How to Obtain Funding for a Business

How to obtain funding for your service business

How to obtain funding for a business is something that is on the mind of every entrepreneur who has ever had an idea for starting their own enterprise, and with good reason. In order to get anywhere, regardless of the stage that the company is in, you need to be able to successfully manage your finances down to the last penny.

For the average startup, this applies to being able to get the enterprise up and off the ground. Established businesses need effective money management for growth and expansion. In a long-standing business, managing finances has everything to do with holding on to market share and keeping competitors at bay.

Proper business funding is essential to everything from day-to-day operations on up, but just what is the answer to the question of how to obtain funding for a business?

Well, let’s take a look at some of your options:

You could receive funding for your company through equity financing

If equity financing is the route that you decide to take in order to finance your company, then you should know the basics behind this practice.

  • Equity financing is the same as getting investors on board with supporting your company. You agree to allow these investors to purchase part of your company. They give you money for operations and they, in return, receive a percentage of the profit that comes in
  • This approach for securing funding means that you can come across a large amount of money on which you will not have to pay interest but, at the same time, you lose some control in your enterprise.

Investors who own a large enough part of your company may have some input into how things are run, so you want to think about who you approach if you decide that this is the answer to how to obtain funding for a business.

If handing over part of your company to an investor doesn’t sound like an appealing option, then….

You could look at taking out private loans

When business owners are trying to figure out how to obtain funding, this is often the most common approach.

This comes with its own unique characteristics, of course:

  • By borrowing money from a bank or finance company, you can obtain the kind of capital you need to get going without having to give up a controlling interest in for company.
  • Your company’s profits belong to your company and no one else.
  • Like with any other kind of loan (such as a car loan) you will have a timetable by which you have to pay back what you borrowed. That loan will, of course, carry interest with it.

When it comes to getting a loan from a bank or finance company, you should also know that doing so requires a lot of research.

Lenders are hesitant to extend loans to first time entrepreneurs because of the level of risk associated with running your own business for the first time.

You can increase your chances by constructing a strong business plan that will outline how your company will be run. You should be aware of the fact that, even if you are successful, you may have to put up collateral.

When figuring out how to obtain funding for a business, these are two ways that you can approach it…

But, in a few instances…

You can obtain a grant

Free money that doesn’t have to be paid back; how does that sound?  In answering how to obtain funding for a business, this is the most attractive option.

This is what a grant is, in essence. Since grants are given to an entrepreneur and don’t have to be paid back, this is the best way to find a business but, of course, there are some things associated with grants that make them harder to come by than any other source of funding.

  • Some grants may not give you full funding, but what you do get may still be substantial enough to get you going.
  • As stated, the money is yours. There is no paying it back.
  • Grants are only given to enterprises that are applicable, meaning that your company has to be in a certain field or sector to even be considered. This usually means something like a non-profit organization
  • You will likely have to abide by certain conditions once you begin your operations

Because grants are free money given only to certain enterprises, they can be harder to find and harder still to obtain.

If a grant is your answer to how to obtain funding for a business, then you want to get started on applying as soon as possible, because the application and approval process can take time.

Which one is right for you?

What’s right for one kind of business may not necessarily be correct for another, so you want to think about your source of funding very carefully when you are running your business.

Take a look at the kind of business that you want to run and what you need in order to make your vision happen.

Your startup might not require the things that others need in their daily operations, so look at every area of your business, from personnel down to supplies, and you’ll get a general idea of how much seed money you need.

Once you take that into account, the task of answering the question of “how to obtain funding for a business” gets a little easier.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

Contact us for more information on how we can help you grow your business. Follow us on Twitter @portalcfo

How to Fund a New Business

fund a new business

The question of how to fund a new business is one that any entrepreneur will ask his or herself sooner rather than later.  After all, how are you going to be able to do anything in the world of business without the right funding to get the wheels in motion?

Think about all of the things that a business needs in order to run and you’ll quickly see why it’s important that you not just secure funding for your enterprise, but that the funding you secure will be enough to help see your business through its formative period once it’s up and running.

