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Factoring could my newly established business qualify?

Many businesses; either  newly established businesses or existing businesses have to raise working capital to run their day to day operations and more importantly to expand.  

There are many different kinds of business finance available.  One example of business financing; specifically for working capital is Factoring.

Factoring is also sometimes known as cash flow financing and is simply a method of business finance, which releases the cash, already tied up in accounts receivable for immediate use in your business.

Now, if you want to use factoring on your new business you need to consider if the business qualifies for it and also if factoring is suitable for you business. Also; whether it is the most suitable form of finance

It is fair to say that most businesses that sell their goods and services on credit terms. Whether it is newly established business (a start up) or a well established business, can qualify for factoring finance.

The key considerations are usually; is the customer that is going to pay the invoice credit worthy and also, is the customer going to pay in full and on time. In this regard the building industry (for example) and other industries where there is a potential for deduction or set-off or part payment, probably won’t qualify.

In fact, start-up businesses often use factoring, since the majority of businesses are undercapitalized, and if they are successful and grow quickly, the need for additional working capital will grow right alongside the growth of the business. Factoring as a form of business finance is ideally suited for these situations.

For most start-ups, available cash is tied up in debtors and stock. Due to a lack of real estate security and established trading history, many banks and other financial institutions are unwilling or unable to help them. In assessing any application, banks will look at the consistency of turnover over a number of years and especially the real estate security available.

So, in summary, Factors will look at start-ups as well as established businesses. They will look closely at the systems and the experience of the business operator and also closely at the quality of the individual customers as the Factor of looking to the Customer and well as their prospective Client in the management of the finance facility.

If you would like more information on factoring and how it might assist you in managing and expanding your business; call Nova Business Finance on 1300 1386 186 or email us at sales@nbf.com.au

Visit Nova Business Finance at www.nbf.com.au

Will my Business qualify for Factoring?

If your business needs financing for expansion or just basic operating capital, perhaps you would also consider factoring.

This is a quick overview of factoring, factoring which is also known as cash flow financing is simply a method of business finance, which releases the cash, already tied up in accounts receivable (your debtors ledger) for immediate use in your business.

Factoring of accounts receivable is a quick and easy way for you to improve the cash flow of your business by assigning or pledging your invoices as collateral. It can be a short-term solution or a permanent business finance tool that can give a company the extra cash it requires, right when it needs it; to meet payroll, increase sales, pay suppliers, accelerate payment to suppliers to get a discount; offer prospective customers extended credit terms if they are solid and this can win more business, or meet just about any business cost or obligation.

When applied to business, factoring is simply the use of the company’s outstanding invoices, to raise capital. This facility bridges the gap between the time the invoice is raised (when the sale is done) to the time payment is received

Business Qualifications

Now in terms of business qualifications or requirements, any business that supplies their goods and services on credit terms could be suitable for a factoring facility as long as their customers have the capacity to pay (credit worthiness) and are good quality businesses and further that the applicant business has sound business systems for producing accurate invoices that are able to be confirmed by their customers.

If you would like more information on factoring and how it might assist you in managing and expanding your business; call Nova Business Finance on 1300 1386 186 or email us at sales@nbf.com.au

Visit Nova Business Finance at www.nbf.com.au

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Why choose Factoring if you already have an overdraft?

Every company or business that is growing and on the path to success has faced  the same problems regarding cash flow and a general shortage of a working capital.

The first option or most common solution that many small businesses usually turn to its bank for an overdraft (if the bank will give them one). This is usually (but not always) secured against the family home. This can meet a cash shortfall; at least in the short term, but is it the right finance option for your company?

Especially if it is a rapidly growing company?

 Is a debtor finance option such as factoring better suited to fueling your business expansion?

Here we explore some simple facts about the suitability of both methods with respect to helping a company or a business grow.

Now, the problem with bank overdrafts is simple, the level a bank will set an overdraft limit at, will be dictated by a company’s historical trading data, i.e. previous years turnover gross profit & net profits using their current lending criteria which can change at any time without notice and is also linked to the hard security that is offered. This is usually the family home.

