Author Topic: Finally found a business opportunity, how to get cash flow.  (Read 2634 times)

Ben Hogan

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Ok, I finally found a business that there is an opportunity to make some money that is better than stock markets but in a smaller quantity. How do you guys find investors to help with cash flow.

CareCPA

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Re: Finally found a business opportunity, how to get cash flow.
« Reply #1 on: June 15, 2017, 07:32:41 AM »
Do you have a fully researched business plan with market analytics and financial projections? I don't know anyone who will invest in a business without some kind of plan.
Always happy to help with tax or accounting questions - feel free to private message me.

I am a licensed CPA in Pennsylvania. However, any tax advice I give should be considered general information and not used in the avoidance of tax. There is most likely information about your situation that I do not know, and thus you should do your own additional research.

Yes, in case it confuses you, I did change my forum name.

Ben Hogan

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Re: Finally found a business opportunity, how to get cash flow.
« Reply #2 on: June 15, 2017, 08:09:50 AM »
Hey FrugalGrad, the business has all of that and has been increasing in revenue every year for the past 4 years. Prior to the co-owner taking off with all the money(Theft). Now it's a one owner business and the increase in sales is causing a shortage of cashflow for parts. I'm trying to figure out the investors side, but just not sure what type of investors to approach and what the typical rate of return they require.

CareCPA

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Re: Finally found a business opportunity, how to get cash flow.
« Reply #3 on: June 15, 2017, 08:25:14 AM »
Gotcha. Expected return will probably vary by industry and investor.
The boring answer is to start with people you know who might have idle cash sitting around. Have proper documentation for any agreements you come to with them in case the worst happens and you have to go to court.
Always happy to help with tax or accounting questions - feel free to private message me.

I am a licensed CPA in Pennsylvania. However, any tax advice I give should be considered general information and not used in the avoidance of tax. There is most likely information about your situation that I do not know, and thus you should do your own additional research.

Yes, in case it confuses you, I did change my forum name.

bwall

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Re: Finally found a business opportunity, how to get cash flow.
« Reply #4 on: June 15, 2017, 09:34:33 AM »
And, while we're at it; why could the prior 1/2 owner run off with the money? Were there no financial controls in place? Was he a dirty rat? Or was there a simple disagreement and this was his way of having his partner buy him out? Police report filed? If not, why not?

Keep in mind, there are always two sides to every story.

What do you bring to the table, other than labor? Know-how/experience? Money? Clients? How is the business more valuable with you onboard?

Ben Hogan

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Re: Finally found a business opportunity, how to get cash flow.
« Reply #5 on: June 15, 2017, 10:02:56 AM »
bwall


I found out about this while providing supplies for the technology purchases for this company. Previously the company wasnt really big enough to need multiple offices or data availability across the globe. The company is opening an office in UK next year and have a shared office in an African country. Since there is only 3 employees(I am not really an employee, I'm a 1099 contractor for services), the job of searching for creative way to create cashflow sort of fell in to my lap when discussing directions for the company.

Having never dealt with raising capital, I'm not sure on the best route to accomplish this.

Ben Hogan

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Re: Finally found a business opportunity, how to get cash flow.
« Reply #6 on: June 15, 2017, 10:12:37 AM »
Also the prior 1/2 owner, I knew both of them, we all used to play golf together. He has had 2 businesses since and both have gone bankrupt and his inventory is sitting in a warehouse about 1/2 a mile from this business. Which is another reason I am looking for cashflow, I'd like to be able to purchase that since we sell those parts frequently.

SeattleCPA

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Re: Finally found a business opportunity, how to get cash flow.
« Reply #7 on: June 15, 2017, 11:19:56 AM »
Without knowing any of the specifics, here are two thoughts:

1. You can possibly get financing from the seller or from the bank.
2. You may have the funds necessary for a down payment.

BTW, if you can't get financing for, say, 80% of the price from the bank or the seller... and you don't personally have funds available for the other 20%, that seems like a possible red flag situation.

For what it's worth, I wrote the following blog post a few weeks ago in response to a couple of clients going through possible of buying small businesses:

http://evergreensmallbusiness.com/buying-a-small-business-tips/

I would say that getting the financing stuff right is big part of the financial engineering... and when you can't get the financial engineering to work, that's maybe a sign that the deal doesn't really work.

