Invoice Factoring Cheat Sheet for Brokers

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We’ve all heard that “Cash is King.” But when in business, especially when you’re growing, cash FLOW is king.

As a financial broker, your clients cash flow problems are your cash flow problems, from managing day-to-day operations to planning for sustainable growth. While you help them navigate these waters, offering advice and innovative solutions, there’s a powerful tool you might not be leveraging fully for your clients: invoice factoring.

Imagine being able to offer your clients a way to transform their cash flow challenges into opportunities for growth and stability. Invoice factoring does just that, providing immediate access to funds by selling outstanding invoices at a discount to a factor (a third party).

Basically, transforming their invoices to CoD.

This can give your clients the liquidity they need without the wait or the hassle of traditional lending.

Why Invoice Factoring?

Few things combine excitement and stress like knowing cash is coming but not knowing when you’ll get paid. It’s like waiting for the dragons to show up in Game of Thrones.

Cash flow is at the center of everything.

In other words, it’s about shortening the time a business waits for revenue to arrive.

We all wish cash would come in a little faster. Still, your clients may not realize how much control they have over business challenges, like their cash flow.

And those challenges could be deadly for business. According to QuickBooks, late payments impact over 70% of SMBs, and 40% worry that this problem could close their business if something isn’t done to address it.

Faster invoice payments could dramatically improve:

  • Cash flow
  • Scalability and sustainability
  • Reputation and credit rating

Invoice factoring can help your clients. Let’s take a closer look at how it works.

Faster Returns on Invoices

Invoice factoring relieves the stress of timely payments. It gives your client immediate access to the cash flow locked in their accounts receivable while having the factor handle the payment process with their clientele.

In other words, your client can get 80% or more of the value of your accounts receivable on an ongoing basis. This basically enables them to convert their accounts receivable into immediate working capital, enhancing liquidity and facilitating cash flow management.

Benefits Beyond Invoicing

As a broker, you’re probably already thinking about the benefits beyond the cash flow boost. For example, invoice factoring can also help:

  • Reduce the need for loans—Faster access to cash reduces your clients’ need for loans. This is good if their position makes it difficult to get loads either because they’re fully extended or they need to build credit. Invoice factoring uses your invoices as direct collateral.
  • Speed up the slow times: Invoice factoring can help provide access to more cash during slower business seasons when they need temporary access to more cash. This could even be a regular, recurring situation.
  • Build stability and credit: Since factoring stabilizes your cash flow, it’s much easier for your clients to forecast, staying ahead of bills and building strong credit.
  • Elevate your reputation with clients: Predictable cash flow helps your clients make better decisions, especially regarding investments, expansions, or strategic moves. This type of financial stability enhances your reputation with clients and peers.

Invoice factoring allows the agent to differentiate their practice, since you now have the ability to solve your clients’ cash flow issues and relieve the tremendous stress that comes with it.

How Invoice Factoring Works

Invoice factoring outsources your clients’ bill collection process. In Liquid Capital’s case, we handle the most stressful, tedious parts of the invoicing collection process and so your client can put the focus back on running their business.

By taking on the responsibility for the invoice, we would cover the process of getting the invoices paid.

The process looks like this:

  • Your client makes a sale
  • They sell some of their invoices to Liquid Capital
  • As the referring broker (agent), you get a continuous commission stream*
  • We send immediate funds to your client (minus the reserve and fees)
  • Your clients’ customers pay us
  • We refund reserves

That’s it.

On a side note, invoice factoring—what we’re talking about in this post—shouldn’t be confused with invoice financing. Invoice financing involves using unpaid invoices as security to obtain a loan or line of credit. This is a classic bank loan.

A bank loan has a strict limit on the borrowing amount permitted. The borrower is still required to collect payment from their customers and then repay the loan with fees and interest. This also tends to involve more paperwork and complexity. With trustworthy customers, factoring allows your client to grow their access to cash as their business grows.

For more on this, check out some myths surrounding invoice factoring.

It Works for You and Your Clients

The truth is invoice factoring helps all kinds of businesses, so why not yours? How many other solutions can take over one tedious and sometimes stressful process and provide immediate financial returns that impact so many critical parts of a business?

To recap, invoice factoring:

  • Turns invoices into cash within 24 hours, without the need for loans
  • Increases your client’s cash flow for stability and sustainability.
  • Reduced stress over the invoicing process, saving time and energy on accounts receivable.
  • Enhances credit and reputation

The headline here is simple: Instant access to working capital ensures that you’re not missing out on growth opportunities due to cash flow constraints.

Invoice Factoring for Financial Consultants

Everyone at Liquid Capital wants to understand your unique challenges and provide solutions like invoice factoring as a partner who is equally focused on your business’s ongoing success. For more than 20 years, relationships have been a core part of our business.

Please let us know how we can help you. Contact us today with your questions or to take the first steps in making invoice factoring part of your financial success.

Leverage new leadership skills to grow your business

Leverage new leadership skills to grow your business

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Embracing these servant leadership skills to grow your business can help you or your client reach the next big milestone on the path to success.

Leverage new leadership skills to grow your business

When it comes to helping your (or your client’s) business achieve its next milestone, leadership style is one key factor that can impact and drive growth. From a democratic to a top-down autocratic approach or even a laissez-faire attitude, those in leadership positions have no shortage of options to choose from.

But as some have discovered, adopting a leadership style that puts employees’ well-being, input and growth ahead of their own objectives may be one way to foster business success.

