Insufficient Cash Flow Hampers Ambition

Faraday Future has plans to overtake Tesla Motors as the first name in electric cars. But since presenting their impressive new car – the FF19 – at CES 2017 the company has announced it has been forced to scale back its plans.

Yes, Faraday faces challenges because it is developing new technology – and because the auto industry is notoriously difficult to break into – but, like many small and medium-sized businesses, its problems with cash flow are arguably the biggest challenge.

Over Investment

Faraday’s cash flow problems may have begun with their parent company, LeEco Group, who admitted to over-investing in various projects. LeEco Group is a sprawling umbrella holding company that found itself expanding too quickly.

When to expand is a tough question for small and medium-sized businesses. Do it too slowly and you risk missing the opportunity altogether, but too quickly and you could easily over-extend yourself and flop.

In Faraday’s case, their parent company LeEco Group expanded too fast and was unable to raise sufficient funds to bolster its cash flow, and its various subsidiaries, including Faraday, were affected.

Over Estimating Ability

In April 2016 Faraday began work on an enormous factory in the Nevada desert, only to halt work in October. This delay in construction resulted in rumours of financial difficulties.

Executives explained these difficulties, saying Faraday had to carefully manage its resources between the different projects that it has on the go. Specifically, Faraday was attempting to build its brand by focusing more on the marketing and sales. But it was too little, too late.

Scaling Back

Presumably Faraday was diverting resources away from construction and towards the production of their CES presentation. Since then it seems they have reduced their plans for a 3 million square foot factory, settling for only 650 000 square feet instead. And at that factory they will only produce two different car models, rather than following their original plan of seven.

Unpaid Bills

One of the most concerning signs of cash flow issues are allegations of unpaid bills. Faraday has been the subject of legal proceedings by The Mill Group, who were contracted to create a visual presentation. In the past Faraday, has also encountered issues in compensating suppliers, and its parent company has been accused of not fulfilling their financial obligations. If nothing else this demonstrates how a lack of cash flow can create new problems for a business, and potentially damage their credibility.

No matter the size of your company, not having the cash available to pay vendors, consultants, and employees is a huge warning sign that your cash flow is out of control. If your small or medium sized business is struggling to find the cash to pay your debts, then don’t risk jeopardizing your credibility. Call J D Factors for help.

Don’t Be Afraid to Take a New Approach

Scaling back is often a good thing. For Faraday, the company has revaluated in the face of its cash flow struggles and is working to stretch its cash so it can deliver a product – even if it does not fulfill their initial ambition. This strategy is like Tesla’s approach of selling more expensive cars first while continuing to work to produce more affordable models.  

Although Faraday is a large company, their challenges demonstrate the importance of carefully managing cash flow for businesses of all sizes. Whether your company is small or large, poor cash flow often causes unnecessary difficulties and can even jeopardize your business.

Sources:

Faraday’s Future At Risk From Parent Company LeEco’s Cash Deficiency? Inside EV.

Faraday Future FF 91 CES 2017 Reveal Key Moments. YouTube.

Reviewing Online Cash Flow Calculators

You may be surprised to learn that many profitable small businesses fail. To succeed you need to do more than move product, you need to effectively manage the cash flowing in and out of your business.

Using a cash flow calculator streamlines the management of your business’s cash flow so you can plan more efficiently. Get started by checking out these cash flow calculators.

TDPersonal Cash Flow Calculator

TD designed this cash flow calculator for personal use, but its features suit small businesses nicely. This cash flow calculator is the most customizable on our list.

Expenses are broken down by category – like housing, or transportation – and it allows you to add custom sub-categories. Not only can you name these sub-categories whatever you want you can also set whether they’re an annual, monthly, or weekly expense.

The cash flow calculator presents your results on a bar graph, showing your cash flow, and a pie chart, which breaks down your expenses by category. Plus, you can toggle between representations of your monthly, and annual cash flow.

ThinkBusiness Free Cash Flow Calculators

Although this cash flow calculator is less customizable, it is designed for businesses. It breaks down income and expenses for you and is based on monthly calculations.

What makes this cash flow calculator handy is how it represents your cash flow visually. The graph gives you an idea of your cash flow throughout the year and changes as you enter new data.

