Accounting tasks to a non-financial person can be a mammoth task. Wading through invoices, bank statements amongst others duties can be quite tasking especially for small business owners who have a lot of other things to do. Even businesses that have an in-house business team still need to manage the functions of the team to ensure they meet the business objectives at a minimal cost.
What is Outsourcing?
Prior to the 1980s, a lot of business functions were carried out in house by many organisations. Businesses will employ a temporary member of staff to carry out the duties their regular staff could not undertake. This provision obviously increases the operation costs through recruitment, training, salaries, office space and other benefits.
Outsourcing has now taken the place of temporary staff amongst other roles in many organisations. Defined as the contracting out of a business function to an independent agent or firm, outsourcing is now a popular choice for businesses who want to streamline their processes.
Many companies now outsource a lot of their business functions such as Accounting, IT, Payroll and even recruitment tasks to external agencies. Some individual agents tend to work on site whilst others outsource their work to organisations that operate in their own premises. This is common practice amongst accounting and recruitment firms.
Benefits of Outsourcing.
Outsourcing accounting functions to an external organisation has many benefits such as:
Cost reduction: The most apparent benefit of outsourcing accounting services to an accounting firm is the reduction in personnel related costs - recruitment, salaries, benefits, office space and other costs synonymous with staff. A number of businesses who outsource their business functions reported at least a 30% reduction in business costs without a decrease in productivity.
Quality of Work: Outsource companies thrive on reputation and to build their business they must offer a quality service. Businesses that outsource their accounting services benefit from a competitive market where firms must provide exceptional services to retain their clients.
Focus on core areas: Outsourcing allows a business to focus on the core business functions which can boost productivity by at least 32% according to a recent survey.
Access to innovation: To maintain a competitive edge, accounting firms endeavour to stay at the cutting edge by investing in advanced accounting systems and techniques for the benefit of their clients. Rather than invest heavily on a new accounting system and staff training, organisations now prefer to outsource these services to benefit from these new technology developments.
Pool of Expertise: Businesses tend to benefit from a pool of experts and sustainable source of professional accountants. Reputable accounting firms recruit exceptional and qualified personnel to ensure they deliver on their service contracts and retain the loyalty of their clients. Companies that outsource their accounting services benefit from such expertise without the added cost of recruiting top level staff.
Faster Turnaround: Accounting firms operate based on targets and deadlines. They know the in and out of tax deadlines and other legal requirements, so they aim to file records on time by providing a quick turnaround service to their clients.
Accounting is a vital aspect of any organisation, the outcome of accounting tasks can have a significant impact on a company's productivity and profitability. It is important that businesses retain proper balance between the core business functions and other secondary tasks.
Outsourcing is one of the most simplistic options a business can choose when the need for a quality accounting service exceeds quantity. Accounting firms have to work in line with regulatory bodies, they therefore need to maintain a high standard of service for accreditation purposes to the benefit of the client.
Thursday, September 16, 2010
Tuesday, September 14, 2010
What is Legal Transcription?
Legal transcription has come into the public view recently being recognized for its efficient and professional influence on legal records and is steadily becoming a popular trend in the legal field. These, much like their counterparts in the medical field, listen to dictations from legal professionals and type them into documents that are edited and grammatically correct. These transcriptionists generally listen to testimonies, interrogations, court hearings, and pleadings, after which they compose what they heard into an easily understood document that will turn into record.
Legal transcriptionists generally work for larger firms or private practice attorneys who have a large number of cases. They are also widely used by large corporations, governmental departments, insurance companies, and banks that all have a need for more accurate legal records. A large number of transcriptionists work for the U.S. government attempting to establish a more organized and complete record system.
In order to be good legal transcriptionists, individuals should have a solid understanding of legal terminology. They should have impeccable grammar and a good command of the English language. After transcriptions are complete they become legal records that are extremely useful to lawyers when they are researching to win a case. Thanks to these transcriptionists, legal records are now more clearly written and thorough. The lawyers and paralegals who wrote the records before were often too busy to make sure the records were exact.
