SFG's Cash Flow Industry Blog

This year, some 700,000 American businesses will be sold. Most will be small and mid-sized businesses like yours. If you, too, are thinking of selling, consider these practical steps for making the process go smoothly.

Determine a Realistic Price Range

Understand the Tax Consequences

Prepare for a Sale

Seek Potential Buyers

Negotiate Your Deal

Sign a Sales Agreement

Plan for the Closing

File Paperwork With the IRS

Now for the GOOD STUFF!

Getting the Cash Out of your Business Note, known more specifically as seller carryback business notes, are created when the buyer of a business can not or will not pay all cash. Frequently, banks and similar lending institutions are hesitant to loan money to new business owners who have minimal track records and where hard assets make up a small percentage of the total purchase price.

In the case where a buyer cannot obtain a loan, the seller is left with two choices (1) hold off until he/she find a buyer who can pay all cash or (2) carry back a note in order to collect future payments. The first option is often not realistic. In the second case, the seller is hopefully able to at least extract a large down payment to make extra sure that the buyer has some "skin in the game". However, even then the seller is usually in a position that he prefers not to be in - he has no lump sum of money to either invest in other opportunities or to retire. Unlike a real estate note, where is there is a hard asset that is fairly easy to appraise; the business note is relatively risky to hold.

So, what is a business seller to do when he didn't want to be in the lending business to start with and now has a need for immediate cash? What many people don't realize is that the business note can be sold. The former owner can sell all or part of the note to get a lump sum of cash. In this way, both the goals of selling the business and getting the cash out of it are met.

In summary, selling a business note is an excellent way for the former owner of a business to get his cash out of the business. Whether the reason for selling the note is that the seller would have preferred all cash all along, that he now has large debts to pay, or that he has the opportunity to pursue other investments, the sale of a business note is a tool of which you should always be aware.

Article written by Afra AmirSanjari

NEW YORK, April 27, 2005 – Sales from MetLife, Inc.’s (NYSE: MET) structured settlement business totaled over $907 million in 2004, a new company sales record. Year-end 2004 sales represent an increase of $174 million over 2003.

"For the second consecutive year, MetLife continued to grow its structured settlement sales and market share," said Sherif Zakhary, vice president, MetLife Retirement & Savings. "MetLife is highly regarded in the judiciary, legal and broker communities because of our company’s strong brand recognition, financial strength, strong ratings, and competitive pricing."

According to Tillinghast Towers Perrin, U.S. torts system costs were over $246 billion in 2003. Of that total, approximately 65% - or $156 billion – is paid to claimants and plaintiffs (or to their attorneys). In 1982, Congress passed legislation that allowed claimants in personal injury, wrongful death and workers compensation lawsuits to receive their settlement awards as a stream of tax-free income payments through a structured settlement annuity. Prior to the legislation, settlements were awarded as single lump sums, and claimants were often burdened with the task of managing that money themselves.

Structured settlements can be used to provide funding for a child’s education, medical expenses, and other basic living needs of a family -- ensuring they will not run out of money when they need it most. According to the National Structured Settlements Trade Association, studies have shown that the more serious the injury, the greater the likelihood that a structured settlement will be used.

MetLife offers innovative strategies for complex litigation settlements by providing integrated, comprehensive solutions and implementation programs for bridging the gap between defendants and plaintiffs. MetLife has been an innovator in this market, offering the first and only structured settlement variable annuity option. Like other variable annuities, it offers an investment fund lineup to meet a broad range of investment objectives.

MetLife Retirement & Savings delivers integrated retirement programs and innovative investment management services for defined contribution and defined benefit plans.

MetLife, Inc., through its subsidiaries and affiliates, is a leading provider of insurance and other financial services to individual and institutional customers. The MetLife companies serve individuals in approximately 13 million households in the U.S. and provide benefits to 37 million employees and family members through their plan sponsors. Outside the U.S., the MetLife companies serve approximately 9 million customers through direct insurance operations in Argentina, Brazil, Chile, China, Hong Kong, India, Indonesia, Mexico, South Korea, Taiwan and Uruguay. For more information about MetLife, please visit the company’s Web site at www.metlife.com.

One of the most difficult questions for a settlement broker to answer is “what is the rate of return on this annuity quote?” when the payment stream is guaranteed for the life of the annuitant.

Take, for example, a payment stream costing $100,000 on a 50 year old male, who we will assume for this illustration has a life expectancy of another 32 years to age 82. Monthly payments in the example, which are to begin one month after settlement, are $656.36. If this man lives exactly another 32 years and receives 384 monthly payments, the annual rate of return is 7.044 percent.

If he lives 10 years beyond his life expectancy, to age 92, and receives 504 monthly payments of $656.36, the annual rate of return is 7.541 percent.

If he dies 10 years sooner than his life expectancy, to age 72, and receives 264 monthly payments of $656.36, the annual rate of return is only 5.543 percent.

The problem in attempting to answer the question is obvious: we don’t know how long this person may live. Thus, we don’t know the number of payments that will be made, critical to our calculation.

