Blog/News

First Year Of Business Survival Guide

The U.S. Bureau of Labor Statistics reports that only 50 percent of business startups make it through the fifth year. If your startup is real estate, your chances are a little better (58 percent); if you are in retail (47 percent) or information (37 percent), the odds are a bit worse.

The first year of business sets the tone, and companies that start off on the right foot improve their chances of not only surviving, but also thriving. The infographic below, “First Year of Business Survival Guide,” gives entrepreneurs foundational survival advice in all key areas of the enterprise — at a glance.

The infographic format was selected for this topic because entrepreneurs with new ventures are busy enough setting up shop without the added burden of dissecting a 10,000-word textbook about business organization. To make your job as easy as possible, we created an infographic that distills the business knowledge and experience of our organization down to the must-do actions that make or break a new enterprise. Without doubt, there are many, many other bases that need to be covered — but without these 11 items, entrepreneurs will have a difficult time staying in the game no matter how well they run those other bases.

Another advantage of boiling down the survival guide to a manageable number of 11 items: One of the biggest missteps a new business can make is trying to do too much and overcomplicating the effort.

For instance, from an executive leadership perspective, it is far more effective to emphasize a handful of goals than a wheelbarrow full. Too many goals makes focus difficult, and more often than not confuses the team (if not the business owners themselves) — the upshot of which is not merely falling short of every goal, but often working at cross purposes. A small set of goals — provided they are the right ones — give new businesses the best chance of success, by far.

Another widely applicable example of simplicity trumping complexity is in the IT function. Many startups get wrapped up in their own wiring, trying to hit the ground running with complex, state-of-the-art information technologies and operating platforms. The real survival issues are much simpler: keeping the computer system up and running and phone lines open. As many a former entrepreneur can tell you, upsetting prospects with website pages that don’t load, being unable to process orders and dropping the call when they want to phone in an order are sure ways to go out of business — quickly.

Succeed with simplicity. This more than anything is the key to success in the first year of operation — and we hope this infographic makes yours a smashing success.

gifts


Top Billion Finance vs. Bank Loans Part I: Services

Sadie Keljikian and David Estrakh, Top Billion Finance

Top Billion Finance helps to finance the costs of trade, usually the costs of importing or exporting goods and the costs of getting those goods to the end customer. Bottom line, business growth can be difficult to manage. As you gain customers, particularly big buyers and retailers, you may find yourself scrambling to maintain sufficient cash flow to keep up with and fulfill larger orders while maintaining standard operational overhead.

The Supply Chain Cycle Cash Crunch: The cash crunch wholesalers often experience is usually the result of the supply chain cycle: wholesalers, particularly importers, must lay out cash or use their lines of credit to start production, which can take months. Once production is complete, wholesalers typically have to pay remaining balances for the cost of goods plus shipping, duties, and freight. Even after goods reach you, you then have to pack, sort, and ship them according to each individual customer’s preferences. And then, even after the vendor finally ships the goods to their end customer, the vendor won’t be reimbursed for payments to their suppliers until the customers pay their invoices, typically 30-90 days after delivery. All the while, the wholesaler must pay their employees, rent, office costs, and other typical operating expenses. Thus, the supply chain cycle from production to delivery leaves their funds depleted.

Traditional Loans: Many business owners are inclined to take out traditional bank loans to supplement their cash flow, but banks providing loans often have stringent requirements, inflexible terms, and take a long time to receive. At the end of the day, traditional loans can be as much of a hindrance as they are a help.

Applying for a business loan involves exorbitant amounts of paperwork and substantial time to structure and underwrite, meaning funds generally do not reach you promptly. Banks also structure loans based on your business’s credit, meaning that any history of financial difficulty will count against you. Banks also tend to be especially conscious of risk, preferring to only provide funding when assets are abundant and therefore risk is low. Yet, the most obvious drawback of these loans becomes apparent when you actually receive the loan. Your line will generally be limited, inflexible and hard to supplement with alternate financing because banks often perceive other lending arrangements as potential threats to their own position.

Top Billion Finance: If you need capital to fund operations quickly and could use financial and logistical assistance throughout your supply chain, trade financing may be the best option for you.

