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When to Consider Using a Factoring Company

Posted: 26 Mar 2019 11:00 AM PDT

Businesses, especially smaller companies and those just starting out, can sometimes find themselves in a bind. Say, for instance, they have an opportunity to buy out a competitor's stock, but they need to make the purchase immediately. Or they are financially sound but cash poor and in need of money to make payroll.

These same companies may have the money, if only they didn't have a stack of unpaid invoices. Or, worse, one or two very large unpaid invoices. Money owed to them by great customers, but revenue not yet realized.

For companies that find themselves in these situations, a factoring company may be the solution. Invoice factoring can help a business get a boost of cash quickly, and with less paperwork and restrictions than a bank might require. When used wisely, factoring can be the answer you're looking for.

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What is factoring?

Factoring is a means of unlocking the cash caught up in unpaid invoices. A factoring company gives a cash equivalent on a percentage of your unpaid invoices. Then they set to work collecting on those invoices. When an invoice is paid, the factoring company gives you the cash – minus a percentage for their services.

In some instances, factoring is a better choice than a bank loan. There is less paperwork involved in working with a factoring company than there is with a bank. Companies can get cash much more quickly. And because factoring companies are collecting against your invoices, they are more interested in the creditworthiness of your clients rather than your credit score. Even if your credit isn't perfect, a factoring company may still help you out.

Of course, there are downsides to factoring. Factoring is a type of loan, so if your customers don't pay the factored invoices within an agreed-upon amount of time, you'll need to pay back the outstanding debt.

Factoring can also be expensive. It can cost several percentage points more than what a conventional loan would charge. It's also likely a factoring company may charge per invoice. If you have many small, unpaid invoices, factoring may be too expensive. 

There are times, however, when factoring makes a great deal of sense, and is worth the financial risk and impact. [Want to learn more about factoring services? Check out our best picks.]

When to choose factoring

When considering options to improve your cash flow in the short term, there are a few instances when factoring becomes the logical choice.

Modern business moves swiftly, and sometimes opportunities appear and disappear fast. For instance, imagine you had the opportunity to land a large new client, but only if you could provide inventory very quickly. Your manufacturing processes are up to the challenge, but you're short on materials. If you had cash, you could ramp up and deliver for the new client. Factoring may give you the cash you need to seize the opportunity, knowing that you'll be making back any money lost on fees with the new client.

Sometimes companies use factoring simply to keep the business moving forward. If waiting on an invoice is putting your payroll at risk, it may be worth it to use a factoring company to ensure you can pay your employees, using the money from the factoring company as a stop-gap measure.

Factoring can be especially effective if you have a large, well-known client who is slow to pay. Because your client is a good credit risk, a factoring company is likely to take on the invoice. The money can help you bridge the short time between when the invoice is given over for factoring and when the invoice is paid.

It's also a way to maintain a good relationship with a client you want to continue to do business with. Sending an invoice to a debt collector may sour the relationship. But a professional notice to a client informing them that their invoice is being factored can keep the relationship solid while putting cash in a business's bank account.

Factoring can be a boon for companies with short-term cash needs. It's a quick and relatively easy way to inject cash into the business for short-term expenses and growth. As with any business loan, though, factoring should be approached with caution. Carefully consider the terms and use only when it seems like an acceptable business risk.

Best Practices for SMBs Setting up an HR Department

Posted: 26 Mar 2019 11:00 AM PDT

For many budding entrepreneurs, the ability to build a human resources department, especially during the formative years of a young business, is one of the most exciting perks of being a business owner. It not only signals growth for the business but also gives the business owner an opportunity to share his or her vision for the business with a team of like-minded individuals, which greatly improves the business's chances of survival.

Still, like many other milestones throughout the life of a successful business, starting an HR department can be quite the challenge. Because young HR departments eventually dictate the direction of the company culture, it's critical that business owners infuse their values early on when setting up their HR departments.

Plus, many employees hate HR. From red tape and bureaucracy to workplace biases by HR teams, HR departments are often cited as one of the reasons behind poor employee engagement and dissatisfaction, despite being custodians of a happy workplace.

Consequently, it's important for business owners to set up their HR departments for success from the get-go, making sure to cover everything related to the legal, financial and administrative components of a successful HR department.

Here are a few pointers to help any young business start off its HR functions on the right foot. 

Start with a comprehensive but lively employee handbook

A company handbook, sometimes referred to as an employee handbook, is the most important resource for a business that is looking to bring in new hires. In addition to providing a working HR framework for your business, it also helps set expectations for potential hires and provides guidance on your company's culture and core values.

