Tuesday, March 08, 2005

Why Small Businesses Stay Small!

I wanted to share with all of you the response of a small business owner to our offer to finance his company.

"Hi Josh, I do not want to waste your time with this factoring thing as I am positive I do not like the way it works as were my reservations when you were here. I would be more than willing to show your company any financial info you wish too see if we are talking a vested financial investment in XXXX XXXXXX Inc.
I am not willing to share the profits of my hard work with anyone that does not have a financial investment with the company. As I believe that this is not an option for you or your company I want to thank you and your associates for thinking of XXXX XXXXX.
At this time I am declining any factoring proposal that you can offer as there are literally hundreds of companies that want a no risk financial gain from my hard work. If you have something better or more substantial that can be proposed or offered than I am willing to listen. I hope you do not feel I have wasted your time as that was not my intention. It was nice to meet you the other day.


Something better?
So here we have a company that is starved for cash, misses $50,000 to $60,000 of additional sales a month due to poor cash flow and is stretched out by his customers for 60 to 70 days before he sees payment........a perfect company for the Small Business Working Capital Fund.

He sells us his A/R, we give him cash and he retains 100% ownership of the company, along with all of its profits. Seemed like a no brainer, right?
Looks like we were wrong, it seems he would rather sell a portion of his company, along with the future profits, plus deal with all of the headaches of locating and then dealing with a partner on an on going basis.

And we were ready finance this company with a facility for upwards of $100,000 so he could quickly ramp his $800,000 a year of revenue company up to about $1,450,000 and drive his gross margin from $256,000 to over $500,000. The cost of financing would have been around $42,000, all of which is tax deductible. And just for those of you who are counting, the increase in gross margin, about $244,000, is a 580% return on the cost of financing!

With potential like this, why in the world would anyone want a partner?


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