Servant leadership has been increasing in popularity, with leaders looking to leverage skills that cultivate growth within their team — to not only reach their business goals but to improve employee morale and create a stronger business overall.

What does servant leadership look like?

The concept of servant leadership — coined back in the 1970s in an essay by Robert K. Greenleaf — is defined as a leader who “focuses primarily on the growth and well-being of people and the communities to which they belong,” sharing power and putting others’ needs first.

Ultimately, a servant leader helps their team develop and perform as highly as possible, measuring success through factors like growth, engagement, motivation and development.

This differs from traditional leadership, where the leader is often at the top of the pyramid, exercising their authority, power and decision-making capabilities and may be primarily or exclusively focused on targets and outputs.

using servant leadership skills to grow your business

Businesses run by servant leaders usually feature:

  • A greater sense of community: By taking a non-hierarchical approach to leadership where the needs of the team are the primary focus, relationships and trust are built as all team members work towards common goals and share similar values.
  • Shared decision-making: In this model, all employees have access to information and are making decisions using a collaborative approach, with a shared vision.
  • More employee autonomy: Delegation is a vital part of servant leadership – with this model, employees are encouraged to take ownership of their work and are involved in making decisions, which can boost empowerment.
  • Opportunities for employee growth: In this model, leaders seek to bring out the best in their employees, including fostering leadership qualities and opportunities and supporting advancement.

 

Starbucks is a famous example of servant leadership in action. When founder and executive chairman Howard Schultz stepped down from his role with the company in 2018, he spoke of the kind of company he worked to create – one that sought to elevate humanity, take care of its employees and give them the opportunity to make a contribution to its core purpose.

“Servant leadership means simply to be in the service of others. We are in the business of being in service of others,” Schultz said.

 

What are the benefits of servant leadership?

One of the biggest advantages of a servant leadership approach is a higher level of employee engagement and retention — a team that feels empowered and supported may be motivated to work together towards shared company goals and less likely to seek opportunities elsewhere. As one survey found, employees who enjoy their work and are gaining new skills to advance their careers are 33% more likely to stay. 

Another benefit is improved collaboration and teamwork — when all employees have a stake in decision-making and input is welcomed from all stakeholders, this can foster innovation and creativity and even boost productivity.

How to implement servant leadership skills every day

Leveraging servant leadership skills in your business is a matter of developing certain qualities, centered on the well-being of your team — here are a few areas to focus on:

  • Empathy: One of the elements of developing a servant leadership style is the ability to understand and accept the views of the team, lead with empathy and inclusion and encourage considerate actions from all employees. Indeed, as a Gartner, Inc. survey found, some 90% of HR professionals say that leaders need to focus on the human aspects of leadership — being authentic, empathetic and adaptive — in order to succeed in the current work environment.
  • Listening: From a servant leadership perspective, good listening is not just giving all employees a voice, hearing and respecting their views on a subject and taking these on board — which is vital — but having the ability to reflect on what is being said, in order to make informed decisions.
  • Awareness: Discovering employee strengths, interests and weaknesses, leaders can ensure teams are best placed to thrive and achieve their own, as well as the businesses’ goals. This also includes self-awareness, to ensure leaders know their own strengths and limitations.
  • Commitment to community building: Working to build deeper, positive relationships within your workforce through cooperation rather than competition and by celebrating and valuing different skill sets in your business can help encourage teamwork and ensure employees are working together towards a common goal.

By fostering servant leadership skills, you’ll be taking a collaborative approach to running your business — while there are no guarantees that it will lead to a stronger bottom line, employees will be more engaged — and improved creativity, retention and performance are likely to follow.

Looking for support in growing your (or your client’s) business? Contact a Liquid Capital Principal today.

 

overcome risks in business

How to overcome risks in business and find new levels of value

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You or your client can learn how to overcome risks in business and unlock new levels of value with these top tips.

overcome risks in business

Business owners and entrepreneurs are usually no strangers to stepping out of their comfort zones. But when it comes time to consider taking a risk, figuring out whether it will lead to business triumph or financial trouble can be challenging.

Strategic risks, or factors that can affect a company’s business goals—including product launches, market or economic fluctuations, or new competition—can represent a real threat to many businesses.

While developing a strategy to manage and mitigate risks is important for business success, new value and opportunity can be found in taking certain risks.

Why is preparing to capitalize on risky business opportunities important?

As PwC’s 2023 Global Risk Survey found, taking intelligent risk is essential to making progress, transforming and prospering in the current economic climate.

In fact, more than 60% of organizations surveyed worldwide “predominantly seek to uncover opportunities” within risks—with those in the retail, business services and energy sectors leading the way when it comes to creating value from risk.

Indeed, companies with the ability to spot opportunities and the courage to take on a reasonable amount of strategic risk may not only keep up with trends but gain a competitive advantage and boost profits (think those who were able to shift to provide the market with the technology, goods and services it needed quickly during the early days of the COVID-19 pandemic.)

It’s possible to leverage and create value from risk, but it is often best approached with care, analysis and a lens focused squarely on your business’s risk profile and goals.

Here are a few ways to prepare to seize risky opportunities:

1. Consider the decision from every angle

Exploring whether a risk will be worth exploiting begins with evaluating both the pros and cons it will have on your business.

As the Center for Management & Organization Effectiveness explains, this involves:

  • Clearly setting out what you hope to achieve by taking the risk and how it will help you accomplish your business strategy
  • Gathering information so that you clearly understand and can assess the risk and
  • Exploring its positive and negative impact on your company or stakeholders, including where the risk comes from or the potential value it might generate.