We recommend that business owners that are still working out their budget take advantage of this cash flow calculator’s responsiveness. Seeing the graph change as you trim, or expand your budget gives you a great idea of how you can best utilize your resources.

And once you’ve finished you can easily download and print!

RBCSmall Business Cash Flow Tool

RBC’s cash flow calculator caters to small businesses, and stands out because it starts by asking about your business. Before entering your projections, you can select your priorities (like “My business is growing and I need more space”) and this is factored into recommendations once your results are shown.

Once you have entered your data, a bar graph projecting your cash flow for six months will be displayed. By adjusting income and expenses you can see how your cash flow is altered. The only drawback is that this cash flow tool lacks the precision of Think Business’s cash flow calculator.

Still, RBC’s focus on small businesses and its recommendations make this an especially valuable tool for new business owners.

Traditional banks like RBC and TD offer some great cash flow tools, but aren’t always able to provide small business owners access to their traditional loan products. Give J D Factors a call if you’re having trouble getting approval with your bank, we may be able to help.

KeyBank Cash Flow Calculator

Data on this cash flow calculator is input by sliding a pointer to indicate expenses and income. This makes it the quickest cash flow calculator in seeing a visual representation of your cash flow. Afterwards it lets you “view report” to see how your cash flow breaks down.

This cash flow calculator might be the easiest to use, especially because it includes a glossary of terms at the bottom, but feels less comprehensive. Still, a very useful tool for new business owners.

Ultimately, getting a handle on your cash flow will help your business increase profits, grow and survive. Do you have questions about your small businesses’ cash flow? Email me, the Cash Flow King at chernandez@jdfactors.com for cash flow tips and advice.

Marathon Oil: Cutting Costs and Raising Cash Flow

For the last five consecutive quarters Marathon Oil has reported losses. So why hasn’t the company lost investor confidence? Investors have renewed faith in the company because it has consistently weathered difficult periods more effectively than analysts predicted by focusing on their cash flow.

Marathon Oil may be a huge company, but their success still translates into many important lessons for small business owners.

Focus on Your Cash Flow

Improved oil prices have certainly helped boost Marathon’s revenue, but the fact is that this company has always focused on strong cash flow. Marathon’s cash flow was excellent before the increase in oil prices, which means the fluctuation in oil prices simply helped add to Marathon’s good practices.

Lesson for small businesses: Commodity prices and other factors will always go up and down. Focus on your cash flow and make contingency plans so that you will be able to weather any storm.

Investing in Assets

To stay afloat during difficult times Marathon cut costs and increased cash flow. Here’s how they did it:   

Marathon Oil worked with Meridium, a company that focuses on predicting and preventing asset failure, to better control the reliability of equipment at their refineries. This investment led to immediate and annual savings and also helped optimize the performance of Marathon’s refineries.  

Meridium gathered data on the failure history of equipment and their analysis of this data allowed Marathon to make decisions on how to proactively replace equipment. Having an objective system to make these decisions allowed Marathon to more effectively manage their equipment without taxing their cash flow, which lowered operating costs.

By investing in the right assets, Marathon saved over 14 million dollars. The company expects to realize comparable savings by continuing to use available cash flow to strategically invest in their assets.

Lesson for small businesses: Maintain a strong cash flow so that you are able to invest in key areas of your business. Smart investments into your company will pay off in the long-term.

Investing in Human Capital

Marathon has also invested in human assets – its work force. In a video on the company’s website they list “investing in our people” as one of their key strategies moving forward.

A commitment to dedicating resources to maintaining employee competence, as well as growing their abilities, means that Marathon can operate dynamically and with confidence to adapt and improve their performance.

Lesson for small businesses:  Don’t let cash flow worries prevent you from making an investment in the most valuable asset that your business has: you and your employees.

Investing in Core Assets

Marathon Oil divested over a billion dollars’ worth of assets so the company could reduce its exposure to risk. To achieve this Marathon shifted resources away from non-core assets. Much of the capital acquired through divesting was then put towards the development of the company’s core assets. Additionally the company also purchased new assets in the form of large reserves and immediately began ramping up production in these new resource rich areas.

While doing this, in 2016 Marathon also managed to reduce its exploration and production costs in North America by 28%, compared to the previous year.

