New trends: How to use factoring in acquisition

finance continues to bite

 

Financiers of M&A Deals went
through a turbulent year – with ups and downs. A brilliant first term was
followed by a poor second term. The black outlook has lasted into the first
term 2008 influencing the midcap-market, which is also confronted with a structural
problem. Apart from a growing number of specialized private equity investors,
M&A Deals still have a unique position within the investment range between
50 and 250 million Euros: the deals are too small for investment banks and
often too big for smaller regional banks. This situation brings up
opportunities for new financing forms like factoring. In this article, Klaus
Taube, CEO of Eurofactor AG, looks at the big picture. 

 

Advantages through factoring

Factoring can be used in different phases of company acquisitions: before,
during or after an M&A phase. There is a wide range of possibilities for
the financial or private investor.

 

At the due diligence phase, in preparation of an acquisition, the know-how
of a factoring company can be used to examine and analyze the receivables
portfolio of the targeted enterprise. Hidden risks in receivables management
can be revealed to find the true value of the receivables portfolio. The result
is more transparency and an improved knowledge of the targeted company’s fair
value, which again supports the negotiating position of the bidder. 

 

Factoring releases liquidity that offers more room to manoeuvre or can
contribute to the realization of Leveraged Buyouts (LBOs) – Management Buy Outs
(MBOs) and Management Buy Ins (MBIs). Before selling a company its debt-free
net present value can be increased by redeeming its liabilities that bear short
term interests achieving a potential price increase in sale. Regarding
spin-offs, similar effects can be achieved. Through selling the receivables of
a spin-off (e.g. a MBO), the ratio of debt financing can be reduced. Hence the
financial independency is enforced at a preliminary stage without diluting the
ownership of the MBO. Investors can use factoring as well in order to realize
exits from middle-sized engagements: for example to reduce bridging loans,
high-interest liabilities or mezzanine-loans minimizing debt financing costs.

 

On the investor’s side, the released cash flow can be used as a financial
lever for self-financing purposes, reducing the percentage of equity employed
without borrowing additional external funds. This advantage is particularly
interesting for high-yield orientated private-equity companies.

It has generally become apparent that factoring is a flexibly applicable
module of finance, concerning acquisitions. The funding of structured
transactions can be completed by factoring, along with credit financing or
private equity capital. Large M&A transactions can be formed by a finance
syndicate, integrating two or three factoring companies.

 

In general, factoring is a helpful finance tool supporting the growth phase
of smaller companies, at the same time preserving their financial independency.
It is therefore particularly of interest for MBOs, MBIs, and even
turnarounds. 

 

Factoring contracts are mainly arranged for long-term engagements, focusing
on a sustainable partnership that gives the client financial independency.
Factoring optimizes the receivables management and helps to stabilize the cash
flow. This especially gives smaller companies, such as MBOs, with rapidly
growing turnovers, a more reliable basis for their financial planning. As the
funding by a factoring company is based on the purchase of the client’s
receivables and grows parallel with the client’s turnover, factoring is a
‘breathing finance’ that keeps enterprises more flexible in their development.
Hence their financial planning is not exposed to the risk of sudden disruptions
such as the termination of a bank loan or outplacements of private equity
capital. Factoring can therefore be as well employed as a follow-up financing
in succession of a venture capital engagement.

 

Requirements

The arrangement of factoring contracts and processes must take into account
the general complexity within structured transactions. This is particularly
true for cross-border transactions. Long-dated terms of finance up to seven
years are to be considered by the factoring institute, just like special
covenants, such as exit clauses regarding breaches of financing conditions.

 

The frequently higher risk exposure in M&A deals, such as a high funding
level or contractually determined exits need to be incorporated into the
factor’s risk strategy.

 

In this context the factoring company must also validate the homogeneity of
other investors (generally banks, private equity companies or the management of
the M&A target): Do the investors seek a long-term co-operation or
short-term profits? How are the risks covered by the partners, and how to
validate the risks?

 

It is therefore vital for the factoring company to have close
co-operation with banks and / or private equity companies and to extend the
shared know-how in order to develop customized solutions.

 

Forecast

Even though factoring still plays a minor role in acquisition finance at
present, it will gain importance mainly in the midcap M&A market. Factoring
institutes are adequate partners for private equity investors, as factoring
contributes complementary to leveraged finance. As a result of the subprime
crisis, PE investors just as banks have an increased interest in an optimized
risk assessment and distributed risk coverage of new engagements. Especially
for turnaround-finance, factoring is used increasingly by PE companies. Last
but not least factoring has the potential to participate increasingly in
cross-border transactions due to the innate know-how of factoring companies
accompanying export and import business. 

 

Managing Inventory for Profitability

By: Ellen DePasquale

You don't have to pay an arm and a leg to gain control of stock
levels, pricing and cash flow.

Any
business that manages inventory lives and dies by stock levels. Knowing how
much is on hand is important and easy to obtain with a physical inventory
count. But knowing what items are selling fastest, how long it takes to receive
new stock, and what sales are seasonal is crucial information that is more
difficult to acquire.

Accounting
software that includes an inventory module is the first step in gaining greater
control of item stock levels, as well as profitable pricing and cash flow
management. The good news is that you don't have to pay an arm and a leg to for
an inventory system. Low-end software, such as QuickBooks Premium, QuickBooks
Pro, Peachtree by Sage Pro Accounting, MYOB Premier Accounting Small Business
Suite and MYOB AccountEdge all offer inventory management functionality.

