o understanding non-traditional funding sources and alternative forms of working capital david...
TRANSCRIPT
o Understanding Non-Traditional Funding Sources and Alternative Forms of Working Capital
David Mitchello TNE Services Overview and Lessons Learned
Helen Thompson & Robert Luby
o Alternative Financing Opportunities for Government Contractors
Robert Mocerinoo Questions
“ACCESS TO CAPITAL is the KEY to Your Company’s SUCCESS!”
One of the most important jobs of a CEO running a small to medium sized business is to make sure the company acquires and maintains the proper working capital to operate and grow. Access to working capital is the “LIFE BLOOD” of a company, especially when a business is either growing TOO RAPIDLY or having GROWING PAINS. As the leader, it is your job to make sure your company has ACCESS TO CAPITAL, because being without could be the difference between FAILURE or SUCCESS. In my 20 years in finance, I’ve worked in almost every capacity in this industry other than taking a company public or trading stocks and bonds. In that time, I have watched many CEOs stumble and fall when faced with the notion of needing to borrow money. Because most have a LIMITED knowledge of the capital markets, and virtually NO understanding of alternate forms of capital, they normally run straight to their BANK when in need of working capital. In the case of small and medium size businesses, that move typically and immediately puts their company in JEPORDY.
HERE’S WHY?: As someone who has spent 14 of my 20 years working for some of the largest commercial banks in the country, I have learned ONE undisputable FACT: “Banks don’t lend money to START UPs, or companies growing too SLOW, or too FAST!” A CEO that does not understand this SIMPLE FACT has just put their company’s OPPORTUITIES, GROWTH and FUTURE at RISK! The best CEOs maintain a keen understanding of what’s available in the capital markets. They also maintain relationships with non-traditional lenders, and ALWAYS know where capital can be found when traditional banks say NO, or NOT NOW! Over the entire life cycle of your company, the form of capital your business will need will continue to EVOLVE. Understanding non-traditional and alternative forms of capital, will be KEY to your company's success. Most companies FAIL by chasing a bank for working capital, when the right financing partner at the time is NOT a BANK! Knowing where to find alternative sources of capital, whether within the industry they serve, or from a non-bank financial institution operating in the open market, successful CEOs know how to find the working capital they need to GROW! The BEST business leaders recognize how to find the RIGHT CAPITAL at the RIGHT STAGE of their company. As a business leader, the question you have to ask yourself is… DO YOU?
Equity from Principals or Outside Sources Mezzanine Debt Factoring and PO Finance Companies Action Capital (A/R Finance Company)
Specialty Debt (Leasing, SBA, etc)
Traditional Bank Debt Extended Trade Terms Normal Trade Terms
Highest Cost
Lowest Cost
Traditional Bank Line of Credit
• Least expensive source of working capital 5%-7% APR
• Requires CPA prepared financials showing historical profits and low debt to worth ratios…no startups or young companies
• Prefers hard assets like R/E or equipment as additional collateral
• Can Be Lengthy Approval Process (3 weeks to several months)
• Advance Rates 70%-80% on A/R• Requires expensive independent onsite
audit prior to closing • Attorney cost and closing fees• Annual contracts with commitment fees• Additional cost for Lock Box and
Monitoring Service• Little or no verification on Invoices• Limited knowledge of government
receivables • Requires Owner Guarantees
Accounts Receivable Based Line Action Capital’s Credit Product!
• Cost is 14%-17% APR broken down into an interest cost and processing fee. Example Prime + 2% plus 1% monthly fee on net amount borrowed.
• Internal financials statements required and/or tax returns
• Only collateral taken is accounts receivable
• Approval and closing in less than a week.• Advance Rates 90% on A/R• Advances against unbilled revenue• Companies with losses, customer
concentrations, tax liens, start-up, high or slow growth and in bankruptcy are OK
• Review credit quality of the company’s customers and require change of address notification
• No closing cost or long term contracts• Little or no verification on individual
invoices• Free Lock Box Service• Strong knowledge of the government
market• Requires Owner Guarantee
Factoring
• Cost is 20-30% APR with a discount on the face amount of the invoice and a per diem on balance advanced
• Internal financials required and/or tax returns
• Only collateral taken is Accounts Receivable
• Approval and closing in two weeks• Advance Rates 90% on A/R• Companies with losses, customer
concentrations, tax liens, start-up, high or slow growth and in bankruptcy)
• Typically one year contract with minimum fees and out of pocket closing fees.
