Compound Profit Blog

Using its own working capital is an ideal way for a business to avoid debt and stay in control of its own destiny. The definition of working capital sounds complex, but it's just a lot of words to describe the difference between what a company owns verses what it owes. Technically, to figure out the amount of working capital a business has to work with, the business owner should add up all assets, including such things as computers, stocks and inventory, and figure out what can be converted to cash within the coming year. That would be the asset figure.

To get the liability figure, the owner of the business would need to add up all accounts payable that are expected to go out in the next 12 months, including employee salaries and benefits, debt payments, rent and so forth. This gives the business an idea of what its liabilities are and should be deducted from the asset figure to come up with a figure for working capital.

Advantages of Using Working Capital Verses Other Financing Options

As opposed to taking out a loan or using a credit card, using available working capital to grow a business puts it in a better financial position for the future. While borrowing money is sometimes necessary to start or continue a business, it comes at the price of having to repay it with interest and in a way is gambling with the future of the business. With working capital, there is nothing to repay and the money is there to immediately use as the business owner sees fit.

Selling company stock is another option that some business owners resort to in order to raise quick funds for the company. It is a viable option, but not one that comes without risks. There is always the possibility of having to sell too much stock, resulting in a shift of the power structure of the company. Again, working capital is a better solution because it leaves the management structure in place and give the leadership the ability to make decisions for the future of the company.

 Working Capital is Attractive to Investors

When business investors are looking for companies to invest their money in, they will often evaluate more favorably those that have managed to build up a fair amount of working capital. It shows that the company is responsible and therefore less of a financial risk.

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Everyone knows that money didn’t exist from the  beginning of time; prior to its invention, people didn’t have access to working capital, so they simply bartered or exchanged goods. Later on, various nations used gold dust, clam shells, cocoa beans (and so on) as money; nevertheless, this didn’t simplify the process too much, so the invention of money was the result of a needed, expected course of action. While some money is still made from precious metals today, most of it now is exchanged electronically as bytes through computer networks around the world.

The first American colonists were using all sorts of currencies (mostly from England, France and Spain) for their transactions; it’s a known fact that by the end of the 18th century there were about 20 officially accepted forms of legal tender in North Carolina alone! Different states had different payment instruments, with tobacco being used as money in the form of “tobacco notes” in the state of Virginia for over two centuries.

The first credit bills which were accepted as legal tender were printed in Massachusetts as a means to pay the soldiers for their military expeditions, and could be exchanged for silver or gold. Meanwhile, by the end of the 18th century, many private banks were allowed to produce their own bills, so in only a few decades there were thousands and thousands of different U.S. bills floating around the continent.

The end of the 19th century brought the death of the silver dollar; the massive gold supplies that came from Alaska and Australia imposed gold as the currency standard. Despite all of this, a few decades later, the great depression (which cut the net national product to less than 50% from its initial value) forced Congress to raise interest rates significantly, in order to keep a proper gold vs. dollar ratio.

The Federal Reserve System, which was set up in 1913, continues to act as a national bank, regulating the money flow and thus ensuring the much needed economical stability. The Federal Reserve Notes are the only currency produced in the U.S.

Amazing facts:

1. Producing a penny costs about... two pennies! The price of Zinc (the main ingredient in the penny formula) has increased a lot during the last decade, so the government is actually losing money with each penny that’s minted.

2. Congress authorized the usage of paper money in 1775 in order to finance the war, but they had to give up the idea quickly, because the printing costs were greater than the value of the bills.

3. The Secret Service was founded in 1865; its main role was to fight the counterfeiters and thus restore people’s trust in the U.S. currency. Its authority broadened two years later, giving it the responsibility to discover any possible frauds against the U.S. government. Congress passed an Act making it unlawful to counterfeit coins 12 years later, in 1877.

4. There are many theories regarding the origin of the dollar sign, but we know for sure that it had been used way before the U.S. dollar bills were invented back in 1875. Strangely, the dollar sign doesn’t appear on any of the U.S. bills.

5. Congress authorized the production of the first U.S. dollar coins in 1792, but paper money wasn’t produced until 1861 – and each one of the produced bills was initially signed by hand by a handful of people!