"There
were times when I was sold out, but over the course of the three years I have
learned. Now we are at a point where we are almost never out of stock on an
item when someone wants to order it," declares Pauline Lewis, owner of
oovoo design, a handbag manufacturer based in Alexandria,
VA. Lewis uses QuickBooks Premier to manage
her line of handbags.

As
great as this sounds, Lewis admits it took time to get to this point. She
started, as most new businesses do, by trial and error. At first she set
QuickBooks to alert her whenever any of her items reached an inventory level of
five. Over time she identified two mistakes with that setup. The first was that
waiting to be alerted until stock levels reached five was causing them to run
out of stock before they could receive more, and the second was setting the
alert at the stock level of five for all her items based on the assumption that
all her items would sell similarly. She has modified the QuickBooks stock level
alerts to be more synonymous with the individual items and how they are selling
reducing her chances of running out prior to restocking.

These
changes rely on the stock levels in QuickBooks always being up-to-date. To
accomplish this, she makes sure that data entry occurs for customer invoices
when the orders are placed, and, for vendor bills, when items are received.
Both of these actions instantly update inventory and keep all her levels
current. Additionally, she took advantage of the ability to create customized
reports arriving at ones that are meaningful to her business.

Utilizing
custom reports can help any business owner better understand the uniqueness of
their business. In many cases it only takes a few small changes to a built-in
report that allows it to present additional information that can make the
difference between an educated decision and on based on assumptions.

"Every
month I run a customized report on sales to see which items are selling the
most. From there I make my purchasing decisions so I don’t spend money on items
that are not moving. I may also increase their reorder limits of the popular
items for the period that they continue to sell," says Lewis. She also
mentions that as a result of this report she has moved some of my items to
restock when their levels reach 30.

Lewis
also runs customer reports that help her identify her top 20 to 30 customers
for that month and the items they purchased. She has many wholesale customers
and these reports help her identify their buying behavior and patterns. By
analyzing these reports she has been able to increase her level of customer
service by almost always having the items they want in stock and by making
recommendations for new products based on what they have bought in the past.

Accounting
software is much more than a program that prints checks and issues invoices. It
is a great business management tool that has helped Lewis decide when to spend
money, which products to buy, and how to service her clients in personalized
ways.

 

HSARPA Broad Agency Announcement 08-04

Bacterial Population Genetics in a Forensics Context

Historically Black
Institutions, Minority Institutions, Small Business Concerns, Small
Disadvantaged

Business Concerns,
Women-Owned Small Business concerns, Veteran-Owned

Small Business Concerns,
and HUBZone Small Business concerns are encouraged both to

submit proposals and to
join other entities as team members in submitting proposals. However,

no portion of this BAA
will be set-aside pursuant to FAR Part 19.502-2.

The goal of this research
program is to develop algorithms and/or analytical tools that will assist

investigators of bioterrorism
events by providing precision and statistical power to inferences concerning

the degree of relatedness
among organisms or samples used in a bioterrorist event. The

objectives include:

• Improving understanding of the
population genetics of these pathogens to include research on

genome stability, host
preferences and interactions, genetic mobility of virulence factors,
polymorphic

sites, mutational hot spots,
geographical distribution, microbial ecology, pathogen lifecycles,

natural reservoirs, effects of
host – pathogen interaction, etc.

• Improving methods for
determining rates of mutation and recombination of the pathogen genomes

and the identification of
adaptive mutations that can have forensic utility

• Establishing match criteria
for discriminating “difference” or “sameness” in sample comparisons.

Define the parameters for
inclusion or exclusion in the context of a known sample and questioned

sample. This must be backed by
statistical parameters for acceptance or rejection of the null

hypothesis

• Developing efficient,
economical, and statistically rigorous sampling strategies to acquire spatially

referenced genetic information
on reservoirs of these pathogens.

• Developing
bioinformatics-based analytical tools for supporting hypotheses testing
regarding

pathogen origin that go beyond
current phylogeny-based inferential methods and can meet forensic

(legal) admissibility
requirements of relevance and reliability.

White papers are required for
consideration. For the full announcement, requirements for submission,

or if you have questions
regarding this solicitation please send an email to BAA08-

04@dhs.gov. You should also contact:

Peter Pesenti, Ph.D

Department of Homeland
Security

Washington, DC 20528

Tim Davis

Department of Homeland
Security

Washington, DC 20528

You can locate advance
acquisition planning information at:

http://www.fido.gov/dhs/aap/publicviewsb.asp

You can access current
contracting opportunities:

http://vsearch2.fbo.gov/servlet/SearchServlet

You can serve as a
subcontractor with a prime at DHS:

http://www.dhs.gov/xlibrary/assets/opnbiz/OSDBUDHS_

Prime_Contractors_List.pdf

DID YOU KNOW...

If you believe your
company has been treated unfairly by the Department of Homeland Security,
please tell us about it:

DHSBizOps@mail.house.gov

UPCOMING OPPORTUNITIES

If you believe your
company has been treated unfairly by the Department of Homeland Security,
please tell us about it:

DHSBizOps@mail.house.gov

Solicitation # DHS Office/

Agency

Project Point of Contact Response Date

HSBP10-08-R-

1628

Customs and

Border Protection

CBP needs Human Resource

Support Services

Monica Watts

Contract Specialist:

Monica.Watts@dhs.gov

April 16, 2008

HSFEEM-08-Q-

0024

FEMA FEMA needs help
desk

support for state and
local participants

of its National Fire

Incident Reporting
System

Charles Tama,

Contract Specialist:

Charles.Tama@dhs.gov

April 7, 2008

HSCEE1-08-R-

00006

ICEFederal

Protective

Services

FPS is seeking a
contractor to

provide security guards
and patrol

services.