With that said, an employee handbook should be more than an instruction manual. Many businesses often settle for dry, generic and boring handbooks that have been copied and pasted from other businesses, thus making them less likely to have any real impact. So, as a general rule, design an employee handbook that potential hires will want to read.

There are a ton of ways you can transform your handbook into a page-turner. For starters, give your handbook a title that both excites its readers while conveying your company's mission. Promote your company's employment perks and ensure the policies represent your company's values. Instead of a regular, plain PDF document, go for a colored printout for maximum effect.      

Ensure you've got legal covered

For the most part, legal compliance doesn't become an issue until a business's HR-related functions have grown. In countries such as the U.S., a regular business will fall under the glare of numerous state and federal laws once it brings in more than 15 employees, which necessitates the establishment of sound legal policies from the start to help with regulatory compliance. Companies with fewer than 15 people should still follow certain guidelines. 

To help work compliance into your young HR department, start with the small things when building it up. Simple tasks, such as proper maintenance of personnel files, ensuring your employees are eligible to work and fulfilling all HR-related tax obligations, go a long way in keeping your business away from lawsuits.

Plus, depending on where your business is located, you can take advantage of different types of employee insurance programs to reduce liability. In many states across the U.S., employees who fall sick or get injured and are unable to work receive compensation from the state, usually using the 2/3 rule. So, as long as your business has subscribed and keeps up payments to this program, employees aren't allowed to sue your business, which means you'll potentially avoid a lawsuit while safeguarding the wellbeing of your employees.

Go the extra mile when hiring

At the end of the day, your shiny new HR department will only ever be as good as the people charged with running it. As such, it pays to be extra picky with the person you bring on board to manage the process, especially if you're lucky enough to afford a full-time HR manager to oversee operations.

Unlike other staff members, your HR manager's experience, education, HR-related certifications, and familiarity with compliance and employment laws should be above board. But don't just stop there. Put candidates through cognitive ability tests and conduct blind reference checks to gather more information about your candidates. Employment credit checks, which have become quite common in the recent past, can be quite useful too. Among other things, an employment credit check lets you peek into a prospective candidate's payment history, which usually makes up 35 percent of typical credit scores, to determine things like integrity and suitability for sensitive roles. If you do look at credit scores, make sure you're doing so legally. 

And while things like employment credit checks and blind reference checks can seem over the top, they can go a long way in helping you align your young HR department with the best talent and improve your chances of success in future.  

The bottom line

Setting up an HR department is by no means an easy feat. The process, even for the smallest businesses, involves a ton of moving parts that can easily drain human and financial resources

Taking up the services of an attorney who is conversant with employment laws within your country is a smart early step. In addition to keeping your business away from lawsuits later on, a good attorney will help you navigate the complexities around creating a staffing plan, remuneration and benefits structures, and also help you fine-tune your hiring procedures when you're starting up.

Why Personal Branding is Crucial for Any Industry

Posted: 26 Mar 2019 08:00 AM PDT

Branding is a vital element of any marketing campaign. Most companies take branding seriously, wanting to leave a lasting impression on the customer. Personal branding, however, is often overlooked.

Personal branding is someone's online reputation. And most executives already have one – it's just a question of whether or not they cultivate it. As Jeff Bezos said, "Your brand is what other people say about you when you're not in the room."

Personal branding of a team member, typically the founder or owner, is a way to boost the credibility of the organization. If the customer trusts the founder, then they are likely to trust the company as well. A personal brand can also serve as a face for the company, which is important in both B2C and B2B businesses.

There are many different personal branding tactics such as blogging, social media, email marketing and public relations. Executives can pick and choose where they want to brand themselves, and then reap the benefits of doing so.

Personal branding increases sales

One of the most popular benefits of personal branding campaigns is an increase in sales. Leads generated by employees through social media activities, as opposed to company social media activities, are seven times more likely to convert. Also, the B2B sales process is lengthy. It typically takes 5-7 impressions for someone to remember a brand. Personal branding efforts, such as posting on social media, are a non-intrusive way to help nurture leads.

Plus, 53 percent of decision-makers said that they eliminated a vendor from consideration based on information they did or did not find about an employee online. It's not just bad news that could hurt a company; no news hurts as well.

Personal branding efforts get in front of more customers

What's really interesting is that 92 percent of people trust recommendations from individuals – even if they don't know them – over companies. Again, a tweet from an executive at a company goes further than from the company itself. Not to mention, posts have 561 percent more reach when employees share brand messages versus when just the brand posts the message. And, posts by employees are reshared 24 times more frequently than when shared by companies.