The life insurance company issuing the annuity is assuming what is known as mortality risk. It might price the annuity based on certain mortality factors, including an assumed life expectancy, but it has to be prepared to continue payments if the annuitant (called the measuring life) lives beyond life expectancy.

On the other hand, the annuity company pays out less and retains the difference if the annuitant dies sooner than life expectancy.

By spreading the risk among a large number of annuitants, the insurance company figures it will come out even. This is the same mortality risk principle that insurance companies use in calculating life insurance premiums, but it works just the opposite.

Life insurance companies are in the business of assuming mortality risk, and this is one of the major benefits to an individual of a life-contingent annuity. With payments guaranteed for life, the annuitant does not have to worry about running out of money as he or she might if left to managing invested assets.

The other major advantage to a tort injury victim is that all payments are exempt from income taxes, including the internal growth of the annuity, if the annuity is not owned by the annuitant. Sometimes the annuity is owned by the self-insured defendant, but most often it is owned by a third-party assignment company that has assumed the obligation for the future payments under what is called a “qualified assignment” as permitted by Section 130 of the Internal Revenue Code.

If the annuitant’s marginal (highest) tax bracket is, say, 28 percent federal and 7 percent state, a combined 35 percent, the taxable equivalent annual yield of a 7.044 tax-free structured settlement is 10.837 percent. On 7.541 percent, the annual taxable equivalent yield is 11.602 percent. Even on the 5.543 percent tax-free example, the taxable equivalent yield is 8.528 percent.

Most structured settlements that contain payments for the life of an individual are also guaranteed for a “period certain” so that heirs would receive the remaining guaranteed monthly payments if the annuitant died soon after the claim was settled.

In our same example of the 50 year old male with a 32-year life expectancy, using a $100,000 premium amount, if we guarantee payments for, say, 25 years and his life thereafter, the monthly payment is reduced to $562.90.

That obviously causes the rate of return calculations to change. But the problem in calculating a valid rate of return remains: how many payments will be made?

NOTE: The rates used in these examples were for one annuity company and were valid on the date quoted. However, rates will vary between companies are are subject to change.

Article written by Richard B. Risk, J.D. - risklawsfirm.com

So you are thinking about getting cash for your structured settlement. Then there are some questions that you need answers to before cashing your structured settlement annuity. First, find out how long the broker has been in the structured settlement industry. Given the level of difficulty in the industry, the broker should have a solid background. Also make certain you are getting the wholesale price for the annuity.

You should also consider checking to see if there are any lawsuits being filed against their company - contact your local Department of Consumer Affairs or the broker’s home office. Set up a meeting with the broker, ask him / her questions and get a feel for how knowledgeable they are. Trust your gut feeling! Steer clear of those who offer much more money or can get it faster than others. If it sounds too good to be true, then it is.

How Long will it take to get the Structured Settlement Money
If you have been told that you can get your money within a few days – do not commit! In fact, it may take several months or longer depending on the following:

1. A Court Order is required. It is now required by all states for a court order to be issued. If there is no court order, a tax equal to forty percent must be paid on the total amount of payments being sold. Do not fret, this is a good thing – it makes selling your settlement a little safer.

2. The Insurance Company – This includes both the issuer and the owner of the annuity. These things do not happen overnight. It takes time when dealing with companies.

3. What kind of payments do you have (quarterly, semi, annual, or are they a lump sum)? Different funding companies have their own requirements and it’s critical for your broker to know these requirements. Do your homework on the broker you choose - you will get your money faster and with a lot less hassle.

4. Check your Insurance Companies Rating? Make sure the Insurance Company has an A+ rating! Ultimately you will get a higher profit margin when your settlement is sold to larger financial companies. If a company has a lower rating then they may have to sell off settlements at a lower profit margin resulting in a lower price to you.

5. In addition to the above you will need the necessary documentation such as copies of the following:

• The annuity,
• the settlement agreement and release,
• photo ID,
• recent check and
• application.

These are some of the things to consider. For now it gives you a good idea of what’s required.

What will Cashing Out Cost Me?
Most likely you are going to be some what disappointed in the amount you receive. Total up all the remaining payments and know that cashing out will offer you much less than that. They based the structured settlement on a certain amount of money put into an annuity and then that principal amount, plus interest paid out, equaled the settlement amount. Consider other options before taking this one.

What is a structured settlement?
A structured settlement is an agreement in settlement of a lawsuit involving specific payments made over a period of time. Physical injury and workers compensation claims are awarded an annuity or payments made over a period of time. Peruse our site to make the best decision possible about your structured settlement.
Why Were Structured Settlements Created?
Historically, damages paid because of an injury lawsuit came in the form of a single lump sum. This kind of payment, especially in catastrophic injury cases, often placed the injury victim (or family) in a difficult financial position: With the victim focused on adapting to a new lifestyle, there often was not the time to manage large sums of money.

That can lead to serious trouble. A person who loses funds intended to cover a lifetime of medical care runs the risk of losing medical care and independence. They also risk winding up on public assistance
That's why, in 1982, a bipartisan coalition of legislators in Congress came together to pass legislation that amended the federal tax code. Their action, The Periodic Payment Settlement Act of 1982 (Public Law 97-473), formally recognized and encouraged the use of structured settlements in physical injury cases.