Joshua Clemens,

Contract Specialist:

Joshua. Clemens@dhs.gov

April 4, 2008

HSFMEW-08-R-

0008

FEMA RFP for the
purchase of

software and maintenance
for

FEMA’s Cisco Intelligent

Contact Manager System

Deborah Foster,

Contract Specialist:

Deborah.Foster@dhs.gov

March 27, 2008

HSCG-27-08-

3PR305

United States

Coast Guard

USCG is required to
purchase

hydraulic hoses.

John Lukondi,

Contract Specialist:

John.Lukondi@dhs.gov

March 31, 2008

21-08-

398QFS032

United States

Coast Guard

USCG needs information

technology equipment

Shawn Millang,

Contract Specialist:

Shawn.Millang@dhs.gov

March 31, 2008

HSFEMS-08-R-

0014

FEMA FEMA Recovery
Office needs

gravel for its Biloxi, MS

operation

Patricia Trusler,

Contract Specialist

Patricia.Trusler@dhs.gov

March 19, 2008

HSCG38-08-R-

200003

United States

Coast Guard

USCG needs to purchase

aircraft components and

accessories

Ewa Brown, Contract
Specialist

Ewa.Brown@dhs.gov

April 24, 2008

HSCG40-08-Q-

50107

United States

Coast Guard

USCG needs to purchase a

centrifugal pump

Cecelia Whitehead,
Contract

Specialist

Cecelia.Whitehead@dhs.gov

March 28, 2008

HSCG40-08-Q-

40738

United States

Coast Guard

USCG needs professional,
administrative,

and

management support

services

David Monk, Contract
Specialist:

David.Monk@dhs.gov

March 24, 2008

HSCG28-08-Q-

1001001A

United States

Coast Guard

USCG needs maintenance,

repair, and rebuilding
of equipment

Linda Clark, Contract
Specialist

Linda.Clark@dhs.gov

March 20, 2008

08ART0115C DHS Federal Law

Enforcement

Agency

DHS FLEA needs to
purchase

tires.

Montie Hickey,

Contract Specialist

Montie.Hickey@dhs.gov

March 19, 2008

HSCG38-08-QS300032

United States

Coast Guard

USCG needs rechargeable
cells Sherri Roche,

Contract Specialist

Sherri.Roche@uscg.mil

March 28,2008

Opportunities with Small Business Innovation Research (SBIR)

All federal agencies
with an annual extramural Research and Development

budget exceeding $100
Million are required to participate in the Small Business

Innovation Research
Program (SBIR). DHS is one of those federal agencies.

SBIR targets
entrepreneurs and small businesses because that is where the

most innovation thrives.
However, the risk and expense of conducting serious

research and development
are usually beyond the means of many small businesses.

By reserving a specific
percentage of federal research and development

funds for small businesses,
SBIR enables small businesses to compete on the

same level as larger
businesses in the critical startup and development stages.

DHS’s SBIR program will
be releasing a solicitation this spring. After the solicitation

is released, business
owners are encouraged to contact the respective program

managers in each field
by either telephone or email. These program managers

are available to answer
questions related to the solicitation. Additionally,

business owners have the
opportunity to meet SBIR program managers and

other members of the
Science and Technology Directorate at various conferences

throughout the country.

For more information on
DHS’s SBIR Program, contact Vinny Schaper via email

at Vincent.Schaper@dhs.gov.

SBIR wants to meet you!

Kentucky Innovation and Enterprise

Conference

Lexington, KY

April 17, 2008

http://ksef.kstc.com/

IEEE International Conference

Technologies for Homeland
Security

Waltham, MA

May 12-13, 2008

www.ieee.org

National SBIR Conference

Orlando, FL

May 27-30, 2008

http://www.sbirflorida.org/contact.asp

OTHER DHS
OPPORTUNITIES

We’re Here to Serve You!

If you believe your company
has been treated unfairly

by the Department of Homeland
Security, please tell

us about it: DHSBizOps@mail.house.gov

Department of Homeland Security High Priority

Representative Technology Areas

• Standoff detection on persons

• Tools to detect and mitigate animal disease breakouts

• Handheld rapid biological and chemical detection systems

• Analytical techniques for security across the information

technology system
engineering life cycle

• Composable and scalable secure systems

• Enhanced screening and examination by non intrusive

Inspection

• Mobile biometrics screening capabilities

• High speed, high fidelity ten print capture capability

• Detection paradigms and systems for enhanced, emerging, and novel

biological threats

• Ability to detect handmade or novel explosives

• Capability in real time for positive verification of individual’s
identity

using multiple biometrics

Other High Priority
Representative Technology Needs are in the “High Priority

Technology Areas”
Document. This document may be obtained by

visiting www.hsarpabaa.com and by following the
Representative High

Priority Areas link.