One other point: I agree that small business returns can compare really, really, favorably to stock market returns... Way more risk, but often small business ownership is a way to really grow wealth.
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maizeman

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Re: Finally found a business opportunity, how to get cash flow.
« Reply #8 on: June 15, 2017, 11:33:43 AM »
Wait so are you the remaining owner? Or you're just trying to help out the remaining owner in your role as a contractor?

A lot of this depends on how fast your turn around times are for both ordering parts and selling assembled products and whether you have to maintain a lot of inventory or are essentially manufacturing on demand.

In one of my businesses we get paid mostly on net 30 terms and our own bills for providing products (outside of salaries) come due on net 90 terms, so the float between those two provides a lot of short term buffer if a big project comes in.
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bwall

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Re: Finally found a business opportunity, how to get cash flow.
« Reply #9 on: June 15, 2017, 11:48:17 AM »
He has had 2 businesses since and both have gone bankrupt and his inventory is sitting in a warehouse about 1/2 a mile from this business.

Something doesn't add up. 

Ben Hogan

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Re: Finally found a business opportunity, how to get cash flow.
« Reply #10 on: June 15, 2017, 12:00:28 PM »
Wait so are you the remaining owner? Or you're just trying to help out the remaining owner in your role as a contractor?

A lot of this depends on how fast your turn around times are for both ordering parts and selling assembled products and whether you have to maintain a lot of inventory or are essentially manufacturing on demand.

In one of my businesses we get paid mostly on net 30 terms and our own bills for providing products (outside of salaries) come due on net 90 terms, so the float between those two provides a lot of short term buffer if a big project comes in.

Hey Maizeman, that is the exact problem I'm seeing here, and no I'm not a owner, but the contractor employee that is trying to fix some of the issues I'm seeing. 

the big problem is that the vendors for a few of the "large" parts are Net 30, but our vendor paid out is also net 30. And the rate this company is growing, we have very low cash flow when a few of this type of orders come in at the same time. I hope that make sense. If I dont find a way to buffer this, we are going to have a hard time growing and really in a bind if we have an unusually large order.


Ben Hogan

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Re: Finally found a business opportunity, how to get cash flow.
« Reply #11 on: June 15, 2017, 12:04:33 PM »
He has had 2 businesses since and both have gone bankrupt and his inventory is sitting in a warehouse about 1/2 a mile from this business.

Something doesn't add up.

I'm trying to explain this the best I can, the old partner thing is history and none of us thinks he is even in the US anymore. And the company has since been owned by 1 person. A few month ago we were told by our vendors that he has some of the parts in his old warehouse that is the same as what we still sell. Which means I can mostly get those directly from the owners of the building.

Ben Hogan

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Re: Finally found a business opportunity, how to get cash flow.
« Reply #12 on: June 15, 2017, 12:06:50 PM »
Without knowing any of the specifics, here are two thoughts:

1. You can possibly get financing from the seller or from the bank.
2. You may have the funds necessary for a down payment.

BTW, if you can't get financing for, say, 80% of the price from the bank or the seller... and you don't personally have funds available for the other 20%, that seems like a possible red flag situation.



Hey SeattleCPA

I am meeting with a Chase rep tomorrow afternoon. At this point, I'm not sure what is the correct way to get funding.

SeattleCPA

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Re: Finally found a business opportunity, how to get cash flow.
« Reply #13 on: June 15, 2017, 02:01:24 PM »
I think a buyer needs to have a "finance-able" deal... e.g., you put 20% down and bank happily finances the rest.

If the bank won't fiance the deal (because it's sketchy) that means the seller should provide bank-like financing.

If neither the bank or the seller will provide financing--because you can get financing on lots of other deals--you should theoretically dump this deal and look at another one that works and is finance-able.

At this point, I'm just repeating myself. Sorry. Good luck with the bank.
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bwall

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Re: Finally found a business opportunity, how to get cash flow.
« Reply #14 on: June 16, 2017, 07:29:59 AM »
He has had 2 businesses since and both have gone bankrupt and his inventory is sitting in a warehouse about 1/2 a mile from this business.

Something doesn't add up.