Editor's note: Looking for the right social media management tool for your business or personal use? Fill out the below questionnaire to have our vendor partners contact you about your needs. 

 

Personal branding offers a competitive edge

Consumers are coming to expect personal branding from companies. In fact, 82 percent of people surveyed said they're more likely to trust a company when their senior executives are active on social media, and 77 percent of consumers are more likely to buy when the CEO of the business uses social media. Consumers want input from company leadership. So businesses that ignore this may end up swallowed up by competition.

Getting started with a personal branding campaign

Launching a robust personal branding campaign may seem daunting, but executives don't have to do everything at once. It's actually a good idea to take time and strategize.

First, before launching a personal branding campaign, it's important to target the networks that the customer already uses. By looking at the buyer persona, executives can figure this out. If the customer rarely uses Instagram, then skipping that platform is a good idea.

Second, executives can choose one or two efforts and focus on those. The worst-case scenario is trying to maintain a presence on too many platforms and doing a terrible job on all of them. Choose one or two social networks or focus on blogging on platforms such as Medium, and build up followers.

Third, stay consistent. Continually post and keep followers updated on trends and news. It can be substantial work getting up and running, but a personal branding campaign certainly pays off in the end.

Should Small Businesses Prepare for a Recession in 2019?

Posted: 26 Mar 2019 06:00 AM PDT

There's been a lot of talk about a potential recession in 2019. The topic has been tweeted to death, with opinions on both sides weighing in.

Recession in 2019? What the optimists and pessimists say

One of the key indicators of a recession is business sentiment. In other words, are business owners feeling optimistic or pessimistic?

The Wells Fargo/Gallup Small Business Index showed a decrease in small businesses' confidence from 129 last quarter to 106 now, although the numbers remain positive. The National Federation of Independent Businesses' Small Business Optimism Index remains at high levels, way above its Great Recession levels, but has declined from 108 to 101 (100 being positive).

It's easy to get caught up in the negativity surrounding these results. Instead of assuming a recession from this information, though, it's preferable to interpret the data in context of recent events. As some have posited, the parallel decline in those two indices may not indicate an economic downturn or growing uncertainty, but rather a natural comedown from the exuberant optimism that followed the departure of the Obama administration.

The Trump administration entered the White House with much fanfare for small businesses – the promise of tax declines, eased regulations and general support for small business growth. The result was excessive small business optimism.

So what we're seeing now could be reality setting in. Despite business owners' optimism in light of government policies, the fact remains that running a small business is no easy feat.

The important takeaway is that, despite its decline, optimism is still at historically high levels. So, overall, we're still in good shape for now.

However, since none of us have a crystal ball that can precisely predict the future, here's some advice to help you play it safe.

How to recession-proof your small business 

Should a recession actually happen in 2019, there are some steps you can take to make your business less susceptible. It's like a seat belt on a plane – a safeguard in case of an unlikely event.

1. Hire conservatively.

Recession or no, now might not be the time to expand your team, as wages are expected to rise in 2019. Rather, maximize the capacity of your existing employees (without burning them out, of course). If you do need to fill positions, look to hire freelancers or contract workers.

2. Apply for working capital.

Never forget the No. 1 rule of business financing: The best time to get business funding is when you don't need the money. A line of credit is probably your best option, as you can draw on the funds as needed and only pay interest when you actually get the money in your account.

3. Hold off on large investments.

Be conservative in your business investments. Don't hold your business back, as you definitely want to grow, but make wise choices about where to spend your money. Focus on areas that will help your business weather any downturn, instead of splurging on luxuries.

Good business ideas for recession time

Thinking of starting a business in 2019? These are some types of businesses that are conducive to a slow economy and can even thrive during a recession.

Virtual assistant

A virtual assistant is a remote freelancer or contractor who can run almost any aspect of a business. Virtual assistants can offer general administration services or specialties, such as marketing, executive assistant work, bookkeeping and sales. Demand for these services would increase during a recession as businesses cut back on full-time staff in favor of flexible, hourly workers.

Day care

No matter the economic environment, parents will always need child care while they're at work. Even if you're not a "mompreneur," running a day care is a particularly good business idea.

Car repair

If there happens to be a recession, people generally won't be thinking about buying cars and would rather repair the ones they already own. There will always be a need for this service.

Fintech

During a recession, every business gets hit, including banks. Like any other business, banks look to scale down where they can, with business loans being an easy target. This cutback on funding from banks and traditional lenders could very well lead the majority of businesses to seek business loans through online lenders. This is where fintech shines, as these players will be able and prepared to provide proper solutions for businesses left in the lurch.
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