You are here:
home > news & events
Cash Flow Strategies from MDS Funding
By Michael Moss
Posted Monday, November 6, 2006
E-mail this page 
Printer-friendly page
I purchased a subscription to Inc. magazine a while back and found that it does a great job of exploring entrepreneurial issues. I know that many of you probably get your financial advice from your advisor or publications like Fortune or Forbes. But I have to say that the $12 investment for an Inc. subscription is money well spent.
Why do I bring this up? Not because I'm charting a new career in magazine subscription sales but instead as an opportunity to make mention of a fabulous series of articles contributed by Michael A. Lechter, Esq., weighing the pros and cons of using your money, OPM and OPR.
Don't laugh. You haven't missed any new acronyms and Lechter is not borrowing from the text messaging lingo preferred by my daughter and her friends. Instead he's referring to three of the most important sources of funding for every business owner. Three sources that I think are so important that I've elected to dedicate space in this issue to a review of Lechter's series (to read the complete series, visit Columns by Michael Lechter).
OPM Can Fund Your Business
One of the first choices that entrepreneurs have to make is whether to self-fund or use Other People's Money (OPM). Lechter actually wrote an entire book on this topic (
available from Amazon) but for now I'll just give you my opinion of the high points.
Attempting to self-fund your business is a legitimate way to get started but you can only find cash between the sofa cushions for so long. Without established credit in your business, you probably will have to use your personal assets first.
Once you've tapped your savings, maxed your credit cards and taken out an equity line on your home, if you're not seeing sufficient income from your business to offset your expenses, then it may be time to look at a few other options.
This is when Lechter recommends that you consider debt or equity financing. The first option is familiar to most people: get a loan. The second may be less familiar and often requires some soul searching on your part: sell shares of your business. Fortunately both are completely viable and legitimate options used by business owners every day.
Not sure which one is right for you? It all depends on your situation. Give me a call and I'll help you weigh your options, including cash flow solutions that I can provide.
Cash Management Tools for Your Business
Cash management tools to consider: Lock-box accounts are an efficient CASH MANAGEMENT system whereby the customer mails payments to a post office box, the bank picks up the payments and deposits them to the firm's account and informs the firm of the deposits made, thus reducing COLLECTION FLOAT. Often a lock box arrangement can be set up in a distant city to collect immediate interest on payments. Surplus funds are later transferred to the firm's home bank.
Sale/leasebacks: To raise money without losing an important piece of equipment, you might try a sale/leaseback. Sale/leasebacks are generally structured to unlock the equity a business has in its assets, such as machinery and equipment. Generally, you may sell title to your company's assets at their fair market value to a financial institution for a lump sum payment. The new owner then leases the equipment back to you. There can be certain tax advantages to sale/leasebacks so be sure to talk to your CPA, and then give me a call. I can help you get this transaction completed.
OPR Is All About Making Connections
Rather than pursue equity partners for cash, why not go directly after the resources that you need? That is how Lechter describes his third financing option: Other People's Resources (OPR).
On the surface it seems pretty simple. You need printed materials. Why borrow money to pay for printing? Instead go directly to a printer. I have a client wrestling with just this issue. Now he has to choose: give the printer a part of the business (equity partnership) or give the printer something of perceived equal value.
Businesses barter all of the time. And when landscapers need graphics for their truck, do you think they hire a sign shop or trade vehicle wraps for the installation of a new sprinkler system? To learn more about how businesses are using bartering to hold onto their cash, check out one of the many bartering organizations like this one located in my part of the country:
http://www.barterconsultants.com/index.htmlThere is nothing illegal about bartering but sometimes it still isn't the best way to get things you need to grow your business. Before you join a barter network, give me a call and let's discuss your situation.
