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4 Questions a Business Owner Needs to Ask at the Year-End Review…

Be certain to do a financial review of your business annually!

Be certain to do a financial review of your business annually!

It’s that time of year again! 2017 is right around the corner, and for many business owners that means doing a financial review of the progress they made in the past twelve months.

The year-end review is important for a number of reasons. It allows you to measure your business’s growth and progress so far, it gives you a benchmark for the following year’s goals, it identifies possible financial issues that exist or could potentially arise, and it helps you plan for the following year by identifying strong periods and slow ones. Here are the 4 questions that should be asked:

1. How much money did you make?
A strong sign of a healthy growing business is if your annual net profits exceed that of the previous year. You will also want to review performance on a quarterly or monthly level as well in order to determine which periods were the most profitable for your business.

2. Did sales perform better or worse than expected?
Unlike gross profit, revenue is simply the amount of money the company gained from sales activities. You should compare each period’s total sales revenue to both external and internal factors. This will allow you to determine whether or not sales varied because of factors such as new competitors entering the market or if a marketing campaign was ineffective.

3. Were your expenses on budget?
It’s important to pay close attention to your expenses because even small changes can make a significant impact to your bottom line. With this in mind you want to find out where expenses deviated from your annual budget and why. This information can then be used to reduce costs the following year or adjust your budget accordingly so that you can create more accurate goals for sales and gross profit.

4. When was cash flow the tightest?
Most businesses experience periods in the year when cash is low. You will want to know when this happened and why. Knowing when these periods occur, will allow you to create a more successful financial strategy. In any business that sells on account, cash flow lags sales by the average receivables aging. If your sales are low in the summer and increase in the fall, your cash flow will be lower as you move into your busier season and you will not have the cash available to support your growth. Here, if you want to consider adding financing options to reinvigorate cash flow, your plan should include invoice factoring financing, small business loans, and / or a combination of programs for maximum effectiveness.

These four questions will provide you with some very valuable information that will play a vital role in your plans for the upcoming year, especially if you plan to grow or expand your business. You can use these insights to determine which times of year would be the most profitable, which strategies are the most effective, and which financing solutions would be the best choice to fund new projects. PMF Bancorp’s hands on assistance and experience allows are clients to arrive more easily and solve their financial needs through are many flexible working capital programs.

California Wholesaler Inventory Financing Solution… Dream or Nightmare?

container-shipCalifornia businesses are in the wholesale mecca and trade port hub of the U.S. There are literally tons of products being imported into our regional ports in California to feed this insatiable wholesaler appetite for product to sell. There are many opportunities in this trade zone where dreams can be made, but there are also financing issues that can bring nightmares for the inexperienced or faint of heart as well. Financing inventory can be a dream or nightmare, but lucky for you…this article will explain unique a trade financing platform that can help, called, “The Supply Chain Plus Financing™ Program” which can be used in conjunction with AR financing to really propel a growing business.

Before we go in to the details of one of the most flexible and economical ways for a California wholesaler to finance their inventory, we need to build a case to describe the typical scenario that many wholesalers and importers face.

The typical wholesaler is forced into importing goods to reduce their costs and increase their margins to remain competitive. For even the most experienced business that imports goods, there are many issues before financing such as quality control, working with a foreign factory, monitoring progress of order, etc. There are numerous instances where foreign suppliers ship good containers for a period, and then suddenly send a bad container where quality control had failed. What is your recourse on a foreign corporation that you have already paid? Most have no solution, but there are answers.

The Supply Chain Plus Financing™ Program provides a wholesaler with an easy to use solution. The Supply Chain Plus program provides an infrastructure and safety net to support an importer’s supply chain and capital at the same time for more inventory to grow sales.

The Supply Chain Plus Financing has 5 basic parts that it adds to a company’s supply chain:

  1. Expert Financial Review of foreign factory’s credit;
  2. Quality Inspection support & reporting to strengthen process;
  3. Letter of Credit and mobilization to support production;
  4. Cash flow ( AR financing) support to provide better cash flow;
  5. Credit insurance on sales can guarantee payment when customers can’t pay.

Before the financing can begin, there has to be a qualified 3rd party review of your foreign factory for a number of reasons. Most obvious reason is that one wants to make sure that your factory is strong enough to supply your short to midterm growth needs. Many businesses have also been surprised that after this type of review that their factory is not the actual factory making their products (this is common in China). A fact that is not so obvious is that your factory needs to be strong credit wise in order to really work with a Letter of Credit financing program (more on why this is important later in this article).

The Supply Chain Plus Financing™ Program also as a unique service that integrates it’s financing into a company’s quality control program or even creates a quality control program for the wholesaler based on its experienced staff and Asian practice. Having a team to review the pre-production & mid production provides a much safer way to control quality because it detects issues with manufacturing before all the goods are made which is typically when most inspections by small companies occur. Of course, companies like Apple, Sony, etc. do not wait until goods are finished to inspect which is a statement in itself.