2. Align risks with your business growth goals

When taking a risk, flexibility is important — but far from taking a leap into the unknown, your move should broadly align with your company’s core goals.

Approaching risk with an authentic, clear purpose, as PwC explains, provides a helpful guide for companies on whether a risk is an opportunity or something to avoid — and goes a long way to ensuring your entire organization understands the direction you’re trying to take.

As McKinsey notes, the amount of risk you should take on should also be considered in light of your risk profile, looking at factors like your digital capability, the competitive landscape and other global and market trends.

3. Consider the value and cost

When weighing a risky business decision, it’s important to compare it to an alternative: what might happen if you choose a different route, or remain status quo.

As the Corporate Finance Institute explains, the value of risk is the potential financial benefit a company realizes by choosing a “risk taking activity.” Opportunity cost represents the amount you potentially leave on the table by choosing one route over another. While financial costs obviously come into play, implicit factors (non-monetary), such as time, should also be considered.

To calculate opportunity cost, subtract the amount you expect to earn if you take the decision from the amount you would have earned if things stayed status quo.

 

Return from option not taken – Return from option taken = Opportunity cost 

 

Taking the time to evaluate and calculate the opportunity cost of taking a risk, when compared to undertaking another project or not changing anything (in terms of potential profit, as well as other factors like customer satisfaction or even time saved) can help you determine the right course of action for your business. 

4. Prepare for various outcomes

In the ideal circumstance, your decision to take a risk will pay off—but as with any venture, there is always the chance of things not going to plan.

Having strong, flexible risk management practices is one way to help both mitigate risk and take advantage of opportunities to grow. With a roadmap already in place, you can assess whether your business has the processes, people and tools to manage the risk effectively.

By establishing an invoice factoring relationship, for example, a business will know that it can quickly secure a reliable source of working capital as it pursues new opportunities, by turning near current assets — credit-worthy invoices — into cash.

Ultimately, creating value from a business risk can come down to planning and preparation. Approaching this decision with the right analysis and tools may help ensure you are well-placed to seize the next risky opportunity that comes your way.

Want to learn more about how alternative funding can help overcome risks? Contact a Liquid Capital Principal today.

 

risk management for businesses

The 5 rules of risk management for businesses

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Whether launching a new product or growing a company’s footprint, managing risks is part of growing a business.

risk management for businesses

Economic worries, supply chain bottlenecks, staffing issues and cybersecurity threats mean businesses are navigating more challenges than ever before. 

Developing a strategy to manage risks effectively is essential for businesses to succeed and thrive, especially in a more challenging market. But if you or your client follow these risk management rules for businesses, it will help you get started.

Do: Build a powerful risk management team

Having a team in place is the key to pinpointing the risks facing your (or your client’s) business. The risk management team identifies concerns, and then supports implementation strategies to deal with them.

Start by defining roles and responsibilities within the business for managing financial and operational risk — and establishing accountability. Set out who is responsible for implementing, overseeing and measuring your risk management process in-house, or decide if you would rather seek the help of external contractors.

 

Did you know? Whether internal or external, accountants can be valuable members of the risk management team.

 

The risk management team will have the power to:

  • Make informed decisions based on risk assessments
  • Evaluate the potential impact on the organization’s financial health
  • Align decisions with business plans

Employees involved in a risk management role must have the necessary skills and knowledge, either from experience or through courses and training programs in risk management.

Don’t: Underestimate potential risks

Once the risk management team performs a risk assessment, it’s important to be realistic about risks that could threaten the business. These may include:

  • Industry-specific risks
  • Market or economic risks
  • Cash flow risks
  • Technological risks
  • Reputational risks
Risk management matrix

When evaluating risks to determine priority, look at the impact – how badly it would affect your business – and the likelihood of it happening. The top-right corner of the matrix are the highest-priority items requiring robust risk management strategies and mitigation measures.

At the same time, as one survey found, small and medium businesses may underestimate the threat of certain risks. For example,  60% believe they are too small to be targeted by cybercriminals.

Being realistic about the likelihood of specific risks affecting your business is a fundamental step in financial risk management — and will help you craft appropriate courses of action. As Export Development Canada explains, it’s important to prioritize the risks you’ve identified to determine the likelihood of an event happening, direct your energy toward the most immediate issues and analyze how they might impact your business operationally and financially.

Do: Be prepared to mitigate risks

Taking steps to avoid risks altogether might seem like the ideal course of action, but as the Corporate Finance Institute notes, this isn’t always possible. Sidestepping risk can also have financial or strategic consequences, like missing growth opportunities and failing to innovate. No one wants to be Blockbuster passing on Netflix.

Manage potential concerns using risk reduction or prevention strategies. To mitigate cybersecurity threats, for instance, many businesses implement ongoing employee training, perform regular equipment maintenance and scans, and purchase additional insurance.

It is also essential to have adaptable contingency plans to manage adverse events effectively when or if they happen and limit potential damage.

For example, with flexible tools like invoice factoring at your disposal, small and medium businesses can access the working capital they need to face business challenges as they arise — providing the financial cushion to weather cash flow concerns.

Do: Bring it all together in a plan

Once you’ve established the risks your business is likely facing, it’s time to document everything via plans and procedures.

Plans should detail the tools, processes and people your business has in place to respond to identified risks and unexpected events. 

It’s no secret that many businesses were unprepared for the ongoing supply chain interruptions starting in 2020. A risk management plan for a similar interruption could include broadening your list of suppliers or boosting your working capital.