Trade financing is different from a traditional loan, because funds are advanced based on your current transactions and your customers’ credit, rather than your own credit or that of your business. Since funds you receive are against your invoices and purchase orders, the financing you receive can grow with you. You also won’t have to worry about providing years of pristine financials. Moreover, since Top Billion Finance is tailored to grow relative to sales, you will not have to apply for credit line increases when your sales increase. As your purchase orders and overall sales increase, most trade financiers will increase their lines to accommodate the growth, thereby offsetting the funding gaps that arise when you have to pay more for cost of goods, shipping, and freight.

Click to read more about Top Billion Finance’s Top Billion Finance.

Contact us for more information.


Factoring Varieties: A Beginner’s Guide

Sadie Keljikian and David Estrakh, Top Billion Finance

Factoring receivables is a simple, elegant solution for insufficient cash flow in business-to-business sales relationships. It allows vendors to sell large orders to retailers and assign the receivables to a third party, thus avoiding depleted operational funds while outsourcing collections labor and risk. Factoring often refers to a variety of different services bundled together: (a) A/R management and collections; (b) credit protection; and, most popularly (c) cash advances against receivables.

If you’ve recently decided to factor your receivables, you probably find yourself dazzled by the varieties of factoring and at a loss to distinguish how they differ from one another. Each type of factoring is ideal for addressing specific circumstances depending on the industry, sales volume and customers involved, among other criteria in addition to the specific needs and wants of the factoring client.

The following are a variety of factoring methods, some of which can be combined or modified to suit the client’s needs:

Full-Recourse Factoring

A very common practice for factoring receivables in general, a full-recourse factoring arrangement transfers the debt on invoices to the factor in question, but leaves the credit risk with the client. In other words, the client agrees to buy back invoices if the factor is unable to collect payment. This arrangement is popular when the client’s customers have poor credit and/or a history of delinquency on payments, because it does not require that the customer have good credit. While it is generally costlier because the risk is higher, full recourse factoring is also a good solution for clients who do not want their customers contacted. Many recourse factors are more willing to allow payments to be made to a lockbox in the client’s name rather than directly to the factor as is the case with non-recourse factoring.

Non-recourse Factoring

Contrary to full-recourse factoring, non-recourse factoring means that the factor absorbs the credit risk on factored invoices. This means that the client is not responsible for customers who pay late or not at all due to issues like bankruptcy, insolvency, and even refusal to pay without reason. In addition to lower costs, outsourcing collections, and enhanced lending options, non-recourse factoring has the added value of protecting the factoring client from poor credit or lost capital at the hands of delinquent customers.  However, to secure their receivables collateral, non-recourse factors want to notify and collect directly from the factoring client’s customers, which some factoring clients prefer to avoid.

Advance Factoring

An advance factoring agreement is one in which the factor advances the client a substantial portion of their receivables as soon as the goods are sold to the customer, less any fees. The customer then pays the factor within the terms of the invoice. Advance factoring can be done with or without recourse and is one of the more common varieties of invoice factoring. Advance factoring can also be called “receivables financing.” Since all open invoices are by definition considered receivables, any funding provided by using the receivables as collateral or security for the funding is considered receivables financing. Most factors offer advance factoring and most clients are mainly interested in this component of factoring, which is separate from the collections, credit protection and A/R management services.

Spot Factoring

Spot factoring allows the client to choose individual invoices to factor, rather than all open invoices or all of the invoices with a particular customer. This allows a vendor to fulfill small numbers of large orders as they come in, without worrying about insufficient operational costs or relinquishing control over the rest of their accounts receivable. The advantage is that the factoring client has very minimal or no commitments to assign invoices.  However, since the factor is taking on a larger risk and smaller volume, their rates are often substantially higher than traditional factoring rates which are given with the understanding the factoring client will factor all, or most, of their receivables.

Selective Factoring

This is a good option for clients looking for something in between the traditional factoring requirement to assign all receivables and the spot factoring option of no commitments but substantially higher costs. For those who don’t have enough sales volume to enter a long-term contract with a factor, selective factoring is a very helpful solution. Rather than factoring all or most receivables, which is very often required in traditional factoring agreements, specific accounts are chosen and only those customers’ invoices are factored. This means that a vendor with several small-scale retailer customers and a few big-box stores can accommodate the needs of both by factoring the large customers and handling the small accounts on their own (or vice versa at the client’s discretion).