Committee on Homeland

Security Announcement

On Wednesday, April 2, 2008, the

Committee on Homeland
Security is

hosting a technology
fair entitled,

“Detecting and
Responding to

Bioterrorism,” to
educate Members

and staff on key
products that the

private sector uses for
detection of

and response to acts of
bioterrorism.

The bioterrorism
technology fair will

highlight detecting
bioterrorism in

water, air, and the food
supply. Also

the fair will provide
the companies

an opportunity to
showcase how

their firm’s technology
can improve

response to
bioterrorism, the alert

systems, and safety
equipment.

The fair will be held
from 9 AM to 3

PM. If your organization
specializes

in bioterrorism
technologies, please

call the Committee
office: (202) 226-

2616.

 

Why to start a business during a recession?

Some may think starting a business during a recession is a mistake, but
there are opportunities to be exploited.

By: Rachel Bridge

TALK of a possible recession has left
many would-be entrepreneurs reeling with uncertainty. Should they go ahead and
start up their business regardless, or should they simply abandon their dream
and stick to the day job?

On the face of it, starting a business during a recession might be looming
sounds crazy. But don’t throw away those business plans just yet. Provided you
choose the right type of business and go about it in the right way, you can
still succeed. And if your business can thrive in a recession, think how it
will soar when the good times come again.

Jim Surguy, senior partner of Harvest Consulting, said the secret was to
remember that, during an economic downturn, consumers will think hard about
what products to buy.

“When times are hard people will search for value, so the response should be
to make smaller versions of the same things they always buy — drinks in
half-sized bottles, or seeds not plants, or holidays lasting five days instead
of seven days.”

Another option is to keep everything the same size but “value engineer”
products down to get a lower price — in other words, reduce the cost of the
elements that go towards making it.

“You can make the packaging cheaper, you can make the plastic thinner, you
can perhaps alter the ingredients, but keep it the same size and you can then
lower the price,” said Surguy.

One example of value engineering, he said, is Tesco selling unripe fruit
that will ripen at home. “That saves Tesco having to store the fruit and ripen
it themselves, which costs them money. They are just taking money out of the
system.”

Another avenue to explore when considering what products or services to
offer in a recession is the concept of the affordable treat. “When times are
hard you have to satisfy people’s emotional needs beyond just value,” said
Surguy.

“In the last recession in the early 1990s one of the things that was
successful was Häagen-Dazs ice cream. It was luxurious in its sector, but it
wasn’t hugely expensive and so was an affordable treat.”

Ultimately, said Surguy: “If you have a good proposition and you can finance
it — and you have the drive, energy and passion — then I would say do it.
Because if you can succeed in a recession then sure as hell you will be very
successful when the clouds lift and the good times come. You will have gone
through the fire and be all the stronger for it.”

Tony Kinch is one entrepreneur who is determined not to let the threat of
recession stand in his way. He plans to launch The Real Tea Club this June, a
business based on the model of a members-only club that will sell high-quality,
loose-leaf tea. Each month members will be sent a selection of five teas from
around the world.

Kinch, who will be managing director of the business, said: “We are quite
confident that even though we are hitting a recession there are still enough
people out there who would like to join this club.

“The type of people we are trying to attract are hopefully very affluent, so
recession doesn’t tend to hit them as badly.

“People who join clubs do it for a reason, because they are quite passionate
about it, and I believe that, because we are offering something that nobody
else has done successfully, I need to get only 30,000 members and I have a very
successful business.

“I believe that if we can get the type of customer we are trying to attract,
this business is sustainable through a recession,” said Kinch. “That is why I
am very comfortable about doing this. The possibility of recession is certainly
not concerning me to any great extent.”

Richard Denny, a business-development adviser, is also enthusiastic about
the idea of starting a business in a recession. “If you can start in a tough
market, your chances of success and real growth when things ease off are
phenomenal,” he said.

“Most people start businesses in an easy trading climate, then they get up
against a tough market and haven’t a clue how to cope. They then go seriously
wrong and get into difficulties.”

He thinks one fertile area for would-be entrepreneurs to target is the
over-fifties market — consumers who are relatively recession-resistant.

“In an uncertain economic climate, the one section of the community that is
still growing is the over-fifty marketplace. They have equity in their
property, they have savings and they earn a bit more as interest rates rise.

“They are continuing to spend on holidays, on hobbies, on sports and keeping
fit, on interests, on lifestyle, on health and diet. So anything in those
directions is a very big market.”

He advises would-be entrepreneurs to make the customer absolutely central to
their business idea — something that sounds obvious but which people rarely do.

“Most people who start businesses do so because they fall in love with a new
product or invention. They don’t reverse that to thinking whether a customer
would really like it. Would they buy it, what is their interest, how are they
going to benefit from it?

“In every business you must start with the philosophy of being customer-led
but sales-driven. People have this belief that good products sell themselves.
They don’t. I have never once seen a good product sell itself.”

However, the most important ingredient for succeeding in a difficult market,
said Denny, is attitude. “Success is created in business not just by the
product, but more by the individual’s enthusiasm. You could put sweet shops
alongside each other and the one that will succeed will not be because it has
better sweets, it will be because of the attitude of the person running that
business.

“If you make the customer feel you care and give them a good experience in a
recession, you will be surprised by what can be achieved when times are good.”

 

 

How to Write a Business Plan

There are probably thousands of people with
great ideas just waiting to be turned into profit, but ideas are nothing
without a proper business plan.