• Focus on each individual invoice with up front confirmation, stamping with notification stamp, mailing of invoice and collecting invoice. High notification level to customers.
• Knowledge of the government market varies based on the factoring company
• May or may not have Owner Guarantees
Companies Without Assets like Real Estate, Land or Equipment
Companies that are Start Ups, Early Stage or High Growth
Large Customer Concentrations
Unusual Large Product Order
Company is consistently Beyond its Credit Terms with Banks & Vendors
Companies that are Constrained by Current Lender (Bank Won’t Increase Their
Line of Credit)
Companies that are in Turn Around Situations
Sudden Change in Financial Performance (Decreased Revenues or Recent Losses)
Companies in the Workout, Special or Criticized Asset Group within their
Bank
Businesses That Typically Need Alternative Forms of Working Capital
Services and Professional Services Firms
Government Contractors
Distributors and Re-sellers
Out of Favor Industries (Trucking, Printing, Services to Real Estate or
Construction Firms)
Companies looking for Supplier Diversity Opportunities
• Action Capital Corporation is one of the nation's largest and oldest independent finance companies.
• Founded in 1959 and headquartered in Atlanta, Georgia
• Strong leadership team with diverse backgrounds in investment, corporate and commercial banking
• We specialize in accounts receivable financing to US-based companies. • We finance trade receivables from federal, state, and local government
agencies, or large creditworthy businesses.
• We have expertise in serving all industries, including service companies, distributors, staffing, and manufacturers.
• Accounts Receivable based Lines of Credit up to
$5,000,000
• Funding needs can start as low as $50,000 per month
• Advance Rates up to 90% against Billed A/R
• Advances Rates up to 85% against Earned and Unbilled A/R
• Competitive Rates and Fees charged on the Net Amount
Advanced
David MitchellSenior Vice President
Director of Marketing and Business Development
404-809-5419 Cell
Becky J. Cronister
President
Patrick A. Thom
Executive Vice President
Phone: 404-524-3181/800-525-7767 Fax: 404-577-4880
230 Peachtree Street, Suite 910, Atlanta, Georgia, 30343
www.actioncapital.com
We provide a full range of services to members companies and clients to help them realize full-growth potential.
Mission
Grow exceptional companies in the Intelligence, Healthcare, Aerospace & Defense, Homeland Security and Transportation & Logistics industry sectors, striving to benefit all stakeholders.
Vision
End-to-end business development support services aimed at developing and implementing growth opportunities.
Service elements:•Relationship Building•Federal Business Readiness Assessment•Solution Validation•Go-to-Market Planning•Sales Channel Development•Thought Leadership•Account Planning•Pipeline Development and Maintenance•Pre-RFP Support•Opportunity Analysis and Validation•Strategic Recruiting
Benefit from: Reduce barriers to entry Shorten sales cycles Industry knowledge transfer
Why us?Decades of industry experienceOver $1B in Federal sales capturedRobust BD methods and infrastructure
Capture planning, gap analysis, win themes development, pricing support, red team reviews and several other targeted services to support an effective capture effort.
Service elements:•Capture Plan Preparation•Strategic Capture Recruiting•Gap Analysis•Competitive Analysis•Teaming Strategy and Formation•Call Plan Development•Contract Vehicle Identification•Win Themes Development•Price-to-Win Analysis•Bid & Proposal Planning•Red Team Preparation and Facilitation•Final Contract Negotiation Support
Benefit from: Higher win rates Proven lifecycle approach Decades of experience
Why us?Asset-based approachRepeatable processesWe win
Clients receive expert support from our experienced proposal preparation teams. These teams provide all services necessary to ensure a fully compliant and highly competitive proposal.
