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This Month's
Featured Industry #2
Guard Services
John's
Guard Services provides 24 hour security guard service to gated
communities. He has slowly built his company up over 5 years and enjoys
an excellent reputation for service. The property management companies
responsible for payments to John's for its services are notoriously slow
payers and the further growth of John's Guard Services has been
severely limited due to weekly payroll constraints. John has attempted
to secure financing for his company at a local community bank but has
been turned down on two separate occasions because of a slightly
tarnished credit history and also due to the lack of any meaningful
"hard asset" collateral.
Because of its excellent reputation for
supplying quality guards, however, John's Guard Services has been
offered a very lucrative contract through a management company to
provide security guards to 37 gated communities in its local area which,
if accepted, would triple the size of the John’s company overnight.
Unfortunately, the large management company offering the business to
John also has a reputation for 75 day payment for services. John
calculates the number of guards needed to cover all entrances at the 37
properties to be 65 and that each community requires 24 hour guard
protection for a total of 195 guards. With a weekly salary of $480 per
guard based on a 7 day work week, John's weekly payroll requirement for
the new contract will be $78,000. This means that because of the
management company's 75 day payment history, John will have to bankroll
his company for 11 weeks at $78,000 per week or a total of $858,000 to
accept the new contract. John has only $37,000 in his business account
and feels he obviously must decline the new business.
John, however, remembered a recent
brochure he received through the mail which explained the benefits of
something called
factoring and its powerful business
financing capabilities. He
contacted the broker that mailed it to him and explained the cash flow
problems associated with the new offer. The broker told John that
factoring would provide him with the capabilities to say "yes" to the
new contract and the broker immediately arranged a conference call with
a factor's BDO (Business Development Officer).
John was quickly provided with a factoring
arrangement to purchase accounts at a discount rate of 3% for 30 days.
This means that John's fee rate will be approximately 7.5% on his
invoices but with nearly a 30% profit margin, it will still allow him to
record a gross profit of nearly $15,000 per week or over $750,000 per
year from the new contract...a contract he was about to turn down. The
growth of John's business is now assured.
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The creation of a factoring relationship will allow you to focus
much more time on marketing and generating new and larger customers
and much less time on chasing dollars and accounting. It is
estimated that for small businesses, establishing attractive terms
of payment for existing and new customers (and some funding
mechanism such as factoring to finance those terms of payment ),
will result in a nearly three fold increase in the amount of
business produced.
One of the most
effective methods of determining whether factoring is right for your
company is to view Case Studies of similar enterprises.
Factoring can assist cash-restricted business owners in virtually
all business sectors. If you don't see a similar company to yours,
contact us with your company's unique
requirements.
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