I visited with a client this past week that has managed to keep his business afloat and is now seeing the fruits of hard decisions that he had to make such as refocusing, cutting expenses and micro managing costs. We met because his business is still using every penny of cash that comes in and he is not able to produce excess cash to make strategic investments for his business. In past postings I have spoken about factoring companies (accounts receivable financing) being the only place that small businesses can access the cash they need to not only operate but to make investments into growth opportunities. I also believe that over the next few years this will continue to be the case. The type of financing can be expensive and should not be a permanent source of capital unless you can increase the price of your goods or services to cover the cost and still produce your target gross margin.
For this client I will be looking to structure subordinated debt or maybe some specific term financing that if used properly to invest in specific opportunities available to this business the financing would not only be repaid in less than 18 months but could also produce some much needed excess cash.
If you need financing spend some time being honest with why you need it and then go out and find someone that can help you get it. Some businesses need financing to cover over holes in the business. Other businesses need financing to get to the next level. If you have holes in tour business – fill them in. If you need financing get a package together and go get it.