Without doubt a bank overdraft can provide a useful infusion of capital, but how far can a company develop on fixed amount of capital from a finance option that could be withdrawn at any time (and that does happen), even if your business is unaffected by general trading conditions.

The other option for an alternative cash flow finance product is factoring; which exploits what for many businesses are their primary asset, i.e. invoiced debts! The debtors ledger is a “here and now” asset that can secure a factoring facility that dynamically moves forward with an expanding company. You are limited by your sales NOW; not what happened last year.

Without a debtor finance facility, increased credit sales means more cash tied up with your customer’s unpaid invoices on your sales ledger, those trade debts throttle your cash flow!

Unless they are released, your business growth is slowed.

Both Factoring and overdrafts can have broadly similar costs in terms of cash cost. In many cases factoring will be more expensive but much more flexible in that it grows with your company and your sales and is not constrained by historical trading figures and the stagnant or falling value of a piece of real estate.

When a company or a business is faced with cash flow problems then you should choose the option that suits you best.

Regular trips to the bank spending time re-explaining where your businesses is, negotiating increased credit limits and potentially leaving with insufficient funds to meet your needs and having to do it all again in a few months time, or would you prefer to make the most of your invoiced assets, no continual and repetitive meetings, no time lost, just submit your invoices to your preferred factoring lender, bank your trade debts now and let your business move forward at the pace set by you not someone else!

Think about it!

If you would like more information on factoring and how it might assist you in managing and expanding your business; call Nova Business Finance on 1300 1386 186 or email us at sales@nbf.com.au

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Dole recipients spend less time unemployed

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Labour market

       There is encouraging news on the job front. While the number of short-term dole recipients continues to rise, the number of long-term job seekers is still lower than a year ago – in fact, down by 3 per cent. 

       Figures provided by the Department of Education, Employment and Workplace Relations show that there were 391,607 job seekers in February, up by 98,500 people on a year ago. The number of long-term dole recipients is down by just over 4,665 people compared with May last year.

       Based on the data on unemployment beneficiaries, CommSec estimates that the core jobless rate currently stands at 3.4 per cent – crawling up from the record low of 2.6 per cent set in September.

What does it all mean?

        The bad news is that the weak global economic environment has seen the dole queue continue to grow over May. The good news is that while there have been significant layoffs over the last year, the number of longer-term dole recipients is still lower than a year ago.

        The fact that more long-term jobseekers are actually finding work compared with a year ago will be a source of great encouragement – not just to those who have recently joined the dole queue but for policymakers. For those who have recently lost jobs, the decline in long-term unemployment numbers will give them hope that they are facing just short-term dislocation.

       Importantly the latest round of data suggests that the Australian labour force is going through a stage of under-employment rather than unemployment. This has largely seen the core unemployment rate rise modestly from record lows of 2.6 per cent to only 3.4 per cent over the last nine months. Added to which the number of dole recipients is rising from a far lower base than a decade ago.

        Interestingly the Bureau of Statistics figures recorded 3200 less jobs over May, whereas the unemployment recipient numbers suggest the increase is closer to 12,500. Whichever way you look at it, the massive job shedding recorded overseas is not being reflected in the domestic labour market.

         The overall result suggests unemployment is unlikely to reach the heights forecast by Federal Treasury and policy makers. There is no doubt that consumer spending will be restrained by the drop in work hours but CommSec expects the impact on the economy will be much milder than in the past.

        Monitoring the size of the dole queue acts as a useful reality check on the state of the job market. In the last economic slowdown there were half a million on the dole queue and in the last recession the dole queue grew to almost a million people. Despite a far bigger job market, today the dole queue is just over 390,000 people

What do the figures show?

       The number of jobseekers filing for either Newstart or Youth Allowance rose by 12,500 in May to a 3½ year high of 391,607 people. Short-term jobseekers rose by 10,826 in May to 232,629 while long-term jobseekers rose by just 1,639 to 158,978.

<!–[if !supportLists]–>· <!–[endif]–>CommSec estimates in seasonally adjusted terms 391,824 jobseekers received unemployment benefits up 17,000 in May compared with April.

