By bartering (S, R, M, S-U) More companies are turning to barter as a way to avoid draining their cash. By bartering, you're really not converting assets into cash. You're trading what you have (surplus inventory, spare time, space) for goods and services you need but don't want to (or can't) buy. By trading your product at the full price (the cost plus profit), you can boost your buying power.
Many companies go directly to trading partners to negotiate mutually beneficial deals. But an increasing number of transactions are done through barter exchanges. Through an exchange, you can trade your products for whatever is being offered (accounting services, restaurant meals, heating oil).
While bartering can help preserve your cash, don't expect any tax benefits from it. As far as the Internal Revenue Service is concerned, anything you trade should be reported as income; the value of products and services you receive can be deducted as long as they're legitimate business expenses. To locate an exchange in your area, contact the trade associations of the industry: International Reciprocal Trade Association, in Great Falls, Va., at 703-759-1473; and National Association of Trade Exchanges, in Euclid, Ohio, at 800-733-6283.
By borrowing against receivables (S, M, S-U) If you're tired of customers taking longer and longer to pay their bills, factoring may be something to look into. Factors specialize in lending against invoices (based on your customers' credit, not on yours). Once signed on, factors will advance anywhere from 50% to 95% of an invoice within days of a job's completion; the balance, minus administrative costs and fees, is forwarded upon payment by the customers.
Most factors want companies to sign contracts committing to a certain volume of business, but spot factors are sometimes willing to consider individual transactions. For the additional documentation costs and risk (they won't be able to deduct their advance from future invoices), though, they'll want to charge more. To get the attention of most factors, you need to have a minimum of about $25,000 in monthly invoices.
Factoring is expensive. Most factors charge according to how long the receivable is outstanding; for 30 days you might pay anywhere from 3% to 8% of the value of the invoice. After 60 days, many factors will give back the invoice (making collection your problem). To find a factor, get referrals from industry groups, bankers, or accountants, or contact the Commercial Finance Association, in New York City, at 212-594-3490. Check references thoroughly, since this industry has its share of slippery characters, some of whom ask for up-front fees and then can't deliver.
Finding Equity And Other Long-Term Money
From distributors (M) Normally, you wouldn't think the folks who distribute your product would also be interested in providing you with capital. But don't underestimate what people might be willing to do to protect their own interests. Recently, for instance, a Danish distributor of audio equipment became very concerned that its cash-starved U.S. supplier might not be able to provide enough product to meet the distributor's demand -- or worse, that it would go out of business. So in response, the Danish company offered to provide the manufacturer with equity to the tune of $300,000, which it accepted.
Through economic development grants and loans (S, M) In the '80s many state and local governments got into the business of helping companies get money. The underlying objective of many of these efforts is job generation or retention. Depending on where you are (or where you're willing to move to), there could be some good opportunities. Michigan, West Virginia, and Oregon, for instance, have loan-insurance programs, to encourage banks to make riskier loans than they would make on their own. Other states, including Wyoming, offer outright grants to businesses willing to locate within the state's borders. (The underwriting standards on many of the programs are relatively rigorous.)
In addition to your banker, for more information, contact the U.S. Department of Commerce's Economic Development Administration office in your region; state economic-development agencies; local community-development corporations; or local business groups, like the chamber of commerce.
From foreign investors, part one (S, M) Over the past few years billions of dollars of foreign capital have flowed into U.S. companies. The attention has been focused on the big deals (like Sony's purchase of CBS Records and then Colombia Pictures). But a significant share of the foreign money goes into minority equity positions in smaller companies. While European investors are still active, the biggest players in recent years have been the Japanese, Taiwanese, and Koreans.
Asians, in particular, often buy more than just stock. They're frequently looking for a strategic or tactical benefit as well -- rights to manufacture products or to sell them. In light of this broader interest, they're often willing to pay more than other investors. While foreigners most often get involved with businesses that have some technological feature (a design or a process, for example), we've also heard about retail and restaurant operators' receiving money.
Finding overseas investors is tricky. If you know a foreign company that might be interested in what you do, you can try approaching executives of its U.S. arm. Another route is through U.S. venture-capital and investment firms with close ties to overseas companies. Also, you can contact foreign-trade commissioners through embassies or consulates or look in the yellow pages fo