By: Emily Ford

 

It's the moment all entrepreneurs dread. You’ve got a great idea, but can
you prove that it will work in practice? A business plan is not just a
corporate formality; it’s a test to see if your idea stands up – vital if you
hope to convince someone to lend you money – and an ongoing reference point
once you’re up and running. So how do you draw up a business plan to ensure
that you really will be laughing all the way to the bank?

1. Begin at the end. Before you put pen to paper, think about what
you want to achieve. This is the long-term vision for the business. “You need
to have a clear idea of where you want to be in three or five years’ time,”
says Jon Teckman, a program director at Ashridge
Business School.

2. Talk to the audience. “Don’t write the plan for a scientist when
it is going to be read by Aunt Agatha or your bank manager,” says Richard
Stutely, author of The Definitive Business Plan. It must be readable, says
Peter Harris, co-founder of Hotel Chocolat, a chocolatier. “If you can
communicate your idea easily then you’ve also got a much greater likelihood of
raising money.”

3. Let it grow. You can start with a back-of-the-envelope idea and
work out the details as you go along, Stutely says. “For many entrepreneurs,
writing the business plan becomes a market and feasibility study.” However, by
the time you have finished the plan, you must know where you are going, he
says.

4. Show them the money. “The most important part is income – how
you’re going to sell things,” Harris says. “It’s terribly easy to do all the
bits about how you’re going to spend money. But if the income part doesn’t
stand up then you’re wasting your time.” Teckman says to beware of Dragons’ Den
syndrome. “So many people fail because they don’t understand their own
numbers,” he says.

5. Be clear and concise. Ten to twenty pages is the optimum length
for a business plan, Harris says. “Too long and it becomes de-motivating.”
Stutely recommends annexing supporting material such as product data or a CV.
“The aim is to tell the story succinctly and compellingly,” he says.

6. Put it into context. “This part should lead the reader to
understand and believe your sales projections,” Stutely says. Look at market
conditions and what your competitors are doing. And don’t be afraid to trust
your gut instinct. “If we had tried to research the market for our first
business there would have been no evidence to support it,” Harris says.

7. Set out the practicalities. All plans have certain things in
common. Harris names “market size, potential customers [and] unique selling
points” as details to outline. Others include your management team, employees,
premises, resources and risks. Stutely recommends packaging the plan with a
one-page executive summary at the beginning and a clear conclusion at the end to
repeat the salient points.

8. Don’t go it alone. Many banks offer free advisory services for
small businesses. “Asking an accountant or lawyer to check that it’s coherent
is a worthwhile investment,” Teckman says. Stutely recommends showing it to a
“devil’s advocate”; an honest, trusted acquaintance who can point out the flaws
in your grand plans.

9. Watch out for the competition. “The most common mistake I see is
people saying ‘this is a new idea and we do not have competitors’,” Stutely
says. “Expect your ideas to be copied and plan to stay ahead by being ahead.”
You can’t actually copyright an idea, which is why your brand is so important,
Teckman adds. Protect it with trademarks or patents and ask third parties to
sign confidentiality agreements.

10. The end is only the beginning. A business plan is like a map,
Teckman says. Revisit it every couple of months and adapt it as necessary. “If
you are exceeding your sales projections, it’s time to raise the bar higher,”
he says. “Don’t let it dictate everything you do.”

 

 

 

Rachel Elnaugh: Turning Failure into Success

This week Rachel Elnaugh's first book,
Business Nightmares, is published. She tells us about her experiences

WHEN Rachel Elnaugh’s Red Letter Days business, which provided adventure and
activity gift experiences, failed, it took with it not just the company she had
founded at the age of 24 — it also sank her dreams of selling or floating the
business one day and making a fortune.

After two-and-a-half years spent fighting to save the firm it went into
administration and suddenly she had nothing.

However, it has not taken long for Elnaugh — a former panellist on BBC
TV’s Dragons’ Den programme in which budding entrepreneurs try to raise the
funds to finance their projects — to put her experiences of watching her business
fail to good use.

Her first book, Business Nightmares, published by Crimson Publishing, draws
on not only her own experiences, but also those of other entrepreneurs such as
Simon Woodroffe, Gerald Ratner and Jeffrey Archer.

She said: “After Red Letter Days I got loads of messages of support from
other high-profile entrepreneurs who shared their experiences with me of crisis
points in their own business journey.

“They were saying how they got through similar situations by the skin of
their teeth. I thought that if all these successful people have had similar
issues, it might be quite interesting to write a book about it.”

She added: “The aim of the book is to help people on their business journey
and to give them the strength and encouragement and a bit of advice during the
difficult times.

“I think there is a lot more to be learnt from someone who has had a
negative experience than from someone who has had a wonderful trajectory into
fabulous wealth.”

Her book includes the story of Doug Richard, another former Dragons’ Den
panellist, who took shares instead of cash when he sold his first company in America
and then watched them plunge to 1% of their value three weeks later.

It also tells the tale of the late Sir James Goldsmith, who came very close
to bankruptcy in the 1950s and was saved only because the banks went on strike
for three weeks on the day they were due to foreclose on all his loans.

Goldsmith’s experience resonated particularly strongly with Elnaugh, who
said: “I know that feeling of running out of time myself. I am sure that if I
had had a few weeks more I could have saved Red Letter Days; there is no doubt
in my mind about it.”

She had not consciously planned to include so much of her own history in the
book, but as she sat down to write about other people’s experiences, it found a
way of seeping out onto the page.