You need start up funding to cover things like:

  • Equipment
  • Payroll (if you aren’t the only person involved in running your company)
  • Licensing
  • Office space
  • Insurance

The costs don’t end with just these essentials either. While you may be able to find more cost effective alternatives in many instances, not including any one of the important aspects of business operation could ultimately mean that your company ends up suffering in the long run.

So how do you fund a new business, knowing that it involves so many different aspects from the start?  Well, let’s take a look at some of your options.

You Could Get a Bank Loan

Many entrepreneurs go the traditional route when funding their startups by appealing to banks for loans or lines of credit.

Money extended to you by a lending institution like a bank can help get you started but, if this is the path you decided to take in order to secure your seed money, you need to be prepared.

Banks want to be sure that the money they extend to startups will be returned to them, which is why you need a strong business plan.

It’s no secret that startup businesses can be a gamble, so you need to have proof that your business venture is something that will be worth the lender’s trouble.

You Could Try to Apply for a Grant

For many reasons, grants are more difficult to obtain than loans when you’re looking to fund your business.  Funds available to distribute via grants are often very limited, as are the types of businesses that the federal government will extend grants to.  Grants can also be available through local governments and organizations depending on where you live but they often have many of the same strict reporting requirements as federal grants.

If pursuing a grant is an avenue you’re interested in when figuring out how to fund a new business, you should know that a business plan can help you much in the same way that it can with pursuing a loan.

The federal government wants to be sure that any money they extend to a new business owner won’t go to waste, so you want to come up with a plan that is as detailed as possible if you want a fighting chance at securing a grant for your business.

To learn more about small business grants, you can go to the official website of the US Small Business Administration.

You Can Try to Find Investors

When thinking of how you can fund a new business, have you thought about appealing to potential investors who can provide your company with startup capital?  Look for business-minded people who might take an interest in your enterprise and make them partners.

In this scenario, you may have to cede some level of control but you will get money to fund your company, so it’s up to you to determine whether or not that trade off would be worth it in the long run.

You Could Try Contract Work

Starting and running a business, even planning to do so, is a full time job. In figuring out how to fund a new business while it’s going, you might not have time for a traditional 9 to 5.

Depending on the size of the company you plan on starting, however, you may be able to use money that you earn through freelance and contract work to supplement money that your startup brings in.

The flexibility of freelance work means that you would be able to dedicate a good amount of your time and energy to running your company while gathering some extra revenue at the same time.

Finding the Method That’s Right for You

While there seem to be countless answers to the question of how to fund a new business, the options listed here are some of the most widely practiced among entrepreneurs who want to find the right amount of funding to get their business ventures going.

It’s important to remember that anyone who was a stake in your business wants to be sure that they won’t end up losing anything on the deal.  Therefore, your investigation into how to fund a new business should include some reassurance that stakeholders will come out on top at the end of the day.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

For more information on business analysis, business planning, and ways to grow your small business profitably, please check out our website www.portalcfo.com.

What Is Purchase Order Financing?

what is purchase order financing

It isn’t uncommon for owners of small companies to ask What is purchase order financing? when looking for ways to gain some quick capital for mission critical operations. The thing is, however, that purchase order (PO) financing is something that might be ideal for a certain type of business in a certain type of situation, but it may not be something that works out in other scenarios.

In this post, we’ll explore PO financing and see just what you can use it for. Afterwards, you’ll have another bit of financial knowledge that will benefit you as an up-and-coming entrepreneur and will be that much closer to running your business with the best of them.

So, what is purchase order financing?

It’s a Way to Make Purchases Without Depleting Cash Reserves

As a small or medium sized business, you have to make sure that every dollar is spent wisely, right? That means that you need to be absolutely sure that you’re getting the best possible deal on supplies, equipment, and services that you need to run your business.

During the early years of a business, margins can be thin, so you can’t afford to let any of your resources go to waste. Still, cutting back isn’t an option. If you scale back on what you need to serve your customers, your reputation could suffer, people might turn to competitors, and you could lose market share quickly. That’s where PO financing comes in.

Whether your situation has your company seeing a lack of revenue as you attempt to turn your company around, or you’re saving your reserves for potential growth and expansion, you can use PO financing in order to continue operations.