Lesson for small businesses: Go back to basics, focus on your core business model and don’t spread your operating costs too thin.

Getting the Most Out of Existing Assets

By beginning to produce gas at their Alba oil field Marathon extended the life of that asset by 8 years. This crucial decision helped to compensate for decreased production in the United States during 2016. Now, as the company looks forward to 2017 they regard the Alba oil field as a “significant free cash flow generator” while they continue to invest in their North American assets.

Marathon made it through difficult periods by embracing new strategies and continually investing in their business with an aim to increase revenue and decrease operating costs. They successfully refocused their overall strategy and reworked their regular operations.

Lesson for small businesses: Always be on the lookout for new opportunities, strategies, and ways to utilize your existing assets – and make sure that you have the financial flexibility to act quickly.

Lessons

The lesson here is one that all businesses, of every size can adopt. With a strong cash flow you can maximize business efficiency and profits by:

·       Allowing you to make and execute contingency plans

·       Making the most of your existing assets

·       Investing in new and core assets

·       Investing in your people

When it comes to the benefits of strong cash flow, Marathon Oil is a great case in point. Is your SME looking to maximize your cash flow? Call the cash flow experts at J D Factors to get started.

Factoring - More than Math

Factoring is more than a math term. It’s a solution to one of business’s most common problems: cash flow. So whether your business needs working capital to expand or to cover operating costs, factoring can help your business reach its goals.

What Is Factoring?

Factoring is when your business sells its invoices to a third party for a discounted rate. The third party then assumes all liability of non-payment. This means that you’re not liable if you don’t get paid, the lender is responsible. Rather than wait for weeks, or even months for slow paying customers you can obtain working capital by selling your invoices to J D Factors at an agreed upon rate.

Factoring gives your business predictable income and a steady flow of working capital, making it easier to invest in growing your business.

J D Factors provides non-recourse factoring. That means that if an invoice is not paid for credit reasons then you are not liable. JD Factors assumes the risk.

How Does Factoring Work?

After you have set up your account with J D Factors the process is simple:

1.       Send us your invoices

2.       We verify the invoices and send them to your customers

3.       You receive cash in your account within twenty-four hours.

You can submit these invoices anytime through your online account. The ease and simplicity of an online system offers multiple benefits to entrepreneurs or other business owners who may keep irregular hours.

What Are the Benefits of Factoring?

Here are some of the ways that factoring can give your business an advantage:

1. Speed, Flexibility, and Control

Rather than depending on potentially slow paying customers your business can receive an immediate injection of cash. The main advantages this speed affords are control and flexibility.

Factoring puts you in control of your business by circumventing more unpredictable streams of working capital. Customers will not always pay promptly, and bank loans take time to process. In a worst-case scenario, if your customer goes bankrupt or has credit issues they may never be able to pay you the money they owe. With factoring, companies like J D Factors assume all the liability up front, so you don’t have to worry if your customer doesn’t come through with payment.

J D Factors can help bring certitude to your long-term strategy and get you the capital you need to seize opportunities that present themselves.

2. No Banks

By choosing factoring you can also avoid incurring debt. Loans can be an effective tool when growing your business, but they are not without risk. They can also prove expensive.

That is of course if you are approved for a loan. Many small or new businesses find qualifying for a loan difficult, but factoring is an effective alternative for growing businesses.

3. Outsource Your Collections

Businesses of all sizes, from Fortune 500 companies down to sole proprietors have used factoring. One reason is because collecting payment from customers can drain resources.

With factoring, your business will not have to sink time and personnel on collecting payment from a job you just completed. We collect on the invoices and assume all liability if the invoices aren’t paid so you can look ahead to your next project, to hiring new personnel, or to growing your business.

Build a partnership

Partnering with J D Factors gives you greater control over the future of your business by regulating your cash flow. Factoring simplifies the collections process so that you can look forward and focus your time, money, energy, and manpower, on the next task. Contact us and let’s talk about how factoring can work for you.

Knowing the Difference Between Profits and Cash Flow is Secret to Debt Recovery

What’s the difference between profits and cash flow? Think of a customer handing you an IOU instead of cash – it’s not quite the same thing. Making that big sale feels great, and looks great on paper, but until the client actually pays you it doesn’t mean much. Unfortunately, that is how business works, and one of the reasons why so many businesses have cash flow issues.