        The lift of almost 12,500 in the number of people filing for unemployment benefits in May compares with the Bureau of Statistics estimate that unemployment numbers rose by 3,200 people in raw or unadjusted terms.

       The number of unemployment beneficiaries is up by 98,500 people or 33.6 per cent on a year ago.

        The biggest rise in short-term job seekers in May was in Western Australia (9 per cent), followed by Victoria (up 5.5 per cent) and NSW (up 4.4 per cent). By contrast, short-term job seekers fell by 1.3 per cent in the Northern Territory.

        Using the data on unemployment beneficiaries, CommSec estimates that the jobless rate would have stood at 3.4 per cent in May – modestly above the record low of 2.6 per cent set in September.

        The current dole queue is around half of the level reached ten years ago. A decade ago 632,055 people were receiving unemployment benefits.

What is the importance of the economic data?

         The Department of Education, Employment and Workplace Relations (DEEWR) releases statistical information for the various types of labour market payments delivered by Centrelink. The “Labour Market and Related Payments Monthly Profile” publication covers Newstart Allowance, Youth Allowance, Mature Age Allowance, Partner Allowance and Widow Allowance.

        The DEEWR data provides an alternate guide on unemployment compared with the monthly data from the Bureau of Statistics. Less people filing for unemployment benefits signifies a tighter job market, pointing to higher demand for retail goods, homes and cars.

What are the implications for interest rates and investors?

        Businesses are cutting back on work hours and overtime and converting full time staff to part time. People may be holding onto their jobs, but if incomes are being pared back then they will continue to be careful about spending decisions.

        The mining states such as Western Australia are more exposed to the global downturn and understandably they are experiencing the biggest increases in dole recipients.

        
The Reserve Bank is likely to keep rates on hold in the near term. The economic data over the last month has not shown any further deterioration in the domestic economy. In fact the data has suggested a degree of stability is starting to take hold.

Source Savanth Sebastian, Economist, CommSec
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• 2009 BUDGET (some) Good News for business
  Posted on Sunday, May 17th, 2009 in Financial Planning for your business - Comments: (0)
  Good news from the Federal Budget for business owners You may have heard the good news regarding the Investment allowance for new or demonstrator motor vehicles. There is a window now available for small business owners (with turnover under $2m p.a.) to claim a one off 50% investment allowance as a tax deduction when purchasing an eligible business asset (eg. motor vehicles, plant & equipment etc.) for $10,000 or more.  This is an increase from the 30% previously announced, and is backdated for purchases from December, 2008.   This investment allowance is in addition to the standard 10% GST, 20% Depreciation, Interest and running costs etc. which are also deductible.  Effectively, this means that in certain circumstances, business owners may be able to claim around 80 - 85% of the purchase price within the first twelve months which is a great incentive to buy a new car now. Of course, I am unable to provide taxation advice and clients should refer to their own accountant for individual advice based on their own circumstances.
• Plan ahead …. and be a survivor!
  Posted on Thursday, May 28th, 2009 in Financial Planning for your business - Comments: (0)
  Surviving the Recessions…… the Global Financial Crisis visits Australia! The pace of business is fast at the best of times. Unfortunately, the GFC has dramatically increased the speed at which business conditions can change which is forcing astute business leaders to undertake a range of risk management strategies to protect their businesses.Market conditions are unstable, predicting the future is difficult and many executives echo the thoughts of Reserve Bank of Australia Board Member Graham Kraehe that ‘the economic climate has made forecasting earnings nigh on impossible’.We are seeing evidence of companies being sideswiped by a major change to their business and because they start to work on the problem after the event, by the time they have come up with potential solutions the impact has caused serious damage to earnings, cash flow and the overall viability of the business.Regardless of your business size or industry, it is essential to be undertaking detailed financial modelling and “what if” scenario testing to ascertain how various sudden changes in market conditions will affect your business and more importantly, what initiatives will management deploy to combat these challenges.

Surviving the Recessions…… the Global Financial Crisis visits Australia!

The pace of business is fast at the best of times. Unfortunately, the GFC has dramatically increased the speed at which business conditions can change which is forcing astute business leaders to undertake a range of risk management strategies to protect their businesses.