I'm trying to explain this the best I can, the old partner thing is history and none of us thinks he is even in the US anymore. And the company has since been owned by 1 person. A few month ago we were told by our vendors that he has some of the parts in his old warehouse that is the same as what we still sell. Which means I can mostly get those directly from the owners of the building.

ok.... That makes a bit more sense (I think). Normally in a bankruptcy all company assets are liquidated, which *should* mean that there's nothing left to be supplied. But, if in this case 'liquidation' means that he ran off and left the supplies at a warehouse in lieu of payment for 'whatever', then I guess that would make sense. At first I thought that he'd declared bankruptcy but was still selling supplies, which doesn't seem to be the case.

Liberty Stache

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Re: Finally found a business opportunity, how to get cash flow.
« Reply #15 on: June 16, 2017, 12:29:22 PM »
Wait so are you the remaining owner? Or you're just trying to help out the remaining owner in your role as a contractor?

A lot of this depends on how fast your turn around times are for both ordering parts and selling assembled products and whether you have to maintain a lot of inventory or are essentially manufacturing on demand.

In one of my businesses we get paid mostly on net 30 terms and our own bills for providing products (outside of salaries) come due on net 90 terms, so the float between those two provides a lot of short term buffer if a big project comes in.

Hey Maizeman, that is the exact problem I'm seeing here, and no I'm not a owner, but the contractor employee that is trying to fix some of the issues I'm seeing. 

the big problem is that the vendors for a few of the "large" parts are Net 30, but our vendor paid out is also net 30. And the rate this company is growing, we have very low cash flow when a few of this type of orders come in at the same time. I hope that make sense. If I dont find a way to buffer this, we are going to have a hard time growing and really in a bind if we have an unusually large order.

Negotiate better payment terms on both sides. Negotiate for N45-N60 with your supplier and negotiate for 1%N10 from your customers. If you can accomplish both ends AND your turnover is <25-50 days (from when you buy the part to when you sell it), you effectively get paid before you pay your suppliers which would greatly improve your cash flow / working capital position.

It can be a simple phone call or letter on either side. For example:

To a supplier: "Our standard payment terms have moved from N30 to N60."  See what they say, if they balk "We can come down as low as N45 but our company policy doesn't allow for anything shorter"

To a customer: "Since you've been such a great customer to XYZ Corp, we'd like to offer you the gold customer terms of 1%N10, N30"
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Ben Hogan

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Re: Finally found a business opportunity, how to get cash flow.
« Reply #16 on: June 18, 2017, 10:58:49 AM »
SeattleCPA, Bwall, LibertyStache

Thank you so much for all your help, I have since been busy and lined up 5 investors through friends and old work associates. So far I have got a commitment of $100,000, and meeting with 3 more investors next week. Working in IT, I'm shocked how many people will talk to you for 2 hours and then flake when it comes time to discuss the amount.

I feel like a cpa(Calculating all aspect from looking over past 2 years accounting sheets an tax forms)and a used car salesman sitting at bars/restaurants with these people that I've known for year, now somehow I'm building trust as if we just met.

SMH. Just need to secure about 200,000 or so, then we will have enough flexibility to take on rest o the year and then re-evaluate cash flow strategy for next year.

SC93

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Re: Finally found a business opportunity, how to get cash flow.
« Reply #17 on: June 18, 2017, 08:35:39 PM »
Always remember that 90%+ businesses fail within the first year. It's always been so much easier to not have debt for any of my businesses. I sleep really good every night without having to worry.

SeattleCPA

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Re: Finally found a business opportunity, how to get cash flow.
« Reply #18 on: June 19, 2017, 07:39:16 AM »
Always remember that 90%+ businesses fail within the first year. It's always been so much easier to not have debt for any of my businesses. I sleep really good every night without having to worry.

I don't agree with the 90%+ failure rate statistic for a bunch of different reasons. For what that's worth...

One big problem with this failure rate statistic or any like it, the data show that failure rates vary widely... in some categories e.g. people basically never fail and in other categories they often do fail.

Another issue is that a business ending operations ( which is what people sometimes mean when they say "failure") often isn't really a failure for the business owner

I did a longer blog post about this here: http://evergreensmallbusiness.com/your-real-odds-for-business-start-up-success/


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SC93

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Re: Finally found a business opportunity, how to get cash flow.
« Reply #19 on: June 19, 2017, 08:21:54 AM »
I don't believe it either because I've known SO many over the years. I feel it's more like 98%+. But let's look at it this way..... if 1 person out of a trillion people fail within 20 years, personally I don't want to be that 1. No debt = no stress for me. Risk pays off for a few people big time but for most, they are stuck up that one creek without a paddle.