Small businesses traditionally have tended to raise funds to keep their business running by writing a business plan, then they raise the funds, and finally execute their plan. In today''s economy, since mainstream banks usually have credit constraints, most entrepreneurs are forced to find a new solution for their funding, such as factoring invoices after their business has become stable. Entrepreneurs may be able to borrow money from their friends and family to invest into starting their business. It takes more time than you may think to raise funds, so you should consider bootstrapping, then bring in cash. An added benefit to bootstrapping is that you will be able to bring in money easier and faster by doing it that way. Investors are interested in investing in a business that is actively generating a large amount of revenue, and that has not previously raised money from investors.
You should be fully prepared to give up part ownership of your company to any investors that are helping you. This is why it is best to avoid raising money from others for as long as you possibly can. You will then get a larger piece of the pie. Once your business is up and running, it is important to factor invoices so that you can avoid a cash flow issue. Another good tip is to not accept funds from an angel investor if you are not certain that you can turn around and multiply those funds. You can garner funds faster from investors after you already have revenues due to the fact that they like investing in a business that has some revenue.
Factoring is different from a loan, in that it is a purchase of receivables or financial assets, and involves three parties instead of the two parties in a bank loan. Banks make a decision on a traditional loan based on the business' credit, while factoring is instead based on the receivables' value. Another term for this is factoring accounts receivables, and the way it works is once a factor has been approved by the debtor, the invoice factoring only benefits businesses that are not getting paid for 30 to 60 or 90 days. It only takes about a day or two for due diligence efforts, and then advanced are factored up to 90 percent against those invoices. The turnaround for this is usually under 48 hours. Many companies do not expect to buy all of their receivables.
It is quite important to keep an eye on the bottom line for these expenses; it is best if they are kept low. Many things that are considered to be necessities for a business are actually luxuries. Buying habits typically stick with the owner long after their business has become profitable.
Make certain that the resources you invest in are not wasted. Only hire passionate people who are talented and believe wholeheartedly in the business. Cheap labor ends up costing more in the end, so do not base your decision on their asking salary price.
It will ultimately be easier to stay on track if you factor invoices. This will help when the bills are due every month. Factoring has been in existence for over 4,000 years, so it must be efficient.