The job market is unique in that there is little competition and plenty of jobs. This fact is most likely due to the overwhelming need for accurate and more advanced legal records to help businesses keep better records and provide their clients with more protection. Other ways they are hired is by companies that choose to outsource the work for lower costs and increased quality. By outsourcing, companies will generally have a quicker turnaround rate as well because they are dividing jobs across the board rather than giving them all to one particular person. However, there has been a growing trend that has threatened the U.S. job market slightly. Many overseas companies have begun to lend their services to U.S. companies for less money and with a quicker turnaround. These companies, with the majority being found in India, have obtained many U.S. clients who choose their services for the lower costs and to get more records completed. Yet, the news is not all bad. Many other businesses look to legal transcriptionists in the U.S. because they have a better understanding of the laws and the English language, a quality that the overseas companies cannot offer.
Although no formal training is required to become a legal transcriptionist, many companies require a basic knowledge of legal terminology and excellent grammatical skills. They also tend to gravitate toward individuals who have prior experience in the medical field, writing, or an extensive knowledge of English. However, there is a new trend that is lowering the chances of less qualified individuals getting jobs. Many companies are hiring retired lawyers to join their team and write up new records. These individuals are good candidates because they know the legal lingo, the laws, and generally people in the business to help them get started. They also have the added advantage of knowing precisely what is needed in files and what is unnecessary.
Although they play a key role in the security and development of better legal records, legal transcriptionists are often underappreciated. This field has not yet gained support from governmental organizations as medical transcriptionists have, but their role as newcomers to the business is likely to blame. Despite that, they are steadily becoming permanent fixtures on law firm and government department payrolls and the need for their services will likely continue to grow even more.
Legal transcriptionists generally work for larger firms or private practice attorneys who have a large number of cases. They are also widely used by large corporations, governmental departments, insurance companies, and banks that all have a need for more accurate legal records. A large number of transcriptionists work for the U.S. government attempting to establish a more organized and complete record system.
In order to be good legal transcriptionists, individuals should have a solid understanding of legal terminology. They should have impeccable grammar and a good command of the English language. After transcriptions are complete they become legal records that are extremely useful to lawyers when they are researching to win a case. Thanks to these transcriptionists, legal records are now more clearly written and thorough. The lawyers and paralegals who wrote the records before were often too busy to make sure the records were exact.
The job market is unique in that there is little competition and plenty of jobs. This fact is most likely due to the overwhelming need for accurate and more advanced legal records to help businesses keep better records and provide their clients with more protection. Other ways they are hired is by companies that choose to outsource the work for lower costs and increased quality. By outsourcing, companies will generally have a quicker turnaround rate as well because they are dividing jobs across the board rather than giving them all to one particular person. However, there has been a growing trend that has threatened the U.S. job market slightly. Many overseas companies have begun to lend their services to U.S. companies for less money and with a quicker turnaround. These companies, with the majority being found in India, have obtained many U.S. clients who choose their services for the lower costs and to get more records completed. Yet, the news is not all bad. Many other businesses look to legal transcriptionists in the U.S. because they have a better understanding of the laws and the English language, a quality that the overseas companies cannot offer.
Although no formal training is required to become a legal transcriptionist, many companies require a basic knowledge of legal terminology and excellent grammatical skills. They also tend to gravitate toward individuals who have prior experience in the medical field, writing, or an extensive knowledge of English. However, there is a new trend that is lowering the chances of less qualified individuals getting jobs. Many companies are hiring retired lawyers to join their team and write up new records. These individuals are good candidates because they know the legal lingo, the laws, and generally people in the business to help them get started. They also have the added advantage of knowing precisely what is needed in files and what is unnecessary.
Although they play a key role in the security and development of better legal records, legal transcriptionists are often underappreciated. This field has not yet gained support from governmental organizations as medical transcriptionists have, but their role as newcomers to the business is likely to blame. Despite that, they are steadily becoming permanent fixtures on law firm and government department payrolls and the need for their services will likely continue to grow even more.
Wednesday, September 8, 2010
Private Equity Firms Vs Venture Capital
While both venture capital and private equity firms provide cash in exchange for equity positions in companies, the main distinction is the juncture in which the investment is made. With the exception of turnaround investments, private equity firms tend to invest in more established businesses with a history of positive, and preferably reliable, cash flow whereas venture capital firms tend to invest in earlier-staged companies with a less proven market presence.