Scenario: You were injured in an accident a few years ago that left you in the care of a hospital for a few months. After leaving the hospital you endured an excruciating year and half of physical therapy. You hired legal counsel to handle your case and sued the person - or insurance company responsible for the accident. Your lawyer assures you that you will be awarded a substantial compensation for your injuries. Your legal counsel and their insurance company work out a structured settlement with a payout that will last for several years. Even though your compensation is substantial, you will only receive a portion up front to cover medical expenses. The money paid is going to be dispersed as an annuity, or payments made over a period of time. As you can imagine, the periodic payments are not sufficient compensation for your needs now.

Great news! Now you have a choice to access your annuity funds today. If you are considering the option of selling your structured settlement you will need to arm yourself some general information about annuities, structured settlements, how to sell them, and the general pitfalls you need to watch for. Browse our comprehensive site to better educate yourself on your structured settlement.

Deciding to Sell a Structured Settlement
Now that you have decided to sell your structured settlement you will need to take some things into consideration. Ask yourself “Is there going to be a tax consequence?" As of January 23, 2002 a new law that governs such sales, does not impose any tax liability for selling a structured settlement.

Another consideration when selling your structured settlement is selling only a portion. Sell a portion that will meet your current needs, and leave the rest in an annuity so that you will still receive some sort of monthly income. A financial emergency or other unexpected expense may come up requiring you to access and sell a structured settlement. Just keep in mind that the settlement was meant to be dispersed over time and selling the structured settlement may result in financial problems down the road. It is believed that less than 10% of cash settlements actually make it past the first five years after receipt.

Most great generals know how to design winning battle plans. They also know how to use their resources to gain advantages over the enemy. For these military leaders, getting enough tanks, aircraft, ships and armaments into the hands of the right personnel can spell military victory or defeat.

In the business arena, gaining access to certain resources and getting them into able hands can also determine success. Many successful business leaders have discovered that equipment leasing can make a significant difference when competing in the marketplace. In fact, equipment leasing has become a competitive weapon for business managers who understand how and when to use this helpful financing tool.

Here are some ways savvy business owners and managers use equipment leasing to gain advantage over their competitors:

Developing a Financing War Chest

Equipment leasing allows companies to finance more activities to compete effectively. It supplements other forms of financing, such as equity capital, bank debt, trade credit and mortgage financing. Astute business managers understand that access to a variety of useful financing affords them certain options and gives them an advantage over competitors with limited financing.

Maintaining State-of-the-Art Technology

Being able to acquire and use state-of-the-art equipment and software can give many companies a noticeable competitive advantage. This advantage can be particularly significant in research, product development, marketing and operations. By using equipment leasing, companies are able to better manage technology turnover. Many managers use operating leases to acquire state-of-the-art equipment for fixed time periods. At lease end, they are then able to rid themselves of obsolete equipment by returning the equipment to the lessors.

Stretching Equity Capital

Equity capital is often the most flexible form of business funding. It allows companies to undertake high-impact growth activities like adding key personnel, conducting research and development, and expanding marketing programs. Equipment leasing is dedicated financing. It permits companies to add equipment efficiently. In this context, equipment leasing helps to leverage and stretch a company’s equity capital by freeing it up for other uses. When used properly, the overall impact of equipment leasing is to leverage equity returns. High equity returns attract investors and permit companies to source more equity capital in the future.

Equipping Talented People to Engage In Battle

Using leasing to get the best software and hardware into the hands of talented personnel is a competitive advantage. Companies that quickly get equipment into the hands of talented workers at every level usually compete more effectively in the marketplace.

Accelerating Company Growth

Equipment leasing facilitates faster company growth. It allows companies to add infrastructure faster by bringing in equipment earlier and paying over time. In this regard, leasing affords a competitive advantage over companies that wait to purchase equipment outright.

Defending Working Capital

Astute business managers have discovered how to keep pressure off of their companies’ working capital. Compared to outright purchase, equipment leasing has a low impact on working capital. Leasing allows companies to avoid large upfront outlays while spreading equipment acquisition costs over an extended period. Using equipment leasing to manage working capital permits companies to pay bills on time and to operate smoothly. They are then able to gain a competitive advantage over companies that have not mastered this technique.

Maximizing Tax Benefits

Sophisticated companies are able to maximize tax benefits by carefully using equipment lease structures. By entering into operating leases and being able to fully deduct lease payments, companies that can’t otherwise use depreciation write-offs can still realize tax benefits. Capital leases allow companies that can use depreciation write-offs to take advantage of this feature. Tax benefits further reduce the cost of acquiring equipment. These benefits can often make equipment leasing a more efficient means of acquiring equipment compared to other methods.

Turbo-Charging Equipment Sales

For companies selling equipment, offering equipment leasing to customers at the point of sale can help establish a significant competitive advantage. Convenient equipment financing at the point of sale can eliminate a major selling challenge— the customer’s lack of financing for the purchase. Equipment sellers offering leasing give their customers a means of acquiring the equipment and realizing the full benefits of equipment leasing. This sales-financing strategy represents a clear advantage over sellers who let customers fend for themselves.