The Supply Chain Plus Financing™ Program’s main support for most companies comes in the form of financing inventory. Wholesalers are often hit with seasonal needs and large clients making inventory demands. How does a wholesaler meet the cash flow need when there are so many other working capital needs. They can use their Purchase Orders (POs) as collateral and then utilize AR financing. In this instance the Supply Chain Plus Financing™ Program provides a number of solutions. The Letter of Credit (LC) solution is the tool of choice for international financing of inventory because it provides the safety of product being made to specs and on time before payment is rendered. There are many other conditions that can be placed to further secure delivery of goods, but in order to make the letter of credit “clean” and financeable on the sellers’ side, one needs to stick with conventional parameters. If your foreign supplier is not financially strong then they will often not accept LCs. The main reason is that their bank cannot provide financing support. Smaller factories cannot buy their raw materials or pay for production if they elect to accept an LC in many instances, so like poker, you can easily call their bluff in how big their factory is by offering an LC for payment. In most cases, you should only working with factories that can accept LCs as it is a key “tell” to their strength and credit quality.

The last key to the financing puzzle is to be able to finance your sales once the goods are imported and delivered to your client(s). California wholesalers and others are often required to play the role of the bank with their customers that often require invoice terms. The ironic part of this situation is that the customers that require the invoice terms are often larger than most banks (i.e. Costco, Walmart, Target, etc.). AR financing in this instance is an absolute must and the Supply Chain Plus Financing ™ program also offers this as well. Accounts receivable financing allows a business to finance its own invoices which is also sometimes referred to as invoice factoring.

The last portion of the Supply Chain Plus Financing™ Program is about creating a financial safety net after the sale. The wholesalers are often smaller than their customers and one customer not being able to pay would undoubtedly cause pain. Therefore, the Supply Chain Plus program has a credit insurance program built in where companies can submit their invoices for a small fee to be guaranteed for payment. Too many large companies are getting terms and with the economy on a roller coaster, credit insurance for invoices is always a great financial option to have available with a single phone call.

So one might ask, “Who offers the Supply Chain Plus Financing™ Program?” Simple. 1st PMF Bancorp.

For more information, please click here.


Stephen Perl - 1st PMF Bancorp - Invoice Factoring

Stephen Perl – 1st PMF Bancorp – Invoice Factoring

Hot Money has long been a problem for China and can create major problems for commercial lenders and factoring companies financing trade as part of their portfolio. In some instances, factoring invoices are often derived from an up stream trade transaction that is also financed by the factoring company. Wu Ruilin, China’s Deputy of its State Administration of Foreign Exchange (commonly known as SAFE), has uncovered over $10 billion of fraudulent trade financing transaction especially with product flowing through 24 provinces including the Qingdao port (per Wall Street Journal Sept. 25th, 2014). Companies or entities that are transferring money in or out of China through trade transactions without the permission from SAFE are considered to be making “Hot Money” transactions. For example, the trade shipments involved in this type of “Hot Money” problem typically claim certain value on their shipping documents, but the actual value is not correct. Therefore, the trade financing or funding connected to this trade transaction is transferring far too much money for the actual value on the documents. This process allows money to be transferred across boarders without currency controls. China blames much of the real estate appreciation in the last 10 years to be due to money from these areas. Companies that are factoring invoices related to trade need to perform proper due diligence by having their own independent physical inspection at the port of origination to ensure the validity of the shipping documents.

A commercial lender or factoring company can take preventative measures to guard against Hot Money which is actually the process of laundering money in and out of China without the Chinese government’s approval. A lender’s major tool to prevent the financing of Hot Money trades is to have their own set of due diligence practice for any type of trade financing. First, a lender should have their own employees in China or boots on the ground. By having your own staff to inspect the goods at the port or point of origination, one have a high certainty that the collateral on the shipping documents match the value being financed. Also, basic KYC (aka Know Your Client) practices allow you to meet the requirements of the Patriot Act required by US law. I would suggest taking this a step further and make sure you have done your due diligence on the factory or supplier as well. Having knowledge that your factory and your client are both reputable entities and without major issue in the US and/or China adds a much greater level of security that your transaction will be successful.

Frequently in our due diligence practices, 1st PMF Bancorp (USA) and 1st PMF Capital (Hong Kong) use Hong Kong and Chinese government databases to review our foreign customers and their suppliers. We also have our own underwriting team comprised of bankers and CPAs that visit the larger transactions and require financial info in order to even provide a proposal. Having a good working knowledge of your local business and legal practices is key when financing in other countries. Hopefully, this info will add light to your future trade financing and invoice factoring deals. I can be emailed if there are more detailed questions.