The distinction between the terms venture capital and private equity described above applies to the vernacular used in the United States. That is, in the United States, the two terms are used as if they are distinctly different types of firms investing in different stages of corporate growth. In Europe, however, the terms venture capital and private equity may be used somewhat interchangeably in that British English uses the term venture capital to describe a specific subset of the PE market. Therefore, in Europe, when someone speaks about private equity, they may in fact be referring to what someone in the United States would call a venture capital firm.
Another point of potential semantic confusion is that "private equity" is also a commonly used term for people operating the real estate investing space. While the use of the phrase within the real estate sector has the same underlying financial meaning, the firms that provide private equity in the real estate sector are usually completely different firms than those that typically invest directly in corporate entities. There are some exceptions to this, as some investment firms invest in both companies and real estate, but they tend to be very much in the minority.
While we are discussing verbiage, we should also note that the firms that make direct investments into businesses are often called by several names, all of the same meaning, including: PE firm, financial sponsor, investment firm, buyout firm or investment company. Similarly, investment banks are often structured with a Leveraged Finance Group, which is often the same as the Financial Sponsor Group, which is often part of the Capital Markets Group. These can all be a bit confusing until someone just tells you that they are multiple ways of saying the same thing.
The distinction between the terms venture capital and private equity described above applies to the vernacular used in the United States. That is, in the United States, the two terms are used as if they are distinctly different types of firms investing in different stages of corporate growth. In Europe, however, the terms venture capital and private equity may be used somewhat interchangeably in that British English uses the term venture capital to describe a specific subset of the PE market. Therefore, in Europe, when someone speaks about private equity, they may in fact be referring to what someone in the United States would call a venture capital firm.
Another point of potential semantic confusion is that "private equity" is also a commonly used term for people operating the real estate investing space. While the use of the phrase within the real estate sector has the same underlying financial meaning, the firms that provide private equity in the real estate sector are usually completely different firms than those that typically invest directly in corporate entities. There are some exceptions to this, as some investment firms invest in both companies and real estate, but they tend to be very much in the minority.
While we are discussing verbiage, we should also note that the firms that make direct investments into businesses are often called by several names, all of the same meaning, including: PE firm, financial sponsor, investment firm, buyout firm or investment company. Similarly, investment banks are often structured with a Leveraged Finance Group, which is often the same as the Financial Sponsor Group, which is often part of the Capital Markets Group. These can all be a bit confusing until someone just tells you that they are multiple ways of saying the same thing.
Website Design - Ten Ways to Identify a Quality Services Firm
An effective website attracts customers to your business, generates sales leads and closes sales - multiplying your profits in the process. Professional web design firms must combine uniqueness and innovation in design with state-of the-art technology and maintenance support to create a powerful website that produces results. Before hiring a web designer, consider the following ten factors:
1. Effective Web Designers communicate well
Experienced web-designers support multiple modes of communication for interacting with their clients. These include phone, email and live chat. Depending on your requirements, you can use the communication method that suits you best.
2. Website Design Budgets Should Focus on Results
Effective web-design teams often combine the method of flat fees with hourly billing for software design and installation. It is never advisable to enter into open-ended billing relationships with Web designers until the maintenance phase of the project.
3. Smart Web Designers and Developers Make Billing Easy
An experienced web-design company usually charges twenty to fifty percent of the project fee in advance, and accepts payment through checks and major credit cards.
4. A Web Design Company Shares Its Work
Professional design companies encourage their designers to maintain portfolios representing their best work, client information and testimonials. You can request portfolios to assess the effectiveness of the company's web design solutions.
5. Flexible Website Designers Use Time Saving Technology
Quality web design teams support the use of inexpensive and time saving technology. This includes open source publishing and e-commerce tools like WordPress for handling Weblogs and corporate information pages, osCommerce for online shopping features and Zope for building customized content management and customer interaction tools. These tools enable businesses to achieve professional standards while saving time and money.
