Eleven Ways to Grab Working Capital Out of Thin Air!

All too many business owners are so busy pushing out product and taking care of customers that they don’t give enough thought to using modern financing techniques to ease the always-difficult job of making sure the mother’s milk of business is readily available: working capital.

Here are 11 tried-and-true ways to increase that precious resource. There are more, some probably unique to your business. Use this list as an idea generator and talk to lenders and finance people about alternatives. You may know everything there is to know about manufacturing and selling socks or making industrial ovens, but the guys in finance spend their lives thinking up new products and services. They can’t help you if you don’t talk to them!

  1. Factor Your Invoices – If you have accounts receivable, you can obtain a cash advance overnight from a factor, who will buy your invoices and give you an immediate wire transfer. In addition, the factor will help you collect better and faster, as his only business is accounts receivable.
  2. Lease Don’t Buy Your New Machinery & Equipment – These days 60 percent of all machinery and equipment is leased. Leasing spreads the capital cost over the years that the new equipment is actually earning its keep.
  3. Restructure the Leases You Have – While sixty percent of businesses take advantage of leasing, far less realize that once they’re half-way through the lease they may be able to restructure the lease and cut their monthly payments. Talk to your lessor about the possibilities.
  4. Use a Bonded Warehouse to Finance Your Inventory – Most lenders hate inventory financing and do it only under duress. However, if you set up a trusted warehouse to store and ship your inventory, you’ll meet much less resistance from your lender, and you’ll receive a far higher advance rate.
  5. Finance Your Purchase Orders – Got a huge order from Wal-Mart or Costco that you can’t finance? Talk to a factor or purchase-order financier about it. They can open a supplier’s guarantee or a letter of credit to your supplier—even if he’s in China—and help you bring in the goods. They’ll also bring value to the transaction in terms of product inspections, better insurance pricing, and customs arrangements.
  6. Sell or Borrow On Your Intellectual Property Rights – This is hard to do, but if you have trademarks or royalties or rights that have real value in your marketplace that you can demonstrate, you should be able to realize cash from them.
  7. Sell & Leaseback Your Real Estate to Withdraw the Built-Up Capital – If your principal business in making and selling office supplies and what you must have to expand your core business is more capital, see if you can sell your building and lease it back. Leave the real-estate profits to the real-estate professionals and stick to office supplies, about which you will know more than the real-estate guys!
  8. Or Refinance the Property to Withdraw Cash – If there’s extra value in your property because the market has gone up, you may be able to “mortgage out” some of that equity. Of course refinancing real estate can be expensive in terms of legal fees and mortgage taxes, so approach this carefully. An attorney well versed in real estate can be a huge help.
  9. Get an Asset-Based Loan/Lease to Finance the Business – The right asset-based lender will finance your accounts receivable, inventory, machinery and equipment, and real estate all in one shop. By putting all your business in one place, you gain some importance to the lender. Obviously, make sure this is a lender who’s been around for a while and someone with whom you’ll enjoy working.
  10. Sell Stock with a Claw-Back – Whether it’s to friends and family, or to an angel or to a venture capitalist, new shareholders will always want more of your company than you want to give. It’s the nature of capitalism. So, come up with a “hurdle rate” on an annual basis that your new partners will be satisfied making. If the business grows as you promised, you should be able to either use profits to take out your new partners or refinance to take them out. Or bring in a financier on a preferred-share basis: he is paid interest on his investment in the business and you are allowed to buy him out more cheaply than an equity partner. These new partners obtain the profits they wanted, and you obtain back 100% of the stock in your business—everybody’s happy.
  11. Seek Joint-Venture Partners – For example, joint venture with a key supplier: he puts up the product; you provide the sales; you two split the profits. Another example: joint venture with a contract manufacturer: he makes, stores, and ships the product; you sell and service; again, you two split the profits under a fair formula. The trick here is to analyze what real value you bring to the market, and get paid for doing that. After all, you outsource janitorial and telephone service; why not outsource manufacturing if marketing and sales are your strongest suit?

To find out how we can help your business grab working capital out of thin air, contact us at 866-PBL-1777 or click here to contact us online