David Banfield recounts the narrative of a small business owner and his need to grow, which entails finding adequate working capital to facilitate that growth.
IFG hear many stories from franchisees. They usually fall into two categories: They are either stories of how franchising has changed their lifestyle - that usually is accompanied by ‘I wish I had done this years ago’; or they are stories that have a testimonial edge to them. The one that David Banfield shares with you now is of the latter category and paraphrased by one of thier franchisees. It recounts the narrative of a small business owner and his need to grow, which entails finding adequate working capital to facilitate that growth:
"My business has been growing at a good steady pace. I called on my bank manager the other day to ask for a modest $ 50,000.00 line of credit to facilitate the ongoing growth. I showed him my order book an d all of the pertinent numbers. He took one look and said that $ 50K wouldn’t work for the growth plan that I had in min d. He indicated I would need a $ 100,000.00 to make it work , and he said he would be pleased to approve the loan at that level , and furthe r that I could start drawing on the facility by the end of the day.
Not long after I got back to my office my largest supplier called to say they had heard we were growing, and they hoped we would put more business their way. They were so supportive that t hey agreed to increase our credit line and extend our payment terms from 30 to 90 days.
Shortly after I returned from lunch my bookkeeper advised me she had processed all of the incoming payments for the day , and it seems that 95% of our customers ha d paid their accounts in full and some well before the due date…. then I woke up!
This dream obviously was triggered by the fact that I had an appointment with my bank to discuss a pending loan application. When I finally got t o the bank the scenario played out a little differently. They bank, while sympathetic, professional and understanding flatly rejected the loa n request. Reasons given were a l ack of security and lack of track record, and a definite tendency towards ov ertrad ing. Their initial advice - slow down and grow at a more conservative rate.
But then my bank manager said that there were alternatives to bank lending. W hile they were very happy to continue to be my banker, they thought that there might be other sources o f funding open to me. The one they suggested was invoice discounting. Now I may not be the smartest business person in the world but I had done my homework regarding, both invoiced iscounting a nd factoring. I was, therefore, quickly able to explain why nei ther of those options would work for me. Namely lack of volume - we just don’t have the critical mass that they look for in a client.
As it turned out my bank manager had also done his homework and told me that there was a new opportunity in town that didn’t care how big or small I was. Furthermore, I could pick and choose what to give them , and I could use the service as a nd when I wanted. It sounded to me that it was too good to be true and probably just something the bank manager was using to get me out of his office. Anyway, having just been rejected by the bank I figured it probably wouldn’t hurt to make a phone call and see what it was all about.
Jumping ahead in my chronicle, it turned out there was another option and it worked for us. It certainly was not a bank approach that I was geared up for. Firstly, a representative of their company arrived at our factory and spent time finding out how our business worked and just what made it tick. They took the usual details and promised an answ er very quickly. Now m y understanding of the term ‘very quickly’ was probably about 3 weeks. The positive decision was actually delivered in 48 hours, and in another 48 hours the transaction was completed with the entire, surprisingly limited , amount of paperwork signed. The additional working capital, through the sale of some selected invoices , followed at the same time. From start to finish it took slightly less than a week.
If my bank had not directed me to this opportunity I would not have found it on my own as I already believed that all Invoice Discounters were the same, and that I just did not meet their criteria. One hates to admit that one was wrong but I was, and it turns out that there are viable alternatives when the bank can’t help. For our business invoice discounting, which I now know also goes under the term of ‘spot factoring’, certainly got our cash flow moving"
"Now we believe there may have been some 'poetic license' employed in the telling of the story. The facts, however, are quite sound and relate to The Interface Financial Group (IFG). IFG has a 43-year history of assisting the SME market sector with their growth plans. They are a ‘single service’ business in that they specialize in what they are good at, and that’s basically all they do. They are invoice discounters. That is the practice of buying invoices, on an individual basis, from their clients on an as-and-when-needed basis. They make it as flexible as possible for clients to use the service and as the story says, it is all wrapped up in few days.
Buying invoices today, that are due for payment in perhaps 30-40 days, means that the client has instant cash and can attend to what is appropriate to grow their company.
We think it’s a great story, but it gets better! IFG has created a delivery method for their service which is based on a very ingenious franchise approach. All IFG clients work with IFG through a local franchisee. Franchisees enjoy a franchise where they actually work alongside the franchisor. The tasks involved in setting up a client are shared between franchisee and franchisor. When it comes to actually buying an invoice, the franchisees are engaged in that process again alongside the franchisor.
IFG have styled their franchise The IFG 50/50 franchise, as so many facets of the day-to-day operations are carried out as a joint approach between franchisee and franchisor. With a very creative approach to funding invoice purchases, IFG - the franchisor has embedded a capital leverage approach for franchisees. However, the franchisee has no contingent liability in using that leverage plan – they only benefit from the upside of capital leverage with an above-average annual return on their funds deployed.
The IFG 50/50 model is growing and new franchise locations are being created even though this is a 'nonterritorial' franchise, making a portable operation to suit the franchisees’ needs. If banks were truly as forthcoming as the story starts to imply, then things would be different. However, the ‘turn down’ is much more prevalent today than the approval, and more and more companies are looking to the secondary finance marketplace to solve their growth problems. The problem is simple and the solution with IFG is equally as simple. IFG looks for seasoned business individuals that are transitioning into entrepreneurship and have the problem-solving ability to take control and get things done.
The marketplace and the demand all translate into a very favorable situation for the IFG 50/50 franchisees as they meet the needs of local business growth while at the same time growing their own franchise."
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