Vince Leusner, B2B CFO®
Providing B2B CFO® services in Cherry Hill, NJ and surrounding areas

Posted on Mon, Apr. 4, 2011

Angel investors may indeed be all around us, but I’m beginning to wonder if these wealthy investors have enough time to belong to all of the groups that want them as members.

Keiretsu Forum, an international angel network based in San Francisco.

Howard Lubert and financial adviser Vincent Leusner have brought the 21st chapter of the Keiretsu Forum to Philadelphia. Lubert, who is the brother of prominent local investor Ira Lubert, has been an angel investor with other groups over the years, but said he was impressed by how Keiretsu Forum’s process works.

Pennsylvania Angel Network, there are about 250 individual members in the eight angel groups in the Philadelphia area. Two of them have formed within the last 18 months.

Compliance Assurance Corp., a Pittsburgh-based financial-software company, raised $1.25 million last month from several groups, including West Philadelphia’s Robin Hood Ventures, an angel group that led the round. Delaware Crossing Investor Group, of Doylestown, and Mid-Atlantic Angel Group, of South Philadelphia, also participated.

Randy Williams, who founded the group in San Francisco in 2000, said members had invested more than $285 million in 265 companies worldwide.

Investors’ Circle Philadelphia, which now has about a dozen members, according to Tom Balderston, a Radnor investor. While Keiretsu will examine all sorts of industry sectors, including real estate, Investors’ Circle is focused on companies addressing social and environmental issues.

ad hoc exercise by individual investors who wanted to encourage and profit from new growth companies by committing several thousand dollars as well as their experience and contacts.

Entrepreneurs aren’t charged to submit an application or present at a deal-screening meeting, if they’re invited. But those selected to present at a member meeting must pay an administrative fee of $1,500.

When I told Randy Williams, who’d traveled to Philadelphia for the launch, that the fee sounded steep, he defended the charges as necessary to provide a high level of expertise and service to members as well as presenting companies. “You get what you pay for,” Williams said.

Open Angel Forum (again from the West Coast) sprang up in response to the fees being charged by groups to put investors and entrepreneurs together.

Gabriel Weinberg and IT consultant Antonio Tedesco held the first fee-free Open Angel Forum Philadelphia on March 16. Out of 80 applications, they picked six tech companies to demonstrate their products. They hope to hold another forum in September.

Haddonfield has a excellent event on New Year’s Eve called first night.  It is sponsored by the Rotary Club of Haddonfield – check out this link for more information.

http://www.firstnighthaddonfield.org/

One of the acts there will be an Irish Group called the Screaming Orphans – here is their website:

http://www.thescreamingorphans.com/

I’ve recently written an article related to factoring.  I haven’t had a client that used this form of borrowing for some time, but have recently been intimately involved with a client using factoring – and have been very impressed.  I hope you find it interesting.

Why It’s Time to Bring Factoring Into Your Financing Equation

By Tom Klausen and Vincent Leusner

In your search for commercial financing in the midst of the ongoing credit crunch, here’s something to factor into your consideration: It may be time to look at factoring in a whole new light.

It’s unfortunate that, for whatever reason, factoring has gotten a bad rap. A lot of the myths about factoring simply aren’t true—for example, that factoring is too expensive to be considered a viable commercial financing option for the average small business. In truth, factoring can make the difference between success or failure for companies operating without adequate working capital—at a cost that’s probably a lot less than most business owners think.

How Factoring Works

With factoring, companies sell or borrow against their outstanding commercial accounts receivable. The cost is a fee called a discount—typically between 2-5% of the invoice or the amount borrowed. By factoring, companies immediately benefit from improved cash flow: Instead of waiting somewhere between 30 and 90 days or longer to receive payment, they will receive approximately 80 percent of the receivable in the form of an advance when the receivable is presented to the factor. 

In addition, the factor performs credit checks on customers and analyzes credit reports to uncover risks and help manage appropriate credit limits. Most factors will also provide a follow-up service to assist with keeping the debtors paying more promptly.

One thing to note is that factors need to be more insightful about the inner workings of their client’s business than traditional lenders are. Since they are lending against their client’s outstanding receivables, it’s their job to know all about the client’s customers, terms, backup and the billing process itself. Factors need to possess an in-depth understanding of their clients’ industries and the business nuances between their clients and the clients’ customers.

A Factoring Success Story

An industrial service business in Philadelphia recently entered into a factoring arrangement with a well-established factor because it was in need of short-term working capital assistance and decided on a factoring arrangement instead of a traditional line of credit

Since the business’ customers are of high credit quality, factoring was a logical credit facility for them to turn to. The business has been factoring invoices for several months now and is extremely pleased with the arrangement.

The owner especially likes the fact that he can use the factoring company’s online system to determine how much money he can borrow through factoring at any time, 24/7. This is a big help when it comes to daily cash flow and working capital planning.

Factors for Success

Here are a few areas you should concentrate on in order to increase your chances for factoring success:

• Financial statements, management reports and forecasts: It is important to generate accurate and timely financial statements, as well as for the owner to know exactly where the business is financially at all times—and where it’s headed. By accurately tracking factoring fees, the business is better able to build in and earn back those fees. Value will be gained via an increase in gross sales, discounts for paying vendors early and overhead reduction. Factoring will look expensive unless it is properly measured against the value it brings.

• The factoring contract: Be sure that you understand all details in any contract you sign with a factor, as well as the fees you will be charged. Beware of factors who issue a term sheet without doing proper due diligence. What may appear to be a low factoring rate at the outset could end up being very expensive when things like lockbox, minimum usage, credit checking, and wire transfer fees are included.

• Monitoring of factoring facility and working capital: Make sure that a senior financial person on your staff has sufficient time to monitor usage of the factoring facility and working capital-oriented items. By borrowing only what you absolutely need, you will be able to minimize your factoring expense. It’s also important to monitor the aging reports and become involved if any trade or payment disputes arise.

• Maximum efficiency: Increasing efficiencies in your backroom operation can have significant positive implications on your bottom line. By understanding all the services that your factor performs, you will be able to better utilize your staff and your own time. Understanding the reports and implementing controls and procedures will minimize errors and increase efficiency.

• Open communication: It’s important to have a clear channel of communication with your factor. You might be surprised at the flexibility your factor (and others) will provide when you are open and honest with them. It’s also important that you communicate directly with the factor if you are aware of any issues or problems with your invoicing or customers. A good factor can deal with most issues if aware of them—but like most lenders, factors don’t like to be surprised.

Since a factor will become an integral part of your business team, it’s important to select your partner carefully. Professional experience and adequate capitalization are especially crucial. Don’t be fooled by Internet claims of very low rates and a “24-hour application process.” Good factors are as choosy about their clients as you should be about your financial partner. When everyone performs their proper due diligence, you are more likely to build a foundation for a positive relationship for many years to come.

Tom Klausen is the Senior Vice President of First Vancouver Finance (FVF), which has offices in Vancouver, BC and Toronto, ON. FVF provides creative financing solutions to small and medium-sized businesses across Canada. Tom has worked in the alternative lending industry for more than 25 years and consults with businesses struggling to obtain traditional financing. You can reach him at TKlausen@FVF.ca or visit http://www.FVF.ca.

Vincent Leusner of B2B CFO® assists companies that are facing complex financial and strategic issues and are in need of senior financial talent.  Every company, regardless of size, needs a Chief Financial Officer (CFO). The best CFOs keep an eye on the whole company, not just the bottom line. As a B2B CFO^® partner, his job is supporting a client’s entire organization, including sales, marketing, production, operations, staffing and other relationships, both internal and external. Reach him at vleusner@b2bcfo.com.