Bulk Factoring

In bulk factoring agreements, financing is provided for the current total value of the client’s accounts receivable, rather than the usual practice of factoring invoices. There are a couple of reasons why a client might want to take this approach. Bulk factoring is popular among large-scale distributors who need to clear their balance sheets and improve their liquidity. It can also be helpful for vendors whose sales are mostly quite small and distributed among many customers, since bulk factoring removes the need to factor specific invoices. This practice also appeals to a lot of businesses because the client typically remains in full control of accounts receivable operations, including collections, keeping operational responsibilities in-house.

Non-Notification Factoring

If you prefer for your factor not to contact your customers, non-notification factoring is for you. This arrangement can be a bit more expensive, as the factor will have to do more work to avoid contacting customers. Funds often go to a lockbox and the factoring client’s customer may be unaware that the invoice is factored at all. While this is a good system for customers who might be slow to trust, you’ll find that many retailers are familiar with factoring and aren’t concerned by their invoices being factored.  Non-notification factoring is usually coupled with recourse arrangements because non-recourse factors who offer credit protection on receivables want more control, which requires handling invoices directly and notifying the customer.  If you want credit protection, this may not be the best option – it’s costlier and riskier, and its only advantage is that your customers are not notified by the factor.

Collection Factoring

In maturity factoring agreements, the factor takes over all credit, collection, and accounts receivable management functions and usually provides credit protection on the client’s receivables. Funding, however, is not provided to the client until the due date on the invoice or slightly thereafter. Basically, the factor performs all the service functions of factoring without the lending component and thus, there is no interest charge in the arrangement.

Industry Specific Factoring

Standard factoring usually applies to wholesalers who sell consumer goods to retailers. However, there are many industries that are unique enough to warrant factors that just cater to them. Some of these industries include healthcare, commodities, construction, shipping/logistics, service providers, and US exporters selling mostly to foreign countries, among others. Each industry has its own risks that require specialized knowledge. For example, to provide factoring on medical receivables, a factor must be familiar with how medical billing works and how insurance companies treat certain invoices, while factors who service sellers of certain food products should understand USDA and FDA regulations.


Although some factors have multiple specialties it is best find a factor that knows and specializes in your particular industry. Since factors are, by the nature of the relationship, watching out for their clients’ best interests and making sure they get paid, a good relationship usually involves some informal guidance and consulting. Consequently, it is enormously helpful if the factor providing the guidance has firsthand experience with and knowledge of your industry and the corresponding mechanics of it.

Each of the above varieties is designed to serve specific financial and organizational priorities, but the overriding theme is that most factoring is geared to keeping your cash flow healthy and your receivables safe.

Click to learn about Top Billion Finance’s factoring services.

Contact us for more information.


Retail Game Change

Sadie Keljikian, Top Billion Finance

2017 may be a pivotal year for retail in the US.

The landscape of retail shopping has changed dramatically in the last few years. Stores, particularly those that are most commonly seen in malls, are scrambling to maintain revenues in the face of fierce competition from online retailers. Many are struggling to keep their doors open: Macy’s, Sears, Kmart, Abercrombie & Fitch, American Eagle, Aeropostale, Chico’s and The Children’s Place have all announced that they will shutter locations in the upcoming year. The Limited has already closed all 250 of its locations and laid off 4,000 employees.

This holiday season was a welcome relief for retailers. December sales were mannequins-1653602_1280higher than they’d been in five years, although the bulk of them were generated online. Customers also made their way to malls and department stores, but not without significant motivation. Prior to the holiday season, retailers dramatically marked down products sold in brick and mortar locations. This means that although sales were up 3.8% in stores, prices were so low that actual profit generated was minimal.

There is some debate as to the cause of the recent slump in retail shopping in the US. Many blame the entire phenomenon on the rise of e-commerce, but online sales only account for 8.4% of retail sales. According to Business Insider, the US has 23.5 square feet of retail space per capita, by far the largest amount in the world. Canada and Australia are next on the list, with 16.4 and 11.1 square feet per capita respectively. Such a massive quantity of retail space suggests that the US may be experiencing the slow petering of what was a golden age for brick and mortar stores. Perhaps retail hit its peak and the revenue generated in previous years represented a glut of demand. The cause for the decline could simply be that Americans do not shop as often or as much as they used to.

