Yes the title of this blog is correct, you can finance your business without bringing on debt. Now most people think that is based on bringing in an equity partner. True you technically do not owe a debit balance to that investor or investment company. The other aspect is that you still owe them equity in your company. This means every time you make any profit you are giving a percentage of those profits to that investor.
Having an investor can be an incredible way to grow your business. The biggest advice I can give, if you go this route is to really know your numbers. If you ever watch shark tank, the people that know their numbers, plus, the ins and outs of their business, get the most sharks to invest. Additionally, they have the lowest sell of equity. Those who do not, the sharks smell blood in the water and begin to feed. The common excuse for this it that your company is going to cause them more work then just investing money but instead time.
An amazing way to fund your business without building debt and without taking on an equity partner is through factoring your receivables. This is common among Government contractors and business to business companies. Factoring is when you advance on your receivables. Meaning that instead of waiting 30-45-60 days to get paid on an invoice, the factoring company gives you 70%-95% of your receivables owed within 24 hours of submitting your invoice. This gives you the working capital that you need to grow your business. Then when the invoice is paid the factoring company gets the check. They reimburse themselves the amount advanced to you plus a small fee of 1%-3% of the total of the invoice. Then they give you back the remainder left on the invoice.
Now you may ask, how is that debt free financing. The key to this is that you bid the costs associated with factoring your invoices into the costs of goods. Then your debtor is paying the fee and not you. Also once the invoice is paid the debt is paid off at that time. That means that you do not get overwhelmed by debt hanging on your shoulders.
Factoring is probably the best way for any new business to get funding to grow.
Factoring is not traditionally used for a company just doing the day to day business with no growth. If you do not plan on using the money for growing your company then go to the bank and get your company a standard line of credit. After all Bob Hope said it best “ You always go to a bank when you can prove you do not need money”. Also if there is just a short term need for funding then you may be better off with a short term bridge loan.
If you have a business that is growing think about these two options for finding funding. Both have their advantages and their disadvantages. The biggest thing is that both options allow you to get the funding you need to grow your business while also not strapping yourself down with a ton of debt that the growth in profits only end up paying down the debt you just created.
For any more ideas or questions on how to use these two types of debt free financing for your business, please contact me by email to firstname.lastname@example.org
When I was a teenager, comic books cost $1.50 and as I pushed through high school the cost went up to $2.00 because of the addition of hologram trading cards and foil covers. I thought to myself “these are going to be worth so much money one day.” Fast-forward to today, I have over 300 comic books stored away in plastic. Some of these are even graded by professional companies, ensuring their “value” to another collector.
I have always thought of “worth” as “value” until I began working in finance. Only then did I realize that there was a clear and definable difference between the two words. Value is defined as “a fair return or equivalent in goods, services, or money for something exchanged”, while worth is defined as “the value of something measured by its qualities or by the esteem in which it is held”. We can place a value of $2.00 on a comic book because of the cost of paper, ink, and distribution. But to place a worth on my collection of comic books means that we have to account for the value of my memories, storage, professional grading, and inflation of the market.
How do you separate value from worth when accounting for something as large as a company?
Example: Owner 1 wants to sell his company to an employee with 20 years experience and loyalty and is willing to self-finance. Owner 2 wants to sell his company to a competitor. Both of them may be retiring but they both have separate motives for the value of their company. Owner 1 will lower the worth of the company because a legacy or nostalgia.
Finding a Chief Financial Officer with the proper credentials and certifications can be rather expensive for a growing company. But contracting the services from a Fractional CFO allows you to use the services from one of these individuals for a short period of time to get the company back in the correct direction.
Finally Resource Service Manager, usually comprised of former business owners, who have a network of individuals that are closely tied to specific industries and appraisers who can provide an accurate assessment of your business. This is like having a committee of business owners who can bounce ideas off each other to help you find the correct solution for the problems at hand.
Macto Business Alliance was designed to help businesses from across the nation get access to business resources. We ensure to find a source of financing, regardless of the lengths we need to go. With over 20 years experience combined on our team, we can find the right solution for you! Please contact us today for a free consultation about your business and how we can help you find solutions to your current objections.