Service elements:•Compliance Matrix Development•Proposal Plan Development•Proposal Writing•Proposal Editing•Graphics Support
Benefit from: Reduce internal resource burden Increase proposal throughput Compliant, competitive proposals
Why us?Experienced proposal teamAsset-based approachProven track record of success
Management of all non-core support functions, enabling our clients to focus more time and money on revenue-producing activities.
Service elements:•Finance Support Services•IT Management•Back Office System Support•Expense Management•Timekeeping Management•Human Capital Management Support
Benefit from: Re-focus resources on high value activities Scalable infrastructure Compliance with Federal laws and regulations
Why us?Decades of experience Ease of switch-over, use and visibilityWe understand the details
True North
Equities
Portfolio Companie
s and Clients
Finance Support Services
IT Management
Back Office System Support
Expense Management
Timekeeping Management
Human Capital Management Support
Clients receive expert support from our experienced finance support team. These teams provide all required services including payroll processing, financing and invoicing.
Service elements:•Payroll Funding•Asset Based Lending•Factoring•Lines of Credit•Back Office Support
Benefit from: Reduce internal resource burden Efficient payroll processing Improved cash management
Why us?Experienced teamIndustry leading tools Proven track record of success
Acquisition◦ Valuation difficult to ascertain or greatly over-valued◦ Weak support structures◦ Founders/Leaders working on the wrong things◦ Business development weak – always a goal, no concrete
actions◦ Little to no real pipeline◦ Weak relationships – close teammates not real◦ No writing talent◦ Verify quals, document quals,◦ Verify relationships◦ More discipline needed on follow-ups and opportunities◦ Operating agreements◦ Employment agreements
Acquisition◦ Previous teammates◦ Valuation◦ Investors◦ Equity◦ Due diligence◦ Integration process◦ Synergy realization
Operations, The Integration Process◦ Legal◦ Accounting◦ Human resources◦ Insurance/risk◦ Business Development◦ Marketing◦ Contract Novation◦ GSA◦ Website◦ Catalogs◦ Pricing
Operations◦ Teammates – new, develop a network◦ Contract vehicles◦ Opportunities – aggressive pipeline development ◦ Refresh/Build new qualifications◦ Diversify – enter new accounts◦ Establish regular communications◦ Develop budgets – Annual, Quarter & Monthly◦ Get in the market – conferences, visits, teammates, strategy
sessions◦ Actually write & bid◦ Drive valuation: revenue, EBITDA, backlog, qualifications,
pipeline, leadership
Operations◦ Repair, strengthen relationships◦ Reach out to big guys◦ Pricing◦ Overhead and G&A◦ Cost control◦ Accounts receivable◦ Payment terms◦ Banking relationships
Selling the Company◦ Goals of the sale:
Capital raise Total acquisition IPO – Toronto Stock Exchange Maintain a share
◦ Investment Banks – smart money◦ Confidential Information Memorandum (CIM)◦ Presentation to the market◦ Management calls – preparation, execution, follow-up◦ Contacting customers◦ Integration process
Selling the Company◦ Valuation◦ Projections◦ Revenue◦ EBITDA◦ Backlog◦ Pipeline◦ Leadership◦ Intellectual Property – Patents◦ Competitors◦ Diversity of Portfolio
Bob LubyManaging Director,True North Equities
• Former VP of IBM Global Business Services, in charge of the Public Sector Consulting Practice (1.18B+ in revenue)
• Retired Navy Captain (20 years)• Naval Academy Graduate• [email protected]
Tom GlissonManaging Director,True North Logistics
• Retired Army Lieutenant General (35 years)• Former Director of Defense Logistics Agency ($17B
annual budget)• Former Partner and Managing Director at BearingPoint
Brian CairnsDirector,True North Equities
• Former Deputy Chief of Staff and Founding Member of the Department of Homeland Security (DHS)
• Former Director of DHS Business Development at IBM and SAIC
• Former Deputy Secretary at the Commonwealth of PA, Department of Community and Economic Development
Helen ThompsonDirector of Operations,True North Equities
• 30 years’ experience in operations management for complex healthcare, public and private sector organizations
• Former Operations Manager for IBM’s 1,000-person Global Business Services Public Sector Consulting Practice
Presented by Robert J. Mocerino
Government Contractor Finance
Big or small, every government contractor is faced with a scenario that looms out to them each time they win a new contract…
“Now that I have won the contract, can I financially handle the payroll expenses while I am waiting to get paid from the government?”