George John, a professor in Minnesota told Fox “It’s tough to keep track of why people come to my store. Why do they buy my stuff? They come to my store and look at my stuff, and then go online and buy it for 10 cents cheaper. There’s a lot of stuff rocking and rolling. Throw in the bad economy and you’ve got a perfect storm.” He went on to say that the only retailers who are safely navigating the current climate are those which fill a niche. He cited Warby Parker’s unique approach to selling eyewear online and H&M’s heavily discounted fashion. To John’s point regarding H&M, retailers that routinely mark down all of their products seem to be faring better than most. TJ Maxx, Marshall’s, Ross, and others have continued to grow and thrive.

Whatever the reasons, the retail world is changing rapidly and dramatically and online purchasing is certainly part of it. Brick and mortar stores are experiencing the worst of it, but every indicator points to a general decline in consumerism. It is difficult to say exactly what the effects of these shifts will be, but retailers are buckling up for a turbulent year further complicated by uncertainty in domestic and global politics. Most are downsizing to decrease their overhead while putting more energy into e-commerce sales.

Read about Top Billion Finance’s Top Billion Finance.

Contact us for more information.


Trade War? Maybe…

Sadie Keljikian, Top Billion Finance

In the latest round of speculation about Donald Trump’s upcoming presidency, several sources are debating the likelihood of a future trade war with China.

Wall Street has been generally pleased with Trump’s campaign promises to cut taxes, decrease regulation and increase infrastructure spending. However, some are concerned that protectionist policies like tariff hikes could start a trade war if China and Mexico should choose to retaliate.

The promise of bringing manufacturing jobs back to the US and decreasing imports from China and Mexico was a significant point in Trump’s campaign platform. The plan, as it’s been described, is to raise tariffs on US-bound exports significantly, withdraw from NAFTA and the TPP, impose a border adjustment tax on American importers, and publicly accuse China of currency manipulation. The effects of these changes are the subject of significant debate on Wall Street and among international traders in general. Some fear that should there be a trade war, the US would be ill-equipped in comparison with China.

James Wang, a professor at City University of Hong Kong, writes a monthly commentary for the Pine River China Fund. In his most recent installment, he wrote that “decision-makers in a democracy face difficulties coordinating a relief effort and must eventually face a political backlash from impacted domestic producers. On this basis, the Chinese may have more runway to play the long game in a trade war.” He went on to say that China’s government is better positioned to use state resources to soften the blow to the export industry.

Despite speculation, changes to US tariffs and tradepexels-photo-70152 agreements would take time to enact and, according to Forbes contributor Michael Boyd, the likelihood of a trade war is extremely slim. Why the confidence? Because the US imports more than half a trillion dollars in goods from China annually, equal to one fifth of China’s global export total. This means that the US is extremely important to China’s economy and, should the US take a decisive stance on trade going forward, it seems unlikely that the issue will escalate.  Given the circumstances, odds are that the two countries will negotiate new terms and have a stronger business relationship in the future rather than engage in costly posturing on trade policies.

Again, it is impossible to know how or if any of these plans will be enacted and, even if they are, there is no guaranteed result. There is certainly a chance of a trade war, should the president-elect go forward with his plans for trade reform. However, it is just as likely that China’s provocative trade practices will diminish amidst concerns of retaliation and relations between the two countries will improve.

Predicting the future is an excellent way to make business owners and importers nervous, but ultimately, preparing for all possible outcomes is the only way to confront the uncertainty. In broad terms, importers should reinforce potential weaknesses in their supply chain by exploring alternate sourcing options both domestically and abroad.

Despite the fact that producing domestically is notoriously more expensive than overseas, distributors who do the majority of their production overseas, particularly in China, would be wise to make contingency arrangements to bring some portion of their production to the US, or prepare to expand production in existing domestic manufacturing facilities. Although purchasing raw materials and inventory in bulk carries a potential risk of overstock and obsolescence, budgeting for a little extra stock on hand may provide a good hedge to buffer the impact of shocks to foreign supply chains. The advantage of having extra stock for immediate delivery offsets some of the potential risks associated with carrying inventory.

Taking reasonable precautions without breaking the bank may actually offer an unexpected boon to importers willing to adjust their operations and finances to face these risks head on. In short, under a Trump presidency, we are likely to see changes to the trade landscape, most notably between China and the US. As in all cases of uncertainty, the best we can do is prepare and not fall into panic over speculation.

Check out ETC’s supply chain solutions.

Contact us for more information.