You can have a great product, stellar sales team, generate a ton of sales and still find your business in dire straits due to a negative cash flow. Getting clients to hand over the cash can be a long, expensive, and arduous process. Making matters worse, the older a debt is, the less likely it will be paid. Most debts have a limitation period, and even those that don’t often end up being renegotiated down.

Stop wasting your time on debt recovery, follow these basic steps:

Keep records

The first step of debt recovery begins before you even agree on a sale. Keep fastidious records about the clients, your products or services, billing information, and every step of the negotiation process. If a client tries to bilk you then you will need detailed records.

Offer incentives

It may seem counter intuitive, but if you have a client who owes you money then you may have to consider giving them a break, or risk never getting paid at all. Offering a discount to pay by a certain date will pique their attention. Be weary however, if you end up doing business with the same client again in the future then they may try to withhold payment in the hopes that you’ll lower the price again.

In some cases the client may be in a similar position as you – suffering from insufficient cash flow. Offering to negotiate to restructure the payment could be in the best interest of both you and your client. After all, if they go out of business then it will be one less source of cash in-flow for you.

Debt collection calls

There is a very fine legal line between a polite reminder and harassment. So even though it may be satisfying to let your client know how you really feel about their late payments, it may be a costly mistake. You catch more flies with honey than vinegar. Be stern but don’t cross any legal lines.

Call J D Factors for advice or to begin proceedings on your behalf.

Send a letter

Sending a formal letter to the client reminding them of the debt that they owe and advising (but not threatening) that you may have to take legal action is an important step. You need to ensure that the letter is received by them, and that all information in the letter is accurate. You may want to enlist a professional or legal counsel for this step.

Lawyer up

You always have the option of beginning legal proceedings yourself, but navigating the law can be difficult and downright dangerous if you don’t know what you’re doing. A much better option is to reach out to your lawyer as early as possible, hand them all pertinent records, and ask for their council. They may be able to advise you on legal means of encouraging the debtor to pay up, and prevent you from putting yourself at risk of legal action by straying from the law. When the time comes they will be able to fight your case in court.

Enlist help

Using a debt collection service may be the only way to get the money that you are owed, but it needn’t be your first choice. If a debtor is reluctant to pay you the funds that they owe then, regardless of what steps you take, it could be a while before you resolve the issue. That means that your business could come to a standstill unless you take action to increase your temporary cash inflow. If you find yourself in this situation, contact J D Factors. With our accounts receivable factoring services you have plenty of options to collect the money that’s owed to you before you find your own company facing cash flow problems. 

A Good Problem to Have? Managing Hypergrowth

Finding that your business has surpassed your expectations, and is growing faster than you ever anticipated is as exciting as it is terrifying. Hypergrowth is something that all companies dream of, but few achieve, and when they do achieve it most CEOs quickly realize that huge growth can have some serious consequences. Managing your cash flow during your period of hypergrowth is fundamental to any start up, or rapidly expanding business.

Learn from the experience

Hypergrowth can be a make or break period for businesses, and for the individuals involved. In order to expand your business quickly, you need to have the cash available to support the growth, including hiring more staff and expanding office space and equipment to house and support your staff.

Aditya Agarwal joined Facebook when the company was still only 15 people strong, and stayed there until he became Director of Product Engineering just six years later. Agarwal’s own startup, Cove, was then snapped up by Dropbox and Agarwal went from 30 engineers to more than 200. No wonder Agarwal says that “most of what I’ve learned in my career has been during a period of hyper growth and change.” Managing your company through a period of hypergrowth can be incredibly stressful and difficult, but as long as you have the cash to support your growth, and commit yourself to learning from your successes and failures, the experience you gain will be invaluable.

Expect the unexpected

When Jiliene Helman, the CEO of Realty Mogul, raised $9 million of funding, the company went from 6 to 30 people in about three months. Helman knew that there would be some growing pains, but there was one issue that no one saw coming, “we didn’t anticipate how badly crippled our organization would be when the need for parking spots quintupled in just one week. Nobody could get into the office on time and our employees suffered numerous parking tickets.”