Help you make decisions about your next steps Provide overview of financing options available
to government contractors Identify the pros and cons of traditional and
non-traditional lending paths◦ Asset Based Lending◦ Lines of Credit◦ Factoring◦ Payroll Financing
Asset Based LendingGrants access to cash more quickly than traditional bank loans.Based on the quality of your assets
◦ Based upon company accounts receivable 75 - 90% advance rate
• Provides financing option when credit worthiness may be weaker than the quality of assets
• Often a less expensive path
• Often has covenants and minimum borrowing fees and unused fees
Lines of Credit ◦ Based upon your company’s credit worthiness◦ Approved for a specific amount
• Provides flexibility• Reduces expense since you only
pay interest on the amount advanced
• Covenants - might limit the amount of money you can take of the business, might limit your growth
• Covenants - might limit the amount of money you can take of the business, might limit your growth
◦ Company invoices are sold to a Factor for a set amount
◦ Advance rates vary but usually fall in the 80-85% range
• You can choose which invoices you want to send to the factor
• Fast turnaround
• Tends to be more expensive than other options
• Notice on the invoice
Allows you to use your accounts receivables to obtain funding to meet payroll expenses.BenefitsSaves companies time and money and helps meet payroll demandsFlexible options grow with business demandsProvides financial security Increases ability to bid on contracts you may not normally pursueProvides reporting Available to companies ranging from startup to well established businesses.Available to multiple service industries including:
IT Consulting companies Staffing companies Intelligence analysts Engineering firms Security companies
Payroll funding with “back office support”◦ Advance and fund up to 100% of payroll◦ Funding of “unbilled” receivables◦ Payroll processing via check, direct deposit or "paycard“
Tax Administration◦ W2 or 1099 processing◦ Withhold, remit and file all payroll Employee "self service" portal
Invoicing Customizable Invoicing
Accounts Receivable Management & Cash Application
Real time reporting
Advancing profits weekly
For Startup to Well Established Companies
Benefits
•Frees up your time to grow your business and core activities
•Improves cash flow
•Empowers you to be competitive
Benefits
•Frees up your time to grow your business and core activities
•Improves cash flow
•Empowers you to be competitive
Payroll funding without back office support
◦ For companies in business for 2 years+ and annual sales volume in excess of $3MM
◦ Advance and fund up to 100% of payroll and 90% advance on invoicing
◦ Profits advanced weekly◦ Funding of “unbilled receivables”◦ Accounts Receivable
Management & Cash Application◦ Real time reporting
Benefits
•Frees up your time to grow your business and core activities
•Improves cash flow
•Empowers you to be competitive
Benefits
•Frees up your time to grow your business and core activities
•Improves cash flow
•Empowers you to be competitive
Sterling’s comprehensive services help empower your business and empower your growth.
•Publicly traded financial services firm bank based out of New York City with offices in Washington, D.C.•Established 1929 •6.7 billion in assets•Delivers complete line of commercial, business and consumer banking products and services
• Depository and cash management services• Financing solutions
“Whatever road you choose to follow, allow yourself plenty of time for exploring your options and determining the best path for
you to follow.”
Robert J. Mocerino, First Vice PresidentDirector, Government Contractor FinanceSterling National BankPayroll Finance DivisionNew York Washington DC310 Crossways Park Drive Woodbury, NY 11797 1000 Connecticut Ave, NW, Suite 900Washington DC., 20036(516) 998-6000Fax (516) 762-6588
[email protected]/payroll