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February 05, 2016

Understanding Funding Options

Understanding Funding Options
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There are many types of financing, each with their own costs and benefits. So business owners must assess what kind of capital is right for them. Loans that are secured—that is, that are backed by collateral of some sort—are often the lowest cost. That includes SBA loans and mortgages. Other asset-backed loans, such as factoring or purchase order financing, advance funds based upon your accounts receivable. These types of money lenders may take a really hefty chunk of your receivables, in some cases up to 40 percent, says Kramlich. But the trade-off might be worth it for business owners who need cash quickly. Debt can be valuable, says Kramlich, but sometimes it’s not enough to fuel a growing company. In that case, entrepreneurs may want to consider equity. Equity, or selling shares in your company, can be a great source of long-term capital, she says. That includes investments from friends and family, crowdfunding, angel investors, accelerator programs and venture capitalists. But you will give up some ownership of your company. The outside ownership, or dilution, is typically lowest with friends and family, but increases with angel and venture investors. A hybrid option is to invest in convertible debt, an interest-bearing loan that converts to stock over time. But Kramlich warns entrepreneurs to read the fine print closely and make sure they understand the terms, including how much of their company they are giving up.

This article originally appeared in BDO USA, LLP’s “Nonprofit Standard” newsletter (Winter 2015). Copyright © 2015 BDO USA, LLP. All rights reserved. www.bdo.com

February 07, 2016

Managing Cash Flow

Managing Cash Flow
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When booking profits on paper, be sure to have the cash in the bank. This may seem obvious, but a lot of business owners don’t make the distinction—to their detriment. For example, your business may get a big order, but you have to sink money into production to fill it. If the client pays you 90 to 120 days later, your cash flow can turn negative. According to Parsons, many small businesses that fail do so not because they are unprofitable, but because they run out of money. The reasons vary, from long payment cycles to inventory management to a lack of investment capital. Understanding the levers that impact your cash flow can help you get a handle on this important metric. Parsons recommends using one of the many free cash flow calculators available to analyze and forecast your cash flow, like this one on her company’s site.

This article originally appeared in BDO USA, LLP’s “Nonprofit Standard” newsletter (Winter 2015). Copyright © 2015 BDO USA, LLP. All rights reserved. www.bdo.com