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LA Times writer Karen Klein explores raising capital when revenue is dropping? She asked FTRANS CEO, Dan Drechsel, to weigh in.
Dear Karen: Sales are down but service calls are up at my firm. How can I fund labor costs with sales revenue dropping?
Answer: Service companies have a longer cash cycle than product-based firms because they pay employees well before they collect invoices. You need to raise capital to bolster cash flow. Traditional sources include loans from friends, family and angel investors, bank loans and factoring. A bank loan is cost-effective but difficult to get today.
Factoring involves selling your invoices to a financing company that pays you upfront, collects your revenue and charges you a fee, which can be costly. Make sure your profit margin can sustain the expense.
Another alternative for business-to-business firms is applying for a secured accounts receivable line of credit from a bank that partners with an accounts receivable monitoring firm. Dan Drechsel, chief executive of FTRANS, one such firm based in Atlanta, says his firm collects accounts receivable and performs credit checks for small firms. This service can also help entrepreneurs qualify for loans under the U.S. Small Business Administration’s CapLine program for working capital needs, he said.
What does the ideal venture capital term sheet look like? Having successfully raised venture capital from a top tier group of venture investors (Total Technology Ventures, New Atlantic Ventures, and Greenhill SAVP), we are often asked this question by our fellow entrepreneurs. Over the course of our careers, we’ve seen several term sheets from multiple VCs and believe the “ideal” term sheet is elusive. However, if you are interested in learning more about terms sheets, we suggest you review the term sheet series written by Brad Feld and Jason Mendelson. This is great information whether you are raising your first or tenth investment.
The recent financial troubles at CIT Group have ignited serious fears among hundreds of thousands of small businesses that have financial relationships with the company.
With the small-business economy already suffering due to limited access to credit and capital, insufficient bank lending, inadequate government stimulus and a decrease in net revenue, the extinction of the nation’s largest credit-protection provider would have created another major economic setback.
While the CIT situation seems to have at least temporarily stabilized, what can SMBs do in the meantime to better protect themselves?
One suggestion is to develop an independent credit-scoring model. In today’s economic environment, it’s simply insufficient to ask a potential customer for a credit application up front, check a few references and stick a copy of its financials into the filing cabinet. Whether a business is selling to a small or large company, it’s important to stay on top of the creditworthiness of every client, vendor or customer.
Implementing a credit-scoring model offers three primary benefits for small businesses. First, in combination with reviewing customer financial statements, credit scores inform sellers as to the creditworthiness of their customers. Second, small businesses can set their approval rates based on the credit score of their prospects and their tolerance for risk. Lastly, credit-scoring models enable a small business to continuously monitor the creditworthiness of its customers.
For more details about how it works, check out John Hayes’ byline on thestreet.com.
Inc. Magazine announced it’s prestigious Inc. 500 list today, and FTRANS is listed as #345. From 2005 to 2008, FTRANS achieved a record 718.4% growth making it one of the fastest growing private companies in America. Congrats to all of the FTRANS team for the accomplishment and hard work!