Savvy business owners and managers understand the benefits of equipment leasing. They also understand how to exploit leasing for competitive advantage. The challenge for them is to optimize leasing to realize the biggest gains and to compete more effectively. It is no wonder that equipment leasing in the U.S. has grown to over $ 240 billion annually and accounts for more than 30% of equipment acquisitions. Consider equipment leasing when designing your battle plans. Don’t allow your competitors to use leasing against you to win the battle in your market.

Written by George Parker

Do You Own A Life Insurance Policy That You No longer Need or Want? It is possible that you may be able to can get a CASH settlement in excess of the current cash surrender value by selling your policy in the secondary market to an investor.

Reasons To “Sell” A Policy:

Family Situations
Bankruptcy
Estate Reduction
Estate Tax Revision
Business Was Sold
1035 Exchange
Drain On Income
Divorce – Separation
Death of A Spouse
Retirement
Declining Health
Non-Performing Policy
Wealth Planning
Work Related Changes

Qualifying Types Of Life Insurance:

Group
Whole Life
Term (Convertible)
Joint
Universal
Variable
Key Man (business related)

Who Is A Qualified Candidate?

Mature men and women over age sixty-five years of age who have an existing life insurance policy and whose circumstances have changed since purchasing the policy originally may qualify for a purchase and sale of their policy. Financial advisors view this as a powerful and innovative wealth and estate planning tool.

How Much Is A Policy Worth?

There are a number of variables that determine the offered amount for a policy, including the following;

* Age (of course) * Premium cost
* Client’s Health * Type of Insurance
* Death Benefit * Insurer Rating
* State of Residence *Underwriting criteria

Note: As a general rule the most heavily weighted items are the age of the insured (the younger a person is a lesser current value will apply), the health condition, and the amount of the premiums that apply are the primary determinants in arriving at the price offered for a policy.

What benefits are there for the insured?

First – there is absolutely no cost for a policy appraisal
Offers liquidity to clients
Eliminates the insured having to pay premiums
Funding for ‘Alternative’ products that fit current needs
Offers an innovative and better solution for current status
Provides another alternative for divesting policies that are no longer needed or wanted. (As opposed to letting policies lapse or accepting the cash surrender value established by the originating life insurance company.)

How Does selling A Policy Work?

1. Policy owner (or professional financial advisor) requests and authorizes a policy evaluation.

2. Policy buyer obtains needed documentation, including policy information and physician statements, etc.

The highest possible offer is obtained in the secondary market.
The offer is submitted to the insured for acceptance.
If accepted, a contract is sent for signatures.
The change of ownership is completed and funds are released to the previous owner (usually the insured).

Article written by Afra AmirSanjari

As a small business owner, you know first hand the struggle of attaining capital to finance the growth of your business or meet cash flow shortages. When regular small business financing such as loans and credit are limited, some business owners will turn to accounts receivable financing. Is accounts receivable financing right for your business?

What is Accounts Receivable Financing?
Accounts receivable financing is the selling of outstanding invoices or receivables at a discount to a finance or factoring company that assumes the risk on the receivables and provides quick cash to your business. The amount of value assigned to the account depends on the age of a receivable. A more current invoice will pay more. Any accounts receivable over 90 days typically are not financed.

Benefits of Accounts Receivable Financing

Pass off Collections: Outsourcing your accounts receivable management to another company, frees up your resources to focus on other more productive activities such as selling.

Free up Working Capital: Many companies have the majority of capital tied up in inventory. Accounts receivable funding allows a company to free up capital tied up in inventory.

Quick Financing: Accounts receivable factoring will not require a business plan or tax statements. It's a quick form of cash often used for businesses experiencing a cash crunch.
While these are some of the many benefits to factoring your accounts receivable, there are potential drawbacks to using this method to finance your small business. One of the biggest factors of accounts receivable financing is the cost. A 5% discount fee and other charges might not seem high this month, but over the course of a year the costs can greatly exceed the interest on bank credit or a loan. Rates will vary among companies shop for the best deal and contract.
Before you embark on using accounts receivable financing for your small business, consider the following questions:

• Is the money needed necessary for your company survival, or moreover to take advantage of an opportunity?

• How does this financing strategy match with your business plan? If you have no business plan, put together a plan prior to taking on additional money.

• Is your business ready for more money and expansion?

• Have you explored all possible sources of small business financing?

• What are the current economic and industry conditions? Is now a favorable time to finance?

Taking the accounts receivable funding plunge can be the difference between company survival and bankruptcy. Carefully consider all your options. The factoring industry is not as regulated as banking. Spend the necessary time to investigate the companies you are working with. Inspect contracts and negotiate discount rates. In the end, using accounts receivable financing can buy time to eventually qualify for a regular credit line from your bank.

Written by Darrell Zahorsky

Assignment of Claims Act of 1986"....What does this mean for you?

What does this mean to you? Simply, the U.S Government encourages their vendors to seek accounts receivable factoring of their invoices in order to help them grow, improve cashflow, increase performance, and level the playing field.

Access Unlimited Capital Through the Creditworthiness of the U.S. Government Any government contractor, under the the Assignment of Claims Act of 1986, may assign it's rights to be paid amounts due or to become due as a result of the performance of a contract to a bank, trust company or other financing institution. Larger vendors have been doing this for years.