When asking the question of “what is purchase order financing”, it’s important to think about how such a tool works as well.

In many ways, it acts as a form of cash. You can use a purchase order to pay creditors tomorrow for something that you’ll receive today, so to speak.

What happens is that you go through a PO financing company. That company then buys from your suppliers on your behalf.

The suppliers then fulfill their end of the agreement that your business has with them and the end product is delivered to your clients.

After the transaction is complete, the money from the letter of credit that the PO financing company drafted is released to the supplier and you typically have 30 to 60 days to pay an invoice to the PO financing company.

When to Use PO Financing

The question of “What is purchase order financing” goes hand-in-hand with when it should be used.

One such ideal situation for using this financial tool to further your business would be if one of your customers came to you with a large order that could potentially mean big things for your company.

While this is the break that you have been waiting for, the reality of the situation may be that you don’t have the capital or resources on hand that you need to make the order happen.

Bank loans may be out of the question as well, even if you have strong relations with your lenders.

When that happens, PO financing is your best bet for making that large order a reality so that you can deliver your product to your customers and grow as a company.

More About PO Financing: Who Uses Them

While many entrepreneurs may ask “what is purchase order financing”, they may fail to realize that the nature of this type of financial agreement limits exactly what kind of entrepreneur can use it.

These are the types of businesses that should typically be asking “What is purchase order financing?”

  • Producers – If you make a product, then PO financing could be an easy way for you to secure a large amount of raw materials that you use as ingredients. 
  • Distributors – You may find yourself having to send out a larger volume of a product than you usually would. In that case, PO financing can help you reach that goal.
  • Wholesalers – If you need to fill a larger than usual order with an existing customer, or are expanding to clients who purchase more than you normally supply, a PO financing may help cover the difference here. 
  • Resellers – Business owners in this industry who ask themselves “what is purchase order financing” can benefit from having more of a product to sell to customers by using PO financing.  

If you’re a business owner who wants to fulfill larger obligations to clients, but you aren’t asking yourself “what is purchase order financing”, then you should be.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

For more information on business analysis, business planning, and ways to grow your small business profitably, please check out our website www.portalcfo.com.  Follow us on Twitter @portalcfo

How to Use EBITDA to Value a Business

EBITDA to Value a Business

If you’re an entrepreneur who wants to know how to use EBITDA to value a business, then you should know all about this calculation and how it can help you strengthen your business in the long run.

When it comes down to it, EBITDA is designed to do three main things:

  1. Provide a rough estimate of the company’s cash flow from operations
  2. Provide a means by which the worth of different companies can be compared
  3. Illustrate how much money is available to the company in order to help eliminate debt

EBITDA, which stands for earnings before interest, taxes, depreciation and amortization, is something that companies in all kinds of sectors rely on in order to accurately gauge their strength as it relates to profitability.

It’s with that in mind that you want to approach your business practices with the mentality that you’ll be selling your company one day.

If you approach them in that way, you’ll be able to use EBITDA to not just know how much your business is worth, but determine what actions you can take to make the business a more attractive prospect in the future.

Take a Look at Your Company’s Equipment

When you want to figure out how to use EBITDA to value a business, one place to typically start is the equipment that the company uses in order to carry out is operations.

Does your company mostly have standard equipment?

If so, how old is it?

The age and condition of the machines you use to get work done can have some bearing on your company’s overall worth.

Likewise, if you have specialty equipment that not everyone in your field possesses, this can have a positive effect on your EBITDA and the overall worth of your company at the end of the day.

Your Reputation is Important

Another important factor in determining how to use EBITDA to value a business can rest in how your business is perceived.

Do you have a large number of repeat customers?

Is a lot of the business that you do the result of positive word of mouth?

While your services and offerings are important, the way that the consumer perceives you is an all-important part of determining your company’s worth.

If you have a large enough customer base that relies on you time and again, that could easily increase how much your business is worth. The buyer will be getting those repeat customers along with your company’s name and equipment.

Location is Everything

Part of a business valuation may be an assessment about where your offices are located. When thinking about how to use EBITDA to value a business, look at your location and how it can affect your revenue.

Are there other companies similar to your own nearby? If so, who has been there longer?