Don’t: Set it and forget it

Financial risk management is an ever-evolving process for small and medium-sized businesses that requires continuous monitoring of risk factors. This involves tracking changes in market and industry conditions, assessing the effectiveness of your risk mitigation and management strategies and being aware of emerging risks.

 

With a clear risk management strategy in place, you can not only lessen the chance that business risk will catch you off guard and impact your bottom line, but you can also build trust with your customers and team, who will be confident that you can handle any adverse events that come your way.

 

Want to learn more about how alternative funding can help overcome risks? Contact a Liquid Capital Principal today.

 

Top podcasts, books and YouTube channels to ignite business inspiration for 2024

Top podcasts, books and YouTube channels to ignite business inspiration for 2024

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Ready to ignite some business inspiration for 2024? Look no further than these top podcasts, books and YouTube channels.

Top podcasts, books and YouTube channels to ignite business inspiration for 2024

A new year is a great time to discover fresh sources of support and encouragement on your (or your client’s) business journey. Whether you’re looking for help setting new growth goals or staying motivated on your current path, inspirational stories and tips from other successful business professionals can give you a much-needed boost.

If you’re hoping to start 2024 on the right note, here are a few business podcasts, YouTube channels and books that might just give you some innovative ideas and on-demand inspiration.

Podcasts

Masters of Scale
Looking to grow your business, or help your clients grow theirs? The Masters of Scale podcast, hosted by LinkedIn co-founder Reid Hoffman, focuses on how businesses scale. Hoffman’s guests share the strategies that helped them grow, the setbacks they encountered and the learnings they took from the journey. Episodes also explore topical issues for growing businesses, such as strategies for tackling challenges, ways to build your tolerance for risk, and rapid-response episodes hosted by former editor-in-chief of Fast Company, Bob Safian.

Listen here

Mistakes That Made Me
Hearing tips and advice from other successful entrepreneurs can be useful on the road to achieving your business goals — but it can also be important to know about some of the missteps they’ve made along the way! Eman Ismail, an experienced copywriter, hosts Mistakes That Made Me, where successful business owners share their biggest mistakes on the road to success. Listeners will learn very relatable lessons on pushing through and accepting failure as part of the business journey.

Listen here

Books

The Diary of a CEO: The 33 Laws of Business and Life, by Steven Bartlett
For business owners looking for more of a ‘playbook for success,’ this new book by entrepreneur, UK Dragon’s Den investor and top-rated podcast host Steven Bartlett may be a source of inspiration this year.

 

Based on Bartlett’s journey and those of the entrepreneurs, entertainers, athletes and other professionals he’s interviewed over the years on his podcast, The Diary of a CEO takes readers through several principles based on experience, psychology and behavioral science, designed to foster excellence and help individuals in “search of building something great.”

Hidden Potential: The Science of Achieving Greater Things, by Adam Grant
While talents and genetic gifts can take people a long way in sports, education and innovation, author, professor and organizational psychologist, Adam Grant, argues that most people underestimate their ability to improve, learn a range of skills and see exactly how good they can become.

 

In his new book Hidden Potential, Grant offers a framework that allows anyone to exceed expectations through strategies like embracing discomfort, resisting perfectionism, and effective networking. Through his method, which focuses on character development, anyone can build the skills and design the systems to realize their potential and create opportunities.

YouTube channels

Marie Forleo (MarieTV)

Entrepreneur and author Marie Forleo’s channel boasts nearly 1,000 videos aimed at helping individuals and business owners “create a business and life” they love. Through interviews with experts, authors and her own tips and advice for achieving success, MarieTV explores topics such as how to handle tough business conversations, how to silence your inner critic, steps to overcome procrastination and more.

Tim Ferriss
Covering subjects like ‘how to master the difficult art of receiving —and giving — feedback’ and ‘overcoming self-sabotage,’ author and entrepreneur Tim Ferriss’ YouTube channel features videos from his popular podcast (with more than 900 million downloads so far!), where he has interviewed hundreds of top performers in the arts, business and sports on the tactics, tools, and routines they’ve used to achieve success. His channel also includes shorter clips on life lessons, like how to create a better morning routine, and bite-sized YouTube shorts videos, featuring actionable tips.

Whether you prefer to curl up with a good book, listen to a podcast on the go or watch videos at your desk, consider checking out one or two of the names above — it might just give you the momentum you’re looking for this year!

Interested in discussing ways alternative funding can help you (or your client) achieve new business goals? Contact a Liquid Capital Principal today.

 

Set and achieve your business growth goals

Set and achieve your business growth goals

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Whether you or your client are preparing to win that next contract, hiring more staff or expanding into international markets, set and achieve your business growth goals with these top tips.

Set and achieve your business growth goals

With the new year fast approaching, many entrepreneurs are not only setting personal targets but may also have new growth goals for their businesses.

A recent survey showed that 88% of Canadian small- and medium-sized businesses are confident they will grow over the next three years — up from 83% in 2022 — as many adjusted their business strategies in the last 12 months due to recession concerns.

In the U.S., two-thirds of small businesses reported that they were in good overall health in Q3—next year, 71% expect revenue to grow and 40% plan to increase investments and staff.

Setting dynamic business goals starts with a roadmap. Keeping targets achievable, trackable and flexible is key, especially when many businesses report that economic activity and sales growth have moderated this year. 

Here are some tips to consider when you and your team are deciding on growth priorities:

Be realistic and clear

Setting growth goals with a good chance of success starts with relevance. Whatever your plans, they must make sense for your business size, sector and current market conditions. This also includes making sure the parameters of your goals are well-defined. and achievable on your timeline.

