Angels and VCs are for the rich. Your business needs cash now!
So many entrepreneurs focus too hard on how to borrow money or get private investments to fund their long-term plan. In the process, they don’t focus on what’s really important, running their business in the most efficient way to keep as much cash on hand as possible. Here are some ideas to help:
Get bigger deposits
Try to obtain as big of a down-payment as possible by requiring customers to make deposits. You can even offer incentives for big payments upon signing. In addition, consider setting up big payments when you reach certain milestones in the project. In this day and age, no one can afford to wait until the end of a project to get paid. By securing cash in advance of the work, it can help ensure that you have the resources to adequately fulfill your commitments and keep your company running smoothly.
Try factoring
Of course, sometimes when you’re playing with the big boys, you don’t have the weight to force them to pay you on your terms. Often, if you want a contract with companies such as GE or Home Depot, you are forced to accept payment terms that are extremely difficult to swallow. For example, you finally get offered that big contract you’ve been working so hard for, but the terms include no cash deposit and a 30-, 60- or even 90-day post completion payment schedule. What startup can wait that long for payment?
Factoring can help. Factoring is a financing strategy that allows your company to get paid immediately for outstanding invoices.
A factoring company will contract with you on a revolving basis to purchase your account receivables and pay you cash immediately. The factoring company is then entirely responsible for collecting on those accounts. In turn, you get cash for your receivables, but less than you would have if you waited out the payment schedule. Factoring is a quick and relatively risk-free way of getting the cash you need without the wait.
Slow down making your own payments
I’m sure your clients are doing it to you, it’s time you negotiated a slower and lower payment schedule with your vendors. It’s not that you are reneging on your obligations; you are just renegotiating their terms. Generally speaking, if you contact your vendors, lenders and credit card companies prior to making late payments, they will be more than willing to renegotiate your rates, fees and repayment schedule. Make sure you negotiate hard – you want slow, low repayment terms.
Don’t overlook city, county and state governments as a source of business
If you read the small print, even the Fed will tell you, there’s no such thing as free money from the government to start, let alone expand, your small business. Does that mean all those ads for books, seminars and courses claiming to help you tap into little-known programs are wrong? Without being too cliche, especially coming from a lawyer, it depends.
Some are not just misleading, but are actually fraudulent – they want you to pay big money to them in the hopes of finding free money. However, many are just plain misleading; they simply do not tell the entire story. Quite frankly, the “fine print” is so small no one could read it but a lawyer.
It’s not all bad news, though. While it’s true that many government grants are for municipalities, those municipalities in turn often have to spend the money hiring or partnering with companies to perform the services required to fulfill the terms of the grant. These opportunities are geared toward particular niche industries, so you’ll have to look hard for the right opportunity for your company.
If you’re a developer, you may be in luck for just such an opportunity. You may not know about the $2 billion in funding made available to municipalities by the American Recovery and Reinvestment Act of 2009 (ARRA). At first glance, you may wonder, “How can a grant to a city help me?” Well, it can if you know how to work the system.
The City of Atlanta is now faced with having to spend some of that ARRA money quickly, and it needs your help. Right now, the city, through the Atlanta Development Authority, needs to partner with developers to develop both single-family and multi-family housing projects. The goal is to help decrease the impact of foreclosed, vacant or abandoned properties on the affected communities in the city. Who said construction projects are dead in Atlanta?
If you’re in recycling, did you take advantage of the business made available to you under the Recycling and Waste Reduction Grant Program? Did you even know about it? Under that program over the last decade or so, the Georgia Environmental Facilities Authority (GEFA) spent millions of dollars with hundreds of businesses to assist in fulfilling the GEFAs recycling grant obligations. Companies that help with collection activities have used these funds, as well as companies that provide infrastructure for recycling plants.
Keep in mind, these program gems come and go, and you have to continuously keep an eye out for the great opportunities. But the paying projects are there for those who know about them and work hard to take them.
Focus on your getting the business and keeping as much cash on hand as possible. Only then will you have a strong enough balance sheet to shoot for big loans and equity investment.
Salmeh K. Fodor, Esq. is a Partner with KF Law, LLC with 18 years of financial and legal experience. Her practice focuses on corporate, business and securities law, and her clients have ranged from start-ups and emerging growth companies to publicly held corporations. For a full resume, see the firm’s site at www.kflawllc.com.
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