6. The U.S. reduced the size of their bills by about 30% in 1929, in an effort to save money by using less paper. As an added benefit, the new bills have been of great help in fighting counterfeiters because the new designs were standardized.

7. The largest U.S. bill ever printed was a $100,000 note; nevertheless, this bill has never been released to the public, only being used for transactions that were involving the Federal Reserve and the Treasury Department. Other seldom found bills include the $500, $1,000, $5,000 and $10,000 notes, which can be found in limited quantities (mostly in museums) these days.

8. The paper used for the bills (which is secretly produced by a single manufacturer from cotton, linen, colored fibers, polymers, etc) can be folded about 5,000 times without needing to be replaced.

9. Starting with 1993, all paper money (except the $1 bill) include micro-printing, which wraps the “The United States of America” text around the portraits that are printed on the bills – the text appears 12 times on the $100 bill. The size of the micro-printing is only 0.006 inches, so you will definitely need a magnifying glass if you want to read the text.

10. While a $1 bill will only last for about 2 years, due to its special texture, a $100 bill can be used for up to 10 years without getting deteriorated.

I’ll have to admit that the U.S. bills don’t look too exciting when compared with other countries’ bills, but their somewhat dull aspect was intended – it allows the subtle incorporation of more and more security features, and thus limits the amount of counterfeit bills on the market.

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Most of us have been there: we had a killer idea, so we’ve started a business, pouring all of our enthusiasm, time and money into it. And most of the time, our company has done well (or even great!) during its first few years of activity, but then it started to decline.

The economical crisis has given us a good excuse, allowing us to have dialogs like the one below with our friends:

“So Ben, how’s your business doing?”

“Hmm... not well, man. Not well at all!”

“I know what you mean... I’m thinking of shutting mine down for good...”

“You can’t fight the current, man. I think I’ll shut mine as well...”

“Gotta hate this global crisis!”

“Yeah... who would have thought that this would happen?”

Fortunately, unlike me and Ben in the dialogue above, other entrepreneurs have learned to adapt to the new rules, reinventing their companies and making tons of money during the process. In fact, many companies are growing “too fast” these days, and this causes problems.

Now how on Earth can growing too fast be a problem? The answer is very simple: many companies are growing fast, but their money is tied up in their accounts receivable, so they can’t take on more businesses: they can’t purchase more products or services, they can’t meet the payroll, they can’t pay the rent, and so on. And remember, we’re talking about a profitable company here, who can’t grow as it should because it lacks the needed working capital.

Having a poor cash flow will definitely hinder your company’s growth. And having to wait for up to 3 months in order to be paid by your customers is definitely a nightmare for any active entrepreneur. Some of the business owners try to get bank loans, but very few of them manage to get a loan under good terms because they don’t have a great credit history.

Getting working capital through invoice factoring eliminates the need to wait for 1, 2 or even 3 months, until your customers pay their bills. You get a big upfront payment (up to 90% from the money that is owed to you) right away, the rest (minus a small service fee) being paid as soon as the invoice factoring company gets paid by your customers. The procedure is very straightforward and consists of only two steps:

- You send a copy of your invoice to the factoring company, getting that big upfront payment in 1-2 days;

- The factor sends you the rest of the money as soon as your customer pays the invoice.

Your credit history isn’t important at all; only your customer’s credit is evaluated. If you’ve got slow paying customers and lack working capital, feel free to contact us for your complimentary consultation – our invoice factoring service fees start at only 0.75%.

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Many people would like to start a small business but they are worried because they don’t know how to get the needed capital. We can’t blame them for that; the stats show clearly that most business fail because they don’t have access to cash, with most companies failing during the first year of activity. It’s a good idea then to keep track of your precious working capital by starting small, without spending too much money from the very beginning, and then buying more and more equipment, hiring more and more people, etc as your business starts to produce more and more income. With all these things in mind, let’s look at the most used financing instruments.

1. Personal credit cards. These might be good for people that are just starting up, but must be used carefully; the interest rate is quite big, so make sure to pick the best offers and (most of all) spend the money wisely.

2. Personal loans. You’ve got good chances to obtain a personal loan from a bank if your financials (especially your income and credit score) are looking very good. Most experts recommend that you should apply for a personal loan while you’re still being employed; this way, you increase your chances of getting a bigger personal loan.

