the rate of return required by an investor or owner.

The amount that the present value of cash inflows exceeds the present value of the initial investment is the project’s NPV. This makes it possible to compare projects to each other by determining which one has the highest NPV. This method has a bias toward larger projects. This is because larger projects can show higher a higher NPV than smaller projects which have fewer dollars invested.

You can adjust the discount rate used to calculate the NPV so that you can compensate for the risk level of future cash flows. In the restaurant example, the discount rate used to calculate the NPV for a new location will be higher because of the greater uncertainty of future cash flows. Cash flows from expansion of the existing facility is more certain.

Evaluate a Capital Investment with Internal Rate of Return

The internal rate of return for a project is the discount rate that makes the net present value of the investment equal to zero.  You should consider accepting a project if its IRR exceeds your required hurdle rate. As the business owner, you determine your hurdle rate.

When using the IRR approach, you can compare projects with each other.  Upon comparing, you should select the project with the higher IRR, assuming the IRR exceeds the required hurtle rate.

None of these methods will provide the ultimate answer by themselves. Each approach has its advantages and shortcomings. The payback method is simple to use but does not include cash flows beyond the payback period. The net present value calculations favor large projects over small ones.  In addition, the internal rate of return gives multiple answers when cash flows are both positive and negative.

The most sensible approach is to use all three methods to get comparison figures for guidance and then apply experienced judgement and common sense.

 

Bernadette Abel

Bernadette Abel

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How to Stress Test Your Small Business

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In the banking world, advisors often talk about stress-testing portfolios — determining the effect of different scenarios on an individual’s or business’s holdings. The same should be done for a small business.

How prepared are you if the economy changes, and you need to dip into your reserves? How will you manage your cash flow? Do you, as a small business, have the resources to survive heavy losses if the worst-case scenario happens?

Here are six ways to help stress-test your business if there is a downturn in the economy.

1. Solicit advice from key advisors.

Do you have an advisory board or a brain trust of reliable partners? SCORE, a nonprofit that is a resource partner of the U.S. Small Business Administration, offers a network of volunteers including retired C-suite executives, who can help mentor.

Find your local chapter, which is typically done on a county by county basis, and attend a workshop or listen to a live or recorded webinar.

You can search for a SCORE mentor online or have the local chapter pair you with an expert who can help mentor you on your business goals. Some mentors bring in additional mentors to help with various aspects of your business, such as preparing for a potential downturn.

2. Create a plan for worst-case scenarios.

One of the more effective ways to prepare for a sluggish economy is to forecast trends. Look at what a dramatic drop in sales or a dramatic uptick in expenses might do to your business. Ask yourself what would happen if you lost a major vendor, product or service. What might this loss do to your company? Then decide where you could trim expenses, potentially increase profits or diversify your client-base.

3. Identify all your best customers.

Not all customers are created equally. That’s because some are more profitable than others. Once you’ve pinpointed who your best customers are, begin nurturing those relationships by continually adding value for them. Build brand loyalty for them by making sure it’s easy for them to do businesses with you. If a change in the economy affects your business, loyal, high-value customers may help sustain you until the market changes.

4. Review your financial cushioning.

Although the general recommendation for businesses has been six months, Hal Shelton, a SCORE mentor and angel investor says to look at how much you cash you need. Ask yourself these key questions:

  • How much cash have you been using?

Look at your “net burn rate,” the rate at which you spend your cash holdings. For example, if you are bringing in $10,000 but you are spending $4,000 in expenses, your net burn rate is $6,000

  • How much cash do you plan on using in the next 12-to-15 months?

Be conservative, but look at your monthly budget or the financial forecast in your business plan. Separately, look at actual cash expenditures as well as the cash in (sales) and cash out (expenditures).

  • What stage is your business?

If you’re a start-up, or ramping up your business and going to have big expenditures, that’s different than being in the middle of a more-established place.

  • How long will it take you to get more cash?

For many businesses, this is an unknown factor. Getting a loan from a bank, if they are willing to lend, can take several months. It usually takes at least a month to find a bank who might be willing to lend money and another month to fill out the paperwork. That’s contingent on already having a bank-ready business plan and an already established relationship.Shelton says pitching and presenting to potential angel investors takes significantly longer, usually at least six months or possibly nine months to a year.