Are you close to your main customer base?

Are you in an area of highly sought after business real estate (e.g. a downtown vs a rural location)?

Much like buying a house, the location of your business can play a large role in how much a buyer is willing to spend. Short of packing up and moving, there’s little you can do about your location but knowing that it has an effect on your company’s worth can help dictate how you’ll proceed.

It All Comes Together In the End

Each of these factors, as well as several others, are all important to determining the worth of your company before you decide to sell it because each of these factors can outwardly affect your earnings.

Knowing what you now know about how to use EBITDA to value a business, you can make adjustments so that your company worth more in the eyes of potential buyers.

Whatever you do to improve your practices, it’s important to keep these things up as the years pass. Not only that, but you should also work to reduce risks associated with your business because doing so could mean that any buyers that you meet will be more eager to jump in when the time comes.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

For more information on business analysis, business planning, and ways to grow your small business profitably, please check out our website www.portalcfo.com.  Follow us on Twitter @portalcfo

 

https://portalcfo.com/2017/10/13/need-strategize-business-growth-planning/

 

How to Perform a Break-Even Analysis: Step-by-Step Guide Provided By PORTAL CFO

break-even analysis

As a business owner, it goes without saying that your ultimate goal is to make a profit but, before you do that, you have to reach a break-even point (BEP). This is the point at which revenue earned will match your expenses.

If you can figure out how to perform a break-even analysis, you can determine whether or not your company has reached its BEP. Even if you haven’t reached that point yet, performing a break-even analysis can help you determine when you will reach that point so that you have something tangible to work toward.

Let’s take a look at the various methods that many companies have used to see how close they were to their own BEPs and you will see for yourself how to perform a break-even analysis.

Your Company’s Costs

When it comes to trying to determine what your company’s BEP will be, there are several factors that you need to consider. Among them are:

  • Your Fixed Costs – These are the costs associated with your company that stay the same every month. Things like the rent on your office space, your insurance, utilities and the like.
  • Your Variable Costs – These are expenses that can change from month to month. Things like shipping payments can be considered variable costs that your company has to undertake. If you perform a service, the quantity of how many items you need to buy in order to perform that service can also change from month to month.
  • Your Prices – How much are you going to charge a single customer for a unit of what your provide? Having a concrete answer for this is essential to determining your company’s BEP.
  • Your Revenue After Each Sale – After performing the service, you have to look at how much money is left (from the customer’s payment) once you’ve recovered the costs directly related to performing the service. This amount is your average gross profit.

Each of these costs goes in to figuring out how to perform a break-even analysis. Once you have these costs sorted out, you’ll know exactly how much you need to sell in order to cover all of the costs associated with your business.

In order to figure out exactly what your BEP is, you need to divide your company’s fixed costs by the contribution margin of your of your product.

The contribution margin is what you get when you subtract the variable costs related to a unit of whatever you sell from the sale price of that unit.

Say you run a pizza shop and you want to figure out the margin on a large cheese pizza. Let:

Margin (M) = ?

Price (P) =  $12

Ingredients (I) = $3

Wage (W) for the employee who makes the pizza = $7

The formula for the contribution margin would be P – (I + W) = M or 12 – (3 + 7) = 2

This means that you make two dollars off of every twelve dollar pizza that you sell.

From there, you take the fixed costs that you business has over a certain period and divide them by the two dollars that you make on every pizza. This would tell you how many pizzas you need to sell in order to break-even over that given period.

The complexity of the formula for how to perform a break-even analysis depends on the variety of your offerings. In the above example, for instance, you would need to factor in the different kinds of pizzas you sell, as well as other food items, but the general idea is always the same.

Cutting Your Company’s Costs

If, after you figure out how to perform a break-even analysis, you BEP is higher than you’d like it to be, you can look at your costs and figure out where you can retool certain aspects of your business in order to lower the BEP.

This can range from raising the prices on your products and services to using the most cost-effective supplies to finding another office space where your rent isn’t as high.

By figuring out how to perform a break-even analysis, you can take variables and put them in place of the actual numbers to try and find the best solution for running your business, so that you can make a healthy profit.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

For more information on business analysis, business planning, and ways to grow your small business profitably, please check out our website www.portalcfo.com.

