(800) 218-9000
(800) 218-9000
PMF Newsletter Signup

USC Marshall School of Business: Stephen Perl, CEO PMF Bancorp presents alternative business financing – Fin-tech to Crowdfunding

USC Marshall School of Business: Stephen Perl, CEO PMF Bancorp presents alternative business financing -Fin-tech to Crowdfunding from stephen perl on Vimeo.

5 Tips for Spring Clean-Up for Your Business

Invoice Factoring Los Angeles, CA

Out with the old, in with the new financing options!

Spring is a great time of year to clean out the old and prepare for the new. This not only works well for the home and garden, but for your business too! Here are 5 tips to get you started:

  1. Let the Cash Shine In: Look for innovative ways to get cash in-hand faster and to have access to funds when growth comes calling. For periodic access to immediate cash, consider invoice factoring financing where you sell your accounts’ receivable or invoices at a discount in order to get the cash in-hand sooner rather than later. Great way to increase cash without increasing your debt or accumulating more loan payments. For projects or longer terms items like developing a new product line, accessing a small business loan may also be a good solution. In some cases, new invoices may not be generated right away so a more patient money such a longer term loan or equity may be a sound alternative.
  2. Trimming Inventory: Inventory is stuff, stuff takes up space, and space costs money. Spring is a good time to consider selling off inventory that’s no longer turning over profitably. Any potential loss in the process needs to be weighed against the carrying costs, particularly if you can replace the old with new items that will sell.
  3. Pruning Expenses: Revisit everything that you’re spending money on to look for ways to work smarter, more efficiently and more profitably. If this takes too much time, the first thing you want to fix is your expense management system. Other areas include evaluating energy, communication and outsourced services costs. If you’ve been with a payroll provider for a long time, for example, reexamine what they’re charging you over the competition. Spending controls equal profit controls.
  4. Customer Weeding: Take a fresh look at your customer base. Who pays on time? Who’s been with you a long time? Who hasn’t bought in a while? Who represents routine problems? The more you can understand who is buying what, when, how much and why, the more you can proactively drive increased sales and profits going forward.
  5. Staff Sprucing: Your team can be one of your most powerful – and expensive – assets in business. Look at who is doing well and be sure to let them know. This includes not only routine praise, but also other forms of rewards including financial and benefits. If someone is not performing well, nip it in the bud sooner rather than later. One bad apple can spoil the bunch!

For service-type businesses that do not deal with inventory issues, another great area to take a fresh look is how well you’re spending your time. Collectively, by looking at these and other ways to freshen up your business, you will be sure to reap many rewards.

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.

Checking Your Business’s Vital Signs

It's important to check on the health of your business

It’s important to check on the health of your business

If you ever go to the hospital or even for a check-up at the doctor’s office, one of the first things the nurses do is check your vital signs. These are the critical factors that are used to determine the state of your overall body function such as pulse rate, temperature, and blood pressure. Though we don’t always like it, measuring these factors is important because it gives the doctor, and us, a clearer picture of how healthy we are or where we may have problems.

Just as doctors and nurses must check our vital signs, we have to check our business’s financial vital signs to determine the relative health of our ventures.

  • Gross Profit | This is the difference between your sales revenue and your cost of goods sold. The larger the difference the better. A higher gross profit indicates stability and sustainability of the business.
  • Expenses | Expenses in business are separated into two categories – fixed and variable. While fixed expenses tend to remain constant, it’s important to regularly review variable expenses due to their more volatile nature. Small changes in prices of supplies or materials can have a large effect on your bottom line. Look for areas where prices have increased and adjust your pricing or lower your overall expenses.
  • Cash Flow | Cash is like the blood that runs through your veins. It is pumped throughout your entire business and keeps everything functioning properly. Low cash flow can be a serious issue for businesses, especially if unexpected costs arise. Fortunately, there are options such as invoice factoring financing and accounts receivable financing to help your business speed up cash flow.
  • Growth | Growth is typically a strong signifier of a healthy business. If your business is experiencing stable, consistent growth, you are likely doing well. However when growth begins to slow, you should act sooner rather than later before it plateaus, and eventually may even decrease. You should be cautious of rapid growth as well. While it may be a blessing, it can also create some serious operational and financial strains for your business.
  • Budget Deviation | An important part of running a business is tracking your progress. Your budget deviation analysis allows you to compare predicted performance against actual results. This tells you if your business is on track for meeting sales goals and helps you keep spending under control.