6. Efficient Web Design Professionals Blend Stock and Scratch sources
Efficient website designers always maintain a set of stock templates and images to speed up work. When designing a website for a client, they select an appropriate stock template and customize it from scratch to meet client-specific requirements and ensure uniqueness and freshness in design.
7. Intelligent Web Professionals Distinguish Design and Hosting
Many website design firms offer complementary and low cost Web-hosting solutions, usually as part of their maintenance packages. Quality firms provide excellent uptime, reliability and service. Compare the cost and benefits of an in-house hosting solution and an independent web-host before making your decision.
8. Creative Website Designers Let Clients Handle Minor Updates
Experienced Web designers develop architectures for Websites including publishing platforms that simplify the process of making changes. These plans are so effective that they allow you to make minor updates in-house or with the help of a less expensive Web professional. These web designers often save their skills for launching or re-launching websites and major revisions requiring considerable work on design, templates and graphics.
9. The Best Web Developers Understand Standards and Accessibility
The designed website should comply with both web standards like standards for interface design and browser accessibility, and state and federal guidelines such as providing accessibility features for the visually impaired and people suffering with other medical insufficiencies. Experienced Web designers should also ensure SEO optimization of your website and prevent it from become inaccessible and unusable.
10. A Good Web Design Company Gets Honest about Rates and Turnaround Time
Even the most efficient Web designers can combine only two of the three features (High quality, speed and low cost) when designing your web-site. Professional web design teams will provide you accurate estimates about their rates, speed and turnaround time. Firms that are more expensive often have smaller waiting lists. If sufficient time is available, you can get a high quality website at a lower cost. Select a Web design firm that meets your requirements.
Focusing on Results sets Premier Website Design Professionals Apart
Effective Web designers comply with all of the above-mentioned practices. More importantly, they make clients feel comfortable about wading into unfamiliar waters. The right Web design firm can enable your business to save thousands of dollars and valuable time.
1. Effective Web Designers communicate well
Experienced web-designers support multiple modes of communication for interacting with their clients. These include phone, email and live chat. Depending on your requirements, you can use the communication method that suits you best.
2. Website Design Budgets Should Focus on Results
Effective web-design teams often combine the method of flat fees with hourly billing for software design and installation. It is never advisable to enter into open-ended billing relationships with Web designers until the maintenance phase of the project.
3. Smart Web Designers and Developers Make Billing Easy
An experienced web-design company usually charges twenty to fifty percent of the project fee in advance, and accepts payment through checks and major credit cards.
4. A Web Design Company Shares Its Work
Professional design companies encourage their designers to maintain portfolios representing their best work, client information and testimonials. You can request portfolios to assess the effectiveness of the company's web design solutions.
5. Flexible Website Designers Use Time Saving Technology
Quality web design teams support the use of inexpensive and time saving technology. This includes open source publishing and e-commerce tools like WordPress for handling Weblogs and corporate information pages, osCommerce for online shopping features and Zope for building customized content management and customer interaction tools. These tools enable businesses to achieve professional standards while saving time and money.
6. Efficient Web Design Professionals Blend Stock and Scratch sources
Efficient website designers always maintain a set of stock templates and images to speed up work. When designing a website for a client, they select an appropriate stock template and customize it from scratch to meet client-specific requirements and ensure uniqueness and freshness in design.
7. Intelligent Web Professionals Distinguish Design and Hosting
Many website design firms offer complementary and low cost Web-hosting solutions, usually as part of their maintenance packages. Quality firms provide excellent uptime, reliability and service. Compare the cost and benefits of an in-house hosting solution and an independent web-host before making your decision.
8. Creative Website Designers Let Clients Handle Minor Updates
Experienced Web designers develop architectures for Websites including publishing platforms that simplify the process of making changes. These plans are so effective that they allow you to make minor updates in-house or with the help of a less expensive Web professional. These web designers often save their skills for launching or re-launching websites and major revisions requiring considerable work on design, templates and graphics.
9. The Best Web Developers Understand Standards and Accessibility
The designed website should comply with both web standards like standards for interface design and browser accessibility, and state and federal guidelines such as providing accessibility features for the visually impaired and people suffering with other medical insufficiencies. Experienced Web designers should also ensure SEO optimization of your website and prevent it from become inaccessible and unusable.
