All posts by Marguerite Moore

More on the JOBS Act

We have been reading in this blog recently about the JOBS Act,  and how it will make fund raising easier for companies wishing to go public. But what about us smaller guys who have a business and would prefer not to go public and would only require $100,000 or less for a project or to get our small business off the ground? Basically, many small businesses have been raising money from friends and family by using the Internet.

The passage of this law in April has mandated additional controls on our ability to raise capital through social networking. The Senate is concerned with the possibility of fraud and the rise of unscrupulous individuals wishing to make a buck on unaccredited investors and companies who are naïve about this investing stuff and utilizing the unorthodox medium, the Internet. The Senate, which insisted on these additional controls, is looking for intermediaries to be registered with the Securities and Exchange Commission, that agency which watches for dirty dealing by intermediaries on unsuspecting investors. So controls have been sanctioned by the Senate to mitigate the possibility of fraud. One of those restraints is discussed below.

Those companies wishing to raise up to $100,000, must provide tax returns and financial statement s certified by a company’s directors. For those wishing to raise from $100,000 up to $500,000, they must provide financial statements that are reviewed by a CPA. Consider the cost of providing the financial statement review. It could cost the company from $20,000 to $30,000, a significant amount for a small business. So if a company wanted to raise $100,000, the actual net funding in this instance would be $70,000.

Why go for $100,000 or more? Why not raise $90,000 or less? A company would not be required to provide a financial review, just the financial statements signed by a principal of the business and your tax returns. The company would net $90,000 and not incur the costs of a CPA review.

So consider the cost when deciding to raise money. I am sure we will be hearing more about this process in the forthcoming months and any additional restraints on issuers and crowdfunding portals, like Kickstarter, IndieGoGo, RocketHub, Fondomat, etc.

Margo Moore teaches BE 261 Starting a Small Business, CEO 001 Setting a Course for Your Business, CEO 002 Knowing Your Market, and CEO 003 Formulating Your Financial Strategy.

Keep Your Eyes on the Books

In teaching BE 261 and CEO 003 I often tell my students that they should at least understand the accounting and bookkeeping practices involved in their businesses. They should be able to speak the language of their accountant or bookkeeper and be able to ask for periodic reports to enable them to review their business’  financial position at any point in time. The several accounts to be mindful of are the following:

Cash. All of the transactions your business has pass through the cash account whether it is for the receipt of collections or the payment of bills. Some bookkeepers use two journals – cash receipts and cash disbursements – to track activity.

Accounts receivable. If you are a manufacturer or a service provider and you don’t collect payment immediately, you will generate “receivables”, and you must track them by having your bookkeeper generate an aged receivables report indicating which customers owe you money and how long the bill is outstanding. An effort to collect “old” bills is required to get your money. Busy businesses generate an accounts receivable report daily. But it is up to you how often you would want to see this report. But you should review this report weekly for any potential problem accounts.

Inventory. Products you have in stock to sell are your “investment” sitting on the shelf and must be carefully accounted for and tracked. Periodic audits of what you have on the shelves and what you have in your books must be compared and verified. It is important for you to determine what level of inventory is needed in order to satisfy your customers’ demand to avoid any write-downs of obsolete or damaged inventory.  An analysis of the levels of stock will help you do this.

Accounts payable. No one likes to pay bills and send money out of the business, but if you have good bookkeeping practices you will have a clear picture of everything if you use your accounts payable feature on your bookkeeping software. You will have timely payments, and you will not pay anyone twice. Paying bills early may qualify you for discounts with your vendors.

Purchases. The purchases account is where you track any raw materials or finished goods you buy for your business. These work- in- process accounts are part of your inventory account, and they can help you calculate your cost of goods sold, which is subtracted from your sales to find your company’s gross profit. Here you will be able to see if you are paying more for your raw materials and take measures to reduce the costs of them and improve your profit margin.

Payroll expenses. One of the largest expenses for all companies is the cost of paying employees. Keep this account up to date for meeting tax and other government reporting requirements.

It is important to note if you cannot hire a bookkeeper that you purchase a good bookkeeping software package, like QuickBooks, to help you organize and track your sales, collections and inventory.

 

Margo Moore teaches BE 261 Starting a Small Business, CEO 001 Setting a Course for Your Business, CEO 002 Knowing Your Market, and CEO 003 Formulating Your Financial Strategy.

A Lesson in Factoring

Do you have a lot of money your clients owe you in the form of accounts receivable? Do these invoices take time, like 60 days or more, to get paid? Are you in need of cash to finance your next production line? You are not a good credit and are not able to get a bank loan. What can you do?

Factoring may be the answer. Factoring means that you sell your accounts receivable to a factor or third party source at a discount to provide funding. It is a short term solution to your working capital problem.  It may help you get on your way to traditional financing.

Here is how it works. You sell your invoices to a factor at a discount and these invoices act as collateral. You would typically receive 80% of the invoice value upfront. You will receive the balance remaining less a factor fee once your client pays the factor. The fee can be paid in any number of ways, but it usually nets out to be about three to five percent of the invoice value. Factoring is not a loan and does not show up on your balance sheet. It is the sale of an asset; therefore, you have no liability here.

To qualify for this factoring, your invoices have to be free and clear of any liens. This means that no other company has a claim on payments when they come in. Your customers must also be creditworthy. Why? – Because the factor will rely on their good credit and ability to pay the invoice quickly rather than on your credit history.

Learn how the factor deals with your clients during the collection process. Does he send out dunning notices with an indication that the factor is to be sent the payment? If the client does not pay your invoice, the factor may ask you to pay back the money he paid you on the invoice plus a fee. Something that is called recourse factoring.

If you decide that you want to seek out a factor, do your comparison shopping by looking at factor fees and the amount of the discount on your total invoices, a deposit or application fee, the advance rate and monthly minimums should also be considered. Factors will not work with start-ups; you need to have a large amount of accounts receivable for the factor to work with you. You can find factors in the telephone directory or in industry trade publications. Your banker may be able to refer you to a factor, but decide on a factor that knows your industry, can customize a service package for you, and has the financial resources you need.

Margo Moore teaches BE 261 Starting a Small Business, CEO 001 Setting a Course for Your Business, CEO 002 Knowing Your Market, and CEO 003 Formulating Your Financial Strategy.