Just as with your own personal health, you want to check these business vital signs regularly to ensure that your company is healthy and functioning well. Luckily there are no cold waiting rooms or paper shirts required to measure these factors, just good business practices and financial data.

Myths and Realities Regarding Invoice Factoring

Stephen Perl - 1st PMF Bancorp - Invoice Factoring

Stephen Perl – 1st PMF Bancorp – Invoice Factoring

In the first three posts of this series, I covered what you need to know about small business financing, how to align your funding sources with your funding needs and alternative sources for working capital. One of the important alternatives by which you can increase your working capital is through accounts receivable factoring. In this post, I will focus on some myths and realities surrounding invoice factoring.

What Is Factoring?

Accounts receivable (A/R) factoring, also known as “accounts receivable discounting” involves “selling” the A/R to a third party known as a “factor.” Factoring is customer and invoice specific. The factor may or may not be willing to fund (“buy”) all of your A/R invoices. There is a cost to factoring, which is typically 2 to 4 percent of the invoice’s face value. The purpose of factoring is to accelerate cash receipts due from sales made on credit.

Full-service factoring involves selling all outstanding receivables on an ongoing basis to a commercial finance company (factor). The factor pays for each invoice, withholding 2 to 4 percent as its fee, and manages the receivable until it’s paid. Under spot factoring, you would sell a specific invoice to the factor without any commitment to selling any additional invoices. Spot factoring is more expensive than full-service factoring, typically 5 to 8 percent of the receivable. Receivables may be sold with or without recourse. With recourse, if the customer defaults, you would have to attempt collection yourself. Without recourse, the factor would assume full collection responsibility. Factoring without recourse is more expensive because it carries a greater risk.

Myths and Realities

Even though factoring has literally been a source of small business financing for centuries, it’s still a frequently misunderstood option. Unfortunately, these misunderstandings, or myths, may prevent companies from utilizing what could be a very valuable resource for them. Here are some of the most common invoice factoring myths:

  1. Factoring Is Bad for Your Reputation
    The concern is that your customers may see your use of factoring as a sign that you’re in financial trouble. While factoring is a viable tool for startup companies, or those who are otherwise un-creditworthy, it’s also a very important tool for successful companies that want to rapidly accelerate their growth and need access to the working capital tied up in the receivables.
  2. Factoring Is Too Expensive
    While factoring is certainly more expensive than a traditional bank loan, it may be the only viable option for a business that doesn’t qualify for a bank loan to secure the funding needed to support their growth. Additionally, under full-service factoring, the factor may provide valuable additional services such as credit checks on potential customers, invoice account flow tracking and engagement in collections or related services as needed. A second important consideration is the time value of money. Can you earn more by having immediate access to the funds than the cost represented by selling the receivables? If factoring frees up the working capital necessary to support your growth, for example, and the profitability of the additional business available is greater than the cost of the factoring, then it represents a smart choice from a ROI perspective.
  3. Factoring Is Only for Small Companies/Factoring Is Only for Large Companies
    Factoring has nothing to do with the size of the company that desires to accelerate payment on their A/Rs. Certainly for small companies, especially startups without a credit track record, factoring may be the primary tool available to them to build working capital. Further, support from a full-service factor may actually represent an effective way to outsource the A/R management function. Many larger, established and profitable companies use factoring as a routine component of their cash flow management strategy.
  4. Factoring May Upset Your Customers
    Some customers may prefer dealing directly with you rather than with a third-party factor. This may be for the good reason that they appreciate the collaboration between companies. It may also be for the not-so-great reason that they feel it may be easier to delay payments if they’re dealing directly with you rather than with a commercial finance company that may be more assertive in collection activities and in reporting delinquent accounts to credit monitoring agencies.
  5. Factors Have Inflexible Rules and Are Difficult to Deal With
    Factors come in all types and sizes, and represent a wide range of business. For this reason, it’s important to investigate different factoring agencies to find an organization that suits your purposes at a price that you feel is a fair value for the services provided.

As with all aspects of business management, factoring represents a tool that may be right for you. Don’t be misled by invoice factoring myths. Understand your goals, investigate your alternatives and look for a strong business relationship.

In my next article in this series, I’ll take a look at public sector funding resources: what you need to know and how to proceed.