Invoice Factoring is when a business sells unpaid accounts receivable invoices to a specialized financial institution called a Factor. The factoring company buys the invoice from the business for an amount less than its actual face value, then later collects the full amount of the invoice from the account debtor when it finally comes due. This service is useful to a business that cannot afford to wait 30, 60, or 90 days to collect payment from customers, cash is needed immediately for growth or survival.

When a business delivers goods or services to another business, an invoice is generated stating the amount owed and the terms (number of days) in which the invoice must be paid. This invoice along with its terms becomes an accounts receivable: money owed to a business, from a business, for goods or services delivered. The terms for these invoices are usually 30, 60, or even 90 days. After the business sends out the invoice it must wait the length of the term (or longer) to collect the debt and recognize the revenue generated. Waiting for these long billing cycles to close can be difficult for a company that is growing fast or just struggling to survive.

Rather than waiting for long billing cycles to close, a business has the option to sell some or all of its outstanding invoices to a Factor (for a discount) and receive funding within 24 hours or less. The Factor will eventually collect the full amount of the invoice from the account debtor.

Article written by Afra AmirSanjari

It is common for staffing firms to face cash challenges during times of growth. Dealing with many different pay cycles, meeting payroll can become difficult. Many staffing firms will turn to payroll funding or factoring to get them though their time of need. While payroll funding is a good option for some staffing firms, factoring offers more flexibility.

At a glance, here are some of the differences between Payroll Funding and Factoring a staffing company:

PAYROLL FUNDING:

Funding only the payroll portion of the invoice

Long-term contracts

Usually the staffing firm must submit all time cards

No Credit guarantee

Funding Company takes over invoices payroll and tax processing

FACTORING WITH US:

Funding of entire invoice. The staffing firm may use the funds for any purpose, payroll, marketing, expanding, etc.

No long-term contracts required

Staffing firm has total control over which invoices they submit to us.

Credit guarantee, in factored invoices

Will fund into staffing firm's payroll account

Staffing firm manages payroll, insurance, etc

The benefits of factoring with us really boil down to adding profit to your bottom line. Before you factor, make sure you can take advantage of the features and leverage them into value:

TAKE ON ADDITIONAL BUSINESS

Most of our staffing clients can do more business if they have better cash flow. Some real examples are:

Immediate access to your working capital

Shifting manpower from collection to marketing for growth

Meeting payroll efficiently and consistently

REDUCE EXPENSES

Many of our clients in the staffing industry actually reduce expenses by outsourcing credit and administration to us, and by leveraging their healthy cash position. The most common ways include:

Eliminating bad debt with our credit guarantee

Reducing collection and administrative expenses

IMPROVE YOUR FINANCIAL CONDITION

Exchanging invoices for cash enables some staffing businesses to “get current” or reduce strains caused by tight cash flow. It also improves their own credit rating which is critical to do business with larger customers. Here are some examples we frequently see:

Meeting regular payroll obligations

Bringing payroll taxes current

Reaching a higher quality customer base

How can YOUR Temporary Staffing company benefit from Factoring?

Every staffing company has a unique situation. Before signing up to factor, it’s important to estimate how our services can increase your business, reduce your expenses, and improve your financial situation.

Article written by Afra AmirSanjari

Before I go further, let me ask a question- if you won the lottery tomorrow, would you take the payout in a lump sum or in monthly payments?

Most people would take a lump sum because even though it might be less than the total prize, they would have control over a large sum of money now and could let the time value of money go to work and increase their winnings. So why then would you opt to get paid on your business sale over several years rather than take a lump sum payout?

The answer is probably because you didn't know that you could get cash for your business note. We can help you to sell your business note at a discount and cash out now, rather than later.

Advantages to sell your business note include:

• Walk away from a business you didn't want without having a financial anchor still attached to you for the next several years

• Use the balance owed to you to fund a new business, pay off debts or finance education for yourself or your loved ones- now!

• Avoid the risk that the buyer will default on the loan

• Avoid the risk of the buyer going bankrupt

• No need to wait for monthly payments

If you are going to sell your business, the following criteria should be structured into your note so that it will be more attractive to investors for purchase:

• Down payment of 30% or more

• Personal guarantee from the buyer

• Short term financing - the shorter the term the better

• Minimal seasoning of the note is needed - usually two months at least, depending on the type of business.

A note for a business that has substantial tangible assets will be easier to sell compared to one that does not - example: machine shop versus a coffee stand.

Article written by Afra AmirSanjari

Here is our top 10 list as to why you should consider factoring as your funding solution:

1. CASH IN AS LITTLE AS 24 HOURS
Factoring provides you with the ability to meet your CASH FLOW NEEDS IMMEDIATELY!

2. NO DEBT CREATED
Loans require collateral limited by your hard assets. Factoring is NOT a loan, so there is no debt to repay. A factoring company purchases your invoices at a discount. This enhances the financial ratios often used to determine your credit worthiness in obtaining other types of financing. Your balance sheet is more attractive and your financial position is strengthened.