Stephen Perl, CEO

1st PMF Bancorp – invoice factoring worldwide

Author: Secrets of Doing Business with China: Dancing with the Dragon

Stephen M. Perl, MS, MBA is the CEO of 1st PMF Bancorp, a leading US commercial bank lender, and the founder and CEO of ChinaMart® Los Angeles, a platform that assists Chinese companies in their investment in the USA.

Mr. Perl has successfully grown 1st PMF Bancorp’s lending portfolio to one of the largest private, short-term business lenders in the US with specialty in factoring and trade finance to company with annual sales from $1 to $50 million. He designed PMF Bancorp’s, “Supply Chain Plus Financing Program™ ” to provide the most comprehensive supply chain financing platform in the US for small to medium sized companies doing business between the US and China. Mr. Perl established the first private US lender in China in 2004 and has recently published a book called, “Dancing with the Dragon: The Secrets of Doing Business with China” (2012) as an executive’s guide to doing business with China.

Is China Trade becoming Less or More Expensive for Your Business?

Businesses working with China trade for importing goods often have to pay for their goods or labor to make many of their completed products for the US market.  Lets face it, the US dollar does not go the same distance it used to in China or anywhere else for that matter.

Unfortunately, the US does not make a lot of toasters or microwaves anymore so retailers and consumers are forced to buy Chinese made goods. US businesses often use trade financing to import goods.  We could buy Made in the USA products, but it is ultimately the consumer’s decision for the most part when they walk into Walmart and choose to buy the less expensive Chinese made product.

Businesses are all in a wait and see mode as the Chinese currency has appreciated drastically over the last several years by more than 30%; however, the Chinese economy looks like it may be finding its equilibrium as the economy matures.  The last couple of years of growth in China’s GDP have shown a dip in their GDP.  Their GDP in the last two years been between 7-8% which are the lowest levels in 15 years. These figures are probably a couple percent too high as well do to adjustments that should be taken internally before China reports. India was also thought to be a industrial machine and it has shown the same decline over the last several years.

The People’s Bank of China (“PBOC”) has also taken measures to slow currency speculation by widening the Yuan currency fluctuation bank to a 2% band.  The PBOC as reported by the Wall Street Journal today stated, “The Central Bank of China is pretty satisfied with the efforts [using this new widened band] to punish speculators”.  “Over the last 5 years, PMF Bancorp’s clients importing and trade financing goods based on factoring invoices from China have seen a dramatic increase in cost of goods and labor in China, but it appears to be leveling off in the last year” states Mr. Stephen Perl, CEO of 1st PMF Bancorp.

Therefore, is China becoming more expensive or less expensive for US importers can be debated but it should be clear now that the currency will probably find an equilibrium around this current level and there should not be anymore large jumps in appreciation.  On the contrary, if the Chinese people, businesses, etc. become worried enough about their economy then we will start to see a flight of capital which would depreciate the currency even further and would help make doing business in China cheaper again.  So, I think all parties have a vested interest in keeping the China Yuan stable at these levels.

Stephen Perl, MS, MBA
CEO of 1st PMF Bancorp


Author of Book: Dancing with the Dragon: the Secrets of Doing Business with China (Book 2012)  

China’s 3rd Plenum and President Xi’s New Powers

China is becoming more intriguing all the time because as it moves towards a stronger capitalistic economy, the government is apparently consolidating power in their President’s position.  This could be seen as a move for more centralized power, or alternatively an attempt at copying the US’s system and the President’s powers in the US.  It is no secret that the Chinese have modeled many of their systems, roads, infrastructure projects, etc. after the US.  The Chinese feel the US has been tremendously successful and there is no reason to copy any other (however, its only my opinion, but they may want to pass on copying our health care system and retirement system).

In simple terms, what did this Third (3rd) Plenum achieve… the top line statement given after the meeting was that China’s leadership would make more decisive movements toward a free market system, while maintaining a firm central state grip on the overall picture…not sure about you but I am confused.  However, in contrast to the past 2 Chinese President’s,  the 3rd Plenum did appear to have granted President Xi the following new powers:

1.  Control over Military, Foreign Affairs, Intelligence, and Economic Officials (not quite like the US Reserve model)

2. Creation of a National Security Council

3. Control over most of Domestic Security issues

4. Control Foreign Defense without Leadership approval

There are many similarities to the US…too many to comment on but this is probably a good thing as having a President with too little power can create more problems and frustrations so another ally that is aligned with our business interests can only be a good thing for the overall future for both countries and the world.

by Stephen Perl, MS, MBA

Author of “Dancing with the Dragon: Doing Business with China (2012)