 

Did you know? Goals set according to a SMART strategy — Specific, Measurable, Achievable, Realistic and Timely — have a greater chance of being met, says the Corporate Finance Institute.

 

Set-and-achieve-your-business-growth-goals-Be-realistic-and-clear

Be in the know

In line with setting a realistic growth goal is identifying the key performance indicators (KPIs) that will help you track your progress, celebrate wins or course-correct, if necessary. Depending on your business growth goal, this could be anything from financial metrics, such as your working capital ratio or your net profit margin, to HR KPIs, like your employee turnover rate.

Stay flexible

In an uncertain economic environment with a potential recession looming, being able to pivot when necessary may be key to making even incremental progress toward your targets. While your core goal remains the same, staying on track involves planning for various scenarios and their impacts on your goal.

Set-and-achieve-your-business-growth-goals-Stay-flexible

Pivot easily with new tools

Establishing a process for reaching your goals is key — but when it comes to putting your plan into action, you can also evaluate whether there are new tools you can use to achieve or even exceed your growth objectives.

Leverage AI and automation

Consider if your business growth plans would benefit from an investment in artificial intelligence, automation or other new technologies. More than haf of Canadian businesses say AI and machine learning is the most important technology for achieving their short-term goals, followed by robotics and edge computing.

At the same time, says KPMG, tech investments can’t just be made “because others are doing it”—its use must be strategic and clearly related to solving specific business challenges.

Consider ways to innovate

Innovation can help companies grow — but it can also help them adapt to business conditions and stay ahead of the competition. This doesn’t just apply to disruptive innovation reaching into new markets, but also to transformations that enhance your existing offering. 

This may be a good opportunity to think outside the box — is your market ready for a new product, a spin on an existing product or service or improvements to what you already offer? Introducing something new or an enriched version of your existing offering can be a growth driver, especially in a challenging economic climate.

Mitigate financial risks

Ensuring you have enough cash flow to fund your growth plans is crucial. But in a rising interest rate environment, companies are facing a higher cost of borrowing. And with tighter lending criteria in place, newer businesses may also have difficulty qualifying for a loan from a traditional financial institution.

Having a funding solution like invoice factoring on hand can be a useful part of your cash flow management toolkit. Invoice factoring allows businesses to quickly secure a reliable source of working capital by turning near current assets — your credit-worthy invoices — into cash. It isn’t a loan, but rather an advance on payments that are already owed to your business.

With no long-term contract in place, there is also flexibility with this approach. If you have periods where you have adequate cash flow and don’t need to factor your invoices, you can opt-out of the process.

 

With a clear, agile strategy and a few new ways to achieve your targets, realizing your funding your growth goals is within reach.

Interested in discussing ways alternative funding can help you (or your client) achieve new business goals? Contact a Liquid Capital Principal today.

 

non-dilutive funding

Grow better with non-dilutive funding

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For growing businesses, having sufficient working capital is critical to take advantage of new opportunities and overcome challenges. Achieve your growth goals (or help your client reach theirs) with non-dilutive funding options.

non-dilutive funding

Working capital is crucial when you’re in growth mode and looking to fund everything from an expanded payroll to supplies. But if you or your client are searching for financing, it’s clear that not all options are created equal, or best suited for all entrepreneurs — especially if you’re looking to retain full control and ownership of your business.

Non-dilutive funding 101

With dilutive funding, such as equity financing through angel investors or venture capital, business owners give equity investors a percentage stake in company ownership, a share in its future profits and in many cases, a say in decision-making.

On the other hand, non-dilutive funding solutions allow you to obtain the working capital you need while retaining ownership and full decision-making capabilities about your business’s current and future direction.  

Non-dilutive funding can include business loans, crowdfunding, grants, revenue-based financing or venture debt. It can also include alternative funding options like invoice factoring or asset-based lending. Depending on the type of non-dilutive funding, loan/interest payments may be required or there may be conditions on how funds can be used. Some grants, for example, are specifically for environmental projects or employment-related initiatives.

For fans of the long-running television shows Dragons’ Den and Shark Tank, dilutive funding is what you’ll have seen most often — businesses that successfully receive funding usually give up an equity stake in their business in return for a certain amount of money. But it’s not always the case.

In select situations, Dragons and business owners have come to non-dilutive financing arrangements, usually because it was in the best interest for the entrepreneur.

 

One Dragons’ Den hopeful sought $100,000 for a 10% equity stake. Dragon Michele Romanow felt that equity was too high a cost to fund advertising and inventory. She instead offered the entrepreneur a non-dilutive ‘revenue-sharing’ deal — $100,000 for 10% of their revenue, plus a 6% fee, until the company paid back their capital.

 

The benefits of non-dilutive funding

The benefits of non-dilutive funding

Seeking capital that is non-dilutive, rather than an equity-based solution, can have several advantages for entrepreneurs, including:

 

Retaining control of the business: With a non-dilutive funding option, the lender will have no stake in company decisions or the future direction of the business. This can make it the preferable route for entrepreneurs seeking to follow through on a particular growth strategy without compromising or sacrificing ownership.

 

Avoiding equity dilution: Every time a business raises funds via equity financing, new shares in the company are issued and ownership percentages for existing shareholders are reduced. With non-dilutive funding, you can avoid this issue and maintain the power of your existing equity.

 

Realizing long-term value: With non-dilutive funding options, company owners retain their company’s full value — allowing them to take complete advantage of future growth.