10. A Good Web Design Company Gets Honest about Rates and Turnaround Time
Even the most efficient Web designers can combine only two of the three features (High quality, speed and low cost) when designing your web-site. Professional web design teams will provide you accurate estimates about their rates, speed and turnaround time. Firms that are more expensive often have smaller waiting lists. If sufficient time is available, you can get a high quality website at a lower cost. Select a Web design firm that meets your requirements.
Focusing on Results sets Premier Website Design Professionals Apart
Effective Web designers comply with all of the above-mentioned practices. More importantly, they make clients feel comfortable about wading into unfamiliar waters. The right Web design firm can enable your business to save thousands of dollars and valuable time.
Monday, September 6, 2010
The Benefits of Outsourcing Accounting Functions
Accounting tasks to a non-financial person can be a mammoth task. Wading through invoices, bank statements amongst others duties can be quite tasking especially for small business owners who have a lot of other things to do. Even businesses that have an in-house business team still need to manage the functions of the team to ensure they meet the business objectives at a minimal cost.
What is Outsourcing?
Prior to the 1980s, a lot of business functions were carried out in house by many organisations. Businesses will employ a temporary member of staff to carry out the duties their regular staff could not undertake. This provision obviously increases the operation costs through recruitment, training, salaries, office space and other benefits.
Outsourcing has now taken the place of temporary staff amongst other roles in many organisations. Defined as the contracting out of a business function to an independent agent or firm, outsourcing is now a popular choice for businesses who want to streamline their processes.
Many companies now outsource a lot of their business functions such as Accounting, IT, Payroll and even recruitment tasks to external agencies. Some individual agents tend to work on site whilst others outsource their work to organisations that operate in their own premises. This is common practice amongst accounting and recruitment firms.
Benefits of Outsourcing.
Outsourcing accounting functions to an external organisation has many benefits such as:
Cost reduction: The most apparent benefit of outsourcing accounting services to an accounting firm is the reduction in personnel related costs - recruitment, salaries, benefits, office space and other costs synonymous with staff. A number of businesses who outsource their business functions reported at least a 30% reduction in business costs without a decrease in productivity.
Quality of Work: Outsource companies thrive on reputation and to build their business they must offer a quality service. Businesses that outsource their accounting services benefit from a competitive market where firms must provide exceptional services to retain their clients.
Focus on core areas: Outsourcing allows a business to focus on the core business functions which can boost productivity by at least 32% according to a recent survey.
Access to innovation: To maintain a competitive edge, accounting firms endeavour to stay at the cutting edge by investing in advanced accounting systems and techniques for the benefit of their clients. Rather than invest heavily on a new accounting system and staff training, organisations now prefer to outsource these services to benefit from these new technology developments.
Pool of Expertise: Businesses tend to benefit from a pool of experts and sustainable source of professional accountants. Reputable accounting firms recruit exceptional and qualified personnel to ensure they deliver on their service contracts and retain the loyalty of their clients. Companies that outsource their accounting services benefit from such expertise without the added cost of recruiting top level staff.
Faster Turnaround: Accounting firms operate based on targets and deadlines. They know the in and out of tax deadlines and other legal requirements, so they aim to file records on time by providing a quick turnaround service to their clients.
Accounting is a vital aspect of any organisation, the outcome of accounting tasks can have a significant impact on a company's productivity and profitability. It is important that businesses retain proper balance between the core business functions and other secondary tasks.
Outsourcing is one of the most simplistic options a business can choose when the need for a quality accounting service exceeds quantity. Accounting firms have to work in line with regulatory bodies, they therefore need to maintain a high standard of service for accreditation purposes to the benefit of the client.
What is Outsourcing?
Prior to the 1980s, a lot of business functions were carried out in house by many organisations. Businesses will employ a temporary member of staff to carry out the duties their regular staff could not undertake. This provision obviously increases the operation costs through recruitment, training, salaries, office space and other benefits.
Outsourcing has now taken the place of temporary staff amongst other roles in many organisations. Defined as the contracting out of a business function to an independent agent or firm, outsourcing is now a popular choice for businesses who want to streamline their processes.