3. HIGH ADVANCE RATE
Our participating factors provide Higher Advance Rates which means you factor fewer invoices to meet your cash flow needs, which also means YOU WILL SAVE MONEY!

4. NO FINANCIAL STATEMENTS REQUIRED
In many cases, no business or personal financial statements or tax returns requested. Clean personal credit is not required.

5. PROFESSIONAL COLLECTIONS
Factors handle collections in a professional manner. Factors are not collection agencies. They understand the importance of business relationships and treat each debtor as though it is your best customer. Factoring companies SPEED the collection of invoices and reduce your collection cost. You can eliminate the overhead cost associated with having someone internally handling collections.

6. INVOICE PROCESSING
You can greatly reduce your cost of processing invoices because factors handle much of the work.

7. ENHANCE YOUR CREDIT
Once you begin factoring, the increased cash flow will provide the liquidity to pay your venders on time. Making timely payments to vendors positively affects your credit rating and allows you to obtain credit from other vendors and financial institutions.

8. INCREASED PRODUCTIVITY
Business owners often spend more than half of their time on duties they do not find productive, such as collections, administration, bookkeeping, warding off creditors and searching for additional capital. Factoring helps eliminate this wasted time.

9. REDUCE ACCOUNTING COST
You will receive information regarding outstanding and paid accounts on a daily, weekly, and monthly basis.

10. NO LOSS OF BUSINESS EQUITY
Ownership percentages remain unchanged with a factoring arrangement (unlike considering bringing in new partners with capital).

More benefits of factoring:

Meet seasonal demand
Improve creditworthiness
Regulate cashflow
Take early pay discounts
Meet payroll
Cash available - on demand
Your credit line grows with your business
No other collateral needed
No tax returns, audits or financials needed
No debt created
Minimal paperwork
Invoices are paid faster
Focus on business growth
Credit screening
No geographical limits
Detailed management reports
Volume discounts
Credit monitoring

Article written by Afra AmirSanjari

You are selling your small business (business value under $1 million for this article). You would like the buyer of your business to come in with an all-cash offer, or be able to qualify for an SBA guaranteed loan. However, in many cases the owner of the business ends up taking back the financing because the buyer is not able to make an all-cash offer or does not qualify for an SBA guaranteed loan. So you create a “business note” and you now become the “bank”. At first that may seem okay, but after a couple of years of receiving payments you may decide you want to get back into business and you need the cash that is tied up in your business note on which you are receiving payments. So now you want to sell your business note to raise cash for your next business venture. What is it worth? That will depend a lot on how you structured the note.

The objective of this article is to help you structure the note so that it is more attractive to a prospective business note buyer.

Assumption: This article discusses the structure of a note that includes only the business assets of a business. If a business also includes real estate that is being sold at the same time as the business, that real estate should be sold in a transaction that is financed separately from the business assets. This allows each to be valued and financed in the most optimum manner. For example, it may be possible to finance the real estate with a lower down payment, for a longer term, with a lower interest rate, and without a personal guarantee.

The objective of a business note buyer or investor when buying future business note payments is to minimize the risk of a default on the note. Therefore, they look for specific things when evaluating the purchase of future payments from your business note. Those include the following:

buyer’s down payment
number of payments made on the note (also known as “seasoning”)
buyer’s credit history
personal guarantee of the buyer
total amount of payments being sold
cash flow of the business and past profitability
length of term of the note
payment amount
offsets
lien position of the note
amortization of the note
experience of the buyer with the type of business purchased
interest rate on the business note
documentation of the business sale

Unlike the purchase of a piece of real estate, the tangible assets of a small business may not be adequate to cover the amount due on the business note if the buyer of the business defaults. Therefore, the business note buyer is looking for ways to lessen the likelihood of a default. If there is a default on the note, the business note buyer will require that the business buyer follow through on their personal guarantee which secures the business note.

A cash down payment of at least 33 percent should be made by the business buyer. This down payment should not come from borrowed funds. The reason for requiring such a large down payment is to make it less attractive for the buyer to “walk away” from the business if they encounter problems. If they have a significant amount of their own money invested in the business, they may think twice about walking away from the business when things get tough.

If the down payment was less than 33 percent, then the business note buyer will require that the difference be made up by additional payments on the business note. The business note buyer wants to see that the new owner of the business has at least a one-third equity investment in the business between the combination of cash down payment and payments made on the business note while operating the business.

Business note buyers want to see that at least two monthly payments have been made on the note by the new owner of the business. For new owners of professional practices such as doctors or dentists, a larger number of paid monthly payments will be required. This serves a couple of purposes. It should show that the new owner is generating cash flow from the business. It also allows the new owner to see if the business is meeting their expectations. As part of the “due diligence” performed by the business note buyer, they will interview the new owner to see if any problems exist that might lead to future problems making payments on the business note. They will want to know if the new owner was “mislead” by the seller of the business.

The buyer of the business should have a credit score of at least 600. A higher score is required by the business note buyer when the value of future business note payments being purchased reaches a certain level. Any “clouds” on the business buyer’s credit history should not be current. These should have been resolved before purchase of the business.