Don’t get so focussed on expanding that you miss the little things. Of course for Helman, the real issue wasn’t parking spaces, but integrating so many new people and new ideas into a company.

Find the right staff

From his time at Facebook and Dropbox, Agarwal says that during a period of hypergrowth you need people who are:

1)      Fast learners

2)      Comfortable with rapid change

3)      Able to improvise and handle ambiguity.

Hiring the right people to add to a growing business requires a budget that will allow you to hire from the top of the talent pool. According to Helman, “it’s not about just training an employee to do their job, but training the employee on how we expect our team to make decisions and the core values at the company.”

Be a CEO and a leader

Many companies that start small and then undergo a period of hypergrowth undergo a massive change of responsibilities for the CEO. In a small business a CEO might be expected to do everything, from sales, to coding, to marketing. A CEO’s job isn’t to work on the small details, in fact it is just the opposite. Focussing on the small details means that you aren’t leading your people or carving out a future path for your company – important jobs for a CEO.

Instead of doing every single task yourself you need to build a team, and internal processes that allow other people to do the work for you, to the standard that you would expect from yourself. This is a costly but critical venture for any company experiencing hypergrowth. According to Helman, “Once you’ve hired a team for all the roles you used to run yourself ragged trying to fill, you can focus on being a CEO.”

Agarwal advises that, to be a leader, you need to:

·       Scale outside of your own skillset

·       Accept that there will be setbacks and failures

·       Take opportunities to learn, don’t be afraid of new challenges

·       Don’t get emotional.

Enjoy it!

If your company is lucky enough to experience hypergrowth then remember, no matter how overwhelming it may seem at times, you are in a position that most companies can only dream of. Enjoy it and make the most of it!

At J D Factors we specialize in helping companies find the financial solutions needed to survive periods of hypergrowth. Contact me today for more information.

Staying Afloat - 3 Tips to Better Manage Your Cash Flow

Managing cash flow is vital to keeping your business running, but for businesses looking to grow, cash flow is an absolute necessity. For many business owners, managing cash flow can feel like treading water in the ocean with crashing waves and undercurrents trying to pull your down. Even if you stay afloat (and statistically many companies don’t) it can be a tiring process that requires constant work and concentration.

For start-ups, SMEs and growing businesses the battle is even tougher. Failing to get a handle on your cash flow is a sure-fire way to seeing your business go under.

There are two crucial elements to cash flow:

1) Accounts receivable (i.e. the money that is owed to you)
2) Accounts payable (i.e. the money that you owe)

It is entirely possible to run a brilliant, profitable company with a negative cash flow. A big sale might be a profit on paper, but until you actually get paid that sale isn’t worth the paper it is written on.

There have been many brilliant people with fantastic products or services that have gone under simply because of poor cash flow management. Want to ensure that your business doesn’t fall victim to cash flow problems? Here’s how:

1. Track your cash flow

Ensure that your company is tracking weekly cash flows closely, know how much cash you have on hand, your break-even point, and create cash flow projections.
These projections should help you identify and counteract rough patches ahead. Pay equal attention to both projected expenses (everything from salaries and inventory to the gas bill) and sources of revenue (including sales, interest earnings, fees, collections, and incoming loans or investments).
Build projections for next month, next quarter, and next year, but remember projections are just projections - keep an eye on the balance sheet at all times.

2. Keep some cash reserves

Even the best run business will run into cash shortfalls here and there. Be prepared. Don’t let a lack of liquidity prevent your business from doing what it does best. Keep some cash reserves aside to help your business run smoothly during dry patches.

3. Prepare for shortfalls

Even businesses with extra cash on hand are bound to run into shortfalls. Sometimes shortfalls are unavoidable, even with stellar cash flow projections and a healthy cash reserve. When this happens you don’t necessarily need to go into debt. In fact, may banks won’t fund small businesses with cash flow problems. Instead, call J D Factors. We help businesses with:

• Factoring (sales of accounts receivable)
• Debt recovery
• Invoice discounting
• Non revenue – assumes risk of receivables

As cash flow management specialists, J D Factors can help you recover during periods of cash flow crisis without having to take on debt or negotiate with suppliers, customers or employees. With our help none of the people you do business with needs to know you’re having cash flow problems. Call us today to learn more about how we can help you better manage your cash flow.