 

Strengthening relationships: Some non-dilutive funding options provide quick access to working capital. When you can ensure your payroll or other accounts payable obligations are met on time, relationships with employees, contractors, and suppliers are strengthened. This can also help you to deliver positive customer service.

 

For tree clearing company Rayzor Edge Tree Service, a non-dilutive funding solution — invoice factoring — allowed owner Ray Bowman to not only realize his vision of expanding into the commercial market, but helped him quickly overcome cash flow challenges resulting from long invoice payment terms. By paying subcontractors in a timely manner, Ray has improved relationships with his industry colleagues, improved client service and found a supportive business partner in his Liquid Capital Principal. Read the story here

When it comes to considering non-dilutive funding options, invoice factoring is a choice that can make sense for many start-ups.

The key characteristics of invoice factoring as a non-dilutive funding option include:

Ownership retention: Invoice factoring does not involve giving up equity ownership in the business. Instead, funds are advanced based on the value and creditworthiness of your accounts receivable.

 

Avoiding debt: Invoice factoring isn’t a loan you’ll have to pay back — instead, the factor will collect invoice payments from your customers and pay you the balance, less applicable fees. The costs associated with factoring are also lower than the cost of capital or returns required by equity investors or venture capital.

 

Improving cash flow: Factoring provides your business with immediate cash flow by converting accounts receivable into liquid funds. This can help companies manage their working capital and cover operational expenses without taking on additional debt or giving up ownership.

 

Better terms for start-ups: With equity financing, companies are usually subject to rigorous legal and business due diligence, as investors want to ensure the company meets its criteria and is a good fit for their investment portfolio. Similarly, traditional lenders often also require companies to meet stringent criteria before loaning funds, emphasizing detailed financial statements, projections, your credit score or collateral. With invoice factoring, the creditworthiness of your customers’ invoices (rather than your credit or annual results) is a main consideration. Invoice factoring may be preferable for start-ups without a long financial history. Seeking working capital through invoice factoring can also help a company drive growth, build credit and become bankable over time.

 

Flexibility: Taking on an equity partner may mean another individual has a say in your company’s decision-making — ideas based on their own values and plans for your business. The funds you receive from invoice factoring come with no set purpose. Whether you choose to use your capital to fund growth, to pay suppliers, cover payroll or invest in new technology, it’s your choice, as long as invoices are paid. The length of time you need to use invoice factoring services is also flexible. Liquid Capital won’t lock you into a long-term contract. If you have months with adequate cash flow where you don’t need to factor your invoices, you can opt out of the process.

 

Quick access to the funds you need: As opposed to equity financing or applying for funding from a traditional lender, which can take months to complete, applications for financing through the sale of your credit-worthy invoices are not subject to lengthy wait times.

 

At Liquid Capital, we offer stress-free invoice factoring services. The approval process takes minimal time — if your business and accounts receivable clients are in good standing, you’ll receive 80% or more of the value of your accounts receivable quickly and securely.

Interested in discussing ways alternative funding can help your (or your clients’) financial stability? Contact a Liquid Capital Principal today.

 

Four steps to achieve financial stability for your business

Four steps to achieve financial stability for your business

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Whether you own your business or work with those who own their own business, these four steps can help achieve financial stability.

Four steps to achieve financial stability for your business

For businesses in any sector, providing clients and customers with an innovative product or a top-quality service goes a long way to generating profit — but having great ideas and an excellent offering is often just the start.

In the face of rising interest rates, market volatility, supplier bottlenecks or other complications, does your business have the financial wherewithal to withstand the ups and downs?

As one recent survey found, nearly nine out of 10 small business owners continue to be concerned about the effects of inflation on their company’s financial health. Meanwhile, seven out of 10 are worried about effectively managing their cash flow.

For many companies, achieving a solid financial footing is the end goal — not just to weather the storms and recession-proof your business but also to create trust with clients and suppliers and move forward confidently. But in the current environment, it’s not always an easy proposition.

Here are a few ways businesses — and those who work with business owners — can work towards achieving financial stability:

 

Have a clear picture of your past and future

1. Have a clear picture of your past and future

Financial sustainability is built on historical data, estimated future earnings and potential roadblocks.

Robust reporting is critical to remaining financially stable. For most businesses, this means keeping a close watch on financial metrics or key performance indicators (KPIs) such as:

  • Debt-to-equity ratio: This allows you to assess your debt levels and your ability to service them
  • Working capital ratio: This is a measure of liquidity or your ability to meet obligations
  • Net profit margin: This will help you determine how profitable your company is and evaluate its overall financial health
  • Cash conversion cycle: This metric measures your cash liquidity position by considering the time it takes you to sell inventory, pay vendors and collect on invoices

Continual assessment is essential. With regular updates, you can course-correct and pivot if necessary.

Ensure a healthy level of working capital

2. Ensure a healthy level of working capital

Sailing a smooth course through each quarter means having enough capital to meet expenses — whether you’re working according to plan, facing challenges or navigating unexpected growth periods.

Cash flow management is critical to achieving financial stability. This means preparing a cash flow budget — essentially a roadmap of your company’s expected inflows and outflows over the next six to 12 months — and regularly updating it. This snapshot will help you anticipate expected shortfalls early and control costs to maximize efficiencies where possible.

It is also useful to have a tool in your toolbox to access capital when you need it, such as invoice factoring or asset-based lending. With an invoice factoring solution, companies can quickly and securely unlock capital held up in accounts receivable when needed.