3. Home equity loans. They are similar with personal loans, but in this case you have to offer your house or some other property as collateral. While I can’t recommend this particular financing instrument, I have to admit that it’s got some advantages, like the ability to get a larger loan for a longer term (10... 20 years).

4. SBA loans. These loans are backed by the U.S. Small Business Administration, so the banks will take less risks in case that you default your loan payments.

5. Business loans. Getting a business loan might look like a complicated task when you’ve just started your business, because your company didn’t prove its successfulness yet. Fortunately, if you have a good business plan there are quite a few ways to get financing for your business from the alternative financing companies.

Compound Profit has several financing options that allow the business owners to get working capital even if they’ve just founded their companies, so contact us today for your 100% free consultation.

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It is very clear that many companies are either going out of business or restricting their activity, and the first in line are the small (local and regional) companies, who were hit hard because consumer spending has decreased quite a bit. And you don’t have to be a rocket scientist in order to understand that slow sales will eventually terminate even the big firms, who have access to much more capital than your Uncle Mills’ Shoe Shop.

While the big players can breathe a little, cutting some of their operating costs by closing some of their underperforming stores or even by filing for bankruptcy in order to restructure debt, the little guy doesn’t have too many options. On the other hand, it’s true that the big companies have much larger expenses and if they sell high end merchandise (read “things that people don’t necessary need”) they will be affected for sure, while Uncle Mills can keep running his business in the garage for many months or years, even during these tough economical times.

Let’s not forget the good news, though: the economy is slowly recovering, and will continue to do so in the near future; this means that we’ll see more and more companies that have managed to survive the recession starting to do business again.

So what is the strategy that must be employed if you want to stay afloat and even prosper these days? The key point is to watch your bottom line, keeping track of how much money you are actually making, and most of all keeping track of how much profit you are making on a monthly basis. If you decide to invest into your business, make sure that you target areas that will bring in additional sales and profit; otherwise, if your overhead costs are very big, try and find solutions that allow you to cut back the costs.

Many business owners evaluate their business profitability by only looking at the revenue; sadly, many multimillion companies have gone under because even though their monthly sales figures were huge, their expenses were very close to those figures – and sometimes even larger!

Compound Profit has a highly trained network of Profit Advisors throughout the entire U.S.A. and offers free consultations to all the business owners who want to learn how to cut their costs and increase their profitability by getting access to working capital that will allow them to grow their companies. Contact us to learn more about our complimentary offer.

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If you run a business you are definitely under a lot of stress, especially if you’re working in a competitive industry. And while having great employees is the key to your success in highly competitive markets, most of the time their salaries are going to be proportional with their skills and results. So how do you manage to meet the payroll each and every month? And how do you pay your suppliers on time?

First of all, you must make sure that you are running a truly profitable business; if your sales are barely covering your expenses, it’s time to stop and think how you can reorganize the activity in order to increase the profit, or at least to cut the costs to a reasonable level. Nevertheless, there are many business owners that are actually making a good profit, and yet they lack the needed working capital.

Let’s consider an example: a company sells pens to the government – and it sells lots of pens to this particular client! However, the government will only pay the invoices after 1, 2 or even 3 months, because they set their own rules and if you want their business you simply have to obey these rules. So now you’re all set up: your suppliers need to be paid as quickly as possible, and your customer wants to pay as late as possible. How do you get out of this?

A possible solution would be to keep lots of money in your bank account, but most business owners prefer to invest it over and over, in order to bring in additional profit. Another option would be to get a business loan, but the banks are more and more cautious these days, especially if your business credit reports aren’t perfect or if you’ve only been in business for a few years.

Getting working capital through factoring is by far the best method; it allows you to get the needed funds in exchange for your invoices in only 1-2 days. The factoring company will buy your invoices, giving you a big advance (up to 90%) right away, the rest (minus a 1... 3% service fee) being paid when your customers pay the invoices.

Invoice factoring offers you access to the needed capital right away and doesn’t take into account your company’s financial strength; only your customers’ business credit is important. And unlike a bank loan or a traditional line of credit, the funds are only limited by the value of your invoices.

If your business is growing and you don’t want to wait 1, 2 or even 3 months, until your clients pay you, contact us; we offer 100% free consultations.