Many companies now outsource a lot of their business functions such as Accounting, IT, Payroll and even recruitment tasks to external agencies. Some individual agents tend to work on site whilst others outsource their work to organisations that operate in their own premises. This is common practice amongst accounting and recruitment firms.
Benefits of Outsourcing.
Outsourcing accounting functions to an external organisation has many benefits such as:
Cost reduction: The most apparent benefit of outsourcing accounting services to an accounting firm is the reduction in personnel related costs - recruitment, salaries, benefits, office space and other costs synonymous with staff. A number of businesses who outsource their business functions reported at least a 30% reduction in business costs without a decrease in productivity.
Quality of Work: Outsource companies thrive on reputation and to build their business they must offer a quality service. Businesses that outsource their accounting services benefit from a competitive market where firms must provide exceptional services to retain their clients.
Focus on core areas: Outsourcing allows a business to focus on the core business functions which can boost productivity by at least 32% according to a recent survey.
Access to innovation: To maintain a competitive edge, accounting firms endeavour to stay at the cutting edge by investing in advanced accounting systems and techniques for the benefit of their clients. Rather than invest heavily on a new accounting system and staff training, organisations now prefer to outsource these services to benefit from these new technology developments.
Pool of Expertise: Businesses tend to benefit from a pool of experts and sustainable source of professional accountants. Reputable accounting firms recruit exceptional and qualified personnel to ensure they deliver on their service contracts and retain the loyalty of their clients. Companies that outsource their accounting services benefit from such expertise without the added cost of recruiting top level staff.
Faster Turnaround: Accounting firms operate based on targets and deadlines. They know the in and out of tax deadlines and other legal requirements, so they aim to file records on time by providing a quick turnaround service to their clients.
Accounting is a vital aspect of any organisation, the outcome of accounting tasks can have a significant impact on a company's productivity and profitability. It is important that businesses retain proper balance between the core business functions and other secondary tasks.
Outsourcing is one of the most simplistic options a business can choose when the need for a quality accounting service exceeds quantity. Accounting firms have to work in line with regulatory bodies, they therefore need to maintain a high standard of service for accreditation purposes to the benefit of the client.
Thursday, September 2, 2010
How Can an Asset Based Line of Credit Help Your Company Implement a Turnaround Strategy
An asset based line of credit is an excellent strategy for any firm who is considering viable turnaround options. This finance strategy is also an excellent way to assist a firm in understand what some of its underlying problems are.
An Asset based line of credit, commonly referred to as an 'ABL' arrangement can be instituted even if the company is not profitable or in fact is experiencing financial duress.
Prior to considering an ABL many firms will find they are experiencing sever cash flow pressures. Traditional working capital is shrinking, and sometimes external factors to the business simply exacerbate the financial challenge. If the business owner or financial executive do not take charge at this point a business failure in fact is likely.
Many firms gravitate towards an ABL arrangement after their bank operating line of credit. Most business owners quickly realize both the benefits and the risk of having significant bank lines in place. Traditionally these lines of credit are secured by receivables and inventory. Businesses are told they can borrow up to a certain limit based on these facilities. Every month the company submits detailed lists of a/r and inventory and can borrow certain pre agreed upon limits against those assets.
Banks typically advance 75% of those receivables that are under 90 days. In asset based lines of credit facilities that amount is often 90- 100% of receivables, creating immediate additional liquidity.
Banks have become much more cautious on inventory, that is simply because they don't, and cant be expected, to understand each firms inventory values and products. Asset based lenders tend to have much more experience in these matters and are more often than not inventory experts. Therefore advances against inventory are much higher. Again, what does that do, well it of course creates additional liquidity.
Many, if not most, oh, lets be honest, all banks set maximum borrowing limits that are dependant on other external factors such as other collateral they hold, perceived operating risk, and the value of personal guarantees of the shareholders.
Bank operating lines are best when a firm is experience steady, but not erratic growth, and when the firm can operate comfortably within its borrowing limits as agreed upon with the bank.
When firms run into financial challenges they of course have a business that is contracting in many ways. Therefore borrowing against receivables and inventory becomes limited, and the bills that need to be paid are of course paid with less cash available and on hand.