She said: “As I was writing it, I started to include a lot of my own
experiences. So the book became quite autobiographical and it was quite
cathartic. I got a lot of things out.

“When I was writing about Gerald Ratner and his wilderness years it was very
much a parallel to my own meltdown.

“If you go over the edge, how do you actually cope with that psychologically
and stay positive?”

In the aftermath of losing her business, Elnaugh managed to avoid a
full-scale personal meltdown largely because she had just had a baby and also
had three other children to look after. But she can see how it could easily
happen to someone.

“I am sure a lot of people [in this situation] do go through full nervous
breakdowns. However, I’m quite a positive person and I fought so hard with Red
Letter Days that when I finally let go it was quite liberating.”

There was also suddenly a real need to make some money.

She said: “One of the big decisions I had to make, and I clearly remember
having the conversation with my husband, is whether we should completely
downgrade our lifestyle and go and live in a three-bedroom semi for a few years
and take the children out of private school, or whether to focus on other
revenue streams and ways of income generation.

“I was quite adamant that we wouldn’t go down that defeatist path. So there
was quite a financial driver for me to earn money.”

She makes a living nowadays by making speeches at business events and by
mentoring and advising small businesses.

Nevertheless, it was hard at first to work out what she should be doing
next.

Initially, Elnaugh became the chief executive for an online company called
Easy Art, but after just three months she realized it was not what she wanted
to be doing.

She said: “I think hitting really tough times can actually lead you onto a
path that is much better for you. That was absolutely the message in the
chapter about Jeffrey Archer. He was close to bankruptcy and had to resign as
an MP as a result, and he started writing books purely because he didn’t want
his son to think he was unemployed.

“So that whole meltdown led to a completely new career for him, which
created not just phenomenal wealth but was also absolutely what he wanted to
do.

“Sometimes a crisis in life can lead to something much better — and even
though it is tough to live through, it is happening for a reason.”

Whatever other people may think, Elnaugh refuses to label herself as a
failure. She said: “I started Red Letter Days from nothing and I built it up
and traded successfully for well over a decade but then it hit problems and
ultimately failed.

“So does that make me a success or a failure? I think it is a real shame to
label people who have tried and then failed because it encourages people to
play safe and not try.

“Failure teaches you so much. I probably learnt more in that last
two-and-a-half years about business than in the previous decade.”

She said that losing her business has actually ended up being a blessing in
disguise.

“Looking back, it was the best thing to happen to me, because I was obsessed
with that company and I spent every moment thinking about it or working on it
to the exclusion of everything else, and I don’t think that is healthy. So
although I lost my company I did get my life back.”

Ultimately, she said, facing difficult times can make you stronger. She
includes the story of James Dyson in her book as an example of this.

“It took James Dyson well over a decade of fighting to get his vacuum
cleaner into production. His is a really good story for anyone who is
struggling and can't break through.

“It is about the value of persistence and just keeping going in the face of
complete negativity and rejection.”

She has ended the book with the story of Felix Dennis, the publishing
entrepreneur.

She said: “His underlying message is here’s how you can get rich, but by the
way, would you really want to?

“He said he would give every asset and every penny to get his life and the
years back.

“We all spend our time chasing the golden dollar and then we find our lives
have gone. I think that’s quite poignant.”

 

Love Your Idea (Don’t Want to Finance It)

By: Brent Bowers

AT age 62, Patrick Brooks believes he has identified the biggest winner yet
of his entrepreneurial career: licensing rights to a Savile Row trademark,
“Henry Milbourne & Son — established 1769.”

Patrick Brooks plans to sell luxury men's apparel using the
Henry Milbourne & Son brand name. So far, investors are hard to come by.

The magic of that brand name, he says, should
give a major boost to his fledgling effort to sell luxury men’s apparel, made
in Britain,
over the Internet.

But while potential investors had only good things to say about his planned
venture, few are willing to invest in it.

“Henry Milbourne has a great plan to combine the old-school industry of
custom-tailored shirts with the modern Internet model,” said Michael Hammond,
founder and chief executive of Copana Partners, a New York
investment firm.

“Keep working this strategy; it has great potential,” said Marvin Wilcher,
acquisition strategies consultant for Solar Capital in Benicia,
Calif.

Still, neither Mr. Hammond nor Mr. Wilcher planned to provide money for Mr.
Brooks’s venture, Henry Milbourne & Son Ltd. of Arcadia, Calif. (The Web
site, http://henrymilbourne.com,
is still in the works.)

Mr. Brooks said he had contacted about 500 angel investors and
angel-investor groups and 40 venture capital firms and boutique investment
bankers over the last year to raise the $2.5 million he thinks he needs. But
only nine have put up any money, including his former wife. The total he has
raised so far is $475,000.

To some extent, Mr. Brooks is snared in the Catch-22 paradox that bedevils
many entrepreneurs who have come up with a promising product and marketing
plan: investors are reluctant to open their wallets until they see a
functioning business. But it is difficult to create a functioning business
until the investors open their wallets.

In addition, he may be looking in the wrong places. Some of the investors he
has contacted get involved only in deals worth at least $5 million.