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Many business owners (no matter if they are running a small or big business) are having a hard time trying to survive these days. And it might look bizarre to you, but some of these struggling businesses are in fact profitable, but they lack the needed capital that would allow them to grow faster, meet the payroll, etc.

It’s true that the business owners have a part of the guilt; most times, the need for working capital is overlooked because buying new equipment, paying salaries, and so on, have a greater priority. On the other hand, more and more customers have started to delay the payments because they lack cash as well, or simply because they don’t care too much about others. And having your own in-house credit and collections department is definitely too costly.

What is the solution, then? Working capital factoring allows any business owner to access the cash the he or she needs right away, getting the money that are tied up in the company’s accounts receivables without any delay. As an example, if your accounts owe you (let’s say) $50,000 you could have a factoring company purchase your invoices and give you an upfront payment of 90% ($45,000) right away, the remainder of 10% being paid as soon as they get paid by your customers. The typical service fees range from 1% to 4% and can even go below 1%, depending on the amount of money and the risk that is taken by the factor.

Selling the invoices for cash eliminates the need to wait for 30, 60 or even 90 days in order to get paid; it’s an effective, inexpensive method that allows you to get the working capital you need without having to come up with additional collateral or to give away equity. In addition to that, working capital factoring can be used without any problems even by startups, small businesses that are usually turned down by the banks because they’ve just started their activity. With factoring, all you need is a credit-worthy customer; the cash can be obtained in only 1-2 days and the amounts of money can grow naturally, as your business expands.

Through working capital factoring, your business can get access to cash on a regular basis, thus improving its cash flow and growing its profit without any trouble. In addition to that, factoring improves your business credit score and allows you to get better offers from your suppliers and pass them on to your customers, thus attracting more business and increasing your company’s profitability even more. Contact us to discover even more working capital factoring benefits – we offer 100% free consultations.

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Quite a few business owners struggle to pay their suppliers and payroll these days. Sometimes, this might be good news: the company is growing and it doesn’t have too much liquidity at its disposal. Unfortunately, many times this situation has to do with the customers taking way too much time to pay their accounts. It’s true that your company can also grow by offering better terms to its customers, but this could lead to serious cash flow problems.

On top of that, the banking regulations are more and more severe, so many businesses are struggling to survive and grow, mostly because their owners aren’t aware that there are other alternatives. One of them, receivables financing, is offered by the “factoring” companies. The company sells its business to business / government receivables to the factor and gets close to 90% of the dollar value right away, receiving the remainder (minus a small service fee) about a month later, when the factor gets paid for those invoices. This financing method doesn’t depend on your personal or business score, the amount of year in business, collateral, etc – what really matters is your customers’ credit.

Why isn’t this financing method much more widespread, then? Believe it or not, many companies don’t even know that it exists! And other people think that it is a costly financing method, when it fact it is very cheap – here’s an example:

An entrepreneur has got a $1,000 invoice in January and receives 80% ($800) from the factor as an advance payment. Thirty days later, the factoring company, who has a (let’s say) 3% rate for its factoring services, pays the business owner another $200 – 3% from the invoice value, so the business owner gets a total of 970 U.S. dollars in exchange for his / her $1,000 invoice.

This is a plain 3% service fee, and it is clear that the business owner will pay the same small amount of 3% if he / she decides to sell the invoices each month of the year; the total service fee for 12 invoices of $1,000 each = $12,000 will only be $360 (3% from the 12,000 U.S. dollars). Quite a few business owners believe that the percentages add up and thus believe that the service fee is 3% x 12 month = 36% -> nothing could be more wrong!

Other alternative financing companies offer rapid credit card payments and similar services, but the service fees add up quickly and easily reach 5%, being bigger than the ones used by the factoring companies. In addition to that, factoring doesn’t add any debt to your balance sheet and offers you a free customer credit check.

Working capital factoring and purchase order factoring are just a few of the business financing services offered by Compound Profit; its highly trained Profit Advisors are looking forward to offering you a complimentary business analysis, in order to find ways that will help you grow your business. Christy Giroux is a Regional Director of Compound Profit of Arizona and can be reached at 1-877-386-3716, ext. 249. Visit http://www.cprofit.com for more information.