It is at this point that many businesses realize they are starting to default on bank covenants. In many cases, for a variety of reasons, sales are falling.
It is very difficult for a business owner to both realize what is happening, and, moreso of a challenge, correct the problem. Financial losses only augment the cash flow problem. Many companies in fact aren't trouble by operating losses, but have simply over expanded. Business owners get into the mindset that if they are expanding, there can't be a problem! Most financial executives know that a company can fail not for lack of profit, but from lack of liquidity.
The time to consider an asset based line of credit is probably right now. The customers bank either has, or is reviewing its options relative to collateral and security arrangements. The bank will start to take measure to ensure it gets paid in full - this typically includes reducing operating lines of credit, formally calling a loan and setting new deadlines for the customer to 'right' the business, or exit the bank relationship.
It is at this time the customer should be focusing on alternative lending sources such as the asset based line of credit with non-bank finance firms. This facility improves liquidity, places less reliance on external guarantees and collateral, and can operate with a firm that is getting back on its track to profitability. We hasten to add that a severe financial 'death spiral' cannot be properly address by either the bank or the asset based line of credit solution.
The business owner and manager must recognize the current financial situation, and address that situation in as prompt and efficient manner as possible.
An Asset based line of credit, commonly referred to as an 'ABL' arrangement can be instituted even if the company is not profitable or in fact is experiencing financial duress.
Prior to considering an ABL many firms will find they are experiencing sever cash flow pressures. Traditional working capital is shrinking, and sometimes external factors to the business simply exacerbate the financial challenge. If the business owner or financial executive do not take charge at this point a business failure in fact is likely.
Many firms gravitate towards an ABL arrangement after their bank operating line of credit. Most business owners quickly realize both the benefits and the risk of having significant bank lines in place. Traditionally these lines of credit are secured by receivables and inventory. Businesses are told they can borrow up to a certain limit based on these facilities. Every month the company submits detailed lists of a/r and inventory and can borrow certain pre agreed upon limits against those assets.
Banks typically advance 75% of those receivables that are under 90 days. In asset based lines of credit facilities that amount is often 90- 100% of receivables, creating immediate additional liquidity.
Banks have become much more cautious on inventory, that is simply because they don't, and cant be expected, to understand each firms inventory values and products. Asset based lenders tend to have much more experience in these matters and are more often than not inventory experts. Therefore advances against inventory are much higher. Again, what does that do, well it of course creates additional liquidity.
Many, if not most, oh, lets be honest, all banks set maximum borrowing limits that are dependant on other external factors such as other collateral they hold, perceived operating risk, and the value of personal guarantees of the shareholders.
Bank operating lines are best when a firm is experience steady, but not erratic growth, and when the firm can operate comfortably within its borrowing limits as agreed upon with the bank.
When firms run into financial challenges they of course have a business that is contracting in many ways. Therefore borrowing against receivables and inventory becomes limited, and the bills that need to be paid are of course paid with less cash available and on hand.
It is at this point that many businesses realize they are starting to default on bank covenants. In many cases, for a variety of reasons, sales are falling.
It is very difficult for a business owner to both realize what is happening, and, moreso of a challenge, correct the problem. Financial losses only augment the cash flow problem. Many companies in fact aren't trouble by operating losses, but have simply over expanded. Business owners get into the mindset that if they are expanding, there can't be a problem! Most financial executives know that a company can fail not for lack of profit, but from lack of liquidity.
The time to consider an asset based line of credit is probably right now. The customers bank either has, or is reviewing its options relative to collateral and security arrangements. The bank will start to take measure to ensure it gets paid in full - this typically includes reducing operating lines of credit, formally calling a loan and setting new deadlines for the customer to 'right' the business, or exit the bank relationship.
It is at this time the customer should be focusing on alternative lending sources such as the asset based line of credit with non-bank finance firms. This facility improves liquidity, places less reliance on external guarantees and collateral, and can operate with a firm that is getting back on its track to profitability. We hasten to add that a severe financial 'death spiral' cannot be properly address by either the bank or the asset based line of credit solution.
The business owner and manager must recognize the current financial situation, and address that situation in as prompt and efficient manner as possible.
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