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These plans
entail your empowering a representative of the supplier to enter
your premises and take spot-counts of the supplier's merchandise in
your stock. The supplier then invoices you for what has been sold
according to the representative's report, and replenishes your stock
to the original agreed level. This system also permits the supplier
to constantly alter the mix of his/her merchandise on your shelves,
quickly replacing slow moving items with those that seem to sell
more quickly in your particular market.
Renting and
Leasing vs. Buying
In aggressively competitive equipment
markets, most leasing companies will be pleased to arrange lengthy
leases on equipment and computers with an "option to purchase in
order to close the sale for the supplier. Renting or leasing can
free up equity capital for investment in other areas of greater
return; free up borrowing power (improves cash leverage) for more
critical borrowing; requires no down payment; fixes the rate for a
set term; allows you to deduct the full expense from your taxable
income; and still allows you the flexibility to exercise purchase
options at a later date at a predetermined price.
Leasehold
Improvements
When
you are negotiating a lease for a rented premises, remember that a
substantial amount in leasehold improvements will be going into that
location. The person in the best position to oversee the leasehold
improvements as a security for the loan is the landlord. Moreover,
the landlord or property manager will often agree to provide a
portion (a dollar amount per square foot allowance), or all of your
leasehold improvements against a longer term lease. A three or five
year lease gives you a reasonable negotiating position for including
leasehold improvements in the deal and paying for these through your
rent over the course of the lease. This may represent
$30,000-$60,000 of start-up expenditure for retail locations, for
example, and off-laying that can significantly reduce the start-up
cash and equity required. In addition, it can make a balance sheet
appear healthier when its ratios are examined. A skilled lease
(contract) lawyer, acting on your behalf, can perform great service
in this kind of negotiation.
Advance
Payment from Customers
You might consider negotiating a full or
partial advance payment from customers to help finance the
preparation costs related to taking on their business. In some
project oriented industries it is customary to receive a stepped
(partial) payments payable at defined stages of project progress,
prior to the completion of the project.
Consider
requiring a deposit for all work (Normally deposits are held in
trust pending completion). This will reduce the need for a line of
credit. Deposits collected for work that involves special orders for
goods or services will serve to prove the customer was committed to
the order and will prevent the business having to absorb costs
resulting from non payment.
Factoring
Accounts Receivables
An effective way to grow a business with
limited working capital is by utilizing a factoring company to
discount your accounts receivable. In fact, with good supplier
credit and a professional factoring company, you may need a lot less
capital than you think. The factoring company can also provide you
with credit management expertise.
What happens is
basically the same thing that happens when a retailer accepts a
credit card. You receive the money right away while it is the
factoring company who waits for payment. By having the use of your
money right away you can begin to concentrate on making the next
sale. A strong focus on sales is the key to success for every new
business.
Factoring is
more expensive (typically 3 - 5% of you invoice) than most other
forms of finance therefore it is important to find ways to build it
in (pricing) and earn it back. (suppliers). There are also savings
realized by not having to perform necessary credit functions
yourself. If you can use the factoring monies to add new business
then the costs or factoring are fairly easy to justify.
By factoring
your receivables you do not increase debt or dilute equity. You are
simply given access to your own money when you want it rather than
when your customer chooses to pay. As you build your own working
capital you can reduce the amount that you factor and carry more of
your own accounts receivable. Eventually you can become completely
self financed. (Special thanks to First Vancouver Finance for this
information on Factoring) | 