“We have everything in place,” Mr. Brooks said. “We have the premises
rented; the Web site under construction; the logo done; the marketing plan set
up.” Even the boxes for the $365 custom shirts, $235 ready-to-wear shirts and
$108 hand-made silk neckties, all British-made, have been designed, he said.
(He plans to branch out from those core products to silk underwear, cashmere
hosiery, toiletries, cufflinks and leather goods, and to fragrances made by the
supplier to Truefitt & Hill, barbers to the British royal family.)

Moreover, he has invested $600,000 of his own money, including $300,000 for
the Henry Milbourne & Son trademark rights, and has spent two years trying
to put the company together, paying himself no salary.

Mr. Brooks, a native of St. Vincent in the West
Indies, said his African heritage might also be an impediment. The
issue is not racism, he said, but the fact that he does not have a network of
well-heeled friends and acquaintances that he can tap.

Luke Visconti, co-founder of DiversityInc magazine, which covers diversity
in the workplace, said aspiring black entrepreneurs are at a clear
disadvantage. “There are almost no black-run venture firms and very few black
angel investors,” Mr. Visconti said. “Successful black entrepreneurs are
scarce, and they are getting hit on every day.”

As for family and friends, a traditional first stop for start-ups, Mr.
Visconti said the average wealth of black households in the United
States is one-tenth that of white
households.

“The circle of wealth that black people can tap into is minuscule compared
with what is available to well-connected white people,” he said.

Mr. Visconti added that the slowing economy might also be cutting into the
funds available for a start-up.

Mr. Brooks conceded that investors were more cautious than they were a year
ago, but he said he believed that there were still plenty of deep pockets in
search of opportunities.

The real problem, potential investors he has contacted say, is that he needs
to narrow his hunt for money.

Mr. Hammond of Copana Partners, for example, said the deal was too small for
his firm. “Unfortunately, start-ups like Henry Milbourne often find themselves
in no man’s land when looking for capital between $1 million and $5 million,”
he said. “The capital requested is too small to attract big institutional
investors.” On the other hand, it can be difficult to raise even $1 million
from acquaintances or angel investors, he said.

Paul Azous, managing member of the A.Z.O. Group, a consulting firm in Seattle,
said, “That much money for a start-up without a track record — I’ve never seen
it happen.”

These investors did have some words of advice. Mr. Hammond urged Mr. Brooks
to “better the odds by creating a proof of concept,” notably by developing a
“full-blown professional-looking home page to communicate to investors his
exact brand image, layout, style and Web site.” He also suggested that Mr.
Brooks take a quick test of his products’ appeal by standing outside an office
building and handing out fliers, then going inside and making pitches door to
door. “Prove to investors that demand exists,” he said.

Mr. Azous encouraged Mr. Brooks to open a store, seek investors who
specialize in retailing and, above all, be persistent. “It’s a marathon, not a
sprint,” he said.

Mr. Brooks accepted some of the advice, like aiming at investors more
carefully. But he rejected other parts, like going after tiny investments or
peddling high-end apparel on the street.

He remains confident that he can meet his goal of raising $2.5 million by
summer. Realizing he needs to jump-start the process, he has hired several
professionals over the last month, including lawyers with connections to
high-wealth individuals, to scout around for him. “Three or four good investors
would take care of it,” he said.

In his favor, he has the entrepreneurial gene. As a child growing up in St.
Vincent, he made money photographing villagers with his Kodak Brownie 127. In
1989, he started Bio-Dental Technologies with $16,000 in savings and built it
into a $33 million distributor of dental products before selling it to Zila for
$35 million in 1994, making a seven-figure profit for himself.

His other big money-making adventure was engineering reverse mergers, in
which he created public companies, combined them with privately held firms that
wanted to go public without dealing with a lot of regulatory problems, and
cashed out. He completed eight such transactions, he said, grossing about $2 million.

He said he continued to make progress in his latest venture. Late last week,
he said, two investors who previously were not interested in his company took a
new look at it, and one wrote a check for $75,000, while the other seems close
to making a commitment. He renewed talks with a third investor this week.

“We hope to be operational in about three months,” Mr. Brooks said. “This is
a company whose time has come.”

 

$9,500,000 IN CONSTRUCTION & PERMANENT FINANCING FOR
LUMBER AND SUPPLY COMPANY IN KELSEYVILLE, CALIFORNIA

 

Gregg
Financial Services has recently arranged and funded construction and
permanent financing in the amount of $9,500,000 for a to-be-built 84,000 free
standing Lumberyard project located in Kelseyville,
California. The 17 acre property was
acquired by a family –owned company, Kelseyville Lumber & Supply Co. as
unimproved agricultural land- a pear orchard. The site is approved for two
additional commercial buildings.

 

Mark Borghesani, owner, said he is pleased to have secured
this loan in a difficult economy where home prices are distressed and builders
are being cautions regarding new projects. “We firmly believe it is prudent to
expand our services during the tough times to be well positioned to help our
customer’s when the economy turns around. Our new facility will be more
efficient than our current location. We will have more products and services
for both professionals and regular folks.”

 

Gregg Financial Services, located in San
Anselmo, CA is a broker for
factoring, purchase order financing and commercial real estate finance. For
more information, please call Gregg Elberg at 877-482-9221.

The 10 Absolutely Must-Follow Cash Flow Rules

By:
Philip Campbell

When it comes to properly managing the cash flow of your business, the best
way to move from where you are now to where you want to be is to get a clear
picture in your mind of the benefits you will enjoy as you take control of your
cash flow.