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The financial crisis has determined the traditional lenders to raise their credit standards, as well as their commissions, making it harder and harder for many business owners to get bank loans. This happens because the banks aren’t willing to risk their precious finances by handing them over to a company that has less than perfect business credit records. What surprises me, though, is the fact that very few business owners, especially small business owners, have heard about working capital factoring; this article will hopefully be a good introduction.

The first myth that has to be debunked is the information that factoring is a financing option used only by the struggling small businesses. Nothing could be farther from truth: huge companies use factoring on a monthly basis because they can access financing instantly, without affecting their cash flow, and get to benefit from tax advantages as well.

On the other hand, it is true that small businesses can get the maximum benefit out of this financing instrument because they can’t grow properly (or even survive!) when their money is tied up in their accounts receivable, since they don’t usually have a lot of cash at their disposal. It’s depressing, but many clients, be them huge corporations or tiny businesses, prefer to pay using checks or simply decide that your company has to wait for 1, 2 or even 3 months before receiving the payment for the delivered products and / or services. Now that’s sad news!

Working capital factoring is the process through which an alternative financing company, also known as a factor, provides the needed financing to these companies by purchasing their creditworthy invoices at a discount. This gives the small business owner quick access (in only 1-2 days) to the needed money and has a 100% success rate, provided that the invoices are issued by a trustworthy company. Your company’s credit score, the number of years in business, and so on aren’t important; it’s not a surprise then that more and more company owners prefer to use factoring instead of trying to get loans from their banks.

Compound Profit’s factoring rates start at only 0.75%, so feel free to contact us for your free consultation.

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Working Capital Factoring can Solve Small Businesses’ Problems

It’s sad but true: many business owners are having a hard time growing their small businesses to their true potential. In fact, I have just closed a browser window that was listing several successful online businesses for sale, some of them bringing their owners at least a few thousand dollars per month! And what is the main reason for all these turnkey business sales, despite their profitability? The lack of funds, according to most of the owners.

So here we are, looking at a strange picture: the owners plan to kill the goose that lays the golden eggs, hoping that they’ll get enough money to buy a regular ostrich and turn it into a gold-producing ostrich. Let me rewind that a bit: we’ve got a website that produces (let’s say) 1,000 dollars per month, and you are trying to sell it for 5,000 dollars or so. If you have a house that can be rented for $1,000 / month over an indefinite period of time, will you sell it for $5000? I don’t think so...

So now that we’ve seen what the problem is, do we have a solution for it? Enter working capital factoring. Some of my colleagues have sold their own businesses for good amounts of money, but now regret it because working capital factoring would have helped them keep their businesses and make a much bigger profit. Sadly, they didn’t know that working capital factoring existed back then.

Getting working capital through factoring is a simple process: you sell your receivables to a factor such as Compound Profit and they give you a big advance payment (up to 90%) from their value right away. Then, when the factor gets paid for your invoice, you get the remainder, minus a small service fee that’s usually in the range of 1-3%, depending on the amount of money on your invoices, the amount of risk taken by the factor, and so on.

You might have heard about the small business lending plan, but trust me: it’s very hard to get loans from the banks these days. The feds are putting tighter and tighter strings on the banks, and the banks themselves are much more cautious now. Have you just started your business or don’t have enough collateral? Then don’t even bother to go to the bank – they’ll refuse you for sure. Is your credit score less than optimal? Then you’ve got very few chances to get your loan request accepted by a bank.

Factoring works in a totally different way: your credit score, collateral, or the number of years you’ve been in business simply don’t matter! The factor will only check the payer, trying to make sure that it will be able to get cash for your invoices. And what is the best news of all? It doesn’t matter what sort of business you run; as an example, Compound Profit can provide working capital factoring even for a restaurant that has opened its gates this morning.

So there you have it: through working capital factoring, you don’t have to kill the goose that lays the golden eggs; instead, you get powerful nutrients that allow you to grow it, eliminating the risks and turning it into a gold-producing ostrich – Your ostrich!

Feel free to contact us for a 100% free, no strings attached consultation. We look forward to helping you discover all the benefits offered by working capital factoring.

About the author: George Pirvu aka PsychoDude blends psychology and marketing, working as an internet marketing dude for Compound Profit.

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