How to Undertake a Financial Restructuring: Tips on Turning Your Company Around

how to undertake a financial restructuring - portal cfo consulting

how to undertake a financial restructuring - portal cfo consultingIf you’re a business owner who’s interested in creating the best possible financial environment for your company, then you’re probably wondering about how to undertake a financial restructuring that will make that a reality.

With the state of the economy being such as it is, you have every reason to examine the shape that your company is in.  Whether things are going well or not, you need to evaluate your situation so that you can come up with a clear, attainable plan as to how you’re going to be able to remain competitive. You want to reach a point where, despite economic conditions being what they are, you’ll be able to eventually grow and expand in the future.

Before you ask about how to undertake a financial restructuring, let’s get a quick look at common scenarios that warrant taking that path to see if this is your best option.

  • Does your company have excess personnel? – Many times, staff responsibilities can overlap to the point where teams, divisions, or departments are doing the same thing. In some cases, one of these can be repurposed for other tasks, or the department can be eliminated outright in order to reduce cost and consolidate workload.
  • Has Your Net Profit Been on the Decline? – There could be one big reason why this is happening or several smaller ones that are working together to hurt your company’s financial viability. Regardless of the cause, an expert financial consultant who initiates a financial restructuring can help eliminate these and put you back on the right path.
  • Has Your Company’s Offering Been Overshadowed? – This can happen in technology more than anything else but, when something new is introduced to the market and your company is unable to keep up, you may have to change the way to do business so that you can compete once again.

These are just a few scenarios that warrant restructuring your company’s operations but, despite the reason for a rearrangement, there are several things you can do to get back right on track.

How to Undertake a Financial Restructuring: Common Strategies

It’s important to remember that no two firms are exactly alike, so the advice provided here may have to be adjusted slightly to suit your company’s situation.

That said, these strategies have proven to help companies across a diverse number of sectors time and again.

  • Work with New Leadership – More often than not, a restructuring brings in new management. Whether this is a new CEO, CFO, project manager or any other position, this person may have new ideas and insight that can help get the company get back on track. Listen to what they say and take their advice. It could lead you to great things.
  • Consult Outside Help – When it comes to figuring out how to undertake a financial restructuring, a fresh set of eyes can make all the difference. If you bring in an expert who has no bias toward your company, you may be made aware of issues that you never knew about before.
  • Practice Transparency – The worst thing that you can do when your company is rearranging its operations is to keep people in the dark.

Everyone from your employees to your investors deserves to know exactly what’s being done to keep the company afloat and see to it that the doors stay open. Doing this doesn’t just make it so that there aren’t any surprises, but shows that you’re someone who can be trusted. People will be more likely to stay by your side during transitional periods.

  • Establish Your New Goals Early, Reiterate Them Often – In working through how to undertake a financial restructuring, you want to make sure that you never lose sight of the objective. Make it clear what the entire point behind your company’s restructuring is and, once you see what you want to do, pursue that vision as aggressively as you’re able to.

Regardless of the strategies that you use to turn your company around and make it profitable again, you’ll want to make sure that your practices are sustainable so that you can avoid turbulent times in the future.

Adopt many of the strategies used by successful turnaround companies who figured out how to undertake a financial restructuring.  Continue to practice those strategies even when you’re in the black and you can make sure that your own company sees a bright future.

Financial Spring Cleaning: Budgeting Tips for Businesses

Budgeting Tips for BusinessesAs a business owner who wears many hats, you are faced with the difficult task of how to best allocate your time. There are a few budgeting tips for businesses that could help save your most valuable asset – your time. The last thing you need is to spend hours and hours in boring financial budgeting meetings when you should probably be out growing your Company’s sales.

Here are two simple and complementary budgeting tips for businesses to use to gather valuable insight into your Company’s financial position in just minutes.

Budgeting Tips For Businesses #1: Annual Profit and Loss Budget

The first budgeting tip for businesses is an annual profit and loss budget. Most accounting packages have this simple capability.  Do the best you can to forecast what your year will look like and be conservative.  Try not to forecast big jumps in sales unless there is a compelling reason to do so.