The benefits include:

• Increasing the likelihood
  that your business never runs out of cash.
• Eliminating the constant
  worry associated with not knowing what your cash balance is right now or
  what you expect it to be in the near future.
• Improved relationships with
  your vendors because they are no longer banging on your door demanding that
  their past dues invoices be paid immediately.
• The ability to see cash flow
  problems long before they can happen.

In short, you free yourself to focus your unique talents and abilities on
growing your business rather than fighting the constant cash flow fires.

Here are 10 cash flow rules you can implement immediately that will
transform the way you manage your business from this point forward. These rules
are the keys to creating the kind of financially successful business you
deserve.

1. Never Run Out of Cash.

Running out of cash is the definition of failure in business. Make the
commitment to do what it takes so it does not happen to you.

2. Cash Is King

It's important to recognize that cash is what keeps your business alive.
Manage it with the care and attention it deserves. It's very unforgiving if you
don't.

Remember, Cash Is King, because No Cash = No Business.

3. Know the Cash Balance Right Now.

What is your cash balance right now? It's absolutely critical that you know
exactly what your cash balance is.

Even the most intelligent and experienced person will fail if they are
making business decisions using inaccurate or incomplete cash balances. That's
the reason why business failures are not limited to amateurs or people new to
the business world.

4. Do Today's Work Today.

The key to keeping an accurate cash balance in your accounting system is to
do today's work today. When you do this, you will have the numbers you need -
when you need them.

5. Either You Do the Work or Have Someone Else Do It.

Here is a simple rule to follow to make sure you have an accurate cash
balance on your books. You do the work or have someone else do it.

Those are the only two choices you have. The work must be done. It's like
mowing the lawn. You can't just ignore it. Someone has to do it. That means
either you do it or have someone else do it.

6. Don't Manage From the Bank Balance.

The bank balance and the cash balance are two different animals. Rarely will
the two ever be the same. Don't make the mistake of confusing them.

It's futile (and frustrating) to attempt to manage your cash flow using the
bank balance. It's a prescription for failure. You reconcile your bank balance.
You don't manage from it.

7. Know What You Expect the Cash Balance to be Six Months From Now.

What do you expect your cash balance to be six months from now? This one
question will transform the way you manage your business.

This question really gets to the heart of whether you are managing your
business or whether your business is managing you.

8. Cash Flow Problems Don't "Just Happen."

You would be shocked and amazed at the number of businesses that fail
because the owner did not see a cash flow problem in time to do something about
it.

The key is to always be able to answer the question - what do I expect my
cash balance to be six months from now?

9. You Absolutely, Positively Must Have Cash Flow Projections.

How Do You Define Cash Flow?

By: Phillip Campbell

If you increased your sales by 25% to 50% over the next six months,
what would happen to your cash balance?

My experience is nine out of 10 business owners can't answer this question.
That's why so many businesses succeed in growing their business only to end up
with an uncomfortable and embarrassing cash flow crisis on their hands.

How Do You Define "Cash Flow"?

Knowing what makes up your cash flow is the first step to avoiding a cash
crisis. Most business owners believe their cash flow is defined as the revenues
they generate less the expenses they have to pay.

Not true.

The answer lies in the fact that the accounting rules that govern the
creation of financial statements are not about tracking the actual flow of cash
through your business. They are focused on measuring profit or loss -- not cash
flow.

The "bottom line" of the P&L is net income. And net income
does not tell you what happened to your cash balance during the period. It
merely defines net income based on the accounting rules used to create the
income statement.

It's an important measurement, but it is only one component of understanding
and managing your cash flow.

Certain cash flow items never show up in an income statement while other
cash flow items will show up there but in different periods and in different
amounts. So what you will find is that your income statement will not show you
what happened to your cash flow. Why? Because your cash flow is made up of more
than just profit and loss. It also is affected by:

• Accounts receivable
• Inventory
• Accounts payable
• Capital expenditures
• Borrowings and debt service
• Other "timing"
  differences

That's why you can't look at your income statement and see what happened to
your cash during the month. Profit and loss is only one component of your cash
flow. You have to have a clear picture of how each of the other areas affected
your cash flow each month in order to understand, and take control of, your
cash flow.

Here's an example to illustrate the point.

I Made Money, But What Happened to the Cash?

I worked with a client recently who could not understand why his income
statement said he made money last year but he didn't have enough cash to pay
all his bills.

In this case, the difference between his net income and his cash flow was
primarily a result of the purchase of a truck for cash, sales made during the
period that were not collected (accounts receivable), estimated tax payments
made in an amount different than tax expense for the period, increased inventory
levels in preparation for the coming selling season, distributions to the
owner, and principal payments on a bank loan.

The rules of accounting determine when transactions are recorded in your
financials and how they are recorded. The reality of business determines when
you receive, or let go of, your cash.

It's All About the Cash

On top of having a P&L that governs your accounting life, it's important
to keep a schedule that governs your monthly cash flow. Imagine having a
schedule in front of you every month that showed you exactly what was going on
with your cash flow. A schedule that made it simple and easy to know exactly
what was going on with the lifeblood of your business -- your CASH.

That's the secret to taking control of your cash flow.

You need an easy-to-understand view of each component of your business that
affects your cash flow. Your cash flow schedule needs to show you what's going
on with each of the components of cash flow mentioned above.

Focus on understanding and managing your cash flow each month and you will
make it dramatically easier to grow your business without creating a cash flow
crisis in the process.