3. Make key investments

Several quarters of great sales may boost your confidence about your ability to weather a downturn in the market — a potentially costly assumption. Nurturing key supplier relationships and strategically investing in your processes and personnel can help your business remain on solid financial ground long-term.

Having strong supplier relationships can be a crucial investment. In challenging times, suppliers may be able to offer flexible payment terms, a lower rate on bulk orders or a discount if you pay your invoice early, saving you money in the long run and increasing your business cash flow.

Make key investments

Strategic investments in technology and equipment can also foster longer-term efficiency and cost savings. In the face of continued challenges in the supply chain, labour market and economy, small businesses can build financial resilience by investing in infrastructure, adopting new technology and workforce development strategies.

With business costs rising rapidly in recent years, BDC says some companies have successfully ensured profitability by implementing measures like reducing their carbon footprints and modernizing processes via technology investment.

4. Expect — and plan for — the unexpected

In business, fortunes may change from one quarter to the next. A downturn in the economy, sector-specific factors or losing a key client can affect sales significantly.

Contingency planning is an essential part of financial stability for businesses. You’ll need to have strong leadership in place, know where your risks are likely to come from and have access to reliable sources of working capital. 

As EY notes, cash-conscious behaviour starts at the top, as leadership needs to prioritize building a reserve to fall back on in hard times and entrench cash-conscious decision-making into the business, especially when inflation is high.

Ultimately, working to achieve greater financial stability will leave you with the tools, processes — and confidence — to not only handle challenging times but consistently achieve your goals, no matter what conditions prevail.

 

Do you or your client want to learn more about how alternative business funding can help bring stability to your company’s books? Contact a Liquid Capital Principal today.

 

Adjusting-margins-vs-raising-equity-scaled

Adjusting your margins vs. raising equity — which is the better way to boost cash flow?

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When your business (or your client’s) needs to increase their working capital, there are options to help accelerate your cash flow.

Adjusting-margins-vs-raising-equity-scaled

 

Keeping profits from eroding is a tough proposition in an era of rising interest rates and persistent inflation. For many business owners, the struggle to keep up with the cost of inputs from energy to supplies can often be overwhelming. 

At the same time, healthy working capital is a must for companies seeking to weather tough economic times or follow through with their growth plans.

A recent study found that companies expect to continue facing supply chain issues, rising inflation, and the increasing cost of inputs and employee hiring and retention. In fact, nearly half of the surveyed businesses expect their operating expenses to increase, and 30% expect their profitability to decrease.

Nearly 30% of businesses planned to increase prices to respond to these challenges.  This number climbed to 50% of hospitality and food services businesses.

 

Did you know? According to one survey from late 2022, nearly one-third of companies cited a low cash flow position as a main barrier to achieving their business objectives.

 

To respond to this challenge, some organizations decided to develop new markets, increase sales, reduce expenses or seek alternative financing.

Indeed, rising above financial challenges in this economy — and continuing to meet your goals, pay staff and even grow — means finding a way to free up additional cash flow.

For many companies, this means increasing profit margins or seeking financing. Depending on your growth plans and financial situation, finding the right path will look different for each company.

Adjusting profit margins to unlock capital

Adjusting profit margins to unlock capital

Adjusting profit margins is one way businesses can unlock working capital. Often this is done by:

  • Increasing prices
  • Reducing expenses
  • Extending the value of existing customers and relationships

 

Three ways to calculate profit margins

Before adjusting your profit margins, it’s important to look at the different ways of measuring profit in a business. These include:
Gross profit margin: Your gross profit margin measures your company’s revenue after subtracting expenses (essentially the cost of goods sold) from your sales.
Gross profit margin = (revenue – cost of goods sold) / revenue
Operating profit margin: Your company’s operating profit margin will show how much revenue your business makes after subtracting the following variable expenses from your net sales: 
  • The cost of goods sold
  • Depreciation, amortization and selling
  • General and administrative expenses like salaries, rent and R&D costs
Operating profit margin = operating profit / net sales
Net profit margin
A business’s net profit is what is left after expenses are deducted from total revenue. This is expressed as a percentage – for example, if your net profit margin is 20%, you’re left with 20 cents out of every dollar of revenue.
Net profit margin = net profit / total revenue

What do these calculations reveal?

 Each measure of profit margin tells a different story about your business and where you might be able to make changes that generate results. 

Gross profit margin will provide a window into your company’s efficiency and the relationship between costs and profitability. Operating profit margin gives you a look at the revenue your company generates from its operating activities. Net profit margin will ultimately show how profitable your company is — and help you evaluate its overall financial health.

 

Raising equity — another way forward

While evaluating expenses is a good way to ensure efficiency, continually adjusting margins isn’t the right choice for every business.

As McKinsey explains, even though it may increase profits, excessive cost-cutting can be counterproductive at a certain point. Being too aggressive, such as laying off staff or using lower-quality supplies, can eliminate new sources of growth and may affect areas that previously benefited customers or your brand.

Similarly, raising prices may increase your profit margin per customer, but some customers may not be willing to pay the difference. Finding the right balance between the number of paying customers and the price they’re willing to pay is delicate. 

For example, if 100 customers are paying $1,000, but only 80 customers will pay $1,200, your revenue will be lower even at a higher price. Of course, if you see higher expenses to acquire and service those additional 20 customers, the math may work in your favour. 

