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Victim of his own success

Written by: David Banfield

Article Overview: Small- and medium-sized businesses create products or services, they delivery those products and services; but in the current economy they can't finance the growth and either have to slow down or go out of business. They become victims of their own success.

Victim of his own success

This is a scenario we hear many times every week from our potential clients. The story goes something like this.

“I started my own business about 18 months ago. It was fairly slow going at first but in the last 7 or 8 months business has really picked up.

Initially I used by savings to finance the start-up and subsequently I have ‘raided’ my pension fund that I had built up while working for someone else and prior to opening my own business. What I’m seeing is that as my business grows it needs more working capital to constantly fuel that growth.

Recently I have even resorted to financing some business purchases with credit cards and now I find that I have some permanent credit card debt. I was somewhat reluctant to call my bank for help as I didn’t know what sort of reception I would receive. In the end I made the call only to find out that I didn’t really qualify for any programs, seems that I don’t have enough track record and naturally my financials don’t meet the bank’s criteria at this point in time. They suggested that I slow down my expansion plans, reject some of the orders and basically plateau out my business at a lower level.

They did suggest that most banks would take the same position as theirs and that I should explore the secondary finance market place. They talked about such things as factoring, purchase order financing, invoice discounting and venture capital. I don’t know too much about any of these areas so I did the research and found out that I’m too small for the factoring companies that I contacted. My business, it seems is not well suited to using purchase order finance as a growth approach.

The venture capital people that I spoke to all wanted a business plan, several years’ financial statements, cash flow projects and more-none of which I had. For me it turned out that invoice discounting- a service that I had never heard of- was the only viable solution.”

That’s how many of our clients arrive on our doorstep-either through patient research or because their bank recognized their need and our ability to help and so made the introduction.

Invoice discounting allows small growing companies the luxury of basically turning their business into a ‘cash on delivery’ business. Once the cash flow is accelerated the growth of the business can easily be handled and financed.

In the current economy made small and medium sized businesses will become victims of their own success. They can create the product or service, they delivery it but as the order book grows they can’t finance the growth and either have to slow down or go out of business.

With services such as invoice discounting there are options to help small businesses climb to the next plateau.

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Article Tags: business plan, business purchases, credit card debt, credit cards, doorstep, expansion plans, factoring companies, finance market, financial statements, opening my own business, patient research, pension fund, plateau, point in time, purchase order finance, purchase order financing, secondary finance, venture capital, viable solution, working capital



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