5. Consider your borrowing options.

You don’t want to have to borrow money when you desperately need it. You want to borrow money before you anticipate you might need it, or at least have a good enough financial footing to be able to secure a line of credit or a business loan. Stephen L. Nelson a CPA in Redmond, Washington, offers some tips on how to forecast 12 months out using excel workbooks.

Shelton’s advice is to “Seek cash when you are in a position to explore options and negotiate from strength.” Then ask yourself: Can you still operate if your funding disappears?

6. Consider alternative funding options.

Besides traditional term loans, you may consider opening a business credit card or a business line of credit. There’s also equipment financing and grants for small business owners. If you have less than perfect credit or if you need money quickly as a business owner, a short-term loan may you be your best option.

By stress-testing your business’s finances and proactively planning now, you may help mitigate potential problems down the line.

Bernadette Abel

Bernadette Abel

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Are Credit Card Cash Advances Bad?

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Do you use your credit card to make withdrawals for your business? If so, you might be making an expensive mistake.

Whether it’s a business card or a personal credit card, it’s time to think twice about using your credit card as a debit card. Here’s what you need to know.

4 Reasons to Think Twice About Using Your Credit Card for Cash

Withdrawing money via your credit card could be costly for these four reasons.

1. Cash Advance Fee

It costs more to borrow cash from your credit card than to make a purchase using your card because of what’s known as a “cash advance fee.” Depending on the terms in your agreement, credit card issuers could charge you either a flat rate fee or a percentage fee of the withdrawal amount — whichever is greater.

2. No Grace Periods

Like personal credit cards, business credit cards usually offer a grace period. A grace period is the time period between the end date of a billing cycle and your next credit card due date. Cash advance transactions typically do NOT have a grace period. Instead, interest begins accruing immediately upon withdrawal, resulting in a higher total interest charge on cash advances than you’d see on a purchase transaction.

3. Higher Borrowing Rates

Another expense to consider with a credit card cash advance are the potentially higher interest rates. Interest rates on cash advances may be higher than the rate charged for purchases on the card. Refer to the fine print in your credit card agreement or contact your card issuer for more information.

4. Potential Unlimited Personal Liability

Does your business credit card have a personal liability clause?

If you’ve provided a personal guarantee for your business credit card, you’re personally on the hook for paying off that credit card debt if your business fails. That debt could include all the cash advance withdrawals from that credit card. This is the case even if the way you’ve incorporated your business (for example as an LLC) protects your personal assets against business litigation.

How to Calculate Your Credit Card Cash Advance Cost

If you’re wondering just how much a credit card cash withdrawal could cost, here’s how to figure it out

  1. Calculate the initial cash advance fee based on the withdrawal amount. For example, the fee on a $3,000 withdrawal from a card with a 3% cash advance fee is $90.00.Next, calculate the interest charges. Divide the annual percentage rate (APR) for cash advances on your card by 365. Then multiply that figure by the number of days you’ll carry the balance and the withdrawal amount. Based on the example above, a $3,000 advance at an APR of 21% for seven days, the calculations look like this: 21/365 = 0.00274 daily interest x 7 days = 0.019178 x $3,000 = $75.53.Add the interest charge to the credit card advance fee for a total cost of $165.53 (90 + 75.53) in charges and interest to take a $3,000 cash advance for seven days.

Alternatives to Business Credit Card Cash Advances

Luckily, there are less expensive ways to borrow money for your business.

  • A business line of credit gives access to funds as needed, and you’ll only pay interest when and if your business uses it.
  • Equipment Financing and short term loans often have comparatively low rates, especially when they’re secured against collateral such as real estate, equipment, or machinery.
  • Other business financing options include borrowing against your accounts receivables and invoices through revenue-based financing or invoice factoring; invoice factoring is a good option for subcontractors,.

Look into the other business financing options available to you before taking a credit card cash advance. Doing so could save your business a bundle.

Bernadette Abel

Bernadette Abel

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