The business note must be personally guaranteed by the buyer. It cannot be guaranteed by the company buying your business. Specifically, it cannot be guaranteed by a person signing on behalf of the company. If there is a default, the business note buyer will be coming after the personal assets of the individual(s) making the personal guarantee. A personal financial statement for the buyer should be obtained to verify that they have the necessary assets should it be necessary to fulfill the personal guarantee.

The maximum amount a business note buyer will buy in a single transaction is between $300,000 and $450,000. You can create a business note for more than this maximum amount, but the business note buyer won’t buy more than their maximum at one time. This means when the period is completed for which payments have been sold any remaining payments will once again come to you. At this point you will have the option of selling future payments again, if you want to.

The cash flow of the business must be adequate to service the note and provide additional cash for the new owner to live on. The cash flow should be at least 1.25 times the amount required to service the note. The business should have been in the same location for at least 3 years (4 years for restaurants and bars), and it should have been profitable over that time.

The term of the note should not be longer than 72 months with 36 to 60 months being preferred. You can create a business note for longer than the recommended period, but a business note buyer will only buy the number of payments with which they are comfortable. The objective is to minimize the risk to the note buyer. The longer the term, the greater the likelihood that something will go wrong. The note buyer is looking to minimize their risk because the note is not fully secured by the assets of the business.

A key item related to the term of the note is the term of the lease of the space in which the business operates. In order to avoid a major disruption to the business due to a problem renewing the lease, the term of the lease should be at least as long as the term of the business note.

The business note must be in first lien position. The business note cannot be a second position lien behind a bank loan. If there is a default, the second position lien holder may have a difficult time recovering their investment.

The business note should be fully amortized over its term. There cannot be a balloon at the end because there is probably no way to refinance the balloon at the end of the note term. If a bank was not willing to finance the original transaction, it is unlikely that they would be willing to finance the balloon at a later date.(Notes: Some business note buyers may accept a balloon if it can be amortized within 24 months using the same monthly payment used to pay the note. Other business note buyers may buy payments up to a few months before the end of the note term, but leave the balloon for the business note holder.)

The business note buyer wants to see that the new owner of the business has prior experience running the type of business being purchased. This is especially important for the purchase of a “high-tech” business or a professional practice. The assumption is that someone with experience in the type of business has a better chance of succeeding than someone without prior experience.

One of the biggest factors contributing to the discount that the seller will have to take when selling the future payments is the difference between interest rate on the original business note, and the yield required on their investment by the business note buyer when they buy the future note payments. Therefore, the interest rate on the business note should be set as high as possible while still allowing a monthly payment that can be covered by the cash flow of the business for the term of the note.

The deal is not done until the paper work is done. There are stories where people documented the sale of a business on a napkin or restaurant place mat. That will not be adequate if you have any thought of selling your business note in the future. There are four main documents that should be produced. It is recommended that a lawyer be used to help properly prepare these documents. The documents are listed below.

UCC-1
chattel security agreement or chattel mortgage
promissory note
purchase agreement

The UCC-1 documents that the seller is holding a “perfected” lien on the business. This document is filed with county government and is part of the public record. If there is a default, this document indicates that the business seller will be first (after tax liens) to receive proceeds from the sale of any business assets.

The “chattel security agreement” is a list of the tangible assets of the business. This will usually be the furniture, fixtures, and equipment that are the tangible assets of the business. The intangible assets are things like a loyal customer base that can be lost if the new ownership does not provide the service received from the previous ownership. The chattel security agreement does not become part of the public record, but is necessary to document what the tangible assets were at the time of the business sale.

If any vehicles are part of the security for the business, the title of the vehicles should indicate that you are the owner of the vehicles so that the new business owner cannot sell these vehicles without your knowledge.

The promissory note documents the details of the sale like value of the note at the time of sale, the term of the note, the monthly payment, the interest rate, and any other special terms such as late payment fees.

The purchase agreement ties the whole transaction together. It may contain information that is not specifically contained on the other documents such as provisions to provide periodic financial statements to the seller which could then be made available to a prospective note buyer for evaluation.

The promissory note or the purchase agreement should not contain any “offset” statements which would allow the business buyer to deduct from payments made on the note due to problems running the business or problems with equipment purchased as part of the business. If the promissory note or purchase agreement does contain “offsets”, then the business note buyer will require at least 6 months of seasoning to see if there have been any events that would activate the “offset” provisions.

The following table summarizes the factors contributing to a business note that will be more attractive to a prospective note investor.

Note Factor

Preferred Value for Note Factor

Buyer’s Down Payment

At least 33% in cash that was not borrowed

Minimum Number of Payments Already Made (Seasoning)

2 monthly payments (more are preferred and more are required for professional practices) by the new owner

Buyer’s Credit History

Buyer must have a credit score of at least 600 with no recent “clouds” on credit history

Personal Guarantee

Personal guarantee required (cannot be a person signing on behalf of corporation or partnership)

Total Amount of Payments Being Sold

Maximum is $300,000 to $450,000 in a single transaction (note can be created for more than this amount, but the maximum that can be sold at one time is $300,000 to $450,000)

Cash Flow of the Business

Cash flow should be at least 1.25 times the amount of the monthly payment on the business note.