An alternative solution for boosting cash flow

If you’ve already calculated the optimal price and minimized expenses appropriately to maximize revenue, further measures to increase profit margins aren’t always possible

Another way to create cash flow is to consider raising equity in your business. Equity financing isn’t a loan you’ll have to repay but rather a way of raising capital for your company. It gives shareholders a percentage ownership of your business and profits. This is often done through venture capital, private equity, angel investors, crowdfunding or an initial public offering.

Raising equity is a popular option for start-up businesses that don’t want to take on debt. A company experiencing significant growth and expansion could be an attractive opportunity for potential investors. 

For organizations with a long-term growth strategy, choosing to forego debt allows you to invest more of your cash flow in the business, rather than making loan payments. The right equity partner can also provide mentorship, advice or networking opportunities from other investors and contacts.

An alternative solution for boosting cash flow

If you don’t want to give up ownership of your company, and you’ve adjusted your margins as much as possible, what can you do if you need to accelerate your cash flow?

You could seek funding from traditional sources, such as a bank, but this strategy is becoming increasingly difficult as financial institutions tighten their lending criteria and interest rates remain unstable.

With alternative funding options, such as invoice factoring and asset-based lending, you can leverage the power of your outstanding invoices and company-owned assets to inject your working capital with a reliable source of cash. You’ll not only access the funds you need quickly, but you also won’t need to give up equity, cut costs or raise prices.

Discover how Liquid Capital can help you or your client access the working capital needed to achieve greatness. Contact a Liquid Capital Principal today.

 

working capital checklist

Evaluate the health of your cash flow with a working capital checklist

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Looking to grow your business or help your client grow theirs? Our working capital checklist will help with efficient growth and agility.

working capital checklist

 

To ensure long-term success, resilience and agility to tackle whatever comes your way, having an optimal level of working capital is key to operating efficiently and realizing your growth plans.

Once you’ve found ways to optimize your working capital, it is also crucial to maintain clarity over your cash flow situation. Regularly evaluating the health of your working capital will not only ensure you know how your business is positioned to handle upcoming obligations and opportunities — it can also provide you with an early warning of potential challenges.

In an uncertain market, knowing whether your cash flow is optimal for your business to function is especially important. As one 2022 survey found, 60% of global business leaders, finance and accounting professionals said they expected understanding cash flow in real-time to become more important for their company in uncertain times. Nearly all participants said they wanted more confidence with their current visibility over cash flow.

Evaluating your working capital doesn’t have to be complicated. Implementing the checklist below can give you the confidence that you’re on the right track — or the information you (or your client) need to take action.

Get to know your cash flow position each month with this checklist:

 

Evaluate your cash flow situation monthly

While your working capital may have been sitting at a healthy level six months ago or on your last financial statement, economic and industry conditions can change rapidly, affecting supply chains, the cost of inputs or demand from the end customer. Having regular insight into your cash flow position ensures you have the funds available to meet payroll, order inputs and take advantage of new business opportunities.

Keeping an eye on your cash flow statement — which shows you how money moved in and out of your business over a certain period of time — can give you important insight into your liquidity on a monthly basis. 

Calculating working capital by using the current ratio (assets divided by liabilities) is a quick way to evaluate whether you have enough cash on hand to meet your near-term obligations. Numbers vary by industry, but a current ratio between 1.5 and 2 is generally considered healthy by most analysts.

Current ratio = Assets / Liabilities

 

Knowing your company’s cash liquidity position, as calculated by your cash conversion cycle (CCC), is also crucial to ensure your working capital is not out of balance.

To calculate the CCC, take the number of days it takes to sell inventory minus the days it takes you to pay vendors plus the days you need to collect on invoices.

 

Cash conversion cycle = # of days to sell inventory – # of days to pay accounts payable + # of days to collect accounts receivable

 

One way to monitor cash flow indicators, as BDC explains, is to set up a financial dashboard either via your accounting software or on an Excel spreadsheet. This dashboard can display your sales, inventory outstanding and other metrics, such as the average number of days it takes you to collect your receivables.

cash flow checklist

Forecast your cash flow for the short and long term

Having an idea of periods in your business where cash flow may be positively or negatively affected — whether by seasonal sales trends, supply chain issues or industry-specific concerns — is useful when it comes to identifying risk and taking action to keep your working capital healthy.

Creating and regularly revising your cash flow budget will give you crucial insights into estimated sales and projected cash inflows and outflows. These are a good indication of whether your beginning balance at the start of each month is adequate for your business or if there are certain months you may run short on cash.

Along with monitoring your short-term cash flow situation with a monthly forecast, you should also prepare long-term cash flow forecasts that look 6 to 12 months ahead.

Review your targets regularly

With financial projections in place, take time to regularly check whether your actual cash flow meets the minimum balance you set out in your cash flow budget.

Comparing metrics like your CCC to previous periods or even industry peers can also indicate whether you need to address your inventory or accounts payable, to shorten the cycle and free up working capital.

Maintain the health of your account receivables

Ensuring your clients pay their invoices according to agreed-upon terms is an important part of maintaining a healthy cash flow. Staying on top of accounts receivable via aging reports or by customer, for example, will give you regular insight into whether payment is happening as expected or if there are delays.

Consistently auditing your receivables process to see if there are ways to accelerate payment is also key — and may even enhance your customer’s experience. For example, are there ways to further automate invoicing? Are you billing as soon as your service is completed or the product is delivered?

 

If invoices are still held up in accounts receivable for 30, 60 or even 90 days, invoice factoring is one solution that can help to eliminate bottlenecks, free up cash and boost the health of your working capital.

 

Want to learn more about how invoice factoring can help manage working capital? Contact a Liquid Capital Principal today.