Market conditions are unstable, predicting the future is difficult and many executives echo the thoughts of Reserve Bank of Australia Board Member Graham Kraehe that ‘the economic climate has made forecasting earnings nigh on impossible’.

We are seeing evidence of companies being sideswiped by a major change to their business and because they start to work on the problem after the event, by the time they have come up with potential solutions the impact has caused serious damage to earnings, cash flow and the overall viability of the business.

Regardless of your business size or industry, it is essential to be undertaking detailed financial modelling and “what if” scenario testing to ascertain how various sudden changes in market conditions will affect your business and more importantly, what initiatives will management deploy to combat these challenges.

Stress testing in this context is about analysing base case and worst case revenue, margin and working capital scenarios in the current climate. Companies across Australia and overseas have been engaging in stress testing in order to agree on a range of initiatives in case market conditions deteriorate any further. In many cases they are engaging companies such as ours to ensure they have a totally independent and objective view when analysing the results. Independence and objectivity is even more important when it comes to devising the various strategies to restore earnings and cash flow.

Stress testing has a number of benefits including:

• It enables business to react quickly if conditions change suddenly.
• It forces business to ask ‘what if’ and create strategies to deal with given scenarios to minimise risk and maximize opportunity.
• It provides clarification around short to medium term capital requirements.
• It puts management in a stronger position if they need to negotiate with their financiers by showing they are prepared for change and able to handle challenges.
• It increases the confidence of key stakeholders.
• It will minimise the stress on the business when the tough decisions have to be made.
• It will provide management with an advantage over their competitors.

Rigorous stress testing has enabled organisations such as Brambles and Qantas to move quickly when market conditions suddenly changed. When yields slumped more than expected in March 2009, Qantas quickly slashed forecasts and initiated a range of dramatic measures to reduce operational costs. Although companies such as Qantas have been criticized it is the ability to rapidly respond to change that enables their survival.

The following is a selection of some of the key questions that will be posed if an effective stress testing program is undertaken:

1. What is the new breakeven level for the business and how does it change from the previous level.
2. What is the impact on revenue and earnings if you lost a major customer.
3. If customers are demanding lower prices what is your tipping point and are you prepared to lose customers in order to maintain earnings. What changes will you need to make to your cost base to match the new lower revenue base.
4. How is cash flow impacted if debtors take an extra 10 days on average to settle their accounts.
5. Could there be a breach of banking covenants and if so, how will you respond to your financiers concerns.
6. What changes will you require to your banking facilities and what would be your banks attitude to an increase in lending, if required.
7. What decrease in staffing levels will be required and how will you deal with this (ie. move to a 4 day work week, pay reductions or retrenchments etc.). Do you have the cash flow to fund the expected redundancies.
8. What overheads will you reduce and what capex plans may have to be put on hold to preserve cash.
9. What non-core assets could be sold to reduce debt or provide additional cash flow.
10. Are sales or productions levels too low to remain viable and would a merger or strategic partnership be required in order to maintain critical mass. If so, who would you approach.

If you need assist with finance, call the team at NBF.

Good news from the Federal Budget for business owners

You may have heard the good news regarding the Investment allowance for new or demonstrator motor vehicles.

There is a window now available for small business owners (with turnover under $2m p.a.) to claim a one off 50% investment allowance as a tax deduction when purchasing an eligible business asset (eg. motor vehicles, plant & equipment etc.) for $10,000 or more.  This is an increase from the 30% previously announced, and is backdated for purchases from December, 2008. 

This investment allowance is in addition to the standard 10% GST, 20% Depreciation, Interest and running costs etc. which are also deductible.  Effectively, this means that in certain circumstances, business owners may be able to claim around 80 - 85% of the purchase price within the first twelve months which is a great incentive to buy a new car now. 

Of course, I am unable to provide taxation advice and clients should refer to their own accountant for individual advice based on their own circumstances. 

If you know somebody who may be interested in purchasing a motor vehicle and taking advantage of the very generous taxation incentives in place, I would love to hear from you.

Please call me directly if you have any questions - I would be very happy to discuss further - particularly around ensuring the finance structure is done correctly to maximise the benefit.