Length of Term of the Note

72 months maximum but 36 to 60 months is preferred (Note can be created for a longer term but business note buyer won’t buy the payments beyond a certain point.)

Lien Position of the Note

First lien position only

Amortization of the Note

Note must be fully amortized within the note term

Experience of the Buyer

The buyer should have prior experience in the type of business being purchased.

Interest Rate

As high as possible such that cash flow can support the required payment for the term of the note.

Documentation For Sale

UCC-1
Chattel Security Agreement
Promissory Note
Purchase Agreement

Real Estate

Real estate that is part of the business should be sold in a separate transaction from the business assets

Of course, a business note can be structured other than recommended above, especially if the seller does not anticipate selling future note payments. However, if the seller has any thought that they might want to sell future note payments, then the seller should follow the above recommendations as much as possible.

If you have an existing business note or are in the process of creating one as part of the sale of a business, and you are thinking about selling some or all of your future payments on that note, then we can help you determine what an investor would be willing to pay for those payments. Please contact us today for a free, no obligation quote on the sale of your future business note payments.

Article written by Afra AmirSanjari

Cash flow simply means the money that comes into and leaves a business or household. Money flows into a business in the form of revenues and out through the form of expenses. Money flows into a household in many forms. Are you receiving money from a structured settlement or lottery? Those are incoming cash flows. Do you owe money to anyone? Those are outgoing cash flows.

While owner financing can trace its roots much further back into history, it was the 1980s that really saw a new beginning in the Cash Flow Industry. Today there are more than 60 income streams that can be bought and sold. An income stream is a future series of payments. More technically, an income stream is a financial obligation or debt that one party owes to another party.

How Can You Benefit from Cash Flow?

Individuals and businesses sell income streams for three basic reasons:

• Access — it may be a need to pay debt, settle a divorce, purchase a home, take a vacation, finance a wedding, start a new business, etc. Whatever income stream you currently have that you may need cash for immediately.

• Interest or Yield — as interest or yield opportunities arise that allow you to make more money than your current investments, you may want to reallocate money from existing income streams to new better-producing ones.

• Inflation — this eats away at the future earning power of your money. You can sell your income stream to avoid the drop in real value over time.

Individuals and businesses buy income streams as a form of investing that often produce better returns than they can obtain from more traditional sources.

If you would like more information on how we can help you buy or sell income streams, or for more information, contact us today.

Article written by Afra AmirSanjari

Florida Chief Financial Officer Tom Gallagher is pushing for legislation that would make it easier for state officials to regulate death benefits companies, after accusations that some have defrauded Floridians out of more than $2 billion since 1996.

Florida is one of only four states that don't have legislation classifying viaticals, policies of terminally ill patients sold to investors, as securities. They are now classified as insurance products, which means the industry is regulated by the state's Office of Insurance Regulation, which has no power to investigate fraud.

Gallagher, who oversees both the state's insurance office and the Office of Financial Regulation, wants viaticals to be considered securities, which are more tightly regulated, he said at a Plantation news conference to promote the legislation. Viatical companies would then fall under the finance office, which can investigate fraud.

Viatical companies buy life insurance policies from the terminally ill and elderly, and then offer a share of those policies to investors. The process allows the ill policyholder immediate cash and investors a profit when the person dies.

But it didn't work that way in the case of Fort Lauderdale-based Mutual Benefits Corp., which has been accused of fraud and seriously underestimating the life expectancies of policyholders.

On Thursday, Mutual Benefits' license was revoked by Florida Insurance Regulation Commissioner Kevin McCarty, for violations of Florida and federal laws involving securities violations, fraud and misrepresentation.

The company was shut down last May and is also under investigation by the state prosecutor and the Securities and Exchange Commission.

State and federal officials claim Mutual Benefits paid off investors with money received from people who invested later on in the policies.

A new law would be too late to help Arlene Kaplan, a South Florida woman who invested $15,000 in a Mutual Benefits viatical policy and who also spoke at the news conference. She said she was promised fixed rates of return on her investment within three years, but for the past 10 years has yet to see any money.

"I was under the impression this was not a risk, it was an absolute, definite investment I would get a return on," said Kaplan, who talked her parents into investing another $20,000 in viaticals policies.

Gallagher said the law was designed to help protect people in the future from making investments like Kaplan's.

"We expect and hope the Legislature will make the marketing of viaticals a security, so that people are protected when they have that opportunity to invest in them," Gallagher said.

If viaticals were considered securities, companies who sell them would be required to provide more information about their business. Any promises they make to investors would have to be documented and approved by state regulators. Those who sell viaticals would also have to be licensed as brokers.

Mutual Benefits was one of the big companies that successfully lobbied Florida legislators last year to pass an amendment that guaranteed its viatical policies were considered insurance products, not securities. Within weeks of the amendment's passage, officials had shut the company down.

The legislation, Senate Bill 2412 and House Bill 1437, are sponsored by Hialeah Republican Sen. Rudy Garcia, chairman of the Senate Banking and Insurance Committee, and Naples Republican Rep. Dudley Goodlette. Both bills are in committee.

Written by Niala Boodhoo of Sun-Sentinel.com.