Add a 10% cushion to your budgeted operating expenses.  On a monthly basis, press a few buttons in your accounting package to produce a “Budget vs. Actual” report with percentages.  Now, you can quickly tell where you stand with respect to financial performance and easily see which expense accounts you need to focus on.

Budgeting Tips for Businesses #2: Cash Flow Forecast

The second and complementary budgeting tool for businesses is a cash flow forecast. If your accounting software has this capability, then use it.  If it does not, then create a simple Excel template.  On a weekly basis, you want to map out what you think your cash receipts will be minus the cash you will pay out. Feel free to map out as long a period of time as you like.  My preference is one year.  Now, you will know exactly when you might experience a cash shortfall.  In the event of a potential cash shortfall, the benefit to you is that you will know exactly when it would happen and have ample time to deal with it; instead of experiencing a “cash emergency.”

These two simple tools should take you no more than 30 minutes per week to review.  They will go a long way to reducing your stress level and remove any doubts from your mind about your Company’s financial position.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

https://portalcfo.com/2012/02/03/cash-flow-management-strategies-how-to-make-your-money-work-for-you/

Rationalize your business now before it is too late

Compensation PackageOne topic that is all over the news these days is state employee benefits.  I understand that compensation is a very challenging issue; with key constituents making powerful points on both sides of the argument.  The point, as I understand it, seems to be:  “what was agreed to” and “what can afford to be paid.”  I tried to think about the issue in basic terms and came up with a similar example that I see time and time again in my CFO consulting practice.  So, let’s look at the issue from a business owner’s perspective.

I asked one of my business owner clients how he arrived at the dollar amount of his monthly compensation package.  He replied to me that $X is the amount of money that he needs to live on.  Gently, I explained to him that based on his company’s current revenue and net income, his business could only afford to pay him $X MINUS $5,000 per month.  You can imagine how my response was received by this hard-charging entrepreneur.  I explained to him that he (and his business) was sitting on a ticking time bomb that was called “his pay.”

He had already weakened his company over the last year by taking more compensation out of his business than his business could afford to pay him.  The problem showed up in the form of a lower-than-usual cash balance, a higher line of credit balance, and a constant scramble to collect accounts receivable in order to make payroll.  In other words, the business was doing just fine (financially healthy and growing slowly), but it was beginning to struggle to pay its owner’s ever-increasing compensation demands.  I figured that I better press the argument before the company reached the point of no return; aka “ceasing to exist in the business world.”

I explained to the business owner that the growth in his compensation package had outpaced the growth in his business and therefore he was slowly killing his business and therefore his livelihood.  Any business, I explained, can only afford to pay its owner “so much”.  You have to decide if you can live on whatever that “so much” is or consider other alternatives.  You are a risk-taking entrepreneur.  You have to decide if you can grow the business to the point that it can afford to pay you the compensation that you desire and refrain from taking your ideal compensation out of the business before that time arrives.  If you believe that your business will never be able to provide the compensation that you desire, either deal with it or sell that business and go start another business that will provide you what you seek.  No one can answer that question but the business owner.

My client wasn’t having any of it.  He told me that he was accustomed to living a certain “lifestyle” and come hell or high water, he was going to live that lifestyle.  I explained to him that he needed to reduce his pay or else he would go out of business. There was no other way around it.  He is choosing not to do it.  He believes that he will grow his business quickly and eliminate the current stress.  Ah, the charmed life of an entrepreneur!

The same example applies to the current state benefits debate.  The states built the benefits packages, attracted the employees with it, and now revenue has fallen short and the states can’t afford to pay the benefits packages they previously negotiated.  The current path is simply unsustainable.  State employees refuse to have their benefits reduced and I fully understand their argument and actually agree with them. However, if a reduction is not made to the benefits in order to bring them in line with revenue, the state will be forced to restructure in some way; maybe even lay-offs.  What would you do if you were faced with this crisis?  It’s not an easy question to answer.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

https://portalcfo.com/2017/06/23/business-growth-planning-preparing-future/

https://portalcfo.com/2017/12/01/business-analysis-things-analyze-business/